AFRICAN DEVELOPMENT BANK GROUP

PROJECT : POWER SECTOR IMPROVEMENT AND

GOVERNANCE SUPPORT PROJECT (PAGASE)

COUNTRY : DEMOCRATIC REPUBLIC OF CONGO (DRC)

------------------------------------------------------------------------------------------------

PROJECT APPRAISAL REPORT

ONEC DEPARTMENT

November 2016

Translated Document

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TABLE OF CONTENTS

Currency Equivalents, Acronyms and Abbreviations, Grant Information, Executive Summary,

Results-based Logical Framework and Implementation Schedule…………………….....… i to vii

1 STRATEGIC THRUST AND RATIONALE ........................................................................................... 1

1.1 PROJECT LINKAGES WITH COUNTRY STRATEGY AND OBJECTIVES ........................................................... 1

1.2 RATIONALE FOR BANK’S INVOLVEMENT .................................................................................................. 2

1.3 AID COORDINATION .................................................................................................................................. 3

2 PROJECT DESCRIPTION ....................................................................................................................... 3

2.1 PROJECT DESCRIPTION AND COMPONENTS ............................................................................................... 3

2.2 TECHNICAL SOLUTIONS RETAINED AND ALTERNATIVES EXPLORED ........................................................ 4

2.3 PROJECT TYPE ........................................................................................................................................... 5

2.4 PROJECT COSTS AND FINANCING ARRANGEMENTS ................................................................................... 5

2.5 PROJECT’S TARGET AREAS AND BENEFICIARIES ....................................................................................... 7

2.6 PARTICIPATORY PROCESS FOR PROJECT IDENTIFICATION, DESIGN AND IMPLEMENTATION ...................... 8

2.7 BANK EXPERIENCE AND LESSONS LEARNED REFLECTED IN PROJECT DESIGN.......................................... 8

2.8 KEY PERFORMANCE INDICATORS .............................................................................................................. 9

3 PROJECT FEASIBILITY ......................................................................................................................... 9

3.1 ECONOMIC AND FINANCIAL PERFORMANCE.............................................................................................. 9

3.2 ENVIRONMENTAL AND SOCIAL IMPACTS ................................................................................................ 10

4 PROJECT IMPLEMENTATION ........................................................................................................... 12

4.1 IMPLEMENTATION ARRANGEMENTS........................................................................................................ 12

4.2 PROJECT MONITORING ............................................................................................................................ 15

4.3 GOVERNANCE ......................................................................................................................................... 16

4.4 SUSTAINABILITY ..................................................................................................................................... 16

4.5 RISK MANAGEMENT ............................................................................................................................... 16

4.6 KNOWLEDGE MANAGEMENT .................................................................................................................. 17

5 LEGAL FRAMEWORK .......................................................................................................................... 17

5.1 LEGAL INSTRUMENT ............................................................................................................................... 17

5.2 CONDITIONS ASSOCIATED WITH BANK’S INTERVENTION ........................................................................ 17

5.3 COMPLIANCE WITH BANK POLICIES ........................................................................................................ 19

6 RECOMMENDATION ............................................................................................................................ 19

ANNEX 1: DRC’s Comparative Socio-Economic Indicators

ANNEX 2: Status of Bank Group’s Active Portfolio in DRC as at 31 July 2016

ANNEX 3: Development Partners’ Interventions in the Power Sub-Sector in DRC

ANNEX 4: Map of Project Area

ANNEX 5: Analysis of Key Drivers of Fragility to be taken into Consideration by the Project

ANNEX 6: Counterpart Financing Waiver

TABLES

No. Title Page No. Title Page

2.1 Project Components and Costs 3 2.5 Project Costs by Expenditure Category 6

2.2 Project Alternatives Explored and

Reasons for Rejection 4 2.6 Expenditure Schedule by Component

6

2.3 Estimated Costs by Component 5 3.1 Key Financial and Economic Indicators 9

2.4 Project Sources of Financing 5 4.1 Project’s Main Implementation Stages 15

2.4bis Project Sources of Financing by

Component 6

ii

Currency Equivalents

September 2016

UA 1 = USD 1.39434 UA 1 = EUR 1.25255

UA 1 = CDF1387.77847

Fiscal Year

1 January - 31 December

Weights, Units and Measures T Tonne = 1000 kg kW kiloWatt = 1000 Watt

GW GigaWatt = 1 000 000 kW or 1 000 MW kWh kiloWatt hour = 1,000 Wh

GWh Gigawatt hour = 1 000 MWh MVA Mega Volt Ampere = 1 000 kVA or 1 000 000 VA

Toe Tonne oil equivalent MW MegaWatt = 1 000 000 W or 1 000 kW

kV kiloVolt = 1 000 Volt MWh Mega Watt-hour = 1 000 kWh

kVA Kilo Volt Ampere = 1 000 VA tCO2 Tonne CO2 = 1000 kg of carbon gas

Acronyms and Abbreviations

ADF

AfDB

AFD

ANSER

ARE

CBFF

CDF

CMU

CSP

ESIA

ESMP

EU

GPRSP

MERH

MONUSCO

PNSD

OPSCOM

PAP

PAR

PASEL

PCN

PEASU

PEPUR

PIU

PMEDE

PRISE

RAP

SAPMP

TFP

TSF

UA

WB

African Development Fund

African Development Bank

French Development Agency

National Agency for Electrification and for Energy Services in Rural

and Suburban Areas

Electricity Sector Regulatory Authority

Congo Basin Forest Fund

Congolese Franc

Project Coordination and Management Unit

Country Strategy Paper

Environmental and Social Impact Assessments

Environmental and Social Management Plan

European Union

Growth and Poverty Reduction Strategy Paper

Ministry of Energy and Water Resources

United Nations Mission for Stabilization in DRC

National Strategic Development Plan (being finalized)

Operations Committee

Government’s Priority Action Plan

Project Appraisal Report

The Inga Site Development and Electricity Access Support Project

Project Concept Note

Semi-Urban Drinking Water Supply and Sanitation Project

Peri-Urban and Rural Electrification Project

Project Implementation Unit

Project for the Rehabilitation and Strengthening of the Inga Hydropower Stations and

Kinshasa Distribution Grid

Project for the Reinforcement of Socio-Economic Infrastructure in the Central Region

Resettlement Action Plan

Southern African Power Market Project

Technical and Financial Partners

Transition Support Facility

Unit of Account

World Bank

iii

PROJECT INFORMATION SHEET

CLIENT INFORMATION

Donee/Borrower Democratic Republic of Congo

Executing Agency Ministry of Energy and Water Resources

FINANCING PLAN

SOURCES Amount (UA million) INSTRUMENT

ADF (PBA) 4.88 Grant

ADF (PBA) 66.22 Loan

TSF 25.00 Grant

DRC Government 1.498 Counterpart funds

TOTAL PROJECT COST 97.598

FINANCIAL INFORMATION ON GRANTS AND LOAN

Type of Financing ADF Grant TSF Grant ADF Loan

Currency UC UC UA

Interest Rate Type NA(*) NA NA

Interest Rate Spread NA NA NA

Service Charge NA NA 0.75% / year

Commitment Fee NA NA 0.50% / year

Other Charges NA NA NA

Tenor NA NA 10 years grace period and 30 years

reimbursement

(*)NA: Not applicable

FIRR 13.1%

FNPV CDF 30.00 billion

EIRR 19.6%

ENPV CDF 82.19 billion

TIMEFRAME AND MAIN MILESTONES

Concept Note Approval August 2016

Project Approval December 2016

Effectiveness January 2017-April 2017

Last Disbursement December 2019

Completion 30 June 2019

Last Reimbursement 31 December 2057

iv

PROJECT SUMMARY

1. Project Overview: The Power Sector Improvement and Governance Support Project in

DRC (PAGASE) will help to improve power sector management by contributing to the effective

establishment of an institutional framework for regulation and rural electrification. It will also

contribute to the development of electricity facilities in Kinshasa and in Kasaï and Central Congo

provinces. It is consistent with the implementation of the new Power Sector Law adopted in June

2014. The project will help to foster an enabling environment for investments, promote public-

private partnerships, improve the electricity access rate and enhance quality of service to users.

The project, whose total cost is UA 97.598 million, will be implemented over a three-year period.

2. Needs Assessment: Through its different development strategies, DRC wishes to transform

the power sector into a real driver of its socio-economic development. Therefore, it has embarked

upon reforms aimed, in particular, at increasing investments in order to meet demand for electricity

which, linked to demography and urbanization, has risen sharply in relation to supply, creating chronic

supply deficits. This situation is particularly prevalent in Kinshasa, the country’s capital and main

centre for power consumption, with a population of almost 12 million people, and in Katanga province

where the shortage of electricity is impeding the development of the mining industry.

3. Bank’s Added Value: For over a decade, AfDB has been helping the DRC to develop its

energy sector. In particular, its operations have concerned electricity infrastructure which it continues

to finance. Through this operation, the Bank is supporting the DRC with regard to the sector’s

governance by establishing key institutions that will guarantee the success of the reforms. The

Regulatory Authority and Agency responsible for Rural Energy Services should play a key catalytic

role in mobilizing the financing required to significantly improve access to electricity. The Bank’s

operation will also help to build resilience and reduce the number of situations of fragility that

have characterized the country. Special attention is paid to the gender issue through the

establishment of a mechanism that will mainstream this concern in the energy sector.

4. Knowledge Management: The project is among those aimed at supporting clean energy

initiatives with a transformative effect on the economies of beneficiary regional countries, in

particular by facilitating access to electricity. The experience that will be acquired in managing

complex anchor projects in the form of public-private partnerships will speed up implementation

of the Bank’s New Energy Deal for Africa. Indeed, such experience will create opportunities for

replication especially concerning strategic themes entailing: (i) setting up the right enabling policy

environment; (ii) enhancing the capacity of power utility companies for success; (iii) significantly

increasing the number of bankable energy projects; and (iv) rolling out waves of country-wide

energy ‘turnarounds’. The Project is in keeping with the Bank’s vision for the development of

the African Energy Sector through the promotion of universal access to modern energy based on

a low carbon growth trajectory.

v

RESULTS-BASED LOGICAL FRAMEWORK POWER SECTOR IMPROVEMENT AND GOVERNANCE SUPPORT PRORECT (PAGASE)

Project Goal: Contribute to the implementation of sector reforms and the development of power infrastructure

RESULTS CHAIN

PERFORMANCE INDICATORS

MEANS OF

VERIFICATION

RISKS AND MITIGATION

MEASURES INDICATORS

Baseline

Situation (2016)

TARGET

(2020)

IMP

AC

T

Contribute to improving the quality of life of the population in

the project area

1.1. National electricity coverage rate (coverage rate: the

population with effective access to the service (served) compared to the population of localities

electrified)

15%

Reports:

- Ministry of Energy

- Ministry of Finance

- SNEL, ARE, ANSER

- National Institute of Statistics

RISKS

1. Socio-political situation in the DRC.

2. CMU capacity to coordinate several

projects at the same time.

MITIGATION MEASURES

1. The ongoing peace

process in the country for several years

and several other factors such as: (i) the existence of a United Nations peace-

keeping mission (MONUSCO) which is

the world’s biggest; (ii) the ongoing national dialogue to reach a consensus on

electoral issues; (iii) the commitment of

the international community, are reasons for believing that the project’s

implementation will not be affected by the socio-political situation.

2. Recruitment of the

consultant engineer to support the CMU in its mission to control and supervise the

different services as well as the

appointment of a dedicated PAGASE project leader will help to mitigate this

risk.

OU

TC

OM

ES

1.1 Improved power service quality

1.2 Increased power supply

1.1 Charging rate of MV/LV public cabins

1.2 Additional available capacity

> 90%

-

OU

TP

UT

S

Component 1. Infrastructure Development

1.1 The North Kinshasa MV/LV grid restructured 1.2 New connections made

1.3 Rehabilitation studies conducted on power plants

1.4 A metering system installed in Kinshasa transformer stations and sub-stations

Component 2 Support to Governance

2.1 The main thrusts defined for restructuring of SNEL 2.2 ARE and ANSER established

2.3 The institutional and structural aspects of the sector’s

governance studied 2.4 An integrated information system established

2.5 Capacity of sector actors built

Component 3. Institutional Support

3.1 Rehabilitation of Zongo 1 CHE as a PPP studied and defined

3.2 Renewable energy development projects studied

3.3 Gender-related development activities conducted

1.1 MV/LV lines/transformer stations constructed (km/number)

1.2 Connections made (number)

1.3 Study reports available (number) 1.4 Metering systems installed

2.1 Study report available (number)

2.2 ARE and ANSER operational

2.3 Study report available (number)

2.4 Integrated information system operational

2.5 Number of employees trained (men/women)

3.1 Study report available

3.2 Study report available

3.3.1 Gender unit operational at MERH

3.3.2 Cold rooms installed (number)

3.3.3 Number of people whose income has risen

3.3.4 Number of temporary jobs created (direct and

indirect) (including for women)

- -

-

-

- -

-

-

-

-

-

- -

-

-

23% (2021)

<75%

30 MW

575/60136 000

05

32

0102

01

01

70/30

01

10

0105

1000/550

women200 (50)

Reports:

- Ministry of Energy

- SNEL, ARE, ANSER

- National Institute of

Statistics -Activity status reports

-Bank supervision reports

Status report on CGED activities

- CMU monitoring report

- Completion report

vi

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IVIT

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BY

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1. Infrastructure Development: (i) extension of Lungudi power plant; (ii) rehabilitation of Inga 1 power plant (1 generator); (iii) installation of a metering system in 9 transformer stations and 23 sub-stations of SNEL; (iv) restructuring of Kinshasa MV/LV grids by strengthening and expanding the MV/LV

grid and installation of 60 new cabins, (v) LV recharging from 35 discharge cabins; and (vi) building the capacity of feeder posts and sub-stations.

2. Governance Support: (i) definition of SNEL restructuring thrust; (ii) operationalization of ARE and ANSER; (iii) definition of an optimal structure for the Ministry of Energy; (iv) establishment of an information system; and (v) capacity building for the Ministry;

3. Institutional Support: (i) Study on rehabilitation of Zongo I CHE as PPP; (ii) Studies on renewable energy development; and (iii) gender mainstreaming

activities 4. Project Management: works control and supervision, operation of project management unit

Inputs: UA 97.28 Million (UAM)

TSF Grant : UAM 25.00

ADF (Loan and Grant) : UAM 71.10

DRC Government : UAM 1.498

Uses: UAM 7.28 (UA Million)

Component 1 : UAM 78.747 ; Component 3 : UAM 3.761 MUC

Component 2 :UAM 7.740 ; Component 4 : UAM 7.350

vii

PROJECT IMPLEMENTATION SCHEDULE

ACTIVITIES 2 016 2 017 2 018 2 019 2 020

10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 ## 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40

Approval / Effectiveness

Project Approval

Signature of Financing Agreements (grants and loan)

Financing Agreement

Effectiveness

Fulfilment of Disbursement

Conditions

Procurement (TOR, bidding and contract signature)

Consultant Engineer

Renewable Energy

Development Studies

Zongo1 Studies

SNEL Restructuring Studies

Tariff Studies

Provincial Electrification Plan Studies

Study on Structural Aspects of

MERH

Rehabilitation of G16

Lungudi CHE Extension

Metering System

Restructuring of Kinshasa Grid

Integrated Information System

Project Implementation

Procurement of Goods

Conduct of Studies

Rehabilitation of G16

Lungudi CHE Extension

Gender Promotion Activities

Restructuring of Kinshasa Grid

Project Supervision Mission

Supervision Missions

Project Audit

Recruitment of Auditors

Auditor Services

Completion Report

Borrower’s Report

ADF/TAF Report

1

MANAGEMENT’S REPORT AND RECOMMENDATIONS TO THE BOARD OF

DIRECTORS ON A PROPOSED TSF GRANT, ADF GRANT AND LOAN TO THE

DEMOCRATIC REPUBLIC OF CONGO

Management herewith submits the following report and recommendations on a proposed: (i)

UA 25 million TSF Grant; (ii) UA 4.88 million ADF grant; and (iii) UA 66.22 million ADF

loan to the Democratic Republic of Congo to finance the Power Sector Improvement and

Governance Support Project.

1 STRATEGIC THRUST AND RATIONALE

1.1 Project Linkages with Country Strategy and Objectives

1.1.1 The project is aligned on the Government’s Priority Action Programme (2012-2016

PAP) and the National Strategic Development Plan (PNSD) about to be adopted. The first five

years of the PNSD will cover the 2017-2021 period. The PAP is focused on five sectors

including infrastructure, economic and administrative governance. It aims to increase power

generation and improve access to electricity. Furthermore, within the PNSD framework,

narrowing the energy gap is one of the key factors on which the country is counting in order to

accelerate its development. The project’s ultimate goal is to provide the Congolese population

and economy with clean, high quality energy. The diagram below summarizes the

Government’s power strategy - an area for which it has set a target of increasing available

capacity by 600 MW over the 2017 – 2030 period through the rehabilitation, modernization

and construction of new infrastructure, and the doubling of the electricity coverage rate from

15.2% to 30% by 2030.

Conduct of exploratory

work and technical studies

Improvement of the

sector’s institutional

framework and

governance

Development of existing

energy potential

Increased energy

supply

Mobilization of public and

private capital

Development of

distribution channels

The main objective of the Government’s strategy will be to: (i) improve the sector’s

institutional framework and governance (establishment of master plans and mechanisms to

regulate electricity and water supply); (ii) conduct exploratory work and technical studies (for

all forms of energy); and (iii) modernize energy infrastructure and expand its geographic

coverage, especially by constructing PLDs (development ‘bright spots’). Improved access to

energy will come from increased generation and enhancement of the power transmission and

distribution grids. It will also provide impetus to the construction of large cities, modern

administrative and commercial centres as well as business districts in both rural and urban

areas. (Source: PNSD)

2

1.1.2 The project, which aims to implement sector reforms and develop power

infrastructure, is in line with Pillar 1 of the Bank’s CSP (2013-2017) for DRC (‘Development

of private investment and regional integration support infrastructure’). It is also in keeping

with Pillar 2 of the CSP (‘building central government capacity in order to increase public

revenue and create an incentive framework for private investment’). Furthermore, it will help

to achieve the CSP’s main objective, which is to help DRC emerge from its situation of fragility

and create conditions for strong and inclusive growth driven by the emergent buoyancy of the

productive sectors.

1.1.3 In June 2014, DRC adopted a law governing the power sector which, in particular,

enshrined its liberalization by opening up the electricity market to private operators. The

targeted objectives are: (i) the creation of an environment that will encourage competitiveness;

(ii) the promotion of public–private partnerships and access to diversified sources of financing;

(iii) a higher coverage rate; and (iv) improved service quality to users. In addition, the law

provides for a new institutional architecture of the sector, which has not yet been concretized

(as is also the case with the expected impacts of SNEL’s reform embarked upon since 2010).

1.2 Rationale for Bank’s Involvement

1.2.1 The project is consistent with the Bank’s Energy Policy (approved in 2012), one of

the objectives of which is to support the efforts of regional member countries to provide all

their population and production sectors with access to modern, reliable and affordable energy

services. It is also aligned on the Bank’s Ten-Year Strategy (2013-2022), Pillar 2 of which aims

specifically to facilitate affordable access to reliable power infrastructure. The project

addresses the need to improve people’s access to power by enhancing the quality and expanding

electricity coverage in Kinshasa and conducting various electrification studies. Furthermore, it

is in line with the operational priorities of the Bank’s Ten-Year Plan in terms of infrastructure

and private sector development. It targets one particular area of interest of the aforementioned

strategy by building the capacity of a fragile State.

1.2.2 The project is aligned on the first of the High 5s, “Light up and Power Africa”. It also

plays a role in achieving the priorities related to the following: “Industrialize Africa” and

“Improve the quality of life for the people of Africa". In addition, it is consistent with the

Bank’s New Deal on Energy for Africa (2016-2025) since it covers almost all the 7 strategic

themes on which the Deal is based: (i) Setting up the right enabling policy environment;( ii)

Enabling utility companies for success; (iii) Dramatically increasing the number of bankable

energy projects; (iv) Increasing the funding pool to deliver new projects; (v) Funding ‘bottom

of the pyramid’ energy access programmes; (vi) Accelerating major regional projects and

driving integration; and (vii) Rolling out waves of country-wide energy ‘turnarounds’.

1.2.3 The project is also in keeping with the Bank’s 2014-2019 ‘Strategy for Addressing

Fragility and Building Resilience in Africa’ - Focus Area 2 (“promote resilient societies

through inclusive and equitable access to employment, basic services and shared benefits from

natural resource endowment”) of which considers equitable access to electricity as a factor

likely to strengthen the legitimacy of governments, build trust between the State and its citizens

and consolidate the peace dividends in post-crisis contexts. The analysis carried out identified

the following drivers of fragility: (i) administration’s lack of authority in the power sector; (ii)

socio-economic exclusion linked to low access to electricity; (iii) SNEL’s weak institutional

capacity; (iv) extreme poverty and high unemployment among young people, and few

opportunities for their social and vocational integration; and (v) a tense and uncertain political

situation. Details on the analysis of the factors of fragility and their consideration in the project

are presented in Annex 5.

3

1.2.4 Through this project, the Bank provides real value added to the sector’s development

by continuing its previous actions while consolidating or complementing their impact in both

the electricity (PMEDE, PEPUR, PASEL, Inga, NELSAP) and water (PEASU, PRISE) sectors.

This value added is also reflected in the framework provided by the Bank for the project’s

implementation.

1.3 Aid Coordination

1.3.1 In addition to AfDB, the main donors operating in the sector are the World Bank

(WB), the European Investment Bank (EIB), KfW, the French Development Agency (AFD),

Japanese (JICA), American (USAID), Belgian, Korean and Chinese Cooperation Agencies.

The EIB and WB are jointly financing with AfDB the Project for the Rehabilitation and

Strengthening of the Inga Hydropower Stations and Kinshasa Distribution Grid (PMEDE), for

which the DRC has made significant efforts to coordinate various donors’ actions through

SNEL and MERH. The periodic organization of meetings and information sharing have

resulted from these efforts. The WB and EIB are co-financing the SAPMP.

1.3.2 During the appraisal of this project, the Bank’s team met with most of these partners.

The discussions with them, which were held in the presence of the Congolese side, revealed

the complementarity between this project and those being prepared by the WB and KfW, as

well as the one awaiting implementation by USAID. Therefore, since the Bank will intervene

in the northern part of Kinshasa, the WB intends to intervene in the Kinshasa Grid

Restructuring Programme by covering the central and western areas of the city. USAID is

providing DRC with support to develop its energy sector. The related financing agreements

have been signed but details of the activities are still being finalized. Complementarity with the

Bank lies in the fact that USAID intends to provide assistance to the operation of the agencies

responsible for regulations and electrification after they have been established with Bank

support.

2 PROJECT DESCRIPTION

2.1 Project Description and Components

The project goal is to contribute to the implementation of reforms and the development of

power infrastructure. Specifically, it aims to: (i) implement the provisions of the Law on the

institutional framework relating to the regulation of the power sector and rural electrification;

(ii) improve the sector’s governance; and (iii) establish infrastructure to improve service

delivery and quality. It was designed as a continuation of - or complement to - the Bank’s

previous energy-related operations actions in the country, while providing DRC with the tools

that will facilitate future engagements in the sector. The following table presents the project

components and costs.

4

Table 2.1

Project Components and Costs in UA Million

No

.

Component

Name

Estimated

Cost

(UAM)

Component Descriptions

1 Infrastructure

Development 78.747

Rehabilitation of Generator 6 of the Inga I hydropower plant (G16)

and procurement of a new wheel for that power plant

Extension of the Lungudi hydropower plant

Procurement and installation of a metering system for HV

transformer stations and MV/LV substations in Kinshasa

Restructuring of North Kinshasa grid

2 Governance

7.740

Study on main focus areas of SNEL restructuring

Support to transition towards operationalization of ARE and ANSER

Study on structural aspects of the Ministry (CMU, CATE and CNE)

Establishment of an integrated information system

Training sessions

3 Institutional

Support 3.761

Review of study on rehabilitation of Zongo 1 CHE as PPP

Renewable energy development studies (rehabilitation of 5

hydropower plants, solar power supply for 4 international airports)

Support to gender mainstreaming activities in energy projects and

support of the sector to the people’s socio-economic empowerment.

4 Project

Management 7.350

Operation of the executing agency

Monitoring of project activities

Consultant engineer

Preparation of procedures manuals

Procurement and installation of management software

Auditing of project accounts; environmental and social audit

Monitoring of ESMP implementation

Total Project Cost 97.598

A detailed description of project activities is presented in Annex B2.7

2.2 Technical Solutions Retained and Alternatives Explored

The technical solution retained in Component 1 concerns generation, transmission and

distribution infrastructure. These investments are necessary to facilitate the population’s access

to electricity under sustainable conditions and with a higher quality of service. Component 2

aims to provide DRC with decision-making tools (for the restructuring of SNEL, the

organization of the Ministry of Energy or the definition of an energy strategy or policy), build

the capacity of existing staff and contribute to the effective establishment of ARE and ANSER.

This support will be in the form of studies or use of international or national technical assistance

skills. For Component 3, it will be necessary to create a critical mass of bankable projects for

the future and build capacity to mainstream gender aspects in energy sector projects. Table 2.2

below shows the alternatives explored and gives reasons for their rejection.

5

Table 2.2

Project Alternatives Explored and Reasons for Their Rejection

Alternatives Descriptions and

Characteristics Reasons for Rejection

Implement a well-

targeted operation in a

clearly determined

segment

Select a single segment

(generation or transmission or

distribution or governance) and

allocate all available resources to

it

- Failure to take into account the sector’s many needs

- Failure to take into account the synergy that must exist

between the different partners

- The sector constitutes a system that is difficult to

manage piecemeal.

Only install the power

metering systems for

end consumers

Use financial resources for

metering in transformer stations

and in sub-stations for the

purchase of meters to be used to

bill energy supplied to consumers

- With the support of several other partners, SNEL has

initiated a major prepayment meter purchasing

programme.

Invest in thermal power

to improve electricity

supply

Use resources (earmarked for the

extension and rehabilitation of

hydropower plants) to build a

thermal power plant

- Uneconomic solution in terms of generating cost per

kWh;

- Fight against climate change because thermal plants

emit greenhouse gases into the atmosphere

2.3 Project Type

This is an investment project which includes a major technical assistance component aimed at

implementing sector reforms pursuant to the provisions of Law 14/011 of 17 June 2014

governing the electricity sector. The investments also concern power generation, transmission

and distribution. In the case of the Lungudi power plant extensions, the investment is in the

form of a public-private partnership (PPP). Following the signing of a concession contract with

the DRC, the power utility “Electricité du Congo” (EDC) is responsible for its operation. In a

concern for operational continuity, the Bank’s financing, which will be used to extend the plant,

will be contingent on: (i) broadening the scope of the concession to cover the extension of the

Lungudi plant; and (ii) the signing of a power purchase agreement between EDC and the Water

Distribution Authority of the Democratic Republic of Congo (REGIDESO) to supply the

Tshikapi drinking water supply facilities financed by the Bank under the PEASU project.

2.4 Project Costs and Financing Arrangements

2.4.1 The total project cost, net of taxes and customs duties, is estimated at UA 97.598

million, comprising approximately UA 84.068 million in foreign exchange and UA 13.530

million in local currency. The calculation was made based on the unit costs of the different

preliminary studies and contracts for similar works from recent bidding processes in the sub-

region and in the country. The project costs include a 5% provision for physical and technical

contingencies as well as a 10% provision for price escalation. The project costs by component,

sources of financing and expenditure category are presented in the following tables. The

conversion rates used are those indicated on page (ii).

Table 2.3

Estimated Cost by Component (UA Million)

Components F.E. L.C. Total % F.E.

1. Infrastructure Development 61.362 6.818 68.180 90%

2. Governance 4.691 2.010 6.701 70%

3. Institutional Support 2.279 0.977 3.256 70%

4. Project Management 4.454 1.909 6.363 70%

Base Cost 72.786 11.714 84.500 86%

Provision for physical contingencies 3.639 0.586 4.225 86%

Provision for price escalation 7.643 1.230 8.873 86%

Total Project Cost 84.068 13.530 97.598 86%

6

2.4.2 Project Financing Arrangements: 98% of the project will be financed by the Bank

Group. The counterpart contribution covering the remaining 2% will be paid by the

Government of DRC. These counterpart funds mainly comprise evaluated in-kind support to

the operation of the implementation unit (provision of premises, staff salaries, part of the

operating and equipment costs). In view of DRC’s economic situation, a counterpart funding

waiver in relation to the percentage of counterpart funding required in AfDB financing has

been granted (see Annex C1). The Bank’s total contribution will be provided from the public

window (ADF and TAF) and will be broken down as follows: an ADF grant of UA 4.88

million, a TSF grant of UA 25 million and an ADF loan of UA 66.22 million extended as per

the conditions set out in the project information sheet and accepted by DRC.

Table 2.4

Project Sources of Financing (UA Million)

Sources of Financing F.E. L.C. Total % Total

ADF Loan 59.598 6.622 66.220 68%

ADF Grant 3.416 1.464 4.880 5%

TSF 20.005 4.995 25.000 26%

DRC GOVERNMENT 1.049 0.449 1.498 2%

Total Project Cost 84.068 13.530 97.598 100%

2.4.3 The project cost by category is presented as follows:

Table 2.5.1

Project Cost by Expenditure Category (UA Million)

Expenditure Categories F.E. L.C. Total % F.E.

Works 61.362 6.818 68.180 90%

Goods 0.164 0.070 0.235 70%

Services 8.997 3.856 12.853 70%

Operation 2.263 0.970 3.233 70%

Total Base Cost 72.786 11.714 84.500 86%

Provision for physical

contingencies 3.639 0.586 4.225 86%

Provision for price escalation 7.643 1.230 8.873 86%

Total Project Cost 84.068 13.530 97.598 86%

2.4.4 The Project Cost by Expenditure Category and Source of Financing is as follows:

Table 2.5.2

Project Cost by Expenditure Category and Source of Financing (UA Million)

Expenditure

Categories

UA Million

ADF Loan ADF Grant TAF DRC GVT TOTAL

F.E. L.C. Total F.E. L.C. Total F.E. L.C. Total F.E. L.C. Total

Works 51.600 5.733 57.333 0.000 0.000 0.000 9.762 1.084 10.846 0.000 0.000 0.000 68.179

Goods 0.000 0.000 0.000 0.164 0.070 0.234 0.000 0.000 0.000 0.000 0.000 0.000 0.234

Services 0.000 0.000 0.000 1.084 0.464 1.548 7.559 3.240 10.799 0.354 0.152 0.506 12.853

Operation 0.000 0.000 0.000 1.710 0.733 2.443 0.000 0.000 0.000 0.553 0.237 0.791 3.234

Total Base

Cost

51.600 5.733 57.333 2.958 1.267 4.225 17.321 4.324 21.645 0.908 0.389 1.297 84.500

Provision for

physical

contingencies

2.580 0.287 2.867 0.148 0.063 0.211 0.866 0.216 1.082 0.045 0.019 0.065 4.225

Provision for

price escalation

prix

5.418 0.602 6.020 0.310 0.134 0.444 1.819 0.454 2.273 0.095 0.041 0.136 8.873

Total Project

Cost

59.598 6.622 66.220 3.416 1.464 4.880 20.006 4.994 25.000 1.048 0.449 1.498 97.598

7

2.4.5 The estimated project expenditure schedule is as follows:

Table 2.6

Expenditure Schedule by Component (UA Million)

Components 2 017 2 018 2 019 2 020 Total

1. Infrastructure Development 15.749 31.499 23.624 7.875 78.747

2. Governance 1.548 3.483 2.322 0.387 7.740

3. Institutional Support 0.940 1.504 1.316 0.000 3.761

4. Project Management 2.205 1.837 1.837 1.470 7.350

Total 20.443 38.324 29.100 9.732 97.598

% Total 20.9% 39.3% 29.8% 10.0% 100%

2.5 Project’s Target Areas and Beneficiaries

2.5.1 Project Area

The infrastructure concerned by the project is located in 4 distinct localities of the DRC. The

Inga 1 hydropower plant, one generator (G16) of which will be rehabiliated, is located on the

Congo River in Kongo Central (formerly Bas-Congo) Province, close to the town of Matadi

which has a population of about 350,000 inhabitants. Matadi is located on the left bank of the

Congo River, about mid-way between the Atlantic Ocean and the capital, Kinshasa. The Zongo

plant, on which a rehabilitation study will be carried out, is also located on the Inkisi River in

Kongo Central between Matadi and Kinshasa (about 120 km from Kinshasa). The Lungudi

power plant which will be extended, is located on the Kasai River in Kasai Province, more

specifically near the town of Tshikapa. The plant is also listed as one of the Bank’s areas of

intervention under the ongoing CSP. The restructuring of the Kinshasa MV and LV grids will

concern the northern part of the city where Gombé, Lingwala, Kasa Vubu, Barumbu and

Kinshasa municipalities are located. Operational readiness of these grids is deemed

satisfactory.

2.5.2 Project Beneficiaries

In the near-term, over 136 000 households in Kinshasa will have access to electricity through

the project as a result of the new connections. Thanks to the project, households already

connected to the grid will enjoy better quality of service in terms of power supply. The

population of Tshikapa and its surroundings will enjoy improved access to electricity and

drinking water. Similarly, SNEL will benefit from the purchase and installation of the metering

system in all Kinshasa transformer stations and sub-stations (which will ensure a more effective

control of energy flows) as well as of new infrastructure acquired by the Ministry of Water

Resources (MERH) with Bank Group financing granted to the DRC Government. The transfer

to SNEL is made by a compensation mechanism developed by the Ministry of Portfolio mainly

for the purpose of reducing central government debt owed to water and electricity utilities. In

the medium-term, the project will enable MERH to create a more efficient organization while

building up staff capacity. In Tshikapa, REGIDESO will have affordable and more reliable

power supply to feed the drinking water supply system used by the communities in the locality.

A similar arrangement exists with Electricité du Congo (EDC) which could improve the

population’s access to electricity through new connections. Generally, the project will benefit

small- and medium-sized enterprises, retail shops, administrative and municipal services, and

all basic social services (education, training, health, hygiene, sanitation and drinking water).

People will also have access to more reliable power for various uses (domestic. industrial,

8

commercial, pumping, cultural, security, etc.). Furthermore, access to electricity in these

neighbourhoods will facilitate the emergence of new job-creating activities in different fields,

especially in agri-food processing, information and communication technologies, carpentry,

maintenance, sewing, embroidery, crafts, petty trading and services. The quality of social

services will be improved in the project area because of electricity. The project will contribute

to the promotion of leisure and family amusement, thus helping families to find fulfilment.

2.6 Participatory Process for Project Identification, Design and Implementation

In accordance with the Bank’s and national policy, the Government of Congo adopted a

participatory and inclusive process. As a result, this project’s design stemmed from the

feasibility study conducted by the Congolese side and took into account discussions between

stakeholders including communities living in the project area. The ESIA and ESMP were

prepared using the same process. In this regard, the following practical arrangements were

made to inform and involve the stakeholders: meetings with the municipal authorities and

techncial services; public meetings and a survey of local communities. These public

consultations made it possible to: (1) inform stakeholders about the project, its impact in the

project area and proposed negative impact mitigation and optimization measures; and (2)

gather their opinions, concerns and expectations concerning the project. The following

expectations were noted: (i) step up electricity generations to reduce the outages already

observed; (ii) guarantee supply to every street in the municipalites concerend; (iii) adopt a

special social connection price to allow access for all households and, in particular the most

vulnerable ones; (iv) engage in, and maintain dialogue, consultations and negotiation among

the stakeholders; (v) involve the municipalities and associations in the project’s

implementation, in particular through information, sensitization and mobilization for the

communities concerned as well as by facilitating works implementation; and (vi) make

provision for public lighting in all the streets in the project area. The project executing agency

will ensure that the participatory process is maintained throughout the project implementation

period. Plans have been made to: (a) regularly inform the communities concerned of the exact

works implementation status; (b) organize an IEC campaign on environmental protection,

promotion of sustainable energy and STI/HIV/AIDS prevention. Similarly, an information,

sensitization and marketing campaign will be carried out to attract subscribers to the pre-

payment meter. The Bank will publish the ESMP summary on its website 30 days before the

project is presented to the Board of Directors.

2.7 Bank Experience and Lessons Learned Reflected in Project Design

2.7.1 For over three decades, the Bank has been committed to providing support to the

Government to develop the power sector in the DRC. It is still present in that sector through

several operations including PMEDE, EDIRA, PEPUR, NELSAP and PASEL. All these

projects are ongoing and have not yet been the subject of completion reports. However, the

lessons learned from the supervision of these energy operations and those of other partners are

reflected in this project’s design. From these experiences, the following lessons were taken into

account during project preparation: (i) PMEDE revealed the need for close coordination among

donors to avoid duplication; (ii) PEPUR underscores the importance o12f the structure of the

implementation unit; and (iii) NELSAP, EDIRA and PASEL demonstrate the urgent need to

build DRC’s capacity and improve the quality-at-entry of projects through the availability of

the appropriate studies. The recent combined CSP and Portfolio Review, approved by the

Boards in June 2016, revealed the following difficulties: (a) the poor performance of the

monitoring mechanism at government level; (b) weak involvement of ministries in project

supervision; (c) delay in ratifying loan agreements, fulfilling conditions precedent to first

9

disbursement, installing key personnel and recruiting external auditors; and (d) delay in

mobilizing counterpart funds.

2.7.2 The project reflects these different lessons by: (i) attaching priority to the quality-at-

entry of all activities; (ii) ensuring the positioning of the implementation unit established by

MERH and its operating process based on collaborating with specialized national bodies to

implement some activities and using international expertise for transfer of expertise; (iii)

involving a monitoring/evaluation expert; and (iv) cashing in on possibilities for mobilizing

counterpart funding by reducing it as much as possible.

2.8 Key Performance Indicators

2.8.1 The project’s key performance indicators are set out in the results-based logical

framework. They concern all project activities. The periodic activity reports prepared by the

different service providers, supervision reports as well as the integrated information system

should provide a way of measuring these indicators. The results will then be analysed by the

monitoring/evaluation expert to assess the progress made during project implementation.

2.8.2 The Project Implementation Unit will be responsible for establishing a baseline

situation for the performance indicators, then monitoring and analysing their trend by

comparing them with the projections in the logical framework or any other reference deemed

relevant. At the levels of MERH and SNEL, the project performance indicators will be

incorporated into the periodic activity reports.

3 PROJECT FEASIBILITY

3.1 Economic and Financial Performance

3.1.1. Project Economic and Financial Performance: This was analysed based on the

financial internal rate of return (FRR) and the economic rate of return (ERR), respectively. The

FRR is calculated on the basis of the project’s financial costs, and the share of said costs in

relation to income from the sale of electricity to new customers. The ERR is calculated on the

basis of the economic costs (investment costs adjusted by conversion factors) and the project’s

expected economic benefits, especially the sale of electricity to new customers, and valuation

of the reduction in the level of non-distributed energy as a result of the decongestion of the

transformer stations. Both the FRR and ERR are above the average weighted cost of the capital

to be invested in this project (Bank’s concessional financing at an interest rate not exceeding

2% per year) and at an economic cost of capital estimated at 12% (August 2016).

3.1.2. Sensitivity of Project’s Financial and Economic Performance: This was analysed in

relation to: (i) a 10% increase in investment costs; and (ii) a 10% increase in operating costs.

The analysis shows that the project is highly sensitive to an increase in operating costs, in

particular the cost price of electricity. SNEL will have to take adequate measures to control

operating costs in order to benefit from the project’s positive impacts (for details see Annex B

7). This analysis shows the importance of intervening in DRC’s energy sector governance.

Commercial practices, including pricing, deserve close attention in a concern to achieve

sustainable conditions for all stakeholders (power utilities, consumers and investors). As

Table 3.1: Project’s Key Economic and Financial Data

Baseline Scenario FRR 13.1% NPV CDF 30.0 billion

ERR 19.6% NPV CDF 82.9 billion

10

stipulated in the Electricity Law, some current practices must be abandoned as soon as possible.

These include the current lump sum billing system, the accumulation of debts owed by central

government or the “entitlement system” made up of a clientele supported by central

government.

3.2 Environmental and Social Impacts

3.2.1 Environment

3.2.1.1 The project was classified in Environmental Category 2 by AfDB based on the scale

of works and the number of people affected (nobody identified as affected during the

preparation of the ESIA and ESMP). It is also classified in Category B in compliance with

national regulations.

3.2.1.2 The main negative environmental and social impacts concern: (i) disruption to, and

difficulty of movement and various other nuisances during the works; (ii) risks related to

occupational health and safety engendered by such works; (iii) the felling of trees, deterioration

of plant cover and potential impacts on water resources linked to the extension of the Lungudi

power plant.

3.2.1.3 Mitigation measures are proposed in the ESMP to prevent or, if necessary, minimize

the aforementioned impacts. These are: (i) implementation of a plan for work site signage,

communication of information to communities in the areas concerned and restoration of access

for the local population, etc.; (ii) implementation of a site waste management plan, adherence

to working hours, etc.; (iii) implementation of a safety and health protection plan for workers

and local communities during the works and operating phases; and (iv) compensatory tree

planting. The project will build the capacity of actors involved in implementing the ESMP. The

estimated cost of the ESMP measures at this stage is USD 902,800.

3.2.1.4 The CMU will be responsible for monitoring the ESMP’s implementation in

collaboration with SNEL’s Environmental and Social Management Unit (ESMU), EDC and

the works control and supervision mission. Environmental control and monitoring will be

carried out by the Congolese Environmental Agency (ACE).

3.2.2 Climate Change

3.2.2.1 Based on the vulnerability assessment carried out by the Bank’s Climate Safeguards

System, this project was classified in Category 2. The project’s main positive climate impact

stems from the benefits to households provided by access to electricity in urban and rural areas

in the project areas, mainly from hydropower sources. The main benefits are: (i) more

environmentally friendly alternatives than the use of wood fuels (fuel wood and charcoal) and

kerosene lamps, which are currently the main sources of energy for lighting and cooking; and

(ii) opportunities for the processing and conservation of perishables and, consequently,

optimization of natural resources used in their production.

3.2.2.2 The project will also contribute to a reduction in emissions of gaseous pollutants

produced by small standalone generators currently used in the project areas. The main climate

challenge for the project concerns the frequency of extreme phenomena, in particular torrential

rain/flooding, and an increase in temperature variations.

11

3.2.2.3 In terms of adaptation, good design practices will be adopted to ensure, among others

the appropriate specifications for the foundations for poles, taking into account geotechnical

parameters and prevailing winds.

3.2.3 Gender and Vulnerability

3.2.3.1 The inventory of electricity supply capacity in Kinshasa reveals chronic shortages in

some neighbourhoods. The quality of service is marked by the irregularity or even absence of

power supply which has become a scarce commodity in many households. Similarly, in 2015,

only 50.4% of the Congolese population had access to drinking water according to the Ministry

of Planning and Monitoring Implementation of the Revolution of Modernity. In spite of efforts

made under several projects and programmes embarked upon by the Government with

assistance from its technical and financial partners, the results achieved fall far below

expectations. The following observations have been made: (i) weak involvement of the

population in general, and of women and children in particular, in the design and

implementation of these projects/programmes; (ii) acts of vandalism to infrastructure; (iii)

illegal connections often exposing communities to risks of electrocution; (iv) irrational use of

the little energy available; (v) carelessness of consumers when faced with situations affecting

electrical safety; and (vi) failure to pay water and electricity bills. Analysis of this situation

reveals the following: (a) failure to take into account the specific requirements of all segments

of society; (b) lack of communication among stakeholders; (c) the poverty affecting certain

segments of the population prevents them from accessing those basic social services to which

they are entitled; and (d) the common use of certain forms of energy, particularly traditional

fuels by women.

3.2.3.2 As in other parts of the country, the activities of women and youth in the project areas

are mainly concentrated in the agriculture and informal sectors, especially in trading (SNVBG,

2009). While these activities are central to the Congolese economy, women and youths who

represent over 60% of the populations are the hardest hit by poverty. It is estimated that 61.15%

of women-headed households are living below the poverty line compared to 54.32% of

households headed by men (SNVBG, 2009). Traders in foodstuffs (sale of fishery products,

livestock products, market garden products and other fresh produce in municipality markets),

organized in cooperatives, are experiencing serious conservation problems since they do not

have cold rooms or access to electricity for such equipment.

3.2.3.3 In light of these observations, analyses and expectations expressed during the

preparation and appraisal missions, it was decided to implement the following specific actions:

The project aims to foster the mainstreaming of the gender approach in all

energy sector development projects through the establishment of a Gender,

Energy and Development Unit at the Ministry of Energy by decree, with the

involvement of the Ministry of Women, Family and Children. This Unit will

develop an action plan with three main thrusts: gender and energy knowledge

building; promotion of energy efficiency; capacity buidling for actors and

monitoring/evaluation.

By restructuring the electricity sector, the project aims to contribute to the

emergence of of Women’s Entrepreneurhsip in Kinshasa to improve the

conservation of foodstuffs in municipality markets. In close collaboration with

the Ministry of Women, Family and Children in DRC, plans have been made to

purchase and install one cold room per targeted market in each of the 5

12

municipalities concerned in Kinshasa Province (Gombé, Lingwala, Kasa Vubu,

Barumbu and Kinshasa). These cold rooms will be used by the joint

cooperatives present in the these markets, which will be fully responsible for

their management by bearing the maintenance and operating costs. The same

Ministry will be charged with building the capacity of members of these

cooperatives in technical, associative, administrative and financial management.

Thanks to this action, the project will reduce by at least 60% the risks of losses

on perishable products and build the entrepreneurial capacity of these joint

cooperatives.

The project aims to reduce customer subscription charges by financing

connections and by providing all segments of society with access to electricity.

Thus, 136,000 new subscribers will benefit from this action. PAGASE will

protect the population from the existing risks of electrocution.

3.2.4 Job Creation

The project will contribute to the creation of about 200 temporary jobs, of which a minimum

of 50 will be occupied by women during the construction of power facilities as well as a further

50 during their operation. The project will also boost the development of related income-

generating activities by supplying power for the small businesses run by women, girls and

youths (mills, shops, hairdressing salons, welding workshops, etc.).

3.2.5 Involuntary Resettlement

The project’s implementation, especially the rehabilitation of the Inga power plants and

extension of the Lungudi plant as well as the restructuring of the North Kinshasa power grid

will affect no one insofar as existing public easements in the project areas will mostly be used

as rights-of-way for the grid works (lines and stations-cabins). However, in order to prepare

for all contingencies, a financial provision of USD 500,000 has been made to compensate for

possible damage or losses that might be identified during the implementation phase.

4 PROJECT IMPLEMENTATION

4.1 Implementation Arrangements

4.1.1 The project will be implemented by the MERH Project Coordination and Management

Unit (CMU), which will be fully responsible for it, in particular at the fiduciary level. The CMU

is the result of the transformation of the former Inga 3 Project Management Unit (I3MU),

previously in charge of the technical assistance project for the construction of Inga 3 and the

development of medium-sized hydropower plants financed by the Bank. Established by Decree

No. 058/2015 of 30 October 2015 as amended and supplemented by Decree No. 039/2016 of

17 June 2016, the CMU is responsible for coordinating all projects placed under MERH’s

oversight. It has the minimum capacity required to allow it assume responsibility for projects

financed by the Bank. To improve project performance while building capacity, the CMU will

coordinate the participation of the different actors involved in the project’s implementation.

Specifically, these include SNEL, the Congolese Environmental Agency (ACE), REGIDESO,

Electricité du Congo (EDC), the Ministry of Portfolio through the Public Enterprise Reform

Steering Committee (COPIREP), the Ministry in charge of Gender Issues and MERH’s

different services (General Secretariat for Energy, National Energy Commission, and Energy

Technical Support Unit (CATE)). A consultant engineer will also be recruited to build the

13

CMU’s capacity, specifically with regard to implementation of the PAGASE project.

Discussions have also allowed for an accurate definition of the role of each operator as well as

a framework for cooperation through the institutional arrangements described in the technical

annexes. ACE participates in the project by seeing to the environmental certification of

activities and implementation of the recommendations contained in the ESMP. REGIDESO

and EDC contribute to the preparation and construction of the extension of the Lungudi power

plant. COPIREP assists the CMU regarding the conduct of the SNEL restructuring studies as

well as for activities related to the recruitment of experts or the establishment of ARE and

ANSER. MERH’s different services are associated with the implementation of certain activities

(information system, gender development and training).

4.1.2 The different documents required for the project’s appraisal are available. These are the

study terms of reference as well as the works feasibility studies. As regards procurement, a

procurement plan was prepared by DRC and discussed with the Bank. Adjustments will be made

to the plan with a view to its validation at the latest during the negotiations. As mentioned in

paragraph 4.1.1, institutional arrangements have been made between the CMU responsible for

project implementation and the different agencies targeted, in line with their specificities and

responsibilities. In the case of the energy sector, all recent national projects have been awarded

grants, the conditions precedent to which have been fulfilled. There has been slippage on one

multinational project due to a revision of the amount.

4.1.3 Procurement

4.1.3.1 The procurement of goods (other than consulting services), works and consultancy

services financed by the Bank under the project will be made in accordance with the

Procurement Policy for Bank Group Funded Operations dated October 2015 and in compliance

with the provisions set out in the Loan Agreement. More specifically, procurements will be

made in accordance with :

Borrower Procurement System (BPS): Procurement Methods and Procedures

(PMP) under the Borrower’s procurement system comprising Law 10/010 of 10

April 2010 on public procurement, as well as the following decrees: (1)

No.10/22 of 2 June 2010 on the procedures manual; (2) N0.10/32 of 28

December 2010 on the establishment, organization and operation of the Project

Management and Public Procurement Unit ‘CGPMP’; (3) No.10/33 of 28

December 2010 determining the modalities for public procurement and public

service delegations; (4) No. 10/34 of 28 December 2010 determining thresholds

for the award, control and approval of public procurement contracts; (5)

No.10/21 of 2 June 2010 on the establishment, organization and operation of the

Public Procurement Regulatory Agency, ‘ARMP’ and; (6) No.10/21 of 2 June

2010 on the establishment, organization and operation of the Directorate-

General for Public Procurement Control, ‘DGCMP’, using national standard

bidding documents (NSBD) or other bidding documents as approved during the

project negotiations for the different types of activity planned under the project.

Bank’s Procurement Methods and Procedures (BPM): The Bank’s standard

PMP on the basis of relevant standard bidding documents (SBD) for contracts

which are: (i) above the thresholds mentioned in Annex B 5, Para. B.5.3.2, or

(ii) in the case where the Borrower PS is not used for a given activity or series

of activities; and (iii) in the case where the BPM are deem the most appropriate

for a given activity or series of activities.

14

Procurement Methods and Procedures (PMP) from a third party: PMPs

from third parties using the relevant standard or model bidding documents of

the third party.”

4.1.3.2 Country Procurement Assessment Review (CPAR): The assessment of risks at the

level of the country, sector and project as well as the procurement capacity of the Executing

Agency (EA) was carried out for the project and the results use to guide the decision on the

selection of a procurement system (Borrower, Bank or Third Party) to be used for given

activities or all similar activities under the project. The appropriate risk mitigation measures

have been included in the CPAR action plan set out in Paragraph B.5.9 of Annex B.5.

4.1.4 Financial Management Arrangements and Auditing

4.1.4.1 The fiduciary risk assessed with respect to the project’s financial management is

deemed substantial. The existing financial management arrangements at the CMU will be

bolstered in order to meet the Bank’s minimum requirements as defined by the policy on the

Financial Management of Projects Financed by the African Development Bank issued in

February 2014. Measures have been agreed upon that will mitigate the financial risk and are

set out in detail in the financial management action plan in Annex B 4. By strengthening the

existing financial management arrangements, the speedy implementation of these measures

will, with reasonable assurance, provide reliable financial information and safeguard project

assets in compliance with Bank policy.

4.1.4.2 The CMU has the minimum capacity required to assume responsibility for projects

financed by the Bank. The existing financial personnel comprises an administrative and

financial officer, an internal auditor and a treasurer, all covered by the central government

budget. The CMU will be responsible for the financial management of all the project

components and will be provided with the necessary resources and management tools to ensure

smooth project implementation. In view of its very limited experience as well as the lessons

learned from implementing energy projects in DRC, the CMU will be supported by technical

assistance in financial management in the form of two individual consultants assigned to

project activities, to be recruited on the basis of open competition for the project’s duration.

The CMU will implement all the necessary controls to ensure that: (i) project funds are properly

used in an efficient and economic manner; (ii) accurate, reliable and timely periodic financial

reports have been prepared; (iii) project assets are properly protected; and (iv) commitments

are respected with regard to the auditing and management of special accounts.

4.1.4.3 The CMU has inherited the TOM2PRO account management software used to

implement PASEL. It will be necessary to update the configuration of the existing CMU

software and Manual in order to computerize the project’s management. The internal audit

function currently performed by a Government internal auditor will be expanded to include

PAGASE activities by covering the missions already scheduled for the internal auditor, whose

work programmes shall be submitted to the Bank for prior approval. The internal auditors’

reports will be submitted to the Bank for information. The presentation of financial monitoring

reports (FMR) prepared on the use of central government resources managed by the CMU will

be improved to include PAGASE activities. The project FMR will be submitted to the Bank on

a quarterly basis.

15

Disbursements

4.1.4.4 Disbursement of Bank resources (ADF and TSF resources) will be made in accordance

with the Bank’s Disbursement Handbook. It is expected that the first disbursement will be

released within six months of the signing of the Grant and Loan Agreements. The following

two disbursement methods will be applied for disbursement of Bank resources: (i) the direct

payment method; and (ii) the revolving fund or special account method. The direct payment

method will be used for the payment of contracts for the works, goods and services expenditure

categories. The special account method will be used to finance operating expenditure. Two

special accounts will be opened in Kinshasa in an acceptable bank for the payment of Bank

disbursements in respect of the TSF grant and ADF grant. A disbursement letter setting forth

the specific modalities for each loan and grant agreement will be the subject of negotiations

with the Donee/Borrower.

4.1.4.5 The national counterpart funds provided by the Government of DRC are estimated at

2%. These funds mainly comprise valued contributions in kind to the operation of the CMU

(provision of premises, staff salaries, part of the operating and equipment costs). In view of the

prevailing economic situation in DRC, a waiver was granted on the percentage of counterpart

funds required in Bank financing (see Annex C1). No other disbursements are planned in terms

of financial flows in respect of the counterpart funds.

Audit

4.1.4.6 The PAGASE project annual audits financed from Bank resources will be conducted

by an independent external auditing firm to be recruited on the basis of open competition in

accordance with the Bank’s standard terms of reference (TOR). Recruitment of the external

auditor will be the responsibility of the SMU and will require prior approval by the Bank. An

annual audit is planned for the project’s duration, including the closing audit. The first project

audit could cover an 18-month period, counting from the loan effectiveness date or the date of

first disbursement. MERH shall ensure that outstanding audit reports awaited by the Bank are

submitted as soon as possible and at the latest before the negotiation phase. A single external

auditing firm could be recruited for all the projects entrusted to CMU for three (3) consecutive

periods, with a report for each donor. The audit terms of reference will be jointly validated by

the Bank and other partners working with the CMU.

4.2 Project Monitoring

The main stages of the project are presented in Table 4.1 below. The activities will be carried

out based on the project implementation schedule. A monitoring/evaluation specialist will be

made available to the CMU. His/her main duty will be to define measurable results (including

those contained in the results-based logical framework) as well as the methods and resources

to be used to obtain these results. He/she will help to improve performance and accountability

on a clear logical basis.

16

Table 4.1

Main Project Implementation Stages

Duration Stages Follow-Up Activities/Feedback Loop

120 days Approval and Effectiveness

Loan and grant approvals

General Procurement Notice

Signing and effectiveness of financing agreements

AfDB launching mission

120 days Procurement

Preparation of bidding documents

Bidding and award of contracts

Signing of consultancy firm contracts

Signing of works contracts

900 days Project’s physical

implementation

Contract execution

Preparation of periodic project status reports

Bank supervision mission

Project environmental and social monitoring

Bank’s mid-term review

150 days Auditing of project accounts Recruitment of auditor to perform annual audits

Performance of annual audits

90 days Project completion Borrower’s project completion report

Preparation of Bank’s project completion report

4.3 Governance

This project’s governance risk is low and could occur during the establishment of the CMU, in

particular the selection of personnel and the Unit’s position within the MERH institutional

mechanism. However, the risk is mitigated by the fact that the Bank will be involved in the

competitive recruitment of CMU staff working on the project. Moreover, concerning

procurements, the Bank, pursuant to its new procurement policy, still retains means of control

prior to the signing of contracts.

4.4 Sustainability

4.4.1 The project’s sustainability is mainly contingent on the Government’s commitment to

implementing the Power Sector Law. The adoption of regulations could help to resolve the

issue of tariffs, thereby providing a sustainable solution for all parties. Furthermore, with regard

to infrastructure, it is planned to maintain the public-private partnership for the management of

the Lungudi power plant. With respect to SNEL, ongoing efforts in the areas of service level

and performance contracts are helping to improve its assets management. The Government is

also making efforts to reduce its debts to SNEL, which is a key driver for improving the

company’s management. The renewable energy development studies represent a vital stage,

irrespective of the development method that the DRC may choose. Their availability could

facilitate future investments.

4.5 Risk Management

4.5.1 Implementation Risk: The CMU is a newly established body and has no historical

precedent in the simultaneous monitoring and implementation of several projects. This risk

will be mitigated by the quality of the personnel to be assigned to it, support from an

engineering consultant, analyses and opinions of the Bank and other partners. The appointment

of a PAGASE project leader at the CMU is another mitigation measure.

17

4.5.2 Fiduciary Risk: The fiduciary risk deemed substantial for DRC is an inherent risk

factor for this project since the CMU which will implement the project is not yet sufficiently

operational to be able to simultaneously manage several projects. This risk can be mitigated by

the implementation of the financial management plan, in particular, and by building CMU’s

capacity.

4.5.3 Political Risk: This risk stems from the country’s socio-political situation and the

fragility of the ongoing peace process which could impede project implementation. This risk

will be mitigated by the ongoing political developments, in particular national dialogue and

national and international mediation. Other factors are the presence of MONUSCO and

commitment of the international community. It will also be necessary to strengthen dialogue

with the Government and other technical and financial partners for information on the political

and security situation, and to factor in the political risk in the project’s monitoring and

evaluation system.

4.6 Knowledge Management

4.6.1 The project provides an opportunity to disseminate new knowledge for the Bank and

the DRC Government. For the Bank, PAGASE is an example of support to a Fragile State to

help it establish governance structures in a complex sector. It also helps to assess the scale of

infrastructure needs and is an example of collaboration among technical and financial partners.

4.6.2 New knowledge will mainly be acquired through interaction between partners but also

with beneficiaries. The documentation generated by these meetings and supervision missions,

periodic status reports as well as reports arising from the different controls will provide a basis

for knowledge acquisition.

5 LEGAL FRAMEWORK

5.1 Legal Instrument

To finance this project, the Bank will use the following financing instruments: a UA 4.88

million grant from ADF-13 resources, a UA 66.22 loan from ADF-13 resources and a UA 25

million grant from TSF resources to the Democratic Republic of Congo.

5.2 Conditions Associated with Bank’s Intervention

A. Conditions precedent to effectiveness of the grants/loan:

Effectiveness of the ADF and TSF Grant Agreements is subject to their signing by the Donee

and ADF. Effectiveness of the ADF Loan agreement is subject to fulfilment by the Borrower

of conditions stipulated in Section 12.01 of the General Conditions Applicable to Loan,

Guarantee and Grant Agreements of the African Development Fund.

B. Conditions precedent to first disbursement of the grants/loan:

In addition to effectiveness of the Grant Agreements and Loan Agreement, the first

disbursement on each loan or grant for project financing shall be subject to the fulfilment of

the following conditions by the Donee/Borrower, to the complete satisfaction of ADF/TSF:

18

For the ADF/TSF Grants:

(i) Provide ADF with evidence of opening a special account in the name of the

Project at a bank acceptable to the Fund, in which the proceeds of the ADF grant

will be lodged (paragraph 4.1.3.4);

(ii) Provide TSF with evidence of opening a special account in the name of the

Project at a bank acceptable to the Fund, in which the proceeds of the TSF grant

will be lodged (paragraph 4.1.3.4);

For the ADF Loan:

(i) Provide ADF with evidence of the amendment to the concession contract for the

Lungudi power plant to include in it the part related to the extension of the plant

as provided for in the project (paragraph 2.3);

(ii) Provide ADF with evidence of the signing of a power purchase agreement in

Tshikapa between REGIDESO and the Lungudi concessionaire (paragraph

2.3).

C. Other Conditions:

In addition, the Donee shall:

(i) Update, latest six (6) months after the first disbursement, the Administrative,

Financial and Accounting Procedures Manual;

(ii) Recruit the external auditor six (6) months after the first disbursement;

(iii) Update the software configuration to factor in the accounts of the PAGASE

project latest six (6) months from the date of signature of the financing

agreements.

D. Undertakings:

To the satisfaction of the Fund, the DRC shall undertake to:

(i) Provide the Fund/TSF with any document reasonably necessary for monitoring

the project’s implementation;

(ii) Execute the project and ESMP, and have them implemented by its contractors

in compliance with national law, the recommendations, requirements and

procedures contained in the ESMP as well as with the related rules and

procedures of the Fund (paragraph 3.2.1.4) ;

(iii) Improve SNEL’s commercial management by: (i) gradually abolishing lump

sum billing pursuant to the Power Sector Law; (ii) clearing SNEL debts owed

to the central government; (iii) adjusting SNEL tariffs while retaining a social

tariff for the first kilowatt hours consumed; and (iv) abolishing or rationalizing

the “entitlement” system (paragraph 3.1.2).

19

5.3 Compliance with Bank Policies

The Power Sector Improvement and Governance Support Project complies with all applicable

Bank rules.

6 RECOMMENDATION

Management recommends: (i) that the Boards of Directors of the Bank and Fund approve the

proposal for a UA 25 million TSF Grant to the Democratic Republic of Congo; and (ii) that the

Board of Directors of the Fund approve the proposal of a UA 66.22 million ADF loan to the

Democratic Republic of Congo to finance the Power Sector Improvement and Governance

Support Project, for the purposes and subject to the conditions set forth in this report.

I

Annex 1

Country’s Comparative Socio-Economic Indicators

Year

Congo,

Dem.

Republic

Africa

Develo-

ping

Countries

Develo-

ped

Countries

Basic Indicators

Area ( '000 Km²) 2016 2,345 30,067 94,638 36,907Total Population (millions) 2016 79.7 1,214.4 3,010.9 1,407.8Urban Population (% of Total) 2016 39.5 40.1 41.6 80.6Population Density (per Km²) 2016 35.2 41.3 67.7 25.6GNI per Capita (US $) 2014 380 2 045 4 226 38 317Labor Force Participation *- Total (%) 2016 71.1 65.6 63.9 60.3Labor Force Participation **- Female (%) 2016 70.5 55.6 49.9 52.1Gender -Related Dev elopment Index Value 2007-2013 0.822 0.801 0.506 0.792Human Dev elop. Index (Rank among 187 countries) 2014 176 ... ... ...Popul. Liv ing Below $ 1.90 a Day (% of Population) 2008-2013 77.2 42.7 14.9 ...

Demographic Indicators

Population Grow th Rate - Total (%) 2016 3.2 2.5 1.9 0.4Population Grow th Rate - Urban (%) 2016 4.0 3.6 2.9 0.8Population < 15 y ears (%) 2016 45.9 40.9 28.0 17.2Population >= 65 y ears (%) 2016 3.0 3.5 6.6 16.6Dependency Ratio (%) 2016 95.5 79.9 52.9 51.2Sex Ratio (per 100 female) 2016 99.5 100.2 103.0 97.6Female Population 15-49 y ears (% of total population) 2016 22.5 24.0 25.7 22.8Life Ex pectancy at Birth - Total (y ears) 2016 59.4 61.5 66.2 79.4Life Ex pectancy at Birth - Female (y ears) 2016 60.9 63.0 68.0 82.4Crude Birth Rate (per 1,000) 2016 41.1 34.4 27.0 11.6Crude Death Rate (per 1,000) 2016 9.9 9.1 7.9 9.1Infant Mortality Rate (per 1,000) 2015 74.5 52.2 35.2 5.8Child Mortality Rate (per 1,000) 2015 98.3 75.5 47.3 6.8Total Fertility Rate (per w oman) 2016 5.8 4.5 3.5 1.8Maternal Mortality Rate (per 100,000) 2015 693.0 495.0 238.0 10.0Women Using Contraception (%) 2016 23.3 31.0 ... ...

Health & Nutrition Indicators

Phy sicians (per 100,000 people) 2004-2013 10.7 47.9 123.8 292.3Nurses and midw iv es (per 100,000 people) 2004-2013 52.9 135.4 220.0 859.8Births attended by Trained Health Personnel (%) 2010-2015 80.1 53.2 68.5 ...Access to Safe Water (% of Population) 2015 52.4 71.6 89.3 99.5Healthy life ex pectancy at birth (y ears) 2013 51.8 54.0 57 68.0Access to Sanitation (% of Population) 2015 28.7 39.4 61.2 99.4Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2014 1.0 3.8 ... ...Incidence of Tuberculosis (per 100,000) 2014 325.0 245.9 160.0 21.0Child Immunization Against Tuberculosis (%) 2014 90.0 84.1 90.0 ...Child Immunization Against Measles (%) 2014 77.0 76.0 83.5 93.7Underw eight Children (% of children under 5 y ears) 2010-2014 23.4 18.1 16.2 1.1Daily Calorie Supply per Capita 2011 ... 2 621 2 335 3 503Public Ex penditure on Health (as % of GDP) 2013 1.6 2.6 3.0 7.7

Education Indicators

Gross Enrolment Ratio (%)

Primary School - Total 2010-2015 107.0 100.5 104.7 102.4 Primary School - Female 2010-2015 101.8 97.1 102.9 102.2 Secondary School - Total 2010-2015 43.5 50.9 57.8 105.3 Secondary School - Female 2010-2015 33.3 48.5 55.7 105.3Primary School Female Teaching Staff (% of Total) 2010-2015 28.3 47.6 50.6 82.2Adult literacy Rate - Total (%) 2010-2015 77.2 66.8 70.5 98.6Adult literacy Rate - Male (%) 2010-2015 88.8 74.3 77.3 98.9Adult literacy Rate - Female (%) 2010-2015 65.9 59.4 64.0 98.4Percentage of GDP Spent on Education 2010-2014 2.2 5.0 4.2 4.8

Environmental Indicators

Land Use (Arable Land as % of Total Land Area) 2013 3.1 8.6 11.9 9.4Agricultural Land (as % of land area) 2013 11.6 43.2 43.4 30.0Forest (As % of Land Area) 2013 67.6 23.3 28.0 34.5Per Capita CO2 Emissions (metric tons) 2012 0.0 1.1 3.0 11.6

Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update :

UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports.

Note : n.a. : Not Applicable ; … : Data Not Available. * Labor force participation rate, total (% of total population ages 15+)

** Labor force participation rate, female (% of female population ages 15+)

COMPARATIVE SOCIO-ECONOMIC INDICATORS

Congo, Dem. Republic

August 2016

0

20

40

60

80

100

120

2000

2005

2009

2010

2011

2012

2013

2014

2015

Infant Mortality Rate( Per 1000 )

C ong o, D em . R epu bli c A fr i ca

0

500

1000

1500

2000

2500

2000

2005

2008

2009

2010

2011

2012

2013

2014

GNI Per Capita US $

C ong o, D em . R epu bli c A fr i ca

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2000

2005

2009

2010

2011

2012

2013

2014

2015

Population Growth Rate (%)

C ongo , D em . R epub li c A fr ic a

01020304050607080

2000

2005

2009

2010

2011

2012

2013

2014

2015

Life Expectancy at Birth (years)

C ong o, D em . R epu bli c A fr i ca

II

Annex 2

Status of Bank Group’s Active Portfolio in DRC as at 31 July 2016 1. National Projects

# Division Long Name Loan Number Approval

Date

Planned

Final Disb.

Date

Net Loan Amount

Disbursed

Disburs.

Ratio

(%)

Status

1 OITC1 PRIORITY AIR SAFETY PROJECT 2100155018970 27/09/2010 30/12/2016 88 600 000 68 718 144 78

2 OITC1 BATSHAMBA-TSHIKAPA ROAD REHABILITATION PROJECT 2100155023025 13/06/2012 31/12/2017 53 550 000 23 572 963 44

3 OITC1 BATSHAMBA-TSHIKAPA ROAD IMPROVEMENT PROJECT 2100150030396 10/12/2013 31/12/2019 660 000 0 0

OITC1 BATSHAMBA-TSHIKAPA ROAD IMPROVEMENT PROJECT 2100155026371 10/12/2013 31/12/2019 13 260 000 208 165 2

4 OITC1 RN1 ROAD IMPROVEMENT PROJECT (TSHIKAPA-MBUJI MAYI) 2100155028819 17/12/2014 31/12/2019 74 000 000 529 477 1

5 OITC1 LOT 3 - BATSHAMBA-TSHIKAPA ROAD IMPROVEMENT PROJECT 2100155029069 22/10/2014 31/12/2019 55 560 000 42 697 0

Total Transport and ICT Sector 285 630 000 93 071 446 33

6 ONEC1 PROJECT FOR THE REHABILITATION AND STRENGTHENING OF THE INGA

HYDROPOWER STATIONS AND KINSHASA DISTRIBUTION GRID (PMEDE)

2100155010866 18/12/2007 31/12/2017 35 700 000 22 996 569 64

7 ONEC1 PERI-URBAN AND RURAL ELECTRIFICATION PROJECT 2100155019766 15/12/2010 31/12/2017 9 690 000 4 989 965 52 PPP

ONEC1 PERI-URBAN AND RURAL ELECTRIFICATION PROJECT 5900155001603 15/12/2010 31/12/2017 60 000 000 20 350 886 34

8 ONEC1 SUPPORT FOR THE ESTABLISHMENT OF THE INGA SITE DEVELOPMENT

AND PROMOTION AUTHORITY

5900155004751 17/04/2013 30/11/2016 1 995 000 328 725 16

9 ONEC1 NELSAP INTERCONNECTION PROJECT – DRC 2100155020266 27/11/2008 30/12/2016 27 620 000 8 355 846 30

10 ONEC1 PROJECT FOR TARGETED TECHNICAL ASSISTANCE FOR THE

DEVELOPMENT OF INGA 3

5900155004801 13/05/2013 30/11/2016 1 500 000 1 386 925 92

Total Energy Sector 136 505 000 58 408 915 43

11 OPSD4 NYUMBA YA AKIBA CEMENT PLANT 2000130011980 12/02/2014 27/11/2017 21 577 766 20 778 590 96

OPSD4 NYUMBA YA AKIBA CEMENT PLANT - EKF COVERED 2000130011981 12/02/2014 27/11/2017 21 577 766 20 778 590 96

Total Private Sector 43 155 533 41 557 179 96

12 OSAN WORKING WITH COMMUNITIES TO REDUCE DEFORESTATION AND

ALLEVIATE POVERTY

5650155002051 28/11/2014 31/03/2018 1 978 570 0 0

13 OSAN2 PPF-PROJECT FOR YOUTH ENTREPRENEURSHIP IN AGRICULTURE AND

AGRI-BUSINESS

2100155031517 18/01/2016 30/04/2017 800 000 0 0

14 OSAN2 RURAL INFRASTRUCTURE DEVELOPMENT SUPPORT PORJECT 2100155021418 10/11/2011 31/12/2017 49 460 000 14 641 510 30

15 OSAN3 INTEGRATED REDD+ PROJECT IN THE MBUJI-MAYI, KANANGA AND

KISANGANI BASINS

5565155000351 11/09/2013 30/06/2019 15 464 066 902 324 6

Total Agriculture Sector 67 702 636 15 543 834 23

16 OSGE1 REFORMS STEERING AND INSTITUTIONAL CAPACITY BUILDING PROJECT 5900155005251 18/07/2013 30/09/2016 1 540 000 1 144 580 74

III

17 OSGE1 STATISTICAL AND PUBLIC FINANCE INSTITUTIONAL SUPPORT PROJECT 2100155025918 23/10/2013 31/12/2017 10 960 000 4 611 180 42

18 OSGE1 PRIVATE SECTOR DEVELOPMENT AND JOB CREATION SUPPORT PROJECT 2100155029868 03/06/2015 30/06/2019 38 000 000 2 448 615 6

19 OSGE1 PUBLIC FINANCE MODERNIZATION SUPPORT PROJECT (PAMFP) 2100155022668 25/04/2012 30/12/2016 10 000 000 8 787 768 88

20 OSGE1 PROJECT TO MOBILIZE AND REVITALIZE PUBLIC ADMINISTRATION

HUMAN RESOURCES

2100155019866 21/01/2011 30/12/2016 20 000 000 18 048 450 90

Total Governance Sector 60 500 000 35 040 593 58

21 OSHD1 EMERGENCY HUMANITARIAN ASSISTANCE TO FLOOD VICTIMS 5000199004368 20/05/2016 31/03/2017 719 259 0 0

22 OSHD1 GENERAL POPULATION CENSUS AND SOCIAL DATABASES

CONSOLIDATION SUPPORT PROJECT

5900155007701 26/11/2014 30/06/2018 15 000 000 132 153 1

Total Social Sector 15 719 259 132 153 1

23 OWAS1 DWSS AND STRENGTHENING OF SOCIO-ECONOMIC INFRASTRUCTURE 2100150030344 27/11/2013 30/06/2019 1 475 000 0 0

OWAS1 DWSS AND STRENGTHENING OF SOCIO-ECONOMIC INFRASTRUCTURE 2100155026317 27/11/2013 30/06/2019 43 525 000 4 927 923 11

OWAS1 DWSS AND STRENGTHENING OF SOCIO-ECONOMIC INFRASTRUCTURE 5800155001251 27/11/2013 30/06/2019 4 746 066 62 621 1

OWAS1 DWSS AND STRENGTHENING OF SOCIO-ECONOMIC INFRASTRUCTURE 5900155005901 27/11/2013 30/06/2019 55 000 000 622 144 1

24 AWTF PREPARATION OF IUWM-MP FOR KINSHASA AND KINSHASA WEST DWS

FEASIBILITY STUDY

5600155004151 26/06/2015 31/12/2019 1 495 609 123 637 8

Total Water and Sanitation Sector 106 241 674 5 736 325 5

TOTAL NATIONAL PORTFOLIO 715 454 102 249 490 445 35

2. Regional Projects

# Division Long Name Loan Number Approval

date

Planned

final Disb.

date

Net loan Amount

Disburs.

Disburs.

Ratio

(%)

Status

25 IPPF EXTENSION OF THE KINSHASA-ILEBO RAILWAY 5150155000501 15/07/2012 31/12/2016 769 607 348 310 45

26 OITC1 KISHASA –BRAZZAVILLE RAILWAY BRIDGE KINSHASA RAILWAY STUDY 2100155015516 03/12/2008 31/12/2016 5 000 000 2 588 426 52 PP

27 OITC1 STUDY ON THE OUESSO-BANGUI-NDJAMENA ROAD AND INLAND

NAVIGATION ON THE CONGO, OUBANGUI AND SANGHA RIVERS

2100155019416 01/12/2010 30/11/2016 8 000 000 1 023 432 13 PPP

Total Transport Sector 13 769 607 3 960 167 29

28 IPPF SUPPORT FOR INGA - 3 DEVELOPMENT 5150155000852 23/08/2013 31/12/2016 1 438 518 1 133 828 79

29 ONEC1 THE INGA SITE DEVELOPMENT AND ELECTRICITY ACCESS SUPPORT

PROJECT

2100155029267 20/11/2013 31/12/2019 39 409 000 2 612 486 7

ONEC1 THE INGA SITE DEVELOPMENT AND ELECTRICITY ACCESS SUPPORT

PROJECT

5900155006203 20/11/2013 31/12/2019 5 000 000 2 108 647 42

30 ONEC1 INTERCONNECTION OF CAR AND DRC POWER GRIDS FROM THE BOALI

HYDROPOWER SYSTEM

2100155024116 19/09/2012 31/12/2017 5 550 000 76 950 1 PP

Total Energy Sector 51 397 518 5 931 911 12

IV

31 OSAN3 DRC- LAKES EDWARD AND ALBERT INTERGRATED FISHERIES & WATER R 2100155030167 20/05/2015 30/06/2021 6 000 000 0 0

Total Agriculture Sector 6 000 000 0 0

TOTAL REGIONAL PORTFOLIO 71 167 125 9 892 078 14

3. Congo Basin Forest Fund Projects

# Division Long Name Loan Number Approval

date

Planned

final Disb.

date

Net loan Amount

Disburs.

Disburs.

Ratio

(%)

Status

32 CBFF CIVIL SOCIETY AND GOVERNMENT CAPACITY BUILDING WITHIN THE RE 5650155000853 13/07/2011 30/09/2016 2 549 136 1 624 711 64

33 CBFF INTEGRATED REDD PILOT PROJECT AROUND THE LUKI BIOSPHERE

RESERVE IN MAYOMBE FOREST

5650155000854 22/07/2011 30/12/2016 1 865 806 1 529 035 82

34 CBFF SUPPORT TO SUSTAINABLE FOREST RESOURCE MANAGEMENT IN

GABON

5650155000803 18/05/2011 31/03/2016 4 777 174 3 276 017 69

35 CBFF VAMPEEM – VALORIZATION OF AFRICAN MEDICINAL PLANT FOR MAINST 5650155001052 16/11/2011 30/11/2016 1 256 229 986 168 79

36 CBFF GEOGRAPHICALLY INTEGRATED REDD PILOT PROJECT (ECOMAKALA +) 5650155000851 12/07/2011 31/10/2016 1 987 145 1 917 049 96

37 CBFF SOUTH KWAMOUTH REDD AGROFORESTRY PILOT PROJECT 5650155000852 12/07/2011 30/09/2016 1 983 163 1 914 647 97

38 CBFF ISANGI GEOGRAPHICALLY-INTEGRATED REDD PILOT PROJECT 5650155000802 19/05/2011 30/09/2016 1 830 244 1 771 843 97

39 CBFF MAMBASA GEOGRAPHICALLY-INTEGRATED REDD PILOT PROJECT 5650155000751 27/04/2011 30/09/2016 2 357 495 1 934 783 82

Total CBFF Projects 18 606 392 14 954 253 80

TOTAL PORTFOLIO 805 227 619 274 336 776 34

V

Annex 3

Development Partners’ Interventions in the Power Sub-Sector in DRC as at June 2016

SOURCES OF

FINANCING

PROJECT AMOUNT

(million

USD)

African

Development

Bank

- Project for the Rehabilitation and Strengthening of the

Inga Hydropower Stations and Kinshasa Distribution

Grid (PMEDE)

- The Nile Equatorial Lakes Subsidiary Action Program

(NELSAP)

- Peri-Urban and Rural Electrifications Project (PEPUR)

- Electrification of Zongo Town from Boali Hydropower

Plants (CAR)

- Study on Inga Site Development and Associated

Electrical Interconnections (EDIRA)

- Inga Site Development and Electricity Access Support

Project (PASEL)

- Power Sector Improvement and Governance Support

Project (PAGASE) (*)

430

TFP

(WB and EIB)

- Project for the Rehabilitation and Strengthening of the

Inga Hydropower Stations and Kinshasa Distribution

Grid (PMEDE)

- Southern African Power Market Programme (SAPMP)

- Project for Improved Electricity Access and Expansion

of Electricity Access in Targeted Areas (EASE) (*)

1275

Bilateral

(China, India

Belgium, Japan

and The

Netherlands)

- Rehabilitation of Tshopo Plant and Kisangani

Distribution Grid

- Rehabilitation of Tshopo Plant and Kisangani

Distributing Grid

- Construction of Zongo Hydropower Plant (147 MW)

- Project to Strengthen Interconnection of Power Grids of

Nile Equatorial Lake Countries - Gisenyi (Rwanda)-

Goma (RDC) Interconnection

- Construction of Kakobola (9 MW) and Katende (64

MW) Hydropower Plants

- Inga II Hydropower Plant Rehabilitation Project

(Generator 24 or 23) (*)

847

(*) being finalized

VI

Annex 4

Map of Project Area

Project Area of Intervention

This map has been provided by the staff of the African Development Bank exclusively for the use of the readers of the report to which it is attached. The

names used and the borders shown do not imply on the part of the Bank Group and its members any judgment concerning the legal status of a territory nor any approval or acceptance of these borders.

LUNGUDI

KINSHASA

ZONGO

INGA

VII

Annex 5

Analysis of Key Drivers of Fragility Taken into Consideration by the Project

Drivers of Fragility

The DRC faces several economic and structural drivers of fragility that affect its institutional,

geographic, security, political and socio-economic environment. These scourges, which are

mutually reinforcing, derive mainly from deep-rooted structural problems linked to the

country’s colonial history. The main drivers of fragility in DRC identified and analysed during

appraisal of the PAGASE project may be summarized as follows: (i) administration’s lack of

authority in the power sector; (ii) socio-economic exclusion linked to low access to electricity;

(iii) SNEL’s weak institutional capacity; (iv) extreme poverty and high unemployment among

young people, and few opportunities for their social and vocational integration; and (v) a tense

and uncertain political situation.

Other social and demographic factors also play a role as drivers of fragility and should be taken

into consideration in this project, namely: (i) the different forms of gender-based violence; and

(ii) the exponential population and urban growth, which represent a real threat to the country’s

stability.

Measures

With a surface area of 2.3 million km², the DRC faces an enormous infrastructure challenge.

Several infrastructure networks have been seriously damaged or neglected as a result of the

destruction caused by the many armed conflicts that the country has experienced. This lack of

basic infrastructure has impeded the process of decentralization and unification of the country’s

different urban and economic centres. The urban growth experienced by the country since its

independence has not been accompanied by corresponding investments and was achieved under

disorganized conditions, as a result of poor urban development management, with no

connections to basic facilities or services. This aspect of urban poverty represents an additional

risk of social tension. Despite the many ongoing reforms, the DRC is the world’s lowest ranked

country as measured by the Human Development Index according to the United Nations Human

Development Report, with over 70% of the population living below the poverty threshold.

Poverty particularly affects young people and women. Against this backdrop, the energy sector,

an anchor sector that falls within the remit of the key functions of government, can serve as a

tool not only to restore the trust of Congolese citizens in central government but also contribute

to poverty reduction by helping to create an enabling business environment for the country.

The PAGASE project will help to reduce fragility by taking the following measures into account

in its formulation and implementation:

Strengthen dialogue with the Congolese Government as well as with its other

TFPs in order to remain informed of the political and security situations, and

reflect the political risk in the project’s monitoring and evaluation system;

Ensure that the project takes into account social sensitivities by taking care not

to increase the exclusion of certain segments of society, particularly taking

gender-equity into account in decision-making concerning electricity access at

community level;

VIII

Provide SNEL with continuing technical support in order to build its capacity

during project implementation;

Ensure that the project, through the establishment of a “Gender, Energy and

Development Unit” at MERH, provides for related activities to empower the

most vulnerable segments of society in close collaboration with the Ministry

of Women, Family and Children, to prevent the duplication of gender

promotion activities;

In the project, make provision for activities relating to the sensitization and

empowerment of the population in the project impact area, concerning the

importance of respecting and maintaining basic infrastructure in the

communities and risks associated with the handling of electricity

infrastructure; and

Ensure that the project will contribute to the creation of sustainable jobs,

especially for young people in both the formal and informal sectors.

IX

Annex 6

Counterpart Funding Waiver

AFRICAN DEVELOPMENT BANK GROUP

INTER-OFFICE MEMORANDUM

Date:

A : M. KANGA

Director, ORCE and Head of Country Team

c/o : S. MALIKO

Resident Representative, CDFO

FROM : J.M.V. DABIRE

Country Economist, ORCE/CDFO

SUBJECT : Democratic Republic of Congo: Power Sector Improvement and

Governance Support Project (PAGASE)

Request for a Waiver of the 10% Minimum Counterpart Funding

The purpose of this memorandum is to present the analysis which justifies this request for a

waiver on the amount of counterpart funding submitted to the Country Team as part of the

financing of the Power Sector Improvement and Governance Support Project (PAGASE). The

aim of the requested waiver is to reduce the Government’s contribution to 1.21% compared to

a 10% minimum stipulated in the ‘Policy on Expenditure Eligible for Bank Group Financing’.

It is based on the three criteria stipulated under the above mentioned Bank policy, particularly

with regard to cost sharing. The analysis of these criteria is summarized below:

1. Country Commitment to Implement its own Development Programme

Since mid-2015, the DRC has experienced negative shocks mainly as a result of a drop in its

main export products, but has been able to maintain macro-economic stability through major

internal adjustment efforts. In 2015, the economy posted growth of 6.9%, with an inflation

rate of 1.0% and a fairly stable exchange rate. In 2016, the difficult external economic situation

coupled with uncertainties concerning the domestic situation impacted negatively on growth,

public finances and the balance of payments. Consequently, the gross domestic product (GDP)

growth rate was revised downwards to 4.3% compared to the initially projected 9%, inflation

is expected to rise to 4.2% and the overall fiscal deficit is expected to represent 1.1% of GDP.

The deficit on the external current account, excluding transfers, is also expected to widen in

2016 by almost 2 GDP points to 8.4% of GDP compared to 2015. It should be noted that the

conclusions of the IMF Article IV Consultation Report (September 2015) pointed out that the

macroeconomic situation was stable despite the country’s fragility and limited external

financing.

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In view of the difficult context, the Congolese Authorities in January 2016 adopted a series of

emergency measures to contribute to the country’s stabilization and economic recovery. They

are intended to increase government revenue and build up the economy’s resilience. The pace

of implementing these reforms must be accelerated in order to achieve the targeted objectives.

In terms of strategy, following the expiry of the second Growth and Poverty Reduction

Strategy Paper (GPRSP 2011-2015), DRC’s development strategy is currently based on the

Priority Action Programme (PAP) 2012-2016. The PAP focuses on five sectors: (i)

sovereignty, defense and security; (ii) economic and administrative governance; (iii)

infrastructure; (iv) production and trade; and (v) the social sectors. High priority has been given

to increasing power generation and improving the population’s electricity access rate. The

Government is also finalizing the National Strategic Development Plan (PNSD) which defines

the country’s development vision up to 2050, the first five-year tranche of which will cover the

2017-2021 period. Closing the energy gap is one of the key factors on which the country intends

to take action under the PNSD, with a view to accelerating its level of development. It is

expected that the different documents relating to the PNSD (Vision 2050, Global and Sector

Strategies, and the Five-Year Plan 2017-2021) will be adopted by the end of 2016.

2. Financing Allocated by the Country to Sectors Targeted by Bank Assistance

Infrastructure modernization is one of the top priorities of the 2012-2016 PAP and the PNSD

that is being finalized. The 2012-2016 PAP whose total cost is USD 46.33 billion has

earmarked 51.5% of its resources to infrastructure development. Financing requirements in

terms of water and electricity infrastructure represent about 34% of total infrastructure

requirements, which is an indication of the priority given to the sector. About 10% of the 2016

Finance Law’s budget was allocated to infrastructure development and improvement of the

living environment, despite budget constraints following the drop in the prices of the country’s

main export commodities. It should also be noted that for several years, the DRC electricity

sector has faced many challenges relating to power generation, transmission and distribution.

Although the country has remarkable energy potential, DRC has fairly low electricity access

rates with 15% in 2015 compared to an average for Africa of 24.6%. In rural areas where over

70% of the population live, only 1% of households have access to electricity compared to 39%

in urban areas. In addition, supply and quality of service have also fallen mainly to the methods

used to operate facilities, characterized by a lack of maintenance and steadily rising demand.

To address all these challenges, closing the energy gap is one of the key factors on which the

country intends to take action under the PNSD, in a bid to accelerate its level of development.

Thus, four energy infrastructure development sub-programmes are defined in the Five-year Plan

2017-2021:

Sub-Programme 1. Improvement of electricity sector governance

Sub-Programme 2. Promotion of energy resource development

Sub-Programme 3. Renewable energy development

Sub-Programme 4. Strengthening of national and sub-regional integration

process

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3. Country Budget Situation and Debt Level

The steady fall in commodity prices could present a risk for the sustainability of DRC’s

public finances. To address the narrowing of fiscal space as a result of the adverse international

situation for mining products, the Government decided in 2015 to curtail certain expenditure,

to safeguard the sustainability of State finances. Therefore, the fiscal deficit was contained at

0.5% of GDP compared to a fiscal surplus representing an average of 1.1% of GDP over the

2012-2014 period. In anticipation of resource mobilization difficulties, the initial 2016 Finance

Law recorded a 0.2% drop compared to 2015. Compared to 2015, it was expected that there

would be a drop of 3.3% in tax revenue, 58.9% in oil revenue and 10.6% in external revenue.

In addition, in order to close the financing gap in 2016, the Government intends to issue bonds

for CDF 746.7 billion (i.e. about 10% of the general budget), on the domestic and foreign

markets. The anticipatory measures have turned out to be insufficient in view of the scale of the

fall in commodity prices (…). This compelled the Government to adopt a Supplementary

Finance Law in June 2016 with a reduction in expenditure of almost 22% in relation to the

initial budget especially because of difficulties in mobilizing the expected bonds.

At the end of June 2016, the public sector cash flow plan resulted in a cumulative budget deficit

of CDF 267.1 billion compared to a cumulative surplus of CDF 30.6 billion over the

corresponding period in 2015. Government revenue had contracted by 13.3% as at 30 June 2016

compared to the same period in 2015, while government expenditure rose by 1.5%. There is

still a risk that this deficit could widen given the continuing drop in export prices. To strengthen

the sustainability of fiscal policy, further efforts are required to ensure stronger mobilization of

fiscal revenue, by broadening the tax base, deepening VAT reform and combating fraud and

tax evasion.

The Congolese Government is continuing to pursue a prudent debt policy to ensure the

sustainability of its public finances as well as its international financial credibility. Therefore,

in the absence of a debt management strategy, the Government has established a rigorous

mechanism for monitoring new commitments to be contracted. The mechanism gives

preference to concessional borrowing, in order to prevent further debt distress. The most recent

debt sustainability analysis conducted jointly by the IMF and World Bank in July 2015 confirms

that the country’s risk of debt distress remains moderate despite its increased volume of

commitments. According to IMF estimates, DRC’s external debt stock was US$ 5.39 billion at

end- 2015, representing 15.2% of GDP. In 2016 this ratio could rise to 16.2% of GDP.

4. Conclusion

Successive reviews of DRC’s portfolio as well as project completion reports show that the

payment of counterpart funds remains a generic and recurrent constraint for all projects. Not

only does such a situation block project implementation but it also impacts negatively on

portfolio performance. In light of the DRC’s situations, the Bank has contributed 100% of the

financing of all expenditure on new projects approved since 2010.

In light of the foregoing, a waiver is requested of DRC’s contribution of 10% to the financing

of the Power Sector Improvement and Governance Support Project (PAGASE).