Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD2677 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF EUR 129.6 MILLION (US$150 MILLION EQUIVALENT) TO THE REPUBLIC OF CAMEROON FOR THE RURAL ELECTRICITY ACCESS PROJECT FOR UNDERSERVED REGIONS November 20, 2018 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. CURRENCY EQUIVALENTS (Exchange Rate Effective September 30, 2018) Currency Unit = Euro (EUR) EUR 0.86352057 = US$1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AER Rural Electrification Agency (Agence pour l’Electrification Rurale) AES American Electricity Supply Corporation AFD French Development Agency (Agence Française de Développement) AfDB African Development Bank ARSEL Electricity Sector Regulation Agency (Agence de Régulation du Secteur de l’Electricité) BDEAC Central Africa States’ Development Bank (Banque de Développement des Etats de l’Afrique Centrale) BTA Low Voltage Level A (Basse Tension Niveau A) CAA Autonomous Sinking Funds (Caisse Autonome d’Amortissement) CEDAW Convention on the Elimination of All Forms of Discrimination Against Women CEMAC Central African Economic and Monetary Community (Communauté Économique et Monétaire de l'Afrique Centrale) CERC Contingent Emergency Response Component CPF Country Partnership Framework CSO Civil Society Organization DA Designated Account DFI Development Financial Institution DPDC Dibamba Power Development Corporation DSRA Debt Service Reserve Account DSO Daily Sale Outstanding DEL Directorate of Electricity (Direction de l’Electricite) EBITDA Earnings before Interest, Taxes, Depreciation, and Amortization EDC Electricity Development Corporation EIB European Investment Bank EIRR Economic Internal Rate of Return ENEO Energy of Cameroon ENPV Economic Net Present Value ESDP Energy Sector Development Project ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan EU European Union FCV Fragility, Conflict, and Violence FEICOM Special Inter-Municipal Equipment and Intervention Fund (Fonds Spécial d’Equipement Intercommunal) FIRR Financial Internal Rate of Return FM Financial Management FNPV Financial Net Present Value GBV Gender-based Violence GES Growth and Employment Strategy GHG Greenhouse Gas GNI Gross National Income GNP Gender National Policy GoC Government of Cameroon GRM Grievance Redress Mechanism GRS Grievance Redress Service HTA High Voltage Level A HTB High Voltage Level B IDA International Development Association HV High Voltage IDF Institutional Development Fund IFC International Finance Corporation IFRS International Financial Reporting Standards IPF Investment Project Financing IPP Independent Power Producer IPPF Indigenous Peoples Planning Framework IsDB Islamic Development Bank KPDC Kribi Power Development Corporation LSMS Living Standards Measurement Study LV Low Voltage M&E Monitoring and Evaluation MIGA Multilateral Investment Guarantee Agency MINADER Ministry of Agriculture and Rural Development (Ministère de l’Agriculture et du Développement Rural) MINDCAF Ministry of State Property Survey and Land Tenure (Ministère du Cadastre et des Affaires Foncières) MINEE Ministry of Water and Energy (Ministère de l’Eau et d’Energie) MINEPAT Ministry of Economy, Planning and Regional Development (Ministère de l’Economie, de la Planification et du l’Aménagement du Territoire) MINEPDED Ministry of Environment Protection of Nature and Sustainable Development (Ministère de l’Environnement, de la Protection de la Nature et du Développement Durable) MINFOF Ministry of Forestry and Wildlife (Ministère de la Forêt et de la Faune) MoU Memorandum of Understanding MV Medium Voltage NGO Nongovernmental Organization NPF New Procurement Framework NPV Net Present Value O&M Operation and Maintenance OHADA Organization for the Harmonization of Corporate Law in Africa (Organisation pour l’Harmonisation en Afrique du Droit des Affaires) PCH PiCo Hydropower Plant PDO Project Development Objective PDSE Least Cost Power Sector Expansion Development Plan (Plan de Développement du Secteur de l’Energie) PIE Project Implementing Entity PIM Project Implementation Manual PIU Project Implementation Unit PPA Project Preparation Advance PPP Public-Private Partnership PPSD Project Procurement Strategy for Development PSC Project Steering Committee PSW Private Sector Window PV Photovoltaic QCBS Quality- and Cost-Based Selection RAP Resettlement Action Plan REF Rural Energy Fund REMP Rural Electrification Master Plan RIN North Interconnected Network (Réseau Interconnecté Nord) RIS South Interconnected Network (Réseau Interconnecté Sud) RPF Resettlement Planning Framework SCD Systematic Country Diagnostic SDG Sustainable Development Goal SONATREL National Electricity Transmission Company (Société Nationale de Transport d’Electricité) SONEL National Electricity Company (Société Nationale d’Electricité) SWER Single Wire Earth Return ToR Terms of Reference VAT Value Added Tax WTP Willingness to Pay Regional Vice President: Hafez M. H. Ghanem Country Director: Elisabeth Huybens Senior Global Practice Director: Riccardo Puliti Practice Manager: Charles Joseph Cormier Task Team Leader: Alassane Agalassou The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Cameroon CM- Rural Electricity Access Project for Underserved Regions Project ID Financing Instrument Environmental Assessment Category Investment Project P163881 B-Partial Assessment Financing 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 13-Dec-2018 30-Jun-2025 Bank/IFC Collaboration No Proposed Development Objective(s) The Project Development Objective is to increase electricity access in Underserved Regions of Cameroon. Components Component Name Cost (US$, millions) Component 1: Rural electrification by grid extension 105.00 Component 2: Decentralized rural electrification 19.00 Page 1 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Component 3: Support to Households for Connections Costs 25.00 Component 4:Strengthening Institutional Capacity of the Electricity Sector and Project 16.00 Management Component 5:Contingent Emergency Response Component’ (CERC) 0.00 Organizations Borrower: -Ministry of Economy, planning and Regional Developpement Implementing Agency: Rural Electrification Agency PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 165.00 Total Financing 165.00 of which IBRD/IDA 150.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 150.00 IDA Credit 150.00 Non-World Bank Group Financing Counterpart Funding 15.00 Borrower 15.00 IDA Resources (in US$, Millions) Credit Amount Grant Amount Total Amount National PBA 150.00 0.00 150.00 Total 150.00 0.00 150.00 Page 2 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Expected Disbursements (in US$, Millions) WB Fiscal Year 2019 2020 2021 2022 2023 2024 2025 Annual 1.93 8.49 10.54 16.90 27.61 40.49 44.04 Cumulative 1.93 10.42 20.97 37.86 65.47 105.96 150.00 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Energy & Extractives Gender 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 Yes country gaps identified through SCD and CPF b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or Yes men's empowerment 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  Substantial 2. Macroeconomic  Substantial 3. Sector Strategies and Policies  Substantial 4. Technical Design of Project or Program  Moderate 5. Institutional Capacity for Implementation and Sustainability  Substantial 6. Fiduciary  High Page 3 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 7. Environment and Social  High 8. Stakeholders  Substantial 9. Other  High 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 ✔ Legal Covenants Sections and Description Project Steering Committee the Recipient shall maintain, throughout implementation of the Project, said Committee, with a composition, institutional framework, functions, and resources satisfactory to the Association for this purpose. To this end, the Recipient shall maintain, throughout implementation of the Project, said Committee, with a Page 4 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) composition, institutional framework, functions, and resources satisfactory to the Association for this purpose. The Recipient shall, through the Ministry of Water and Energy, and particularly the Directorate of Electricity, provide input to the Project Implementing Entity in relation to the technical aspects of Parts 3, 4 (c), and 4 (e) of the Project. To this end, the Recipient shall maintain, throughout implementation of the Project, said Directorate, with an institutional framework, functions, and resources, including competent personnel in adequate numbers, satisfactory to the Association for this purpose. (Schedule 2, Section I.A (2) (3) (4) of the Financing Agreement Sections and Description Safeguards The Recipient shall ensure that the Project is carried out in accordance with the provisions of the Safeguards Instruments, and, except as the Association shall otherwise agree in writing, the Recipient shall not assign, amend, abrogate, or waive, or permit to be assigned, amended, abrogated, or waived, said Instruments. (Schedule 2, Section I.D (1) of the Financing Agreement. Sections and Description All amounts withdrawn from the Credit Account under Category 3 (a) shall be used by the Recipient exclusively for the financing of Critical Goods. The Recipient further undertakes that Critical Goods will not be used for military or paramilitary purposes. If the Association determines at any time that the proceeds of the Credit so withdrawn were used to make a payment for either: (i) ineligible expenditures; or (ii) Critical Goods eventually used for military or paramilitary purposes, the Recipient shall, promptly upon notice by the Association, refund an amount equal to the amount of such payments or the costs of those Critical Goods financed out of the proceeds of the Credit. All amounts so refunded to the Association shall be subsequently cancelled by the Association. (Schedule 2, Section III. C (1) of the Financing Agreement. Sections and Description In order to withdraw funds from the Credit Account under Category 3 (a), the Recipient shall collect and furnish to the Association the following documentation, in form and substance satisfactory to the Association: (a) evidence of the purchase of Critical Goods (e.g., bills of lading or invoices), certified by the Recipient’s customs department in relation to imported Critical Goods and by the Accountant General in relation to locally purchased Critical Goods; (b) evidence of payment for said Critical Goods (e.g., payment vouchers, receipts, or retirement documents in relation to letters of credit); and (c) affidavits or letters of comfort from the Ministry of the Supreme State Audit certifying the retroactive, current, or expected use of said Critical Goods for the carrying out of Part 5 (a) of the Project, including details of Page 5 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) the use of any of said Critical Goods consumed as of the date of such affidavits or letters. (Schedule 2, Section III, C (2) (a) (b) (c) of the Financing Agreement Sections and Description The Project Implementing Entity shall have carried out independent monitoring and evaluation of the implementation of the Safeguards Instruments, and, to this end, shall appoint, in accordance with the provisions of the Procurement Regulations, not later than six (6) months after the Effective Date or prior to the award of the first contract for works under the Project, whichever is later, and maintain throughout Project implementation, a consultant with qualifications, experience, and terms of reference satisfactory to the Association for this purpose, and cause such consultant to prepare and furnish to the Recipient and the Association quarterly reports, in form and substance satisfactory to the Recipient and the Association, on the implementation of the Safeguards Instruments. (Section I, G.10) of the Project Agreement Sections and Description The Project Implementing Entity shall, not later than two (2) months after the Effective Date, enter into an agreement, in form and substance satisfactory to the Association, with ENEO, setting forth both parties’ operational responsibilities under the Project (“Collaboration Agreement”). (Section I, B.1) of the Project Agreement Conditions Type Description Disbursement No withdrawal shall be made for payments made prior to the Signature Date, except that withdrawals up to an aggregate amount not to exceed $10,000,000 may be made for payments made prior to this date but on or after February 1, 2019, for Eligible Expenditures under Category (1); Section III. B. 1(a) Type Description Disbursement No withdrawal shall be made under Category (2), unless (i) the Revolving Fund Agreement has been executed and delivered in accordance with the provisions of Part I.E.1 of the Schedule to the Project Agreement, and (ii) the Revolving Fund Operations Manual has been adopted in accordance with the provisions of in Part I.E.2 of said Schedule; Section III. B. 1(b) of Financing Agreement. Type Description Disbursement No withdrawal shall be made under Category (3), unless the Association is satisfied, and has notified the Recipient of its satisfaction, that the following conditions have been met in respect of the CER Part of the Project. (i) the Recipient has determined that an Eligible Crisis or Emergency has occurred, the Association has agreed with such determination, and notified the Recipient thereof; Page 6 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) (ii) the Recipient and / or the Project Implementing Entity has prepared and adopted the CER Implementation Plan and the CER Implementation Manual in accordance with the provisions of Section I.C.1 (a) of this Schedule and Section I.F.1 (a) of the Schedule to the Project Agreement, respectively; and (iii) the Recipient and / or the Project Implementing Entity has prepared, adopted, and disclosed any safeguards instruments required for the CER Part of the Project in accordance with the provisions of Section I.D.3 of this Schedule and Section I.G.3 of the Schedule to the Project Agreement, respectively; (iv) except that withdrawals up to an aggregate amount not to exceed the equivalent of forty percent (40%) of the amount of the Financing allocated from time to time to Category (3) of the table set forth in Part A of this Section III may be made for payments made prior to the date of notification by the Association to the Recipient of the Association’s satisfaction that the conditions set forth in subparagraphs (i), (ii), and (iii) of this paragraph (c) have been met in respect of the CER Part of the Project, but on or after the date one (1) year prior to such date, for Eligible Expenditures under Category (3). Section III. B. 1(c) of Financing Agreement. Type Description Effectiveness Project Implementation Manual The Project Implementation Manual has been adopted in accordance with the provisions of Section I.C.1 of the Schedule to the Project Agreement. Article IV 4.01 of Financing Agreement Type Description Effectiveness Subsidiary Agreement The Subsidiary Agreement has been executed on behalf of Cameroon and AER in accordance with the provisions of Section 10.01 (a) of the IDA IPF General Conditions. Page 7 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) CAMEROON CM - RURAL ELECTRICITY ACCESS PROJECT FOR UNDERSERVED REGIONS (P163881) TABLE OF CONTENTS I. STRATEGIC CONTEXT .................................................................................................... 10 A. Country Context ............................................................................................................... 10 B. Sectoral and Institutional Context ................................................................................... 12 C. Higher Level Objectives to which the Project Contributes ............................................. 19 II. PROJECT DEVELOPMENT OBJECTIVES ............................................................................ 20 A. PDO ................................................................................................................................... 20 B. Project Beneficiaries ......................................................................................................... 20 III. PROJECT DESCRIPTION.................................................................................................. 21 A. Project Components ......................................................................................................... 21 B. Project Cost and Financing ............................................................................................... 25 C. Lessons Learned and Reflected in the Project Design ..................................................... 27 IV. IMPLEMENTATION ARRANGEMENTS ............................................................................ 28 A. Institutional and Implementation Arrangements ........................................................... 28 V. KEY RISKS ..................................................................................................................... 31 A. Risk Rating Summary Table.............................................................................................. 31 A. Overall Risk Rating and Explanation of Key Risks ........................................................... 31 VI. APPRAISAL SUMMARY .................................................................................................. 34 A. Economic and Financial (if applicable) Analysis .............................................................. 34 B. Technical ........................................................................................................................... 36 C. Fiduciary ............................................................................................................................ 37 D. Procurement ..................................................................................................................... 38 E. Social (including Safeguards) ............................................................................................ 39 F. Environment (including Safeguards) ................................................................................ 40 G. Other Safeguard Policies (if applicable) .......................................................................... 42 H. World Bank Grievance Redress ....................................................................................... 42 I. Citizen Engagement/Beneficiary Feedback ...................................................................... 42 VII. RESULTS FRAMEWORK AND MONITORING .................................................................... 44 Page 8 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) ANNEX 1: DETAILED PROJECT DESCRIPTION ......................................................................... 50 ANNEX 2: IMPLEMENTATION ARRANGEMENTS .................................................................... 61 ANNEX 3: IMPLEMENTATION SUPPORT PLAN ...................................................................... 80 ANNEX 4: FINANCIAL ANALYSIS OF CAMEROON POWER SECTOR. ........................................ 83 ANNEX 5. ECONOMIC AND FINANCIAL ANALYSIS OF THE PROJECT ....................................... 91 ANNEX 6: INDICATIVE DESIGN OF THE REVOLVING FUND LENDING TERMS......................... 101 Page 9 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) I. STRATEGIC CONTEXT A. Country Context 1. Cameroon has vast natural resources, including oil, gas, minerals, agricultural land, and forests with remarkable biodiversity, which provide a potential basis for development. Cameroon is a medium-size (475,650 km2) country in Central Africa with a population of about 23.3 million in 2015, growing at around 2.5 percent per year. In 2016, Cameroon’s Gross National Income (GNI) per capita stood at US$1,357, making it a lower-middle-income country. Economic growth averaged 3.3 percent per year in the 2000s, but the 2009 global financial crisis led to a slump due to weaker demand for Cameroon’s non-oil exports. While economic growth picked up in 2014–2015 with a growth rate of 6 percent, the economy slowed down in 2016, when growth was estimated at 4.5 percent and again in 2017, when it reached 3.7 percent. A decline in oil production, lower international commodity prices, and the contraction in rubber and coffee production has reduced growth, while improved energy supply, continued implementation of a three-year Emergency Plan for the Economic Growth Acceleration (PLANUT) and increased public works related to the preparation for the 2019 African Cup of Nations is spurring the Gross Domestic Product (GDP) growth. 2. Cameroon remains characterized by weak social indicators and high levels of poverty, particularly in the northern regions, where 56 percent of the poor live. Poverty has declined only marginally since 2001, from 40.2 percent to 37.5 percent in 2014, and is increasingly concentrated in Cameroon’s northern regions, where it worsened in the same period. Cameroon was ranked 153 out of 187 on the 2015 Human Development Index, with some indicators, including life expectancy, declining over the last 10 years, and infant and maternal mortality rates still exceedingly high. Moreover, outbreaks of violence in Cameroon’s North and Far-North Regions and a secessionist movement in English-speaking areas are inhibiting economic activity, and increased security spending is straining public finances. 3. Economic disparities between rural and urban areas, as well as between the North and the South, have grown considerably. The pattern of consumption growth confirms regional inequalities in Cameroon. Five of Cameroon’s regions (East, Far-North, North, North-West, and Adamawa) suffer from chronic fragility. Of these, three out of the four northern regions (Far-North, North, and Adamawa) and the East region are characterized by fragility, conflict, and violence (FCV), and as such, they are subject to multiple poverty traps, including low agriculture productivity, increasing vulnerability to climate change, poor infrastructure, and limited access to health education and electricity services. The East region has been affected by the instability of neighboring Central African Republic. Poverty and inequality levels have steadily increased over time in the northern regions compared with the rest of the country where they have declined. The presence of Boko Haram at Cameroon’s borders with Chad to the North and Nigeria to the West has resulted in high levels of insecurity and violence involving 2,276 fatalities in 2014–2015, the loss of livestock, and in risks associated with normal economic activities such as farming. The Far-North region has particularly suffered from Boko Haram infiltration and violence, which has caused displacement and severe social and economic disruption. Therefore, the North and East Regions are facing a humanitarian and economic challenge. Insecurity has also started to take a toll on the economic activity and has led to a deterioration in the humanitarian situation, as bilateral trade with Nigeria and price stability have been seriously affected. 4. Cameroon’s sovereign debt situation has deteriorated due to the funding of major infrastructure projects concomitant with lower oil revenues. High levels of public investment have substantially increased the share of non-concessional debt, and debt-service payments are intensifying fiscal pressures. Public debt levels rose sharply from 21.5 percent in 2014 to 33.7 percent at end-2017, and a recent World Bank- Page 10 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) International Monetary Fund (IMF) assessment concluded that Cameroon is at high risk of debt distress. The rapid deterioration in fiscal and external balances, and the need to restore macro stability in the region and confidence in the common currency, requires Cameroon to implement adjustment measures alongside its Central African Economic and Monetary Community (Communauté Economique et Monétaire de l’Afrique Centrale, CEMAC) partners. 5. Economic policies will require a more stringent focus on resolving several sectoral bottlenecks, including in energy, to allow broader and more efficient exploitation of the country’s resource potential. Cameroon’s main challenge over the coming years will be to significantly accelerate economic growth and scale up investments while implementing policies that will ensure that the benefits of growth are shared. This will require significant improvements in the business climate, important investments in infrastructure, better governance, and more efficient public spending, as well as fiscal policies that specifically target the needs of the poor. The 2016 Enterprise Survey stated that access to reliable and affordable electricity was a major constraint to doing business, and to date only 50 percent of Cameroonians have access to electricity, with important disparities between urban and rural access. 6. The country has adopted ambitious development goals as laid out in the Growth and Employment Strategy (GES), which establishes the framework for the first implementation phase (2010–2020) of “Vision 2035”. Vision 2035 sees Cameroon becoming a middle-income, industrialized country with poverty levels below 10 percent by 2035. The strategy emphasizes the need for agricultural diversification, increased productivity, and large-scale infrastructure investment projects. The priority areas identified in the strategy are (a) development of infrastructure in energy, telecoms, and transport; (b) development of the rural and mining sectors; (c) improvement in human resources through health, education, and training; (d) greater regional integration and export diversification; and (e) deepening and strengthening of the financial sector. Because of its risk of debt distress, Cameroon will need to increasingly attract commercial capital in infrastructure, which will require focusing on improving the business climate. 7. Cameroon has adopted in 2014 the Gender National Policy (GNP), for gender equality and empowerment. Cameroon has signed and ratified several commitments at the international and regional levels to ensure gender equality and foster women empowerment, such as the Beijing Declaration, the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW), and its Additional Protocols. Additionally, to reduce gender gaps and advance equitable development, Cameroon has recently adopted the GNP, a reference document for the Government’s action toward the promotion of gender equality. The GNP aims at (a) promoting equal access to education, training, and information; (b) improving women’s access to health services; (c) promoting equal opportunities in economic and employment sectors; (d) enhancing women’s participation and representation in public life and decision-making spaces; and (e) strengthening the institutional framework for gender promotion. Page 11 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) B. Sectoral and Institutional Context 8. Access to electricity in Cameroon is about 50 percent; however, access in rural areas, especially in underserved regions, is limited. While the electricity coverage rate1 in the country is 74 percent, the electricity access rate2 is about 50 percent, which is relatively low compared to the country’s per capita income and indicates that a significant portion of the population is not connected despite being in proximity of the grid. The average coverage rate also masks wide disparities between the underserved regions (Far- North, North, Adamawa) and the rest of the country. The coverage rate is close to 100 percent for the Littoral region, 92 percent for the Center region, 82 percent for the South region, 79 percent for North-West region, and 80 percent for South-West region. However, it remains low for other regions: 46 percent for Far-North and North regions and 52 percent for Adamawa (see Figure 1: Electricity Coverage Rate in 2015 figure 1). Overall the coverage rate in underserved areas is 47 percent versus 88 percent in the rest of the country. At the end of December 2017, Energy of Cameroon (ENEO) had 1.2 million total connections, and about 65 percent of energy consumption originates from the two largest cities of the country (Douala and Yaoundé). 9. In light of the low access rate in the underserved Figure 2: REMP Access Rate 2016–2035 regions, the Government of Cameroon (GoC) adopted the Rural Electrification Master Plan (REMP) 2016–2035 in 2017, paving the way for scaling up access to electricity in rural areas. REMP, developed through a least cost approach and geo-spatial planning, aims to balance electricity access between the various regions to reduce the access gap. REMP’s targets are to achieve an access rate of at least 85 percent by 2020, increase the access rate of the underserved regions from 47 percent to 70 percent by 2020, and provide nearly universal access to electricity for all Cameroonians by 2035. Priority is given in the first phase to (a) areas with low access rates; (b) localities with at least 500 inhabitants by 2017; and (c) localities according to the administrative status. REMP will focus on underserved regions with the lowest access rates (Far-North, North, Adamawa, and North-West, and East) during the first five years of its rollout, which will rebalance access rates across the country (see figure 2) and will help reduce regional inequalities. 10. According to REMP, 80 percent of the non-electrified localities are located less than 20 km from the grid. By implementing REMP, the national access rate is expected to increase to 98 percent by 2030 (by connecting 1 million households to the grid) falling just short of the Sustainable Development Goal (SDG) target of universal access by 2030. Over 80 percent of access would be done by grid extension (at least 250 1 Electricity coverage rate is the number of people living in electrified villages / total number of people. 2 Electricity access rate: number of households with connections/ number total of households Page 12 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 000 new households every five years during a 20 year-period) and 20 percent by mini-grids/off-grids (at least 20,000 households for the first five years of the rollout of REMP). All the localities with more than 150 inhabitants will be electrified by grid extension by 2035. To achieve this objective over the first five years, an investment of approximately US$400 million is needed, of which US$250 million would be by grid extension (including approximately 75 percent of investment to be done in the Far-North, North, and Adamawa). The overall investment amount needed to achieve near universal electrification in Cameroon is approximately US$1 billion over 20 years, with an additional US$100 million for environmental and social impacts aspects. 11. Implementation of REMP for the first five years in underserved regions will also require an additional generation capacity notably in the North Interconnected Network (RIN) as well as strengthening the transmission and distribution networks. The implementation of REMP is Figure 3. Additional Demand and Energy Consumption expected to increase energy consumption Additional demand 2,000 Additional energy in rural areas from 230 GWh to 1,200 GWh consumption 400 between 2020 and 2035, representing an additional load of 53 MW in 2020 and 300 approximately 300 MW in 2035. However, GWh MW 200 the available installed capacity in the underserved regions mainly in the RIN and 100 the projected additional capacity, 0 0 especially the Beni Warak hydro power 2,020 2,025 2,030 2,035 2,020 2,025 RIE 2,030 2,035 RIE OUEST plant (72 MW) will be insufficient by 2020– OUEST RIN RIN Scénario Haut/bas 2021 to meet the projected demand. Therefore, additional capacity in the North Interconnected network (RIN) is needed. The interconnection of the South Interconnected Network (RIS), where there will be excess capacity because of the ongoing development of hydropower in the Sanaga River Basin, with the RIN is the proposed solution to meet the projected demand. The GoC has asked the World Bank to support a feasibility study and lead the development partner community toward financial closure of a proposed RIS-RIN interconnection project. The feasibility study will be funded by the ongoing Electricity Transmission and Reform Project (P152755) implemented by the National Electricity Transmission Company (Société Nationale de Transport d’Electricité, SONATREL). This interconnection will also enhance the feasibility of Cameroon-Chad interconnection and pave the way for integration with Nigeria. The estimated cost for this interconnection in double circuits 225 kV is approximately US$250 million. The World Bank is planning to provide support to finance the RIS-RIN interconnection transmission line as a regional project. 12. Cameroon’s electrical system is the largest in the CEMAC region with an installed generation capacity of 1,332 MW. ENEO’s installed electricity generation capacity represent 1,028 MW, independent power producers (IPPs) have 304 MW3 installed (18.3 percent). The peak demand was about 1,145 MW in 2017. Hydropower (732.2 MW) represents about 55 percent of the total installed capacity concentrated in three large hydropower plants—Song Loulou (384 MW), Edéa (267 MW), and Lagdo (72 MW). In 2016, total power generation reached 6,500 GWh fed into three grid systems (East Interconnected Grid, RIN, and RIS), and power energy needs range between 5,700 GWh and 6,300 GWh. As generation capacity is further developed, Cameroon is expected to become a sub-regional energy exporter—within CEMAC and through Nigeria—while at the same time scaling up its domestic supply. With the coming on stream of Nachtigal and the interconnection of RIS and RIN grid, access in the northern regions will be fueled by an affordable energy 3 Kribi Power Development Corporation (KPDC) (216 MW); Dibamba Power Development Corporation (DPDC) (88 MW). Page 13 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) mix. 13. Financial viability is key for the energy sector and the World Bank Group’s 20 -year engagement is helping reduce costs to reach that target. Cameroon’s hydropower development potential is estimated at over 12 GW across the country with half of this potential concentrated in the Sanaga River Basin. Less than 1 GW of this potential has been developed. The commissioning of new hydropower projects such as Nacthigal and Memve’lé4—which together will represent roughly 40 percent of Cameroon’s generation capacity—will, in addition to adding significant clean energy generating capacity, allow a continued downward trajectory in production costs. This strategy has already seen some success. Following the commissioning of the Lom Pangar Hydropower Project (P114077), the estimated average annual tariff compensation by the Government is being reduced from US$25 million for 2017 to US$16 million for 2018–2020. Box 1 highlights the World Bank Group’s ongoing engagement in addition to this project. Box 1: Successful long-term parternership in the energy sector with the World Bank Group The World Bank Group has been a long-term, strategic partner of Cameroon’s energy sector, with a strong portfolio of projects and consistent support to the Government’s reform agenda. Over the past few years, the World Bank Group has financed the following activities: (a) the Energy Sector Development Project (ESDP) (P104456), which provided assistance to update the sector framework and supported rural electrification; (b) the Lom Pangar Hydropower Project (P114077), which supports a regulating dam to reduce seasonal water variability in the Sanaga Basin; (c) the Electricity Transmission and Reform Project (P152755), which helps improve the capacity, efficiency, and reliability of the national transmission network by financing investments in transmission and supporting the operationalization of SONATREL, expected by end of 2018; and (d) the Hydropower Development on the Sanaga River Basin Technical Assistance Project (P157733), which aims at sharing technical and regulatory knowledge (for example, on hydrology risks, dam safety, cascade investment optimization, and competitively bid concessions). In addition, the Development Policy Financing program supports the Government’s efforts to ensure the financial sustainability of all actors along the value chain of the sector and, therefore, enhance private sector confidence. The World Bank Group has also been active in supporting private sector-led generation and distribution activities in Cameroon. Specifically, IBRD, Multilateral Investment Guarantee Agency (MIGA), and International Finance Corporation (IFC) have provided guarantees, political risk insurance, and syndicated loans, respectively, for the Kribi Gas Power Project (P110077), a 216 MW gas-fired plant in Kribi under a Build-Own-Operate-Transfer contract. IFC supported the privatization of the distribution company AES SONEL by providing advisory services and arranging a EUR 250 million syndicated loan. MIGA also provided guarantees to Actis against key risks covering project agreements relating to their investment in AES SONEL. In addition, IFC and MIGA provided financing and guarantees to the Dibamba Project, an 88 MW heavy fuel oil plant, which was commissioned in 2009. Finally the World Bank Group has been instrumental in securing private finance for the Nachtigal Hydropower Project (P157734), which is one of the very few public-private partnerships (PPPs) in hydropower in Sub-Saharan Africa and a good demonstration of the principles of maximizing finance for development. 14. The Least Cost Power Sector Expansion Development Plan (Plan de Développement du Secteur de l’Electricité) (PDSE) 2015–2030 aims to bridge the gap between long-term supply/demand deficit and access expansion. To address the growing gap in the long term between installed generation capacity of 1,605.2 MW in 2017 and peak demand estimated at over 1,800 MW in 2020 and growing at 7.5 percent per year, the GoC adopted the PDSE (developed with IDA assistance), which aims to ensure long-term energy security. The PDSE forecasts that by 2035, peak demand will quadruple and will range from 3,900 MW to 5,500 MW depending on the growth scenario (median or high). Electricity consumption is expected to range from 24,400 GWh (median) to 33,400 GWh (high). The PDSE will be updated to include the GoC’s new 4 Memve’lé is a 211 MW hydropower plant, publicly financed, commissioned in 2018. Page 14 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) industrial strategy that aims to promote and develop small- and medium-size industries under this project. 15. On the governance front, Cameroon implemented successive policy and structural reforms in 1998 and 2011 aimed at addressing pressing issues in the electricity sector and boosting investment in generation capacity, as well as the distribution and transmission systems. The GoC enacted the Electricity Law in 1998,5 which established the Electricity Sector Regulation Agency (Agence de Regulation du Secteur de l’Electricité, ARSEL) as the sector’s regulatory agency, with advisory functions and the Rural Electrification Agency (Agence pour l’Electrification Rurale, AER) as the sector’s rural electrification agency. In 2001, the GoC privatized SONEL, the state-owned, vertically integrated power utility, through the sale of a 56 percent equity stake and the award of a 20-year concession to the American Electricity Supply Corporation (AES), thus creating AES-SONEL. AES-SONEL was granted a monopoly over transmission and distribution and the right to own up to 1,000 MW of generation capacity.6 Finally, the GoC enacted the 2011 New Electricity Law7 which introduced key changes: (a) the transfer of the transmission network management from ENEO to a newly created state-owned entity SONATREL; (b) changes to water storage activities, including the transfer of the water storage concession of the Sanaga Basin reservoirs to the Electricity Development Corporation (EDC); and (c) change in tariff regime and regulation with (i) low voltage (LV) and medium voltage (MV) customers’ tariff regime changed from a price cap to a revenue cap8 and (ii) unregulated and subsidized tariff for high voltage (HV) consumers. 16. Following these reforms, Cameroon’s current electricity sector institutions include the following public and private entities: the Ministry of Water and Energy (Ministère de l’Eau et d’Energie, MINEE), which is responsible for power policy definition and implementation; the EDC,9 a state-owned company created by Decree with a specific mandate to, among others, develop, manage, and operate hydroelectric assets; SONATREL, as the electricity transmission system operator; ARSEL, as the electricity sector’s regulator; AER,10 a public institution which promotes and develops rural electrification projects across the country with a Rural Energy Fund (REF) to finance rural energy projects; and ENEO, as a private company that operates the national distribution network and some hydro generation plants under a 20-year concession contract.11 ENEO operates the Southern Interconnected Grid, the Northern Interconnected Grid, and the East Interconnected Grid. There are also IPPs, KPDC and DPDC, which are thermal power production plants fueled by natural gas and heavy fuel oil produced by Société Nationale des Hydrocarbures a public company. Figure 3 shows the sector’s institutional setup. 17. With regard to concession, on June 13, 2018, the GoC issued a letter to ENEO notifying it of its intention to extend the generation and distribution concession for 10 years until 2031 and confirming its off-taker role under the Nachtigal Project.12 Negotiations with the private concessionaire are expected to 5 Law no. 98-22, dated December 24, 1998, governing the electricity sector. 6 In 2014, AES sold its stake in AES SONEL to Actis and the company was renamed ENEO. 7 Law no. 2011/022, dated December 14, 2011. 8 Revenue cap regulation is a system for setting the prices charged by regulated monopolies by limiting the total revenue in a given period. Revenue cap regulation is a form of incentive regulation, using rewards and penalties to induce the utility company to achieve desired goals, affording the operator some discretion in how to achieve these goals. A revenue cap is similar to a price cap, except that the constraint is placed on total revenue rather than a particular price or basket of prices. For Cameroon, the choice of a revenue cap rather than a price cap denoted that ENEO does not face any quantity risk. 9 Decree no. 2006/406, dated November 2006. 10 Decree 99/193, dated September 8, 1999. 11 The contract with ENEO is set to expire in 2021; the GoC has offered to extend, by 10 years, the concession in the same perimeter. 12 Both ENEO and Actis confirmed, in separate response letters to the Government, dated June 14, 2018, their willingness and intention to seek an agreement to the new amendment/extension of the concession in the coming months. Page 15 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) begin shortly with regard to this extension, with the expectation that an amendment between the GoC and ENEO will be signed in the coming months. The GoC is keen to ensure that incentives are in place to improve the operational performance of the utility with regard to reducing distribution losses and enforcing minimum quality of service criteria. In addition, the GoC’s expectation is that SONATREL will take over the transmission assets from ENEO on January 1, 2019, allowing time for negotiations, which is mandated by the 2015 amendment #2 to the concession agreement, where a number of Prior Conditions must be fulfilled before termination of the transmission concession. Figure 4. Sector Institutional Setup 18. Considerable results have been achieved through the abovementioned sector reforms: (a) the creation of a regulator and the AER; (b) franchising of the historical utility to a private operator; (c) the opening of the sector to IPPs and integrating new generation capacity; (d) unbundling of the transmission and distribution segments by transferring the transmission network from the private utility to a separate state-owned entity for private sector participation; and (e) an increase of investments in distribution. 19. Despite these results, key electricity challenges continue to plague the sector: (a) financial sustainability of the sector; (b) insufficient investments in the generation, transmission, and distribution Page 16 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) networks; and (c) poor operational performance of ENEO. These challenges are discussed in the following paragraphs: (a) Cameroon’s public electricity tariffs are an average of US$0.14 per kWh (CFAF 82 Figure 5. Tariff Level per kWh) - higher than the regional average LV + MV tariff trends 2001 - 2014 average for countries with hydro-based Source ENEO power systems. Since 2012, tariffs for average price of Kwh consumers have not been adjusted for MV+LV Fcfa/kwh 81.36 74.88 social and political reasons, putting the 57.14 52.49 financial sustainability of the sector at risk. The GoC is addressing this challenge by subsidizing the power sector. The GoC pays ENEO for the difference between 2001 - 2002 2003 - 2007 2008 - 2011 2012 - 2016 the actual costs and revenues. Over time, with the introduction of low-cost hydropower plants such as Nachtigal and the reduction of losses in the grid, the cost of service in Cameroon is expected to decrease. The power sector and ENEO’s profitability is driven by the amount of the yearly GoC compensation owed to ENEO instead of tariff increases. This compensation amount is narrowly linked and highly sensitive to (i) ENEO’s cost of equity; (ii) its regulated asset base; and (iii) its distribution efficiency (losses). During the projected period (2018–2027), ENEO will have a steady growing net income (see Annex 4: Financial Analysis of Cameroon Power Sector). The World Bank-supported First Fiscal Consolidation and Inclusive Growth DPO1 (P163657) (closed) and the second Fiscal Consolidation and Inclusive Growth DPO2 (P166694), under preparation, aim at resolving this critical issue through prior actions and triggers to clear arrears owed by the GoC to ENEO and implement a sustainable process to ensure funding and timely payment of any compensatory subsidies going forward. (b) Poor operational performance of ENEO, including a high level of technical and Figure 6. Transmission and Distribution Efficiency commercial losses (approximately 30 percent of energy generated) need to be ENEO-T&D Efficiency addressed. While ENEO has made some progress, including meeting its targets of 1 million connections in 2017 and reducing 70.60% 70.39% the number of incidents and outages on the network, a number of critical issues need to addressed such as (i) network development not keeping up with urban growth; (ii) low investments in distribution; and (iii) poor 2017 2016 operational performance associated with significant quantities of unserved energy reaching 50 GWh per year and a SAIDI13 of 105.1 hours. 13SAIDI: System Average Interruption Duration Index: Hours of power outages that are linked to malfunctions in the distribution system. Page 17 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) (c) Cameroon’s transmission network requires a major upgrade and RIS-RIN interconnection to increase access. The PDSE estimates that approximately US$1.9 billion is required over the next decade for investments in transmission including the interconnection line between the South and North networks. So far, the Electricity Transmission and Reform Project (P152755) is contributing US$285 million equivalent to the transmission investments, as part of a larger transmission investment program supported by several other financiers,14 and is meant to pave the way for further private sector investment as well. Increased access requires continued investments in transmission, in the distribution network/substations, and in last mile connections. 20. The willingness to pay (WTP) in underserved regions is compatible in general with applied tariffs and the level of electrified customer’s consumption. In case of electrification, the expenses avoided by households are considered as the minimum that they can afford for electricity and the WTP reflects the amount that households offer to pay. The WTP amount may be lesser or higher than the expenses avoided. If it is higher, the question arises whether the households have the capacity to pay the amount proposed. The relationship between the amount shown as WTP and cash income is used for this purpose (see table 1). Based on lessons learned, if the electricity bill does not exceed 10 percent of the income, it is considered that the household can afford electricity (see table 1). If the WTP is lower than the costs avoided, an information campaign should convince the households to pay at least the avoided costs. Such a campaign is strongly recommended in any case because most of the households do not really know their avoided costs. However, it should be clear that consumers to be connected from this project will pay the tariff set by the regulator at the national level. The detailed analysis is given in Annex 5. Table 1. WTP versus Household Income Monthly Household % Income for WTPb Electricity WTP/Income Monthly Incomea Electricity Expensesc CFAF CFAF CFAF % % Far-North 29,597 6,065 2,646 8.9 20 North 33,664 6,065 2,646 7.9 18 Adamaoua 51,470 7,472 3,260 6.3 15 North-West 40,265 4,747 3,186 7.9 12 South-West 70,324 4,747 3,186 4.5 7 East 54,611 5,362 3,599 6.6 10 Average 46,655 5,743 3,087 7.0 14 Note: a. ECAM4 (2014) adjusted by inflation to 2023 with IMF inflation rate projections. b. PDSE 2035. c. ENEO with adjustment for lower-income households. 21. The AER, with its key role in planning and implementation of both grid extension and mini-grid rural electrification projects, has experienced institutional challenges which affected its ability to meet rural electrification demands. The AER is struggling to assert its leadership in the rural electrification area. The challenges include (a) insufficient technical human resources; (b) shortage of financial resources despite the existence of the REF managed by the AER; and (c) the multiplicity of actors in rural electrification, which undermined the coherence of rural electrification programs and the efficient use of available funds. The AER's 14 African Development Bank (AfDB), Banque de Développement des Etats de l’Afrique Centrale, Kribi Port Industrial Complex, EXIMBANK China, EXIMBANK India, Industrial and Commercial Bank of China, Société Générale, NACHTIGAL Project Consortium, Islamic Development Bank (IsDB), and Deutsche Bank of Spain. Page 18 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) achievements in rural electrification include the electrification of 340 localities, which were then transferred to ENEO. Other projects funded by several partners are indicated in table 2. Since its creation, the REF has had very limited success, and no private sector-led mini-grid was granted so far because the cost-reflective tariffs for mini-grids continue to be significantly larger than uniform tariffs countrywide even with 70 percent of total investment costs as subsidy. To address these challenges, the GoC intends to reengineer the AER’s organization so that it can fulfil its rural electrification mission. Table 2. Ongoing Projects of the AER Projects Funding Source of (CFAF, millions) Funding 1 Cameroon: CM-Energy Sector Development (P104456) 19,339 IDA Phase II - Rural electrification project of 102 localities in the regions 2 of Adamaoua, Center, East, North, West, and South -West by 17,970 IsDB15 extension of the North-South interconnected networks (PER II). Rural electrification project of 50 localities in regions of Adamaoua, 3 North, and Far North by Extension of the North Interconnected 5,9340 BADEA16 Networks Decentralized Rural Electrification Project in the Rumpi area (ERD- 4 3,391 UE17 RUMPI) 5 Rural Electrification Project of 30 localities by extension of 1,421 AER networks 6 Rehabilitation of MV/LV networks 19 AER Total 48,074 22. This project will contribute to address some of the challenges mentioned earlier and support the GoC’s goal of achieving universal energy access by 2030 and reduce regional inequalities. C. Higher Level Objectives to which the Project Contributes 23. The proposed project contributes to the GoC’s strategic objectives outlined in the GES and the long-term objectives outlined in Vision 2035. The project also contributes to the rollout of REMP in underserved regions (Far-North, North, Adamawa, North-West, and East). The proposed project aims to address electricity supply constraints in these regions, lay the foundation for improving household electricity access, and support productive industry and the development of income-generating activities. These support the GoC’s objective of becoming an emerging economy by 2035. 24. The proposed project is anchored in the World Bank’s twin goals of ending extreme poverty and boosting shared prosperity. Timely investments to expand access to electricity in rural areas and foster economic growth are foundational to the achievement of the twin goals. Low access to electricity tends to undermine poverty eradication efforts. Energy is also a key driver of socioeconomic development and an important means of improving equity and reducing poverty. Approximately 520,000 people, mostly from poor rural families, will gain access to electricity under the project. Access to electricity is also key for quality social services delivery, such as health and education, and expansion of electricity supply services is essential for continued economic growth in Cameroon. 15 IsDB: Islamic Development Bank 16 BADEA: Arabian Economic Development Bank (Banque Arabe de Developpement Economique) 17 UE: European Union (Union Europeenne) Page 19 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 25. The proposed project is aligned with the Country Partnership Framework (CPF) 2017–2021 (report number 107896-CM discussed by the Executive Directors on March 28, 2017) and its goal of supporting infrastructure and private sector development through four objectives: (a) increased national availability of electricity; (b) improved national and international transport; (c) improved ability to do business; and (d) increased participation in the labor market. The project would enable underserved regions to attain acceptable levels of basic services, which depend upon the supply of electricity. This is through supporting public investments in rural electrification transmission and distribution networks. The World Bank’s support for rural electrification and access is expected to have a strong signaling effect and help the GoC mobilize the concessional funding needed to achieve its ambitious targets of 98 percent access in 2030 and 99 percent access by 2035, nationwide. Concessional funds are critical in rural electrification for increasing access to electricity and supporting inclusive economic growth. By using its experience and expertise working in different regions of the world, the World Bank’s engagement will enable adoption of best practices in design and execution of networks, thus ensuring technically and socially efficient delivery. 26. The proposed project is also aligned to the World Bank’s Energy Directions Paper which was reviewed by the Board in September 2013 and is designed to help client countries secure affordable, reliable, and sustainable energy supply needed to meet the World Bank Group’s twin goals of ending extreme poverty and boosting shared prosperity. II. PROJECT DEVELOPMENT OBJECTIVES A. PDO 27. The Project Development Objective (PDO) is to increase electricity access in underserved regions of Cameroon. B. Project Beneficiaries 28. Direct beneficiaries. The proposed project’s direct beneficiaries are current and future electricity consumers, including the poor, who do not have electricity connectivity due to lack of distribution networks in rural areas and/or due to the high initial connection fees. The project will also provide targeted capacity- building support to stakeholders involved in project implementation. 29. Indirect beneficiaries. The grid rehabilitation and reinforcement subcomponents of the proposed project will help increase the reliability of the electricity grid. The project benefits not only the electricity consumers but also the underserved population as a whole through job creation and improving the prospects for shared prosperity in Cameroon. Increased access to electricity is a key element needed to generate income and jobs, as well as promote productive uses of electricity in rural areas. C. PDO-Level Results Indicators 30. Progress toward achieving the PDO will be measured by the following indicators (details in Section VII): (a) People, provided with new or improved electricity services (Corporate Results Indicator) (number); and (b) Increase of national electrification access rate. Page 20 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) III. PROJECT DESCRIPTION A. Project Components 31. This project is designed to contribute to the rollout of REMP and have a transformational impact on rural electrification in selected underserved regions, which includes the Far-North, North, Adamawa, North- West, and the East regions. 32. IDA’s funding would provide significant support, by connecting around 126,000 households, in the achievement of REMP’s first five years’ objectives of 250,000 household’s connections by grid extension and 20,000 by mini-grid activities. The project components are based on the priorities identified in REMP, which identifies particular investments and geographical areas to be covered in the first five years. 33. The proposed project comprises five components: (a) Rural Electrification by Grid Extension; (b) Decentralized Rural Electrification; (c) Support to Households for Connection Costs; and (d) Strengthening Institutional Capacity of Electricity Sector and Project Management, and, (e) Contingent Emergency Response. The detailed description is in Annex 2. 34. Component 1: Rural Electrification by Grid Extension (EUR 90.7 million; US$105.0 million equivalent, of which IDA US$90.0 million and US$15.0 million of the GoC funding for compensation). This component consists of two subcomponents: (a) Subcomponent 1.1: Rural electrification by extension of MV/LV networks (IDA Credit US$75 million). This subcomponent will fund the electrification of approximately 417 new localities in selected rural areas, with a total population of 1,040,963 people, representing potential customers of approximately 256,265 households in the Far-North, North-West, South-West, and East regions. The activities to be financed include: (i) Construction of 2,537 km of high voltage level A (HTA) lines; (ii) Construction of 2,134 km of low voltage level A (basse tension Niveau A, BTA) lines and public lighting; and (iii) Erection of 544 overhead pole substations/transformers, including  300 transformers of 50 kVA;  172 transformers of 100 kVA; and  72 transformers of 25 kVA single phase for Single Wire Earth Return (SWER). (b) Subcomponent 1.2: Reinforcements and extension of existing HTB/HTA/BTA networks to enhance the security of power supply to new villages in Far-North regions. (IDA US$15 million. This subcomponent will finance (i) the construction of new HTA distribution substations and/or of high voltage level B (HTB)/HTA substations; (ii) construction of HTB/HTA lines; (iii) upgrade of single-phase MV; (iv) upgrade of single-phase MV (SWER)18 networks into three-phase 18SWER is a single-wire distribution line for supplying single-phase electrical power from an electrical grid to remote areas at low cost. Its distinguishing feature is that the earth is used as the return path for the current, to avoid the need for a second wire (or neutral wire) to act as a return path. It is principally used for rural electrification but also finds use for larger isolated loads such as water pumps and light rail. SWER is also used for HV direct current over submarine power cables. Page 21 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) networks to cope with the growth of demand; and (v) restructuring of the HTA network to electrify new localities. 35. Component 2: Decentralized Rural Electrification (IDA EUR 16.4 million; US$19.0 million equivalent). The design of this component is based on two concepts: (a) a PPP concept where the private sector, including ENEO, will play a role as operator and not direct investor and (b) securing supply of existing isolated mini-grids operated by ENEO in selected localities by hybridization, namely, adding photovoltaic (PV) solar mini-plants and extension of the existing HTA/BTA networks for better service coverage. Today about 26 localities are electrified as isolated systems. Thus, this component consists of two subcomponents: (a) Subcomponent 2.1: Development of a pilot public-private partnership for decentralized rural electrification (IDA US$6 million equivalent). The principle of the private sector intervention is based on operation and maintenance (O&M) of public-funded infrastructures of lease “affermage” contract type. The rationale of this type of PPP is based on agreement to maintain uniformed tariffs across the country and the likely impact on subsidy/compensation and the fragility and poverty of these areas. The selection of operators will be conducted by ARSEL based on its business plan and specific selection criteria to be outlined in the Project Implementation Manual (PIM). The AER will be responsible for planning mini-grid sites and ARSEL for preparation and supervision of the PPP scheme. To mitigate the risk of poor quality of assets constructed for the future operator, a single company for construction and operation would be considered as a preference of the GoC. However, the final scheme will be informed by the ongoing study related to the business plans of O&M contractors. The operator will be remunerated by the uniform tariffs applied to consumers countrywide and a possible subsidy to the operating expense provided by the Government to cover the operator’s costs during the length of the O&M contract, if needed. However, it is anticipated that there is no need for the operating expense subsidy with the actual level of electricity tariffs applied. Additional resources generated by the PPP scheme will be housed by the REF. The activities of this subcomponent include: (i) Construction of two PiCo Hydropower Plants (PCHs) of 3 MW in project areas; (ii) Construction of 70 km to 100 km of HTA lines and 70 km of BTA lines to electrify approximately 20 localities and about 2,000 customers will have access to electricity; and (iii) Recruitment of two operators to be responsible for O&M of facilities built. (b) Subcomponent 2.2: Securing the power supply of isolated sites by hybridization (IDA US$13 million). The aim is to secure the supply to and extend the distribution network in decentralized sites currently using polluting fossil fuels by hybridizing the existing power plants under the ENEO concession in the selected localities. The objective is to reach 10 localities and add up to 300 kWp PV average solar power plant and 5 km to 7 km of additional MV/LV networks (400 V/230 V) in each locality. The activities to be financed include (i) Construction of 10 PV solar power plants of 300 kWp in 10 localities in the Far-North; and (ii) Construction of 50 km to 70 km HTA and BTA and the connection of 1,000 customers in total. 36. Component 3: Support to Households for Connection Costs (IDA EUR 21.6 million; US$25.0 million equivalent). This component will support the establishment of a revolving fund to help finance initial Page 22 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) household connection costs (including ready boards) to obtain grid supply in the 417 localities (targeted under Subcomponent 1.1 and Component 2) and in approximately 12 localities that are already electrified. The objective of the revolving fund is to support households to afford the initial connections costs, including ready boards. This fund will follow the criteria and other principles defined in the revolving fund’s operational manual and technical specifications used by ENEO. The connection of households headed by women in the project areas will be considered as priority. A fixed charge, depending on connection type and fees, will be collected to reimburse the pre-financed connection fees. The scheme is designed so that the consumers will pay CFAF 2,000 and reimburse the connection fee over a six- to eight-year period, depending on the connection type. The fund’s operation manual, which is under elaboration, will provide detailed operation procedures. 37. Component 4: Strengthening Institutional Capacity of Electricity Sector and Project Management (IDA EUR 13.8 million; US$16.0 million equivalent). This component will support capacity building of implementing agencies and entities and project management. It will also support structuring an industrial strategy built on rural electrification activities and local expertise for engineering, construction, and maintenance of HTA/BTA networks and support to institutional reform of the AER. Partnership with local organizations for developing gender technical skills will be also supported. This component consists of five subcomponents: (a) Subcomponent 4.1: Strengthening institutional capacity of the electricity sector (IDA US$1.2 million equivalent). This subcomponent will support MINEE, ARSEL, and AER. As needed, support may comprise analytic and advisory activities, travel, training, equipment, office space, and vehicles. Training needs have been identified in different areas, including project management, power distribution and rural electrification, electricity transmission, procurement, finance and accounting, and environmental and social safeguards. In addition, as part of the project’s efforts to support an inclusive and equal approach to electricity services among men and women, gender and energy trainings will be conducted by the Africa Gender and Energy Program among the AER and ENEO staff in charge of connecting the households. The trainings aim at sensitizing those actors involved in the electricity sector on the relevance of the gender aspects in the provision and management of electricity services. The trainings will provide MINEE, AER staff, and ENEO, if needed, with a more comprehensive understanding of their consumers, increasing their knowledge on women’s and men’s different needs related to electricity services and thus improving provision of services to clients. (b) Subcomponent 4.2: Owner’s Engineer for project supervision (US$5 million equivalent). This subcomponent will finance the recruitment of an engineering firm to supervise and control the quality of the implementation of engineering works financed under the project and implementation of the project’s Environmental and Social Impact Assessment (ESIA) and Resettlement Action Plan (RAP). To ensure consistency with the European Investment Bank (EIB) parallel financing, the scope of work of the Owner’s Engineer could also include the supervision of activities financed by the EIB/European Union (EU). In a weak capacity setting such as in Cameroon, the arrangement will ensure capacity building, harmonize the implementation of activities, and ensure efficiency during implementation of a multi-donor engagement. However, the EIB will supervise its own project. (c) Subcomponent 4.3: Structuring (i) an industrial strategy built on rural electrification activities and (ii) local expertise for engineering, construction, and maintenance of HTA/BTA networks (IDA US$2.7 million). The implementation of REMP will generate steady and consistent Page 23 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) investment flows for 20 years. The GoC considers REMP as a multisectoral vehicle for rural area development. Hence, the GoC wants to formulate an industrial strategy built on rural electrification activities under REMP to create industrial businesses to retain part of the investment flows in the country. As such this subcomponent will finance • A study on structuring local expertise in rural network design, erection, and maintenance; • Development of a local business promotion policy for electrification works and O&M; • Creation of new industrial activities in the electricity sector for the supply of equipment for rural electrification (poles, cables, electrical accessories); • Capacity building in management of large long-term projects by local actors; and • Development of specific regulation (standardization) and control in the field of rural electrification. (d) Subcomponent 4.4: Income generation and capacity building for women and youth (IDA US$2.30 million). As employee’s, women’s representation can strengthen energy entities business and social performance, better anchoring the company in its operating environment and also enhance income generating opportunities. As job growth in the energy sector continue to develop through investments, it is essential to develop and implement policies that create a more gender-inclusive workplace. Hence the project will focus on closing gaps in women’s employment by increasing the number of female employees in the grid-extension activities gradually from 10 positions to 50 positions, which will roughly translate to women’s participation in technical roles of around 5-8 percent under the project from a baseline of zero (employment in total per year will range from 200-700 people). Investments in the energy sector should not only improve opportunities for women related to employment but should also address the gender gaps between women and men related to enterprises and livelihoods at the community level. Hence this sub-component will also support women’s enterprises, social services and livelihood activities to drive socio-economic empowerment for women in underserved regions of Cameroon. Activities funded by this subcomponent will include activities such as:  Promotion of efficient cook stoves for domestic use and commercial use – provision of cook stoves to women contributes to protect their health, as smoke produced by firewood during cooking causes lung diseases.  Increasing women’s role in the grid extension electrification activities, which will present an opportunity in terms of jobs and income generation and drive socio-economic empowerment overall. The project will focus on looking at the skills gaps in the energy sector and female talent pool and relevant HR policies (codes of conduct, collective bargaining and affirmative action etc.) and skills development opportunities for promoting women’s employment in the energy sector.  Enhancing the productive uses of energy for women and youth through the promotion of multifunctional platforms19 to enhance income generating activities and ease women’s 19 A Multi-Functional Platforms(MFP) is equipment powered by engine of 10 to 12 kW, capable of driving various tools such as mills, huskers, alternators, battery chargers, pumps, welders, woodworking machinery, etc. It also allows the distribution of drinking water and can stimulate the creation, development and / or modernization of crafts in a community. It also adds value to agricultural production (hulling mill, pressing shea and so on.) Page 24 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) daily activities through energy services, thereby reducing time poverty and drudgery.  Creating partnership with local organizations to build the technical and financial management capacity of women and youth enterprises, strengthening access to markets, creating linkages and access to financial products and services and enhancing extension or business and development services. (e) Subcomponent 4.5: Support to institutional reform of the AER (IDA US$1.3 million). This subcomponent will finance a diagnostic study to review the AER’s mission in decentralized electrification, as well as development of an implementation approach for Cameroon’s electricity access program (project management and contracting, planning and decision tools, financing staffing, and necessary support and training program). This subcomponent will also finance the implementation of outcomes of the diagnostic study. The study will start with the Project Preparation Advance (PPA 20). (f) Subcomponent 4.6: Project management support (IDA Credit US$3.5 million). This subcomponent will mainly ensure the provision of needed technical, financial, operational, and fiduciary assistance to the implementation agency (AER) to ensure successful project implementation. 38. Component 5: Contingent Emergency Response (IDA EUR 0.00 million, US$0.00 million equivalent). This component, known as the Contingent Emergency Response Component (CERC), will be available if needed, to redeploy some of the project resources alongside those of other projects in the Cameroon project portfolio to respond to crisis and emergency needs. Implementation of this component, if needed, will require formation of Immediate Response Mechanism Coordinating Agency and expenditure management procedures which will be defined in an Immediate Response Mechanism Operational Manual, to be prepared separately and approved by the World Bank, in line with guidance provided under the Investment Project Financing Policy and Directive. In the event that this component is needed, the project will be restructured to allocate financing, revise the PDO and indicators, and detail implementation arrangements for the crisis and emergency response. B. Project Cost and Financing 39. The lending instrument for the proposed project is Investment Project Financing (IPF). The total project cost is estimated at US$150 million equivalent. The preliminary cost estimates by component are indicated in table 3. The IDA credit will finance the estimates by component, as detailed in table 3. The cost estimates are based on REMP. These costs will be adjusted when feasibility studies are finalized for different components of the project. 20 Project Preparation Advance(PPA) of US$3.5 million is included in the project cost. Page 25 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 3. Project Cost and Financing by Component Project Components Project Cost IDA GoC (US$ million Financing Financing equivalent) (US$ (US$ million million equivalent) equivalent) Rural Electrification by Grid Extension (US$15 million for ESIA 1 105.00 90.00 15.00 and compensation for resettlement costs) Rural electrification by extension of MV/LV networks (Far North, 1.1 75.00 75.00 Southwest, Northwest and East) Reinforcements and extension of existing HTB/HTA/BTA 15.00 1.2 networks to enhance the security of power supply to new 15.00 15.00 villages in Far North regions 2 Decentralized Rural Electrification 19.00 19.00 — Development of a pilot public-private partnership for — 2.1 6.00 6.00 decentralized rural electrification  2.2 Securing the power supply of isolated sites by hybridization 13.00 13.00 — 3 Support to Households for Connections Costs 25.00 25.00 — Strengthening Institutional Capacity of Electricity Sector and 4 16.00 16.00 — Project Management 4.1 Strengthening institutional capacity of the electricity sector 1.20 1.20 — 4.2 Owner’s engineers for project supervision 5.00 5.00 — Structuring (i) an industrial strategy built on rural electrification — 4.3 activities and (ii) local expertise for engineering, construction, 2.70 2.70 and maintenance of HTA/BTA networks. Gender income generation and capacity building for women — 4.4 2.30 2.30 and youth 4.5 Support to institutional reform of the AER 1.30 1.30 — 4.6 Project management support 3.50 3.50 — — — — 5 Contingent Emergency Response Total Project Costs 165.00 150.00 15.00 Total Financing 165.00 150.00 15.00 40. The IDA Private Sector Window (IDA-PSW) will be considered later to support the private entity ENEO in its efforts to improve access to electricity in Cameroon. The achievement of REMP’s goals will require a mixed approach (of public spending efficiency and ramping up private investments), and the FCV status of a number of regions of the project areas would allow for a blend of IDA and IDA-PSW financing. IDA-PSW can provide direct financing to private entities such as ENEO for MV and LV investments but it remains subject to standard IFC operational processes and credit approval. IFC is still considering coming alongside IDA at a later stage, once the issues related to the extension of the concession and efforts to raise capital are resolved. A Blended Finance Facility under IDA18-PSW will be considered. This instrument would enable IFC to support this project which will have strong development impact in rural areas in Cameroon and is yet not able to fully meet the commercial financing terms but promises to be sustainable. A high level of subsidy would be required for the concessionaire to break even in these regions because investments in rural electrification are not profitable within the time frames normally considered attractive to the private sector Page 26 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) unless they can be blended or supplemented with resources from the public sector. However, global experience indicates that the private sector has limited interest to invest in grid extensions. Although this was considered for Cameroon, ENEO did not consider engaging in this project as it is still negotiating an extension and its business plan is still under preparation. 41. This project is considered as a maximizing finance for development enabling operation, as it may lead to further investment by ENEO in the access segment by removing binding constraints to enable ENEO in financing sustainable infrastructure to service rural areas. C. Lessons Learned and Reflected in the Project Design 42. The design of this project has benefited from relevant lessons learned from similar rural electrification operations in Sub-Saharan Africa and beyond, as well as other completed and ongoing World Bank-financed projects in Cameroon, including in the energy sector. Key lessons are summarized in the following paragraphs. 43. Global experience demonstrates that public investment in grid extension is a widespread practice due to welfare impacts. The rural electrification by grid extension must be viewed as a long-term investment in social welfare. Investment in rural electrification is not profitable within the time frames normally considered attractive to the private sector unless they can be blended or supplemented with resources from the public sector. In the case of Cameroon, IDA’s support for rural electrification is expected to have a strong signaling effect and help the GoC mobilize the concessional funding needed to achieve its ambitious targets of 98 percent access in 2030 and 99 percent access by 2035 nationwide. Concessional funds are critical in rural electrification for increasing access to electricity and support inclusive economic growth. 44. Recent experience whereby the Government supports households for connection fees was successful to improve last mile connections. International experience in countries such as Côte d’Ivoire, Tunisia, Morocco, Vietnam, and Peru, which have reached near-universal rates of electrification, has demonstrated that in rural electrification programs it is critical to (a) include user connections (the ‘last mile’) in the conception of the program; (b) set the initial connection fee at a level that is affordable for all households; and (c) permit recovery of the connection charge through the tariff over a long period so that the effective tariff remains affordable for low-income users. By incorporating these international experiences, the proposed project will contribute to sustainability of the GoC’s electrification program. The proposed revolving fund in this project will subsidize last mile connectivity and/or provide tariff subsidies for low-income households. 45. Global experience regarding respective roles of utilities, specialized agencies, and the private sector in access. The strong coordination within the rural electrification actors, especially between specialized public entities and private sector actors involved, is key for successful project implementation in a country such as Cameroon where these entities coexist and deal with access. Under the proposed project, ENEO, a private utility, has been involved from the identification phase to ensure that it agrees with AER, the specialized agency, on the prioritization of investments and on respective roles and responsibilities during project implementation. ENEO will be involved in the design of technical specifications and technical quality control, participating in the commissioning of the infrastructure during the implementation phase up to the commissioning. 46. Recent learnings on the need to strengthen the AER. A clear institutional structure for project implementation with efficient and motivated implementing entity and with adequate human capacity is key Page 27 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) for successful project implementation. Meeting ambitious rural electrification targets requires strong Government commitment to strengthen the special purpose vehicle, notably the AER. These experiences were considered in the project design. 47. Lessons learned on bottlenecks regarding compensation of project-affected persons indicate that in Cameroon there is a delay in compensation because of the complicated and administratively intensive compensation and resettlement process under Cameroonian law. The management of compensation and resettlement measures is on the critical path of project implementation. The World Bank has agreed with the GoC to adopt several measures to ensure the forward-looking and proactive management of resettlement and compensation issues, including a methodologic note to be signed by the Prime Minister. Such a note is under preparation for this project to define the way to undertake the project-affected persons’ evaluation process in parallel with ESIA studies. IV. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 48. MINEE. The Ministry of Water and Energy will be responsible for oversight of the project and will provide guidance on policy matters. 49. Project Steering Committee (PSC). The PSC, chaired by the Minister of Water and Energy, will be established and will include representatives from the AER, SONATREL, ENEO, ARSEL, MINEE, Ministry of Economy, Planning and Regional Development (MINEPAT), Ministry of Agriculture and Rural Development (Ministère de l’Agriculture et du Développement Rural, MINADER), Special Inter-Municipal Equipment and Intervention Fund (Fonds Spécial d’Equipement Intercommunal, FEICOM), Communes et Villes Unies du Cameroun -CUCV), and Project Implementation Unit (PIU). The PSC’s primary responsibility will be to provide advice and strategic direction, as well as general project oversight related to implementation. The PSC will meet at least once every quarter (more often if required). A decision of the Minister of Water and Energy has established the PSC. 50. Regional and departmental delegates of MINEE in project areas will represent MINEE in the field and will report on technical implementation status and issues of the project to MINEE. 51. Project implementing entities (PIEs). The project will have one implementing agency, namely AER, and technical focal points, SONATREL and Direction of Electricity (Direction de l’Electricité, DEL) of MINEE. The AER will implement all components, while SONATREL will provide technical assistance for HV network extension activities (Subcomponent 1.2) and DEL will provide inputs for Component 3 and Subcomponents 4.3 and 4.5. The AER will establish a fully dedicated PIU. The PIU will be responsible for the day-to-day management of the project and coordination of project-related activities. The project coordinator will be responsible for overall implementation. The project team will include specialists who will be responsible for procurement, financial management (FM), technical, and safeguards aspects. 52. ENEO, the future operator of the grid extension infrastructure will be closely involved in project implementation. An agreement will be concluded between the implementing entity AER, SONATREL, and ENEO and defining respective roles and responsibilities. ENEO will appoint engineers dedicated to providing inputs to the AER and SONATREL on the supervision of the project activities during implementation working with the PIUs and the Owner’s Engineer. ENEO’s role in the execution of Component 1 will be limited to technical inputs and commissioning of completed works to ensure compliance with grid standards and Page 28 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) proper synchronization with the grid. Commissioned infrastructure will be handed over to ENEO for operation and management. 53. Figure 7 illustrates the project’s institutional arrangements. Figure 7. Institutional Arrangements 54. A Memorandum of Understanding (MoU) approved by MINEE will be signed between the AER and ENEO on operationalization of the revolving fund. The proposed revolving fund will be set up and managed by the AER. An operational manual for the revolving fund will be prepared by the AER. ENEO will implement financed connections. Modalities for the implementation including tariff structure for connections, procurement procedures, subcontractors to be used, specifications of materials, and security standards will be agreed upon in an MoU between the AER and ENEO, approved by MINEE, that will be submitted for approval to the World Bank before any disbursement of revolving fund. ARSEL also will be consulted on an MoU for its clearance if required. 55. Owner’s Engineer. The owner’s engineer financed under Subcomponent 4.2 will provide support to the implementation of the project and to the PIU responsible for supervision of investments under Components 1, 2, and 3. The Owner’s Engineer will also validate the technical specifications for activities under these components before procurement packages are put out for bid. However, the ultimate responsibility for project management will lie with the AER for all components. 56. PIM. The project will be implemented in accordance with the PIM, which will be prepared by SONATREL’s PIU before effectiveness, as it is the PMU managing the PPA. 57. Other ministries. Multiple ministries in addition to MINEE will play a regulatory, supervisory, or Page 29 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) supporting role for the project. These include the Ministry of State Property Survey and Land Tenure (Ministère du Cadastre et des Affaires Foncière, MINDCAF), the Ministry of Finance, the MINEPAT, Ministry of Forestry and Wildlife (MINFOF), and the Ministry of Environment Protection of Nature and Sustainable Development (MINEPDED). B. Results Monitoring and Evaluation Arrangements 58. The project-level monitoring and evaluation (M&E) framework will track progress during implementation, measure intermediate outcomes, and evaluate project impacts. The Results Framework in Section VII outlines key performance indicators, data collection methods, frequency of collection, and responsible agencies. This framework will be used to supervise and monitor project implementation. 59. As the implementing agency, the AER’s PIU will be responsible for the overall monitoring and reporting of project progress with inputs from MINEE, ENEO, and SONATREL. In addition to regular monitoring and reporting on the agreed project indicators, activities to be monitored include the timely, efficient, and transparent supervision of procurement and contract management; construction and commissioning of the distribution lines and substations; effective implementation of the Environmental and Social Management Plan and RAP; and successful completion of studies and training activities. 60. Progress reports will be prepared for each semester of project implementation and will be submitted to the World Bank no later than 45 days after the end of the period covered by the reports. Monitoring of results and outcomes, in accordance with the project Results Framework (Section VII), will be reported in the project progress reports. An M&E specialist will be retained at the AER’s PIU to implement and coordinate all M&E activities under the project. Furthermore, the World Bank will supervise the project over its lifetime and monitor its results and outcomes on a regular basis to evaluate the achievement of the PDO and implementation performance. 61. A project midterm review will be carried out three years after project effectiveness. The midterm review will provide the opportunity to thoroughly assess overall project performance in achieving the development objectives and ensure that lessons learned are considered during implementation over the remaining period. Adjustments, including funding reallocation and implementation arrangement changes, and wider restructuring to build on the approaches that work best will be discussed, agreed, and implemented as necessary. C. Sustainability 62. The sustainability of the Cameroon energy sector and the investments financed under this project will depend upon (a) the GoC’s continued commitment to support a power sector reform program, including the implementation of a tariff adjustment process; (b) the financial health of ENEO and SONATREL and their ability to generate sufficient revenues to fully cover their expenditures; and (c) ENEO’s and SONATREL’s abilities to maintain and operate the assets sustainably. 63. Implementation of REMP, including this project, requires strengthening of institutions in charge of rural electrification. To this end, the project will provide technical assistance to the sectoral institutions (MINEE, ARSEL, SONATREL) and for the reform of the AER. Page 30 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 64. Finally, high capital costs, including up-front connection fees, prevent households from connecting to the grid. As a result, households are likely to remain without grid connection even if they are in electrified localities. The project will support households’ connection costs in project areas under Component 3. D. Partnership Arrangements 65. The GoC has asked the World Bank to take the lead in coordinating donor support for the implementation of REMP. REMP will be implemented in coordination with other donors engaged in the electricity sector and interested in rural electrification. For the first phase of REMP, the World Bank will provide US$150 million and the EIB and EU has indicated that they are considering providing around US$58.5 million. The French Development Agency (Agence Française de Développement, AFD) and the AfDB has also showed interest. The World Bank will coordinate through joint missions and with regular donor meetings and workshops. In between missions, field-based staff of various donor agencies will cooperate on follow-up and dialogue with the AER, SONATREL, and the GoC. Also, the Owner’s Engineer financed by IDA could cover the supervision of activities under the EIB/EU financing (and potentially other donors), which will ensure full coordination of partners. V. KEY RISKS A. Risk Rating Summary Table Table 4. Risk Rating Summary Table Risk Category Rating 1. Political and Governance Substantial 2. Macroeconomic Substantial 3. Sector Strategies and Policies Substantial 4. Technical Design of Project or Program Moderate 5. Institutional Capacity for Implementation and Sustainability Substantial 6. Fiduciary High 7. Environment and Social High 8. Stakeholders Substantial 9. Other Risks-Security Risk High 10. Overall High A. Overall Risk Rating and Explanation of Key Risks 66. The overall risk rating is High, given the scope of rural electrification supported under the project and the nature of the works (grid extension in rural areas and connections). The major risks and possible mitigation measures are discussed in the following paragraphs. 67. Political and governance risks. These risks are considered substantial related to the sector. Sustained political commitment to the ongoing reform program is critical to the success of the project. The advances made in the power sector reform under the current government could be reversed by subsequent administrations from the next general elections (presidential and parliamentarian) in a context of rising social unrest in two English-speaking regions of the country as well as the security crisis in the Far-North of the country. The terrorist threats from Boko Haram could induce delay in implementation of the project in the northern regions (notably the Far-North), which are characterized as fragile. Mitigation: While none of these risks are addressed directly by the project, rural electrification will contribute to lower such risks by helping Page 31 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) reduce public discontent with the overall service coverage of the power sector, reduce fragility in rural areas, and support income-generation activities. The World Bank Group will discuss with the Government how to proceed should security conditions deteriorate in project areas. In this regard, an agreement between the Ministry of Energy and the Ministry of Defense may be put in place to ensure security during project implementation especially in the Far-North and anglophone regions. 68. Sector macroeconomic risks. These risks are considered substantial. The Cameroonian power sector is subject to a significant amount of volatility stemming from external factors such as interest rates, financial markets, and the economic growth of key trade and investment partners. Moreover, future investment in the sector’s infrastructure will be contingent on the sustainability of Cameroon’s rapidly rising debt burden and fiscal discipline. Mitigation: While none of these macro risks can be addressed directly, the project itself will contribute to greater resiliency in weathering many of these risks by helping the country improve the overall service quality of the power sector for both productive and consumptive energy users. 69. Sector strategies and policies risks. These risks are considered substantial. Even if, the World Bank is facilitating dialogue and transparent decision making by the national authorities in the sector and sector and subsector policy reform, the sector faces some uncertainties related to the sequencing of reforms, in particular with regard to the operationalization of SONATREL, and the ongoing negotiation for the extension of the ENEO concession beyond 2021 and the sector. The GoC has decided to maintain unchanged tariffs until 2019 and compensate tariffs gap to ENEO. As such, the overall sector financial viability depends on timely payment of the compensation of tariffs gaps by the GoC, as well as on-time payment of its electricity consumption bills and the electricity bills of parastatals. Any substantial delay of the GoC’s payment and accumulation of arrears by parastatals will result in a cash flow deficit for ENEO and will negatively affect its creditworthiness (that is, ENEO will not be able to make timely payments to different contractors, including IPPs and the National Transmission Company). Furthermore, a sustained deterioration of ENEO’s finances could affect its ability to borrow the capital needed for urgent infrastructure rehabilitation and bolstering its operational performance. Mitigation: The World Bank continues to support the energy sector unbundling process (that is, creation and operationalization of SONATREL) and through the implementation of ESDP and REMP. This project will support strengthening of the AER and the implementation of REMP. The implementation of these strategies and policies is closely monitored by World Bank staff and other development partners. In addition, the sector’s financial viability has been integrated in prior actions and triggers of the ongoing Fiscal Consolidation and Inclusive Growth DPF (P166694). Also, the sector’s financial situation is improving because of commissioning of the Lom Pangar Hydropower Project and the additional energy generation it guaranteed by regulating the Sanaga River. As a result, the cost of generation is decreasing, and tariff compensations are expected to be reduced significantly in 2018 and in the coming years. 70. Institutional capacity and implementation risks. These risks are considered substantial. There is a risk of delays due to insufficient capacity for coordination between PIUs, AER, SONATREL, and ENEO. Also, security in project areas may delay implementation of project activities. The implementation risks are related to possible increased Boko Haram attacks and the difficulty of supervision by World Bank because of difficulties in traveling to the project sites for security reasons. Mitigation: The World Bank will continue to seek synergies with United Nations agencies and draw lessons from ongoing implementation arrangements in the northern region for the Cameroon Transport Sector Development Project (P150999) and Community Development Program Support Project-Phase III (P144637). To minimize the risk of delays, the World Bank has agreed with the GoC to adopt a number of measures to ensure proactive management of resettlement and compensation issues. All efforts will be made to avoid any resettlement or land acquisition unless it is necessary. Page 32 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 71. Fiduciary risk. The overall fiduciary risk is assessed as High. The fiduciary aspects of the proposed project will be managed by the AER PIU which is to be established. This project will add to the workload of the existing SONATREL PIU for PPA implementation and, therefore, may put SONATREL’s project implementation performance at risk. In addition, the PIU’s staff may lack sufficient knowledge of the New Procurement Framework (NPF) that could lead to confusion of the NPF with the Procurement and Consultant Guidelines. Moreover, taking into account Cameroon’s Corruption Perception Index (Transparency International, IFC Enterprise Survey, and so on), procurement in a specialized market with few bidders and big contracts foreseen for the project may restrict competition and possibly increase prices and risk of collusion and favor high corruption occurrence. Mitigation: The proposed mitigation measures are (a) establishing the AER PIU with adequate fiduciary staffing and systems and (b) conducting appropriate fiduciary capacity building and support during implementation of the project. 72. Environmental and social risks. The overall environmental and social risks are assessed as High. (a) Environmental Risk. This risk is rated High. The project is intended to have positive effects on improved livelihoods, and none of the activities to be financed by the proposed project are expected to induce irreversible environmental and social impacts. Thus, the project is rated as Category B (partial assessment). However, the social and environmental risks are high because the project will be implemented in the fragile regions of Cameroon where the sociopolitical and security situations are volatile and of concern. This could cause delays in the selection of safeguard consultants and negatively affect environmental and social compliance monitoring activities. Mitigation: To mitigate this risk, the following measures are being developed: (i) preparing the safeguards instruments, the Environmental and Social Management Framework (ESMF), the Resettlement Planning Framework (RPF), and the Indigenous Peoples Planning Framework (IPPF); (ii) increasing the AER’s commitment to compliance with the recruitment of a third-party monitoring entity (Civil Society Organization [CSO] based in the North- West region); and (iii) reaching an agreement with the Borrower on reporting requirements. To ensure proper management of the environmental and social risks and impacts associated with this project, the project will set up different divisional committees in charge of monitoring ESMPs in the project areas. The costs associated with their operation (supervision and inspection missions) will be supported under Component 4. This includes resources to be allocated for the recruitment of environmental personnel (AER PIU), training, workshops, and seminars, as well as environmental supervision, inspection, and ESMP follow-up missions. This assessment will be supplemented during the preparation of the project to identify specific areas for improvement or strengthening. Currently, all localities of the proposed investments and transmission line routings are not identified. Thus, a framework approach to environmental and social safeguards has been taken. (b) Social Risks: This risk is rated High. With regard to social risks, it is recognized that the influx of male workers for construction, rehabilitation, or maintenance of the proposed infrastructure may occur and could potentially have negative impacts on the local population, especially vulnerable groups such as women and girls who might engage in relations with campsite workers. Potential negative consequences of such transitional relations include contracting sexual transmitted infections, adolescent pregnancy, and sexual and gender-based violence (GBV).21 Labor influx might also have critical negative impacts on local children. Mitigation: An ESMF, RPF, and IPPF have been prepared for activities under Components 1 and 3 where specific sites are not known. The ESMF and RPF were disclosed in-country on August 7, 21A 2018 United Nations Population Fund study indicates that among 12,413 interviewed persons, 9 out of 10 respondents reported experiencing violence at least once in their lives, 84 percent being survival of physical violence, and 21 percent of sexual violence. Page 33 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 2018, and on the World Bank’s website on August 8, 2018. Also, based on pre-feasibility studies and environmental and social assessments, the GoC will ensure that final line routings to villages and the location of the substations are selected and optimized to minimize social and ecological impacts and will secure sufficient financial resources to ensure efficient completion of all expropriation (if required) and compensation processes before the beginning of works. To prevent and address the potential social risks related to the labor influx, codes of conduct on child protection and GBV will be integrated in the bidding documents and in the contracts of all employees, contractors, and consultants contributing to the development of the project’s infrastructure. A compliance team, based at the AER, will also be established to coordinate and monitor the application of the codes of conduct. To operationalize the principles enshrined in the codes of conduct, the compliance team will develop action plans on child labor, GBV and GRM. 73. Stakeholders. This risk is rated Substantial. Delayed implementation of project components could affect the beneficiaries’ expectations to have electricity as planned. Mitigation: It is expected that this risk will be mitigated through upstream project preparation actions, early finalization of the Procurement Plan and bidding documents and advance procurement activities, and the preparation of an appropriate communications strategy. The project design includes development of a proper grievance redress mechanism (GRM) as a mitigation measure to manage any complaints that may arise by stakeholders during project implementation. 74. Other risks: Security. These risks are considered High. Security in project areas may delay implementation of project activities. Security issues concern a small part of one of the project areas (Far- North) and the two anglophone regions (North-West and South-West) where emerging war is ongoing. Some villages along the border of Nigeria and Lake Chad may be the target of Boko Haram attacks. Mitigation: As an extensive infrastructure project, (i) a risk premium, to pay for civil works, is incorporated in project costing for contractors working in certain areas, especially in the Far-North and particularly in Mayo Tsanaga, Mayo Sava and Logone and Chari departments, directly affected by the conflict with Boko Haram; and (ii) Implementation of project activities in South-West and North-West will be phased out until the security situation improves or conflict areas will be avoided and work program adjusted accordingly. If security situation worsens in medium term, an alternative to these two regions has been identified. The World Bank also considers the option of recruiting a third-party monitoring agency to assist the World Bank with project supervision and implementation support if World Bank staff cannot travel to the anglophone regions due to security restrictions. The World Bank is assessing the security provisions of the ongoing projects in the Far- North, North-West and South-West and findings will be incorporated during project implementation. VI. APPRAISAL SUMMARY A. Economic and Financial Analysis Economic Analysis 75. Rationale for public financing. The rationale for public sector financing for the investments rests primarily on the present characteristics of the Cameroon power sector: (a) low electricity access in the underserved regions of the country requires government intervention as a development priority to ensure energy supply and increase access to electricity in this area; (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) ENEO is not likely to include grid Page 34 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) extension in underserved areas in their business plan. The project will extend service delivery in rural areas and therefore create an additional need for resources to support expanded coverage. 76. World Bank’s added value. The World Bank Group has over the years been a close partner of the GoC 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 Cameroon, also building on its experience in similar programs in Cameroon, such as the ESDP (P104456) (now closed), the Nachtigal Hydropower Project (P157734), and the Electricity Transmission and Reform Project (P152755). Drawing upon its rich expertise and experience, the World Bank’s 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 Group’s financing will enable ENEO to source financing under terms that would support the financial viability of the utility. A detailed economic analysis of the project was prepared by the World Bank teams and details are discussed in Annex 5. 77. Project benefits. The project is expected to generate an economic internal rate of return (EIRR), excluding environmental benefits, of 10.79 percent, with a net present value (NPV) of US$127 million at a discount rate of 6 percent. When the benefits of greenhouse gas (GHG) emission reduction are included, the EIRR increases to 12.6 percent with an NPV of US$185 million (at 6 percent discount rate and with low shadow carbon price scenario). 78. The economic analysis is based on the estimate of the net economic benefits for Cameroon's society of the proposed rural electricity access investments over their investment economic lives by comparing (a) the benefits streams associated with (i) revenue collected and distribution loss saving and additional consumption of electricity by the new households and commercial and productive users (about 126,500); (ii) the non-distributed energy savings realized when the MV/LV network distribution systems are reinforced; and (iii) the saving on diesel fuel costs when hybridization is realized in off-grid systems with solar plants to (b) the stream of economic costs (initial capital expenditures, additional generation, transmission and distribution, and undistributed energy saved costs) associated with the additional electricity services used by the consumers affected by the project. 79. The overall EIRR and economic net present value (ENPV) of the project would remain robust under all sensitivity scenarios. The scenarios analyzed include increase in capital costs, reduction in benefits (because of lower WTP value), increase in cost of energy supplied, increase in O&M cost, and increase distribution and commercial cost. The details of the economic analysis are discussed in Annex 5. 80. GHG accounting has been undertaken for the project, resulting in GHG emission reductions of 6,411,963 tCO2 over the project’s economic life of 50 years. Using the low shadow carbon price to quantify the GHG savings, the estimate climate co-benefit amounts to US$63 million over the project life. Financial Analysis 81. 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 6.7 percent and a financial NPV of US$249.5 million. The details of the financial analysis and assumptions are included in Annex 5. 82. The financial analysis presented in this section evaluates the net financial return of project. The project is assumed to generate cash inflows by selling electricity (new customers) at the average retail tariff Page 35 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) and by capturing the savings realized on diesel fuel through hybridization with solar plants while cash outflows are represented by the investment costs, the O&M costs, and the cost of energy sold. The distribution loss saving and the non-distributed energy saving, which represent additional inflows, are also valued at average retail tariff. 83. The overall FIRR and financial net present value (FNPV) of the project would remain robust under all sensitivity scenarios. The scenarios analyzed include increase in capital costs, reduction in benefits (because of lower average retail tariff value), increase in cost of energy supplied, increase in O&M cost, increase in distribution and commercial cost, and decrease in collection rate. The details of the economic analysis are discussed in Annex 5. 84. An assessment of the project impact on ENEO was carried out and it showed that the project will also have a positive impact on ENEO’s earnings before interest, taxes, depreciation, and amortization (EBITDA), starting from 2020 when the initial commercial operation commences. The impact will grow with the full implementation of the project, starting from 0.3 percent in 2020 to 4.0 percent in 2027. Table 5 summarizes the impact assessed. Table 5. Project Impact on ENEO’s EBITDA - Base Case 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 EUR millions Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. ENEO EBITDA 104.0 112.0 131.0 141.0 133.0 129.0 130.0 138.0 178.0 189.0 Project EBITDA 0.0 0.0 0.4 0.9 1.4 1.9 1.9 7.0 7.2 7.5 Project EBITDA Impact as (%) of 0.0 0.0 0.3 0.6 1.0 1.5 1.5 5.0 4.0 4.0 ENEO EBITDA B. Technical 85. The project presents no unusual construction or operational challenges. The equipment and the technologies involved in the construction and operation of transmission and distribution lines are well established and proven, including in Cameroon. The proposed technical investments have incorporated lower-cost design options (SWER) that are also well-known in Cameroon. This will lead to more cost reductions and contribute to maximizing the impact of the financing. 86. The project costs are based on estimates derived from recently commissioned lines and substations financed by the AER, ENEO and costs estimate of REMP. The cost estimates have been appraised and are deemed to be in line with current market prices. Considering the possibility of relative cost increases during the detailed feasibility study, the contingency amount has been estimated at 10 percent of the total project cost. The full feasibility study which will be financed by the PPA will specify all pre-construction tasks, including installation design, detailed cost estimates and implementation schedules, tender processes and documents, engineering-procurement-construction packaging, bid evaluations, and contract awards for physical implementation. 87. The selected access expansion approach draws from successful experiences financed by the World Bank. Access expansion in this project is mainly done through grid extension, rehabilitation, and densification, which is the least-cost means for Cameroon to rapidly scale up universal access. Page 36 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 88. As part of the project’s implementation arrangements, an Owner’s Engineer will be contracted. The Owner’s Engineer will be a reputable company with the experience required for this kind of project and they will help ensure that construction is carried out in accordance with the project designs and international quality standards. C. Fiduciary Financial Management 89. The fiduciary aspects of the proposed project will be managed by the PIU to be established within the AER. Minimum FM arrangements are therefore needed within the PIUs to facilitate FM responsibility under project components. The AER PIU will also oversee the revolving fund to be set up and managed by the AER. 90. In line with the FM policies and procedures of the World Bank’s IPF, an FM assessment was conducted to ensure that the arrangements proposed within the AER are adequate. The assessment concluded that although the AER has experience in managing previous energy operations of the World Bank, its capacity is undermined by the lack of adequate FM staff. In addition, the accounting system used for the previous project is not appropriate to handle the new project activities and the internal control system is weakened by the lack of an appropriate procedures manual. 91. For the AER to handle the project activities, its PIU will need to be maintained and strengthened, with arrangements that comply with minimum FM requirements. In particular (a) an FM officer conversant with World Bank procedures will be recruited and (b) an FM procedures manual that will form part of the PIM for the project will be prepared and adopted. Additional agreed actions consist of (a) recruiting an accountant; (b) purchasing and customizing an accounting software for the new AER PIU; and (c) recruiting an external auditor using the country arrangements (the MINEPAT leads the process with involvement of the Ministry of Procurement and the line ministry) to conduct the annual financial audit of the project’s financial statements along with the review of the internal control system. 92. In addition, considering the setup of the revolving funds, the following measures will be undertaken: (a) the procedures around the management and the implementation of the revolving fund (as a sub-account of REF) will be detailed in a specific operational manual and (b) a technical auditor will be recruited to ensure compliance of the management of the funds with internationally recognized technical requirements. 93. To align the project design to the use of the country national system, the project FM arrangement will rely on existing country FM arrangements that manage donor-funded projects. These arrangements are centered on two main institutions: first, the Autonomous Sinking Funds (Caisse Autonome d’Amortissement, CAA) equipped with dedicated tools developed by the World Bank Institutional Development Fund (IDF22 - P121253)—these tools include (a) a standardized FM manual and (b) an integrated FM system for donor- funded projects (SIGED),23 which includes modules on (i) project cycle; (ii) budgeting and accounting; (iii) automated payments; and (iv) electronic archive—and second, the Ministry of Public Procurement in charge of controlling all the suppliers’ invoices associated with a contract before any payment by CAA. 22 IDF grant funding was aimed to strengthen the capacity of Caisse Autonome d’Amortissement (CAA) to achieve greater accountability and support to donor-funded programs by providing technical assistance to its Internal Audit and Development Programs Units and modernizing its archiving system. 23 Système Intégré de Gestion des Décaissements . Page 37 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 94. The overall FM residual risk is assessed as Substantial. Detailed FM arrangements are outlined in Annex 2 of the PAD. D. Procurement 95. Procurement for goods, works, and non-consulting and consulting services will be carried out in accordance with the procedures specified in the ‘World Bank Procurement Regulations for IPF Borrowers’, dated July 2016, revised November 2017 and August 2018 (Procurement Regulations); 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 as of July 1, 2016) (Anticorruption Guidelines); and provisions stipulated in the Financing Agreement. 96. The proposed project will use the Systematic Tracking of Exchanges in Procurement (STEP) system. STEP is a planning and tracking system, which will provide data on procurement activities, establish benchmarks, monitor delays, and measure procurement performance. 97. A procurement assessment was carried out during the preparation of the project (see details in Annex 2). The key procurement risks under the project are as follows: (a) Staff involved in the project may not have sufficient knowledge of the NPF and/or there is a risk of confusing NPF with former Procurement and Consultant guidelines. (b) Procurement staff with the experience required to effectively implement procurement actions on time and in line with World Bank procurement policies and procedures are insufficient. (c) Inadequate communication and interaction between beneficiaries and the PIU may lead to delays in procurement and poor cost projections. (d) Administrative routines may result in procurement delays with the potential to affect project implementation. (e) The procurement in a specialized market with few bidders can restrict competition and possibly increase prices and collusion risks. (f) Insufficient capacity which can lead to poor contract management and administration of big contract (g) The poor filing of documents, which may lead to loss of documents. 98. Overall, all these risks can cause mis-procurement, possible delays in evaluation of bids, and technical proposals leading to implementation delays, poor quality of contract deliverables, and reputational risks to the World Bank and the project. 99. The overall procurement risk is high, but after the proposed mitigation measures below, the risk will be substantial. These measures include (a) hiring, on a competitive basis, a procurement specialist who is experienced and familiar with World Bank procurement procedures and policies, to be located within the AER PIU; if this requirement is not met before effectiveness of the project, the procurement specialist in the SONATREL PIU will support the procurement activities until the procurement specialist for the AER PIU is recruited; (b) training all procurement staff on the NPF; (c) developing a manual of procedures (administration, finance, and accounting) to clarify roles for each team member involved in the procurement process and define the maximum delay for each procurement stage, specifically with regard to review and approval systems, and the signing of contracts (see Annex 2 for other mitigation measures); (d) establishing Page 38 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) a special tender board for the project in line with Cameroon’s procurement regulations to oversee review of procurement documents, request for quotations, request for proposals, request for bids, evaluation reports, and drafting of contracts; (e) improving the filing system at the PIU level to ensure compliance with the World Bank procurement filing manual; and (f) Develop contract management plans for prior review contracts. 100. A Project Procurement Strategy for Development (PPSD) and a draft Procurement Plan detailing the first 18 months of implementation were finalized and approved during negotiations. Procurement packages were defined based notably on local market and local enterprises capacity assessment. Detailed marked assessment is provides in the PPSD. During implementation, the Procurement Plan will be updated as required and at least annually, to reflect actual program implementation needs and improvements in institutional capacity E. Social (including Safeguards) 101. The project is classified as Environmental Assessment Category B and is subject to partial assessment as there are potential impacts that could affect local communities’ lifestyle and local communities’ assets. The following social safeguard policies are triggered: Involuntary Resettlement (OP/BP 4.12) and Indigenous Peoples (OP/BP 4.10). A framework approach is applied at this stage of the project as the localities in which activities will be implemented are still not known. Therefore, (a) an RPF (dated July 2018) published in Cameroon on August 7, 2018, and on ImageBank of the World Bank on August 8, 2018 and (b) an IPPF, published in Cameroon on August 7, 2018, and on ImageBank of the World Bank on August 8, 2018 were prepared to mitigate potential risks related to indigenous people lifestyle perturbation and land acquisition or assets destructions. These documents describe procedures and processes that will be followed in preparing and disclosing site-specific social safeguard instruments (Indigenous Peoples Plans and RAPs or Abbreviated RAPs), where required as soon as the exact locations are known. All the above-mentioned documents will have to be consulted upon and disclosed in-country and the World Bank website and mitigation measures and recommendations will have to be properly integrated in all the relevant technical implementation plans before the commencement of works. 102. The framework instruments that have been prepared provide guidance regarding the scope of work required to prepare the specific safeguard implementation instruments, RAPs, Abbreviated RAPs, and Indigenous Peoples Plans. The cost of the implementation of the social mitigation measures under the ESMPs will be included in the contractor’s contracts, while the costs associated with the RAPs will be directly borne by the GoC. The costs related to Indigenous Peoples Plan implementation will be budgeted in the framework of the project. 103. Citizen Engagement. The project design includes the development of a proper GRM. The ESMF shall define guidelines for establishing a project-level GRM to manage any complaints that may arise during project implementation. Grievance management will aim at providing a two-way channel for the project to receive and respond to grievances from the project-affected persons, stakeholders, or other interested parties. The AER and SONATREL will establish a project-level grievance redress and beneficiary feedback mechanism. The mechanism will help provide a forum for resolving grievances and disputes at the lowest level, resolve disputes relatively quickly before they escalate to an unmanageable level, facilitate effective communication between the project and affected persons, and win the trust and confidence of project beneficiaries. (See further Section I below) 104. Gender Based Violence (GBV). A social risk could be posed by bringing in large numbers of outside workers to complete grid extension and mini-grids in project areas. Setting up temporary workers’ camps Page 39 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) may result in GBV, sex trafficking, and child abuse. While the types of civil works envisaged in the project are not expected to result in large numbers of workers from outside the communities, the project will be mindful of this risk and take appropriate measures to prevent and address the negative consequences. This will be done by incorporating obligations in contracts; working with decentralized government entities, public employees, and community-based organizations, and NGOs working on human rights and on preventing GBV, trafficking, and child abuse; and adopting and enforcing a code of conduct for the workers and educating them, as well as the affected communities on the code. Given that this is an emerging risk, a GBV assessment of the Cameroon Country portfolio (including pipeline operations) is ongoing; based on the outcome of the review, additional mitigation measures, if required, will be incorporated into the project during implementation. The project will improve safety by providing electricity to households and setting up street lights. Electrification increases safety for women and girls and allows them to move freely at night. The project will also contribute to the promotion of income-generation opportunities for women and the improvement of health and education benefits for women and girls. F. Environment (including Safeguards) 105. The proposed project will support interventions designed to increase access to electricity and is expected to have some positive environmental impacts through promoting renewable energy development. The environmental impacts of the proposed solar PV mini-plants are likely to be small scale, localized, and short term in nature. These impacts can be readily mitigated through implementation of the safeguards instruments. The project is therefore assigned Environmental Assessment Category B. 106. The project is expected to be implemented in selected localities areas across the East, North- West, South-West, and Far-North Regions of Cameroon. All project components have environmental, health, and occupational aspects that will be addressed through proper environmental assessment. Components 1, 2, and 3 involve construction of HV and MV transmission lines and extension of MV networks and LV networks. These components will involve excavations and earthworks, vegetation clearance of both grass and trees, creation of wetland access paths, establishment of equipment storage areas, land take, and displacement of land users and utility infrastructures and will, therefore, necessitate compensation. Other aspects relate to the management of residual hazardous waste from the solar PV systems, MV feeders, decommissioned transformers, and decommissioned electric creosote treated poles once they reach the end of their life. 107. Policies triggered. The following Environmental Safeguard Policies are triggered: (a) OP 4.01 (Environmental Assessment) because of the likely localized environmental impacts listed earlier; (b) OP 4.04 (Natural Habitats) because of the likely impacts on natural habitats such as protected areas and forests; (c) OP 4.11 (Physical Cultural Resources) because of the associated civil works that may have an impact on unknown and known physical cultural resources; and (d) OP 4.36 (Forests) because of the possibility of power lines passing through forested areas, mainly in the East region. (a) OP 4.01 - Environmental Assessment. It is triggered because the project will support investments with potential negative environmental and social impacts arising mostly from the construction of MV/LV lines, construction and exploitation of HV and MV transmission lines, and the upgrading of substations. The specific locations of all the physical components have not yet been determined and therefore an ESMF has been prepared and disclosed. Once the specific project sites have been identified, site-specific ESIAs and ESMPs shall be prepared. (b) OP 4.04 - Natural Habitats. It is triggered because some HV and MV transmission lines may pass through and affect natural habitats such as forests and protected areas. Any likely impacts shall Page 40 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) be assessed and addressed through the guidance provided in the ESMF, site-specific ESIAs, and ESMPs. (c) OP 4.36 - Forests. This is triggered because some power lines may pass through forest areas, mainly in the East region with the potential of causing negative impacts. Any likely impacts shall be assessed and addressed through guidance provided in the ESMF, site-specific ESIAs, and ESMPs. (d) OP 4.11 - Physical Cultural Resources. This is triggered because of the civil and earthworks during construction of the MV/LV lines which may affect known or unknown physical cultural resources. A chance finds procedure has been developed as part of the ESMF. All contractors will be required to develop and implement a chance finds procedure. 108. Environmental instruments. To manage any likely environmental and social risks and impacts of the proposed project, an ESMF was prepared, consulted upon in-country, and published in Cameroon on August 7, 2018, and on Imagebank of World bank on August 8, 2018. The ESMF includes, among others, guidelines and procedures for the environmental and social screening process and the preparation of site-specific ESIAs and ESMPs. Consistent with best practices in developing ESMFs, ESIAs, and ESMPs, consultations will be held with relevant stakeholders such as local government officials (municipalities, technical devolved services such as Ministry of Labor, Ministry of Environment, ARSEL, and MINEE) as well as local CSOs/nongovernmental organizations (NGOs). Before the start of any construction work, the site-specific ESIAs and ESMPs shall be cleared by IDA and disclosed both in-country and on the World Bank’s website. 109. Institutional capacity to handle environmental and social safeguards. The World Bank Environmental, Health, and Safety Guidelines and Electric Power Transmission Distribution Guidelines and applicable Cameroon laws such as the Occupational Health and Safety regulations shall be used to guide implementation of all related environmental, health, and safety aspects of the project. Adequate environmental and social safeguards human and financial capacities at the PIUs will be set up to oversee implementation of the instruments. To this end, the AER will recruit an environmental and social safeguards specialist and a third-party monitoring agency (CSOs/NGOs based in the Northwest region will be recruited to monitor social and environmental issues) if needed. The third-party monitoring agency will work hand in hand with the divisional committees in charge of monitoring ESMPs. The MINEPDED (central ESIA authority and regional and divisional units) and ARSEL will play their respective regulatory roles and their technical capacity is deemed adequate for institutional set-up. Community Dev Support Project/PNDP III (P144637) has trained all MINEPDED regional delegates, divisional delegates, and a few mayors in the project zones on the environmental and social screening of subprojects and safeguards. In addition, the respective project beneficiary/host local governments and public divisional entities (Ministry of Labor, Ministry of Social Affairs, MINEPDED , and so on) will be involved in monitoring implementation and regular inspection of the construction site and review of implementation status, investigation and response to the public grievance and pollution problem, submission of progress reports on the environmental management plan to relevant institutions, and enforcing of the environmental and social aspects of the project through their divisional committees. These committees will be set up according to Order No. 0010/MINEP of April 3, 2013, which requires setting up a committee for the technical and administrative supervision of the ESMP in each division of the country. However, the AER’s environmental and social management capacity needs to be developed or established and strengthened. This would entail, among others, development of institutional protocols and work procedures for environmental management, health and safety practices, waste and hazardous materials management, stakeholder engagement, and management of RAP implementation. Designated key personnel and consultants responsible for implementing the environmental and social safeguard Page 41 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) requirements will participate in the trainings on ESMF implementation and land acquisition to be organized by the AER in close collaboration with the World Bank. Labor inspectors and contractors and subcontractors will be trained on health and occupational safety issues. In addition, for internal capacity building, the safeguard specialists will learn from each other, especially from other projects. 110. The environmental management clauses will be included in the construction contract. The contractor should implement the environmental clauses in the contract. A qualified owner’s engineer should be engaged to provide supervisory engineers on site to inspect the implementation of the environmental measure. Full- time staff should be appointed by the Owner’s Engineer, and the contractor and subcontractors will be responsible for environmental management on site. G. Other Safeguard Policies (if applicable) Not applicable H. World Bank Grievance Redress 111. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’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 submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, because of WB 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 Redress Service (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. I. Citizen Engagement/Beneficiary Feedback 112. The project will finance activities related to community engagement which will include a survey to analyze access to electricity under the multitier framework.24 ENEO has a call center for the outage management system, which enables it to receive feedback from the customers in case of outages. A survey will be organized to measure the impact of the project and customers’ degree of satisfaction. The survey will pay special attention to women’s satisfaction with electricity service. The survey sample will include married women, widows, and single mothers, and the survey will collect and report gender-disaggregated data. In an effort to promote transparency and accountability, key survey findings will be published in the country. 113. Beneficiary feedback will be recorded and monitored for Components 1, 2, and 3 through the GRM that is described in the ESMF and RPF. The AER PIU and ENEO will gather information about activities where complaints have been brought forward, including information on how they were resolved and relevant follow-up. This information will be included in an annual project progress report and utilized during implementation. These reports will provide information regarding the source and type of grievance and be disaggregated according to gender. This consumer feedback mechanism will be strengthened in a way that 24 The multitier approach to measuring energy access proposed in the SE4ALL Global Tracking Framework of 2013 introduces a five- tier measurement methodology based on various energy attributes, such as quantity, quality, affordability, and duration of supply. The approach makes it possible to compute a weighted index of access to energy for a given geographical area. Page 42 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) will be accessible to women and consider their particular concerns and needs. . Page 43 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Cameroon CM- Rural Electricity Access Project for Underserved Regions Project Development Objective(s) The Project Development Objective is to increase electricity access in Underserved Regions of Cameroon. Project Development Objective Indicators RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Increased electricity access People provided with new or improved electricity 0.00 0.00 52,432.00 152,275.00 302,054.00 426,870.00 520,482.00 service (CRI, Number) Increase of national electrification access rate 0.00 0.00 0.70 2.10 4.20 6.08 7.46 (Percentage) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Rural electrification by grid extension Page 44 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Number of villages electrified (Number) 0.00 0.00 42.00 122.00 242.00 342.00 417.00 Households provided with an electricity connection in rural areas under the 0.00 0.00 12,438.00 36,130.00 71,667.00 101,282.00 123,493.00 project (Number) Of which female-headed households (Percentage) 0.00 0.00 0.10 0.10 0.10 0.10 0.10 Distribution HTA lines constructed under the project in rural areas 0.00 0.00 256.00 742.00 1,473.00 2,081.00 2,537.00 (Kilometers) Distribution BTA lines constructed under the project in rural areas 0.00 0.00 215.00 624.00 1,238.00 1,750.00 2,134.00 (Kilometers) Women employed during grid extension 0.00 0.00 10.00 35.00 40.00 45.00 50.00 electrification (Number) Support to households for connections costs Beneficiary satisfaction survey completed (Yes/No) No No Yes Yes Yes Yes Yes Decentralized rural electrification Renewable energy generation capacity (including mini- hydropower) constructed 0.00 0.00 0.00 3.00 3.00 6.00 6.00 under the project (Megawatt) Strengthening institutional capacity of the electricitiy sector and project management Number of staff trained under the project (Number) 0.00 0.00 50.00 100.00 250.00 300.00 300.00 Page 45 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Private enterprises trained under the project (Number) 0.00 0.00 0.00 10.00 20.00 50.00 Project-related grievances registered under the project GRM and addressed 0.00 100.00 100.00 100.00 100.00 100.00 100.00 (Percentage) Diagnostic study of AER (Yes/No) No Yes Yes Yes Yes Yes Yes IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection This indicator will be calculated by multiplying the number of People provided with new or improved Annual AER AER household connections electricity service times the average household size = 5 The indicator measures the Increase of national electrification access increase in rural Annual PIU PIU rate electrification access rate national wide ME PDO Table SPACE Page 46 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection This indicator measures the number of new high voltage substations Annual Number of villages electrified constructed and commissioned under the project. This indicator measures the SONATREL Households provided with an electricity number of household Annual Progress SONATREL connection in rural areas under the connections completed in report project urban areas under the project. This indicator measures the percentage of connections Annual ENEO AER Of which female-headed households provided to female-headed households in urban areas under the project. This indicator measures the length in km of the high SONATREL voltage transmission lines Distribution HTA lines constructed under Annual Progress SONATREL constructed under the the project in rural areas Report project. The baseline value for this indicator is expected to be zero. This indicator measures the length in km of the low SONATREL Distribution BTA lines constructed under voltage transmission lines Annual Progress SONATREL the project in rural areas constructed under the Report project. The baseline value for this indicator is Page 47 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) expected to be zero. This indicator measures the SONATREL number of women Women employed during grid extension Annual Progress SONATREL employed during grid electrification Report extension electrification under the project. This indicator will measure the completion of the Annual PIU Report AER Beneficiary satisfaction survey completed Beneficiary Satisfaction Survey. The indicator measures the Renewable energy generation capacity in Renewable energy generation capacity megawatt constructed Annual AER AER (including mini- hydropower) constructed under the project. The under the project baseline value for this indicator is expected to be zero. This indicator measures the number of staff of the Annual PIU Report PIU Number of staff trained under the project various sector agencies trained in the project. This indicator measures the number of private Private enterprises trained under the Annual PIU Report PIU enterprises of the various project sector trained in the project. This indicator measures as Project a percentage the number Project-related grievances registered Annual progress PIU of addressed grievances under the project GRM and addressed report over the number of registered grievances. Page 48 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) This indicator will measure Annual MINEE MINEE MINEE Diagnostic study of AER the completion of the Diagnostic study of AER. ME IO Table SPACE Page 49 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) ANNEX 1: DETAILED PROJECT DESCRIPTION COUNTRY: Cameroon CM- Rural Electricity Access Project for underserved Regions (P163881) 1. The PDO is to increase electricity access in underserved regions of Cameroon. The proposed project’s five components are (a) Rural electrification by Grid Extension; (b) Decentralized Rural Electrification(c) Support to Households for Connections costs; (d) Strengthening Institutional Capacity of Electricity Sector and Project Management; and (e) Contingent Emergency Response. 2. The project components are based on the priorities identified in REMP. REMP will focus on underserved regions with low access rates (Far-North, North, Adamawa, North-West, South-West, and East regions) during the first five years. As such, the World Bank will support interventions in these regions, specifically in the Far-North, North-West, South-West and East regions. North and Adamawa regions will be electrified by other partners. Table 1.1 provides the overall cost estimation by component. It is expected that the GoC’s contribution for compensation of resettlement costs will be approximately US$15 million. Table 1.1. Project Costs and Financing by Component Project Components Project IDA GoC Cost (US$ Financing Financing million (US$ million (US$ equivalent) equivalent) million equivalent) Rural Electrification by Grid Extension (US$15 million for 1 105.00 90.00 15.00 ESIA and compensation for resettlement costs) Rural electrification by extension of MV/LV networks (Far 1.1 75.00 75.00 — North, Southwest, Northwest and East) IDA Reinforcements and extension of existing HTB/HTA/BTA 1.2 networks to enhance the security of power supply to new 15.00 15.00 — villages 2 Decentralized Rural Electrification 19.00 19.00 — Development of a pilot public-private partnership for 2.1 6.00 6.00 — decentralized rural electrification 2.2 Securing the power supply of isolated sites by hybridization 13.00 13.00 — 3 Support to Households for Connections Costs 25.00 25.00 — Strengthening Institutional Capacity of Electricity Sector 4 16.00 16.00 — and Project Management 4.1 Strengthening institutional capacity of the electricity sector 1.20 1.20 — 4.2 Owner’s engineers for project supervision 5.00 5.00 — Structuring (i) an industrial strategy built on rural electrification activities and (ii) local expertise for 4.3 2.70 2.70 — engineering, construction, and maintenance of HTA/BTA networks. Page 50 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Project Components Project IDA GoC Cost (US$ Financing Financing million (US$ million (US$ equivalent) equivalent) million equivalent) Gender income generation and capacity building for 4.4 2.30 2.30 — women and youth 4.5 Support to institutional reform of the AER 1.30 1.30 — 4.6 Project management support 3.50 3.50 — 5 Contingent Emergency Response — — — Total Project Costs 165.00 150.00 15.00 Total Financing 165.00 150.00 15.00 Component 1: Rural Electrification by Grid Extension (EUR 90.72 million; US$105.00 million equivalent, of which IDA US$90.0 million and US$15 million of the GoC funding for compensation) 3. This component will support electrification of 417 new localities in Far-North, South-West, North- West, and East Regions and the reinforcement and extension of existing HTB/HTA/BTA networks to enhance the security of power supply to new and existing localities. 4. The following subcomponents will be supported: 5. Subcomponent 1.1: Rural electrification by extension of MV/LV networks (IDA US$75.0 million equivalent). This subcomponent will fund the electrification of approximately 417 new localities in selected rural areas, with a total population of 1,040,963 people, representing approximately 256,265 households in the Far-North, North -West, South-West, and East regions. The activities to be financed include (a) Construction of 2,537 km of HTA lines; (b) Construction of 2,134 km of BTA lines and public lighting; and (c) Erection of 544 overhead pole substations/transformers, including  300 transformers of 50 kVA;  172 transformers of 100 kVA; and  72 transformers of 25 kVA single phase for SWER. 6. Table 1.2 shows the projected increase in access to electricity in the four regions and table 1.3 shows the proposed financing per region. Page 51 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 1.2. Project Area and Indicative Number of Localities, Population, and Households Region Localities Population Households Far-North 315 853,897 165,604 North-West 42 104,287 47,502 South-West 30 56,561 23,037 East 30 26,218 10,842 Total 417 1,040,963 246,985 Table 1.3. Indicative Cost Breakdown of Subcomponent 1.1 Component Cost IDA Financing % IDA Financing (US$ million (US$ million equivalent) equivalent) Far-North 62.00 62.00 100 North-West 7.00 7.00 100 South-West 4.00 4.00 100 East 2.00 2.00 100 Total subcomponent cost 75.00 75.00 100 (a) Subcomponent 1.2: Reinforcements and extension of existing HTB/HTA/BTA networks to enhance the security of power supply to new villages (IDA US$15.0 million equivalent). This subcomponent will finance (i) the construction of new HTA distribution substations and/or HTB/HTA substations; (ii) construction of HTB/HTA lines; (iii) upgrade Figure 1.1. Substation Scheme 25 of single-phase MV (SWER) networks into three-phase networks to cope with the 90 kV line operates in 30kV growth of demand; and (iv) restructuring and reinforcement of the existing HTA network to electrify new localities. The New 3 reinforcement activities will consist of substation at Yagoua upgrading the existing substations and MV feeders to meet operational standards to enable quality of electricity supply for new 90/30 kV localities. For example, in the project area, approximately 480 km of the HTA network Maroua ’s should be reinforced by 2025, that is, 11 substation percent of the existing network. The SWER HTA networks to be upgraded into three- 9 phase HTA represent the majority of the necessary reinforcements (73 percent of the length to be reinforced in the project area for Phase 1 of the REMP). In terms of extension to achieve the access rate objectives of the first phase of the REMP, it is necessary to build approximately 5,000 km of HTA lines in the project area. Hence, this subcomponent will enable the needed power to flow with better quality of supply to existing and new customers 25SWER is a single-wire distribution line for supplying single-phase electrical power from an electrical grid to remote areas at low cost. Its distinguishing feature is that the earth is used as the return path for the current, to avoid the need for a second wire (or neutral wire) to act as a return path. It is principally used for rural electrification but also finds use for larger isolated loads such as water pumps and light rail. SWER is also used for HV direct current over submarine power cables. Page 52 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) in new localities and already electrified localities of the selected project areas. This subcomponent is divided in two separate subcomponents. Table 1.4 provides a summary of activities to be financed and the projected cost. Table 1.4. Indicative Cost Breakdown of Subcomponent 1.2 Component Cost Financing (US$ million equivalent) Construction, reinforcement and upgrade of HTB /HTA lines and HTB/HTA 15 IDA Substations/transformers in Far-North region Total subcomponent cost 15 100 Component 2: Decentralized Rural electrification (IDA EUR 16.4 million; US$19.0 million equivalent) 7. This component will provide funding for two subcomponents: (a) Subcomponent 2.1: Development of a pilot public-private partnership for Figure 1.2. Mini Hydro Potential in Adamoua Region decentralized rural electrification (IDA US$6.0 million equivalent). This subcomponent will support two pilot PPP projects by developing a renewable generation source (PCH) of 1 MW to 1.5 MW each, associated to HTA and BTA networks, to electrify a cluster of 10 to 20 localities in the project areas. These localities are located over 20 km distance from the existing grid of ENEO. For example, about 12 PCHs of 24 MW identified in REMP will electrify 30,192 LV customers in 135 localities with 374,000 inhabitants in North, Adamaoua, and North-West regions. This subcomponent will complement the Green Plan Program for Valorization of Productive Use of Electricity that the AER is developing with the support of FEICOM, local communities, and the Ministry of Rural Development. The principle of the private sector intervention is based on management (O&M) of public-funded infrastructures. The rationale of this type of PPP is based on agreement to maintain uniform tariffs across the country and the likely impact on subsidy/compensation and the fragility and poverty of these areas. The selection of operators will be conducted by ARSEL based on its business plan and specific selection criteria to be outlined in the PIM. The AER will be responsible for planning mini-grid sites and ARSEL for preparation and supervision of the PPP scheme. The activities of this subcomponent include (i) Construction of two PCHs of 3 MW in project areas; (ii) Construction of 70 km to 100 km of HTA lines and 70 km of BTA lines to electrify approximately 20 localities; about 2,000 customers will have access to electricity; and Page 53 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) (iii) Recruitment of two operators to be responsible for O&M of facilities built. Table 1.5. Hydro Mini-grid - Identified in REMP Name of the Peak Capacity of Population Client BT Number MV nearest (kW) hydro plant 2015 of (km) village to the (kW) Localities An 5 An 20 An 5 An 20 plant Mali 2,327 6,473 4,530 71,015 5 691 11,163 13 118 Ngoumi 3 1,225 3,374 3,043 41,643 3,324 6,528 7 51 Sobba 843 2,342 1,200 25,732 2,070 4,054 8 22 Somie-2 821 2,279 1,513 24,978 2,003 3,932 5 29 Ngandoua 877 2,436 1,141 26,595 2,167 4,233 14 87 Wawa Taram Siri 2,414 6,711 5,116 73,608 5,902 11,581 16 161 Fu Bela 1,318 3,667 3,062 40,338 3,268 6,388 24 131 Nabemo 266 738 270 8,078 653 1,280 3 24 Tong 562 1,665 631 27,557 2,227 4,354 12 54 Dow Deo-2 699 1,943 2,964 21,072 1,735 3,387 13 119 Laggaye 272 747 680 9,143 762 1,482 14 47 Vong'na 156 428 345 4,657 390 760 6 60 Total 11,780 32,803 24,495 374,416 30,192 59,142 135 903 (b) Subcomponent 2.2: Securing power supply in isolated sites by hybridization (IDA US$13 million equivalent). This subcomponent aims to enhance the reliability and capacity of existing fossil fuels plants in the ENEO concession and to extend the distribution network in targeted decentralized localities. This subcomponent will fund the hybridization of electricity supply in 5 to 10 localities by adding up to 300 kWp PV solar power plants and 5 to 7 km of additional MV/LV networks (400 V/230 V) by localities. The hybridization will enable a significant increase in electricity supply and its reliability in the localities concerned and will contribute to the reduction of GHGs. The most economical solution in terms of discounted costs is the solution with hybrid system compare to genset alone. The difference in total costs with the diesel solution alone should lead to a reduction in tariffs for a given profitability or an increase in profitability for a given tariff. The activities to be financed include  Construction of 10 PV plants of 300 kWp, in 10 localities in the Far-North; and  Construction of 50 km to 70 km HTA and BTA and to connect about 1000 additional costumers. Page 54 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 1.6. Subcomponent Costs and Financing Component Cost IDA Financing % IDA (US$ million (US$ million Financing equivalent) equivalent) Development of a pilot public-private partnership 6.00 6.00 for decentralized rural electrification 100 Securing the power supply in isolated sites by 13.00 13.00 hybridization 100 Total component cost 19.00 19.00 100 Component 3: Support to Households for Connections Costs (IDA EUR 21.6 million; US$25 million equivalent) 8. The objective of this component is to connect households within the villages that are already electrified and new ones under this project. The experience shows that key constraints to scaling up access in these areas are the ability of beneficiaries to pay the initial connection fee of approximately CFAF 80,000 (US$150) at once. REMP will connect approximately 1 million new households between 2017 and 2035, which will cost approximately US$170 million. A revolving fund mechanism will be used to subsidize connection costs for the households who cannot afford to pay the normal connection fee. This subcomponent will support establishment of a revolving fund to help finance initial household connection costs (including ready boards) to obtain grid supply in the 417 localities (targeted under Subcomponent 1.1) and in electrified localities. The targeted households use electricity for domestic purposes and are on the domestic tariff category for clients on prepayment meters, mainly for low-income rural and semi- urban clients. Repayment of the subsidies will be linked to connection types. A fixed charge indexed to connections fees and revenues will be collected to reimburse the pre-financed connection fees. The scheme is designed so that the costumers will pay CFAF 2,000 and reimburse the connection fee over a 6- to 10-year period. (a) Revolving fund. The revolving fund designed to finance connections fees will be managed by AER as a sub-account of the REF. A special account to receive funds will be opened in a commercial bank acceptable to IDA. An Operational Manual for the management of the fund will be established by the AER. The new connections will be implemented by ENEO. Modalities for the implementation, including tariff structure for connections, procurement procedures, subcontractors to be used, specifications of materials and security standards, approbation procedures, will be agreed upon in a protocol between the AER, MINEE, MINFI, and ENEO. The revolving fund will also finance a standard ready board which will be an integrated connection kit furnished by ENEO and supply standard certified kits to sub- contractors if needed. ENEO will register potential clients in the areas of the project, that is, 417 villages under Component 1 and Component 2. ENEO will pre-finance the connections under the agreed connection costs, as established in the concession agreement and submit monthly reports on works accomplished along with invoices for the connections realized, with sufficient details, including the identification of the clients, GIS coordinates, and contacts in all localities. ENEO will also present monthly reports on reimbursements collected from eligible customers and transfer them to the revolving fund account. ENEO’s accounting system allows to differentiate the payment for energy and the repayment of the connection cost. Page 55 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Figure 1.3. Revolving Fund Mechanism (b) ENEO’s average up-front connection fees. Connection fees depend on the type of connection requested by the beneficiary at the time of subscription (see table 1.7). Table 1.8 shows the amount to be reimbursed per category of beneficiaries based on ENEO’s connection fees figures. The amount to be reimbursed is expected to be revised every year by the fund management committee and the technical committee. Page 56 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 1.7. ENEO’s Connection Fees Table 1.8. REF’s Eligible Type of Connection and Fees Type of Connection Phase Connection Up-front Amount to Be Proportion of Cost (CFAF) payment Reimbursed the Clients (CFAF) (CFAF) (%) KITBRM101 - Social Standard 2 61,763 (2,000) 59,673 90 EQST2A - KITBRT101 4 178,626 (2,000) 176,626 10 9. Component 4: Strengthening Institutional Capacity of the Electricity Sector and Project Management (IDA EUR 13.8 million, US$16.0 million equivalent). This component will support capacity building of implementing agencies and project management, the operating costs of the PIUs including technical and financial audits of the project, and specialized consultancy services to support construction supervision and management. It will also support structuring an industrial strategy built on rural electrification activities and local expertise for engineering, construction, and maintenance of HTA/BTA networks. Partnership with local organizations for developing gender technical skills will be also supported. This component consists of five subcomponents. (a) Subcomponent 4.1: Strengthening institutional capacity of the electricity sector (IDA US$1.2 million equivalent). This subcomponent will support MINEE, ARSEL, and AER. As needed, support may comprise analytic and advisory activities, travel, training, equipment, office space, and vehicles. Training needs have been identified in different areas including project management, power distribution and rural electrification, electricity transmission, procurement, finance and accounting, and environmental and social safeguards. In addition, as part of the project’s efforts to support an inclusive and equal approach to electricity services among men and women, gender and energy trainings will be conducted by the Africa Gender and Energy Program among the AER and ENEO staff in charge of connecting the households. The trainings aim at sensitizing those actors involved in the electricity sector on the relevance of the gender aspects in the provision and management of electricity services. The AFrica Gender and Energy Program trainings will provide MINEE, AER staff, and Page 57 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) ENEO with a more comprehensive understanding of their customers, increasing their knowledge on women’s and men’s different needs related to electricity services and thus improve provision of services to clients. (b) Subcomponent 4.2: Owner’s Engineer for project supervision (IDA US$5.0 million equivalent). This subcomponent will finance the recruitment of an engineering firm to supervise and control the quality of the implementation of engineering works financed under the project. To ensure consistency with the European Investment Bank (EIB) parallel financing, the scope of work of the Owner’s Engineer could also include the supervision of activities financed by the EIB/European Union (EU). In a weak capacity setting such as in Cameroon, the arrangement will ensure capacity building, harmonize the implementation of activities, and ensure efficiency during implementation of a multi-donor engagement. However, the EIB will supervise its own project. (c) Subcomponent 4.3: Structuring (i) an industrial strategy built on rural electrification activities and (ii) local expertise for engineering, construction, and maintenance of HTA/BTA networks (IDA US$2.7 million equivalent). The implementation of REMP will generate steady and consistent investment flows for 20 years. The GoC considers REMP as a multisectoral vehicle for rural area development. Hence, the GoC wants to formulate an industrial strategy built on rural electrification activities under REMP to create industrial businesses to retain part of investment flows in the country. As such this subcomponent will finance (i) A study on structuring local expertise in rural network design, erection, and maintenance; (ii) Development of a local business promotion policy for electrification works and O&M; (iii) Creation of new industrial activities in the electricity sector for the supply of equipment for rural electrification (poles, cables, electrical accessories); (iv) Capacity building in management of large long-term project by local actors; and (v) Development of specific regulation (standardization) and control in the field of rural electrification. (d) Subcomponent 4.4: Income generation and capacity building for women and youth (IDA IDA US$2.3 million equivalent). As employee’s, women’s representation can strengthen energy entities business and social performance, better anchoring the company in its operating environment and also enhance income generating opportunities. As job growth in the energy sector continue to develop through investments, it is essential to develop and implement policies that create a more gender-inclusive workplace. Hence the project will focus on closing gaps in women’s employment by increasing the number of female employees in the grid-extension activities gradually from 10 positions to 50 positions, which will roughly translate to women’s participation in technical roles of around 5-8 percent under the project from a baseline of zero (employment in total per year will range from 200- 700 people). Investments in energy sector should not only improve opportunities for women Page 58 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) related to employment but should also address the gender gaps between women and men related to enterprises and livelihoods at the community level. Hence this sub-component will also support women’s enterprises, social services and livelihood activities to drive socio- economic empowerment for women in underserved regions of Cameroon. Activities funded by this subcomponent will include activities such as:  Promotion of efficient cook stoves for domestic use and commercial use – provision of cook stoves to women contributes to protect their health, as smoke produced by firewood during cooking causes lung diseases.  Increasing women’s role in the grid extension electrification activities, which will present an opportunity in terms of jobs and income generation and drive socio-economic empowerment overall. The project will focus on looking at the skills gaps in the energy sector and female talent pool and relevant HR policies (codes of conduct, collective bargaining and affirmative action etc.) and skills development opportunities for promoting women’s employment in the energy sector.  Enhancing the productive uses of energy for women and youth through the promotion of multifunctional platforms26 to enhance income generating activities and ease women’s daily activities through energy services, thereby reducing time poverty and drudgery.  Creating partnership with local organizations to build the technical and financial management capacity of women and youth enterprises, strengthening access to markets, creating linkages and access to financial products and services and enhancing extension or business and development services. (e) Subcomponent 4.5: Support to institutional reform of the AER (IDA US$1.3 million equivalent). As part of the implementation of REMP, the GoC has requested the World Bank to support restructuring the AER to strengthen its role in rural electrification. Hence, this subcomponent will finance a diagnostic study to review its mission in decentralized electrification, as well as development of a new implementation approach and policy for Cameroon’s electricity access program (project management and contracting, planning and decision tools, financing staffing, and necessary support and training program). This subcomponent will also finance the implementation of outcomes of the diagnostic study. (f) Subcomponent 4.6: Project management support (IDA US$3.5 million equivalent). Activities under this subcomponent will mainly ensure the provision of needed technical, financial, operational, and fiduciary assistance to AER, SONATREL, and ENEO to ensure successful project implementation according to the World Bank policies and procedures. 26 A Multi-Functional Platforms(MFP) is equipment powered by engine of 10 to 12 kW, capable of driving various tools such as mills, huskers, alternators, battery chargers, pumps, welders, woodworking machinery, etc. It also allows the distribution of drinking water and can stimulate the creation, development and / or modernization of crafts in a community. It also adds value to agricultural production (hulling mill, pressing shea and so on.) Page 59 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 1.9. Component Costs and Financing Component Cost IDA Financing % IDA (US$ million (US$ million Financing equivalent) equivalent) Strengthening institutional capacity of the electricity sector 1.20 1.20 100 Owner’s engineers for project supervision 5.00 5.00 100 Structuring of local expertise in engineering, construction 2.70 2.70 100 and maintenance of HTA/BTA networks Gender income generation and capacity building for women 2.30 2.30 100 and youth Support to institutional reform of the AER 1.30 1.30 100 Project management support 3.50 3.50 100 Total component cost 16.00 16.00 100 10. Component 5: Contingent Emergency Response (IDA EUR 0 million, US$0 equivalent). This component, known as the Contingent Emergency Response Component (CERC), will be available if needed, to redeploy some of the project resources alongside those of other projects in the Cameroon project portfolio to respond to crisis and emergency needs. Implementation of this component, if needed, will require formation of Immediate Response Mechanism Coordinating Agency and expenditure management procedures which will be defined in an Immediate Response Mechanism Operational Manual, to be prepared separately and approved by the World Bank, in line with Investment Project Financing Policy and Directive. In the event that this component is needed, the project will be restructured to allocate financing, revise the PDO and indicators, and detail implementation arrangements for the crisis and emergency response. Page 60 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) ANNEX 2: IMPLEMENTATION ARRANGEMENTS Country: Cameroon CM- Rural Electricity Access Project for Underserved Regions (P163881) Project Institutional and Implementation Arrangements- 1. MINEE. The ministry will be responsible for oversight of the project and will provide guidance on policy matters. 2. PSC. The PSC, chaired by the Minister of Water and Energy, will be established and will include representatives from the AER, SONATREL, ENEO, ARSEL, MINEPAT, MINADER, FEICOM, CUCV, and PIU. The PSC’s primary responsibility will be to provide advice and strategic direction, as well as general project oversight related to implementation. The PSC will meet at least once every quarter (more often if required). 3. Regional and departmental delegates of MINEE in project areas will represent MINEE in the field and will report on technical implementation status and issues of the project to MINEE. 4. PIEs. The project will have one implementing agency, AER, and technical focal points, SONATREL and DEL of MINEE. The AER will implement all components, while SONATREL will be a technical focal point for HV network extension activities (Subcomponent 1.2) and DEL will provide inputs for Component 3 and Subcomponents 4.3 and 4.5. The AER will establish a fully dedicated PIU. The PIU will be responsible for the day-to-day management of the project and coordination of project-related activities. The project coordinator will be responsible for overall implementation. The project team will include specialists who will be responsible for the following areas: procurement, FM, technical, safeguards, and communication. 5. ENEO, the future operator of the grid extension infrastructure, will be closely involved in project implementation. ENEO provides inputs in planning, technical specifications, and supervision of the implementation and commissioning of the infrastructure. An agreement will be concluded between the implementing entities, ENEO, AER, and SONATREL, defining respective roles and responsibilities. ENEO will appoint engineers dedicated to providing inputs to the AER and SONATREL on the supervision of the project activities during implementation working with the PIUs and the Owner’s Engineer. ENEO’s role in the execution of Component 1 will be limited to technical inputs and commissioning of completed works to ensure compliance with grid standards and proper synchronization with the grid. Commissioned infrastructure will be handed over to ENEO for operation and management. 6. An MoU approved by MINEE will be signed between the AER and ENEO on operationalization of the revolving fund. The proposed revolving fund will be set up and managed by the AER. An operational manual for the revolving fund will be prepared by the AER. ENEO will implement financed connections. Modalities for the implementation including tariff structure for connections, procurement procedures, subcontractors to be used, specifications of materials, and security standards will be agreed upon in a protocol between the AER and ENEO that will be submitted for approval to the World Bank. 7. Owner’s Engineer. The Owner’s Engineer financed under Subcomponent 4.2 will provide support to the implementation of the project and to the PIU responsible for supervision of investments under Components 1, 2, and 3. The owner’s engineer will also validate the technical specifications for activities Page 61 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) under these components before procurement packages are put out for bid. However, the ultimate responsibility for project management will lie with the AER and SONATREL for their respective components. 8. PIM. The project will be implemented in accordance with the PIM, which will be prepared by SONATREL’s PIU before effectiveness. The PIM will provide guidance on roles and responsibilities of the various institutions as well as on the technical, administrative, financial, and accounting procedures; procurement arrangements; and the safeguard procedures. Multiple ministries will play a regulatory, supervisory, or supporting role for the project. These include MINEE, MINDCAF, the Ministry of Finance MINEPAT, MINFOF, and MINEPDED. 9. Figure 2.1 illustrates the project’s implementation arrangements. Figure 2.1. Institutional Arrangements Financial Management FM Assessment 10. Conclusions of the FM assessment. The overall FM residual risk at preparation is considered Substantial. The proposed FM arrangements for this project are considered adequate and meet the World Bank’s minimum fiduciary requirements. Table 2.1. Assessment Table and Mitigation Measures of Project Risks Risks Description Risk Risk Mitigating Measures Residual Rating Risk Country level H  Donors’ community actions are oriented H  Governance is widely toward Public Financial Management acknowledged to be weak and reform agenda in support of the Page 62 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Risks Description Risk Risk Mitigating Measures Residual Rating Risk may negatively affect the Government’s commitment to tackle the achievement of development cross-cutting issue of Governance in the objectives of programs and public resources management. Donors are projects implemented. supporting through programs and budget support instruments in coordination with the IMF support program that ask for the transcription of the CEMAC directives into national laws as this could help accelerate the pace of the public FM and governance agenda. Entity level H  PIU created within the AER will be staffed S  The implementing entity (PIU) with a seasoned fiduciary team. Internal created to manage the project has control will follow the national internal not been staffed yet (hence with control in place that is working quite well. capacity to be built) and might  An agreement will be concluded between jeopardize the project activities the implementing entity (AER, PIU) and coordination and implementation. ENEO defining the respective roles and responsibilities. Project level S  The internal control that will be built S  The implementing entity, in around an implementation manual will charge of managing project ensure that the project is implemented in including pilot PPP approach accordance with accepted procedures and included in the project design, segregation of duties. The roles and may bring in complexity and responsibilities of the implementing entity additional burden and hamper its and stakeholder will be clearly defined. implementation.  The staffing will be reinforced. INHERENT RISK H S Budgeting S  The government budgeting process and S  Elaboration of a credible budget in calendar will be clearly disseminated to the line with the Procurement Plan project team during the preparation phase and in accordance with the to align the project budget preparation Government budget calendar that timeline to that of the national budget. is to be finalized in October might  The standardized FM manual will be be an issue as it may experience customized to provide clear timeline and delay in relation to the new responsibilities for budget preparation and regulation set for all projects monitoring. prepared and executed in Cameroon. In addition, deviations may be experienced in budget execution of some components that will not be captured by the reports.  And finally, the project might experience variations from budgets that might not be authorized. Accounting S  An FM officer and an accountant will be S  The AER PIU is not yet fully recruited under terms of reference (ToR) Page 63 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Risks Description Risk Risk Mitigating Measures Residual Rating Risk operational and lacks an acceptable to the World Bank and an accounting system. Hence, the accounting software will be installed at the project may experience delays in AER PIU to fulfill the accounting and the treatment of financial reporting needs for the activities under its information and in submissions of responsibility. financial statements (interim and annual). Internal Controls and Internal Audit S  The AER team will be reinforced with S  Absence of a procedure manual seasoned staff. specific to the project  The project manual of procedures will complemented by the lack of include a clear description on the internal experience of the AER PIU might control environment, including description hamper the project. of the project activities, fiduciary implementation and coordination procedures, and roles and responsibilities  The implementation of the of each actor in the project activity control revolving funds might be process. hampered by the lack of  A procedures manual will be written for the appropriate procedures. funds. Funds Flow S  One Designated Account (DA) will be M  As the project does not have a opened in a stable commercial bank dedicated account yet, there is a acceptable to the World Bank. risk that the project funds are  In such a situation, two operation accounts diverted and used for non-project that will receive funds from the DA will be eligible purposes. opened,.  The revolving funds utilization  Two accounts will be opened (one to might not be managed properly. receive the funds from the World Bank and the second to receive the reimbursement from the beneficiaries). Financial Reporting S  The budgeting and accounting module of S  Delays in the submission of agreed the accounting software will be customized consolidated interim financial and deployed to ensure timely recording of reports (IFRs) and annual project financial information as well as timely financial statements as the AER production of quarterly and annual PIU lacks an appropriate consolidated financial statements. accounting software Auditing S  An external auditor will be recruited S  The project account might not be according to ToRs acceptable to the World audited as the AER does not have Bank. an acceptable independent external auditor. CONTROL RISK S S Overall FM risk S S Note: H = High; L = Low; M = Moderate; S = Substantial. Page 64 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 2.2. FM Action Plan Action to Be Undertaken Time Frame Responsible Body 1. Recruit the FM officer at the AER. Before effectiveness SONATREL PIU (PPA) 2. Elaborate the PIM, including FM procedures. Before effectiveness SONATREL PIU (PPA) 3. Purchase and customize an accounting software for the Not later than three months SONATREL AER PIU to handle the project activities under its after effectiveness PIU (PPA responsibility. 4. Elaborate a specific manual to detail the procedures Disbursement condition AER PIU around the management and implementation of the revolving fund that will finance connections fees (as a sub-account of REF). 5. Recruit an external auditor to conduct an annual Within six months of AER PIU financial audit of the financial statements of the project effectiveness along with the review of the internal control system. Financial Management and Disbursement Arrangements FM Arrangements 11. In line with the use of the country national system, the project FM arrangement will rely on the existing country FM arrangements put in place to manage donor-funded projects. These arrangements are centered on two main institutions, the CAA equipped with dedicated tools developed by the Bank IDF and the Ministry of Public Procurement in charge of ex ante control of all suppliers’ invoices associated with a contract before any payment by CAA. 12. Staffing. The AER PIU will be fully staffed with an FM officer and an accountant. 13. Budgeting. The overall responsibility for preparing an annual work plan and related budget will lie with the PIU. The different steps of budget management (preparation, revision, adoption, and execution) will be detailed in the FM section of the PIM. The annual work plan and budget will be prepared yearly, submitted to the World Bank early enough to have them approved and included in the national finance law. A budget execution report will be included in a biannual IFR to enable the project’s implementation to be monitored. 14. Accounting policies and procedures. The PIU, through its accounting team (to be recruited for the AER PIU), will have the overall responsibility for maintaining the accounts of the project activities and ensuring that the annual financial statements are produced on time and in accordance with the accounting standards that are in effect in Cameroon.27 The FM will lie with the AER PIU. The SONATREL PIU will install a new software for the AER PIU through the PPA under SONATREL’s management. Moreover, when the current CAA reporting systems, developed with the software provider Tomate, permit, a dedicated window will be opened for the project’s users by the CAA on the module of the accounting and reporting of said CAA information system. Once the case is set, because of the interface that is being developed between the SIGED and the existing systems in the Directorate of Public Treasury 27 The Accounting Principles set out by L’Organisation pour l’Harmonisation en Afrique du Droit des Affaires (OHADA). Page 65 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) and the Directorate of Investment Projects, the project transactions would be easily incorporated into the national financial statements. 15. Internal control and internal auditing. The administrative, financial, and accounting procedures will be part of the PIM. The manual will include a clear description of the initiation and approval processes with respect to segregation of duties. In that regard the standardized FM Manual of Procedures developed by the CAA with the World Bank IDF support will be customized to reflect the project specificities. The PIU will make use of the computerized accounting system to capture all project-related transactions. The FM officers will be responsible for maintaining all the necessary controls to ensure that (a) the project funds are used only for the intended purposes in an efficient and economical way; (b) the periodic financial reports are prepared accurately, reliably, and on time; and (c) that the project’s assets are adequately safeguarded. These are reinforced by the Government’s internal control arrangements, such as the prior visa payment by the Ministry of Public Contracts that will apply to the project’s invoices and the control by the CAA over withdrawal applications and payments requests. 16. To sustain the capacity-building initiatives of the project team, the World Bank will provide adequate training in disbursement and FM procedures to the project FM team. All these measures aim at further enhancing the internal control system. 17. An internal audit unit will be set up in the AER’s organization scheme. Therefore, when that unit becomes operational, it will be considered to conduct the internal audit reviews of the project. 18. With regard to the implementation of the revolving funds, an MoU will be signed between the AER and ENEO for the operationalization and management of the revolving fund that will be the responsibility of AER. In so doing an operational manual will be elaborated by the AER. This will be a disbursement condition under a specific category. 19. Financial reporting and monitoring. The IFRs to be generated from the computerized FM information system will be presented in accordance with the format acceptable to the World Bank and submitted to IDA within 45 days of the end of each calendar semester. The current content and format of the IFR agreed upon under the Electricity Transmission Project will continue to be used. The IFRs will normally include (a) sources and uses of funds by the classifications of project expenditures; (b) a comparison of budgeted and actual project expenditures (commitment and disbursement) to date and for the semester; (c) a statement of the use of funds by component or activity; (d) DA activity, and (e) a physical progress report on the implementation of the project. At the end of each fiscal year, the project will prepare consolidated annual financial statements and submit it to external audit. 20. External auditing. The consolidated annual financial statements and quarterly IFRs prepared by the PIUs as well as the internal control system will be subject to an annual audit by a reputable and independent auditing firm based on ToRs that are satisfactory to IDA. 21. The scope of the audit will be tailored to the project’s specific risks in accordance with World Bank requirements and will be agreed upon with the Government. In particular, the independent auditor will audit the use of all funds flowing from the DA to the ultimate beneficiaries. The project will comply with the World Bank’s access to information and disclosure policies by making all disclosable audit reports publicly available promptly after receiving them. The project’s external auditor will be hired within six months of effectiveness. A single audit opinion, in compliance with International Standards on Auditing, Page 66 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) will be issued and will cover all the project receipts, payments, and accounts. The audited financial statements, along with the auditor’s report and Management Letter (incorporating management’s comments) covering any identified internal control and accounting system weaknesses, will be submitted to IDA within six months of the end of each financial year. 22. Funds flow and disbursement arrangements. Funds flow will rely on the Government’s banking arrangements through the CAA. In this regard, the CAA’s managing director will continue to act as public accountant. This includes the signing authorization on all payment means using the automated payments module of the CAA information system for donor financing. 23. Funds will flow from the IDA account to one DA denominated in CFA francs and opened in a reputable commercial bank in Cameroon that is acceptable to the World Bank. The DA will be managed according to the disbursement procedures described in the administrative, accounting, and financial procedures manual as part of section of the PIM and the Disbursement Letter. 24. Upon effectiveness, this operation will follow the transaction-based method. The new flexible- based disbursement method will be considered later during implementation depending on the project performance. The DA would receive an initial deposit equivalent to four months expenditures’ forecast and will be replenished regularly through withdrawal applications based on the project activities’ implementation pace and associated needs for additional funding. Direct payment, reimbursement, and special commitment methods will be available to the project and might apply as appropriate. The minimum value of the direct payments, reimbursements, and special commitments will be 20 percent of the DA ceiling. Table 2.3. Disbursement Category Amount of the Financing Percentage of Expenditures to be Allocated (expressed in EUR) Financed (exclusive of Taxes) (1) Goods, works, non-consulting 104,900,000 100 services, consulting services (including for audits), Training, and Operating Costs for Parts 1, 2, and 4 of the Project (2) Goods, works, non-consulting 21,600,000 100 services, consulting services (including for audits), Training, and Operating Costs for Part 3 of the Project (3) Emergency Expenditures (Part 5 100 of the Project): (a) Critical Goods (Part 5 (a) of 0 the Project) (b) Works, non-consulting 0 services, consulting services, Training, and Operating Costs for Page 67 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Amount of the Financing Percentage of Expenditures to be Allocated (expressed in EUR) Financed (exclusive of Taxes) Parts 5 (b) and (c) of the Project (4) Refund of Preparation Advance 3,100,000 Amount payable pursuant to Section 2.07 (a) of the General Conditions TOTAL AMOUNT 129,600,000 Figure 2.2. Disbursement Channel IDA Direct payment DA-A and DA-B (CFAF) CAA Commercial bank Managed by CAA PIU/AER Suppliers and Services providers Flow of documents (invoices, documentation, and so on) Flow of funds 25. With regard to the revolving fund to help low-income households finance initial connection costs, two bank accounts will be opened. The first will receive funds from the World Bank and will be used to pay for the connection costs for those beneficiaries who are not in a financial position to afford it. The second bank account will receive the reimbursement that will be collected through the ENEO energy bill Page 68 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) payment system over a six- to eight-year reimbursement period. The monthly bill will be adjusted to reflect the installment due per beneficiary. The management of the funds will be detailed in the funds operational manual. This will include the beneficiaries’ selection criteria, the payment/reimbursement mechanism, tariff structure for connections, procurement procedures, subcontractors to be used, specifications of materials, and security standards. 26. Implementation support plan for FM. The FM implementation support intensity and frequency will be in line with the risk-based approach and will involve a collaborative approach with the entire task team. A first implementation support mission will be performed three months after the project effectiveness. Afterward, the missions will be scheduled by using the risk-based approach model and will include the following diligences: (a) Monitoring of the FM arrangements during the supervision process at intervals determined by the risk rating assigned to the overall FM assessment at entry and subsequently during implementation (implementation support review). (b) Integrated fiduciary review of key contracts. (c) Review of the IFRs. (d) Review of the audit reports and management letters from the external auditors and follow- up on material accountability issues by engaging with the task team leader, Client, and/or auditors. The quality of the audit (internal and external) also is to be monitored closely to ensure that it covers all the relevant aspects and provides enough confidence on the appropriate use of funds by recipients. (e) Physical supervision in the field. (f) Assistance to build or maintain appropriate FM capacity and efficient internal control system. Procurement 27. Guidelines. Procurement for goods, works, and non-consulting and consulting services will be carried out in accordance with the procedures specified in the World Bank Procurement Regulations, dated July 2016, revised November 2017 and August 2018 (Procurement Regulations), and provisions stipulated in the Financing Agreement. 28. Fraud, coercion, and corruption. The project’s procurement activities will be carried out in accordance with the Anticorruption Guidelines (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 as of July 1, 2016). 29. Procurement documents. For international competitive procurement for goods, non-consulting services, and consulting services, the borrower shall use the World Bank’s Standard Procurement Documents with minimum changes, acceptable to the World Bank, as necessary to address any project specific conditions. Page 69 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 30. Procurement information and documentation - filing and database. Procurement information will be recorded and reported as follows: (a) Complete procurement documentation for each contract, including bidding documents, advertisements, bids received, bid evaluations, letters of acceptance, contract agreements, securities, and related correspondence will be maintained at the level of respective ministries in an orderly manner, readily available for audit. (b) Contract award information will be promptly recorded and contract rosters, as agreed, will be maintained. (c) Comprehensive quarterly reports indicating (i) revised cost estimates, where applicable, for each contract; (ii) status of ongoing procurement, including a comparison of originally planned and actual dates of the procurement actions, preparation of bidding documents, advertising, bidding, evaluation, contract award, and completion time for each contract; and (iii) updated Procurement Plans, including revised dates, where applicable, for all procurement actions. Advertising Procedure 31. General Procurement Notice, Specific Procurement Notices, Requests for Expression of Interest, and results of the evaluation and contracts award should be published in accordance with advertising provisions in the Procurement Regulations. 32. For request for bids and request for proposals that involve international bidders/consultants, the contract awards shall be published in the United Nations Development Business in line with the provisions of the Procurement Regulations. For works and goods, the information to publish shall specify (a) The name of each bidder who submitted a bid; (b) Bid prices as read out at bid opening; (c) The name and evaluated prices of each bid that was evaluated; (d) The names of bidders whose bids were rejected and the reasons for their rejection; and (e) The name of the winning bidder and the price it offered, as well as the duration and summary scope of the contract awarded. 33. For consultants, the following information must be published: (a) Names of all consultants who submitted proposals. (b) Technical points assigned to each consultant. (c) Evaluated prices of each consultant. (d) Final point ranking of the consultants. Page 70 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) (e) The name of the winning consultant and the price, duration, and summary scope of the contract. The same information will be sent to all consultants who submitted proposals. 34. For other contracts, the information should be published in national/regional gazette periodically (at least, quarterly) and in the format of a summarized table covering the previous period with the following information: (a) the name of the bidder/consultant to whom the contract was awarded; (b) the price;(c) duration; and (d) scope of the contract. 35. Training, workshops, and conferences. The training (including training material and support), workshops, and conferences attendance will be carried out based on an approved annual training and workshop/conference plan. A detailed plan providing the nature of training/workshop, number of trainees/participants, duration, staff months, timing, and estimated cost will be submitted to IDA for review and approval before initiating the process. The appropriate methods of selection will be derived from the detailed schedule. After the training, each beneficiary will be requested to submit a brief report indicating what skills have been acquired and how these skills will contribute to enhance his/her performance and contribute to the attainment of the PDO. 36. Operating costs.. Operating costs financed by the project are incremental expenses, including office supplies, vehicles operation, maintenance and insurance, maintenance of equipment, communication costs, supervision costs (that is, transport, accommodation, and per diem), and salaries of contracted and temporary staff, on account of utilities and supplies, bank charges, Office space rental, building and equipment maintenance, public awareness-related media expenses, domestic and international travel and subsistence,. They will be procured using the procurement procedures specified in the project’s manual of administrative, financial, and accounting procedures. Assessment of the PIE Capacities to Implement Procurement 37. The procurement activities for the project will be executed by the AER reporting to MINEE. The AER PIU will carry out the following activities: (a) managing the overall procurement activities and ensuring compliance with the procurement process described in the relevant manuals; (b) ensuring compliance of bidding documents, draft requests for proposals, evaluation reports, and contracts with World Bank procedures; (c) preparing and updating the Procurement Plan; (d) monitoring the implementation of procurement activities; (e) developing procurement reports; and (f) seeking and obtaining approval of internal designated entities and then of IDA on procurement documents, as required. 38. The AER will participate in the process of all procurement activities and will notably support the following activities: (a) preparation of ToRs and the bidding documents; (b) preparation of evaluation reports and contracts related with World Bank procedures; and (c) participation in procurement commission activities and all related meetings. 39. An assessment of the capacity of the AER PIU to implement procurement activities of the project was carried out. The assessment reviewed the organizational structure for implementation of the project, the procurement capacity of the PIU, and the interaction between the different agencies involved in the project. 40. The assessment revealed that (a) the beneficiary agencies have sufficient technical expertise to Page 71 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) prepare the technical documents (ToRs, bidding documents, technical specification), subject to the recruitment of consultants to reinforce specific activities; (b procurement capacity within MINMAP, particularly with regard to IDA financing, is acceptable; and (c) the AER has experience with World Bank procurement procedures during the former energy project it implemented and the procurement specialist who supported the former project has left. 41. The key risks identified for procurement under the project are as follows: (a) staff involved in the project may not have sufficient knowledge of the NPF and/or there is a risk of confusion with previous sets of guidelines; (b) there is lack of proficient procurement staff to implement actions on time and in line with the NPF; (c) inadequate communication and interaction between the beneficiaries and the PIU may lead to delays in procurement processes and poor cost estimations; (d) administrative routines may increase delays in the procurement processes and affect project implementation, (e) the procurement in a specialized market with few bidders can restrict competition and possibly increase prices and collusion risks, (f) there may be poor contract management and administration of big contracts, and (g) poor filing of documents may lead to loss of documents. Overall, all these risks can cause mis-procurement, possible delays in evaluation of bids, and technical proposals leading to implementation delays, poor quality of contract deliverables, and reputational risks to the World Bank and the project. 42. The overall procurement risk for the project is rated High. The residual risk will be Substantial after adopting the agreed mitigation action plan summarized in table 2.3. Page 72 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 2.3. Action Plan Mitigation Measures Risk Action Responsibility Date 1. Staff involved in  Hire, on a competitive basis, a AER/PIU Two months after the project who may procurement specialist who is effectiveness not have sufficient experienced and familiar with World knowledge of the Bank procurement procedures and NPF and/or risk of policies confusion with the  Organize workshop sessions on the AER/PIU Two months after former guidelines NPF to train all staff involved in the effectiveness procurement of the project  Continuous hands-on trainings on the AER/PIU/World During the life of the NPF for identified key staff Bank project 2. Inadequate  Update the project manual to clarify communication and the role of each team member AER/PIU Before Effectiveness interaction between involved in the procurement process the beneficiaries and of the project and the maximum the PIU which may delay for each procurement stage, lead to delays in specifically about the review, procurement approval system, and signature of processes and poor contracts. During the life of the estimation of the  Exercise quality control on all aspects AER/PIU project costs of the procurement process, including 3. Internal developing ToRs, technical administrative specifications, bidding documents, procedures may proposals, request of quotations, increase delays in the evaluation, and award. procurement  Monitor, on regular basis, the AER/PIU During the life of the processes and affect Procurement Plan’s implementation project project and set up a close follow-up in implementation relation with beneficiaries to ensure that appropriate actions are taken on time. 4. Poor contract  Develop contract management plans AER/PIU During the life of the management and for prior review project administration of big contracts 5. Poor filing which  Improve the filing system at the PIU PIU/Procurement During the life of the can lead to loss of level to ensure compliance with specialist project documents World Bank procurement filing manual. 43. Frequency of procurement reviews and implementation support. The World Bank’s prior and post reviews will be carried out based on thresholds indicated in table 2.4. IDA will conduct six-monthly implementation support missions and annual post procurement reviews. The standard post procurement reviews by the World Bank staff should cover at least 20 percent of contracts subject to post review. Post reviews consist of reviewing technical, financial, and procurement reports on project procurement actions by the World Bank staff or consultants selected and hired by the World Bank. Project supervision missions shall include a World Bank procurement specialist or a specialized consultant. IDA may also conduct an independent procurement review at any time until two years after the closing date of the project. Page 73 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 44. Procurement prior review. The procurement risk is rated High. Table 2.4 summarizes the procurement prior review for high risk. These prior review thresholds can evolve according to the variation of procurement risk during the life of the project. Table 2.4. Procurement Prior Review Thresholds (US$, millions) Type of Procurement Thresholds Works 5.0 Goods, information technology, and non-consulting services 1.5 Consulting firms 0.5 Individual consultants 0.2 45. Contract management and administration. For all prior review contracts, contract management plans (in line with the provisions of Regulations Annex XI) will be developed during contracts creation and completed at the time the contracts are signed. PPSD and Procurement Plan (a) The different approaches, the selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the recipient and the World Bank in the Procurement Plan. (b) A PPSD and a derived Procurement Plan for the first 18 months of program implementation were prepared and approved. During implementation, the Procurement Plan will be updated as required—at least annually—to reflect the actual program implementation needs and improvements in institutional capacity. 46. Table 2.5 provides the summary of the PPSD, with the details of major procurements. These packages were defined based notably on local market and local enterprises assessment. Detailed marked assessment is provided in the PPSD. Table 2.5. Summary of PPSD Contract Name, Estimated Cost in World Selection Evaluation Description, and Category US$/Risk Rating Bank Method/Market Methodb Review Approacha Rural electrification works US$62,000,00/High Yes RFB/International, Open Lowest evaluated of 315 localities in the Far- cost North region of Cameroon Rural electrification works US$7,000,000/High Yes RFB/National, Open Lowest evaluated of 42 localities in the North- cost West Region of Cameroon Rural electrification works US$4,000,000/Low No RFB/National, Open Lowest evaluated of 30 localities in the South- cost West Region of Cameroon Rural electrification works US$2,000,000/Low No RFB/National, Open Lowest evaluated of 30 localities in the East cost Region of Cameroon Page 74 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Construction work Maroua- US$15,000,000/Hig Yes RFB/National, Open Lowest evaluated Yagoua 90 kV transmission h cost and HTB/HTA associated substations Supply, installation of 10 US$11,000,00/High Yes RFB/International, Open Lowest evaluated solar power plants, and cost extension of MV/LV networks in localities concerned Construction of 2 mini- US$5,000,00/High Yes RFB/National, Open Lowest evaluated hydropower plants cost Recruitment of 2 operators Cost TBD/High Yes RFB/International, Rated criteria - Vfm responsible for the O&M of Open, Negotiations 2 small hydropower plants of 3 MW built in the North- West and Adamoua Regions Supply and installation of US$600,000 Yes RFB/International, Open Lowest evaluated electric mills, US$/Low cost multifunctional platforms, and improved stoves in the municipalities concerned Supply of three vehicles (2 US$400,000/Low No RFB/National, Open Lowest evaluated station wagons and 1 pick- cost up) for the Project Management Unit Supervising engineer of the US$5,000,000/High Yes QCBS/International, Rated criteria construction works of the Open HTB/HTA/LV electrical networks and the mini- hydroelectric power plants Realization of feasibility US$700,000/High Yes QCBS/International, Rated criteria studies (APS, APD, DAO), Open topographical studies, geological and geotechnical studies, and hydrological studies of mini-hydro sites Feasibility studies of the US$2,000,000/High Yes QCBS/International, Rated criteria hybridization of 10 diesel Open thermal power stations Development of an action US$300,000/High Yes QCBS/International, Rated criteria plan for gender promotion Open activities, the qualitative study on gender, and their needs for the supply of electricity Development of a financial US$200,000/Low No QCBS/International, Rated criteria model for O&M renewable Open energies systems (hydro and hybrid diesel + solar systems) Page 75 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Environmental and Social US$100,000/Low No QCBS/National, Open Rated criteria Studies and Reinstallation Action Plan Accounting and financial US$100,000/Low No CQS/National, Open Rated criteria audits of the PERACE Project Preparation of the Project US$30,000/Low No Individual Rated criteria M&E manual consultant/Open Note: QCBS = Quality- and Cost-Based Selection; CQS = Selection based on the Consultants' Qualifications; RFB = Request for Bids. a. Selection methods/market approach include National, International, Open, Limited, Direct Contracting, Single Source, SBQC/SBQ, and so on, Negotiations, and BAFO. b. Evaluation methods include Rated Criteria (VfM) and Lowest Evaluated Cost. Environmental and Social (including safeguards) (a) The AER and SONATREL (as technical focal point under this project) do not have in place functional environmental and social management units. They will rely on their respective PIU environmental and social staff to plan and manage environmental and social risks and impacts associated with this project. SONATREL has a PIU under another World Bank- supported project (Electricity Transmission and Reform), which includes an environmental safeguards expert. This safeguards expert supports all the World Bank-funded projects. The AER has committed to establish a PIU and will hire two seasoned safeguards experts (one environmental safeguards specialist and one social safeguards specialist). (b) The central and devolved ESIA authorities have the capacity to review and monitor environmental aspects of the project. However, unlike central ESIA authorities, devolved ESIA authorities have inadequate logistical and financial capacities to effectively monitor the ESMF, ESIA, and ESMPs requirements. In addition, they lack social scientists and occupational health experts in their teams. To bridge this gap and ensure proper management of the environmental and social risks and impacts associated with this project, the project will set up different divisional committees in charge of monitoring ESMPs, including occupational health issues in the project areas. Devolved services of the Ministry of Labor will be part of this committee. The costs associated with their operation (supervision and inspection missions) will be borne under Component 4. This includes resources to be allocated for the establishment of environmental personnel (AER PIU), training, workshops, and seminars as well as environmental supervision, inspection, and ESMF follow up missions. (c) The proposed institutional management of environmental and social safeguard aspects are summarized in table 2.6. Page 76 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 2.6. Responsibility and Safeguards Capacity for ESMF Implementation Entity Responsibility and Safeguards Capacity AER/PIU The AER is the lead government institution for implementation of rural electrification projects. Responsibilities:  The AER will take the lead in implementation of activities dealing with purely rural electrification (Subcomponents 1.1 and Components 2 and 3).  The AER will also implement Component 4 and will have a fully dedicated PIU. The AER shall be responsible for oversight and the implementation of mitigation measures and general compliance of the project with any permits, licenses and approval conditions, and related regulations and standards on environment.  The AER shall report on implementation of environmental and social aspects, including resolution of complaints and grievances regarding the project activities by the stakeholders.  The AER shall include environmental, social, health, and occupational safety requirements in the bidding documents and contracts. Capacity: The AER will recruit two safeguards experts (environmental specialist and social specialist) who have sufficient training and experience in environmental and social issues and can effectively coordinate and provide expert advice to contractors on how to effectively implement the required safeguards under this project. The wayleaves unit and procurement specialist under the AER will also work hand in hand with safeguards specialists on resettlement and compensation issues, and bidding processes. The safeguards specialists will train and guide the divisional committees in charge of monitoring ESMPs on management of environmental and social aspects, including issues of health/occupational safety and vulnerable groups. SONATREL - SONATREL will be a technical focal point for HV network extension activities (Subcomponent Technical focal 1.2). point ARSEL Responsibility: The primary duties of ARSEL include tariff setting, development, and enforcement of performance and safety standards and ensuring environmental compliance in the electricity subsector. ARSEL will ensure that the operations and costing of energy from the planned project will be in accordance with its set laws, standards, and tariffs. Ministry of Responsibility: Review and approve ESIAs and project briefs as well as monitoring project Environment, implementation in accordance with national environmental laws and the respective including regulations. devolved units Capacity: The Ministry of Environment has adequate capacity to monitor this project through its department of ESIA and the department of ESMP, in addition to divisional committees in charge of monitoring ESMPs. The costs associated with the operation of these committees will be borne by the project under Component 4. Although MINEPDED has no social scientists and occupational safety expert, divisional committees will include social experts, the labor department, and officials from the social affairs department. Therefore, there is need for close coordination between the divisional committees, third-party monitoring agency, and PIU to fully integrate social issues into monitoring and supervision of the project. Ministry of Responsibility: Review and enforce the Labor Code and conduct regular inspections of all Labor and operations, equipment, work areas, and facilities. Social Security Contractors Responsibility: Actual implementation of the project in the field, including installations. The contractor will be responsible for planning, implementing, and reporting on mitigation measures during the execution of works. Capacity: The contractors are unknown at this point. However, the selection criteria will include past environmental and social performance as well as adequacy of contractor’s staff Page 77 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Entity Responsibility and Safeguards Capacity to effectively put mitigations in place. Contractors will be required to develop a contractor’s ESMP as part of the bidding process. All contractors will be required to appoint seasoned safeguards staff (at least 3) for the implementation of their ESMPs. Supervision/ow Responsibility: The supervision/Owner’s Engineer will ensure that execution of works by all ner’s engineer contractors comply with established cost, quality, and delivery deadlines, as well as comply with environmental, social, and occupational safety requirements. Capacity: The supervision engineer will retain one environmental, health, and safety inspector (36 months) to monitor contractors’ environmental, health, and safety performance and one environmental engineer (39 months). World Bank The World Bank will be responsible for review and clearance of ESIAs as well as offering implementation support supervision to the project’s environmental and social performance through missions. The World Bank will also be responsible for reviewing regular monitoring reports and officially disclosing the ESIAs on its website. Technical guidance may also be provided by the World Bank to the PIUs as needed from time to time. Third-party The agency will monitoring  Collect and verify monitoring data (social, environmental); agency if  Monitor the implementation of the ESMP and RPF in collaboration with the PIU, needed who has the primary responsibility; and  Monitor ESMP and RPF compliance through spot checks and interviews with project- affected persons and report to the World Bank any noncompliance or any complaint from the communities or workers regarding the conduct or behavior. Monitoring and Evaluation 47. The AER PIU will have overall responsibility for reporting to and liaising with the PSC and producing the project’s biannual M&E reports. The report will include the updated Results Framework and action table, listing the corrective actions to be implemented with deadlines as well as the responsible parties. The report will be sent to the World Bank for informational purposes by the AER’s PIU. 48. The project-level M&E framework will track progress during implementation, measure intermediate outcomes, and evaluate project impacts. The results framework in Annex 1 outlines key performance indicators, data collection methods, a timetable for collection, and responsible agencies. This framework will be used to supervise and monitor project implementation. 49. Specific attention will be devoted to monitor and evaluate the project’s gender and social aspects. Activities, targets, and indicators to assess the gender interventions will be integrated in the PIM. During the first year of the project’s implementation, an energy module will be included in a Living Standards Measurement Study (LSMS) study to provide a baseline for the project. The target proportion of connections provided to female- and male-headed households in rural and urban areas will be decided based on the results of the LSMS. Data from the LSMS and the qualitative study on women and men’s energy needs will also help identify the gender outcome indicator to evaluate how the project facilitated women’s access to and use of electricity. 50. Role of direct beneficiaries. The views of the direct beneficiaries will be sought and reflected during the M&E process. The views of other beneficiaries such as private operators will be incorporated. 51. Extensive public consultation was carried out during the preparation of the safeguard instruments Page 78 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) and will continue throughout the project implementation. Civil society, project-affected persons, and various stakeholders were consulted during the preparation of the ESMF and RPF. Most of the concerns expressed by the stakeholders have been taken into consideration. The safeguard instruments were disclosed in-country and through the World Bank’s website. The ESMF proposes a consultation framework for each specific investment. Other Issues 52. Disposal of creosote poles. The electricity companies treated poles with creosote. However, this is no longer permitted under the existing regulations. The disposal of the existing creosote treated poles was identified as an emerging environmental issue for which several options will need to be explored. As the disposal of wooden creosote products is not only specific to the energy sector in Cameroon, this project will give the opportunity to open a dialogue with the authorities and other stakeholders on the best way to handle the disposal of these poles. The relevant World Bank Group Environmental, Health, and Safety Guidelines will be considered. Page 79 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) ANNEX 3: IMPLEMENTATION SUPPORT PLAN CM - Rural Electricity Access Project for Underserved Regions (P163881) Strategy and Approach for Implementation Support 1. The Implementation Support Plan described in table 3.1 explains how the World Bank and other development partners will support the implementation of the risk mitigation measures which have been identified in the Systematic Operations Risk-Rating Tool (SORT). It is also linked to the results/outcomes identified in the Results Framework. The strategy for implementation support has been developed based on the nature of the project and its risk profile. Implementation support has been designed to guarantee efficient and flexible support to the Client and facilitate implementation of the risk mitigation measures which has been identified in the SORT. It is also linked to the results/outcomes identified in the Results Framework. The objective is to ensure that the implementing agency implements the project successfully to achieve the PDO. It also ensures that the World Bank’s resources and staff are sufficient to supervise and support project implementation. The World Bank team members will be based in the field in Cameroon Country Office to ensure timely and continued coordination with the Client, perform close project implementation support, and provide advice on implementation issues as they arise. Implementation Support Plan and Resource Requirements Technical Aspects 2. The level of technical support needed includes staff with energy sector knowledge and expertise; energy access expertise, including procurement experts, safeguards specialists, power engineering, and M&E expertise. The World Bank team will include World Bank staff engineers, complemented with specialized expertise, depending on the nature and scope of each component, to review the project’s technical designs, specifications, and proposals. Field visits will be carried out to the construction sites to monitor progress including environmental and social safeguard implementation. During the regular implementation support missions, the 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. Financial Management and Audit Aspects 3. FM supervision will be consistent with a risk-based approach. The supervision intensity is based initially on the assessed FM risk rating and subsequently on the updated FM risk rating during implementation. Given the Substantial residual risk rating, on-site supervision will be carried out at least twice a year. On-site review will cover all aspects of FM, including internal control systems, the overall fiduciary control environment, and tracing transactions from the bidding process to disbursements as well as the statement of expenses review. Additional supervision activities will include desk review of semester IFRs, quarterly internal audit reports in case the need for an internal auditor arises during implementation, audited annual financial statements and management letters, timely follow-up of issues that arise, and subsequent system documentation (updating the FM rating in the Implementation Status and Results Report and the Portfolio and Risk Management system). Additional target reviews may be conducted depending on emerging risks. The World Bank’s project team will support in monitoring the timely Page 80 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) implementation of the action plan. More detailed FM reviews will also be carried out regularly, either within the regular proposed supervision plan or a more frequent schedule, if needed, to ensure that expenditures incurred by the project remain eligible. Procurement and Technical Aspects 4. In terms of procurement, in addition to the prior review supervision to be carried out by the World Bank, the capacity assessment of the implementing agency has recommended that the World Bank should carry out implementation support missions at least once a year to review procurement actions. These post procurement reviews should cover at least 20 percent of the contracts subject to post review. The World Bank procurement specialists will also regularly participate in implementation support missions to assist in monitoring procurement procedures and plans. The Procurement Plan will indicate contracts which are subject to the World Bank’s prior review. All other contracts will be subject to post review. Environmental, Social, and Gender Aspects 5. Environmental and social monitoring will be undertaken to check the effectiveness and relevance of the implementation of the proposed mitigation measures. This will include regular visits to project areas. Overall, the AER (PIU) will have the lead role in monitoring subprojects to ensure that their various environmental and social obligations are met. The divisional committees in charge of monitoring the ESMP will also monitor the implementation of environmental and social mitigation measures. Suitable project monitoring indicators will be developed by the PIU based on the mitigation measures and the ESMPs or RAPs. At the end of each subproject construction phase, environmental and social issues shall be part of an environmental performance rating for the completion of works sent to the World Bank by the PIU. 6. Field-based senior environmental and social safeguard specialists will supervise and support the implementation of the project and contribute to building the capacity of the Client. The AfrEA Gender and Energy Program will provide technical and advisory assistance to support the development of the gender- targeted interventions. Overall Support Implementation Needs 7. The World Bank team should be composed of a mix of skills and experience for successful project implementation. Table 3.1 outlines the expected staff weeks and travel required to make sure the actions and schedule are appropriately resourced. Page 81 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 3.1. Skills Mix Required Time Focus Skills Needed Resource Estimate (US$, thousands) First 12 Preparation of procurement documents Engineering, procurement, 200 months FM, environmental, and Implementation of ESIA and RAP social 12–60 Review of progress in construction and capacity Engineering, sector 340 months building, review of sector technical and financial regulatory and planning, performance, procurement, M&E, safeguards, M&E specialist, financial and FM analyst, and environmental and social. Skills Needed Number of Number of Trips per year Comments Staff Weeks Team leader and transmission and 10 0 Field staff substation distribution and access engineer Procurement specialist 6 0 Field staff Environmental specialist 6 0 Field staff Social specialist 6 0 Field staff Specialized technical experts 2 As required Financial analyst 2 1 From headquarters Administrative support 3 0 From the field FM specialist 6 0 Field staff M&E expert 2 1 From the region or headquarters Page 82 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) ANNEX 4: FINANCIAL ANALYSIS OF CAMEROON POWER SECTOR. COUNTRY: Cameroon CM - Rural Electricity Access Project for Underserved Regions (P163881) A. Historical Financial Analysis of ENEO 1. Electricity sales have been increasing regularly in recent years with a tariff kept constant, owing to a compound annual growth in electricity sale of 5 percent and increased hydropower capacity, owing to Lom Pangar’s regulating effect. ENEO’s EBITDA has oscillated between EUR 54 million and EUR 93 million during 2012–2017 with a slight improvement as quinquennial regulatory targets have been reset to reflect the reality of the company’s lackluster performance. Profitability 2. ENEO’s profitability is driven by the amount of the yearly GoC compensation owed to ENEO instead of tariff increases. This compensation amount is narrowly linked and highly sensitive to (a) Any capex investments that ENEO makes above the amount of depreciation of its asset base—such investments are incentivized through a 15.19 percent return premium incorporated in the regulatory compensation formula. The formula symmetrically penalizes ENEO if it invests less than the depreciation amount, at the same 15.19 percent rate and (b) The company’s operational performance, namely its distribution efficiency relative to regulatory targets, which highly depends on the quantity and quality of ENEO’s capex investments. 3. For the capex profitability driver, an annual investment of EUR 45 million would have been required to maintain ENEO’s depreciating asset base at the same level, but at least EUR 76 million are estimated to be needed yearly to boost the company’s efficiency and reduce its losses. AES SONEL’s poor management and commitment during 2011–2014 left the company stranded with increasing losses as investments were as low as EUR 13 million in 2013. After taking over ENEO in 2014, Actis increased its capital investments, but the company’s liquidity issues and the uncertainty surrounding the concession extension made it impossible to deploy enough capital to considerably reduce distribution losses. Page 83 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Figure 4.1. ENEO Capex Evolution (EUR, millions) Source: ENEO Financial Statements 4. As a result, the second profitability driver, distribution efficiency, remained low compared to targets, which were set too high for 2011–2015. This has led to ENEO’s EBITDA falling by EUR 150 million over 2012–2015 because of the difference between target distribution efficiency and real distribution efficiency. The target reset in 2016 improved the EBITDA, but this operational metric will continue to negatively affect ENEO’s compensation and financials if the company cannot increase its efficiency in tandem with the regulatory target’s aggressive evolution over 2016–2020 (by 1 percent per year). Figure 4.2. Distribution Efficiency (%) - Actual versus Target Source: ENEO Annual Reports Liquidity 5. Operating cash flows have slightly improved in the same period but are still too low to cover investing and financing cash flows. As for accounts receivable, these have been increasing at a fast pace, more than doubling since 2012, with accounts payable also rising significantly, especially to IPPs (Kribi and Dibamba). Page 84 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 4.1. 2012–2017 ENEO Financial Summary (IFRS) K E Y F I N A N CI A LS - HI ST RO RI CA L 20 1 2 20 1 3 20 1 4 20 1 5 20 1 6 20 1 7 CA G R (E U R m i lli on ) A u di . A u di . A u di . A u di . A u di . U n au di . 20 1 2- 1 7 I n com e St at em en t Electricity Sales 341 352 378 395 396 424 4.5% Tariff Compensation 14 0 27 9 31 14 0.1% New Connections & other Revenues 3 1 9 18 18 18 42.7% T ot al Reven u es 358 353 414 4 22 445 4 56 5.0% Opex (275) (290) (321) (368) (364) (396) 7.6% E B I T DA 83 63 93 54 81 60 EBITDA Margin 23.2% 17.8% 22.5% 12.8% 18.2% 13.1% Depreciation (42) (41) (45) (46) (45) (42) N et I n com e 20 11 11 (30 ) 9 19 Net Income Margin 5.6% 3.1% 2.7% -7.1% 2.0% 4.3% B alan ce Sh eet T ot al A s s et s 94 7 98 6 1,0 0 5 1,0 12 1,10 1 1 , 0 97 PP&E 672 693 680 690 739 737 Other LT Assets 83 85 77 80 87 69 Unrestricted Cash 43 47 29 18 8 5 Accounts Receivable 100 106 136 142 200 212 Other ST Assets 49 55 83 82 67 74 T ot al E qu i t y & Li ab i li t i es 94 7 98 6 1,0 0 5 1,0 12 1,10 1 1 , 0 97 Equity 275 286 308 271 283 300 DFI Debt 189 154 120 86 51 17 Other Liabilities 282 327 312 325 363 354 VAT and Other Taxes Payable 33 16 45 76 114 72 Accounts Payable - IPP 5 21 26 36 70 74 Accounts Payable - Others 16 12 18 29 44 98 ST Debt - Invoice Discounting 35 25 26 ST Debt - DFI Debt 34 34 34 34 34 34 ST Debt - Bridge Loan 25 25 15 Other ST Liabilities 114 137 144 95 90 107 Cas h F low St at em en t Operating Cash Flows 57 54 27 108 97 o/w Changes in W/C 16 (1) (28) 21 2 Investing Cash Flows (3) (29) (47) (59) (31) Financing Cash Flows (46) (43) 10 (60) (67) Ch an ge i n Cas h & Cas h E qu i valen t s 8 (1 8 ) (1 0 ) (1 1 ) (1 ) Wor k i n g Cap i t al Rat i os Receivables (DSO) 102 109 122 123 164 175 Payables (DPO) 28 40 49 64 113 114 Current Ratio 0.95x 0.95x 0.94x 0.73x 0.68x 0.68x Lever age Debt/Equity Ratio 1.71x 1.68x 1.40x 1.52x 1.46x 1.24x 1.50x Source: Based on ENEO IFRS financial statements; detailed notes to accounts are provided in OHADA financial statements which serve as basis for the elaboration of IFRS (International Financial Reporting Standards) financials. Note: DFI = Development Financial Institution; DSO = Days Sale Outstanding DPO = Days Payable Outstanding 6. Because of its deteriorating situation, at the end of 2017, ENEO had over EUR 308 million of receivables, including EUR 133 million of doubtful debt from LV customers. The company also has more than EUR 400 million of short-term payables and these liquidity woes have led to ENEO drawing EUR 16.7 million on its Debt Service Reserve Account in September 2017 to repay the DFI loan installment. 7. With a 11 percent compound annual growth in DSO during 2012–2017, ENEO has resorted to delaying its payables. The Days Payable Outstanding which stood at 28 days in 2012 has risen to 114 days in 2017, a compound annual growth rate of 32 percent. Page 85 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Leverage 8. ENEO’s debt/equity ratio has improved materially going from 1.71 in 2012 to 1.24 at the end of 2017 as depreciation and amortization are used to finance the lackluster capital expenditures program without additional borrowing. A. Financial Projections of the Cameroon Power Sector (ENEO + SONATREL) 9. Electricity sales are projected to grow at 8 percent annually during 2018–2027. Assuming that SONATREL will only recover the costs needed to break even and the tariff stays at the current level, the sector EBITDA is projected to be on average EUR 65 million per year during 2018–2027, which corresponds to only 2 percent annual growth compared to 2017. The capital investment program of SONATREL combined with its growing operating costs will neutralize additional operating cash generated through higher sales. 10. The average EBITDA margin is forecast to decrease by 44 percent from the realized rate of 18 percent during 2012–2017 to a rate of 10 percent on the projection period 2018–2027, as the growing cost of operating SONATREL is not met by a tariff adjustment. 11. Because of the inadequate tariff adjustment, the GoC will need to provide two sets of subsidies: (a) Subsidy to ENEO for lack of sufficient revenue collected to cover its cost of service, (b) Subsidy to SONATREL to cover at least its operating costs, ignoring its cost of capital. 12. The total subsidy during 2018–2027 is forecast to be around EUR 945 million (ENEO - EUR 150 million and SONATREL - EUR 795 million). Alternatively, the sector will need to raise the tariff by 1.7 percent (corresponding to EUR 0.0166 per kWh) annually to eliminate completely the subsidy needed for the sector to breakeven. Profitability 13. ENEO’s profitability is driven by the amount of the yearly GoC compensation owed to ENEO instead of tariff increases. This compensation amount is narrowly linked and highly sensitive to (a) ENEO’s cost of equity; (b) its regulated asset base; and (c) its distribution efficiency (losses). On the projected period (2018–2027), ENEO will have a steady growing net income while the sector will see a growing operating deficit. The company’s operational performance, namely its distribution efficiency in relation to the regulatory targets, will stay the target in all projection years. Table 4.2. 2018–2027 ENEO and Sector Profitability 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. ENEO Net Income 14 17 28 37 41 38 37 36 56 67 Sector Net Income 8 (0) (10) (51) (101) (123) (133) (139) (122) (116) Total Operation Subsidy 4 12 10 51 102 146 162 156 154 149 Source: WBG/IFC Staff projections Page 86 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 14. For the capex profitability driver, an annual investment of EUR 54 million will be required to maintain ENEO’s depreciating asset base at the same level. Additional capital investment will be needed to boost the company’s efficiency (closing the gap between actual distribution efficiency and regulatory target) and reduce its losses. However, the uncertainty which is still surrounding the concession extension made it impossible to deploy enough capital to considerably reduce distribution losses. Figure 4.3. Projected Sector Capex Evolution (EUR, millions) Source: WBG/IFC Staff projections 15. As a result, the second profitability driver, distribution efficiency, will remain low compared to targets, which were revised in 2016. The projected difference between the target’s distribution efficiency and real distribution efficiency will limit ENEO EBITDA growth. Even though the efficiency target was revised, it will continue to negatively affect ENEO’s compensation and financials if the company cannot increase its efficiency in tandem with the regulatory target’s aggressive evolution over 2018–2020 (by 1 percent per year). Figure 4.4. Distribution Efficiency (%) - Projected versus Target Source: WBG/IFC Staff projections Liquidity 16. ENEO operating cash flows (only source of cash inflows, excluding subsidies) are forecast to stay positive with a moderate annual growth of 2.8 percent during 2018–2027, but will still be too low to cover the sector capital expenditures needed. Page 87 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Figure 4.5. Operating Cash Flows versus Capital Investment Needs (EUR, millions) Source: WBG/IFC Staff projections 17. DSO is projected to stay high (172 days on average or 5.7 months). The level of doubtful accounts as percentage of revenue will not decrease on the forecast period (2018–2027). 18. The Days Payable Outstanding which stood at 114 days in 2017 will rise slightly to reach an average of 125 days on the projection period 2018–2027. 19. The current ratio is projected to stay below 1.0 (commonly accepted appropriate level) during 2018–2020 before rising progressively to 1.24 in 2027. Leverage 20. ENEO’s debt/equity ratio is projected to initially increase to 1.47 in 2018 before following a downward trend to reach 0.80 at the end of 2027 as ENEO repays its debts obligations. On the other hand, SONATREL’s debt/equity ratio is projected to increase materially, starting from 1.03 in 2018; the ratio will increase steadily to reach 6.15 in 2020 before trending down to settle at 3.04 in 2027 as the company is embarking on an aggressive capital investment program. Significant equity injection, in addition to the planned investment subsidy, will be needed to materially slow down the growth in this metric. Page 88 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 4.3. 2018–2027 Sector Projected Financial Performance Summary (IFRS) KEY FINANCIALS - PROJECTION 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 CAGR (EUR million) Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. 2018-27 Income Statement Electricity Sales 497 547 583 604 682 723 767 814 857 895 7.8% Tariff Compensation 4 12 0 0 1 23 30 17 32 33 8.9% New Connections & other Revenues 15 15 15 16 22 23 25 27 30 30 5.5% Total Revenues 515 573 599 620 704 769 822 858 919 958 7.7% Opex (ENEO) (384) (434) (440) (451) (544) (612) (664) (693) (713) (742) 6.5% Opex (SONATREL) (36) (44) (55) (93) (115) (122) (131) (135) (138) (143) 16.7% EBITDA 95 95 104 76 46 35 26 30 68 73 2.0% EBITDA Margin 18.5% 16.6% 17.4% 12.3% 6.5% 4.6% 3.2% 3.5% 7.4% 7.6% Depreciation (ENEO) (47) (51) (54) (52) (40) (43) (45) (55) (65) (60) Depreciation (SONATREL) (2) (3) (9) (19) (53) (68) (72) (75) (77) (78) Other non-Core Expenses (25) (25) (25) (24) (24) (24) (24) (23) (23) (22) EBIT 22 16 16 (19) (72) (100) (114) (123) (97) (87) EBIT Margin 4.2% 2.8% 2.7% -3.1% -10.2% -13.0% -13.9% -14.3% -10.6% -9.1% Interest expense (ENEO) (3) (4) (4) (4) (4) (2) (2) (3) (3) (4) Interest expense (SONATREL) (7) (12) (26) (53) (75) (82) (82) (82) (82) (81) EBT 12 (1) (14) (76) (150) (184) (198) (207) (182) (173) EBT Margin 2.3% -0.1% -2.5% -12.6% -22.0% -25.4% -25.8% -25.5% -21.3% -19.3% Income Tax (4) 0 5 25 50 61 65 68 60 57 Net Income 8 (0) (10) (51) (101) (123) (133) (139) (122) (116) Additional Subsidy 0 0 10 51 101 123 133 139 122 116 Total Breakeven Subsidy (excl. Sonatrel CoE) 4 12 10 51 102 146 162 156 154 149 Energy Sales to Retail Customers (GWh) 3,545 3,947 4,190 4,361 4,986 5,322 5,680 6,061 6,404 6,767 Equivalent Tariff increase (EURct/kWh) 0.10 0.31 0.23 1.17 2.04 2.74 2.86 2.57 2.41 2.20 1.66 Current Retail Tariff (EURct/kWh) 12.23 12.23 12.23 12.23 12.23 12.23 12.23 12.23 12.23 12.23 12.23 Cost Reflective Retail Tariff (EURct/kWh) 12.33 12.54 12.46 13.40 14.27 14.98 15.09 14.80 14.64 14.43 13.89 Tariff Increase Needed (%) 0.8% 2.5% 1.9% 9.6% 16.7% 22.4% 23.4% 21.0% 19.7% 18.0% 13.59% Annual Tariff Increase Needed 0.8% 1.7% -0.6% 7.5% 6.5% 4.9% 0.8% -1.9% -1.1% -1.4% 1.72% Source: WBG/IFC Staff projections . Page 89 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 4.4. 2018–2027 Sector Projected Financial Performance Summary (IFRS) KEY FINANCIALS - PROJECTION 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 (EUR million) Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Balance Sheet (ENEO) Total Assets 1,153 1,191 1,213 1,242 1,263 1,300 1,382 1,461 1,563 1,624 PP&E 787 825 841 854 854 858 912 983 1,046 1,078 Other LT Assets 86 68 68 68 68 68 68 68 68 68 Unrestricted Cash 0 0 0 0 0 0 0 0 0 0 Accounts Receivable 236 260 266 281 301 342 369 377 414 438 Other ST Assets 45 38 39 40 40 32 33 34 35 40 Total Equity & Liabilities 1,153 1,191 1,213 1,242 1,263 1,300 1,382 1,461 1,563 1,624 Equity 322 339 367 404 445 483 520 557 613 680 DFI Debt 0 0 0 0 0 0 0 0 0 0 State Concession rights 106 106 106 106 106 106 106 106 106 106 Other LT Debt 104 144 153 148 99 76 103 135 174 157 Other Liabilities 264 266 269 271 273 276 278 280 282 283 VAT and Other Taxes Payable 114 114 114 114 114 114 114 114 114 114 Accounts Payable 85 99 101 104 129 148 162 170 175 183 ST Debt 80 44 24 14 14 14 14 14 14 14 Other ST Liabilities 77 78 79 80 81 82 83 84 85 86 Cash Flow Statement (ENEO) Operating Cash Flows 57 108 103 100 108 87 89 110 108 128 o/w Changes in W/C (24) 20 0 (7) 11 (7) (6) 7 (26) (11) Investing Cash Flows (103) (96) (77) (70) (44) (51) (103) (129) (132) (96) Financing Cash Flows (58) (52) (35) (25) (15) (14) (13) (14) (14) (15) Change in Cash & Cash Equivalents (105) (40) (9) 5 49 23 (27) (33) (38) 17 Working Capital Ratios Receivables (DSO) 174 173 166 170 161 173 175 169 176 178 Payables (DPO) 136 131 130 130 125 122 120 120 120 121 Current Ratio 0.79x 0.89x 0.96x 1.03x 1.01x 1.04x 1.07x 1.07x 1.16x 1.20x Capital Structure Ratios Debt/Equity Ratio 1.47x 1.53x 1.44x 1.30x 1.08x 0.95x 0.94x 0.94x 0.92x 0.80x EBITDA/Interest Expenses 9.52x 5.72x 3.40x 1.34x 0.58x 0.42x 0.32x 0.36x 0.80x 0.86x KEY FINANCIALS - PROJECTION 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 (EUR million) Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Balance Sheet Items (SONATREL) PP&E 246 555 1,228 2,033 2,397 2,457 2,482 2,458 2,425 2,392 Equity 36 63 46 38 49 72 96 118 140 161 Investment Subsidy 99 151 188 255 347 386 415 423 440 456 LT Debt 139 398 1,040 1,803 2,126 2,181 2,194 2,141 2,020 1,872 Debt/Equity Ratio 1.03x 1.87x 4.46x 6.15x 5.37x 4.76x 4.30x 3.96x 3.48x 3.04x Source: WBG/IFC Staff projections Page 90 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) ANNEX 5. ECONOMIC AND FINANCIAL ANALYSIS OF THE PROJECT COUNTRY: Cameroon CM - Rural Electricity Access Project for Underserved Regions (P163881) I. Introduction 1. Project objective and costs. The PDO is to increase electricity access in underserved regions of Cameroon. The activities envisaged include (a) the rural electrification by extension of MV/LV networks to connect about 126,500 new customers and (b) the reinforcement and extensions of HTB/HTA networks. The project will also support the expansion of the network and connection of new households, will provide support to household connections costs, and provide capacity building to the project management implementation. 2. The estimated costs of the project activities are provided in table 5.1. Table 5.1. Project Costs Breakdown for the Project Activities Cost Category Project Costs Of Which IDA (US$, millions) (US$, millions) Rural Electrification by Grid Extension 105.00 90.00 Decentralized Rural Electrification 19.00 19.00 Support to Household Connections Costs 25.00 25.00 Strengthening Institutional Capacity of Electricity Sector 16.00 16.00 and Project Management Total Project Costs 165.00 150.00 3. Rationale for public financing. The rationale for public sector financing for the investments rests primarily on the present characteristics of the Cameroon 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 the Cameroon power sector. 4. The scope of overall sector investments in generation, transmission, distribution, and capacity building is beyond the available financial resources of the GoC. Several multilateral and bilateral partners and various lending institutions are supporting the GoC’s ESDP. However, the combined financial support from these partners is still inadequate to meet the sector’s investment needs. As part of the ongoing reforms, legal and regulatory changes are being made to promote private investments on segments of the sector that are more conducive for private participation, such as generation. 5. World Bank’s added value. The World Bank is active and experienced in supporting electrification globally and therefore can share experiences, expertise, and lessons learned from previous operations all over the world where it has improved the livelihood of poor people. The World Bank Group has over the years been a close partner of the GoC in the development of its electricity sector particularly in generation, transmission, and distribution. The World Bank is, therefore, well-positioned to continue its commitment Page 91 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) to the expansion and modernization of electricity supply in Cameroon, also building on its experience in similar programs in Cameroon, such as the ongoing Electricity Transmission and Reform Project (P152755). 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, World Bank financing will enable the GoC to source financing under terms that would support the financial viability of the investment to increasing access to electricity and support inclusive economic growth. Methodology for the Economic and Financial Analysis 7. The project economic analysis seeks to assess the net economic benefits to Cameroon's society of the proposed rural electricity access investment; the financial analysis assesses the investment impacts on the power sector. 8. Development impacts expected from the proposed investment. The PDO is to increase electricity access in underserved regions of Cameroon. This will be done by financing the rural electrification by grid extension investment benefitting new and existing localities which will be achieved through construction of new HTA and BTA lines to connect about 417 localities, where 126,500 households are expected to gain access to electricity. The decentralized rural electrification component of the project will allow increase in electricity supply through construction of two PCHs where about 2,000 new customers will have access to electricity. In addition, hybridization will allow the reduction of fuel consumption during the day, as solar power will replace the existing non-efficient off-grid diesel power plant, thus reducing GHGs emissions. This system will allow about 1,000 customers to gain access to reliable and clean electricity. The support to household connections costs component will benefit lower income rural and semi-urban consumers who cannot afford to pay upfront the normal connection fee, to have access to electricity through a revolving fund. This mechanism pre-finances the new client who will pay CFAF 2,000 and reimburse the connection fee over 5 to 10 years. It is estimated that about 126,500 new customers will have access to electricity during the project implementation period. Material increase in access to electricity consumption is therefore expected. II. Economic Analysis Economic Benefits Evaluation Criteria 9. The economic analysis seeks to estimate the net economic benefits for Cameroon's society of the proposed rural electricity access investments over the investment economic life by comparing (a) the benefits streams associated with (i) revenue collected and transmission loss saving and additional consumption of electricity by the new households and commercial and productive users (about 126,500) and (ii) the transmission loss and undistributed energy savings realized when the MV/LV network distribution systems are reinforced; and (b) the stream of economic costs (initial capital expenditures, additional generation, distribution, and undistributed energy saved costs) associated with the additional electricity services used by the consumers affected by the project. 10. For each of the three main components, the rural electrification by grid extension, the decentralized rural electrification, and the support to household connections investments, the economic Page 92 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) benefits and costs of delivering new and 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, generation or distribution investment is carried out; and a ‘with the project’ scenario comprising project investment in network extension, densification, hybridization, and strengthening. 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 substations, and the associated technical losses.  Project economic investment. The project’s total investment requirement is US$165 million, including all sources of funding. The economic analysis focuses on three components that account for 93.9 percent of the total project investment. The other ancillary costs (project management) have been allocated to the physical components of the project proportionally. These costs exclude the value added tax (VAT) and duties applicable in Cameroon on imported equipment.  Economic life of the project. The economic life of the components of the project is set forth: o MV/LV substations expansion component of the project is set to 25 years o The PPP renewable energy plants (Pico Hydro) component of the project is set to 50 years o The solar plants component of the project is set to 25 years o The distribution lines component is set to 50 years  Economic discount rate. The economic discount rate assumed is 6 percent (see 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 rural and peri-urban areas. In the absence of specific surveys of the values assigned to electricity services in Cameroon, for this analysis, the economic value or WTP is set conservatively at US¢25 per kWh (CFAF 133 per kWh).28  Cost of generation. With the expansion and upgrade of the MV/LV substations, the project will increase access electricity to new customers. The cost of generation is assumed to be the average cost of energy supply, which is currently close to US¢6.54 per kWh.  Savings on undistributed energy. The project will help reduce the level of non-distributed energy by improving network reliability. The economic analysis assumed that the level of non-distributed energy before the execution of the project is 0.7 percent of total energy supplied in the northern grid MV busbar between 2018 and 2035 and 0.4 percent thereafter. 28 Using an exchange rate of US$1= CFAF 530. Page 93 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) The project will help reduce this non-distributed energy by 25 percent after the implementation of the project. The additional energy made available will be supplied to the customers (existing or new) at average retail tariff (US¢15 per kWh). The cost of the said energy is set at the average cost of energy supplied to the national network (US¢6.54 per kWh).  Additional energy demand from 200,000 new customers. The new customers that will be connected during the implementation of the project are assumed to have a specific consumption rate as described in table 5.2. Table 5.2. Unit Customer Consumption Rate per Region in kWh per Year Region Unit Customer Consumption Rate Far-North 828 North 828 Adamaoua 1,020 North-West 648 South-West 648 East 732  These specific consumption rates are assumed to grow 1.5 percent annually.  Incremental O&M costs. The underlying assumptions related to the incremental O&M costs are summarized below as a percentage of the corresponding capital expenditures. Table 5.3. Incremental O&M Costs per Type of Asset Type of Asset Incremental O&M Costs (%) Transmission lines 2.0 Substations 3.0 PCHs 3.0 Solar plants 1.0  Distribution costs. Due to the size of the additional energy that will be made available to the power network, incremental distribution and commercial costs are estimated to be material. The incremental distribution and commercial costs are estimated to US¢1.7 per kWh (12 percent of average tariff).  Environmental and social impacts. Only negative environmental impacts related to GHG emissions are factored in this analysis. Positive social impacts such as improved lighting conditions, improved air quality (substitution from kerosene lamps or from stand-alone small gasoline generators), and lower noise levels are not included.  Transmission and distribution losses reduction. Transmission and distribution losses have been estimated on the northern grid. The total losses are a result of several network expansion and upgrade projects. Therefore, the analysis assumes that only 25 percent of total losses reduction on the northern grid is attributed to the project.  Collection rate. A collection rate of 98 percent is assumed for the analysis. Page 94 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881)  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 loss savings projected with the upgrade of the transmission system; (c) nondistributed energy saved; (d) the use of solar power during the day to substitute fuel consumption; and (e) off-grid customers served with the implementation of the PCH project.  Sensitivity analysis. Switching values of the main project variables have been assessed to determine their impact 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 is presented in table 5.4. Overall the proposed project is expected to yield substantial net economic benefits and economic return (EIRR of 10.79 percent). Table 5.4. Project ENPV and EIRR - Base Case ENPV Benefits/Costs (EIRR) Investment (US$, millions) Ratio (%) Component 1: Rural 116.4 1.41 11.4 Electrification by Grid Extension Subcomponent 2.1: Development of a pilot public-private 3.9 1.47 9.8 partnership for rural electrification Subcomponent 2.2: Securing the power supply of isolated sites by 13.1 2.00 13.5 hybridization Component 3: Support to (6.2) 0.71 (0.96) Household Connection Costs Component 1, 2, and 3 127.2 1.39 10.79 Project NPVs and EIRR - Base Case with GHG reductions included 13. When GHG emissions are accounted for, the abovementioned economic results are further improved, and the proposed project is expected to yield larger net economic benefits and economic return (EIRR of 15.8 percent using the low shadow carbon price forecast, and 17.6 percent using the high shadow carbon price forecast). Table 5.5 presents the corresponding results for Components 1, 2, and 3 combined. Table 5.5. Project Economic Viability with GHG Estimates Included ENPV Benefits/Costs (EIRR) Investment (US$, millions) Ratio (%) Components 1, 2, and 3 127.2 1.39 10.79 without GHG emission reduction Components 1, 2, and 3 with GHG emission 185.3 1.58 12.6 reduction low shadow carbon price Components 1, 2, and 3 with GHG emission 248.8 1.78 14.2 reduction high shadow carbon price Page 95 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Project Net Economic Benefits - Sensitivity Analysis 14. The proposed project is expected to provide substantial positive net economic benefits under a wide range of situations. The key factors affecting project net economic impacts would be (a) increase in project investment costs; (b) increase in cost of energy supplied and made available through the project to new customers; and (c) decrease in WTP. The results of the sensitivity analysis are provided in table 5.6. 15. The overall EIRR and NPV of the project would remain robust under all sensitivity scenarios that include: a decrease in the level of WTP, increase in cost of energy supply, increase in O&M cost, increase in distribution and commercial cost, and increase in capital expenditures. The results are presented in table 5.6. Table 5.6. Sensitivity Analysis (Switching Values) Switch Unit Original Value Change (%) Values Component 1 - Rural Electrification by Grid Extension WTP US¢/kWh 25.0 17.5 (–) 30 Cost of energy supplied US¢/kWh 6.5 12.7 (+) 95 Distribution and commercial cost US¢/kWh 1.7 10.7 (+) 437 O&M cost % capex 2.2 9.2 (+) 421 Capex (cost overrun) US$, thousands 165,000 323,040 (+) 96 Subcomponent 2.1: Development of a pilot public-private partnership for decentralized rural electrification WTP US¢/kWh 25.0 17.1 (–) 32 Distribution and commercial cost US¢/kWh 1.7 7.8 (+) 348 O&M cost % capex 3.0 9.4 (+) 213 Customers' unit consumption growth kWh/Year 1.5 –0.7 (–) 146 rate Number of customers growth rate % 5.0 2.7 (–) 46 Capex (cost overrun) US$, thousands 6,802 10,452 (+) 54 Subcomponent 2.2: Securing the power supply of isolated sites by hybridization Capacity factor % 33.0 17.0 (–) 48 Cost of light fuel US$/Liter 1.08 0.53 (–) 51 O&M cost % capex 1.0 10.9 (+) 988 Capex (cost overrun) US$, thousands 14,737 29,454 (+) 100 Component 3 - Revolving Fund Not applicable Project (Component 1+2+3) WTP US¢/kWh 25.0 17.1 (–) 30 Cost of energy supplied US¢/kWh 6.54 13.3 (+) 103 O&M cost % capex 1.99 10.5 (+) 427 Distribution and commercial cost US¢/kWh 1.7 9.6 (+) 427 Capex (cost overrun) US$, thousands 165,000 306,614 (+) 86 Page 96 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) GHG Emissions and Climate Co-benefits 16. GHG accounting has been undertaken for the project, which will result in GHG emission reductions of 4,675,612 tCO2. The project will provide new or improved electricity services to users through grid extension. It allows grid electricity to substitute for self-generation using GHG-intensive fuel- burning lighting devices such as kerosene lamps, oil lamps, and candles. According to the World Bank’s GHG guidance on energy access operations, the default LCD/SIDS off-grid emission factor is 0.800 tCO2 per MWh (a baseline scenario) and shifting to grid electricity with an emission factor of 0.399 tCO 2 per MWh (Cameroon) will, therefore, avoid a net 0.401 tCO2 per MWh. As the total generation required for new or improved connections is expected to be 13,853 GWh over 50 years of economic life the distribution network expansion component, the grid extension will therefore avoid 3,818,564 tCO2 over the economic life of 50 years. In addition, through distribution network strengthening and expansion, the project will reduce the distribution network losses which will save 690 GWh of electricity over 50 years for the additional customers that can now be served with the saving. Each MWh will avoid 0.401 tCO 2, which is the net emission factor (difference between baseline emission factor of 0.800 tCO2 per MWh and Cameroon grid emission factor of 0.399 tCO2 per MWh). With these assumptions, this project component will avoid 276,722 tCO2 over the economic life of 50 years. In addition, the reduction in undistributed energy will save 47 GWh of electricity over 50 years. Each MWh will also avoid a net 0.410 tCO 2, as non- distributed energy saved is used for unserved demand. The project will, therefore, avoid 19,020 tCO2 over the economic life of 50 years. Furthermore, the default LCD/SIDS off-grid emission factor being 0.800 tCO2 per MWh (a baseline scenario), shifting to Pico hydro generation with emission factor of 0.0029 tCO 2 per MWh will therefore avoid a net 0.7971 tCO2 per MWh. As the total generation of the PCH is expected to be 526 GWh over 50 years of economic life of the PCH component, the PCH will, therefore, avoid 418,956 tCO2 over the economic life of 50 years. Finally, with the implementation of hybridization with solar plant, the project will help substitute higher carbon content electricity generated with diesel off-grid generation (0.650 tCO2 per MWh) with zero carbon emission electricity from the solar plants. The substitution will result in the avoidance of 142,350 tCO2 over the economic life of 25 years. Table 5.7 summarizes the emission and climate co-benefits assessed. Table 5.7. GHG Emission Reduction Estimates Lifetime Carbon Carbon Carbon Energy Emission Emission Emission Before the After the reduction Project Project (+) (–) (=) tCO2/MW Energy balance GWh tCO2/MWh tCO2 h Energy at busbar (Component 1 - new Grid 9,523 0.8000 0.3990 3,818,564 customers) Distribution loss saving (Component 1) Grid 690 0.8000 0.3990 276,722 Undistributed energy saving (Component Grid 47 0.8000 0.3990 19,020 1) Energy at busbar (PCHs) Off-grid 526 0.8000 0.0029 418,956 Energy at busbar (solar plants) Off-grid 219 0.8000 0.0000 142,350 4,675,612 Page 97 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) III. Financial Analysis 17. The financial analysis of the proposed investment in the transmission and distribution networks seeks to assess the FIRR and the expected impacts on cash flow from the implementation of investment in the transmission network and in the distribution network. The indicator selected to carry out this financial assessment is the impact on cash flows through the project FNPV. Project Impacts on Project Finances 18. The methodology and main assumptions (in addition to the ones already listed in the economic analysis) to estimate the project FIRR are described as follows:  Average tariff. It has been assumed that the average current tariff, which is around US¢15.0 per kWh and will be adjusted 1 percent annually from the current level.  Payments by project of the VAT and of import duties. The financial analysis assumes that the project will not be paying the VAT and duties on imported equipment. It will however be paying all other duties and fees and the taxes on net business income, which is assumed for this analysis to be 33 percent.  Financing plan. All project costs will be financed through the GoC by an IDA Credit under standard IDA Credit and Grant terms. The expected financing plan is provided in table 5.8. Table 5.8. Financing Plan Source of Financing Amount (US$, millions) Interest Rate (%) IDA Credit (IDA terms) 150 0.75 Government funding 15 10.00 19. FIRR. The estimated FIRR for the project Components 1, 2, and 3, as well as the combined are presented in table 5.9 indicate that the proposed investment should provide the project with a good financial rate of return, particularly as it would benefit from IDA terms (US$150 million - 91 percent of financing) with lower interest rate of 0.75 percent. Table 5.9. Project Financial FNPVs and FIRRs - Base Case Investment FNPV (at 0.75%a discount Estimated FIRR (%) rate) (US$, millions) Component 1: Rural Electrification by Grid 195.5 5.38 Extension Subcomponent 2.1: Development of a pilot 7.6 5.16 public-private partnership for rural electrification Subcomponent 2.2: Securing the power supply of 48.4 12.83 isolated sites by hybridization Component 3: Support to Household Connection (2.1) (0.96) Costs Component 1, 2, and 3 249.4 6.6 Note: a. Except Component 1 with discount rate of 1.80 percent (GoC cost of equity = 10 percent). Page 98 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) 20. The project will also have a positive cash flow impact on the finances of the sector only after one year (2020) when the revolving funds are excluded in the cash flows. Table 5.10 provides a summary of the positive cash the power sector is expected to realize from the project. Table 5.10. Cumulative Cash Flows Impact on Energy Sector Finances - Base Case Year 2018 2019 2020 2021 2022 2023 2024 Annual cash flow impact 0 (45) 260 581 948 1,320 1,139 (US$, millions) Cumulative cash flow impact 0 (45) 214 795 1,744 3,064 4,203 (US$, millions) 21. The project will also have a positive impact on ENEO’s EBITDA starting from 2020 when the initial commercial operation starts. The impact will growth with the full implementation of the project. Table 5.11 summarizes the project EBITDA on ENEO’s EBITDA. Table 5.11. Project Impact on ENEO’s EBITDA - Base Case 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 EUR, millions Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. Proj. ENEO EBITDA 104.0 112.0 131.0 141.0 133.0 129.0 130.0 138.0 178.0 189.0 Project EBITDA 0.0 0.0 0.4 0.9 1.4 1.9 1.9 7.0 7.2 7.5 Project EBITDA Impact as (%) of 0.0 0.0 0.3 0.6 1.0 1.5 1.5 5.0 4.0 4.0 ENEO EBITDA 22. Project financial impacts viability. The financial analysis also assessed the impacts of the project on Cameroon Power Sector 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 new clients will pay an average of US¢15 per kWh (CFAF 79.5 per kWh); (b) electricity bills collection performance will be 98 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 and the cost of energy supplied to the national network. The results of the sensitivity analysis are presented in table 5.12. Table 5.12. Sensitivity Analysis (Switching Values) Original Switch Unit Change (%) Value Values Component 1: Rural Electrification by Grid Extension Average retail tariff US¢/kWh 15 10.4 (–) 31 Cost of energy supplied US¢/kWh 6.5 11.8 (+) 80 Distribution and commercial cost US¢/kWh 1.7 8.1 (+)364 O&M cost % CapEx 2.2 11.5 (+) 420 Collection rate % 98 68 (-) 30 US$, Capex (cost overrun) 165,000 406,000 (+) 251 thousands Subcomponent 2.1: Development of a pilot public-private partnership for decentralized rural electrification Page 99 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Original Switch Unit Change (%) Value Values Average retail tariff (US¢/kWh 15 8.5 (–) 44 Distribution and commercial cost US¢/kWh 1.7 7.9 (+) 255 O&M cost % Capex 3.0 10.7 (+)255 Customers' unit consumption growth rate kWh/Year 1.5 –1.6 (–) 207 Number of customers growth rate % 5.0 1.8 (–) 64 Collection rate % 98 55 (–) 44 US$, Capex (cost overrun) 6,802 13,567 (+) 199 thousands Subcomponent 2.2: Securing the power supply of isolated sites by hybridization Capacity factor % 33 7 (–) 79 Cost of light fuel US$/Liter 1.08 0.2 (–) 82 O&M cost % Capex 1.0 23.6 (+)496 US$, Capex (cost overrun) 14,737 73,073 (+)2258 thousands Component 3 - Revolving Fund Not applicable Project (Component 1+2+3) Average retail tariff (US¢/kWh 15 9.3 (-) 39 Cost of energy supplied US¢/kWh 6.54 13.2 (+) 102 O&M cost % Capex 1.99 11.6 (+) 483 Distribution and commercial cost US¢/kWh 1.7 9.5 (+) 447 Collection rate % 98 64.2 (–) 34 US$, Capex (cost overrun) 165,000 429,125 (+) 160 thousands Page 100 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) ANNEX 6: INDICATIVE DESIGN OF THE REVOLVING FUND LENDING TERMS COUNTRY: Cameroon CM - Rural Electricity Access Project for Underserved Regions (P163881) Recommendation 1. The results of the assessment of the Rural Electricity Access Project for Underserved Regions households’ capacity to repay the connection fees within a reasonable time without creating a financial burden beyond 10 percent of their monthly income suggest the following appropriate periods for connection fees repayment, as summarized in table 6.1. Table 6.1. Number of Months Needed to Repay the Connection Fees with No More than 10 Percent of Households Monthly Income Used for Electric Services (Consumption and Connection Fees) Category 1 Category 2 Low-income High-income Households Households Far-North 120 108 North 72 72 Adamaoua 72 60 North-West 84 72 South-West 72 36 East 72 48 Objective of this Analysis 2. As part of the IDA financing of the Rural Electricity Access Project for Underserved Regions (P163881), a fund of US$25 million has been set aside to finance the cost of connections (Component 3 of the project). The present document summarizes the analysis that was performed to determine the length of time (months) needed for the connected customers to repay the cost of the connection without sacrificing more than a certain percentage of the household monthly income. Assumptions 3. The analysis was performed with the following assumptions:  Household income and current electricity bill. The household incomes of the different regions used for the analysis are based on data collected in 2014, the most recent survey available. The team used the actual realized inflation from 2014 to 2017 and the forecast (IMF) inflation from 2018 to 2023 to adjust the income to reflect the projected household incomes when the connection fees repayment starts. Table 6.2 summarizes household incomes for each region in 2014 and the corresponding adjusted income in 2023.  Monthly electricity bill. The current monthly average electricity bill, including taxes per region, was gathered from ENEO. The average of northern regions’ (Far-North, North, and Adamaoua) monthly electricity bill has been adjusted 35 percent downward to truly capture Page 101 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) lower-income household level of electricity consumption. The details are also provided in table 6.2. Table 6.2. Average Household Income per Region and Monthly Electricity Bill Household Inflation Household Monthly Income Monthly Monthly Income Adjustment Factora 2023 Electric Bill 2014 with Taxes CFAF CFAF CFAF Far-North 25,611 1.156 29,597 2,646 North 29,130 1.156 33,664 2,646 Adamaoua 44,538 1.156 51,470 3,260 North-West 34,843 1.156 40,265 3,186 South-West 60,853 1.156 70,324 3,186 East 47,257 1.156 54,611 3,599 Average 40,372 1.156 46,655 3,087 Note: a. Derived from the realized inflation from 2014 to 2023.  Connection costs. The households to be connected have been split in two categories: o Category 1 households, representing 90 percent of the households, are of lower income and need a relatively simple connection for basic electric service. The cost of connection, estimated by ENEO is CFAF 37,533 (US$71) for northern region (Far-North, North, and Adamaoua) and CFAF 59,673 (US$113)29 for Western/East region (North- West, South-West, and East). The household will pay up front CFAF 2,000 (US$4) and the revolving fund will pay for the balance of CFAF 35,533 (US$67) and CFAF 57,673 (US$109), respectively. o Category 2 households, representing 10 percent of the households are the well-off households in each region. Their incomes are 50 percent higher compared to the average household income in each region. They may need a more robust connection to accommodate their electricity usage. The cost of connection, estimated by ENEO, is CFAF 176,609 (US$333). These households will also pay CFAF 2,000 (US$4) up front and the balance of CFAF 174,606 (US$329) will be financed by the revolving fund. o Cost of funding. The up-front financing from the revolving fund will be priced with an interest rate of 2 percent, representing a credit risk premium needed to fund the risk of some households not paying the loaned money fully.  Available income used to repay the connection fees. The income available for the payment of the monthly electricity bill and the repayment of connection fees financing is determined by the difference between the following two variables: o Total share of income used to pay electricity bill. This share is dependent on the percentage of household income used to pay electric services (electric bill and connection fees repayment). It has been set between 6 percent and 12 percent. 29 US$1 = CFAF 530. Page 102 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) o Current monthly electricity bill. This bill does not include any connection fees repayment. Income Available for Connection Fees Repayment 4. Based on the above assumptions, the income available for connection fees repayment has been derived depending on the share of the income used to repay the connection fees and the electricity bill. The abovementioned available income has been simulated using a share of income ranging from 6 percent to 12 percent. Tables 6.3 and 6.4 present the results for low-income category (table 6.3) and high-income category (table 6.4). Table 6.3. Average Monthly Household Income Available for Connection Fees Payment (CFAF) Category 1 - Low-income Household Regions % of Income Used Far-North North Adamaoua North-West South-West East to Pay for Electricity 6 (870) (626) (172) (770) 1,033 (322) 7 (574) (290) 343 (367) 1,737 224 8 (278) 47 858 35 2,440 770 9 18 384 1,373 438 3,143 1,316 10 314 720 1,887 841 3,846 1,862 11 610 1,057 2,402 1,243 4,550 2,408 12 906 1,393 2,917 1,646 5,253 2,954 Table 6.4. Average Monthly Household Income Available for Connection Fees Payment (CFAF) Category 2 - High-income Household Regions % of Income Used Far-North North Adamaoua North-West South-West East to Pay for Electricity 6 18 384 1,373 438 3,143 1,316 7 462 889 2,145 1,042 4,198 2,135 8 906 1,393 2,917 1,646 5,253 2,954 9 1,349 1,898 3,689 2,250 6,308 3,774 10 1,793 2,403 4,461 2,854 7,363 4,593 11 2,237 2,908 5,233 3,458 8,417 5,412 12 2,681 3,413 6,005 4,062 9,472 6,231 Repayment Time for the Connection Fees 5. With the amounts available for the connection fees known, the analysis determined the number of months needed to repay the connection fees loan principal and credit risk premium assuming a credit risk cost of 2 percent as set in the assumption. The results of those estimates are summarized in table 6.5 for the low-income household category. Page 103 of 104 The World Bank CM - Rural Electricity Access Project for Underserved Regions (P163881) Table 6.5. Number of Months Needed to Repay Connection Fees - Category 1 - Low Income Regions % of Income Used to Far-North North Adamaoua North-West South-West East Pay for Electricity 6 — — — — 59 — 7 — — 114 — 35 338 8 — — 43 — 25 81 9 — 101 27 149 19 46 10 126 52 20 73 16 32 11 62 35 15 49 13 25 12 41 27 13 37 12 20 6. According to table 6.5, the minimum number of months needed to fully repay the connection fees financed through the revolving fund ranges between 16 months (South-West region) and 126 months (Far-North region) assuming that households will not use more than 10 percent of their income to pay for electricity services (electricity consumption and connection fees). Therefore, a time frame between 6 and 10 years is recommended, which represents 72–120 months as the period for repayment of connection fees for low-income households. 7. The analysis also determined the number of months needed to repay the connection fees loan principal and credit risk cost with the same assumptions for the higher-income household category. The results of those estimates are summarized in table 6.6 for the high-income household category. Table 6.6. Number of Months Needed to Repay Connection Fees - Category 2 - High Income Regions % of Income Used to Far-North North Adamaoua North-West South-West East Pay for Electricity 6 — 854 144 657 59 151 7 598 239 88 197 44 88 8 233 141 64 117 35 63 9 146 100 50 84 29 49 10 107 78 41 65 25 40 11 84 64 35 53 22 34 12 69 54 30 45 19 29 8. Similarly, from table 6.6, the minimum number of months needed to fully repay the connection fees financed through the revolving fund ranges between 25 months (South-West region) and 107 months (Far-North region) assuming that households will not use more than 10 percent of their income to pay for electricity services (electricity and connection fees). Therefore, a time frame of eight years is recommended, which represents 96 months as the maximum period for repayment of connection fees for high-income households. The repayment period could be easily set to six years for all the regions except Far-North and North that need more time to repay because of the limited household income level. Page 104 of 104 IBRD 33382R 12º E 14º E 16º E Lake C A MER O O N This map was produced by 1963 Level the Map Design Unit of The Chad World Bank. The boundaries, 1973 Level colors, denominations and any other information shown CITIES AND TOWNS 2001 Level on this map do not imply, on the part of The World Bank To Group, any judgment on the PROVINCE CAPITALS Fotokol Massaguet legal status of any territory, or any endorsement or NATIONAL CAPITAL Maltam acceptance of such To boundaries. RIVERS Maiduguri 12º N To Mandélia MAIN ROADS 0 40 80 120 160 Kilometers To RAILROADS Maiduguri 0 40 80 120 Miles ts. PROVINCE BOUNDARIES INTERNATIONAL BOUNDARIES Mora M Lake a Maga r da To Maroua an Guelengdeng E X T R E M E Yagoua NIGERIA M NORD Kaélé 10º N 10º N To Figuil Kim To Pala To Leré CAMEROON Garoua Lake Touroua Lagdo CHA D NORD Fa ué ro no Bé 8º N 8º N bang. Mbé Mts M na Vi Ngai Ngaoundéré ts. M ADAMAOUA ua Banyo ao m m ére Dj Wum da Ngaoundal A Tibati To NORD- Lake 6º N Ikom OUEST Kumbo Mbakaou To 6º N Bamenda Bankim Sangbé Bouar Mamfe Mb Garoua Boulai u Foumban Bafoussam Dschang OUEST Yoko Lo m CENT RA L A F R I CAN SUD- Bafang CENTRE REPUBL I C OUEST Nkongsamba Mb am Bélabo Kadei Kumba Bertoua i Yabassi Yabassi Nanga ur Eboko Batouri Mt. Cameroon o LITTORAL W (4,095 m) Buea Ntui Tiko 4º N Limbe Douala Akonolinga Abong Mbang Yola 4º N Edea YAOUNDÉ EQUATORIAL Eséka Nyong EST Bou GUINEA Mbalmayo mb a Echambot Kribi Ebolowa Sangmélima Lokomo SUD Ambam Dja Kom Mouloundou 2º N 2º N To Oyem G ul f o f EQUATORIAL GA BO N G ui n e a GUINEA CO NGO 10º E 12º E 14º E 16º E APRIL 2013