Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-6784-ML

MEMORANDUM AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 18.5 MILLION

TO THE

REPUBLIC OF MALI

FOR THE

SELINGUE POWER REHABILITATION PROJECT

MARCH 28, 1996

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

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CURRENCY EQUIVALENT

Currency Unit = CFA Franc (CFAF)US$1.00 = CFAF 506 (June 1995)

MEASURES AND EQUIVALENTS

I kilovolt (kV) = 1,000 voltsI Megawatt (MW) = 1,000 kilowatts (kW)I Gigawatt hour (GWh) I 1 million kilowatt hours (kWh)I barrel (bbl) 0. 16 cubic meterI ton of oil equivalent (toe) = about 7 bbl of crude oil

ABBREVIATIONS AND ACRONYMS

CFD Caissefran,aise de developpementDGG Delegation globale et temporaire de gestion (Management Contract)DNHE Direction nationale de / 'hydraulique et de I 'energie (National

Directorate for Hydraulics and Energy)EDF Electricit de FranceEDM Energie du MaliEIB European Investment BankERR Economic Rate of ReturnGOM Government of MaliHQI Hydro-Quebec InternationalNMMEH Ministry of Mines, Energy and HydraulicsNPV Net Present ValueOERHN Office pour I 'exploitation des ressources hydrauliques du Haut Niger

(Office for the Development of Water Resources of the Niger River)OMVS Organisation pour la mise en valeur dufleuve Senegal (Office for the

Development of the Senegal River)

FISCAL YEARJanuary I - December 31

The CFA Franc is tied to the French Franc (FF) at a ratio of FF 1.00 = CFAF 100. The FF is currentlyfloating.

FOR OFFICIAL USE ONLY

REPUBLIC OF MALI

SELINGUE POWER REHABILITATION PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: Republic of Mali

Beneficiary: Energie du Mali (EDM)

Credit Amount: SDR 18.5million (US$27.3 million equivalent)

Terms: Standard IDA terms, with 40 years maturity

On Lending Terms: The Government will onlend to EDM US$26.1 million at aninterest rate of 7.7% for 25 years, including a five-yeargrace period on the principal repayments. EDM will bearthe foreign exchange risk on the onlent amount of theCredit. An amount of US$1.2 million equivalent (4.4% ofthe Credit) to finance an Energy Efficiency Program and thepreparation of the long-term power sector institutionalframework will be passed on to EDM as a grant.

Financing Plan: IDA 27.3(US$ millions) EDM 8.3

European Investment Bank 6.5

Total 42.1

Economic Rate of Return: 66% (NPV = US$ 126.0 million)

Program ObjectivesCategories: Environmentally Sustainable Development

Poverty Category: Not Applicable

Project ID: 34617

Staff Appraisal Report: Report No. 15169-ML

Map: IBRD No. 27692

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.

MEMORANDUM AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE EXECUTIVE DIRECTORSON A PROPOSED CREDIT TO THE REPUBLIC OF MALI

FOR THE SELINGUE POWER RFHABILITATION PROJECT

1. I submit for your approval the following memorandum and recommendation on aproposed development credit to the Republic of Mali for SDR 18.5million (equivalent toUS$27.3 million) on standard I)A terms with a maturity of 40 years, to help finance theSelingue Power Rehabilitation Project.

2. Country Economic Background. Mali is one of the largest countries in Africa, witha surface area of 1.24 million km2 The population is estimated at 9.5 million in 1994, with80% living in rural areas. Of the eight main cities in Mali, only Bamako, the capital, with apopulation of about 800,000 inhabitants, is a major urban center. NIali is one of Africa'spoorest countries, with a 1994 per capita GDP of US$250. The economy is largely dependenton agriculture which is the primary source of income for most of the population and accountsfor the largest share of product exports (primarily cotton). During the last five years, theGovernment of Mali (GOM) implemented a wide range of economic and sectoral policyreforms. The underlying objective has been to improve the competitiveness of the economyand lay the foundation for the sustained long-term growth needed to help raise the standard ofliving and alleviate poverty. These reforms have removed bottlenecks to private sectorparticipation allowing market forces to play a greater role in the determination of economicoutcomes. The impact of these reforms is shown by the improvement in economicperformance over the adjustment period. On January 12, 1994 the GOM, in consultation withthe other member countries of the CFA zone, decided to strengthen its adjustment strategy.The fixed parity of the CFA Franc (CFAF) was changed from 50 to 100 CFAF per FrenchFranc.

3. Sector Background. Mali's domestic energy resources consist of biomass (fuelwood,charcoal, agricultural and agro-industrial residues), hydro, and solar energy. Presently, onlybiomass for household energy and hydro for electricity generation are exploited on asignificant scale. The country's hydropower potential, based on the Senegal and Niger riversystem, is estimated at about 1,000 MW capable of producing 5,000 GWh in an average year.Of this potential, only about 50 MW (220 GWh) have been developed so far, at the Selingueand Sotuba dams on the Niger River. Mali has no significant known fossil fuels andpetroleum product consumption is entirely dependent on imports (about 200,000 tonsannually). Final energy consumption is low and was estimated in 1992 at 1.83 million tons ofoil equivalent (toe) which corresponds to a consumption of 200 kg of oil equivalent per capitaper year. Fuelwood and charcoal represent more than 88% of the consumption, whereasmodern energy (petroleum products and electricity) represents less than 12%.

4. Over the last ten years, the GOM has streamlined its energy policy; its presentobjectives are to: (a) evaluate and develop domestic energy resources; and (b) promote more

2

efficient utilization of all forms of energy. In order to achieve these objectives, the GOM hastaken steps to: (a) better control and manage its natural resources (wood) and promoteefficient wood stoves, (b) liberalize petroleum imports and distribution (which has already ledto substantial positive effects on retail prices), and (c) help promote the development of theManantali Regional Energy Project which is being implemented by the Organisation pour lamise en oeuvre diu flelve Senegal (OMVS). This agency has already built a dam on theSenegal river and is planning to complete the corresponding power facilities by the year 2000,to supply Mali, Mauritania, and Senegal.

5. In 1994, only 7% of the population had access to electricity (44,000 households).Even in Bamako, the electrification rate was only 40%. From 1987 to 1994, electricity salesgrew from 150 GWh to 209 GWh with an average annual increase of less than 5%. There is aconsiderable potential for electricity use, but the demand growth remains constrained bylimitations on the supply side (generation capacity and distribution network).

6. The power system is comprised of an interconnected network with a capacity of about70 MW and 10 isolated centers which are supplied by small diesel units totaling 10 MW. Allof the facilities are operated by EDM, a semi-publicly owned enterprise whose shareholdersare the GOM (97.2% of shares) and Electricite de France ([EDF] 2.8% of shares). TheSelingue hydropower plant is by far the largest plant in the country with an installed capacityof 44 MW and an annual energy generation of about 180 GWh, which represents more than70% of the electricity supplied by EDM. It was built in 1980, but recent inspections indicatethat some of its key components (dam and generating units) are in need of urgentrehabilitation works. The proposed project will focus mainly on these works.

7. For many years, the power sector was poorly organized and managed, withresponsibilities divided among several agencies: the Direction nationale de I'hydraulique etde l'energie (DNHE) was in charge of sector development planning, building of major hydroschemes, and of technical supervision of the sector; EDM was responsible for the operationand maintenance of most power and water facilities, including those constructed by DNHE;and the Office pour 1'exploitation des ressources hydrauliques du Haut Niger (OERHN),another parastatal, was responsible for the Selingue hydropower plant. All of the electricitygenerated at Selingue was sold by OERHN to EDM at excessively high tariffs. Thisorganization of the sector led to several problems, namely: poor coordination betweenDNHE, OERHN, and EDM for investment planning and system operation; important financialresources drained from the power sector to subsidize other sectors; and inefficient operation,monitoring, and maintenance of the Se1ingue dam.

8. To address these problems and enhance the power sector management capacity, theGovernment made two important decisions in 1993: (a) the unification of the Power Sectorby transferring all of the Selingue assets from OERHN to EDM; and (b) contracting out themanagement of EDM to a private professional partner for a period of five years (Delegationglobale et temporaire de gestion - DGG). The Management Contract was signed in 1994 anda consortium named SHEC, comprising Saur International, Hydro-Quebec International(HQI), EDF International, and CRC Sogema, has been managing EDM since January 1995.

3

9. Project Rationale. Detailed inspections of the Selingue facilities were carried out in1993 and 1994 which highlighted important weaknesses that exist, in particular in the earthendikes of the dam. Worrisome occurrences have been taking place such as abnormal seepagethrough the right abutment of the dike and through the dike itself The civil works expertsindicated that there has been a gradual degradation which, if not properly addressed, couldprovoke a sudden internal collapse of the dam. This would result in the destruction of-Mali'smain power facility and possibly endanger the lives of people downstream. The studies alsoconcluded that there was an urgent need for a systematic overhaul of all electromechanicalequipment, because of poor maintenance. The proposed project will address these problems.

10. While immediate priority is given to these rehabilitation works, other investments willtake place over the next five years including: (a) completion of ongoing operations torehabilitate and extend generation and distribution facilities in some isolated centers and thedistribution system in Bamako, (b) addition of 9 MW of small thermal units in Bamako toprovide back up during periods of reduced supply from Selingue (3 MW) and to fulfillelectricity demand expected to grow at an average rate of 6.8% per year during the period1995-2000. Once the Manantali power plant is completed, these small thermal units will berelocated to isolated centers, not connected to the national grid. In the longer term, thedevelopment of the power sector would be based on the expansion of the transmission anddistribution systems to supply electricity from the Manantali power plant and possibly fromC6te d'Ivoire.

11. Project Objectives. The main objective of the project is to repair and rehabilitate theSelingu6 facilities to ensure that a major source of electricity supply is not lost. Otherobjectives of the project are to: (a) maintain the electricity demand/supply balance byincreasing the thermal capacity of the system and implementing an energy efficiency program;(b) improve the capacity of EDM to properly operate, maintain, and monitor its powergeneration facilities, and (c) prepare a long-term institutional and regulatory framework andimplement it as of 1999.

12. Project Description. The project components and base costs are the following: (a)Rehabilitating the Selingue Hydropower Facilities (US$22.9 million) including: (i) repairsto the dam itself (dike crest; embankment right bank and road superstructure; concretestructures like the powerhouse, the spillway, galleries and drainage systems; additionalmonitoring devices and instrumentation), (ii) repairs of the power plant (general powerhouseequipment, measurement and control devices; filtering and cooling systems; overhaul of thefour generators, one every year from 1996 to 1999: turbines, alternators, voltage and speedregulation, and monitoring systems); (iii) repairs of the transmission lines (restructuring of theelectrical protection system for the 150 kV, 30 kV, and 15 kV network; spare parts for theSelingue-Bamako 150 kV transmission line and substations); (b) Maintaining the ElectricityDemand/Supply Balance (US$8.9 million) including: (i) an additional thermal capacity of9 MW; and (ii) an energy efficiency program (reduction of distribution losses, efficient end-uses, interruptible tariffs); (c) Strengthening EDM Management Capacity (US$2.0 million)including: (i) a training program to improve EDM staff capacity to operate and properlymaintain generation facilities, specifically at Selingue; (ii) studies for preparing future power

4

sector development programs; and (iii) acquisition of equipment and computer software; and(d) Preparing a Long-term Institutional Framework (US$0.4 million) for rapid andsustainable development of the power sector in Mali.

13. Project Cost and Financing. The total cost of the project is estimated at US$42.1million equivalent, net of taxes and duties, including interest during construction andcontingencies, with a foreign exchange component of US$36.8 million (87%). Financingwould be provided by IDA (US$27.3 million), the European Investment Bank ([EIB] US$6.5million), and EDM which would contribute US$8.3 million from internally-generatedresources. The project is exempt from taxes and duties, this exemption is part of the requiredfinancial restructuring plan of EDM set up and decided by the GOM during projectpreparation. A breakdown of project costs and the financing plan are shown in Schedule A. Amaximum of SDR 1.8 million (US$2.7 million equivalent, or 10% of the total Credit) could beused for advance procurement and retroactive financing of rehabilitation works and consultingservices.

14. Project Preparation and Implementation. The project was prepared with theassistance of consultants financed under the ongoing Power II Project (Cr.1998-MLI). Inaddition, an international expert in civil works engineering was recruited by EDM to assistwith the review of the civil engineering component of the project, and assess the technicalsoundness of the proposed solutions. The expert will continue to assist EDM during projectimplementation. EDM would implement all aspects of the proposed project; the long-terminstitutional framework component implementation would be closely supervised by MvMEH.A Project Implementation Plan was prepared by EDM and agreed upon by the Bank. Underthe Management Contract, EDM will continue to benefit from the permanent support ofmanagerial firms. Project completion is expected by December 31, 2000. Amounts andmethods of procurement, allocations of the Credit and the disbursement schedule arepresented in Schedule C- I. A timetable of key project processing events is given in ScheduleC-2.

15. Lessons Learned from Previous Bank/IDA Involvement. Two main lessons havebeen drawn from previous IDA-financed operations in Mali's power sector: (a) as a result ofthe organizational framework in which OERHN and EDM shared responsibilities for theSelingue facility, substantial financial resources have been diverted from the power sector andbasic maintenance and supervision of Mali's primary power generation assets have beenneglected; (b) EDM's management weaknesses remain, despite massive technical assistanceduring the 1980s and two performance contracts between EDM and the GOM. These twobasic problems have been addressed as of January 1995 with the implementation of theManagement Contract for EDM and the unification of the power sector through the transferof Selingue assets to EDM.

16. Rationale for Bank/IDA Involvement. IDA's involvement is necessary for thefollowing reasons: (a) IDA has played, and will have to continue to play, the role of a catalystvis-a-vis the other donors in the power sector; this was illustrated in particular during thediscussions/negotiations which led to the 1993 restructuring decisions discussed above and

5

which, in turn, encouraged several donors to extend financing to the sector, (b) the technicalinspections of Selingue which led to the proposed operation were carried out in the context ofthe ongoing IDA-supported Power II Project (Cr. 1998-MLI), and (c) the results of reformswhich are being implemented (Management Contract and sector unification) would beseriously compromised if the main generation capacity of the country becomes totally or evenpartially unavailable. The proposed project is consistent with the Mali CountryAssistance Strategy (CAS) discussed by the Board in January 1995, which includes therehabilitation and maintenance of basic infrastructures.

17. Environmental Aspects. The project will have a positive effect on the environmentsince it aims at: (a) repairing and rehabilitating a deteriorating structure and strengthening thesecurity of the dam; and (b) contributing to maintaining Mali's hydroelectric energy capacity,thus reducing the amount of electricity generated by thermal units. The project is rated B. Anassessment of the environmental impact of the proposed rehabilitation works was carried out.The possible negative impacts are minor; they relate to: (a) possible lubricant spills when theelectromechanical units are removed from the powerhouse for rehabilitation; and (b) the riskof creating stagnant pools in the quarries which would provide materials for civil works.Mitigation measures were prepared and are part of the contractors' obligations.

18. In addition, an in-depth study of the environmental impact of the dam since itsconstruction (financed by Arab Donors, KfW, AfDB, CFD and CIDA) was undertaken. Itrevealed a noticeable positive impact, in particular on the development of agriculture andfishing in surrounding areas. The study also showed that the construction of the S6lingue damhas had negative effects and that, despite the mitigation plan which was prepared andimplemented in the early 1980s, there are still some problems which need to be addressed.These include: (i) income losses that have not been fully compensated; and (ii) increasedincidence of some endemic diseases (malaria and schistosomiasis). The cost of addressingthese problems today is roughly estimated at US$2.0 million. As a conclusion, the studyproposed an additional action plan to mitigate these remaining problems. The GOM andEDM, in consultation with all concerned entities, and with Bank assistance, will finalize thisaction plan and implement it from the beginning of 1997.

19. Participatory Approach. As mentioned above, the assessment of the environmentalimpact of the dam which was carried out during project preparation relied on a broadconsultation of the population living in the Selingue area. The additional mitigation plan(para. 18) will be finalized and implemented with the same method of large consultation. Theproject also includes a component which would allow the GOM to organize consultationsamong all stakeholders for preparing a new institutional framework to promote a rapid andsustainable development of the sector.

20. Project Objective Category. The project's main objective, which is to rehabilitatethe basic power generation infrastructure, falls into the Environmentally SustainableDevelopment Category.

6

21. Actions agreed during negotiations. During negotiations, agreement was reachedwith the GOM on the following: (a) preparation by the GOM and discussion with IDA of arevised institutional and regulatory framework for the power sector, to be implemented as of1999; (b) annual pro-forma revaluation of fixed assets and corresponding adjustments ininsurance coverage, (c) annual audit of EDM financial statements as well as project accounts,(d) actual implementation of EDM financial restructuring plan decided by the GOM inOctober 1995, and annual review with IDA of EDM financial performance, tariff levels, andadjustments needed to achieve financially satisfactory results, (e) annual inspection of the damto be carried out by qualified and independent experts and reports to be submitted to IDA; (f)Project Implementation Plan (PIP) and project performance indicators; (g) employment byEDM, under a management contract, of an independent professional firm to manage itsoperations, throughout project implementation, (h) borrower's submission to IDA of quarterlyprogress reports on project implementation, consultants' reports or studies financed under theproposed credit, and a project implementation completion report within six months of theproject completion, (i) mid-term review by June 1998; (j) implementation of the environmentalmitigation measures for rehabilitation works; (k) preparation and implementation, beginning inearly 1997, of a mitigation plan to address the negative environmental effects of the dam.Signing of subsidiary financing agreement between the GOM and EDM, will be a condition ofcredit effectiveness.

Project Benefits

Repairs of the Snlingue facilities

22. Electricity supply is of vital importance to any country's economy. The S6linguepower plant provides 70% of the electricity supplied by EDM. If this production ceases or issubstantially reduced, all economic activities will be dramatically affected, which mayultimately lead to a major crisis. The proposed project would prevent such a situation andpermit EDM, at a limited cost, to preserve assets, the value of which is estimated at more thanUS$300 million. It would also avoid placing the security of people living downstream at risk.If the dam is not repaired, it will be necessary to abandon it and drain off the reservoir.Therefore, the electricity supply would have to come from alternative sources. These couldbe: (a) a full thermal substitution (estimated cost US$185 million); or (b) a temporary thermalsubstitution from 1996 to 2000 which would then be replaced by energy purchased from theManantali dam (estimated cost US$115 million). These alternatives are three to four timesmore expensive than the proposed Selingue rehabilitation project. The proposed project isthus the least cost option. Detailed assumptions used for this calculation are provided inSchedule B. 1.

23. If the dam is not repaired, the cost of the electricity which would not be produced isestimated at US$22 million per year. On this basis alone, the Economic Rate of Return (ERR)on the Selingue rehabilitation project, including the 3 MW of thermal back up, is estimated at66%. This high return is not surprising since this is primarily a rehabilitation and not aninvestment project. The Net Present Value (NPV) of the project is US$126.3 million.

7

24. The best timing for undertaking the works was carefully assessed, except for civilworks repairs which are urgently needed for security reasons. The proposed timing for theoverhaul of the electromechanical parts is from 1996 to 1999 (one unit each year). Thecomparison was made with a scenario in which these works are postponed until after thecompletion of the Manantali project, in the year 2000. This comparison yields an EqualizingDiscount Rate (EDR) of 39%. If the delay is only one year, the EDR would be 21%.

Addition of the thermal units

25. EDM plans to purchase 9 MW of thermal capacity of which 3 MW are necessary asback-up during the rehabilitation of the Selingue generating units. If the remaining 6 MWwere not installed, important outages would occur each year during the peak season until thecompletion of the Manantali power plant, and EDM will not be able to provide for anyadditional demand. The only alternative for EDM customers would be to get electricity fromsmall individual diesel generation units at an estimated cost of US$0.60/kWh. Based on thesecosts, the ERR for the additional 6 MW thermal units is about 65%.

Repairs of the transmissionl tnetwork protections

26. Another component of the project consists of rehabilitating of the electricalprotections of the transmission network (cost US$3.1 million). These facilities, which are thecore of the electric system, are in poor condition and are responsible for low quality service.There is no other alternative than to proceed with their rehabilitation.

27. Project Sustainability. The sustainability of the project will mainly depend on EDMability to better manage and maintain the S6lingue facilities. Training was one of the mainissues to be addressed when the Management Contract was being discussed in 1994. As aresult, a comprehensive program for EDM staff was prepared by the Management Consortiumand is currently being implemented. In addition, a specific training component has beenincluded as part of the proposed project to enhance staff capacity to properly operate thegeneration facilities, particularly at S6lingue. During the preparation of the project, the GOMalso made decisions for implementing a financial restructuring plan for EDM. This will secureEDM future ability to finance the needed spare parts and services for proper operation andmaintenance.

28. Project Risks and Sensitivity Analyses. Given the tight demand/supply balance overthe next four years, there is a risk of important load shedding during the periods of reducedsupply from Selingue. To avoid this risk, the rehabilitation works schedule (one out of fourunits overhauled each year) must be strictly respected This is likely to be the case as: (a)EDM's experience in project implementation has been enhanced in the context of the ongoingPower II Project, and (b) EDM's overall management capacity is expected to considerablyimprove under the five-year Management Contract. Beyond 1999, when the rehabilitationworks are completed and the Management Contract has come to an end, the sound technicaloperation, monitoring, and maintenance of the Selingue facilities will depend on thesustainability of the overall improved management capacity of EDM and on EDM's financial

8

resources. The training program and the preparation of the new institutional and regulatoryframework, which are part of the proposed project, have been designed to enable EDM tocarry out these tasks efficiently.

29. Sensitivity of the ERR to cost variations: Depending on the uncertainties on somerepairs to be undertaken, the cost of the Selingue rehabilitation works might increase fromUS$21.7 million to US$24.5 million. With this new figure, the ERR of the Selinguerehabilitation would decrease from 66% to 56%.

30. Sensitivity of the ERR to delays in the works schedule: The rehabilitation work foreach power generating unit is planned to last nine months. If the work were to take, instead,one full year, additional thermal generation would be needed and this would result in adecrease of the ERR from 66% to 61/%.

31. Recommendation. I am satisfied that the proposed credit will comply with theArticles of Agreement of the Association, and recommend that the Executive Directorsapprove it.

James D. WolfensohnPresident

Washington, D.C.March 26, 1996Attachments

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Schedule A

Summary of Project Costs EstimatesNet of taxes and duties

Local I Foreion Total

(US$ Millions Equivalent)

A. Rehabilitating Selingue Hydropower Facility

1. Dam 1.7 5.0 6.7

2. Power Plant 1.3 10.1 11.4

3. Transmission Lines 0.3 4.5 4.8

B. Maintain the Demand/Supplv Balance

1. Reinforcement of Thermal Capacity 0.8 7.3 8.1

2. Energy Efficiency Program - 0.8 0.8

C. Strengthening EDM Management Capacity 0.1 1.9 2.0

D. Long-Term Institutional Framework - 0.4 0.4

Total Baseline Costs 4.3 29.9 34.2

- Physical Contingencies 0.6 4.1 4 7

- Pnce Contingencies 0.2 1.4 1.6

Total Project Cost 5.1 35.4 40.5

- Interest During Construction 0.2 1.4 1.6

Total Required Financing 5.3 36.8 42.1

v Figures may not add up due to rounding.

Estimated Financing Plan

Local Foreign TotalUSS M illions Equivalent

IDA 0.4 26.9 27.3EDM 4.9 3.4 8.3European Investment Bank- (FIB) 6.5 6.5Total Project Cost 5 3 36.8 42.1

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Schedule B-IECONOMIC ANALYSIS

ESTIMATED RATES OF RETURN

Present Value ofFlows

Economic Analysis(US$ Millions)

Benefits- Rehabilitation of Selingue Hydropower Facilities 174.8- Addition of Thermal Capacity 38.3

Costs- Rehabilitation of Selingue Hydropower Facilities 48.5 a

- Addition of Thermal Capacity 12.7 bNet Present Value

- Rehabilitation of Selingue Hydropower Facilities 126.3- Addition of Thermal Capacity 25.6

Economic Rate of Return- Rehabilitation of Selingue Hydropower Facilities 66%- Addition of Thermal Capacity 65%

Includes: Civil works; elcctromechanical facilities repairs; Bamako-Selingue transmission line repairs; thermal back-up during repairs(3 MNW), and maintenancc costs for the Selinguc facilities (l'SS2 million per year) over the estimated economic remaining life of the dam(30 years).Includes: Investment costs, fuel cost, and cost for reinstallation of the units in isolated centers when the Manantali power plant iscommissioned.

The project will be exempted from taxes and duties (estimated at US$6.5 million). Theprojection of financial and economic flows are the same.

Main Assumptions:* Discount Rate: 12%,* I MW Diesel Units: Investment Costs: US$1,100/kW; Specific Consumption:240gr/kWh, Life Time: 30,000 hours,* Small Diesel Generation Units (3kW): Investment Cost: US$470/kW; SpecificConsumption: 700gr/kW, Life Time: 4,000 hours.

Switching Values of Critical Items:* Rehabilitation of the Selingue facilities: NPV would not become negative unless tarifflevels are reduced by 75% of their current level.

Nature of Benefits:* Avoiding the loss of a major power supply facility (70% of EDM's power capacity);* Avoiding putting the safety of downstream population at risk.

Main Beneficiaries:* Households as well as industrial electricity customers (60,000 customers).

Schedule B-2

EDM PROJECTED BALANCE SHEET AND CASH FLOWS(CFAF billion)

1995 1996 1997 1998 1999 2000

Energy Sales (GWh) 23o 248 261 282 304 325

Average Tariff (CFAF/kVh) 70 7( 70 76 76 76

Total Revenies 180 is 9 19.9 23.2 25.6 27 5

Total Expcnses 15.3 17 1 20 2 22.5 25.1 24.2

Nethincomic I 5 1.( -04 0.4 0.3 1.8

Net Internal Cash Generated b 5.6 5.2 3.4 3.0 0.9 2.1

Operating Ratio 78% 85% 91% 86% 87% 77%

Rate BaseC 39 9 59 6 74.4 75.6 83.7 87.0

Rate of Return on Rate E3ase (%) 6 7% 3.4% 2.2% 3.9% 3.6% 5.7%

Debt Service Ratio 1.6 1.8 1.1 1.2 1.2 1 3

Self-financing ratio (%) 53% 19% 27% 33% 10% 18%

Receivable (months of billing) 5 6 4.0 3.2 2.2 2.2 2.2

Current Ratio 2 8 2.2 1.5 1.1 1.1 1.2

a Afler income tax, interest, and \kTite-off of doubtful debts.b Before investment.

Two-year average net fixed assets in service.

(CFAF billion)

1995 1996 1997 1998 1999 2000

Fixed Assets 49.3 73.3 81.0 84.5 89.1 95.1

Current Assets 12.4 9.2 8.0 7.2 7.8 8.6

Total Assets 61.8 82.5 89.0 91.7 96.9 103.7

Total Equity 35.2 41.2 46.2 46.5 46.8 48.6

Customer advances 1.0 1.1 1.2 1.2 1.2 1.3

Long Term Debt (net) 21.2 36.0 36.2 37.7 42.1 46.5

Current Liabilities 4.4 4.2 5.4 6.3 6.8 7.3

Total Equity and Liabilities 61.8 82.5 89.0 91.7 96.9 103.7

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Schedule B-3

PROJECT PERFORMANCE INDICATORS

1. The following indicators would be monitored and evaluated during project execution.These indicators mainly focus on EDM ability to carry out the rehabilitation works within its strictschedule.

Objectives Indicators / Deadlines

L. Repairing and Rehabilitating theSMinguw facilities

- Civil works * Filling of the reservoir up to its nominalcapacity (348.5m) by September 1997

- Electromechanical facilities * Completion of the rehabilitation within thefollowing schedule:- Unit 4: April 1997- Unit 2: April 1998- Unit 3: April 1999- Unit 1: April 2000

* Available capacity per unit once overhauled:11.7 MW

- Selingue-Bamako transmission line * Completion of the work by July 1997

- Transmission network (electrical * Design and implement an information systemprotection system) on service quality (HV/MV electric network)

by January 1998

2. Maintaining the electricity demandlsuipply balance

- Thermal capacity * Completion of the first phase (3 MW) by April1996

* Completion of the second phase (6 MW) byApril 1997

- Energy efficiency program * Study carried out by February 1997

3. Strengthening EDMManagement * Implementation of the training program from(training) November 1997 to December 2000

4. Long-term institutionalframework * Adoption and enactment of the newinstitutional framework by December 1998

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Schedule C-1

Summary of Proposed Procurement Arrangements(USS miDions, net of taxes and duties)

Procurement Method Total Cost

ICB a NCB' Other N.B.F.

A. Civil Works 7.6 7.6(6.5) (6.5)

B. Supply and Installation 15.7 - 9 .7b 25.4(13.4) (--) (13.4)

C. Consultant Services- Studies and Supervision 2.8 - 2.8

(2.8) (2.8)- Training 1.4 - 1.4

(1.4) (1.4)

D. Goods- Specialized Goods 2.3 0.1 0.3 - 2.7

- Equipment, Misc. (2.3) (0.1) (0.3) (2.7)- 0.4 0.2 - 0.6

(0.3) (0.2) (0.5)

Total 25.6 0.5 4.7 9.7 40.5(22.2) (0.4) (4.7) (--) (27.3)

International Competitive Bidding and National Competitive Biddingb Financed by EDM and EIB* Figures in parenthesis denote IDA financing; N.B.F. denotes non-Bank financing* Figures may not add up due to rounding.

Allocation of IDA Credit

Category USS millions % of expendituresto be financed by IDA

1. Civil Works 5 4 85%2. Equipment and Installation 11.1 85%3. Equipment

- Under Component A and C 1.9 100% of foreign expend.90% of local expend.

- Under Component B and D 0.9 100% of foreign expend90% of local expend.

4. Consultant Services- tJnder Component A and C 3.4 100%- Under Component B and D 0.3 100%

Unallocated 4.3Total 27.3 l

Estimated IDA Credit Disbursements

IDA FY 1996 1997 1998 1999 2000 2001(USS millions).Annual 4.2 9.3 7.2 3.6 2.3 0.7Cumulative 4.2 13.5 20.7 24.3 26.6 27.3

14

Schedule C-2

TIMETABLE OF KEY PROJECT PROCESSING EVENTS

(a) Time taken to prepare the project 24 months

(b) Project prepared by EDM, MMEH, with IDA assistance

(c) First IDA mission December 1993

(d) Appraisal mission departure' May 1995

(e) Negotiations March 1996

(f) Planned date of effectiveness June 1996

(g) List of relevant PCRs/PPARs PCR for Credit 1282-MILI

' The appraisal mission comprised: Nadjib Sefta (Task Manager, Senior Energy Specialist, AF5IE), Philippe Castanet (PowerEngineer, AF5E), Magaye Gave (Financial Analyst, Consultant) and Jean David Mechali (Hydropower Engineer, Consultant).

Last ARlP'Snipervisiiin Rating

Original amount in US$ D)itVerclice

Project Loan or Fiscal millions hetweeie actual l)ev. lieipicimp lnt.

ID) Credit No. Year I orrower Il, p.se ID)A (Ca Jcl- lindis- anid expected Objectives Progress

latiomis lIurscd dishiirscmi .nts'

No ol Closed Credi. 41

Cred its

N I.-P'A-1718 C19060 1988 G,vt ofMali Ollicc du Nigei 11 39 X() 9.58 3.99 S S

NIl.-PA-1723 C19980 1989 Govt ofNi li Power Il 33 10 17.52 15.40 S S

ML-PA-1725 C22350 1991 Govt ofMali Agric. Services 24.40 11.99 9.72 lIS S ( itJ

NIL-PA-1726 C20540 1989 Govt ofMali Edu. Sector Consolidaliont 26 0(1 2(06 1.61 1.2(J S S

ML-PA-1727 C22170) 1991 Govt of Mali llcalli/Pop/Ruilal Watcr 26 60 1337 6.40 IS S c

Ml.-PA-1730 C26170 1994 Govt of Mali I'raiisporl Sector 6500 67.21 826 IIS IIS

ML-PA-1731 C21XX0 1991 GovtofMali SALI' 70.0(1 0.01 0.62 S S

Ml,-PA-1743 C19380 1988 Govt ofMali l'.E. Inst. )cvelopmeint 9.50 062 -0.33 S S

NtL-PA-1744 C21630 1990 Govtof Nali Agrie. S.'CAI. 53.00 14.41 8.09 S S C

Nll-l'A-1745 023700 1992 Govt of Nlali Natural lcsouire Nlgt. 20.40 17.40 9 23 S S O

ML-PA-1747 C24320 1993 Govt of Mali 1'rivate Sector Assistance 12.00 8.48 1.2S S S tit 0 0

NIL-l'A-1751 C25570 1994 Govt of Mali Ag. Rescarch 2(0.00 16.66 2 45 S -IIS o

NML-P'A-1752 C23710 1992 Govt ofMali Public Works& Cal) litiildg 20.0(0 0.52 -8' 9- IS IIS > ° Wm -.

ML-P'A-1752 C23711 1995 Govt ofMali Public Works& Cap. Iltildg. 10.00 7.11 281 IIS IIS (A -

ML-PA-1755 C27370 1995 Govt ofMali Agro-l'rocessing&'liadinig 6.n() 5.76 0.48 IIS IIS Ca,

NML-PA-1756 023900 1992 Govt ofMali Mining Capacity 6.00 5.36 4.12 U U -

NIL-PA-35662 C26730 1995 GovtofMaili EducationSOLCAL 50.m(1 20.37 1IX'49 S S

l'Ol'AL 191.70 2.06 217.99 83 29 I

Active Loans Closed Lmans Total

Total disbursed (113RD and IDA) 298.35 529.95 828.30

Of which repaid 01(( 32.71 32.71

'I'otal now hield b\ IllKI) and IDA 489.64 457.32 946.96

Armount sold 0.0(\ 0.00 0.0()

Of which repaid (.00 0(o0 0.00

lotal undisbunrsd 217.99 0.00 217 99

a. Inteicded disbursements to date miinus Actual disbursements to date as projeted at appraisal.I Thesc two credits ( Education Consolidation, and SAI. I) closed in 1995 leaving the current portfolio with 15 active credlits and bringing total closed credits to 43.

Note: .h! urscment data are updated att ilic cnd of tbie first week of the moiitl

16

Schedule D-2Mali

Statement of IFC Investments(As of fcbmarv 29, 1996)

Fiscal Years Original G;ross CommitmentsComnmitled

Obligor Tvpc of' IFC IFC Ptpmt. Totals Hleld Held Undisb.Business Loan Equity by by includ.

IFC Partici- Participantspants.

1978 Soci6te Mamadou Sada Diallo of Fr. Manufacturing 0.64 0.64

1982 Societe Industrielle de Karite du M Food and Agric. 1.84 0.45 2.29

1992 Labo. Mali Indutrial & Consumer 0.10 0.10

Servic.

1994 Grand Hotel de Flamako Hlotels & Tourisnm 1.02 1.02 1.00 0.31

1994 Societe Minesde Syama Mining& Extract. 24.93 1.41 26.34 26.34

1995 Soci6ted'Fxploitationdes Mines Mining& Extract. 35.00 4.80 25.00 64.80 39.80 25.00 20.14

Total gross commitment b.' 63.53 6.66 25.00 95.19

Less cancellations, terminations. 2.60 0.45 3.05

repayments & sales

60.93 6.21 25.00 92.14 67.14 25.00 20.45

Pending commitment

AEF-BO1,M 0.23 0.23

AEF-SOMAN 1.54 1.54

Total pending commitments 1.54 0.23 1.77

62.47 6.44 25.00 93.91

12.06 8.39 20.45

aX Investments which have been fully canceled, terminated, written-off, sold, redeemed or repaid.b. Gross commitments consist of approved and signed projects.c/ Total commitments consist of disbursed and undisbursed investments

17

Schedule E

STATUS OF BANK GROUP OPERATIONS IN MALI

Note on Portfolio Implementation Issues

1. Overall portfolio performance is satisfactory and is expected to improve further in theaftermath of the Country Portfolio Performance Review held in Bamako in November 1995.Action plans were agreed between the Bank and the Government for addressing generic as well asproject specific implementation issues. Two follow-up committees (with membership from all keyministries and Departments as well as the Resident Mission) have been set up to monitorexecution of these plans. One of these committees is under the Prime Minister's Chairmanship.

2. As of February 29, 1996, IDA had approved credits in support of 58 operations in Mali.Forty-three (43) of these operations had closed, leaving the current portfolio with 15 activecredits. Undisbursed balance in the portfolio, as of February 29, 1996, amounted to aboutUS$218 million; and no new funds had as yet been committed in FY96.

3. Out of 15 active credits in the current portfolio, there are no over-aged operations, and allcredits approved by the Board within the last 12 months have been declared effective. However,three credits have disbursement lags of 50% or more. The characteristics of these operations arenoted below:

Natural Resource Management (Cr. 2370-ML). Cumulative disbursement lag: 52%.Disbursements to date: US$4.63 million out of an approved amount of US$20.4 million.The credit became effective on February 11, 1993, about seven months after signing. Thedisbursement lag is due partly to overly optimistic projections on the start of village levelinvestments, which form the bulk of the project at the time of project appraisal. Villagelevel investments were only able to begin three years into the project instead of the twoyears projected at appraisal. Since these investments were largely local expenditures, thislag was further aggravated by the January 1994 devaluation of the CFA franc whichdoubled local currency equivalent of project funds. The start of village level activities andthe increase in the number of villages to be covered under the project, agreed after themid-term review in November 1995, should result in a significant reduction in thedisbursement lag.

Mining Capacity (Cr. 2390-ML). Cumulative disbursement lag: 62%. Disbursementsto date: US$1.13 million out of the approved amount of US$6 million. This creditbecame effective on March 22, 1993, about eight months after signing. Disbursementshave been slow due mainly to long delays on the part of the Government in finalizingcontracts concluded with consultants for the execution of two studies that are critical fordefining project activities. For this reason, the project was suspended in July 1995. Sincethen, the Government has renegotiated the contract with the consulting firms and thesuspension will be lifted as soon as these contracts are formally approved by the Council

18

of Ministers, expected some time in April 1996. Once execution of these contracts begin,disbursements should improve significantly.

Transport Sector Project (Cr. 2617-ML). Cumulative disbursement lag: 92%.Disbursements to date: US$0.84 million out of an approved amount of US$65 million.This credit became effective on April 3, 1995, about nine months after signing.Disbursements have been slow due mainly to severe procurement delays by theimplementing agency, the Direction Nationale des Travazux Publics (DNTP).Procurement difficulties encountered by DNTP and other project implementing agenciesare being addressed through Bank's assistance in strengthening the Government'sprocurement management capacity. With this assistance and a number of recentlyprocessed contracts (valued at about $25 million), disbursements are expected to pick upby June 1996, reducing the disbursement lag.

4. There are two outstanding audit reports, both for SAL I. These are in progress and thereports are expected to be transmitted to the Bank by the end of March 1996.

12 82' a 0'21' ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~The bunon0~res, colors, (ALGERIA

dernomirnatons and any j|. \other mntormotion shorl\

M A L I an this map do notimply on t e port of MAURITAIAThe World Bank Group, 1 /status of any territory, M LPOWER FACILITIES \C nyugmnotegl L

''N or fny endorsement\ / or acceptance of such,' N

-i boundaries.NGE/ ''BURKINA

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Future Existing Power Plants: g j \NIGERIA

* DIESEL RIVERS20'XRVR

HYDRO D Is errn

Z | o TOWNS .__ _ __ _

Transmission Lines: .NATIONAL CAPITAL

220 kVREGION BOUNDARIES

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60 kV \ _ INTERNATIONAL BOUNDARIES

60 kVj

30 kV TOMgOUCrou

-16 ° 250 SWe I NJDANMAC *OO ! i6-\ ~~~~~~~~~KILOMETERS /-J

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IMAG, IN&

ReportL No: P-- 67-34 MLIType: MOFP