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The World Bank

Electricity Sector Improvement Project (MESIP) (P166796)

Document of

The World Bank FOR OFFICIAL USE ONLY

Report No: PAD2855

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT

IN THE AMOUNT OF SDR 20.3 MILLION (US$28 MILLION EQUIVALENT)

AND A

PROPOSED SCALE-UP FACILITY CREDIT

IN THE AMOUNT OF EUR 108.9 MILLION

(US$122 MILLION EQUIVALENT)

TO THE

REPUBLIC OF MALI

FOR THE

MALI ELECTRICITY SECTOR IMPROVEMENT PROJECT (MESIP)

May 30, 2019

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

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 30, 2019)

Currency Unit = Euro (EUR)

EUR 0.89190153 = US$1

US$0.72162568 = SDR 1

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

AFD French Development Agency (Agence Française de Developpement) AfDB African Development Bank AMADER Malian Rural Electrification Agency (Agence Malienne pour le Développement de

l’Energie Domestique et de l’Electrification Rurale) AWPB Annual Work Plan and Budget BOAD West African Development Bank (La Banque Ouest Africaine de Développement) BP Bank Procedure CAPEX Capital Expenditure CERC Contingency Emergency Response Component CPF Country Partnership Framework CREE Water and Electricity Regulatory Commission (Commission de Régulation de

l’Electricité et de l’Eau) DA Designated Account DFI Development Financial Institution DLI Disbursement-linked Indicator DNACPN National Directorate of Sanitation and Pollution Control (Direction Nationale de

l’Assainissement et du Contrôle des Pollution) DPF Development Policy Financing EBIT Earnings Before Interest and Tax EBITDA Earnings Before Interest, Tax, Depreciation, and Amortization ECOWAS Economic Community of West African States EDM National Power Utility (Energie du Mali) EEP Eligible Expenditure Program EIRR Economic Internal Rate of Return ENPV Economic Net Present Value ESIA Environnemental and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan FCFA Franc of the African Financial Community (Franc de la Communauté Financière

Africaine) FIRR Financial Internal Rate of Return

FM Financial Management FNPV Financial Net Present Value GHG Greenhouse Gas GIS Geographic Information System GoM Government of Mali GRM Grievance Redress Mechanism GRS Grievance Redress System HFO Heavy Fuel Oil HV High Voltage ICT Information and Communication Technology IEA International Energy Agency IFR Interim Financial Report IPF Investment Project Financing IPP Independent Power Producer IsDB Islamic Development Bank KfW German Government Development Bank (Kreditanstalt für Wiederaufbau) LV Low Voltage M&E Monitoring and Evaluation MEE Ministry of Energy and Water (Ministère de l'Energie et de l'Eau) MIP Management Improvement Plan MV Medium Voltage NPV Net Present Value O&M Operation and Maintenance OM Operations Manual OMVS Senegal River Basin Authority (Organisation pour la Mise en Valeur du fleuve

Sénégal) OPEX Operational Expenses PCB Polychorinated Biphenyls PDO Project Development Objective PIM Project Implementation Manual PIU Project Implementation Unit PPA Power Purchase Agreement PPIAF Public-private Infrastructure Advisory Facility PPSD Project Procurement Strategy for Development RAP Resettlement Action Plan RE Renewable Energy RPF Resettlement Policy Framework SCD Systematic Country Diagnostic SDR Special Drawing Rights SoE Statement of Expenditure SOP Series of Projects SPN Specific Procurement Notice VAT Value Added Tax WAPP West African Power Pool WAEMU West Africa Economic and Monetary Union WTP Willingness-to-pay

https://www.uclg.org/en/node/1639

Regional Vice President: Hafez M. H. Ghanem

Country Director: Soukeyna Kane

Senior Global Practice Director: Riccardo Puliti

Practice Manager: Charles Joseph Cormier

Task Team Leader: Franklin Koffi S.W. Gbedey

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BASIC INFORMATION

BASIC INFO TABLE

Country(ies) Project Name

Mali Mali Electricity Sector Improvement Project (MESIP)

Project ID Financing Instrument Environmental Assessment Category

P166796 Investment Project Financing B-Partial Assessment

Financing & Implementation Modalities

[ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC)

[ ] Series of Projects (SOP) [✓] Fragile State(s)

[✓] Disbursement-linked Indicators (DLIs) [ ] Small State(s)

[ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country

[ ] Project-Based Guarantee [ ] Conflict

[ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster

[ ] Alternate Procurement Arrangements (APA)

Expected Approval Date Expected Closing Date

20-Jun-2019 31-Jan-2025

Bank/IFC Collaboration

No

Proposed Development Objective(s)

The Project Development Objectives are to improve (i) the reliability and efficiency of electricity supply in Bamako and (ii) the technical and commercial performance of EDM.

Components

Component Name Cost (US$, millions)

Component 1- Improvement and expansion of transmission and distribution 99.00

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Component 2- Capacity strengthening and technical assistance 20.00

Component 3 - EDM Governance improvement and support to the implementation of the EDM Restructuring Plan 30.00

Component 4 - Operational support 3.10

Organizations

Borrower: Republic of Mali (Ministère de l'Economie et des Finances)

Implementing Agency: Energie du Mali - S.A

PROJECT FINANCING DATA (US$, Millions)

SUMMARY-NewFin1

Total Project Cost 152.10

Total Financing 152.10

of which IBRD/IDA 150.00

Financing Gap 0.00

DETAILS-NewFinEnh1

World Bank Group Financing

International Development Association (IDA) 150.00

IDA Credit 122.00

IDA Grant 28.00

Non-World Bank Group Financing

Counterpart Funding 2.10

Borrower/Recipient 2.10

IDA Resources (in US$, Millions)

Credit Amount Grant Amount Guarantee Amount Total Amount

National PBA 0.00 28.00 0.00 28.00

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Scale-up Facility (SUF) 122.00 0.00 0.00 122.00

Total 122.00 28.00 0.00 150.00

Expected Disbursements (in US$, Millions)

WB Fiscal Year 2019 2020 2021 2022 2023 2024 2025

Annual 2.00 25.00 69.00 28.00 16.00 5.00 5.00

Cumulative 2.00 27.00 96.00 124.00 140.00 145.00 150.00

INSTITUTIONAL DATA

Practice Area (Lead) Contributing Practice Areas

Energy & Extractives

Climate Change and Disaster Screening

This operation has been screened for short and long-term climate change and disaster risks

Gender Tag

Does the project plan to undertake any of the following?

a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF Yes

b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment Yes

c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes

SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)

Risk Category Rating 1. Political and Governance High

2. Macroeconomic High

3. Sector Strategies and Policies High

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4. Technical Design of Project or Program Moderate 5. Institutional Capacity for Implementation and Sustainability Substantial

6. Fiduciary Substantial

7. Environment and Social Substantial

8. Stakeholders Moderate

9. Other Substantial

10. Overall High

COMPLIANCE

Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 ✔

Performance Standards for Private Sector Activities OP/BP 4.03 ✔

Natural Habitats OP/BP 4.04 ✔

Forests OP/BP 4.36 ✔

Pest Management OP 4.09 ✔

Physical Cultural Resources OP/BP 4.11 ✔

Indigenous Peoples OP/BP 4.10 ✔

Involuntary Resettlement OP/BP 4.12 ✔

Safety of Dams OP/BP 4.37 ✔

Projects on International Waterways OP/BP 7.50 ✔

Projects in Disputed Areas OP/BP 7.60 ✔

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Legal Covenants

Sections and Description PA, Schedule, Section I, A, 4: The Project Implementing Entity shall, not later than three (3) months after the Effective Date, appoint to the PIU, and thereafter maintain throughout Project implementation, an accountant, an additional financial management specialist, and an additional procurement specialist, satisfactory to the Association. Sections and Description PA, Schedule, Section I, A, 5(a): The Project Implementing Entity shall, for purposes of implementation of Part 3 of the Project, appoint, not later than six (6) months after the Effective Date, and thereafter maintain throughout Project implementation, an independent verification agency, under terms of reference satisfactory to the Association, for verification of the data and other evidence relating to the achievement of Disbursement-Linked Results and recommend corresponding payments to be made, as applicable. Sections and Description PA, Schedule, Section I, C, (a): The Project Implementing Entity shall prepare and furnish to the Association for approval and to the Recipient, the annual work plan and budget for the Project for the first year of Project implementation, which shall be furnished not later than one (1) month after the Effective Date. Sections and Description FA, Schedule 2, Section I, A, 2: The Recipient shall establish, not later than three (3) months after the Effective Date, and thereafter maintain throughout Project implementation, the Project Steering Committee, headed by the Minister of Energy and Water or the Secretary General of the Ministry of Energy and Water, and including representatives of the Ministry of the Economy and Finance and the Regulatory Commission for Electricity and Water and the Director General or another representative of the Project Implementing Entity, with an institutional framework, functions, and resources satisfactory to the Association for such purpose.

Conditions

Type Description Effectiveness The standard effectiveness condition is the legal opinions to be issued by the Recipient’s

Attorney General showing that: (i) on behalf of the Recipient, the Financing Agreement and the Subsidiary Agreement have been duly authorized or ratified by, and executed and delivered on behalf of the Recipient and are legally binding upon the Recipient in accordance with their respective terms; and (ii) on behalf of EDM, the Project Agreement and the Subsidiary Agreement have been duly authorized or ratified by, and executed and delivered on behalf of EDM and are legally binding upon EDM in accordance with their respective terms.

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Type Description Effectiveness FA, Article IV: Section 4.01.(a): The Project Implementing Entity has established the Project

Implementation Unit in accordance with the provisions of Section I.A.2 of the Schedule to the Project Agreement.

Type Description Effectiveness FA, Article IV: Section 4.01.(b): The Project Implementing Entity has adopted the Project

Implementation Manual in accordance with the provisions of Section I.B.1 (a) of the Schedule to the Project Agreement.

Type Description Disbursement FA, Schedule 2, Section III, B, 1(c): No withdrawal shall be made under Category (3), until and

unless the Recipient has furnished evidence satisfactory to the Association that the respective DLRs set forth in the table in the Annex to this Schedule have been achieved in accordance with the Verification Protocols, as confirmed by the independent verification agency referred to in Section I.A.4 of the Schedule to the Project Agreement.

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. MALI

MALI ELECTRICITY SECTOR IMPROVEMENT PROJECT (MESIP)

Contents I. STRATEGIC CONTEXT ........................................................................................................ 9

A. Country Context ................................................................................................................. 9

B. Sectoral and Institutional Context ................................................................................... 10

C. Higher Level Objectives to which the Project Contributes ............................................. 14

II. PROJECT DEVELOPMENT OBJECTIVES ............................................................................. 16

A. PDO ................................................................................................................................... 16

B. Project Beneficiaries ......................................................................................................... 16

C. PDO-Level Results Indicators ........................................................................................... 16

III. PROJECT DESCRIPTION ................................................................................................... 16

A. Project Components ......................................................................................................... 16

B. Results Chain..................................................................................................................... 22

C. Project Cost and Financing ............................................................................................... 23

IV. IMPLEMENTATION ......................................................................................................... 25

A. Institutional and Implementation Arrangements ........................................................... 25

B. Results Monitoring and Evaluation ................................................................................. 26

C. Sustainability .................................................................................................................... 26

D. Role of Partners ................................................................................................................ 27

V. APPRAISAL SUMMARY ................................................................................................... 27

A. Economic and Financial Analysis ..................................................................................... 27

B. Technical ........................................................................................................................... 29

C. Financial Management ..................................................................................................... 29

D. Procurement ..................................................................................................................... 30

E. Social (including Safeguards) ............................................................................................ 32

F. Gender ............................................................................................................................... 32

G. Environment (including Safeguards) ............................................................................... 33

H. World Bank Grievance Redress ....................................................................................... 34

VI. KEY RISKS ....................................................................................................................... 35

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A. Overall Risk Rating and Explanation of Key Risks ........................................................... 35

VII. RESULTS FRAMEWORK AND MONITORING .................................................................... 37

ANNEX 1: DETAILED PROJECT DESCRIPTION ......................................................................... 55

ANNEX 2: IMPLEMENTATION ARRANGEMENTS .................................................................... 64

ANNEX 3: IMPLEMENTATION SUPPORT PLAN ...................................................................... 77

ANNEX 4: ECONOMIC AND FINANCIAL ANALYSIS ................................................................. 81

ANNEX 5: FINANCIAL SITUATION OF THE POWER SECTOR .................................................... 90

ANNEX 6: EDM CORPORATE AND FINANCIAL RESTRUCTURING PROGRAM ......................... 113

ANNEX 7: MAP .................................................................................................................. 122

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I. STRATEGIC CONTEXT

A. Country Context

1. Mali is a vast, landlocked, and geographically diverse country located in the western part of Sub-Saharan Africa. Spread over a surface area of 1,241,230 km2, the country encompasses parts of the Sahara Desert, the Sahel in the north, and more fertile areas in the south. About 65 percent of Mali’s land area is desert or semidesert with economic activity confined to the riverine area irrigated by the Niger River. The population was estimated at 18.6 million in 2017 and approximately 75 percent of the active population works in the agriculture sector. Mali’s population increases by 3.02 percent on average, per year; and as such, it is expected to double by 2035. High population growth rates and adverse climatic events, such as the severe droughts in 2011, constitute major challenges for the country’s agriculture sector and food security, and the country’s poverty levels are highly vulnerable to climatic and economic shocks.

2. Mali has a low human development index (0.427), ranking 182 among 189 nations (2017 ranking)1. This indicates a low level of achievement in three basic dimensions of human development—including life expectancy, level of education, and standard of living. The national poverty rate of 42.7 percent in 2017, masks regional disparities in wealth distribution, and a large urban-rural divide. Approximately, 90 percent of all poor people live in rural areas (which cover 73 percent of the total population) and are concentrated in the south of the country, where the population density is the highest. Conflict—arising from allocations of increasingly deteriorating natural resources—has also increased the incidence of poverty.

3. In early 2012, some regions in the northern part of the country fell under the control of extremist forces, while a coup d’état in its capital city created political instability and turmoil. In early 2013, a strong international military response prevented further destabilization, and a peace agreement between the Government of Mali (GoM) and the ‘Platform and Coordination Groups in the North’ in June 2015 revived hopes for peace and stability. This political and security crisis eroded the ability of the GoM to provide basic services to the populations especially in the north, where some regions remain outside government control. Security conditions are volatile with armed groups defying state authority in the center of the country and criminal activities spreading to the south. With the progressive consolidation of political stability and improved security conditions in 2013, annual growth resumed at 2.3 percent and accelerated to 7 percent in 2014, its highest level since 2003 (when it was 7.6 percent). By 2014, economic growth had reached precrisis levels, indicating that the economy was catching up and recovering from the crisis.

4. Despite volatile security conditions, with an average annual growth rate exceeding 5 percent over 2014–2018, economic performance remains strong. Annual gross domestic product growth is expected to hold steady at about 5 percent over the medium term. Cotton and gold exports make up around 80 percent of export earnings. The country's fiscal status fluctuates with commodity prices and rainfall patterns. In 2017, the inflation rate was modest at 1.8 percent due to higher food prices and increased international oil prices. Despite pressure on public expenditure, the authorities have managed to contain the budget deficit to 2.9 percent, owing to the rationalization of current expenditure and significant improvement in domestic

1 United Nations Development Program (UNDP) 2017 Human Development Report

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revenue. The most recent debt sustainability analysis conducted by the International Monetary Fund (May 7, 2018) 2 concluded that the country’s risk of external debt distress is moderate; though vulnerable to changes in financing conditions and shocks to export growth.

B. Sectoral and Institutional Context

5. Despite significant progress over the last decade, access to modern energy services in Mali remains low, particularly in rural areas. The electricity access rate in 2017, is about 39 percent nationally (compared to 64 percent in Senegal and 63 percent in Côte d’Ivoire), corresponding to an access rate of 86 percent in urban areas and 19 percent in rural areas (International Energy Agency (IEA), World Electricity Outlook 2017). In rural areas, households mainly rely on fuelwood for cooking and kerosene lamps for lighting. The electricity service delivery in Mali is under the responsibility of the vertically integrated state-owned utility (Energie du Mali, EDM), which operates under a concession agreement signed with the GoM. Within the perimeter of its concession, the EDM has monopoly over power transmission and distribution, while generation is open to the private sector through independent power producers (IPPs). The EDM is therefore the single buyer for the power supplied by the IPPs. The energy supplied is generated by the EDM-owned and rented thermal generation plants, electricity imports from Côte d’Ivoire, and from the regional hydropower facilities (Manatali and Felou) owned by the Senegal River Basin Authority (Organisation pour la Mise en Valeur du fleuve Senegal, OMVS) and managed by the OMVS’ energy management company.

6. The Malian Rural Electrification Agency (Agence Malienne pour le Développement de l'Energie Domestique et l'Électrification Rurale, AMADER) has the mandate to provide electricity services to the population living outside the EDM concession area. The agency, which was created in 2003, supplies electricity to rural areas through a public-private partnership approach, whereby rural electrification concession mini-grids were awarded to private operators. As the cost of electricity in the rural concession areas are generally twice or more as expensive as grid-connected electricity, and reliability of electricity is poor, the Government is extending the EDM concession to selected rural areas to take over the rural concessions from the private sector. Additional efforts are under way to improve the business model and reduce costs in those rural areas where the grid is not expected to reach within the next decade.

7. The Water and Electricity Regulatory Commission (Commission de Régulation de l'Electricité et de l'Eau, CREE) was established in 2000 to regulate the water and electricity sectors. CREE’s mandate, which is limited to EDM’s concession perimeter, is to protect customers, promote competition when possible, arbitrate disputes between the GoM and operators, and approve adjustments to ensure cost-reflective tariffs. However, CREE does not have a mandate to reject new deals which arise from direct negotiations of the Government with private operators that may not be part of the least-cost generation plan. In addition, while the GoM ultimately pays a tariff compensation, it is neither sufficient nor timely, and there is no legislated compensation mechanism. CREE reports to the Prime Minister’s Office.

8. Mali relies heavily on expensive thermal power generation, which has a significant impact on the financial viability of the sector. In 2017, the total peak demand in the interconnected system was 338 MW of which 80 MW (24 percent) was supplied by rental thermal rental plants, 63 MW (19 percent) by the EDM thermal power plants, 116 MW (34 percent) by Manantali and Felou hydropower plants, and 50 MW (15 percent) from electricity imports from Côte d’Ivoire (see figure 1). Additionally, isolated remote areas

2 International Monetary Fund. 2018. Country Report No. 18/141.

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located far away from the grid are supplied with diesel-powered mini-grids, with a total installed capacity of 90 MW.

Figure 1. Actual Energy Mix in the Mali Electricity Sector

Source: EDM Annual report 2017

9. The EDM continues to operate at a loss, as the average tariff of CFAF 96.5 per kWh (US$0.17 per kWh) does not cover the cost of service, which stands at CFAF 138.4 per kWh (US$0.244 per kWh). The tariff deficit of CFAF 41.9 per kWh (US$0.074 per kWh) is equivalent to 30 percent of the total cost of electricity per kWh. The operational subsidy of CFAF 34 billion (US$59.8 million) received from the Government in FY17 reduced the tariff deficit by the equivalent of CFAF 16.3 per kWh (US$0.029 per kWh), leaving a gap of CFAF 25.6 per kWh (US$0.045 per kWh), equivalent to a total operational shortfall of CFAF 53.3 billion (US$93.9 million) for the year. This shortfall does not reflect the cash needs to pay debt service and fund capital expenditure (CAPEX).

10. To continue providing electricity services, the EDM has relied on commercial loans to fill the ever-increasing cumulative cash shortfall. The situation has reached a point where the EDM can no longer pay for debt service unless it contracts additional debt, and the EDM is therefore insolvent. Faced with the increasing liquidity challenges, the EDM has been relying heavily on short-term borrowing to meet its obligations and has delayed payments to fuel and power suppliers, including for electricity imports from neighboring countries such as Côte d’Ivoire. As of FY17, the EDM had CFAF 163.5 billion (US$288 million) of financial debt outstanding with 16 different financial institutions (including Development Financial Institutions [DFIs] and commercial banks) plus CFAF 34.5 billion (US$60.8 million) of trade payables. The EDM’s operation is currently unable to generate enough cash to pay the company’s debt service obligations or commercial obligations.

11. The financial viability of the EDM has been undermined by high generation costs as well as high losses and uncollected receivables. The EDM’s system losses stood at 19 percent in FY17 and represented approximately CFAF 8.6 billion (US$15 million) of lost revenues. The company has been implementing measures which reduced losses steadily during the past years. Further reduction in technical losses will require investments that the EDM cannot afford due to its current financial situation. The company had CFAF 105.6 billion (US$186 million) of past due receivables in FY17, the vast majority of which relate to public lighting and government companies and other public sector customers. It is essential that the

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underlying issue of public lighting be addressed, to find a suitable solution. Several options are under consideration, including the installation of solar rooftops, the implementation of an energy efficient program, prepaid meters, or a centralized payment system to securitize EDM revenues arising from the consumption of electricity from the public sector.

12. Poor planning and lack of funding has led to obsolete transmission and distribution infrastructure with high losses. The quality of the electricity provided by the EDM has been deteriorating due to aging transmission and distribution infrastructure. The EDM’s customer base has increased rapidly, from 120,000 households to close to 400,000 in the past 12 years, with the demand growing at a compounded annual growth rate of 10 percent over the same period. The Electricity Masterplan3 has identified investment needs estimated at US$1.3 billion through 2034, including US$867 million by 2021 alone. The scale and rapid pace of this investment plan illustrates the need to address the transmission and constraints to support the development of the sector.

Table 1. Mali Key Electricity Sector Indicators (2017)

Sector Indicators Mali Legal access to electricity (% of population) 39 Installed capacity (MW) 694 Annual energy generation (GWh) 2,081 Number of registered customers 271,249 System losses (%) 19 Average electricity tariff (US$ per kWh) 16.98 (2018) Average cost of service (US$ per kWh) 24.35 (2018) Annual turnover (US$, millions) 307 Collection rate (%) after 3 months 85 Number of utility staff 2,271

13. To address the challenges faced by the EDM and restore its profitability, a Debt Restructuring Study was conducted in 2018, which recommended a Corporate and Financial Restructuring Program intended to place the utility in the path to financial long-term sustainability (see annex 6). The EDM's Corporate and Financial Restructuring Program would be implemented in two phases: (a) a 12-month financial and operational recovery period (2019) during which the company will implement actions that aim to increase the EDM's revenue and fundraising by at least 10 percent, reduce the EDM's expense by 10 percent, support the recovery of basic costs, and improve the EDM's credit and capital profile and (b) a stabilization period of four years (2020–2023) during which the company will implement the actions aimed at achieving the technical and financial viability in the medium and long term independently. This Investment Project Financing (IPF) operation and the proposed Development Policy Financing (DPF) operation under preparation will jointly support the restructuring program, which requires improved governance that is underpinned by disbursement-linked indicators (DLIs) under this operation and prior actions in the proposed DPF series. The two operations will focus on the following three objectives: (a) meet the utility cashflow needs in the short run; (b) relieve the utility of the debts service through the refinancing

3 Étude de la demande et du plan directeur d’investissements optimaux pour le secteur de l’électricité au Mali, Artelia Eau and Environnement, March 2015.

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of the commercial debts; (c) increase revenues and reduce expenses; and (d) increase imports and improve the energy mix in the long run.

14. The objective of the Corporate and Financial Restructuring Program is to substantially reduce government subsidies to the power sector by 2021, with a residual progressive subsidy required to achieve universal access by 2030. Key actions identified for the restructuring are (a) the recovery of past due receivables from the Government for public consumption and arrears in subsidy payment; (b) the implementation of a loss reduction and revenue protection plan; (c) a gradual tariff adjustment and revision program; (d) the refinancing of the tenor of short-term commercial debt for longer tenor (five years) and lower interest rate; (e) the progressive payment of supplier’s payables over a two-year period; (f) the improvement of the fuel mix by eliminating emergency plants, increasing import from neighboring countries (Côte d’Ivoire and Guinea), and increasing hydrogeneration through the full refurbishment of the existing hydro power plants; and (g) the separation of the EDM’s activities in business units with their respective separate accounts to provide transparency and accountability, improve management practices, and inform strategic decision making.

15. The financing needs of the sector are massive and only a strong partnership with the donors and the private sector can allow the GoM to meet these needs. In addition to the investments needed for power generation, which will be mostly driven by the private sector, the transmission segment will need US$1.4 billion by 2034 according to the Electricity Masterplan. An average of US$27 million of additional investments in the distribution network is needed annually, to deliver reliable and affordable electricity services to the growing number of customers.

16. While the Government recognizes that a tariff increase may be part of the solution, global experience in subsidy reform has shown that a political consensus is required to successfully increase end user electricity tariffs. For Mali, reaching political consensus at this time would be difficult given affordability concerns, as electricity tariffs continue to be significantly above the global average and an important component of monthly household expenditures. Globally, there are very few examples of successful tariff increases in fragile and conflict situations, especially when the tariff is already above the global average. In addition, countries in the sub region are reluctant to increase tariffs, following the experience of Côte d’Ivoire, which had to reverse a modest retail tariff increase of 10 percent announced in 2016, following significant opposition from industries and mass protests. It should be noted that Côte d’Ivoire’s tariffs are already among the lowest in West Africa at FCFA 74 per kWh. Lessons learned globally shows that there is a greater likelihood of success in subsidy reforms if there is a credible promise of improved service delivery, which is an important enabling condition for a successful tariff increase.

17. One of the major reforms that can significantly reduce the cost of service and be an important plank in the effort to achieve financial sustainability is a shift toward electricity imports and clean energy. Following significant investments, the primary interconnectors pursuant to the West African Power Pool (WAPP) will be completed by the early 2020s, which will enable Mali to be connected to the regional power market. A new transmission line with Côte d’Ivoire is under construction and will allow the import of 200 MW of electricity, while the upgrade of the transmission line from Manantali to Bamako, as part of the OMVS system, is planned for 2021. The Guinea-Mali interconnection project is approved and will provide 200 MW of electricity imports by 2025. This will allow Mali to increase electricity imports from 30 percent to 60 percent of the energy mix (including gas and hydropower imports) and gradually phase out expensive thermal power generation. Doing so requires adequate investments in transmission and distribution, to

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import excess generation capacity from neighboring countries and integrate renewable energy (RE) (solar) into the electricity system.

18. The development of solar power projects will contribute to higher generation capacity and lower the cost of electricity production. Three new solar generation IPPs for a total capacity of 133 MWp are currently under preparation. Finally, the World Bank is financing a feasibility analysis for a 150 MW solar park, which is part of the WAPP Master Plan. The solar park project is expected to be developed by the private sector, with public support for the development of shared infrastructure.

C. Higher Level Objectives to which the Project Contributes

19. The provision to improve electricity services and development of energy infrastructure represents a key component of the GoM’s strategy to support economic development. The proposed project directly contributes to the World Bank Group’s strategy in Mali, as set out in the FY16–19 Country Partnership Framework (CPF) for Mali,4 which lays out three areas of focus that will be supported by the World Bank Group’s interventions. The project is aligned with the third subobjective under CPF’s second area of focus (creating economic opportunities) which aims to improve infrastructure and connectivity for all Malians by increasing the capacity of the energy sector both through policy reforms and investments, among others.

20. The proposed project is aligned with the Maximizing Finance for Development pillar of the World Bank’s Africa Strategy. This operation will improve the financial vitality of the utility, which will enhance its creditworthiness as off-taker of the electricity imported or supplied by IPPs. In addition, by lowering the cost of service, the operation will improve the affordability of electricity for Malian consumers.

21. The proposed project is also aligned with the Scale Up Facility (SUF) objectives. SUF financing has been mobilized for the proposed project in view of its transformative impact on more than 400,000 people, who will benefit from safe and reliable electricity services. Specifically, the SUF funds support the implementation of the sector restructuring plan to (i) improve the financial viability of the sector and the utility; (ii) establish a sound sector planning framework; (iii) strengthen the government planning capacity and the utility management and operation capacities; and (iv) rehabilitate, reinforce, and expand the transmission and distribution network to reduce technical and commercial losses, improve the quality of supply, and increase access to electricity services and utility's revenues. The SUF financing (US$122 million) is blended with an IDA grant (US$28 million) to achieve a minimum total concessionality of 40 percent. The project will also promote the increase of power trade between Mali and its neighboring countries. The access to electricity sub-component will prioritize women lead household and thus contribute to the promotion of income generation opportunities for women and the improvement of health and education benefits for women and girls.

22. The proposed operation is well aligned with the Sahel Alliance initiative, which is an international cooperation platform for the Sahel region officially launched in February 2018. The alliance seeks to contribute to the stabilization of the security situation and the eradication of poverty in the Sahel, by developing solutions for rural areas, creating employment for young people, improving energy infrastructure, strengthening governance, and fighting against climate change. In the energy sector, the

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objective of the alliance is to attain double access to electricity within five years. The World Bank is one of the Sahel Alliance’s founding members.

23. The project is anchored in a strong sector dialogue with the Malian authorities and fits with the GoM’s strategic objective to achieve fiscal consolidation and strengthen public financial management (FM) and governance. To that effect, the GoM has adopted a new integrated public management reform plan for 2017–2021 which aims to strengthen fiscal discipline and strategic allocation of resources. Currently, the energy sector relies considerably on public subsidies, which particularly benefit better-off urban households. The opportunity cost of these subsidies is deemed high as alternative use of these public resources is likely to be more pro-poor than its present use. The improvement of the performance of the energy sector (and that of the EDM) as well as the restoration of its financial sustainability are therefore at the center of the GoM’s reform agenda. The project supports the electricity sector reform strategy of the GoM outlined in a 2017 road map (Feuille de Route pour Appuyer le Développement du Secteur de l’Energie au Mali), which presents a combination of policy reforms and investments to restore financial equilibrium in the sector.

24. The project is part of a comprehensive development assistance package to the electricity sector to support the development agenda outlined by the GoM. It is a follow up of the IDA-funded Mali Energy Support Project (P108440) which closed in June 2018 and was set up to improve the access and efficiency of electricity services in Bamako and grid-connected areas in the country. Off-grid electricity services are supported through the Rural Electrification Hybrid System Project (P131084), currently under implementation, which aims to expand access to modern energy services in rural areas and increase RE generation in selected rural areas. The project investments are required to increase the reliability of the grid around Bamako, where most of the EDM’s current customers are located, to enable an increase in imports to reduce the cost of the mix. Otherwise they will be supplied by injecting power closer to the substations, and thus relying on thermal power. In addition, a financially viable EDM will enable further investments in grid connected access, which remains the cost-effective solution given economies of scale.

25. The project strengthens the electricity sector reform agenda. The Second Poverty Reduction and Inclusive Growth Support Operation (P161619) supports reforms to enhance the efficiency of the electricity sector, and the implementation of a revenue protection mechanism through the installation of up to 6,000 smart meters for large electricity customers—about 40 percent of the total revenue generated. A new DPF (Mali Energy and Decentralization DPF, P167547) that includes energy sector prior actions and complements this operation is under preparation. While the project activities address medium-term reform actions, the DPF focuses on the (a) timely payment of the central administration and government entities electricity bills; (b) adjustment of medium voltage (MV) tariffs and subsidies; (c) clearing of central administration’s arrears; (d) restructuring of the EDM’s debt with commercial banks; and (e) recapitalization of the EDM. The proposed DPF is scheduled for Board submission in October 2019.

26. Three regional projects involving Mali, have just been approved: (a) the ECOWAS-Regional Electricity Access Project (P164044) which aims to connect 100,000 households to the grid from regional substations in Mali; (b) the Solar Development in Sub-Saharan Africa Series of Projects (P162580), which seeks to promote the development of the country’s solar generation potential through supporting the preparation of a solar park; and (c) the Regional Off-grid Electrification Project (P160708), which seeks to develop the market for off-grid access through solar photovoltaic systems. Analytical work is also deployed through a grant provided by the Public-private Infrastructure Advisory Facility (PPIAF), to support private

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sector participation in the energy sector in Mali, and an Energy Sector Management Assistance Program (ESMAP) grant to support the preparation of a tariff and cross subsidy study. A Global Infrastructure Facility (GIF) operation is under preparation to provide assistance to the development of hydro-connected solar systems (floating solar) and a 150 MW regional solar park in Mali.

II. PROJECT DEVELOPMENT OBJECTIVES

A. PDO

27. The Project Development Objectives (PDOs) are to improve (i) the reliability and efficiency of electricity supply in Bamako and (ii) the technical and commercial performance of EDM.

B. Project Beneficiaries

28. The direct project beneficiaries are all new and existing electricity consumers located within the EDM’s concession area. These include (a) residential households; (b) commercial consumers; and (c) industrial customers. As the project will connect 25,000 new households within the selected areas, these customers as well as the existing 400,000 ones, will benefit from safe and reliable electricity services, because of the EDM’s improved performance and strengthened transmission and distribution infrastructure.

C. PDO-Level Results Indicators

29. Progress toward achieving the PDO will be measured by the following project outcome indicators:

• Reduction of EDM expenses per unit (percentage) • Increase of EDM revenue per unit (percentage) • Total collection rate (percentage) • System losses in Bamako (percentage) • Power outages per year in substations rehabilitated by the project (number)

III. PROJECT DESCRIPTION

A. Project Components

30. The project will support the reform program of the utility, address management improvement challenges, and support the Government in sector planning. The project consists of four components for a total of US$152.1 million (including counterpart funding):

(a) Component 1: Improvement and expansion of transmission and distribution (US$99 million equivalent). The activities envisaged are rehabilitation; reinforcement; and expansion of the transmission and distribution network to reduce technical and commercial losses, improve the quality of supply, and increase access to electricity services.

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(b) Component 2: Capacity strengthening and technical assistance (US$20 million equivalent). The objective of this component is to strengthen the capacity of the EDM for day-to-day operations and provide targeted technical assistance to the EDM and other sector agencies.

(c) Component 3: EDM Governance improvement and support to the implementation of the EDM Restructuring Plan (US$30 million equivalent). The objective of this component is to support implementation of key actions under the EDM Corporate and Financial Restructuring Program, the EDM’s management improvement plan (MIP) and improving the fuel delivery and storage system.

(d) Component 4: Operational support (US$3.1 million equivalent). The component will provide support to the implementation of citizen engagement and the project management activities of the Project Implementation Unit (PIU).

31. Disbursement under Component 3 will be made conditional to the achievement of the Disbursement-linked Indicators (DLIs). These DLIs are necessary steps toward achieving the PDO, complementing the financing of inputs under the other components. Components 1, 2, and 4 follow the regular reimbursement mode based on statements of expenditures after the completion of activities. A detailed description of the project is provided in annex 1.

Component 1: Improvement and expansion of transmission and distribution (US$99 million equivalent of which IDA US$97 million)

32. The objective is to improve the transmission and distribution infrastructure of the EDM. The rapid growth of the demand has overloaded the transmission and distribution network. The transmission lines are overloaded and the transformers in key substations are congested because of limited transit capacity and flexibility. Thus, the technical losses are high, and the reliability of the system is poor. This component is designed to reinforce and expand the transmission and distribution network to address the congestion and increase its ability to meet growing demand.

Subcomponent 1.1: Construction of transmission line, construction/rehabilitation/upgrade and expansion of HV/MV substations, construction of MV network (IDA US$91 million equivalent)

33. For the transmission line, the objective is to close the loop of the existing HV lines of Bamako city (looping) by the construction of the Balingue–Dar Salam - Lafia HV double circuit lines and reinforce the existing HV links by a second circuit between Balingue-Sirakoro and Kodialani-Lafia. The sections of the cables could be increased to allow the transition of more power and reduction of losses. The looping and the doubling of the line will ensure greater reliability of the supply of electricity. The exact line route of the Balingue-Dar Salam line will be known when the feasibility studies are completed.

34. In this subcomponent, the main substations in Bamako will be rehabilitated. The existing switching equipment will be renewed, the capacity of the substations will be upgraded, and the 15-kV metal-clad switchgears and the Substation Control System will be replaced. These substations will be extended with new Balingue and Sirakoro substations being considered in this rehabilitation. A new substation of Dar Salam will be constructed between the existing substations of Balingue and Lafia to supply the growing load in the Dar Salam area. Two new 30/15 kV substations will be built in Niamakoro and

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Bacodjicoroni. The rehabilitation will consist of replacing obsolete critical substation equipment such as breakers, switches, auxiliaries and power supplies, and protection and control equipment. Where necessary, civil works will be performed to secure the equipment and the operators. To upgrade the system, higher capacity transformers and capacity banks will be installed with the objective of increasing the transit capacity and reducing technical losses. In the 30-kV system, higher capacity cables will be installed in place of the existing cables in selected portions of the network.

35. This subcomponent will also support the rehabilitation, strengthening, and extension of Bamako’s 15-kV network through (a) creating direct links (two 30 kV links and one 15 kV link) between the Bacodjicoroni and Niamakoro substations to improve the reliability and flexibility of operation, provide N-1 capability, and reduce technical losses; (b) constructing 15 kV feeders to reduce the load and system losses; (c) increasing the section of existing 15 kV feeders to increase the transit capacity; and (d) extending the existing 15 kV feeders to serve new loads and increase access. The exact location of the new substations will be known after the ongoing feasibility studies are completed.

Subcomponent 1.2: Expansion of the network and connection of new households (IDA US$6 million equivalent)

36. This activity is focused on the construction of new distribution infrastructures such as substations, MV feeders, MV/LV transformer stations, LV lines, and the connection of new households. The construction of a new 30/15 kV substation is envisaged in areas where the load has increased significantly with the objective of bringing the supply closer to the consumers and reducing technical losses. New feeders will be installed to integrate the new substations into the existing system and ensure redundancy, thus increasing reliability. Feeders will also be installed to supply new consumers in the peri-urban areas of Bamako. To increase the number of new consumers, new MV/LV transformer stations and LV lines will be installed and 25,000 new connection equipment (including prepayment meters) will be acquired and installed. As the high connection fee is a barrier for new consumers, it is envisaged that new consumers will pay only 20 percent of the connection upfront and the balance will be spread over at least 12 months on their electricity bills. The feasibility study will determine the locations of the distribution equipment.

Component 2: Capacity strengthening and technical assistance (IDA US$20 million equivalent)

37. The objective of this component is to strengthen the capacity of the EDM for day-to-day operations and provide targeted technical assistance to the EDM and other sector agencies. This support will be subdivided into two subcomponents.

Subcomponent 2.1: Capacity strengthening (IDA US$15 million equivalent)

38. This subcomponent will support the implementation of the EDM’s Information and Communication and Technology (ICT) Master Plan. The subcomponent will finance the acquisition and installation of software (planning and design software and operation and maintenance [O&M] software), various equipment (underground fault detection vehicles and tools and security and O&M equipment), and logistics (vehicles for O&M and heavy load trucks equipped with cranes), to improve the planning and the O&M of the network. This subcomponent will also finance the procurement of the logistics (vehicles, motorcycles, and so on) required to improve customer service management.

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Subcomponent 2.2: Technical assistance (IDA US$5 million equivalent)

39. Under this subcomponent, the sector planning capacity of the Ministry of Energy and Water (Ministère de l'Énergie et de l'Eau, MEE) and EDM will be strengthened. The sector planning capacity (including tools, equipment, and training) of the MEE will be strengthened. This subcomponent will also support the Ministry of Finance, MEE, and EDM to prepare and implement a strategy to reduce the electricity consumption of the central government and government entities. Consultants will be hired to provide support to the MEE on strategic sector issues, as needed. Finally, consulting firms will be hired to help the EDM prepare technical studies and environmental and social safeguard studies and supervise and monitor the construction works that will be executed through Component 1.

Component 3: EDM governance improvement and support to the implementation of the EDM Restructuring Plan (US$30 million equivalent of which 100 percent is allocated for DLIs)

40. The component will finance key actions under the EDM Restructuring Plan and EDM’s MIP and improving the fuel delivery and storage system as well as the energy mix. This component is fully aligned and complements the achievement of the energy prior actions under the proposed Mali Energy and Decentralization DPF (P167547) by focusing on medium-term reform actions, while the DPF addresses the short-term actions such as restructuring of the commercial debt, payment of government arrears, establishment of a prepayment mechanism for government entities, and increase of imports from Côte d’Ivoire. Specific activities to achieve the DLIs include the following:

DLI 1: Improvement of EDM fuel monitoring and storage system.

(a) Audit the fuel delivery system and implement the recommended monitoring actions

(b) Increase the EDM’s fuel storage capacity by the construction of new fuel storage facility in Bamako and isolated centers for heavy fuel oil (HFO) and diesel fuel oil

(c) Installation and connection of fuel metering to monitoring system

DLI 2: Implementation of EDM revenue protection plan.

(d) Install and implement a management information system

(e) Extend the existing revenue protection program which targets EDM’s 6,000 consumers, which represent 40 percent of the total revenue

(f) Update the customer database and develop a Geographic Information System (GIS) to enhance the geographical localization of EDM customers

(g) Improve the reliability and the capacity of the customer management and billing system, including the platform to manage prepaid meters

DLI 3: Improvement of energy mix.

(h) Audit meters to ensure appropriate measurement of technical and commercial losses

(i) Prepare the least-cost plan and RE strategy and update the least-cost plan in the later years of the project

(j) Reduce the percentage of the thermal generation to 30 percent



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Table 2. Summary of DLIs

41. Eligible Expenditure Programs (EEPs). An analysis of the EDM program budget identified the following EEPs as suitable for project financing: improvement of the fuel monitoring and storage capacity, revenue protection plan, and improvement of the energy mix. EEPs comprise non-procurable and procurable items5. Total EEPs and disbursement by year is shown in table 3.

Table 3. EEP

42. Verification protocols. An independent verification agency will be contracted on an annual basis to conduct third-party verification on the fulfilment of all project DLIs before their submission to the World Bank for reimbursement. The independent verification will also audit the EPPs to ensure their compliance with the World Bank fiduciary and safeguard requirements prior to submission to the World Bank. The

5 The expenditures include Goods, works, non-consulting services, and consulting services

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World Bank will retain the right to make the final decision on whether a DLI has been achieved and may undertake regular independent quality assurance checks of selected DLIs to ensure continued robustness of the system.

Component 4: Operational support (US$3.1 million equivalent of which IDA US$3 million)

43. This component will support activities related to the integration of citizen engagement, improved customer engagement, and project management activities of the PIU during the implementation period.

44. The citizen engagement activities focus on short-term and medium-term feedback mechanisms that will support restoring and improving electricity services, given the importance of quality and reliability of services for building trust among beneficiaries. A multiple uptake GRM will be developed targeting (a) residential households; (b) commercial consumers; and (c) industrial customers. As new households will be connected within the selected areas, specific outreach and two-way communication activities will be put in place to ensure that these customers as well as the existing ones have access to multiple uptake locations and channels. In addition, the project will support the establishment of a back-office structure to close the feedback loop and ensure timely resolutions and feedback to citizens’ queries and complaints. Project midterm consultations with a sample of citizens from each beneficiary group or residents will be planned to inform the project implementation and launch corrective measures based on consumers’ feedback. As demonstrated by global experience, citizen engagement activities will contribute to improving the performance of the EDM and will help strengthen residents’ trust thereby, indirectly affecting the collection rate.

45. Project management activities supported under the project include (a) the recruitment of dedicated fiduciary, safeguards, and technical advisory staff; (b) oversight of implementation of the environmental and social safeguards instruments for investments; (c) annual audits of the achievement of the DLIs, technical audits, and external audits of the project; (d) training; (e) office supplies and vehicles for project supervision; and (e) part-time consultants as needed. The component will also reinforce the participation of the project beneficiaries during project implementation and beyond. Specific activities to be financed include (a) communication and consultation with direct beneficiaries; (b) community monitoring through the deployment of an ICT-based solution as well as stakeholder training; and (c) costs related to implementation of the GRM.

46. Project management support will include financing for ad hoc technical assistance through individual consultants to support the PIU, envisaged to include, but not limited to, consultants to provide technical support and assist with project and procurement management, contracts management, safeguards management, and FM. The operating budget will support ad hoc technical assistance and the day-to-day operations of the PIU and may include the preparation of annual financial audits; independent verification agents; cost of communications, translations, meetings, local travel, and consumables; and day-to-day office maintenance and administration.

47. Before completion, the project will also finance a comprehensive completion and beneficiary impact assessment. This assessment will seek to (a) document achievements and problems; (b) review and document lessons learned; (c) document project impacts on beneficiaries; (d) review the achievement of the DLIs and results indicators; and (g) recommend improvements in project design.

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B. Results Chain

48. The theory of change of the proposed project and the DPF are shown in figures 2 and 3. The figures show the link between the two operations which is the increase of the EDM’s revenues and reduction of the EDM’s expenses.

Figure 2. Theory of Change: Project

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Figure 3. Theory of Change: DPF

C. Project Cost and Financing

49. The proposed financing instrument for the proposed project is an IPF in the amount of US$28 million equivalent of IDA Grant and US$122 million equivalent of Scale-Up Facility Credit for a combined concessional financing of US$150 million equivalent, including taxes and contingencies. The GoM’s contribution is estimated at US$2.1 million for the implementation of the Resettlement Action Plan (RAP) and the operationalization of the implementation unit. The project benefitted from US$2.35 million project preparation advance approved in March 2019 to cover the environmental, social and technical preparation studies. Also, a retroactive financing to an aggregate amount not to exceed US$5.6 million equivalent under the IDA grant, and US$24.4 million equivalent under the IDA credit, may be made for payments made on or after August 1, 2018, for eligible expenditures under Categories (1) and (2). The summary of project costs and their sources is presented in table 4.

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Table 4. Project Financing

Note: * The GoM's parallel contribution for the implementation of the RAP under Component 1 and the operationalization of the PIU under Component 4.

D. Lessons Learned and Reflected in the Project Design

50. The design of the project has incorporated lessons from the World Bank’s experiences in the energy sector across regions and ongoing and past projects in Mali. More specifically, the lessons in the following paragraphs have been considered.

51. Location of the PIU. The PIU will be located within the EDM and staffed with dedicated personnel. Experience from similar projects indicate that the establishment of a PIU within the institution that will subsequently be responsible for the operational management of the infrastructure is key to successful implementation of the project. This is particularly relevant when dedicated personnel are assigned to the project, with clear accountability and under the supervision of a senior management-level project coordinator with decision-making responsibilities. This allows for the development of critical skills related to project preparation, procurement, supervision, and monitoring within the organization, which represent important assets beyond the lifetime of the project.

52. Anticipated preparation of the project. In most of the investment projects, delays usually result from lack of adequate preparation of safeguards, technical studies, the procurement process, and implementation of the RAP. Drawing lessons from that observation, the preparation of the project was anticipated, all the studies already launched, and the procurement process anticipated. The team required the EDM to secure sufficient resources for the implementation of the RAP by budgeting in due time the amount of the evaluated cost of resettlement of the RAP.

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53. The long-term sustainability of the project development impact should be supported. World Bank experience suggests that utility support projects that only include investment financing, have a limited impact in time. The project is designed to support the planning, project development, and operational capacity within the utility to foster its long-term sustainability. Moreover, a set of DLIs is used to ensure the financial sustainability of the utility in the long run and the effectiveness of the impact of the investment on revenue increase and cost reduction.

54. Safe and reliable household connections should be supported through lower upfront connection cost. The project comprises the connection of 25,000 households which, either did not have access to electricity or were connected through illegal and unsafe mechanisms. Building on the outcome of access projects in West Africa and Mali, including the Mali Hybrid Systems for Rural Areas, which suggest that high connection costs represent one of the main barriers preventing poor consumers from having safe and reliable access to electricity, the project envisages limiting upfront connection costs to 20 percent of the actual expenditures. The balance of the cost will be recovered overtime through electricity bill payments, to reduce the upfront burden on poor households and facilitate the adoption of modern electricity services.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

55. The EDM will be responsible for the overall coordination and the implementation of the project. The MEE will be technically responsible for the sector reform activities and the EDM will be responsible for the fiduciary aspects of these activities. A PIU will be created within the EDM and will oversee the management and implementation of this project. The PIU will not have any other operation responsibility in the EDM apart from management and the implementation of projects. The PIU team will include a project coordinator (director level), a procurement specialist, an FM specialist, a monitoring and evaluation (M&E) specialist, technical experts (engineers), an environmental specialist, and a social development specialist. The PIU will have the responsibility of the overall implementation of the project on a day-to-day basis. The staff of the PIU will be composed of externally recruited fiduciary experts (procurement and FM) and the EDM technical staff dedicated to the project. The MEE will designate a focal point as the counterpart of the PIU within the ministry. Annual work programs and the budget of the project will be reviewed and approved by a Steering Committee including officials of the MEE, the Ministry of Economy and Finance, the Director General of EDM (or its representative), and CREE. A Project Implementation Manual (PIM) will be prepared and adopted before project effectiveness.

56. An Owner’s Engineer and contract monitoring will be provided by consulting firms engaged for the full term of the construction contracts. Primarily, they will assist the EDM in approving contractor’s design and the preparation of the Environmental and Social Management Plan (ESMP), monitoring implementation including the ESMP, administering the contracts, certifying payments, assisting in commissioning, and ensuring compliance with the existing regulations. Consultants will also be recruited to monitor the implementation of the RAP.

57. Disbursements and financial management. Disbursement for Component 3 is linked to agreed indicators (DLIs). The Borrower therefore provides documentation to substantiate that both the expenditures have been made in compliance with World Bank fiduciary and safeguards policies and that the

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indicator targets have been met. The validation and verification of the DLI achievement will be carried out by the independent verification agent.

58. Financial reports on project expenditures will be prepared, along with updated cash flow forecasts and contract management information on a semiannual basis and will be submitted to the World Bank for review and acceptance. Loan advances will be converted into disbursements when expenditures reported are reviewed and accepted as eligible and when the World Bank has validated and certified that the DLI targets have been met.

B. Results Monitoring and Evaluation

59. Data for the monitoring of the project’s outputs and outcomes will be compiled by the PIU based on inputs provided by the EDM. The PIU will prepare regular progress reports on the status of implementation of the project activities and the achievement of the indicators set out in section VII (Results Framework and Monitoring). The PIU will also be responsible for the coordination with institutional stakeholders (AMADER, MEE, and CREE) to ensure alignment of objectives and facilitate the resolution of issues as they arise. The PIU’s M&E specialist will implement and coordinate all M&E activities under the project

60. The World Bank will supervise the project over its implementation period and monitor its results and outcomes on a regular basis to evaluate the achievement of the PDO. A project midterm review will be conducted two to three years after project effectiveness to assess the performance of the project in achieving its development objective and ensure that lessons learned thus far are taken into consideration in implementation over the remaining period. Any adjustments will be discussed, agreed, and implemented as necessary.

C. Sustainability

61. The sustainability of the project hinges on (a) the GoM’s support to the reform agenda of the power sector in the medium to long term and (b) the EDM’s financial sustainability and strengthened planning and operational capacity.

62. The GoM is highly committed to the power reform agenda which is expected to lead to improved quality of service and reduce the need for subsidies overtime. This strategy is encapsulated in the road map to support the development of the energy sector, agreed with the World Bank in February 2017, which outlines policy reforms and investments to be implemented over the course of five years to help the sector return to financial equilibrium. The proposed DPF, currently under preparation (to be financed by the World Bank), supports the prerequisite steps needed to inform the GoM’s decisions on the reform agenda including the finalization of the audit of EDM. The project supplements these efforts by providing resources and technical assistance for the effective implementation of critical actions and strengthening of the EDM’s strategic planning and implementation capacity. It therefore forms part of a comprehensive plan targeting the sector at large.

63. The project design includes specific actions to sustain its impact beyond its implementation period. This includes (a) the location of the PIU within the EDM to ensure full ownership as well as the development of critical fiduciary, project preparation, and implementation skills; (b) technical assistance for

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the preparation of pluriannual investment plans; (c) strengthening of the revenue protection mechanism through better metering and monitoring of high-revenue customers; and (d) reduction of commercial and technical losses through network upgrades and improved management of the customer database. Improving revenues and reducing costs will both be required to ensure financial sustainability of the sector and phasing out subsidies.

D. Role of Partners

64. The objectives of the project were shared with the donor’s community including the African Development Bank (AfDB), the Islamic Development Bank (IsDB), the European Union, the West African Development Bank (La Banque Ouest Africaine de Développement, BOAD), the French Development Agency (Agence Française de Developpement, AFD), and the German Government Development Bank (Kreditanstalt für Wiederaufbau, KfW). These partners are also preparing specific projects in the electricity sectors in Mali. The ongoing OMVS 225 kV transmission line from Bamako to Manantali, Kayes to Senegal, and Kayes to Mauritania is funded by the AFD, IDA, and China Exim Bank. The IsDB is funding the mini-grids with productive uses in rural remote areas; the AFD is preparing a rural electrification program for some 60 localities; and the AfDB, AFD, and BOAD are co-financing the Guinea-Mali interconnection with the World Bank. Harmonization and dialogue are ongoing among all these partners through the energy thematic group.

V. APPRAISAL SUMMARY

A. Economic and Financial Analysis

65. Rationale for public financing. The rationale for public sector financing for the investments rests primarily on the present characteristics of Mali’s power sector: (a) low electricity access in the country requiring government intervention as a development priority to ensure energy supply and increase access to electricity; (b) upgrading and expanding transmission and distribution networks are not normally conducive to public-private arrangements, particularly if those investments are not linked to a private and bankable project; and (c) the scale of investments required and long payback periods. It is also highly unlikely that a private investor will finance the proposed investments given the status of Mali’s power sector. The scope of overall sector investments in generation, transmission, distribution, and capacity building is beyond the available financial resources of the GoM. Several multilateral and bilateral partners and various lending institutions are supporting the GoM’s energy sector development program. However, the combined financial support from these partners is still inadequate to meet the sector investment needs. As part of the ongoing reforms, legal and regulatory changes are being made to promote private investments in segments of the sector that are more conducive for private participation, such as generation.

66. World Bank’s added value. The World Bank Group has over the years been a close partner of the GoM in the development of its electricity sector particularly in generation, transmission, and distribution. The World Bank is therefore well positioned to continue its commitment to the expansion and modernization of electricity supply in Mali, also building on its experience in similar programs in Mali, such as the ongoing Mali Energy Support Project (P108440). Drawing upon its rich expertise and experience, the World Bank engagement will enable adoption of best practices in design and execution of network expansion, thus ensuring technically and socially efficient delivery. Furthermore, the World Bank’s financing

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will enable the GoM to source financing under terms that would support the financial viability of the utility, which is critical for increasing access to electricity and supporting inclusive economic growth. A detailed economic analysis of the project was prepared by the World Bank teams and details are discussed in annex 4.

Economic Analysis

67. Project benefits. The project is expected to generate an economic internal rate of return (EIRR), excluding environmental benefits, of 36.33 percent, with a net present value (NPV) of US$483 million at a discount rate of 6 percent. Including the benefits of greenhouse gas (GHG) emissions reduction, the EIRR increases to 42.55 percent, with an NPV of US$575 million (at 6 percent discount rate and with low shadow carbon price scenario).

68. The economic analysis is based on the estimate of the net economic benefits for Mali's society of the proposed transmission and distribution investments over their investment economic lives by comparing

(a) The benefits streams associated with

(i) Additional consumption of electricity by the new household, commercial, and productive users (25,000);

(ii) The transmission loss reduction and undistributed energy savings realized when the HV substations are upgraded and rehabilitated;

(iii) Additional power transit capacity to allow power import from Côte d’Ivoire and later from Guinea; and

(iv) Commercial losses saved with the installation of intelligent meters; to

(b) The stream of economic costs (additional CAPEX, generation, and transmission and distribution costs) associated with the additional electricity services used by the consumers affected by the project.

69. The overall EIRR and economic net present value (ENPV) of the project would remain robust under most of the sensitivity scenarios. Scenarios analyzed include increase in capital costs, reduction in benefits (because of lower willingness-to-pay [WTP] value), increase in transmission wheeling fees, increase in cost of energy imported, and increase generation cost in Mali. The economic viability rests critically on the WTP and the cost of imported energy from Côte d’Ivoire and Guinea. A decrease beyond 20 percent in the level of WTP or an increase above 30 percent in the cost of energy imported from Côte d’Ivoire and Guinea will make the project economically not viable. Details of the economic analysis are discussed in annex 4. Annex 5 discusses the financial situation of the power sector in Mali.

70. GHG accounting has been undertaken for the Project resulting in GHG emission reductions of 4,957,978 tCO2 over the project economic life of 40 years. Using the low shadow carbon price to quantify the GHG savings, the estimated climate co-benefit amounts to US$91 million over the project life.

Financial Analysis

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71. The financial analysis confirms that the project will be financially viable. The financial analysis of the project results in a financial internal rate of return (FIRR) of 10.74 percent and a financial net present value (FNPV) of US$606 million. The details of the financial analysis and assumptions are included in annex 4.

72. The financial analysis evaluates the net financial return of the project. The project is assumed to generate cash inflows by selling electricity (new customers, energy import, and undistributed energy) at the average retail tariff while cash outflows are represented by the investment costs, the O&M costs, and the cost of energy sold (import and national). The transmission losses and commercial losses saving which represent additional inflows are valued at the cost of energy supplied to the national network.

73. The overall FIRR and FNPV of the project would remain robust under most of the sensitivity scenarios. Scenarios analyzed include increase in capital costs, reduction in benefits (because of lower average retail tariff value), increase in transmission wheeling fees, increase in cost of energy imported, and increase generation cost in Mali. The financial viability rests critically on the average retail tariff and the cost of imported energy from Côte d’Ivoire and Guinea. A decrease beyond 16 percent in the level of average retail tariff, or an increase above 20 percent in the cost of energy imported from Côte d’Ivoire and Guinea will make the project financially not viable. The details of the economic analysis are discussed in annex 4.

B. Technical

74. A detailed identification of the technical components of the project was conducted by the MEE and EDM and reviewed by the World Bank experts. The technical parameters and estimated project costs for the transmission and distribution infrastructure have been established by the EDM based on actual unit costs for similar projects undertaken in the subregion. There is no technical issue or operational challenge with respect to the technical features of the infrastructure and equipment that will be procured or rehabilitated under the project. The activities and equipment related to household connections (including pre-paid meters) are deemed technically straightforward and pose no specific challenge.

75. The project will be implemented according to internationally accepted technical standards. The rehabilitation and construction of the transmission and distribution infrastructure will be based on turnkey contracts awarded to construction companies, which will be competitively selected.

76. The project will also provide the services of a consulting firm to assist the EDM in the preparation of the relevant technical feasibility studies and tender documents and in the supervision and monitoring of the construction works.

C. Financial Management

77. The objective of the FM assessment is to determine whether the EDM, as the project implementing agency, has acceptable FM systems in place to take on the project’s fiduciary responsibility. These include an adequate accounting and reporting system, clear auditing mechanisms, and robust internal controls. These arrangements are deemed acceptable if they (a) enable accurate recording of all transactions and activities; (b) support the preparation of regular and reliable financial statements; (c) allow for the safeguard of the assets; and (d) are subjected to a satisfactory auditing process. The assessment

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complied with the World Bank Directive Financial Management Manual for World IPF operation effective March 1, 2010, and as last revised on February 10, 2017.

78. The assessment revealed (a) lack of adequate FM staffing; (b) the FM team’s lack of familiarity with World Bank-financed project procedures and requirements; (c) weaknesses in internal control areas, such as the lack of a FM procedures manual for external funds, and absence of internal audit function; and (d) lack of a project accounting software. The EDM FM team has no previous experience in World Bank-financed operations and the overall internal control environment remains weak.

79. Because of the abovementioned FM capacity constraints, the following actions need to be completed to ensure adequate FM arrangements for all aspects of the project: (a) prepare and adopt the PIM before effectiveness including FM procedures as internal controls, budget process, assets safeguards, and description of roles and responsibilities of all stakeholders; (b) recruit an FM officer before effectiveness; and (c) recruit an accountant and purchase/customize the accounting software to take into account the specificities of the project no later than three months after effectiveness.

80. Based on the World Bank’s assessment, the residual FM risk for the project is deemed Substantial. The proposed FM arrangements are considered satisfactory in fulfillment of the World Bank’s minimum requirements following the implementation of mitigation measures. The implementing entity will ensure that the World Bank’s ‘Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants’ are followed under the project.

81. Disbursement will be report-based for Component 3 and funds will be disbursed conditional on the satisfactory achievement of DLIs. Achievement of DLIs will be assessed through a DLI achievement assessment report provided by the PIU. The DLIs will be applied, following an IDA ‘no objection’, on the assessment of the report, against reimbursement of non-procurable and procurable expenditures. The PIU will recruit an independent verification agency to perform a review of the assessment report before the payment. An assessment was done of the EEPs providing comfort with the adequacy of the fiduciary management of these expenditures. The team is confident that the funds will be managed in compliance with the World Bank fiduciary and safeguard policies. However, if the Bank determines that the funds are not managed in compliance of its fiduciary and safeguard policies, the expenditures will be ineligible and the Bank may require recipient to refund the amount to the DA (Designated Account), or in exceptional circumstances, as provided in the Bank disbursement policies, provide substitute documentation. The Disbursement under other Components 1, 2, and 4 (non-DLI activities) will be transaction based.

D. Procurement

82. The project will mainly finance the construction of transmission lines; construction, rehabilitation, upgrade, and expansion of HV/MV substations; construction of MV network; construction of new distribution infrastructures such as substations, MV feeders, MV/LV transformer stations, LV lines, and the connection of new households (US$97 million equivalent); improvement of EDM governance, revenue protection technical assistance (US$20 million equivalent); support to the EDM Restructuring Plan (US$30 million equivalent); and citizen engagement and project management activities (US$3 million equivalent).

83. Disbursement for Component 3 is linked to agreed indicators (DLIs) while Components 1,2, and 4 are non-DLI based.

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84. Procurement for the proposed project including any expenditures under the Project Preparation Advance, will be carried out in accordance with the World Bank’s ‘Procurement Regulations for IPF Borrowers’ (Procurement Regulations) dated July 2016 and revised in November 2017 and August 2018 under the ‘New Procurement Framework (NPF)’ and the ‘Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants’, dated October 15, 2006, and revised in January 2011 and July 1, 2016.

85. A procurement capacity assessment for EDM was carried out in April 2018. The assessment revealed that most of the staff dealing with procurement have adequate experience but have limited capacity in procurement of works and goods through international competitive bidding procedures and in selection of large-value consultancy contracts, including using World Bank procedures.

86. The overall procurement risk is High. Some of the mitigation measures include the recruitment of international and local procurement consultants to support the PIU.

87. The Recipient shall use the World Bank’s online procurement planning and tracking tools (Systematic Tracking of Exchanges in Procurement, STEP) to prepare, clear, and update its Procurement Plans and conduct all procurement transactions.

88. Project Procurement Strategy for Development (PPSD). The Recipient (with assistance from the World Bank) prepared the PPSD which describes how procurement activities will support project operations for the achievement of the PDO and deliver value for money. The procurement strategy is linked to the project implementation strategy at country, regional, and international levels ensuring proper sequencing of the activities. The PPSD considers institutional arrangements for procurement; roles and responsibilities; thresholds, procurement methods, and prior review; and the requirements for carrying out procurement. The PPSD also includes a detailed assessment and description of the EDM and government capacities for carrying out procurement and managing contract implementation, within an acceptable governance structure and accountability framework. Other issues taken into account include the behaviors, trends, and capabilities of the market (that is, market analysis) to respond to the Procurement Plan. The strategy includes a summary on procurement risk, mitigation action plan, market analysis, and procurement approaches. The PPSD (including the Procurement Plan) was prepared by the EDM and was reviewed by the World Bank. The information collected in the market analysis confirm the capacity of the national market to meet the needs of the project. Local suppliers have the experience and ability to execute the intended contracts. There are a significant number of suppliers of office supplies, furniture, services, equipment and works. On the other hand, for specific equipment and works, there is a limited number of suppliers. Therefore, for the specific equipment and works, the international competitive bidding process will be used to open the market to international firms.

89. The project design provides a window to enable the Recipient to carry out advance contracting and includes provisions for retroactive financing in accordance with section V (5.1 and 5.2) of the World Bank Procurement Regulations for IPF Borrowers. The retroactive financing is allowed for an amount not to exceed US$5,600,000 under the Grant, and US$24,400,000 under the Credit, and for payments made prior to this date but on or after August 1, 2018.

90. A detailed procurement description and institutional arrangements can be found in annex 2, Implementation Arrangements.

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E. Social (including Safeguards)

91. The project activities with expansion of network and connections of new household are also crossing dense urban areas. The policies triggered are OP/BP 4.12: Involuntary Resettlement; and OP/BP 4.11: Physical Cultural Resources. The social adverse impacts are expected to be moderate and reversible if appropriate mitigation measures are undertaken.

92. Rehabilitation, new construction of transmission lines, and substation locations are investments under Component 1. During project preparation, a Resettlement Policy Framework (RPF) for unknown locations were prepared, consulted upon, and disclosed at national level and on the World Bank’s website on May0, 2019. Project activities will be subject to social screenings as required by the RPF to determine if the RAPs’ preparation is necessary and that the RAPs are prepared as required.

93. Social safeguards documents also include provision to develop the GRM for the project and additional measures for vulnerability and to avoid social risks linked to gender-based violence, labor influx, working conditions, and any other potential social risk of the project. The GBV risk assessment of the project was done in line with the GBV guidance note and resulted in a risk rating of low. The mitigation measures are reflected in the ESMF.

94. During project implementation, the PIU will hire a skilled social development specialist who will work closely with an environmental safeguards specialist to undertake meaningful consultations with project-affected communities and persons and key stakeholders.

F. Gender

95. The project will contribute to closing the gender gaps in the energy sector in Mali, with a specific focus on upskilling the existing female work force at the EDM; collecting baseline data on key gender gaps at the EDM linked to employment and across the sector as currently there is no tracking of sex-disaggregated data; and ensuring that female-headed households and businesses are aware of the connection roll out and the productive uses of energy to enhance income, health benefits, and livelihoods.

96. On training, the focus will be placed on the female workforce that consist of 446 employees out of the total 2,234 staff. This means that the female labor force is currently only at 19 percent in the sector. In-country consultation has revealed that the female employees lack opportunities to gain further training and often have a less technical background than men. Global studies on women’s employment across recruitment, retention, and advancement point to this aspect especially, and various programs around the world have focused on training opportunities to fill this gap, for example, Engendering Utilities by United States Agency for International Development with utilities across the world.

97. Approximately 15 percent of training opportunities at the EDM are allocated to women which means that women lag behind in, for example, leadership skills training, study exchange opportunities, public speaking and also a range of technical certifications programs such as household wiring or O&M aspects related to energy access. Under the project, 30 percent of training opportunities (shorter term weeks to months) will eventually be earmarked to ensure female staff get upskilled and complete training in technical areas such as network operation, managing commercial operations and finance. The support will also focus on possibly allowing new female entrants who do not match job descriptions gain further

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training and join a career track at the EDM (the target is staggered over the project time line given the persistency of these gender gaps). No baseline has been added for the completion of training of female staff (beyond the 15 percent approximation) as the exact details of the baseline will be established during project implementation. In addition, the training area details have not been added in the results framework to allow for flexibility on the technical training areas that EDM will enable female staff to be certified in as in-country needs and opportunities evolve. In the PIM, indicators will be added for the different technical certification targets using the targets of 30 percent and in addition, as outlined below, the tracking of the interlinkages between the technical training and the labor force participation rate will be reported on annually.

98. A specific program will be designed to match the current gaps in technical training considering female staff needs and demands based on the human resource department’s predictions and regional needs. For this purpose, approximately US$300,000 will be set aside for the training activities for both women and men. An expert with a background in women’s employment (among other aspects, see details in following paragraphs) will be hired to support the delivery of these activities in-country.

99. To complement the activities on training, the EDM has committed to collect baseline data to be reported in its annual report, including, for example, percentage of women and men employed, the position, educational background, training opportunities obtained and completed, and so on. This will help fill the data gap and help track the relevant gender gaps in the sector. A baseline assessment will be supported through the project to ensure that future actions can be designed in dialogue with the client and its employees. At EDM analysis will focus on ensure the linkage between training opportunities and female employment rates and career trajectories are monitored and reported on.

100. Last, the project will focus on closing gaps in women and youth’s access to energy resources and services for their empowerment. Increased access to electricity services (under Subcomponent 1.2) will potentially (a) reduce time consumed in household chores thereby increasing the productivity of women and girls and (b) contribute to development of businesses such as agro-processing, sewing, ice and cold juice making, conservation and marketing of seafood, carpentry, and metallurgy, driving to poverty reduction and socioeconomic empowerment among women and youth. The key will be ensuring that women and female-headed households are informed of the connection opportunities and procedures, for example, application fees, office numbers, and so on so that they feel empowered as energy users.

101. In addition, the project will focus on closing gaps in access to greater energy services used by social services that benefit women and children. The education and health benefits of electricity arise from reduced risk of burns, fires, accidents and indoor air pollution due to candles, and kerosene and biomass for lighting and cooking. Greater electricity access will increase the possibility to carry out educational activities (for example, reading, school homework, and so on) in the evening hours. Community electrification has the potential to increase safety for women and girls and allow them to move freely after dark, possibly making women and girls feel safer and reducing gender-based violence.

G. Environment (including Safeguards)

102. The project is rated Environmental Assessment Category B, requiring a partial environmental assessment. The following environmental safeguard policies were triggered: Environmental Assessment (OP/BP 4.01), Natural Habitats (OP/BP 4.04), Physical Cultural Resources (OP/BP 4.11), Forest (OP/BP 4.36). The project will finance site-specific physical activities, and any adverse environmental impacts are expected

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to be moderate and reversible, given appropriate mitigation measures. The project activities will be predominantly in the Bamako region that remains vulnerable with regard to urban expansion pressure. Specific environmental mitigation measures tailored to local circumstances and based on the most appropriate environmental management practices will be implemented.

103. As the exact locations of most rehabilitation and construction transmission lines and substations are not known during the project preparation, site-specific safeguard instruments were not prepared yet. The ESMF and RPF were prepared, consulted upon, and disclosed in-country and on the World Bank’s website on May 10, 2019, in collaboration with the National Directorate of Sanitation and Pollution Control (Direction Nationale de l'Assainissement et du Contrôle des Pollution, DNACPN), within the ministry in charge of environment and sanitation. Specific procedures, related to the following aspects, were developed: (a) occupational health and safety; (b) safe handling and disposal of industrial wastes hazardous products, such as polychorinated biphenyls (PCB), and management of other solid and liquid wastes; and (c) emergency response in case of fire. No specific safeguard instrument was developed for OP/BP 4.11.

104. Potential adverse risks and impacts. Several potential risks and impacts were identified: risk of PCB and fuel pollutants, water pollution, noise in the construction sites, dust and smoke generated by site work, diseases and nuisance, accidents during civils works, and fire.

105. Institutional arrangement for safeguards implementation. The PIU will be set up under the EDM and staffed with a skilled environmental specialist and one social development specialist to ensure compliance with environmental and social safeguards.

106. The environmental safeguards team will work closely with the DNACPN in charge to ensure that the environmental and social safeguards are properly addressed during project implementation at the Ministry of Environment, Sanitation, and Sustainable Development. The PIU will sign a Memorandum of Understanding with the DNACPN, which will define the collaboration modalities between the two entities. All activities will be systematically subject to safeguards screening that will decide which safeguards instruments are relevant for the environmental and social risks and impacts mitigation measures. The PIM will detail the safeguards screening and mitigation process, gender-based violence management, and GRM.

107. Technical feasibility and site-specific safeguards studies alignment. The consultants tasked with completing the technical feasibility studies will work closely with the consultants working in the preparation of site environmental safeguards-specific instruments to ensure alignment.

108. Consultation and disclosure. During the preparation of the site-specific safeguards instruments, the main stakeholders will be consulted. The specific safeguards instruments once cleared by the World Bank, will be disclosed within the country, in the sector ministries, in the project areas, and on the World Bank website. The consultation of the main stakeholders will be systematic during the whole project life cycle.

H. World Bank Grievance Redress

109. Communities and individuals who believe that they are adversely affected by a World Bank supported project may submit complaints to existing project-level grievance redress mechanisms or the World Bank’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may

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submit their complaint to the World Bank’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of World Bank non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance GRS please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

VI. KEY RISKS

A. Overall Risk Rating and Explanation of Key Risks

110. The overall risk of the project is rated High, reflecting the high or substantial political and governance, macroeconomic, sector strategies and policies, technical design, institutional capacity for implementation and sustainability, fiduciary, environmental and safeguards, and security risks.

111. High Political and governance risk. The security situation remains worrisome in the Northern part of Mali and is progressively spreading toward the South, despite the 2015 peace and reconciliation agreement. The project area is in the capital city Bamako which is relatively safe despite sporadic terrorist attacks in public places and thus, it is unlikely that the implementation of the project activities will be affected by the security situation. Notwithstanding this, foreign construction firms in Bamako have a high security risk perception, which could limit competition for the infrastructure construction and increase the overall cost of the project.

112. High Macroeconomic risk. A significant increase in the trend of oil prices or a drop-in gold prices would negatively affect the current account balance and fiscal position. A negative climatic shock would aggravate food insecurity, raise social spending needs and food inflation, and would significantly reduce gross domestic product growth—also in the nonagricultural sectors. Given Mali’s limited fiscal buffers, such risks could affect budget execution. First, this would affect domestically financed public investment, but if the shock is sufficiently severe recurrent spending could also be affected particularly by activities like the operationalization of land commissions, the expansion of the e-voucher scheme, or the expansion of social protection. However, Mali’s fiscal situation and management remained sound during the previous crisis and should continue as such given the stabilizing effect of the West Africa Economic and Monetary Union (WAEMU) membership and public FM reforms undertaken in recent years. Risks of contagion effects to the financial sector or the balance of payments would continue to be moderate as the financial sector continues to be highly liquid and Mali benefits from the pooling of WAEMU foreign currency reserves to cover its balance of payments needs in bad times, including external debt service obligations.

113. High Technical design of the project. This risk is rated high because of the poor financial situation of EDM, which create risks for the technical design of the project. The implementation of the Corporate and Financial Restructuring Program will help mitigate this risk.

114. High Sector strategies and policies. The existing sector policy letter is not consistent with the government vision and the activities under implementation in the sector. Moreover, there is no clear electrification strategy in the country to address the grid connected and off-grid electrification. The

http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service

http://www.inspectionpanel.org/

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assessment of current policy and electricity access programs as well as the development of a national electrification access policy and the preparation of the national electricity access strategy are included in the project to mitigate this risk.

115. High Institutional capacity for implementation sustainability risk. This risk is considered High, due to the lack of recent EDM experience in implementation of the World Bank’s projects. Even though the EDM was involved in the implementation of the Mali Energy Support Project (P108440), its involvement was limited to the technical supervision of the project and thus, was not involved in the fiduciary activities. Therefore, the fiduciary capacity of the EDM remains weak and the lack of experience with the World Bank’s rules and procedures may imply a high risk for the project. The project will address this situation by building the fiduciary capacity of the EDM. Also, to mitigate this risk, the unit in charge of the implementation and the coordination of the project will be set up within the EDM, and its capacity will be strengthened though the recruitment of experienced external fiduciary experts. Moreover, international consulting firms will be recruited to support the supervision of construction works. The PIU will be chaired by an experienced staff with senior management-level position. Finally, during the preparation, the EDM’s PIU will be supported by the World Bank staff and individual consultants with expertise in different fiduciary responsibilities.

116. Substantial Fiduciary risk. EDM has internal fiduciary capacity with a limited knowledge of the World Bank procurement and FM procedures. However, EDM is already managing other donor’s projects with similar procedures. Therefore, the fiduciary risk is substantial, and this project has recommended as dated covenant, the recruitment of external fiduciary specialists with experience in World Bank procedures to beef up the EDM’s PIU.

117. Substantial Environmental and social risk. Component 1 of the project is focused on infrastructure construction activities in Bamako which is densely populated and therefore the potential environmental and social impacts to be substantial. The ESMF and the RPF prepared and approved have identified the policies to be triggered and the documents to be prepared and implemented to mitigate these risks.

118. Substantial Other risk (Security). Mali is perceived as high security risk country because of the militancy situation and the inter communities’ conflicts in the center and the northern parts of the country. However, the capital city Bamako where the project will be implemented, is in a relatively peaceful situation and therefore the security risk of this project is rated substantial.

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VII. RESULTS FRAMEWORK AND MONITORING

Results Framework

COUNTRY: Mali Mali Electricity Sector Improvement Project (MESIP)

Project Development Objective(s)

The Project Development Objectives are to improve (i) the reliability and efficiency of electricity supply in Bamako and (ii) the technical and commercial performance of EDM.

Project Development Objective Indicators

RESULT_FRAME_T BL_ PD O

Indicator Name DLI Baseline Intermediate Targets End Target

1 2 3 4 5 Improve the reliability of electricity supply in Bamako and the technical and commercial performance

Reduction of EDM expenses per unit (Percentage)

DLI 1, 2, 3 0.00 2.00 3.00 5.00 8.00 9.00 10.00

Increase of EDM revenue per unit (Percentage) 0.00 2.00 4.00 6.00 8.00 9.00 10.00

Total collection rate (Percentage) 85.00 85.00 90.00 93.00 95.00 98.00 99.00

System losses in Bamako (Percentage) 19.00 19.00 18.00 17.00 16.00 15.00 15.00

Power outages per year in substation rehabilited by the project (Number) (Number)

41.00 41.00 41.00 30.00 20.00 15.00 10.00

People provided with new 0.00 0.00 0.00 25,000.00 75,000.00 125,000.00 225,000.00

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RESULT_FRAME_T BL_ PD O


1 2 3 4 5 or improved electricity service (CRI, Number)

People provided with new or improved electricity service - Female (CRI, Number)

0.00 0.00 0.00 13,425.00 40,275.00 67,125.00 120,825.00

People provided with access to electricity under the project by household connections (grid or off-grid). (CRI, Number)

0.00 0.00 0.00 5,000.00 15,000.00 25,000.00 25,000.00

Technical losses (Percentage) 14.00 14.00 14.00 13.00 12.00 11.00 11.00

PDO Table SPACE

Intermediate Results Indicators by Components

RESULT_FRAME_T BL_ IO


1 2 3 4 5 Component 1- Improvement and expansion of transmission and distribution

Transmission and distribution lines constructed or rehabilitated under the project (Kilometers)

0.00 0.00 20.00 40.00 60.00 80.00 100.00

Transformer capacity installed under the project 0.00 0.00 0.00 20.00 30.00 40.00 50.00


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RESULT_FRAME_T BL_ IO


1 2 3 4 5 (MVA) (Number)

Substations (HV/MV) constructed, rehabilitated or expanded under the project (Number)

0.00 0.00 0.00 2.00 3.00 4.00 5.00

People provided with access to electricity services under the project by household connections (Number)

0.00 0.00 0.00 25,000.00 75,000.00 150,000.00 225,000.00

Component 2- Capacity strengthening and technical assistance

Collection rate of central administration and government entities (Percentage)

30.00 40.00 60.00 80.00 85.00 90.00 95.00

Component 4 - Operational support

Customer call center installed and operational (Yes/No)

No No No Yes Yes Yes Yes

Project related grievances registered under the project grievance redress mechanism (GRM) and addressed (Percentage)

0.00 100.00 100.00 100.00 100.00 100.00 100.00

Percentage of trainings completed by women at EDM. The focus will be on reporting on completed technical trainings in network operation, managing commercial (Percentage)

0.00 10.00 15.00 18.00 20.00 25.00 30.00


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IO Table SPACE

UL Table SPACE

Monitoring & Evaluation Plan: PDO Indicators

Indicator Name Definition/Description Frequency Datasource Methodology for Data Collection

Responsibility for Data Collection

Reduction of EDM expenses per unit

EDM will provide the information, based on the independent auditor's verification report.

Annually

Auditor's report

Financial data will be provided to the auditor by EDM

EDM

Increase of EDM revenue per unit This indicator will measure the increase of EDM revenues

Annually

EDM

EDM with the Independent auditor

EDM

Total collection rate Annually

EDM

EDM Annual Report

EDM

System losses in Bamako Annually

EDM

EDM Annual report

EDM

Power outages per year in substation rehabilited by the project (Number)

This indicator will measure the number or outage per year in all substation rehabilitated in the project

Annually

EDM Annual Report

Data will be collected from the log of each substation

EDM

People provided with new or improved electricity service Annual

Progress reports

EDM

People provided with new or improved electricity service - Female Annual

Progress reports

EDM

People provided with access to electricity under the project by household connections (grid or off-

Annual

Progress reports

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grid).

Technical losses Annually

Progress reports

EDM

ME PDO Table SPACE

Monitoring & Evaluation Plan: Intermediate Results Indicators

Indicator Name Definition/Description Frequency Datasource Methodology for Data Collection

Responsibility for Data Collection

Transmission and distribution lines constructed or rehabilitated under the project

This indicator will measure the length of transmission and distribution lines constructed or rehabilitated under the project

Annually

EDM

Project implementation annual report

EDM

Transformer capacity installed under the project (MVA)

This indicator will measure the total capacities of transformers installed under the project

Annually

EDM

Project implementation report

EDM

Substations (HV/MV) constructed, rehabilitated or expanded under the project

This indicator will measure the number of substations constructed, rehabilitated or expanded under the project

Annually

EDM

Project implementation report

EDM

People provided with access to electricity services under the project by household connections

Annually

EDM

Project Implementation Report

EDM

Collection rate of central administration and government entities

This indicator will measure EDM collection performance for central

Annually

EDM

EDM annual report

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administration and government entities

Customer call center installed and operational

The call center will be installed as part of the Citizen Engagement activities

Annually

EDM

Project Implementation Report

EDM

Project related grievances registered under the project grievance redress mechanism (GRM) and addressed

Percentage of trainings completed by women at EDM. The focus will be on reporting on completed technical trainings in network operation, managing commercial

This indicator will measure the number of women trained through the project in EDM

Annually

Annual Report

For each training funded under the project, the number of women will be indicated. This data will be consolidated at the end of the year

EDM

ME IO Table SPACE

Disbursement Linked Indicators Matrix

DLI_T BL_MATRIX

DLI 1 Improvement of EDM fuel monitoring and storage system

Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount

Intermediate Outcome No Yes/No 20,000,000.00 13.33

Period Value Allocated Amount (USD) Formula Baseline No

Year 1 No 1,500,000.00 Not applicable



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Year 3 No 380,000.00 Not applicable Year 4 No 6,370,000.00 Not applicable

Year 5 Yes 370,000.00 Not applicable

DLI_T BL_MATRIX

DLI 1.1 Fuel supply and consumption value chain audited, and audit report satisfactory to the Bank




Year 1 Yes 500,000.00 0.50 for the first report

Year 2 Yes 125,000.00 0.125 per subsequent report




DLI_T BL_MATRIX

DLI 1.2 Increase in fuel storage capacity


Intermediate Outcome Yes Cubic Meter(m3) 17,000,000.00 11.00

Period Value Allocated Amount (USD) Formula Baseline 0.00


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Year 1 0.00 Year 2 5,000.00 8,500,000.00 1.7 per 1000 cubic meters of

capacity Year 3 0.00

Year 4 10,000.00 8,500,000.00 1.7 per 1000 cubic meters of

capacity Year 5 10,000.00 0.00

DLI_T BL_MATRIX

DLI 1.3 Installation and connection of fuel metering to monitoring system


Intermediate Outcome Yes Number 2,000,000.00 1.33


Year 1 4.00 670,000.00 0.17 per meters installed






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DLI_T BL_MATRIX

DLI 2 Implementation of EDM revenue protection plan





Year 2 No 1,650,000.00 ot applicable


Year 4 No 0.00

Year 5 Yes 0.00

DLI_T BL_MATRIX

DLI 2.1 Installation and implementation of management information system satisfactory to the Bank


Intermediate Outcome No Yes/No 500,000.00 0.33


Year 1 Yes 500,000.00 Not applicable

Year 2 0.00

Year 3 0.00


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Year 4 0.00 Year 5 Yes 0.00

DLI_T BL_MATRIX

DLI 2.2 (a) Purchase of 6,000 smart meters, (b) Installation of smart meters purchased


Intermediate Outcome Yes Text 4,700,000.00 3.33

Period Value Allocated Amount (USD) Formula Baseline No new smart meters procured and installed

Year 1 6000 smart meters procured 4,000,000.00 Not applicable

Year 2 3000 smart meters installed 350,000.00 0.35 per 3000 meters

Year 3 6000 smart meters installed 350,000.00 0.35 per 3000 meters

Year 4 0.00

Year 5 6000 smart meters procured and installed 0.00

DLI_T BL_MATRIX

DLI 2.3 (a) Updating of customer database in manner satisfactory to the Bank, (b) Development of geographical information system


Intermediate Outcome No Text 1,500,000.00 1.33

Period Value Allocated Amount (USD) Formula Baseline Customer database not updated and GIS not

installed


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Year 1 0.00 Year 2 Database updated in Bamako 500,000.00 Not applicable

Year 3 GIS installed in Bamako 1,000,000.00 Not applicable

Year 4 0.00

Year 5 Database updated and GIS installed 0.00

DLI_T BL_MATRIX

DLI 2.4 (a) Technical audit of 100 loss meters, (b) Replacement of broken loss meters



Period Value Allocated Amount (USD) Formula Baseline No loss meters audited and broken meters

replaced

Year 1 Audit of 100 loss meters 500,000.00 not applicable

Year 2 Replacement of broken meters 800,000.00 not applicable

Year 3 0.00

Year 4 0.00

Year 5 Audit of 100 loss meters and broken loss meters

installed 0.00


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DLI_T BL_MATRIX

DLI 3 Improvement of Energy Mix




Year 1 No 0.00

Year 2 No 0.00

Year 3 No 600,000.00

Year 4 No 0.00

Year 5 Yes 1,400,000.00

DLI_T BL_MATRIX

DLI 3.1 (a) Renewable energy strategy prepared and adopted by the Recipient(b) Least-cost plan and renewable energy strategy updated by the Recipient two (2) years following approval / adoption



Period Value Allocated Amount (USD) Formula Baseline (a) No Renewable energy strategy prepared and

adopted by the Recipient (b) Least-cost plan and renewable energy strategy not updated by the Recipient two (2) years following approval / adoption


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Year 1 0.00 Year 2 Renewable energy strategy prepared and

adopted by the Recipient 600,000.00 not applicable

Year 3 0.00

Year 4 Least-cost plan and renewable energy strategy

updated by the Recipient two (2) years following approval / adoption

700,000.00 not applicable

Year 5 a) Renewable energy strategy prepared and

adopted by the Recipient(b) Least-cost plan and renewable energy strategy updated by the Recipient two (2) years following approval / adoption

0.00

DLI_T BL_MATRIX

DLI 3.2 Reduction of thirty percent (30%) in thermal generation, excluding for supply to mining activities


Intermediate Outcome No Percentage 700,000.00 0.67


Year 1 0.00

Year 2 0.00

Year 3 0.00

Year 4 0.00


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Year 5 700,000.00

Verification Protocol Table: Disbursement Linked Indicators

DLI_T BL_VERIFICATION

1 Improvement of EDM fuel monitoring and storage system

Description

Data source/ Agency

Verification Entity

Procedure


1.1 Fuel supply and consumption value chain audited, and audit report satisfactory to the Bank

Description Annual audit of the fuel delivery and metering system

Data source/ Agency EDM annual report, fuel supply contracts, physical inspection

Verification Entity Independent Verification Agent

Procedure

Based on the EDM annual report which will include the specific consumption of every generation plant, the logs of the fuel meters, the energy produced in the corresponding period, the fuel supply bidding documents and contacts, the physical inspection, and consultation with parties involved, the Independent Verification Agent (IVA) shall prepare an annual audit report on the fuel delivery and metering system.


1.2 Increase in fuel storage capacity

Description This DLI concerns the use the fuel storage capacity

Data source/ Agency Fuel storage supply and installation contract, commissioning report, annual report physical inspection


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Procedure

EDM will supply the IVA with the annual report, the bidding documents, the contracts, and the commissioning report of the supply and installation of fuel storage system. Based on the documentation, consultation with parties and physical inspection, the shall prepare the annual verification report. US$ 1,700 00 per 1,000 m3 of capacity, with minimum payment of US$ 1, 000,000 and maximum payment of US$ 17,000,000


1.3 Installation and connection of fuel metering to monitoring system

Description This DLI will help EDM to install a metering and remote control monitoring system on all its fuel storage tanks

Data source/ Agency Fuel metering and monitoring system contracts, commissioning reports, physical inspection


Procedure

The bidding documents, the supply and installation contracts and the commissioning report will be supplied by EDM to the IVA. The IVA shall perform in addition the physical inspection and the consultation with parties to prepare the annual verification report. US$ 166,84 will be paid per meter, with minimum payment of US$ 500,000 and maximum payment of US$ 2,000,000


2 Implementation of EDM revenue protection plan

Description

Data source/ Agency

Verification Entity

Procedure


2.1 Installation and implementation of management information system satisfactory to the Bank

Description The MIS is prepared and implemented to inform business decision making


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Data source/ Agency Bidding documents, contracts, commission report, sample outputs, physical inspection,

Verification Entity Auditor

Procedure

EDM will supply the bidding documents, the contracts, and the commissioning report of the supply and installation of the MIS. The consultant shall verify these information through parties consultations and physical inspection to prepare the verification report


2.2 (a) Purchase of 6,000 smart meters, (b) Installation of smart meters purchased

Description 6000 smart meters will be procured and installed for large consumers

Data source/ Agency Bidding documents, supply and installation contracts, commissioning report, consultations with parties, physical inspection

Verification Entity Auditor

Procedure

EDM will provide the bidding documents, the contracts, and the commissioning report of the supply and installation of the smart meters. The IVA shall in addition to the documentation evidence, consult with parties and perform the physical inspection to prepare the verification reports.US$ 350,000 will be paid per 3,000 meters installed, with minimum payment of US$ 350,000 and maximum payment of US$ 700,000


2.3 (a) Updating of customer database in manner satisfactory to the Bank, (b) Development of geographical information system

Description The customer database of EDM will be updated to identify all the customers, and their localization will be positioned in a map through a GIS

Data source/ Agency Final report of the update of the customer database, the bidding document, contracts and the commissioning report of the GIS, consultation with parties and physical inspection


Procedure

Based on the customer database audit report prepared by EDM, the bidding documents, the contracts and the commissioning reports of the GIS, the consultant shall prepare the verification report after consultation with parties and physical inspection


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2.4 (a) Technical audit of 100 loss meters, (b) Replacement of broken loss meters

Description The meters used in substations and transformer stations to measure system losses will be audited and replaced

Data source/ Agency EDM loss meter audit report, bidding documents, supply and installation contract of the meters, consultation with parties, physical inspection


Procedure


3 Improvement of Energy Mix

Description

Data source/ Agency

Verification Entity

Procedure


3.1 (a) Renewable energy strategy prepared and adopted by the Recipient(b) Least-cost plan and renewable energy strategy updated by the Recipient two (2) years following approval / adoption

Description Preparation of the least cost generation plan with a RE strategy and methodology to approve any deviation

Data source/ Agency Least Cost Generation Plan (LCGP) report including the RE strategy, decrees that approve the LCGP update methodology and adopt the RE integration strategy


Procedure

EDM will provide a copy of the LCGP including the RE strategy, the decrees that approve the methodology to update the LCGP, to adopt the RE strategy and adopt the updated LCGP. Based on the documentation evidence provided by EDM, the IVA shall consult with parties and prepare the verification report.


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3.2 Reduction of thirty percent (30%) in thermal generation, excluding for supply to mining activities

Description This DLI will help EDM to revised the PPAs for more efficient use of thermal generation

Data source/ Agency EDM annual report, consultation with parties


Procedure

EDM shall provide its annual report which shall include including the amount of rental power generation, and amount of thermal generation. Based on these documentation evidence, the IVA shall consult with parties and prepare the verification report

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ANNEX 1: DETAILED PROJECT DESCRIPTION

COUNTRY: Mali

Mali Electricity Sector Improvement Project (MESIP)

1. The project consists of four complementary components for a total of US$152.1 million including counterpart financing:

• Component 1: Improvement and expansion of transmission and distribution (US$99 million equivalent of which IDA US$97 million). The activities envisaged are the rehabilitation, reinforcement, and expansion of the transmission and distribution network to reduce technical and commercial losses, improve the quality of supply, and increase access to electricity services,

• Component 2: Capacity strengthening and technical assistance (US$20 million equivalent). The objective of this component is to strengthen the capacity of the EDM for day-to-day operations and to provide targeted technical assistance to the EDM and other sector agencies.

• Component 3: EDM governance improvement and support to the implementation of the EDM Restructuring Plan (US$30 million equivalent). The objective of this Component is to support implementation of key actions under the EDM restructuring plan, that is, the EDM’s MIP and improving the fuel delivery and storage system.

• Component 4. Operational support (US$3.1 million equivalent of which IDA US$3 million). The component will provide support to the implementation of Citizen Engagement and the project management activities of the PIU.

2. To ensure that actions are important for achieving the results of Component 3, disbursements of Component 3 will be made conditional to the completion of the DLIs. These DLIs are determined to be necessary steps toward achieving the PDO, which would not be achieved through the financing of inputs alone. Components 1, 2, and 4 follow the regular reimbursement mode based on statements of expenditures after the completion of activities.

Component 1: Improvement and expansion of transmission and distribution (IDA US$97 million equivalent)

The objective is to improve transmission and distribution infrastructure of the EDM. The rapid growth of the demand has overloaded and overburdened the transmission and distribution network in Bamako. The transmission lines are overloaded and the transformers in key substations are congested because of their transit capacity and limited flexibility. Thus, the technical losses are high, and the reliability of the system is poor. This component is designed to reinforce and expand the transmission and distribution network to address the congestion and increase its ability to meet the growing demand. The activities envisaged include the (a) rehabilitation and upgrading of the HV/MV and MV substations and (b) extension of the MV and LV network for the connection of 25,000 new customers.Subcomponent 1.1: Construction of transmission line,

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construction/rehabilitation/upgrade and expansion of HV/MV substations, construction of MV network (IDA US$91 million equivalent)

3. For the transmission line, the objective is close the loop of the existing HV lines of the city of Bamako (looping) by the construction of the HV Balingue-Dar Salam-Lafiabougou double circuit lines, and to possibly reinforce the existing HV links by a second circuit between Balingue-Sirakoro and Kodialani-Lafiabougou. The sections of the cables will be increased to allow the transition of more power and the reduction of losses. The looping and the doubling of the line will ensure greater reliability of the supply of electricity. The line route of the Balingue-Dar Salam-Lafiabougou line will be known after the feasibility studies are completed.

4. To meet the growing demand in Bamako, the following transmission lines are under construction or are envisaged in the medium term (these investments are outside the scope of this operation):

• The 225 kV Bamako-Bougouni-Sikasso transmission line under construction (completed in 2021) with a capacity of 200 MW from Côte d'Ivoire

• The Guinea-Mali 225 kV interconnection project recently approved and envisaged for 2022 with a capacity of 200 MW

• A second 225 kV transmission line between Bamako and Mamantali to increase the supply to Bamako, envisaged for 2022

• The upgrade of the Segou-Bamako 150 kV to 225 kV to increase the reliability of the supply to Bamako and evacuate the energy produced from the 150 MW regional solar park envisaged in Fana by 2025.

• The Ghana-Burkina-Mali 225 kV interconnection project planned for 2025.

5. In the short term, the only way to dispatch the increased supply to Bamako will be the HV loop. Currently, some partial sections of the line are already in place but are overloaded. The objective of this subcomponent is to close the loop and increase its capacity to ensure reliable delivery of power to Bamako.

6. In this subcomponent, a set of HV/MV substations will be rehabilitated and reinforced. The existing switching equipment will be renewed, the capacity of the substations will be upgraded, and the 15-kV metal-clad switchgears and the Substation Control System will be replaced. Bay extensions are also envisaged in these substations. A new HV/MV substation in Dar Salam will be constructed between the existing substations of Balingue and Lafia to supply the growing load at Dar Salam area. Two new 30/15 kV substations will be built in Niamakoro and Bacodjicoroni. The rehabilitation will consist of replacing obsolete critical substation equipment such as breakers, switches, auxiliaries and power supplies, and protection and control equipment. Where necessary, civil works will be performed to secure the equipment and the operators. To upgrade the system, higher capacity transformers and capacity banks will be installed with the objective of increasing the transit capacity and reduce technical losses. In the 30-kV system, higher capacity cables will be installed in place of the existing cables in selected portions of the network. The locations of the new substations will be known when the feasibility studies are completed.

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7. This subcomponent will also support the rehabilitation, strengthening, and extension of Bamako’s 15 kV network through (a) creating direct links (two 30 kV links and one 15 kV link) between the substations of Bacodjicoroni and Niamakoro to improve the reliability and flexibility of operation, provide N-1 capability and reduce technical losses; (b) constructing 15 kV feeders to reduce the load and the system losses; (c) increasing the section of existing 15 kV feeders to increase the transit capacity; and (d) extending the existing 15 kV feeders to serve new loads and increase access.

8. The following seven 30 kV links will be created:

(a) A double underground link between the substations of Lafia and DCO on 5 km using an aluminum 3 x 240 mm2 cable

(b) A double underground link between the substations of Badala and Sotuba on 9.2 km using an aluminum 3 x 240 mm2 cable

(c) A double underground link between the substations of Sotuba and Balkou on 4.6 km using an aluminum 3 x 240 mm2 cable

(d) A double underground link between the substations of Balingue and Balkou on 6.1 km using an aluminum 3 x 240 mm2 cable

(e) A double underground link between the substations of Balingue and Dar Salam on 7.7 km using an aluminum 3 x 240 mm2 cable

(f) A double underground link between the substations of Dar Salam and UEMOA on 4 km using with an aluminum 3 x 240 mm2 cable

(g) A double overhead line between the substations of UEMOA and Kati on 24.5 km using with a 228 mm2 aster cable

9. In addition, the 30 kV double busbars will be extended in the substations to fit the new links. The protections and the substation control and monitoring parameters will be also fine-tuned to ensure their connection to the Supervisory Control and Data Acquisition system for remote operation. The feasibility study will specify the route of the 30 kV and 15 kV envisaged.

10. Part of the existing 15 kV lines will be upgraded with a high section conductor to increase their transit capacity and reduce technical losses. New 15 kV feeders will be constructed to shorten the length of the existing ones and reduce their loads with the objective of reducing technical losses.

Subcomponent 1.2: Expansion of the network and connection of new households (IDA US$6 million equivalent)

11. This activity is focused on the construction of new distribution infrastructures such as substations, MV feeders, MV/LV transformer stations, LV lines, and the connection of new households. As a follow-up activity the construction of a new 30/15 kV substation is envisaged, in Subcomponent 1.1. In areas where the load has increased significantly, new feeders will be installed to integrate the new substations into the existing system and ensure redundancy, thus increasing the reliability. Feeders will also be installed to

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supply new consumers in the peri-urban areas of Bamako. The LV network will be densified to increase the number of new consumers and reduce losses, new MV/LV transformer stations with new LV lines will be installed, and 25,000 new connection equipment (including prepayment meters) will be acquired and installed. Knowing that the high connection fee is a barrier for new consumers, it is envisaged that new consumers will pay only 20 percent of the connection upfront and the balance will be spread over at least 12 months on their electricity bills. The feasibility study will indicate the location of the distribution equipment.

Component 2: Capacity strengthening and technical assistance (IDA US$20 million equivalent)

12. The objective of this component is to strengthen the capacity of the EDM for day-to-day operations and provide targeted technical assistance to the EDM and other sector agencies. This support will be subdivided into two subcomponents.

Subcomponent 2.1: Capacity strengthening (IDA US$15 million equivalent)

13. This subcomponent will support activities related to strengthening the day-to-day operations of the EDM. This subcomponent will support implementation of the EDM’s information infrastructure under its ICT Master Plan. The subcomponent will finance the acquisition and installation of software (planning and design software and O&M software), various equipment (underground fault detection vehicles and tools and security and O&M equipment), and logistics (vehicles for O&M and heavy load trucks equipped with cranes), to improve the planning and O&M of the network. This subcomponent will also finance the procurement of the logistics (vehicles, motorcycles, and so on) required to improve the customer service management.

Subcomponent 2.2: Technical assistance (IDA US$5 million)

14. Under this subcomponent, a consulting firm will be recruited to help the MEE and EDM prepare pluriannual programs and build capacity for a potential Program for Results (PforR) operation, which could be financed by the World Bank or other donors. The sector planning capacities of the MEE will be strengthened (including tools, equipment, and training). This subcomponent will also support the Ministry of Finance, MEE, and EDM prepare and implement a strategy to reduce the electricity consumption of the central government and government entities. On an as-required basis consultant will be hired to provide support to the MEE on strategic sector issues. Consulting firms will be hired to help the EDM prepare technical studies and environmental and social safeguard studies and supervise and monitor the construction works that will be executed through Component 1.

Component 3: EDM governance improvement and support to the implementation of the EDM Restructuring Plan (US$30 million equivalent of which 100 percent is allocated for DLIs)

15. The component will finance key actions under the EDM restructuring plan and EDM’s MIP and improving the fuel delivery and storage system as well as the energy mix. This component is fully aligned and complements the achievement of the energy prior actions under the proposed Mali Energy and Decentralization DPL (P167547) by focusing on medium-term reform actions, while the DPF addresses the short-term actions such as restructuring of the commercial debt, payment of government arrears, establishment of a prepayment mechanism for government entities, and increase of imports from Côte d’Ivoire. Specific activities include the following:



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(a) Audit the fuel delivery system and install the recommended monitoring actions

(b) Increase the EDM’s fuel storage capacity by the construction of new fuel storage facility in Bamako and isolated centers for HFO and diesel fuel oil.

(c) Installation and connection of fuel metering to monitoring system

(d) Extend the existing revenue protection program which targets the EDM’s 6,000 consumers, which represent 40 percent of the total revenue

(e) Update the customer database and develop a GIS to enhance the geographical localization of EDM customers

(f) Improve the reliability and the capacity of the customer management and billing system, including the platform to manage prepaid meters

(g) Audit meters to ensure appropriate measurement of technical and commercial losses;

(h) Prepare the least-cost plan and RE strategy and update the least-cost plan in the later years of the project

(i) Reduce the percentage of the thermal generation to 30 percent

Table1. 5. Summary of DLIs

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Component 4: Operational support (IDA US$3 million equivalent)

16. This component will support activities related to the integration of citizen engagement, improved customer engagement, and project management activities of the PIU during implementation period.

17. The citizen engagement activities focus on short-term and medium-term feedback mechanisms that will support restoring and improving electricity services, given the importance of quality and reliability of services for building trust among beneficiaries. A multiple uptake GRM will be developed targeting (a) residential households; (b) commercial consumers; and (c) industrial customers. As new households will be connected within the selected areas, specific outreach and two-way communication activities will be put in place to ensure that these customers and the existing ones have access to multiple uptake locations and channels. In addition, the project will support the establishment of a back-office structure to close the feedback loop and ensure timely resolutions and feedback to citizens’ queries and complaints. Project midterm consultations with a sample of citizens from each beneficiary group or residents will be planned to inform the project implementation and launch corrective measures based on consumers’ feedback. As demonstrated by global experience, citizen engagement activities will contribute to improving the performance of the EDM and will help strengthen residents’ trust thereby, indirectly affecting the collection rate.

18. Project management activities supported under the project include (a) the recruitment of dedicated fiduciary, safeguards, and technical advisory staff; (b) oversight of implementation of the environmental and social safeguards instruments for investments; (c) annual DLI and technical audits and external project auditing; (d) training; (e) office supplies and vehicles for project supervision; and (e) part-time consultants as needed. The component will also reinforce the participation of the project beneficiaries during project implementation and beyond. Specific activities to be financed include (a) communication and consultation with direct beneficiaries; (b) community monitoring through the deployment of an ICT-based solution as well as stakeholder training; and (c) costs related to the GRM.

19. Project management support will include financing for ad hoc technical assistance through individual consultants to support the PIU, envisaged to include, but not limited to, consultants to provide technical support and assist with project and procurement management, contracts management, safeguards management, and FM. The operating budget will support ad hoc technical assistance and the day-to-day operations of the PIU and may include the preparation of annual financial audits; cost of communications, translations, meetings, local travel, and consumables; and day-to-day office maintenance and administration.

20. The annual DLI audits will be procured through consultants, and maybe the same consultants will be engaged for the annual technical audit. The objective of the DLI audit will be to review whether or not the project’s DLIs are being met. The DLI process and the proposed DL indicators and results are described in annex 2.

21. The annual technical audits will be procured through consultants. In general, the objective of the technical audits will be to review the planning, design, construction, and management of maintenance works. Although the audits will be done annually, not all sites (contracts) will be audited each time, but the

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audits will be planned progressively across the network, to ensure that each maintenance contract is reviewed at least twice across the project implementation period. The audits will extend to evaluating the appropriateness of the specifications and standards applied.

22. Before completion, the project will also finance a comprehensive completion and beneficiary impact assessment. This assessment will seek to (a) document achievements and problems; (b) review and document lessons learned; (c) document project impacts on beneficiaries; (d) review the achievement of the DLIs and results indicators; and (g) recommend improvements in project design.

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Table 1.1. Detailed Project Cost (IDA only, excluding counterpart funding)

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Figure 1.1. EDM Network

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ANNEX 2: IMPLEMENTATION ARRANGEMENTS


Project Institutional and Implementation Arrangements

1. The EDM will be responsible for the overall coordination and the implementation of the project. The MEE will be technically responsible for the sector reform activities and the EDM will be responsible for the fiduciary aspects of these activities. The MEE will designate a focal point as the counterpart of the PIU within the ministry. The annual work programs and the budget of the project will be reviewed and approved by a Steering Committee including officials of the MEE, the Ministry of Economy and Finance, the Director General of EDM (or its representative), and CREE.

2. Project implementation. A PIU will be created within the EDM before effectiveness and will oversee the management and implementation of this project. The PIU will not have any other operation responsibility in the EDM apart from management and the implementation of project activities. The PIU team will include a project coordinator (director level), a procurement specialist, an FM specialist, an M&E specialist, technical experts (engineers), an environmental specialist, and a social development specialist. The PIU will be responsible for the overall implementation of the project on a day-to-day basis. The PIU will coordinate the annual work plan and budget (AWPB) and oversee the FM and procurement of the project. It will be responsible for all fiduciary aspects of the project including procurement, disbursement, accounting, financial reporting, and M&E of the project, and for ensuring the auditing of project account. It will prepare biannual reports recording the progress of the project. Project implementation support by the World Bank will be carried out twice a year and a midterm review will take place no later than three years after implementation with the objective of assessing progress to date and, if necessary, to redirect the project by integrating additional lessons learned and realities in the field. The project account will be audited annually by an independent auditor acceptable to IDA and should be submitted to IDA no later than six months after the closing of the fiscal year in Mali (that is, June 30). The PIU will act as the Secretariat for the Project Steering Committee (PSC) (including preparing the meetings, elaborating the documents for the meeting, recording the minutes of the meeting, and so on).

3. Project oversight. A PSC will be established at the beginning of the project implementation period. It will be chaired by the Minister of Energy or its Secretary General. The PSC will have the mandate to (a) review the implementation progress and the results achieved; (b) discuss and address project implementation issues; and (c) review and approve the annual Project Implementation Plan and reports prepared by the PIU, including reports on planned and executed budgets. The PIU will be the Secretariat of the PSC. It will be responsible to prepare the documents based on relevant contributions by all institutions involved in project implementation.

4. PIM. The PIM will be prepared and adopted before project effectiveness. The PIM is a compendium of procedures for implementing the project. It details the organizational and technical procedures that govern the project, including FM, procurement, social and environmental safeguards procedures, and the GRM. It also includes detailed terms of reference for all the PIU staff. The GRM will allow the PIU to address issues on time.

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Financial Management and Disbursements

5. The objective of the assessment was to determine whether (a) the implementing agency (EDM) has adequate FM arrangements (planning, budgeting, accounting, internal control, funds flow, financial reporting, and auditing arrangements) to ensure that project funds will be used for purposes intended in an efficient and economical way; (b) the project’s financial reports will be prepared accurately, reliably, and on time; and (c) the project’s assets will be safeguarded. The FM assessment was carried out in accordance with the Financial Management Manual for World Bank IPF Operations that became effective on March 1, 2010, and as last revised on February 10, 2017. In this regard, a review of the FM arrangements has been conducted for the above entities as detailed in the following paragraphs.

6. The conclusion was that the EDM could be in a position to manage the World Bank’s funds once measures are implemented to strengthen its current FM system. A PIU will be created inside the EDM. The FM team of the PIU will be the World Bank’s main counterpart and focal point for all fiduciary aspects of the project.

7. The overall FM risk for the EDM is rated Substantial. This is due to (a) the EDM’s lack of experience and familiarity with the World Bank’s FM procedures; (b) the project design which involves several actors with beneficiaries based in the countryside; and (c) some activities of the projects being prone to irregularities.

8. The EDM will have adequate capacity to effectively manage the World Bank funds once the measures shown in table 2.1 are implemented.

Table 2.1. FM Action Plan

Planning and Budgeting

9. The EDM will prepare a detailed consolidated AWPB for implementing the activities of the project. The AWPB will be submitted to the Steering Committee for approval and thereafter to IDA for ‘no objection’, not later than November 30 of the year preceding the year the work plan should be implemented.

10. Internal control system and internal audit. The internal control system is designed to ensure the (a) effectiveness and efficiency of operations; (b) reliability of financial reporting; and (c) compliance with applicable laws and regulations. For this project, the accounting, financial, and administrative procedures manual, to be developed as part of the PIM, will document, explain, and describe work processes, information flow, authorization and delegation of authority, timing, job segregations, auto and sequential controls, compliance with project objectives, micro and macro rules, and regulations. Application of the

Action Responsible Party

Deadline and Conditionality

Prepare and adopt the implementation manual including fiduciary procedures

EDM Before effectiveness

Recruit an FM officer with qualifications and experience satisfactory to the World Bank

EDM Before effectiveness

Recruit an accountant with qualifications and experience satisfactory to the World Bank

EDM Three months after effectiveness

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procedures set up in the manual will be mandatory for all staff at all levels. The EDM will recruit or appoint a dedicated internal auditor for this project.

11. Accounting arrangements. The prevailing accounting policies and procedures in line with the West African Francophone countries accounting standards—SYSCOHADA—in use in Mali for ongoing World Bank-financed operations will apply. The accounting systems and policies and financial procedures used by the new project will be documented in the project’s administrative, accounting, and financial manual to be developed by the project as part of the PIM (before effectiveness). The EDM will purchase or customize the accounting software to meet the project requirements. This software should be capable of recording transactions and reporting project operations on time including preparation of withdrawal applications and periodic financial reports (unaudited interim financial reports (IFRs) and annual financial statements). The software should include budgeting, operating, and costs accounting systems to facilitate M&E and reporting.

12. Interim financial reporting. The unaudited IFRs will be prepared every quarter and submitted to the World Bank regularly (for example, 45 days after the end of each quarter) and on time. The consolidated quarterly IFR for the project includes the following financial statements: (a) statement of sources of funds and project revenues and uses of funds; (b) statement of expenditures (SoE) classified by project components and/or disbursement category (with additional information on expenditure types and implementing agencies as appropriate), showing comparisons with budgets for the reporting quarter, the year, and cumulatively for the project life; (c) cash forecast; (d) explanatory notes; and (e) Designated Account (DA) activity statements.

13. Annual financial reporting. In compliance with International Accounting Standards and IDA requirements, both the implementing entities will produce annual financial statements. These include (a) a balance sheet that shows assets and liabilities; (b) a statement of sources and uses of funds showing all the sources of project funds and expenditures analyzed by project component and/or category; (c) a DA activity statement; (d) a summary of withdrawals using SoEs, listing individual withdrawal applications by reference number, date, and amount; and (e) notes related to significant accounting policies and accounting standards adopted by management and underlying the preparation of financial statements. The financial statements will be audited annually by the external auditor.

14. External auditing. The external audit of the project’s funds will be done by a private audit firm acceptable to the World Bank on the basis of terms of reference cleared by the World Bank. The audit will be carried out in accordance with the International Standards on Auditing. The audit report together with the Management Letter will be submitted to the World Bank within six months after the end of the financial year. The financial years for preparing the audited accounts will follow the financial year of the implementing entity. In addition, the EDM will submit the audit report on consolidated financial statements and Management Letter.

15. The audit reports will be publicly disclosed by the World Bank in accordance with the World Bank disclosure policy.

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Table 2.2. Due Dates of the Audit Report

Audit Report Due Date Responsible Party

Two audited financial statements including audit report and Management Letter (for project and consolidated financial statements) for the EDM

(a) Not later than June 30 (2000 + N) if effectiveness has occurred before June 30 (2000 + N-1). (b) Not later than June 30 (2000 + N+1) if effectiveness has occurred after June 30, (2000 + N-1)

EDM

Funds Flow Arrangements

16. Disbursements for all implementing entities. Upon SUF credit and IDA grant effectiveness, disbursements will follow the Disbursement Guidelines for IPF operations issued in February 2017. The project will finance 100 percent of eligible expenditures inclusive of taxes. The project can make use of all four disbursement methods (advance, reimbursement, direct payment, and special commitment). An initial advance up to the ceiling of the DA will be made into the DA from which payments for incurred eligible project expenditures will be made. Subsequent disbursements will be made against the submission of SoE reporting on the use of the initial/previous advance. The minimum value of applications for these methods is 20 percent of the DA ceiling. The authorized signatory for each entity will sign and submit withdrawal applications electronically using the eDisbursement module accessible from the World Bank’s Client Connection website.

17. Local taxes. Funds will be disbursed in accordance with project categories of expenditures and components and their financing will be in line with the Financing Agreement and will be inclusive of taxes according to the current country financing parameters approved for Mali.

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Table 2.3. Eligible Expenditures6

Category Amount of the Grant Allocated (expressed in SDR)

Amount of the Credit Allocated

(expressed in EUR)

Percentage of Expenditures to be Financed

(inclusive of Taxes)

(1) Goods, works, non-consulting services, and consulting services for Part 1 of the Project

0 86,311,750 100

(2) Goods, works, non-consulting services, consulting services (including for audits), Training, and Operating Costs for Parts 2 and 4 of the Project

14,975,000 0 100

(3) Eligible Expenditure Programs (Part 3 of the Project)

3,625,000 22,316,000 Up to 100, as set forth in the table in the Annex to this

Schedule

(4) Refund of Preparation Advance

1,700,000 Amount payable pursuant to Section 2.07 (a) of the General

Conditions

(5) Front-end Fee Not applicable 272,250 Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 3.08

(b) of the General Conditions

(6) Interest Rate Cap or Interest Rate Collar premium

Not applicable 0 Amount due pursuant to Section 4.06 (c) of the General

Conditions

TOTAL AMOUNT 20,300,000 108,900,000

6 Retroactive financing is allowed

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Figure 2.1. Funds Flow

Note:

18. Support to the implementation plan. FM supervisions will be conducted over the project’s lifetime. The project will be supervised on a risk-based approach. Based on the outcome of the FM risk assessment, the implementation support plan as shown in table 2.4 is proposed. The objective of the implementation support plan is to ensure the project maintains a satisfactory FM system throughout its life.

Table 2.4. FM Implementation Support Plan

FM Activity Frequency Desk reviews IFRs’ review Quarterly

Audit report review of the program Annually

Review of other relevant information such as interim internal control systems reports Continuous, as they become available

On-site visits Review of overall operation of the FM system (Implementation Support Mission)

Every six months for Substantial risk

Monitoring of actions taken on issues highlighted in audit reports, auditors’ Management Letters, internal audits, and other reports

As needed

Transaction reviews As needed Capacity-building support FM training sessions During implementation as needed

IDA

DA (CFAF) Commercial Bank

Direct payment

Contractors, Suppliers and Services providers

DLIs Component

Non-DLIs components

EDM Account

Direct Payment

Flow of documents (invoices, expenditures justification, DLI report, and so on) Flow of funds

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19. DLIs. DLIs are proposed to align the project outcomes and reforms with project expenditures. The proposed DLIs are shown in table 2.4 and will be applied against Component 3 only. There are no DLI targets associated with expenditure under Components 1, 2, and 4. The validation and verification of the DLI achievement will be carried out by the independent verification agent (who is separate and distinct from the financial auditor). The protocols for DLI measurement, verification, and validation are presented in table 2.4. The eligible expenditures consists of activities to improve the fuel monitoring and storage, the revenue protection plan and the improvement of the energy mix. The team assessed the EEPs and is confident that the result targeted will be achieved and the funds will be managed in compliance with the World Bank fiduciary and safeguard policies. The independent verification agent will be responsible for audit of the implementation of EEPs to ensure their compliance with the World Bank fiduciary ad safeguard procedures.

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Summary of Protocols for Monitoring Achievement of DLIs Table 2.5 summarizes the protocols to be used in determining DLI values

Table 2.3. DLIs Protocols Disbursement-Linked Indicator

Disbursement-Linked Result Disbursement Calculation Formula (expressed in US$)

Financing Allocated (expressed in US$

(1) Improvement of EDM fuel monitoring and storage system

DLI 1.1: Fuel supply and consumption value chain audited, and audit report satisfactory to the World Bank

DLI 1.2: Increase in fuel storage capacity

DLI 1.3: Installation and connection of fuel metering to monitoring system

500,000 for first report, 125,000 per subsequent report

1,700,000 per 1,000 m3 of capacity, with minimum payment of 1,000,000 and maximum payment of 17,000,000 166,666 per meter, with minimum payment of 500,000 and maximum payment of 2,000,000

1,000,000

17,000,000

2,000,000

DLI 1 Total 20, 000,000 (2) Implementation of EDM revenue protection plan

DLI 2.1: Installation and implementation of management information system satisfactory to the World Bank

DLI 2.2: (a) Purchase of 6,000 smart meters (b) Installation of smart meters purchased under (a)

DLI 2.3: (a) Updating of customer database in manner satisfactory to the World Bank (b) Development of geographical information system

DLI 2.4: (a) Technical audit of 100 loss meters (b) Replacement of broken loss meters

Not applicable

Not applicable

350,000 per 3,000 meters, with minimum payment of 350,000 and maximum payment of 700,000

Not applicable Not applicable

500,000

4,000,000

700,000

500,000

1,000,000

500,000

800,000

DLI 2 Total 8,000,000 (3) Improvement of energy mix

DLI 3.1: (a) RE strategy prepared and adopted by the Recipient (b) Least-cost plan and RE strategy updated by the Recipient two (2) years following approval / adoption

DLI 3.2: Reduction of thirty percent (30 percent) in thermal generation, excluding for supply to mining activities

Not applicable

Not applicable

600,000

700,000

700,000

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DLI 3 Total 2,000,000 TOTAL AMOUNT 30,000,000 Procurement 20. The recipients will carry out procurement under the proposed project in accordance with the World Bank’s ‘Procurement Regulations for IPF Borrowers’ (Procurement Regulations) dated July 2016 and revised in November 2017 and August 2018 under the ‘New Procurement Framework (NPF)’, and the ‘Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants’, dated October 15, 2006 and revised in January 2011 and July 1, 2016.

21. All procuring entities as well as bidders and service providers, that is, suppliers, contractors, and consultants shall observe the highest standard of ethics during the procurement and execution of contracts financed under the project in accordance with paragraph 3.32 and annex IV of the Procurement Regulations.

22. The recipients shall prepare and submit to the World Bank a General Procurement Notice and the World Bank will arrange for publication of a General Procurement Notice in United Nations Development Business online and on the World Bank’s external website. The recipients may also publish it in at least one national newspaper.

23. The recipients shall publish the Specific Procurement Notices (SPNs) for all goods, works, non-consulting services, and the Requests for Expressions of Interest on their free-access websites, if available, and in at least one newspaper of national circulation in the Borrower’s country, and in the official gazette. For open international procurement selection of consultants using an international short list, the Borrower shall also publish the SPN in United Nations Development Business online and, if possible, in an international newspaper of wide circulation. The World Bank arranges for the simultaneous publication of the SPN on its external website.

24. The project design will provide a window to enable the Recipient to carry out advance contracting and retroactive financing in accordance with section V (5.1 and 5.2) of the Procurement Regulations. The retroactive financing is allowed for an aggregate amount not to exceed US$5.6 million equivalent under the IDA grant, and US$24.4 million equivalent under the IDA credit, for payments made on or after August 1, 2018, for eligible expenditures under Categories (1) and (2).

25. A PIU will be created and housed at the EDM. The PIU will be responsible for the project planning, financial and procurement management, M&E, and internal auditing. The coordinator will be responsible for decision making during the procurement process. A procurement specialist proficient in World Bank Procurement procedures and a procurement assistant will be recruited to support implementation of the project.

26. Filing and record keeping. The Procurement Procedures Manual will set out detailed procedures for maintaining and providing readily available access to project procurement records, in compliance with the Loan Agreement. The EDM will assign one person responsible for maintaining the records. The logbook of the contracts with a unique numbering system shall be maintained.

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27. The signed contracts as in the logbook shall be reflected in the commitment control system of the Borrower’s accounting system or books of accounts as commitments whose payments should be updated with reference made to the payment voucher. This will put in place a complete record system whereby the contracts and related payments can be corroborated.

28. PPSD. As part of the preparation of the project, the Borrower (with support from the World Bank) prepared the PPSD which described how fit-for-purpose procurement activities will support project operations for the achievement of PDOs and deliver value for money. The procurement strategy is linked to the project implementation strategy at the country level ensuring proper sequencing of the activities. It considered institutional arrangements for procurement; roles and responsibilities; thresholds, procurement methods, and prior review; and the requirements for carrying out procurement. It also includes a detailed assessment and description of the state government’s capacity for carrying out procurement and managing contract implementation, within an acceptable governance structure and accountability framework. Other issues taken into account include behaviors, trends, and capabilities of the market (that is, market analysis) to inform the Procurement plan. The activities also require strong technical capability to prepare proper technical specifications in order to avert lack of, or inadequate, market response. This capability, or a plan, to enhance is considered in the strategy. Special arrangements like direct contracting; use of SoEs, United Nations agencies, third-party monitors, local nongovernmental organizations; force accounts; civil servants’ needs; results-based arrangements; and need for prequalification, if any, are considered and addressed.

29. United Nations agencies may be hired by the Government on a single-source basis for contracts for which they offer their unique roles and qualifications in responding to emergency situations. Standard forms of agreement for United Nations agencies as acceptable to the World Bank will be adopted. For those United Nations agencies, if such forms have not been agreed with the World Bank, the World Bank team will provide acceptable sample forms for use by the countries. For the United Nations agencies hired by the Government, certain quick-disbursing arrangements may be agreed upon to finance a positive list of imported or locally produced goods that are required for the project, further subject to the World Bank’s prior agreement on the conditions for the release of the financial tranches and the required documentation and certifications, such as customs and tax certificates or invoices.

30. The recruitment of civil servants as individual consultants or as part of the team of consulting firms will abide by the provisions of paragraph 3.23 (d) of the Procurement Regulations.

31. Special considerations. Mali is on the harmonized list of Fragile and Conflict-affected Situations countries and therefore the project will trigger paragraph 12 of the Policy for IPF to apply flexibilities and simplification to facilitate procurement implementation. These procurement arrangements therefore draw on the World Bank Guidance on Procurement Procedures in Situations of Urgent need of Assistance or Capacity Constraints issued on July 1, 2016.

32. Procurement Plan. The Recipient and the implementing agency prepared a detailed 18-month Procurement Plan which was agreed upon by the Government and the World Bank during the negotiations. The Procurement Plan will be updated in agreement with the World Bank team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. It has been disclosed on the World Bank’s external website.

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33. The implementing agency will carry out procurement for the needs to implement the project as included in the Procurement Plan and agreed with the World Bank.

34. Training, workshops, study tours, and conferences. Training activities would comprise workshops and training, based on individual needs, as well as group requirements, on-the-job training, and hiring consultants to develop training materials and conduct training. Selection of consultants for training services follows the requirements for selection of consultants as discussed earlier. All training and workshop activities (other than consulting services) will be carried out on the basis of an approved annual work plan/training plan that will identify the general framework of training activities for the year, including (a) type of training or workshop; (b) personnel to be trained; (c) institutions which would conduct the training and reason for selection of a particular institution; (d) justification for the training, how it would lead to effective performance, and implementation of the project; (e) duration of the proposed training; and (f) cost estimate of the training. Reports by the trainees, including completion certificate/diploma upon completion of training, shall be provided to the project coordinator and will be kept as part of the records, and will be shared with the World Bank if required.

35. A detailed training and workshop plan providing the nature of training/workshop, number of trainees/participants, duration, staff months, timings, and estimated costs will be submitted to IDA for review and approval before initiating the process. The selection methods will derive from the activity requirement, schedule, and circumstance. After the training, the beneficiaries will be requested to submit a brief report indicating what skills have been acquired and how these skills will contribute to enhance their performance and contribute to the attainment of the project objective.

36. Operational costs. Operational costs financed by the project will be incremental expenses, including office supplies, vehicles O&M cost, maintenance of equipment, communication costs, rental expenses, utilities expenses, consumables, transport and accommodation, per diem, supervision costs, and salaries of locally contracted support staff. Such services’ needs will be procured using the procurement procedures specified in the PIM accepted and approved by the World Bank.

37. Procurement manual. Procurement arrangements, roles and responsibilities, methods, and requirements for carrying out procurement shall be elaborated in detail in the procurement manual which may be a section of the PIM. The PIM shall be prepared by the Recipient and agreed with the World Bank not later than effectiveness.

38. Procurement methods. The Borrower will use the procurement methods and market approach in accordance with the Procurement Regulations.

39. The Open National Market Approach is a competitive bidding procedure normally used for public procurement in the country of the Borrower and may be used to procure goods, works, or non-consultant services provided it meets the requirements of paragraphs 5.3 to 5.6 of the Procurement Regulations.

40. The thresholds for particular market approaches and procurement methods are indicated in table 2.6. The thresholds for the World Bank’s prior review requirements are also provided in table 2.6.

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Table 2.6. Thresholds for Procurement Methods and Prior Review

No Expenditure Category

Contract (C) Value Threshold (equivalent

US$) Procurement Method

Contracts Subject to Prior Review (equivalent

US$)

1 Works

C ≥ 15,000,000

Open Competition International Market Approach and Direct Contracting

≥ 5,000,000

200,000 < C < 15,000,000

Open Competition National Market Approach None

C ≤ 200,000 Request for Quotation None

2 Goods, IT, and non-consulting services

C ≥ 3,000,000

Open Competition International Market Approach and Direct Contracting

≥ 1,500,000

100,000 < C < 3,000,000

Open Competition National Market Approach

None

C ≤ 100,000 Request for Quotation None

3

National short list for selection of consultant firms

C < 200,000 For consulting services None

C ≤ 400,000 For engineering and construction supervision

None

4

International short list for selection of consultant firms

C ≥ 200,000 For consulting services ≥ 500,000

C > 400,000 For engineering and construction supervision

≥ 500,000

5 Selection of individual consultants

All values All approaches ≥ 200,000

6 Direct Contracting All values As agreed in the

Procurement Plan

7 Training, workshops, and study tours

All values Based on approved AWPBs AWPBs

Note: The thresholds are for the two countries unless indicated otherwise for specific items and for the procurement risk rated High. The thresholds in the table are for the initial Procurement Plan for the first 18 months. The thresholds will be revised periodically based on reassessment of risks. All contracts not subject to prior review will be post-reviewed.

41. Procurement risk rating. Although an in-depth assessment of procurement remains to be carried out at the project appraisal stage, the current risk of project procurement considering recent experiences (Mali Energy Support Project) and before the mitigation measures is deemed ‘High’. The risk can be reduced to a residual rating of ‘Moderate’ upon consideration of successful implementation of the mitigation measures.

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Environmental and Social (including Safeguards)

Environmental and Social Overview

42. The feasibility and the detailed engineering studies of the project are in progress and the exact locations of the sites are not yet known. However, the indicative list of potential sites to be considered has been communicated by the EDM in the district of Bamako and in its immediate vicinity for the transformer stations and power lines. The studies will accurately identify the location involved and the investments to be made. Based on the indications of the EDM, the project will be implemented in Bamako located on the banks of the Niger River in a valley surrounded by hills and will cover 267 km2. This valley is crossed by some streams and ponds that flow into the Niger River. The vegetation of Bamako is characterized by the succession of anthropized and natural vegetation. The most important vegetal ecosystem in the city is the classified forest of Koulouba, which covers 2,010 ha. This forest contains a national park and is dominated by the hill of Koulouda on which is built the presidential palace of the country. Electrical line construction work has to consider the existence of this classified forest.

43. On the climate plan, Bamako is in the third part of countries constituted by the regions of Kayes, Koulikoro, Segou, and Sikasso with a tropical savanna climate with 600 to 1,000 min of rainwater per year during the rainy season. The temperature varies between 24°C and 38°C with the month of January as the coolest and that of April as the hottest. During the dry season the energy needs increase, putting pressure on the already aging electrical installations.

44. Bamako city is a district with six communes. The population is around 3,000,000 through these six communes. With 600,000 inhabitants, Commune 6 is the most populated and is where the energy need is the highest in the city. This is followed by Communes 2 and 3 that constitute the most industrialized areas and are the administrative and commercial centers of Bamako. Indeed, 80 percent of the industries in Bamako city is found in Commune 2. Commune 3 shelters the two of the busiest markets (Dabanani and Dibida) of the city and most of the administrative services.

45. In these municipalities and neighborhoods, the need for electric energy is growing in households or in companies and administrations.

46. Though sites of the lines and transformer stations to be rehabilitated are known, it is not the same for the rest of the works whose sites are not yet defined. The exact locations of some physical investments remain unknown and will be decided with the authorities based on the established criteria including the priorities identified in the electricity development plans and the expressed needs of the communities.

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ANNEX 3: IMPLEMENTATION SUPPORT PLAN


Strategy and Approach for Implementation Support

1. The implementation support plan includes periodic missions with regular client interaction from both field- and headquarters-based World Bank staff in between missions. During project supervision, the team will use the PDO and the Results Framework as primary lenses for monitoring progress, evaluating impact and effectiveness, and adjusting the project details.

2. The EDM will implement the project through a PIU, which will be staffed by external consultants for the fiduciary activities and EDM personnel for the technical aspects (see figure 3.1). On an as-required basis, additional consultants will be hired to provide support in project, procurement, financial, safeguards, and contract management. An operating budget provided through the project financing, will support this arrangement. The PIU will organize periodic (monthly) progress meetings with the contractors and monitoring consultants.

3. The EDM, through its PIU, will be the fiduciary responsible for the delivery of the activities of the MEE and Finance and Technical Steering Committee will be established consisting of members of the MoE, Ministry of Finance, and EDM. The Technical Steering Committee will guide the finalization of the terms of reference of the consultant services, supply of goods, supply and installation of equipment to be delivered to strengthen the capacity of the MEE, and the Government’s Electricity Consumption Program.

4. An Owner’s Engineer will be provided to support the PIU to (a) ensure that the service levels, specified in the construction contracts, are met; (b) administer construction contracts; and (c) certify payments.

5. The project will finance DLI audits. After completion of the work contracts, a comprehensive completion and beneficiary impact assessments will be provided to (a) document project impacts on beneficiaries; (b) review lessons learned; (c) review the DLIs and results indicators; and (d) recommend improvements in project design.

6. The World Bank will undertake implementation support missions on a semiannual basis. As these missions will be unable to inspect all maintenance activities under the project, the outcomes of the annual technical and DLI audits will inform the mission agenda. Trends identified from the outputs of the STS may also provide additional focus.

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Figure 3.1. PIU Organization Chart

Implementation Support Plan and Resource Requirements

7. Implementation support will initially focus on advancing the preparation and implementation of the investment activities, the EDM’s improvement plans, and sector reforms. As a result, the World Bank expects an intensive supervision agenda during the first two years, after which the tempo should moderate, focusing on maintaining progress and addressing key bottlenecks. The World Bank team will include headquarters and country office-based staff as well as consultants.

Procurement and Technical Aspects

8. World Bank procurement specialists will regularly participate in implementation support missions to assist in monitoring procurement procedures and plans. The Procurement Plan indicates contracts which are subject to prior review. All other contracts will be subject to post review. During the early phase of project implementation, more frequent supervision is envisaged to ensure that procurement guidelines are followed. Field supervisions will be conducted whenever practical. Procurement Plans will be updated at least once each year (or more often as required to reflect the actual project implementation needs) and post-procurement reviews will be carried out at a minimum once annually.

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Financial Management Aspects

9. FM implementation support will start by assessing the progress of the project management unit staffing and reviewing the plan in place to execute disbursements following FM guidance. This implementation support will take place before contracts are awarded in case improvement measures need to take place before disbursement. The FM supervision will also review quarterly progress and financial audits as well as the Independent Verification audits on the EEPs. In terms of resources, a country-office-based staff is expected to be required for eight weeks. Based on the outcome of the FM risk assessment, the implementation support plan, as shown in table 3.1 is proposed. The objective of the implementation support plan is to ensure that the project maintains a satisfactory FM system throughout the project’s life.

Table 3.1. Implementation Support Plan

Environment and Social Aspects

10. Environment safeguards support will include visits to project areas and monitoring mitigation measures. During construction, monitoring is necessary to ensure compliance with environmental and social safeguards related to the infrastructure projects, including attention to gender differences and impacts.

Overall Implementation Support Plan

11. The overall implementation support plan would be as shown in table 3.2.

Table 3.2. Overall Implementation Support Plan

Time Focus Skills Needed Resource Estimate

(US$)

First twelve months

• Establish working arrangements • Capacity building (safeguard, FM,

procurement)

• Task management

• Power engineer 200,000

FM Activity Frequency Desk reviews Interim financial reports review Quarterly Internal audit report reviews of the project On a risk-based approach External audit report reviews of the project Annually Review of other relevant information such as interim internal control systems reports. Continuous as they become available

On-site visits Review of overall operation of the FM system Semiannual (Implementation Support Mission) Monitoring of actions taken on issues highlighted in audit reports, auditors’ Management Letters, internal audit, and other reports

As needed

Transaction reviews (if needed) As needed Capacity-building support FM training sessions During implementation and as and when needed.

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Time Focus Skills Needed Resource Estimate

(US$) • Finalize investments design, terms of

references, and bidding documents • Procurement • Safeguard assessments and

implementation

• Safeguards • FM • Procurement

12-48 months

• Technical implementation support • Social and environmental safeguard

implementation support • Closing gender gaps activities (training,

baseline assessment and data collection, and enhancing productive and social services)

• M&E implementation support • FM and procurement • Implementation support

Specialists in • Energy • Power • Social • Environment • Gender • M&E • FM • Procurement

300,000

12. The skills mix expected is presented in table 3.3.

Table 3.3. Skills Mix

Skills Needed Annual

Number of Staff Weeks

Annual Number of International

Trips Comments

Senior energy specialist/power engineer (task team leader)

10 0 Field based

Energy specialist 10 3 International Procurement 4 0 Field based Social 4 0 Field based Environmental 4 0 Field based Gender 2 1 International Citizen engagement specialist 2 1 International FM 3 0 Field based M&E 3 1 Field based

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ANNEX 4: ECONOMIC AND FINANCIAL ANALYSIS

COUNTRY : Mali Mali Electricity Sector Improvement Project (MESIP)

Introduction

1. Project objective and costs. The PDO is designed to improve and expand the transmission and distribution network to address the congestion problem, increase its capacity to meet the growing demand in Bamako region, and reduce commercial losses stemming from large customers. The activities envisaged include (a) the rehabilitation and upgrade of the HV/MV substations and the MV network; (b) the expansion of the LV network to connect 25,000 new customers; (c) installation of intelligent meters to reduce commercial losses. The project will also support and facilitate the implementation of the EDM’s reform currently under preparation, strengthen its capacity in planning, project preparation, and project implementation, including public-private partnership advisory and preparation.

2. The estimated costs of the project activities are provided in table 4.1.

Table 4.1. Project Costs Breakdown for the Project Activities

Cost Category Project Costs (US$, millions)

Of Which IDA (US$, millions)

Construction of transmission line, construction/rehabilitation/upgrade and expansion of HV/MV substations, and construction of MV network

92.8 91

Expansion of the distribution network (LV) and connection of new households 6.2 6

Capacity strengthening and technical assistance 20 20 EDM governance improvement and support to the implementation of the EDM Restructuring Plan 30 30

Project Management 3.1 3 Total Project Costs 152.1 150

3. Rationale for public financing. The rationale for public sector financing for the investments rests primarily on the present characteristics of Mali’s power sector: (a) low electricity access in the country requiring government intervention as a development priority to ensure energy supply and increase access to electricity; (b) upgrading and expanding transmission and distribution networks are not normally conducive to public-private arrangements, particularly if those investments are not linked to a private and bankable project; and (c) the scale of investments required and long payback periods. It is also highly unlikely that a private investor will finance the proposed investments given the status of Mali’s power sector.

4. The scope of overall sector investments in generation, transmission, distribution, and capacity building is beyond the available financial resources of the GoM. Several multilateral and bilateral partners and various lending institutions are supporting the GoM’s energy sector development program. However, the combined financial support from these partners is still inadequate to meet the sector investment needs. As part of the ongoing reforms, legal and regulatory changes are being made to promote private investments in segments of the sector that are more conducive for private participation, such as generation.

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5. World Bank’s added value. The World Bank Group has over the years been a close partner of the GoM in the development of its electricity sector particularly in generation, transmission, and distribution. The World Bank is therefore well positioned to continue its commitment to the expansion and modernization of electricity supply in Mali, also building on its experience in similar programs in Mali, such as the ongoing Mali Energy Support Project (P108440).

6. Drawing upon its rich expertise and experience, the World Bank engagement will enable adoption of best practices in design and execution of network expansion, thus ensuring technically and socially efficient delivery. Furthermore, the World Bank’s financing will enable the GoM to source financing under terms that would support the financial viability of the utility, which is critical for increasing access to electricity and supporting inclusive economic growth.

Methodology for the Economic and Financial Analysis

7. The project economic analysis seeks to assess the net economic benefits to Mali's society of the proposed transmission and distribution investment; the financial analysis assesses the investment impacts on the EDM’s finances.

8. Development impacts expected from the proposed investment. The Development Objective is to increase access to electricity in Mali. This will be done by financing the implementation of transmission and distribution investment benefiting households, small businesses, and public institutions, and capacity building. The transmission investment component of the project will allow capacity upgrade of the HV transmission lines and substations to facilitate power import from Côte d’Ivoire and later from Guinea. The distribution investment component will expand the distribution networks to selected areas near the urban center of Bamako. In each urban center, the project impacts are expected to be felt at three levels: (a) improvements in the quantity and quality of the electricity services available in the center because of upgrading and strengthening of the networks and a reduction in distribution losses; (b) increased consumption and improved quality of electricity services in the selected urban areas from the upgrading, rehabilitation, and densification of the distribution network; and (c) connection of new urban customers currently without the EDM’s distribution network. It is estimated that a total of 25,000 new customers will be connected to the EDM’s distribution networks through network extensions included in the project. Important increases in the electricity consumption of each center are therefore expected. The commercial losses reduction component will help reduce the commercial losses with the installation of intelligent meters on the premises of large customers.

Economic Analysis

Economic Benefits Evaluation Criteria

9. The economic analysis seeks to estimate the net economic benefits for Mali's society of the proposed transmission and distribution investment over the investment economic life by comparing (a) the benefits streams of the additional availability and consumption of electricity by the households, commercial, and productive users and the improvements in quality from the project to (b) the stream of economic costs (additional CAPEX, generation, and transmission and distribution costs) associated with the additional electricity services used by the consumers affected by the project.

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10. For each of the main components, the transmission investments, the distribution investments, and the installation of intelligent meters, the economic benefits and costs of delivering additional electricity have been estimated by assessing the impacts of the investment on the availability of electricity for two scenarios: a ‘without-the-project’ scenario where no such transmission or distribution investment is carried out and a ‘with-the-project’ scenario comprising project investment in network strengthening, rehabilitation, densification, and extension.

Main Assumptions of the Economic Analysis

11. The main assumptions therefore related to the economic value of the electricity consumed, the economic costs of the electricity supplied to the load center, and the associated technical losses.

• Project economic investment. The total investment requirement has been provided in table 5.1 for each of the two physical components including all sources of funding. These economic costs exclude the value added tax (VAT) and duties applicable in Mali on imported equipment and are in constant 2017 U.S. dollar.

• Economic life of the project. The economic life of the components of the project is as follows:

o HV/MV substations expansion component of the project is set to 25 years

o MV/LV substations expansion component of the project is set to 25 years

o Transmission and distribution network expansion component is set to 40 years

o Intelligent meters are set to 12 years

• Economic discount rate. The economic discount rate assumed is 6 percent (refer to the new World Bank Group guidelines).

• Economic value of the additional electricity consumed. The additional electricity made available through the proposed investment will benefit new customers living in non-electrified urban and peri-urban areas. In the absence of specific surveys of the values assigned to electricity services in Mali, for this analysis, the value is set conservatively to 85 percent of the costs of using small stand-alone diesel systems, in this case to the cost of generation from the Dar Salam generation plant (most expensive generation plant in the system). Based on the above assumption, the economic value/WTP for quality services is therefore set at US$0.25 per kWh (CFAF 144 per kWh).7 The assumed value of the WTP is likely to be quite conservative as the expenditures incurred in Mali for small stand-alone diesel generators or other energies and payments made for accessing electricity services are expected to be significantly higher.

• Availability and costs of imports and domestic generation. With the expansion and upgrade of the HV substations, the project will allow the import of additional power from Côte

7 Using an exchange rate of US$1 = CFAF 575.

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d’Ivoire (40 MW) and later from Guinea (80 MW) when the interconnection between Mali and Guinea is online and operational without further expansion. In the economic analysis (and later in the financial analysis), it is assumed that beyond import of 120 MW, further distribution network expansion is needed.

• Saving on undistributed energy. The project will help reduce the level of non-distributed energy by improving network reliability. The economic analysis assumed the level of non-distributed energy to be 5.8 GWh (average of 2015 and 2016 values), which will be reduced by 25 percent after implementation of the project. The saving is considered as additional energy available for retail consumption and is therefore valued accordingly.

• Saving on commercial losses. In 2016, the energy delivered but not billed was 301 GWh. The MV share of total energy sales was 41 percent. Assuming the same share for the MV customers of the energy delivered but not billed, the commercial losses attributed to MV customers is 122 GWh. It is assumed that the intelligent meters project will help save 50 percent of these commercial losses. The MV commercial losses will also grow at a rate of 5 percent per year to account for the growth in a non-mature electricity market.

• Supply costs. For the transmission network expansion and substations upgrades, the cost of supply is derived from the existing and forecast prices of energy imported from Côte d’Ivoire and to be imported from Guinea. Regarding the economic cost of energy supplied for the connection of 25,000 new customers and additional energy saved through undistributed energy, the analysis assumed a projected weighted average cost of supply for the entire power system, which is extracted from the most recent cost of supply projection as detailed in the EDM’s sector financial model. Table 4.2 summarizes the average cost of energy supplied used for the economic and financial analysis.

Table 4.2. Energy Supplied Cost

Source Capacitya Unit Cost Unit Cost MW CFAF/kWh US¢/kWh

Côte d’Ivoire 40 62.3 11.8

Guinea 80 63.6 12.0 EDM Electric

System 85.2 16.1

Note: a. additional capacity made available.

• Additional energy demand from 25,000 new customers. The new customers who will be connected with the implementation of the project, are assumed to have a specific consumption rate of 2,060 kWh per year with a growth rate of 22 percent per year.

• Transmission and distribution of O&M costs. Incremental distribution lines’ O&M costs are estimated to represent about 2 percent of distribution lines and investment CAPEX. Whereas incremental substations’ O&M costs are estimated to represent 3 percent of the substations’ expansion CAPEX.

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• Distribution costs. Because of the size of the additional energy the project’s Component 1 (transmission expansion) will make available to the power network, incremental distribution costs are estimated to be material. Incremental distribution costs are estimated to be US$0.0188 per kWh (10 percent of the average tariff).

• Environmental and social impacts. Only the negative environmental impacts related to GHG emissions are factored in this analysis. Positive social impacts such as improved lighting conditions, improved air quality (substitution for kerosene lamps or for stand-alone small gasoline generators), and lower noise levels are not included.

• Transmission and distribution losses reduction. Transmission and distribution reduction because of the network expansion and upgrade is assumed to be 3 percent bringing the total transmission and distribution losses down to 19.3 percent from the current level of 22.3 percent. The resulting additional energy is considered available to retail customers.

• Transmission wheeling fees from Guinea. An estimate of transmission wheeling fees of US$0.016 per kWh has been assessed based on the projected cost of the interconnection line between Guinea and Mali. This fee is added to the cost of energy purchased from Guinea as the current project does not include the cost of the necessary interconnection to allow the import of power from Guinea.

• Collection rate. A collection rate of 93.5 percent, derived from historical performance, is assumed for the analysis.

• GHG emissions reduction. The emissions reduction related to the implementation of this project has been estimated based on (a) the additional demand to be served, (b) transmission losses saving projected with the upgrade of the transmission system, (c) the commercial losses saving projected with the installation of intelligent meters, and (d) the substitution of higher grid emission energy from Mali with lower grid emission energy from Côte d’Ivoire and Guinea and the saving realized on undistributed energy because of improvement in network reliability.

• Sensitivity analysis. Switching values of the main project variables have been assessed to determine theirs impacts on the net economic benefits.

Project NPVs and EIRR - Base Case

12. The results of the base case NPV and the EIRR for the project as a whole are presented in table 4.3. Overall, the proposed project is expected to yield substantial net economic benefits and economic return (EIRR of 36.33 percent).

Table 4.3. Project ENPV and EIRR - Base Case

Investment ENPV (US$, millions)

Benefits/Costs Ratio

(EIRR) (%)

Subcomponent 1.1: HV Substations Upgrade and Expansion Investment

408.55 1.22 36.77

Subcomponent 1.2: Distribution Investment 1.00 1.00 6.33

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(EIRR) (%)

Component 3: Smart Meters Investment 73.7 5.07 77.4 Components 1, 2, and 3 483.22 1.23 36.33

13. These results show an expected very high economic return for the HV substations upgrade and rehabilitation and the installation of intelligent meters components and a positive return for the distribution expansion component (just above the economic cost of capital).

Project NPVs and EIRR - Base Case with GHG reductions included

14. When GHG emissions are accounted for the above economic results are further improved and the proposed project is expected to yield larger net EIRR of 42.5 percent using low shadow carbon price forecast and 49.2 percent using high shadow carbon price forecast. Table 4.4 presents the corresponding results for Components 1, 2, and 3 combined.

Table 4.4. Project ENPV and EIRR - Base Case with GHG Reduction



(EIRR) (%)

Component 1,2, and 3 without GHG emission reduction

483.22 1.23 36.3

Component 1,2, and 3 with GHG emission reduction low shadow carbon price

575.11 1.27 42.55

Component 1,2, and 3 with GHG emission reduction high shadow carbon price

667.00 1.32 49.22

Project Net Economic Benefits - Sensitivity Analysis

15. The proposed project is expected to provide substantial positive net economic benefits under a wide range of situations. The key factors affecting the project’s net economic impacts would be (a) increase in project investment costs; (b) increase in cost of energy imported; (c) increase in cost of energy supplied and made available through the project to new customers; and (d) decrease in WTP. The results of the sensitivity analysis are provided in table 4.5.

Table 4.5. Sensitivity Analysis (Switching Values)

Unit Original Value Switch Values Change (%)

HV Transmission and Substations Component WTP US¢/kWh 23.4 19.22 −18 Cost of energy imported US¢/kWh 12 15 +25 Transmission wheeling fees US¢/kWh 1.6 5.03 +214 CAPEX (cost overrun) US$, thousands 78,371 155,761 +99 Distribution Component WTP US¢/kWh 23.44 23.33 −0.44 Cost of energy supplied US¢/kWh 15 14.9 −0.7 CAPEX (cost overrun) US$, thousands 25,474 26,369 +3.5 Commercial Loss Component

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Unit Original Value Switch Values Change (%)

Commercial losses saved rate % 50 9.9 −80 Cost of energy supplied US¢/kWh 1,515 22.9 −81 CAPEX (cost overrun) US$, thousands 16,976 86,067 +407 Project (Component 1+2+3) WTP US¢/kWh 23.44 18.88 −20 Cost of energy imported US¢/kWh 12 15.66 +30 Cost of energy supplied US¢/kWh 15 100 +567 Transmission wheeling fees US¢/kWh 1.6 5.65 +253 Distribution costs US¢/kWh 1.88 6.44 +256 CAPEX (cost overrun) US$, thousands 120,820 234,834 +94

16. The economic viability rests critically on the WTP and the cost of imported energy from Côte d’Ivoire and Guinea. A decrease beyond 20 percent in the level of WTP or an increase above 30 percent in the cost of energy imported from Côte d’Ivoire and Guinea will make the project economically not viable.

GHG Emissions and Climate Co-benefits

17. GHG accounting has been undertaken for the project, which will result in GHG emission reductions of 4,957,978 tCO2. Table 4.6 summarizes the emission and climate co-benefits assessed.

Table 4.6. GHG Emission Reduction Estimates

Lifetime Energy

Carbon Emission

Before the Project

Carbon Emission After the Project

Carbon Emission

Reduction

(+) (-) (=) Energy balance (GWh) tCO2/MWh tCO2/MWh tCO2 Energy at busbar (import from Côte d’Ivoire) Grid 13,928 0.6360 0.5060 1,810,692 Energy at busbar (import from Guinea) Grid 26,192 0.6360 0.5740 1,623,929 Energy at busbar (new customers) Grid 4,256 0.8000 0.6360 697,958 Transmission loss saving Grid 1,204 0.8000 0.6360 197,394 Undistributed energy saving Grid 59 0.8000 0.6360 9,750 Commercial loss saving Grid 972 0.6360 0.0000 618,254

4,957,978

Financial Analysis

18. The financial analysis of the proposed investment in the transmission and distribution networks and loss reduction program seeks to assess the FIRR and the expected impacts on the EDM cash flows from the implementation of the investment in the transmission and distribution networks. The indicator selected to carry out this financial assessment is the impact on the EDM's cash flows via the project FNPV.

19. The methodology and main assumptions (in addition to the ones already listed in the economic analysis) to estimate the project FIRR are as follows:

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• Average tariff. It has been assumed that the average current tariff, which is around US$0.1833 per kWh, will be adjusted by 1.5 percent annually from the current level.

• Payments by the EDM of VAT and import duties. The financial analysis assumes that the project and EDM will not be paying the VAT and duties on imported equipment. The EDM will however be paying all other duties and fees and the taxes on net business income, which is assumed for this analysis to be 30 percent.

• Financing plan. All project costs will be financed through an IDA Credit under SUF IDA Credit . The expected financing plan is provided in table 4.7.

Table 4.7. Financing Plan

Source of Financing Amount (US$, millions) Interest Rate IDA Credit (IDA SUF terms) 120.88 1.01%a

Note: The rate used as before tax WACC to calculate FNPV.

20. FIRR. The estimated FIRR for the project Components 1, 2, and 3, as well as the combined total are presented in table 4.8 indicating that the proposed investment should provide the EDM with a good financial rate of return, particularly as it would benefit from IDA terms (US$120.88 million) with a low interest rate of 1.01 percent.

Table 4.8. Project FNPVs and FIRRs - Base Case

Investment FNPV (at 0.53%a

Discount Rate) (US$, millions)

Estimated FIRR (%) Profitability Index

(PI) (PI= 1+FNPV/CAPEX)

Component 1: HV Transmission and Substations Investment 576.08 9.60 7.49

Component 2: Distribution Investment 9.15 1.47 0.37

Component 3: Intelligent Meters Investment 80.61 54.62 4.80

Component 1+ 2+3 665.84 10.74 5.61 Note: a. WACC =1.01 percent × (1 − Corporate Tax) = 1.01 percent × (1 – 30 percent) = 0.70

21. The project will also have a positive cash flow impact on the finances of EDM after 88 years (2029) after full operation of the project when CAPEX are excluded in the cash flows. Table 4.9 provides a summary of the positive cash that the EDM is expected to realize from the project.

Table 4.9. Cumulative Cash Flows Impact on EDM Finances - Base Case

Year 2025 2030 2035 2040 2045 2050 2055 Cumulative cash flows (US$, millions) –83.31 –21.93 +33.53 +110.80 +223.17 +371.25 +559.12

Cumulative cash flows (US$, millions) a -38.24 +23.14 +78.60 +155.88 +268.25 +416.32 +604.25

Note: a. excluding CAPEX.

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22. Project financial impacts viability. The financial analysis also assessed the impacts of the project on the EDM's financial cash-flows assuming that (a) electricity tariffs will be increased by 1 percent annually. For this preliminary analysis it is assumed that the project’s new clients will pay an average of US$0.1833 per kWh (CFAF 105 per kWh); (b) the EDM’s electricity bills’ collection performance will be 93.5 percent; and (c) that the investment cost will correspond to the base case cost estimates. The overall FIRR and FNPV of the project are sensitive to the average retail tariff, the cost of energy imported from Côte d’Ivoire and Guinea, and the cost of energy supplied to the national network. The results of the sensitivity analysis are presented in table 4.10.

Table 4.10. Sensitivity Analysis (Switching Values)

Unit Original Value

Switch Values

Change (%)

HV Transmission and Substations Component Average retail tariff US¢/kWh 18.3 15.57 -15 Cost of energy imported US¢/kWh 12 14.00 +17 Transmission wheeling fees US¢/kWh 1.6 4.04 +153 CAPEX (cost overrun) US$, thousands 78,371 249,792 +219 Distribution Component Average retail tariff US¢/kWh 18.3 17.9 -2.1 Cost of energy supplied US¢/kWh 15 15.2 +1.2 CAPEX (cost overrun) US$, thousands 25,474 33,126 +30 Commercial Loss Component Commercial losses saved rate % 50 7.69 -85 Cost of energy supplied US¢/kWh 15 2.28 -85 CAPEX (cost overrun) US$, thousands 16,976 110,367 +550 Project (Component 1+2+3) Average retail tariff US¢/kWh 18.3 15.4 -16 Cost of energy imported US¢/kWh 12 14.4 +20 Cost of energy supplied US¢/kWh 15 50.0 +234 Transmission wheeling fees US¢/kWh 1.6 4.42 +177 Distribution costs US¢/kWh 1.8 4.97 +176 CAPEX (cost overrun) US$, thousands 120,820 382,494 +217

23. The financial viability rests critically on the average retail tariff, and the cost of imported energy from Côte d’Ivoire and Guinea. A decrease beyond 16 percent in the level of average retail tariff, an increase above 20 percent or a decrease in the cost of energy imported from Côte d’Ivoire and Guinea will make the project financially not viable.

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ANNEX 5: FINANCIAL SITUATION OF THE POWER SECTOR

COUNTRY : Mali Mali Electricity Sector Improvement Project (MESIP)

Introduction

1. The objective of this financial analysis is to provide the EDM or the ‘company’ and relevant government entities with a detailed review of the EDM’s current financial position, its recent historical evolution, and the reasons that explain the company’s current financial situation. Preliminary recommendations will also be provided to improve the company’s financial performance. A detailed Corporate and Financial Restructuring Program for the EDM will be prepared and delivered as a second phase of this analytical work.

2. The EDM’s financial statements and management reports provide a comprehensive and clear analysis of the company’s financial situation and its outlook. This report will therefore focus on highlighting critical issues with the intent to alert the EDM’s management and relevant government authorities about the issues that merit immediate action or review.

Executive Summary

3. The review of the EDM’s historical financial statements confirms the general understanding that the company is facing a situation of financial distress which threatens its sustainability and the future of the electricity sector in the country.

4. The following is a summary of the main issues identified in the process of the company’s financial analysis.

5. The EDM’s operation is not self-sustainable. Revenues are substantially insufficient to cover the EDM’s costs and expenses. The EDM’s sales increased consistently during the past four years because of the increase in demand and the electricity delivered to new and existing customers. The significant increase of the customer base (49 percent) and the increase in electricity production and purchases (32.6 percent) necessarily resulted in an increase in operating costs and expenses (19.4 percent). In contrast, the EDM’s tariffs have not been adjusted in the past 18 years and thus do not support cost recovery in a proper manner. Furthermore, the operating subsidy that was meant to compensate for the tariff revenue shortfall was reduced by nearly 50 percent during the period under analysis.

6. Revenues are affected by uncollected Receivables and System Losses. As of September of 2018, the company had CFAF 41.3 billion (US$72.5 million) of past due receivables from the Government, government companies, and other public-sector customers, including public lighting. The nonpayment culture of public sector customers has a significant and negative impact on the EDM’s cash inflows given that the company must pay the cost of generation and delivery of electricity to those clients and does not recover them or recovers a portion of them several (approximately 22) months after they were incurred. In addition, the EDM has a CFAF 22 billion receivable with the Government associated with the payments made by the EDM to the SOPAM Project on behalf and at the request of the Government several years ago. It is essential that the underlying issue of public lighting and the SOPAM receivables be addressed and that the Government supports the EDM in discussions with all Government-related debtors to address their existing receivables and avoid future payment delays.

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7. The EDM’s System Losses stood at 19 percent in FY17 and represented approximately CFAF 8.6 billion (US$15 million) of lost revenues. The Company has been implementing loss reduction measures which reduced losses steadily during the past years. Further reduction in technical losses will require investments that the EDM cannot afford due to its current financial situation.

8. Because of the issues described earlier, the company does not generate enough funds to cover its operational expenses (OPEX), pay debt service, and fund much-needed investments. The revenue shortfall has been compensated mostly with financial debt, with the resulting erosion of the company’s finances.

9. Fuel costs are the largest cost item for the EDM. Fuel costs represent 35 percent of the EDM’s OPEX. Fuel consumption increased substantially during the period because of increased use of thermal electricity (own and purchased) to meet electricity demand. Following the trend of international oil prices, fuel prices increased in FY17 affecting the EDM’s costs. The following issues were also identified: (a) gas oil still has a 42 percent share of total fuel despite being a more expensive and less-efficient type of fuel than HFO; (b) in FY17, the EDM’s own plants consumed substantially more fuel (303 l per MWh) than third-party plants (255 l per MWh); (c) some fuel suppliers did not honor their commitments leading to fuel purchases at higher-than-expected prices in the spot market; (d) fuel meters at the EDM’s power plants are broken making it impossible to properly control fuel inventories; and (e) the EDM procures fuel from several suppliers on a retail basis. The company’s poor credit condition does not enable it to procure fuel in bulk at competitive prices. The EDM’s addressing of the issues raised could result in a significant reduction of fuel costs.

10. The EDM purchased 58 percent of the electricity required to meet the demand in FY17. Power purchases represent 29 percent of the EDM’s OPEX and are the second largest cost item. In FY17, 47 percent of the electricity purchased was hydroelectricity at highly competitive prices (CFAF 37.59 per kWh or US$0.0661), the balance was thermal electricity including gas fired from CIE (Compagnie Ivoirienne dElectricité). Thermal suppliers such as Aggreko, SES, and Aksa sold electricity at prices that doubled those of CIE and as a result the weighted average cost of thermal electricity purchased was CFAF 114.84 per kWh (US$0.2020 per kWh). It is critical that the EDM optimizes electricity purchases to increase the share of hydro and gas, eliminates gas oil from the mix, and reduces the share of HFO to the bare minimum.

11. Production costs versus tariff. The EDM’s plants display significantly lower production costs than those of third parties. Unfortunately, the EDM’s own production only covered 43 percent of the demand in FY17. The total cost of electricity for the year including own generation and power purchases was CFAF 138.37 per kWh (US$0.2435 per kWh) versus an average tariff of CFAF 96.5 per kWh (US$0.1698 per kWh). The tariff deficit of CFAF 41.87 per kWh (US$0.0737 per kWh) is equivalent to 30.2 percent of the total cost of electricity per kWh.

12. The operational subsidy of CFAF 34 billion (US$59.8 million) received from the Government in FY17 reduced the tariff deficit by the equivalent of CFAF 16.3 per kWh (US$0.029 per kWh) leaving a gap of CFAF 25.57 per kWh, equivalent to a total operational shortfall of CFAF 53.3 billion (US$93.9 million). This shortfall only refers to uncovered OPEX and does not reflect cash needs to pay debt service and fund CAPEX.

13. The EDM is insolvent. During the past years the EDM has been unable to generate sufficient cash from its operations to cover its payment obligations as and when due. To continue providing electricity

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services, the EDM has relied on bank loans to fill the ever-increasing cumulative cash shortfall. The situation has reached a point where the EDM can no longer pay for debt service unless it contracts additional debt. The EDM is therefore insolvent.

14. Financial liabilities and trade payables are at an all-time high and are unaffordable. As of FY17 the EDM had and outstanding financial debt of CFAF 163.5 billion (US$288 million) with 16 different financial institutions (including DFIs and commercial banks) plus CFAF 125.9 billion (US$221 million) of trade payables. The EDM’s operation is currently unable to generate enough cash to pay the company’s debt service obligations or commercial obligations. The company is covering essential obligations with the proceeds of expensive but indispensable short-term loans.

15. Business units do not have separate accounts. The EDM is an integrated utility with three major business activities: electricity generation, transmission, and distribution, each of which has a different profile in terms of cost structure, investment needs, human resources, and so on. The company however does not have separate accounts for each business activity, and instead produces fully consolidated financial information. It is highly advisable that the EDM manages its three business activities as separate business units with equally separate accounts. This is a common practice for integrated utilities and for any company with more than one business activity, as it enables the company to understand each business in detail; identify specific issues that need to be addressed; and improve the company’s administrative, technical, and financial performance.

Conclusion and Recommendations

16. Despite being the sole provider of electricity services in a constantly growing market, the EDM is in financial distress and is facing a situation of insolvency.

17. There is a substantial gap between the EDM’s revenues and the company’s operational costs and expenses, financial costs, and investment needs. Tariffs are regulated but have not been adjusted in 18 years, and the operating and investment subsidies received from the Government to replace the absence of a tariff adjustment are substantially insufficient to cover the most basic financial needs of the company. Furthermore, the EDM’s operational costs and expenses, financing costs, and investments have increased along the years. The EDM lost CFAF 22.1 billion (US$39 million) in FY17 and projects a loss of CFAF 31.3 billion (US$55 million) in FY18 if the current situation of revenues and expenses remains unchanged.

18. The EDM’s financial recovery will require the implementation of several changes. The following is a summary of our preliminary recommended actions:

• Introduce a corporate strategy and decisions intended to achieve the following critical changes:

o Reduce technical losses

o Increase production from the EDM’s own power generation plants

o Change fuel mix for power purchases to increase electricity purchases from the most competitive suppliers (that is hydro and gas)

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o Reduce the share of gas oil and HFO in the country’s energy matrix

o Improve fuel procurement practices, fuel management, and fuel consumption per MWh for EDM-owned plants

o Improve general procurement practices and optimize inventory management

• Review financial terms with suppliers and reduce the amount of trade payables

• Recover past due receivables

• Restructure commercial bank debt to reduce interest rates and extend tenors

• Determine the company’s revenue requirement with consideration of all its financing needs that is, OPEX, debt service, and CAPEX

• Capitalize the Government’s special obligation of CFAF 57.7 billion (US$101.5 million) to strengthen the company’s balance sheet

19. The EDM is the cornerstone of the electricity sector and therefore of the economic development in the Republic of Mali. The financial deterioration of the company has a substantial and negative impact on the population and the overall development of the country. Restoring the company’s finances to a point of sustainability is essential for the country. In contrast, the perpetuation of the current situation is detrimental for the country as a whole and will only be costlier as time passes.

Historical Financial Analysis

20. This analysis is focused on the financial aspects of the EDM’s operations, performance trends, and solvency. The analysis and comments are mainly focused on issues that raise concern or accounts that display unusual behavior with the objective of leading the reader toward a critical assessment of the company’s current situation and its outlook.

21. This financial analysis relates to the four-year period between FY14 and FY17. The assessment was performed based on the EDM’s audited financial statements from FY14 to FY17 and technical information for the same period.

22. It was noted that the company´s accounts provide consolidated results for all its activities (that is, generation, transmission, distribution, and purchase of electricity) with very limited information regarding each business segment. Consequently, this analysis is performed at a consolidated level.

Issue of Concern

23. The EDM is an integrated utility with three major business activities: electricity generation, transmission, and distribution (of own and third-party generated electricity). Each of these activities has a different profile in terms of cost structure, investment needs, human resources, and so on. The company however does not have separate accounts for each business activity, and instead produces fully consolidated financial information. It is highly advisable that the EDM manages its three business activities as separate business units with equally separate accounts. This is a common practice for integrated

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utilities and for any company with more than one business activity, as it enables the company to understand each business in detail; identify specific issues that need to be addressed; and improve the company’s administrative, technical, and financial performance.

A. Income Statement

24. The EDM is the sole provider of electricity in the Republic of Mali (‘Mali’). The company does not have any investments or interests in any other activity within or outside the country. Consequently, the EDM’s revenues depend fully on (a) the company´s technical and financial capacity to provide good quality electricity services to the population; (b) its ability to charge appropriate tariffs for its services, or alternatively, receive a proper level of subsidies; and (c) its effectiveness at billing consumers and collecting receivables as and when due.

25. Table 5.1 summarizes the EDM’s profit and loss situation and evolution during the period under analysis.

Table 5.1. EDM - Summary Income Statement

26. Issue of concern. It is clearly visible from the company’s historical financial information that in the last four years the EDM evolved from having an operation with weak financial results to having an operation that is not self-sustainable.

27. The following sections analyze in detail each of the major financial components of the EDM’s operation and their impact in the company’s current situation.

Revenues

28. The EDM’s revenues have two major components: sales and operating subsidy.

(a) Sales. This reflects the amounts invoiced to consumers for the electricity delivered on the basis of the tariff. This line item contributed between 61 percent and 76 percent of the total

FCFA million 2017 2016 2015 2014

Sales 159,334 144,381 130,346 118,191

Operating Subsidy 34,000 33,656 42,000 57,108

Other 16,040 16,754 13,763 17,511

Total Revenue 209,374 194,791 186,109 192,810

Operating Costs & Expenses (192,461) (176,282) (163,038) (161,218)

Operating Profit (EBITDA) 16,913 18,509 23,071 31,592

Depreciation & Provision (26,791) (29,785) (22,258) (21,057)

EBIT (9,878) (11,276) 813 10,535

Financing Costs (10,841) (8,838) (12,593) (8,519)

Extraordinary Income 638 (4,377) 519 1,023

Income Tax (2,019) (1,873) (1,811) (2,564)

Net Profit (22,100) (26,364) (13,072) 475

Profit Margin -11% -14% -7% 0%

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revenue between FY14 and FY17, displaying a consistent growth trend, despite the absence of any tariff adjustment.

(b) Operating subsidy. This reflects the subsidy delivered by the Ministry of Economy and Finance to the EDM to fill the gap between sales and the revenue requirement (that is, the revenue required by the EDM to cover operating costs, pursue investments, and achieve an 8 percent return on assets). This line item contributed between 30 percent and 16 percent of the total revenue between FY14 and FY17, with a reduction of nearly 50 percent between FY14 and FY17.

29. Table 5.2 illustrates the EDM’s operating results or earnings before interest and tax (EBIT) between FY14 and FY17. The Company’s weak results in FY14 and FY15 and the negative results in FY16 and FY17 demonstrate that the EDM’s total revenue was insufficient to cover the company’s operating expenses. Furthermore, table 5.2 illustrates the EDM’s revenues without any operating subsidy, confirming that the revenue shortfall from sales was substantially insufficient to support the company’s operation. Note that OPEX is equivalent to 1.32x and 1.28x true revenues (for example, revenues without subsidy) in FY17 and FY16, respectively.

Table 5.2. EDM - EBIT Analysis

Sales Breakdown

30. The EDM’s sales originated from two main customer categories: LV and MV. The total number of customers increased by 49 percent between FY14 and FY17, while the total consumption increased by 36 percent and the share of each major customer category in total sales remained nearly unchanged during the period. Table 5.3 illustrates the share in total sales per customer category and the average tariff paid between FY14 and FY17.

Table 5.3. Share in Total Sales and Average Tariff Paid Between FY14 and FY17

FCFA' million 2017 2016 2015 2014Revenue without Subsidy 175,374 161,136 144,109 135,702

(% Growth) 9% 12% 6% -Govt. Subsidy 34,000 33,656 42,000 57,108

(% Growth) 1% -20% -26% -Total Revenue 209,374 194,791 186,109 192,810

(% Growth) 7% 5% -3% -Opex (219,252) (206,067) (185,295) (182,275)

(% Growth) 6% 11% 2% -

EBIT (9,878) (11,276) 814 10,535

Electricity Sales FCFA '000 kWh FCFA/kWh FCFA '000 kWh FCFA/kWh

Low Voltage 108,128,042 68% 1,038,629,023 63% 104.11 96,855,976 67% 929,143,250 62% 104.24

Medium Voltage 51,206,121 32% 612,543,212 37% 83.60 47,525,090 33% 559,787,265 38% 84.90

Total 159,334,163 100% 1,651,172,235 100% 96.50 144,381,066 100% 1,488,930,515 100% 96.97

2017 2016

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31. As illustrated earlier, MV customers increased by 21 percent while their consumption increased by 31 percent, and in contrast LV customers increased in number by nearly 49 percent while their consumption increased by 39 percent. These figures reflect the different consumption needs of each customer category. Also, it is worth noting that although LV customers consumed 63 percent of the electricity delivered by the EDM, they contributed with 68 percent of sales revenue, while MV customers consumed 37 percent of the electricity delivered by the EDM and contributed with only 32 percent of sales revenue.

32. Issue of concern. The EDM applies a significant amount of resources to continue increasing electricity access in Mali and delivering their services to an ever-expanding area of the country. These new customers do not have consumption patterns that translate to an increase in consumption that is capable of compensating the associated costs of service.

33. In contrast, MV customers who use the electricity supplied by the EDM mostly for revenue-generation activities do have consumption patterns that can compensate the cost of service; however, their tariffs are approximately 25 percent lower than those for LV customers and therefore deprive the EDM of valuable incremental revenue.

34. It is advisable to revise the tariffs paid by institutional, commercial, and industrial customers to reflect the commercial use of the service. Any tariff increase should be calculated considering its financial impact to preserve economic competitiveness.

Tariffs

35. The tariffs applied by the EDM are fully regulated and have not been adjusted in the past 18 years. The average tariff of CFAF 96.5 per kWh (US$0.1698 per kWh) for FY17 is well below the company’s average cost of sales of CFAF 138.37 per kWh (US$0.2435 per kWh) for the same year, indicating a tariff deficit of CFAF 41.87 per kWh (US$0.0737 per kWh), equivalent to 30.2 percent of cost of sales. Detailed information is provided in the following sections.

36. Issue of concern. Although tariffs are not the only reason for the company’s poor financial performance, the EDM’s inability to recover production costs through revenues (that is, sales or operating subsidy) is an issue that has a major and negative impact on the company’s financial sustainability, and which must be addressed as a matter of urgency together with the company’s cost structure.

Revenue and Losses

37. The operating data on production and sales between FY14 and FY17 is summarized in table 5.4.

Electricity Sales FCFA '000 kWh FCFA/kWh FCFA '000 kWh FCFA/kWh

Low Voltage 86,672,718 66% 821,941,353 62% 105.45 78,995,891 67% 748,045,189 62% 105.60

Medium Voltage 43,673,725 34% 504,719,874 38% 86.53 39,195,398 33% 465,873,414 38% 84.13

Total 130,346,443 100% 1,326,661,227 100% 98.25 118,191,289 100% 1,213,918,603 100% 97.36

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Table 5.4. EDM - System Losses

38. The data demonstrate that the company has succeeded in reducing the level of its losses and currently has technical and nontechnical losses (system losses) of approximately 19 percent which represented a loss of approximately CFAF 8,650 million (US$15 million) of revenues in FY17. This calculation assumes unavoidable/acceptable losses of 15 percent. In other words, the EDM is receiving 95 percent of the revenues it is capable of generating with its current operations.

39. Issue of concern. It is understood that the EDM is implementing loss reduction measures and a steady reduction in system losses has been observed during the period under analysis. It must however be emphasized that further loss reduction, particularly technical losses, will require substantial investments which demand financial resources that the company cannot generate and is currently unable to obtain because of its critical financial situation.

Revenue and Receivables

40. Receivables reflect the invoices that are past due from customers, as well as other third parties. In FY17, receivables amounted to CFAF 105,618 million (US$186 million), equivalent to 63 percent of sales or 48 percent of OPEX. The breakdown of receivables is summarized in table 5.5.

Item (Units) 2017 2016 2015 2014Electricity Produced (MWh) 853,210 723,900 530,720 472,200 Electricity Purchased (MWh) 1,227,790 1,181,100 1,181,280 1,101,800 Total Electricity Sourced (MWh) 2,081,000 1,905,000 1,712,000 1,574,000

(% Growth) 9% 11% 9% -Electricity Invoiced (MWh) 1,651,200 1,488,900 1,326,700 1,213,900

(% Growth) 11% 12% 9% -Sales (FCFA' million) 166,417 152,114 138,132 124,242 Losses (%) 19% 20% 21% 22%Actual Loss* (FCFA' million) 8,650 10,115 11,247 11,324

% of total sales (%) 6% 7% 7% 8%

*Assuming 15% as an acceptable level of losses

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Table 5.5. EDM - Receivables Breakdown

41. The substantial amount of unpaid invoices has a significant and negative impact on the EDM’s cash position and thus on the company’s ability to pay for its operational costs and expenses.

42. The large amount of past due receivables from private customers, which are equivalent to US$40.6 million or 14 percent of sales, indicates that these customers are taking on average 60.5 days to pay their invoices.

43. Past due receivables from government entities and public sector customers pose a significant burden on the company. Table 5.6 illustrates the evolution of these receivables through September of FY18.

Table 5.6. EDM - Public Sector Receivables*

44. Public lighting is a major concern, not only because of the size of the receivables for consumption and maintenance but also because of the associated liability of CFAF 16,265 million (US$28.6 million).

45. Issue of concern. The issue with public lighting is complex as it involves the municipalities as owners of the assets and the EDM, as service provider, is not properly paid because of tariff shortfall and unpaid consumption/invoices from the municipalities. The size of the receivables and the liabilities makes this an issue of great concern which must be addressed with urgency.

FCFA' million 2017 2016 2015 2014

Private Customers, Diplomatic Corps & SOEs 53,456 49,328 50,996 49,365

Public Sector Customers 19,801 22,964 20,204 21,344 Govt. Budget 6,014 12,153 10,914 13,774 Public Lighting 13,786 10,811 9,289 7,570

Other Receivables 32,362 18,677 22,763 20,369 Govt. Related, International Entity & Other 14,433 3,385 12,549 10,367 Other Debtors 17,929 15,292 10,214 10,002

Gross Receivables 105,618 90,970 93,963 91,078 Provisions (9,932) (8,623) (7,666) (7,319)Net Receivables 95,687 82,347 86,297 83,759

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46. It is also understood that the payment delay from private customers is mostly because of the invoicing system, which will need a structural change to be updated. A cost/benefit analysis will be advisable before pursuing such change.

47. With respect to government companies and other public sector customers, it is indispensable that the EDM and the Government discuss a payment plan intended to address the respective receivables and avoid future delays.

Costs and Expenses

48. As illustrated in table 5.7, the EDM has three major cost categories which, during the period under analysis, made up over 70 percent of the company’s total costs and expenses. These are fuel and derivatives (34 percent average), power purchases (28 percent average), and personnel (10 percent average).

49. The EDM’s costs and expenses followed a pattern of moderate growth between FY14 and FY17. This growth is expected and consistent considering the following facts:

• Growth in customer base from 346,978 in FY14 to 515,827 in FY17

• Increase in electricity sourced from 1,574 GWh in FY14 to 2,087 GWh in FY17

• Increased share of thermal electricity in total electricity sourced from 56 percent in FY14 to 63 percent in FY17

Table 5.7. EDM - OPEX

Fuel Cost

50. Fuel and lubricants are the largest cost item for EDM. It constituted, on average, 35 percent of the EDM’s total operating expenses during the past four years. Furthermore, fuel costs were equivalent, on average, to 36 percent of total revenues during the past four fiscal years.

FCFA '000 2017 2016 2015 2014

Purchase of electricity 63,737,729 54,759,302 54,384,144 56,916,684

Other purchases 86,933,535 76,707,810 80,772,886 83,888,983

Fuel and derivatives 72,317,123 64,202,301 67,677,629 73,655,437

Maintenance products 364,898 157,619 419,542 213,469

Spare parts 2,723,562 3,712,642 2,893,982 2,396,635

Office supplies 620,182 685,830 437,993 497,018

Water and electricity supplies 2,684,117 2,031,735 1,692,405 1,832,018

Network & electrification materials 5,743,402 3,668,398 6,039,265 4,130,308

Other purchases 2,480,251 2,249,285 1,612,065 1,164,097

Personnel expenses 23,201,220 20,833,535 16,818,155 12,662,664

Other 18,588,685 23,981,155 11,062,449 7,749,553

Depreciation and provision 26,790,726 29,785,199 22,257,707 21,056,750

Total Opex 219,251,894 206,067,001 185,295,342 182,274,634

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51. Fuel consumption includes the EDM’s own power generation plants, as well as the fuel used by third-party electricity suppliers (such as Aggreko, SES, and Aksa), which is procured and supplied by the EDM. In FY17, fuel consumption reached 231.2 million liters, a 17.7 percent increase from FY16.

52. Table 5.8 summarizes the evolution of fuel costs, consumption, fuel efficiency, and fuel type for the period under analysis.

Table 5.8. EDM - Fuel Data (2014–2017)

53. As illustrated in table 5.8, in the past four years the EDM’s fuel costs and fuel consumption increased steadily and substantially. This is the result of the combined effect of several factors, such as the following:

• The EDM’s inability to invest in its own hydro assets (new and existing) and thus increase its share of hydropower in the country’s fuel matrix and the resulting increase of the share of thermal electricity in EDM’s fuel matrix, largely from its own plants.

• The use of thermal emergency plants which primarily consume gas oil to generate electricity (that is, Aggreko and SES). It is noted however that power generation from these sources reduced significantly between FY16 and FY17.

• The increase in fuel consumption per MWh. The EDM’s own thermal plants (see fuel efficiency data in the table) display a significantly higher fuel consumption per MWh than third-party plants in FY17, showing a change in the trend from previous years. With a 31 percent share in the EDM’s total electricity sourced in FY17, the significantly higher consumption of the EDM’s plants has a large impact in total production costs.

• Higher fuel prices in FY17.

2017 2016 2015 2014

Cost of Fuel & Derivatives (FCFA '000) 72,317,123 64,202,301 62,677,629 n/a

Total Fuel Consumption (thousand lts) 231,226 196,310 174,029 142,298

EDM's Own generation 178,984 122,134 77,947 74,077

Third Party generation 52,242 74,176 96,082 68,221

Total Fuel Efficiency (lts/MWh) 290.79 253.98 247.20 254.62

Efficiency EDM's Own Gen. (lts/MWh) 303 237 242 244

Efficiency Third Party Gen. (lts/MWh) 255 288 251 267

Fuel type

Gasoil 42% 55% 63% 25%

HFO 58% 45% 37% 75%

Average cost (FCFA/ltr) 345 285 348 434

Gasoil 376 330 380 506

HFO 323 232 293 410

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• Use of expensive fuel type. Despite the efforts to reduce the share of gas oil in thermal generation, it still stood at 42 percent in FY17. The average price of gas oil was CFAF 398 per liter between FY14 and FY17 versus an average of CFAF 314.5 per liter for HFO.

• Fuel procurement and management deficiencies and cash constraints which have resulted in defaulting fuel suppliers, broken fuel meters, fuel purchases in the spot market, and so on.

Power Purchases

54. Power purchases are the second largest cost item for the EDM representing, on average, 29 percent of the EDM’s total operating expenses during the past four years. The company purchases electricity from individual plants (IPPs or plants under lease) and from interconnected markets. In FY17, the company purchased 58 percent of the electricity sourced and, on average, purchased 66 percent of the electricity sourced between FY15 and FY17. The share of electricity purchased from third parties has reduced over time, while the EDM’s own thermal generation increased steadily to meet the increase in electricity demand.

55. Table 5.9 summarizes the information related to the EDM’s power purchases between FY14 and FY17.

Table 5.9. EDM - Electricity Purchases (2015–2017)

56. As can be observed from the table, although hydro imports constitute a significant share of all power purchases at a highly competitive price (equivalent to US$0.0637 per kWh in average), this

Plant MWh Share FCFA/MWh MWh Share FCFA/MWh MWh Share FCFA/MWh

Hydro/SEMAF 47% 37.586 53% 36.215 47% 37.759

Mananta l i 432.767,7 466.648,2 414.683,0

Felou 136.490,0 151.663,4 149.318,8

CIE Interco 333.187,5 27% 65.050 276.279,0 24% 64.297 242.147,0 20% 87.686

CIE Kadiolo Zegoua 5.756,0 0,5% 75.052 4.771,0 0,4% 76.294 4.397,0 0,4% 71.640

SENELEC 24.825,0 2% 79.315 - - - - -

AGGREKO 7% 154.867 16% 155.143 7% 130.905

Darsa lam 13.907,5 45.472,0 82.595,2

Kati 17.557,0 30.861,0 -

Ba l ingue 48.625,5 88.234,0 -

DIASS Senegal - 15.724,0 -

SES 4% 138.016 1,3% 192.060 - -

Sikasso 29.762,0 7.528,7 - -

Kouta la 23.217,2 7.680,0 - -

SOMELEC 81.475,0 7% 101.994 - - - - -

AKSA 71.407,0 6% 122.657 - - - -

SOPAM - Sirakoro - - 56.135,0 5% 70.003 157.472,0 13% 89.845

APR Energie - - - 5.826,8 1% 214.156 141.985,9 12% 131.370

Total 1.218.977,4 100% 1.156.823,1 100% 1.192.598,9 100%

Average FCFA/MWh 96.817 89.796 45.767

Weighted Avge FCFA/MWh 67.479 66.207 72.495

118,80 105,93 120,82

Hydro FCFA/MWh 37.586 36.215 37.759

Thermal Weighted Avge FCFA/MWh 114.845 157.619 108.100

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competitive source of electricity is counterbalanced by a larger share of thermal purchases at a much higher price (equivalent to US$0.2175 per kWh on average), resulting in a total weighted average price of CFAF 67.49 per kWh (or US$0.1157 per kWh) for FY17. It is noted that the higher share from CIE and SENELEC (Sociéte Nationale d’Electricité du Sénégal) , as well as the sales from SOMELEC (Société Mauritanienne d’Electricité) combined with the reduced generation from Aggreko and SES, contributed to an important reduction in the weighted average price of thermal electricity purchases in FY17 versus FY16.

Personnel

57. As previously indicated staff constitutes the third largest item within the EDM’s costs and expenses, with a 10 percent share of the total in average, which is considered as moderate.

58. The industry of electricity generation, transport, and delivery to the end consumer is traditionally considered as one requiring high staff numbers. The benchmarks to determine if the number of staff is appropriate for a company are set as ratios of customers per employee and personnel expenses versus headcount.

59. Customers per employee. According to the EDM’s information, the company’s headcount currently stands at 2,271 with a customer base of 515,759, resulting in a ratio of 227 customers per employee. This number compares well with benchmarks for integrated utilities with similar characteristics in terms of installed capacity and number of customers.

60. Personnel expenses and headcount. According to the EDM’s financials, in FY17 the company paid CFAF 23.2 billion to its employees, equivalent to CFAF 10,216,301 per employee (or US$17,986), a figure that compares well with the benchmark of approximately US$13,000 (in U.S. dollar of 2014) in similar countries.

Production Costs

61. The EDM’s production includes electricity generated with its own plants and electricity purchases.

62. Table 5.10 provides the breakdown and evolution of EDM’s electricity production between 2015 and 2017.

Table 5.10. EDM - Production in Megawatts

63. As illustrated in table 5.10, the EDM’s total production increased steadily during the years with a 31 percent increase between 2015 and 2017. The EDM’s own generation increased by more than 100

Hydro 227,519 11% 207,791 12% 201,882 13%

Thermal 640,687 31% 378,571 22% 203,669 13%

Total EDM Generation 868,205 42% 586,362 34% 405,551 25%

Hydro Purchased 569,258 27% 618,312 35% 564,002 35%Thermal Purchased 649,720 31% 538,512 31% 628,597 39%Total Electricity Purchased 1,218,977 58% 1,156,823 66% 1,192,599 75%Total Production 2,087,183 100% 1,743,185 100% 1,598,150 100%

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percent during the same period, mostly through the increase in thermal generation, while electricity purchased did not have any significant change, therefore reducing its share in total production from 75 percent to 58 percent. Notwithstanding what was mentioned earlier, electricity purchases remain the largest contributor to the EDM’s production with a 58 percent share of the electricity sourced.

64. The evolution in the cost of electricity purchases per supplier and technology is described in the section titled ‘Power Purchases’.

65. The total production costs including own generation and electricity purchases are summarized table 5.11. These costs include not only the specific items discussed in the previous sections but also all other technical and administrative cost items, which together result in a total cost of electricity to the EDM of CFAF 138.37 per kWh (US$0.2435 per kWh) for FY17.

Table 5.11. EDM - Cost of Electricity (2017)

66. As observed in table5.11, the EDM’s own sources of generation provide electricity at reasonable costs, even in the absence of proper investments to procure optimal performance.

67. Purchases of hydroelectricity are also a well-priced source of electricity; however, thermal sources, and in particular Aggreko, SES, and Aksa (see table 5.9) are expensive sources of electricity that result in an overall increase of production costs.

68. Issues of concern. The total cost of electricity of CFAF 138.37 per kWh (US$0.2435 per kWh) does not compare well with the average tariff of CFAF 96.5 per kWh (US$0.1698 per kWh) for FY17, indicating a tariff deficit of CFAF 41.87 per kWh (US$0.737 per kWh), equivalent to 30.2 percent of the total cost of electricity per kWh.

69. The operational subsidy of CFAF 34 billion (US$59.8 million) received from the Government in FY17 reduced the tariff deficit by the equivalent of CFAF 16.3 per kWh (US$0.029 per kWh) leaving a revenue gap of CFAF 25.57 per kWh, equivalent to a total operational shortfall of CFAF 53.3 billion

FCFA/kWh MWh Share

EDM Generation

Hydro 20.00 227,518.5 11%

Thermal 107.70 640,686.7 31%

Power Purchases

Hydro 37.59 569,257.7 27%

Thermal (all fossil fuels) 114.84 649,719.7 31%

Total Electricity Sourced MWh 2,087,182.6 100%

Weighted Average Production Cost 81.24

Other Costs (fixed & variable) 57.13

Administration 17.66

Transport et mvmt energie 17.62

Distribution 7.26

Commercial 6.99

O&M 7.60

Total Cost of Electricity 138.37

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(US$93.9 million). This shortfall does not consider additional cash needs to cover debt service and CAPEX requirements.

70. The EDM’s cost structure includes elements that lead to unnecessarily higher costs, such as (a) high share of electricity purchased from third parties; (b) higher fuel consumption (l per MWh) of the EDM plants versus third-party plants; (c) high share of gas oil within thermal fuels despite its higher cost and lower efficiency; and (d) high share of electricity sourced from emergency plants under expensive leasing arrangements.

Inventory as a Cost Item

71. The EDM’s inventory for FY17 amounted to CFAF 23.3 billion (US$40 million). Table 5.12 illustrates the breakdown of the inventory.

Table 5.12. EDM - Inventory Breakdown

72. As illustrated table 5.12, spare parts and network and electrification materials constitute 41 percent and 30 percent, respectively, of the total (gross) inventory in FY17 amounting to an aggregate of CFAF 16.4 billion (US$28 million). In FY16 the aggregate amount was CFAF 15.3 billion (US$26 million).

73. Despite the high inventory levels of FY16, in FY17 the EDM made purchases for CFAF 2.7 billion (US$4.7 million) in spare parts and CFAF 5.7 billion (US$9.8 million) in network and electrification materials. These purchases resulted in a further increase in inventory which in the case of spare parts is equivalent to 42 months of purchases and in the case of network and electrification materials is equivalent to 14.5 months of purchases. This same trend is observed in FY14 and FY15, as illustrated in table 5.13.

Table 5.13. EDM - Purchases Breakdown

74. Issue of concern. Holding significantly high inventories of commercial goods is a common practice that results in inefficient use of cash resources and signals deficiencies in procurement policies. It is essential for the EDM to implement proper procurement and inventory management policies intended to

Item % Inc. % Share FCFA'million % Inc. % Share FCFA'million % Inc. % Share FCFA'million % Inc. % Share FCFA'million

Fuel and lubricants 27% 26% 6,096 3% 23% 4,788 -27% 22% 4,628 - 33% 6,307 Cleaning products -20% 0% 24 65% 0% 30 -49% 0% 18 - 0% 36 Sundry equipment 107% 2% 362 1% 1% 175 12% 1% 174 - 1% 155 Spare parts 0% 41% 9,464 5% 46% 9,435 11% 44% 8,982 - 43% 8,108 Network & electrification materials 19% 30% 6,938 -11% 28% 5,823 62% 32% 6,527 - 21% 4,023 Office and computer supplies 15% 2% 380 26% 2% 329 26% 1% 261 - 1% 207 Total 13% - 23,263 0% - 20,579 9% - 20,590 - - 18,836

2017 2016 2015 2014

FCFA' million 2017 2016 2015 2014Fuel and lubricants 72,317 64,202 67,678 73,655 Cleaning products 365 158 420 213 Sundry equipment 2,480 2,249 1,612 922 Spare parts 2,724 3,713 2,894 2,397 T&D and electrification materials 5,743 3,668 6,039 4,373 Office and computer supplies 620 686 438 497 Electricity Supplies 2,684 2,032 1,692 1,832

Total 84,249 74,676 79,080 82,057

EDM - Purchases Breakdown

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avoid unnecessary purchases and improve purchasing terms. The company should also perform a physical review of its inventory to verify stock, determine the presence or not of obsolete goods, and proceed to the required adjustments.

Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA)

75. EBITDA represents the true operational cash flow of the company, as it eliminates accounting effects that may distort operational results. The EBITDA margin being the ratio between EBITDA and revenue, represents the percentage of revenue that becomes operational income and is available to pay debts and taxes and fund a company’s investment needs. The EDM’s historical EBITDA and EBITDA/operating margin are illustrated in table 5.14.

Table 5.14. EDM - EBITDA Analysis

76. The information in table 5.14 indicates that the modest EBITDA margin of FY14 became narrower every year despite the steady increase in revenues, because of the increase in operating costs and expenses. As a result, the EDM had insufficient funds to cover payments associated with income tax, financing costs (interest), and debt. The cash shortfalls have been funded with incremental debt, which explains the increase in financing costs.

77. Issue of concern. The operating margin for a utility in a developed market with limited CAPEX needs (that is, mostly maintenance CAPEX) usually ranges between 20 percent and 22 percent. When the utility is located in a market that is yet to be developed and thus requires substantial investments to preserve and increase its assets (that is, generation, distribution, and transmission capacity, as well as electrification activities), the operating margin should be well above 30 percent. The finance principle is that higher the CAPEX needs, the higher the operating margin required.

78. The historically low EBITDA margin has led the EDM to a situation of financial distress where the company is fully dependent on the Government and on commercial banks to fund its basic cash needs and has no capability to implement much-needed investments.

B. Liabilities

Financial Debt

FCFA million 2017 2016 2015 2014

Total Revenue 209,374 194,791 186,109 192,810

Operating Costs & Expenses (192,461) (176,282) (163,038) (161,218)

Operating Profit (EBITDA) 16,913 18,509 23,071 31,592

Operating Margin 8% 10% 12% 16%

Income Tax (2,019) (1,873) (1,811) (2,564)

Financing Costs (Interest) (10,841) (8,838) (12,593) (8,519)

Loan Repayment (5,931) (7,911) (12,803) (6,438)

Balance (1,878) (113) (4,136) 14,071

EDM - EBITDA Analysis

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79. As of March 2018, the EDM had approximately 38 loan facilities, provided by five noncommercial lenders (directly or onlent) and 11 commercial lenders. Noncommercial lenders include IDA and various DFIs who have provided CFAF 151.7 billion (US$266 million) of long-term debt with tenors ranging from 6 years to 27 years, and interest rates of 1.5 percent to 8.75 percent. The amount of these loans outstanding as of March of 2018 was CFAF 68.9billion (US$121 million).

80. Commercial lenders provide overdrafts, treasury lines, 365-day revolving credit facilities, guarantees, and other trading facilities. Tenors rarely exceed 12 months and interest rates range between 7 percent and 8 percent. These lenders provided CFAF 71 billion (US$124.9 million) in debt (including loans and guarantees) of which CFAF 453.9 billion (US$94.5 million) were outstanding as of March of 2018.

81. Table 5.15 summarizes the EDM’s financial debt for the period under review. A detailed summary of the EDM’s loan portfolio is included in annex I.

Table 5.15. EDM - Financial Debt

82. As illustrated in table 5.15, the company’s debt increased steadily between FY14 and FY17, with a total increase of 19 percent during the period. This increase would not be unusual nor unexpected for an electric utility in a growing market and with substantial investments needs; however, in the case of the EDM the increase in financial debt is not purely of a growth nature. This is evidenced by the significantly larger increase (27 percent) in short-term debt between FY15 and FY17 when compared to the limited increase (3 percent) of long-term debt during the same period.

83. Furthermore, financing costs increased by 27 percent between FY14 and FY17, evidencing the incremental use of treasury lines and overdrafts as a financing tool (to make up for the cash shortfalls), as well as the progressive deterioration of the company’s financial position and its credit standing as a Borrower.

84. As indicated by the ratio of debt/EBITDA included in table 5.15, the EDM’s capacity to pay its financial indebtedness with funds from its operations deteriorated substantially between FY14 and FY17. A ratio of 9.7x in FY17 indicates that the EDM will need nearly 10 years to pay the outstanding principal of its existing debt excluding ongoing interest and without application of any funds for any type of investments.

85. The EDM’s commercial loan agreements were reviewed and the following common features were identified: (a) short tenors (mostly one year and below), (b) high interest rates, and (c)

FCFA' million 2017 2016 2015 2014Short Term Debt 80,752 75,602 63,438 73,956 Treasury Lines 51,377 50,146 29,148 48,498 Overdrafts 29,375 25,457 34,290 25,458

Long Term Debt & Accrued Interest 82,763 84,320 80,312 63,901

Total Financial Debt 163,515 159,922 143,750 137,858 EBITDA 16,912 18,510 23,071 31,592 Debt/EBITDA (x) 9.7 8.6 6.2 4.4 Financing Cost (Interest & Fees) 10,829 10,114 12,605 8,518

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overcollateralization (that is, excessive amount of security in relation to the amount and the tenor of the loans).

86. Although undesirable, these features are not unusual when the Borrower is in a situation of financial distress, as the EDM is. It is noted that the EDM’s ability to continue operating and paying debt service is largely dependent on the liquidity and trade facilities provided by commercial lenders.

87. It is also noted that the terms and conditions of the EDM’s commercial debt could be renegotiated and improved; however, if the financial issues affecting the EDM are not addressed at the structural level (that is, achieving a proper balance between costs and revenues), a debt restructuring would only have a temporary and rather superficial impact.

88. Issue of concern. As illustrated in the section on EBITDA earlier, the EDM’s operation is currently unable to generate enough cash to pay the company’s debt service obligations nor basic investment needs. As a result, the company is forced to take short-term loans to cover cash shortfalls, generating a cycle of continuous and growing financial erosion. Technically, the EDM is financially insolvent. The company’s situation is not sustainable and requires urgent action to strengthen its capital structure (for example, equity contribution/capitalization of Government special obligations, rescheduling of financial debt, improve its revenues, and create conditions for growth).

Debt with Suppliers and Other Third Parties

89. In addition to the substantial amount of financial debt outstanding as of FY17 (CFAF 163.5 billion or US$288 million), the EDM also had CFAF 127.9 billion (US$225 million) of payment obligations yet to be fulfilled mostly with trade counterparties.

90. Table 5.16 summarizes the EDM’s trade payables for FY16 and FY17.

Table 5.16. EDM - Trade Payables (2016–2017)

91. As illustrated in table 5.16, the company’s trade payables increased by 11 percent between FY16 and FY17, with payables to electricity suppliers taking the largest increase as well as the largest share in the total. The largest creditor among the electricity suppliers is CIE with CFAF 16.3 billion (US$28.7 million), equivalent to 29.8 percent of the total amount due. With respect to fuel suppliers, the largest creditor was Star Oil with CFAF 15.2 billion (US$26.8 million) or 41 percent of the total amount due.

92. The payment conditions offered by the suppliers to the EDM can be summarized as a maximum of two months from the date when the invoice is received for electricity suppliers and other suppliers, while fuel suppliers offer one month from the date the invoice is received.

93. Table 5.17 provides a breakdown of the EDM’s past due trade receivables according to the number of months by which they are past due.

FCFA '000 2017 Share Increase 2016 Share

Electricity Suppliers 54,596,219 43% 36% 40,158,838 35%

Fuel Suppliers 36,782,762 29% 2% 36,143,615 32%

Other Suppliers 34,543,736 27% -8% 37,381,584 33%

Total 125,922,717 100% 11% 113,684,037 100%

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Table 5.17. EDM - Breakdown of Trade Payables for FYE2017 by Payment Delay

94. As illustrated in table 5.17, a significant amount of receivables are carried from years before FY17. These receivables refer mostly to electricity suppliers and include SOPAM with CFAF 7.3 billion (US$412.5 million) and Aggreko with CFAF 4.3 billion (US$7.4 million).

95. The increase in the amount of payables and the amounts that are past due by more than one month despite the general payment terms of 30 to 60 days, is a clear reflection of the EDM’s inability to pay its commercial obligations as and when due.

96. Issue of concern. The EDM’s financial constraints and its inability to pay suppliers as and when due results in operational difficulties that range from suppliers’ unwillingness to provide goods and services to the increase in prices to include the cost of financing, whether directly or indirectly. This situation only contributes to the increased erosion of the company’s finances.

C. Cash Analysis

97. One of the major concerns with respect to the EDM’s current financial situation is its cash and overall liquidity position. As expected, the EDM’s cash position has eroded progressively along the period under review because of the substantial gap between revenues and costs and expenses.

98. Table 5.18 provides a high-level summary of the EDM’s sources and uses for the period between FY17 and FY14.

Table 5.18. EDM - Sources and Uses

99. The information in table 5.18 leads to the following observations:

FCFA '000 Pre-2017 7-12 months 1-6 months

Electrici ty Suppl iers 17.111.915 31% 4.154.367 8% 11.238.578 21%

Fuel Suppl iers 1.319.217 4% 341.075 1% 3.223.214 9%

Other Suppl iers 2.960.090 9% 2.060.172 6% 6.105.890 18%

FCFA million 2017 2016 2015 2014Sources

Cash from Operations (18,481) (20,120) (20,209) (27,057)Loan disbursements 4,228 11,760 28,838 23,409 Other Debt funding 376 417 374 63,881 Investment Subsidy 2,741 2,566 2,291 1,303 Operating Subsidy 34,000 33,656 42,000 57,108

Total Sources 22,865 28,279 53,295 118,644 Uses

Debt Repayment 5,932 7,912 12,803 6,438 Financing Costs 10,829 10,114 12,605 8,518 Investments 23,876 44,705 50,902 117,767

Total Uses 40,636 62,731 76,310 132,724 Balance (17,771) (34,453) (23,015) (14,080)

EDM - Sources & Uses

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• The company’s efforts to increase service coverage and electricity production resulted in increased sales, nonetheless cash from operations is negative by a significant amount because of the absence of revenues that allow for cost recovery.

• The Government provided subsidies in an aggregate amount of CFAF 175.7 billion (US$300 million) during the period under analysis, a substantial amount that has proven to be insufficient to support the EDM’s operation and much-needed growth needs.

• As a matter of principle investments should be sized to fit a company’s funding capacity without risking its liquidity. However, along the years the EDM has made investments that clearly exceeded its funding capacity.

100. Issues of concern. The EDM depends on debt funding to preserve its most basic operation and fulfill its payment obligations. Furthermore, the cumulative impact of the EDM’s negative cash balances is no longer sustainable. The company’s financial situation must be addressed as a matter of urgency.

D. Solvency

101. As discussed in the previous section, the EDM has experienced a substantial cash deficit in the past years. This section will therefore focus on the company’s solvency, that is, the EDM’s ability to repay its financial obligations as and when due.

102. Table 5.19 provides the results of a number of ratios that are commonly used to assess liquidity/solvency, understood as the debt service payment capacity of a company.

Table 5.19. EDM - Solvency Ratios

103. EBITDA/interest measures the EDM’s ability to pay financing costs (not including repayment of principal) from operating income. As a benchmark, a ratio of 5x or lower indicates that a company has a significant level of leverage. Table 5.19 illustrates the significant deterioration of the EDM’s capacity to make interest payments on its financial debt. The very narrow margin expressed in the ratio also reflects the company’s inability to repay the principal due on its financial debt from its operational resources.

104. Quick ratio is used to calculate the current ratio for companies that do not have a ‘liquid’ inventory, that is, when they are not expected to be able to liquidate their inventory to cover urgent cash needs. It is therefore calculated as the ratio of current assets minus inventory to current liabilities. The lowest acceptable level is 1x which, as can be seen in table 5.18 is not achieved by the EDM in any of the years under review, meaning that the company’s operation is not generating enough cash from its assets and is therefore fully dependent on external financing to meet its short-term payment obligations. If lenders did not provide such funding the company would fall into default, unless it receives an equity

2017 2016 2015 2014EBITDA/Interest (x) 1.6 1.8 1.8 3.7 Quick Ratio (x) 0.5 0.5 0.6 0.7 Debt to EBITDA (x) 9.7 8.6 6.2 4.4 FCFO/Debt -7% -17% -7% -6%

EDM - Solvency Ratios

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injection. It is noted that past due receivables were not excluded from short-term assets despite the illiquid nature of several of them. Had it been excluded, the results would be even weaker.

105. Debt to EBITDA. This ratio is intended to illustrate the number of years that it would take for the EDM to pay its debt if all funds from operations (that is, before paying interest, tax, and CAPEX) were applied to pay it and no additional investments are made. As a benchmark, a ratio between 2.5x and 3.5x indicates a moderate level of indebtedness/leverage. As can be observed from table 5.19, and as already mentioned under the section –on Financial Debt, the EDM’s capacity to pay its financial indebtedness with funds from its operations deteriorated substantially between FY14 and FY17. A ratio of 9.7x in FY17 indicates that the EDM would need nearly 10 years to pay the outstanding principal of its existing debt excluding ongoing interest and without application of any funds or any type of investments.

106. Free ash flow from operations/debt. This ratio measures the cash available to repay debt once interest and CAPEX have been funded (free cash flow from operations). As a benchmark, a ratio of 45 percent to 60 percent is considered as moderate leverage. In the case of the EDM, as discussed in the section on Cash Analysis, the company has consistently made investments that exceeded its funding capacity, as a result there is no cash available to repay debt and thus the ratio displays a negative number. In practice, what this means is that the EDM is fully dependent on financial debt to pay not only investments but also to repay debt.

107. Issue of concern. As observed in sections C and D, the EDM has been unable to generate sufficient cash from its operations to pay for its financial and tax obligations and fund investments. To continue providing electricity services, the EDM has relied on bank loans to fill the ever-increasing cumulative cash shortfall. The situation has reached a point where the EDM can no longer pay for debt service unless it contracts additional debt, which means that EDM is the insolvent.

Conclusion and Recommendations

108. Despite being the sole provider of electricity services in a constantly growing market, the EDM is in financial distress and is facing a situation of insolvency.

109. There is a substantial gap between the EDM’s revenues and the company’s operational costs and expenses, financial costs, and investment needs. Tariffs are regulated but have not been adjusted in 18 years, and the operating and investment subsidies received from the Government as a means to replace the absence of a tariff adjustment are substantially insufficient to cover the most basic financial needs of the company. Furthermore, the EDM’s operational costs and expenses, financing costs, and investments have increased along the years in the absence of a cost recovery tariff structure. The EDM lost CFAF 22.1 billion (US$39 million) in FY17 and projects a loss of CFAF 31.3 billion (US$55 million) in FY18, if the current situation of revenues and expenses remains unchanged.

110. The EDM’s financial recovery will require the implementation of several changes. The following is a summary of our recommended actions:

• Introduce a corporate strategy and decisions intended to achieve the following critical changes:

o Reduce technical losses

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o Increase production from the EDM’s own power generation plants

o Change fuel mix for power purchases to increase electricity purchases from the most competitive suppliers (that is, hydro and gas)

o Reduce the share of gas oil and HFO in the country’s energy matrix

o Improve fuel procurement practices, fuel management, and fuel consumption per MWh for EDM-owned plants

o Improve general procurement practices and optimize inventory management

• Review financial terms with suppliers and reduce the amount of trade payables

• Recover past due receivables

• Restructure commercial bank debt to reduce interest rates and extend tenors

• Determine the company’s revenue requirement with consideration of all its financing needs, that is OPEX, debt service, and CAPEX

• Capitalize the Government’s special obligation of CFAF 57.7 billion (US$101.5 million) to strengthen the Company’s balance sheet.

111. The EDM is the cornerstone of the electricity sector and therefore of the economic development in the Republic of Mali. The financial deterioration of the company has a substantial and negative impact on the population and the overall development of the country. Restoring the company’s finances to a point of sustainability is essential for the country. In contrast, the perpetuation of the current situation is detrimental for the country and will only be costlier as time passes.

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Lender Amount FCFA Interest Rate Tenor (yrs) Balance 31/03/18

Direct Loans (non-commercial)

BOAD II 11,000,000,000 8.75% 13 4,831,412,873

BOAD III 12,500,000,000 8.75% 13 5,525,860,687

AFD 106402V 4,933,364,948 2.75% 19 370,002,371

AFD 116901A 3,361,162,592 2.00% 14 258,550,896

AFD 107201T 4,320,818,546 2.75% 20 540,067,335

Sub-total 36,115,346,087 11,525,894,162

On-lent Loans

BOAD CNC 20,000,000,000 1.50% 27 8,577,221,209

BOAD G4-SELINGUE 25,000,000,000 7.60% 13 2,873,343,021

FINEXPO I 2,597,589,720 4.50% 25

FINEXPO II 2,229,542,232 6.00% 30

IDA 2850 3,480,566,413 7.70% 14

IDA 1998 MLI 4,732,886,645 7.65% 7.5

Accord Tripartite 2,828,642,222 0.00% 2,544,766,501

PASE 54,675,000,000 2.50% 27 40,072,958,418

Sub-total 115,544,227,232 57,386,669,915

Commercial Loans

BDM GPS 7,170,000,000 6.00% 6 5,463,505,090

ECOBANK 7,465,298,400 7.00% 3 6,532,136,100

ECOBANK 2,000,000,000 7.00% 1 1,268,678,740

ECOBANK 3,000,000,000 7.00% 180-day 2,171,575,178

BMS 3,000,000,000 8.00% 1 4,289,610,125

BMS 7,063,000,000 8.00% 2 5,973,994,826

BMS 595,934,863 7.50% -BMS 3,612,663,737 8-8.5% 1, <1 780,331,045

BAM 5,000,000,000 7.35% 1 4,604,409,644

BAM 3,000,000,000 7.50% 1 3,000,000,000

BAM 4,000,000,000 7.25% 1 4,000,000,000

BICIM (BNP) 1,000,000,000 8.00% 5 months -

BICIM (BNP) 2,000,000,000 8.00% <1 1,684,320,349

BIM 2,000,000,000 7.75% 1 1,948,835,928

BIM 715,000,000 7.00% 1 541,583,087

BNDA 2,000,000,000 7.50% 1 1,973,778,107

BOA 5,000,000,000 7.50% 1 4,546,465,185

BCI 2,000,000,000 8.00% <1 1,806,366,521

Coris 586,975,868 7.50% 1 543,000,000

Coris 1,000,000,000 7.00% 10 months 808,668,886

ORABANK 1,000,000,000 7.50% <1 1,021,215,613

ORABANK 1,353,000,000 6.75% <1 902,000,000

ORABANK 2,356,931,640 7.00% <1 -

Sub-total 71,168,804,508 53,860,474,423

TOTAL 222,828,377,827 122,773,038,500

3,318,380,766

EDM - Loan Portfolio as of March 31 of 2018

ANNEX – I

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ANNEX 6: EDM Corporate and Financial Restructuring Program COUNTRY: Mali

Mali Electricity Sector Improvement Project (MESIP)

Summary of Findings

1. The EDM’s operation is not sustainable as it stands today. The company has a substantial imbalance between its revenues and its operational costs and investment needs. The revenue gap in 2017 reached CFAF 54 billion and was partially offset with a CFAF 34 billion operational subsidy. The revenue gaps are projected at CFAF 78 billion in 2018 and CFAF 128 billion in 2019 (business as usual).

2. The EDM has been negatively affected by the following main factors.

Poor collection of invoices from public sector entities and of other receivables with Government

3. Public sector consumers represent approximately 10 percent of the EDM’s total sales, equivalent to CFAF 15 billion in 2017. The nonpayment culture of public sector customers has a significant and negative impact on the EDM’s cash inflows as the company must pay the cost of generation and delivery of electricity to clients and does not recover them. Assuming that 80 percent of the customers do not pay their invoices on time, the cash impact on the EDM is approximately CFAF 12 billion, equivalent to 22 percent of the revenue gap in 2017.

4. In addition, the EDM has CFAF 22 billion of receivables from the Government associated with the payments made to the SOPAM Project on behalf and at the request of the Government several years ago.

System losses (technical and nontechnical)

5. The EDM had system losses of 19percent in 2017, which represented a loss of approximately CFAF 8.6 billion in revenues. The company has a revenue protection program which displays positive results (1 percent loss reduction per year) and must continue.

Absence of tariff review for an extended period of time

6. The tariff structure merits a revision to reflect the current market structure, the evolution of customer categories, consumption profiles, and other factors that have changed since its initial design.

Energy matrix dominated by thermal sources (HFO and Gasoil), large share of electricity purchases, and insufficient and inefficient power generation with own plants

7. About 62 percent of the electricity produced by the EDM in 2017 was thermal. Gas oil had a 42 percent share of fuel used despite being 16 percent more expensive than HFO and less efficient in terms of liters required to produce a kWh. The EDM’s own production has increased steadily since 2014; however, because of the growing demand for services, the share of power purchases, although decreasing, was still at 58 percent in 2017. Because of the limited investment in maintenance CAPEX, the efficiency of the EDM’s own plants has reduced over time.

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Inefficient fuel procurement practices and general procurement issues leading to over spending

8. The EDM procures fuel from several suppliers who are market intermediaries as opposed to bulk suppliers, which results in higher purchase prices. In the past, some of those suppliers were unable to deliver their commitments forcing the EDM to purchase fuel in the spot market at even higher prices.

9. General procurement for spare parts and other high price and strategic purchases is not properly planned, leading to overspending, loss of goods, excessive inventory, and overall waste of resources. In 2017, purchases of unnecessary/redundant materials for over CFAF 5 billion and obsolete or damaged materials for over CFAF 2 billion, all under spare parts and network and electrification materials were identified.

Financing of long-term investments with short-term commercial loans, insufficient use of concessional financing to fund long-term low-return assets, and dependence on short-term loans to support the operation

10. Electrification investments have been financed with commercial loans although connection costs are highly subsidized (even for MV customers) and the consumption/sales that new connections generate are vastly insufficient to recover the cost of the investment.

11. Despite the development nature of the EDM’s investments, only 42 percent of its loans are concessional, resulting in high financing costs for the company which cannot be recovered through the underlying investments.

Pursuit of investments and signing of Power Purchase Agreements (PPAs) with disregard to technical and financial implications and/or affordability

12. Take-or-pay commitments for plants that will not be fully dispatched result in significant erosion of the company’s finances. In the case of the PPA for Albatros, the EDM is obliged to pay CFAF 1,234 million per month (plus 18 percent VAT) for 66 MWs of capacity. However, in 2019 and 2020 only 89 percent of the plant’s capacity will be required by the system and from 2021 onward non-capacity from this plant would be demanded.

13. The cumulative financial loss for the EDM in the first five years of the Albatros PPA resulting from payments for redundant capacity will be CFAF 61.2 billion (US$112 million).

EDM’s Financial Restructuring

14. The EDM’s financial situation can be addressed through the implementation of a comprehensive Corporate and Financial Restructuring Program intended to place the company on the path to financial sustainability and long-term sustainability.

15. The plan would comprise the following main actions:

• Recovery of past due receivables from the Government and public entities (approximately CFAF 51 billion)

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• Design and implement an effective policy to achieve timely collection of electricity consumption invoices from public entities at all levels (national, regional, and so on)

• Adjust tariff with local CPI and review tariff structure to identify potential improvements

• Continue implementation of a loss reduction strategy

• Pay outstanding payables to suppliers within 24 months

• Refinance approximately CFAF 95 billion of commercial debt intended to extend tenors, reduce interest rates, and achieve substantial reduction of financing costs (approximately CFAF 10 billion in 2019)

• Shift loan portfolio to increase the share of concessional financing with full transfer of concessional terms from the GoM to EDM—essential for electrification investments

• Capitalize the Government special obligation and fiscal debt

• Design and implement efficient fuel and general procurement policies leading to a 10 percent reduction in costs and expenses

• Change fuel mix. Increase EDM’s hydro production through full refurbishment of its own plants, convert thermal units from gas oil to HFO, increase imports from CIE (200 MW) and imports from Guinea (150 MW), and eliminate emergency plants

• Renegotiate PPAs which do not contribute to cost reduction (for example, Albatros)

• Design and implement programs intended to improve plant performance, network and asset management, and demand management

• Design and implement a business plan comprising investment planning and the accompanying financing strategy leading to a clear growth path based upon technical criteria and financial viability

• Strictly evaluate new PPAs and new investments with criteria of financial viability and strict observance of target financial ratios to ensure preservation of the EDM’s financial integrity and ensure efficient operational and financial performance

• Separate the company’s activities in business units with respective separate accounts to provide transparency and accountability and facilitate strategic decision making and management

Description of the Program

16. The EDM’s Corporate and Financial Restructuring Program would be implemented in two phases, as follows:

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• Phase 1. A 12-month financial and operational recovery period during which the Company would implement the following actions:

o Recover at least 50 percent of receivables past due from the Government (that is the SOPAM Project) and public entities (total of approximately CFAF 25.9 billion) with the balance to be recovered within the following 12 months. This action will require strong Government support to attain firm commitments and efficient recovery

o Design and implement an effective policy to achieve timely collection of invoices from public entities at all levels and thus increase the EDM’s cash inflows

o Continued and consistent implementation of the loss reduction/revenue protection program

o Tariff adjustment with local CPI

o Tariff review to identify potential improvements, such as tariff increase for institutional consumers, elimination of subsidy on connection fee for MV and nonresidential customers, revision of tariffs applicable to public lighting to address the existing mismatch among stakeholders, and so on.

17. Actions mentioned earlier are intended to increase the EDM’s revenues and cash collection by at least 10 percent during the first year of the program and support basic cost recovery.

18. Table 6.1 illustrates the potential increase in revenue that could be achieved with the implementation of the actions described earlier. A total increase of CFAF 22 billion in 2019, CFAF 32 billion in 2020, CFAF 41 billion in 2021, CFAF 57 billion in 2022, and CFAF 81 billion in 2023 has been assumed for financial projections.

Table 6.1. Potential Increase in Revenue

19. Refinancing of commercial debt. The commercial debt outstanding, of approximately CFAF 95 billion, would be paid off and replaced with a new syndicated commercial loan with a five-year tenor at a 5 percent (or lower) interest rate, supported with a Government Guarantee and a collateral package consisting of the EDM’s receivables which would be duly structured, centralized, and managed by a security agent. Existing lenders would participate in the new commercial loan and the collateral package pro-rata of their existing outstanding with the EDM at the time of restructuring.

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20. The EDM’s total debt as of October 16, 2018, amounted to CFAF 163.6 billion. Of which CFAF 68.7 billion or 42 percent was contracted with development institutions, and CFAF 94.8 billion or 58 percent was commercial debt.

21. The total debt service associated with commercial debt reached CFAF 75.3 billion in 2017 and is expected to reach CFAF 89.2 billion in 2018. The proposed debt restructuring will result in a significant change of the EDM’s debt profile and debt service obligations.

Table 6.2. EDM - Total Debt Service after Commercial Debt Restructuring

22. In addition to restructuring of the commercial debt, the EDM must aim to reduce the financing costs of two of its BOAD loans, from 8.75 percent per year to 7.60 percent per year, and improve the terms and conditions of the existing IDA facilities to their original concessional terms that is, 0.75 percent per year (approximately CFAF 232 million).

(a) Obtain a new financing for approximately CFAF 30 billion on concessional terms (3 percent, 5+10 years), from the GoM or a development partner.

(b) Renegotiate and pay at least 40 percent of past due payables with suppliers (approximately CFAF 46.3 billion) applying the proceeds of the financing mentioned earlier, the proceeds from the recovery of past due receivables, the savings in financing costs achieved with the debt restructuring, and the increase in cash inflows from improved collections. The balance of past due payables would be paid along the following 12-month period (that is, the first year of Phase 2).

(c) Revise and implement an efficient fuel procurement policy whereby the EDM would purchase fuel in bulk under a competitive process and at competitive prices, as well as a general procurement policy intended to optimize purchases and inventory management at all levels.

(d) Design and implement programs intended to improve plant performance, network and asset management, and demand management, including technical assessment and procurement for upgrades/refurbishment of power plants and conversion of gas oil-fired units to HFO.

(e) Renegotiate PPAs which do not contribute to cost reduction (for example, Albatros). This action will require strong Government support to review concession agreements and negotiate arrangements that reduce the financial burden for the EDM with respect to plants that displace more cost-efficient production sources.

(f) Review projected investments with committed financing to assess affordability and determine the need to reschedule, resize, or cancel.

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Box 6.1. The Albatros Thermal Plant • Capacity charge: CFAF 25.6 per kWh (adjusted annually by local and OECD CPI) • Take-or-pay: 578,160,000 kWh per year equivalent to CFAF 1,234 million per month plus 18 percent

VAT • Albatros competes for network use with other generators with significantly lower production costs for

the EDM, such as Manantali and Felou, and potentially Akuo PV The expected dispatch from Albatros, considering network restrictions and priority according to lower production costs is illustrated in table 6.3, including the amounts to be paid for capacity that is not required by the EDM.

Table 6.3. Expected Dispatch from Albatros

(g) Capitalization of the Government special obligation (CFAF 57.7billion)

(h) Capitalization or rescheduling of all outstanding fiscal obligations (CFAF 14.4billion)

23. The actions described in (g) and (h) are intended to strengthen the EDM’s balance sheet through reduction of liabilities and reversing the current situation of negative equity. The EDM’s equity is projected at negative CFAF 12 billion for FY18.

24. These actions and the restructuring of the Company’s commercial debt are essential to provide the EDM with a stronger credit profile required to pursue a successful procurement process with high- quality bulk fuel suppliers and negotiate and attain competitive fuel prices.

• Phase 2. A four-year stabilization period during which the company will implement the following medium-term actions intended to attain medium- to long-term technical and financial sustainability on a stand-alone basis (that is without the Government’s financial support from 2021):

o Recover the remaining portion of past due receivables with public entities not recovered during Phase 1 (approximately CFAF 25.9 billion).

o Pay the balance of past due payables with suppliers (approximately CFAF69.5 billion) not paid during Phase 1.

o Change the fuel mix: increase EDM’s hydro production through full refurbishment of its own plants (between 2019 and 2021), convert thermal units from gas oil to HFO (between 2019 and 2020), increase imports from CIE (200 MW between 2020 and 2021) and imports from Guinea (150 MW in 2023), and eliminate emergency plants in 2021.

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o Shift the loan portfolio to increase the share of concessional financing. Any new investments must be financed with concessional loans, and concessional terms should be fully transferred to the EDM. In particular, electrification investments should only be financed with deeply concessional funds.

o Strict evaluation of new PPAs and new investments with criteria of affordability, and strict observance of target corporate financial ratios to ensure the preservation of EDM’s financial integrity to ensure efficient and sustained operational and financial performance in the short, medium, and long term.

Table 6.4. Hydro production

Table 6.5. Fuel mix

o Design and implement a business plan comprising investment planning and the accompanying financing strategy leading to a clear growth path based upon technical criteria, financial viability, and affordability.

o Separate of the company’s activities in business units with respective separate accounts to provide transparency and accountability and facilitate strategic decision making and management.

Expected Results

25. The timely implementation of all the actions outlined should result in substantial improvement of the EDM’s financial position from the first year of the program. Table 6.6 illustrates the results that could be expected, including substantial changes between 2018 and 2019 (the first year of the program).

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Table 6.6. EDM - Corporate and Financial Restructuring Program Preliminary Financial Projections

26. As illustrated in the summary of the EDM’s preliminary financial projections, during 2019 and 2020 the company would face a revenue gap of approximately CFAF 31 billion and CFAF 48 billion, respectively.

27. The projected revenue gap reflects the operational subsidy required to address the remaining imbalance between the EDM’s revenues and the company’s needs to fully cover its costs and expenses and basic investments.

28. Upon implementation of Phase 2 of the program and because of the combined effect of improvement in collections, reduction of operating and financial expenses, resizing of investments, and the change in the energy mix, the company is not expected to require any operational subsidy from 2021 and instead produce operational surplus.

29. The change in the energy mix is expected to reduce production costs by reducing the share of thermal electricity to the minimum.

Figure 6.1. 2018 Estimated Energy Mix

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Figure 6.2. 2023 Projected Energy Mix

30. Despite the significant increase in hydro production/purchases, the EDM’s production costs will still be affected by the evolution of international oil prices. Table 6.7 illustrates the impact.

Table 6.7. EDM - Fuel Sensitivities

31. Finally, it is noted that all the elements of the program are of critical importance and the absence of proper and timely implementation of any of them would have a negative impact on the EDM’s financial performance, which could result in a larger revenue gap in 2019 and 2020, or a gap extending into 2021 or beyond.

32. Figure 6.3 illustrates the potential negative impact on the EDM’s revenue gap resulting from not implementing some of the most strategic actions.

Figure 6.3. Revenue Shortfall Sensitivities

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ANNEX 7: MAP

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