Sbee Sub-Transmission and Distribution System Restructuring and Extensions Project (Presredi)

Home , Abomey, Bohicon, Djakotomey, Littoral (Benin), Lokossa, Mono Department

AFRICAN DEVELOPMENT FUND

PROJECT : SBEE SUB-TRANSMISSION AND DISTRIBUTION SYSTEM RESTRUCTURING AND EXTENSIONS PROJECT (PRESREDI)

Public Disclosure Authorized COUNTRY : BENIN

PROJECT APPRAISAL REPORT

Public Disclosure Authorized

RDGW December 2017

Translated Document

TABLE OF CONTENTS

CURRENCY EQUIVALENTS...... i ACRONYMS AND ABBREVIATIONS...... ii PROJECT INFORMATION SHEET ...... iii PROJECT SUMMARY ...... iv RESULTS-BASED LOGICAL FRAMEWORK ...... v PROJECT IMPLEMENTATION SCHEDULE ...... vii I. STRATEGIC THRUST AND RATIONALE ...... 1 1.1. Project Linkages to Country Strategy and Objectives ...... 1 1.2. Rationale for Bank Involvement ...... 1 1.3. Aid Coordination ...... 2 2 PROJECT DESCRIPTION ...... 2 2.1 Project Description and Components ...... 2 2.2 Technical Solution Adopted and Alternative Solutions Considered ...... 3 2.3 Project Cost and Financing Mechanisms ...... 4 2.4 Project Area and Beneficiaries ...... 5 2.5 Participatory Approach to Project Identification, Design and Implementation ...... 6 2.6 Bank Group Experience and Lessons Reflected in Project Design ...... 6 2.7 Key Performance Indicators...... 7 3 PROJECT FEASIBILITY ...... 7 3.1 Economic and Financial Performance ...... 7 3.2 Environmental and Social Impact ...... 8 4 PROJECT IMPLEMENTATION ...... 10 4.1 Implementation Arrangements ...... 10 4.2 Monitoring ...... 12 4.3 Governance ...... 13 4.4 Sustainability ...... 14 4.5 Risk Management ...... 14 4.6 Knowledge Development ...... 14 5 LEGAL FRAMEWORK ...... 15 5.1 Legal Instrument ...... 15 5.2 Conditions Associated with the Bank’s Intervention ...... 15 5.3 Compliance with Bank Policies ...... 16 6 RECOMMENDATIONS ...... 16 Annex I: Comparative Socioeconomic Indicators of Benin ...... I Annex II: Major Related Ongoing Projects in Benin Financed by the Bank and Other Development Partners as at 30/6/2017 ...... II Annex III: Map of the Project Area ...... III

CURRENCY EQUIVALENTS

October 2017

UA 1 = 1.41 USD UA 1 = 1.20 EUR UA 1 = 784.04 CFA.F

FISCAL YEAR

1st January – 31st December

WEIGHTS AND MEASURES

1 kilometre (km) = 1,000 m 1 km² = 1 000 000 m² 1 hectare (ha) = 10,000 m² 1 ton = 1,000 kg 1 kilojoule (kJ) = 1,000 joule (J) 1 kilovolt (kV) = 1,000 volt (V) 1 kilovolt-Ampere (kVA) = 1,000 volt – Ampere (VA) 1 kilowatt (kW) = 1,000 Watt 1 megawatt (MW) = 1 000 000 W = 1 000 kW 1 Gigawatt (GW) = 1 000 000 W = 1 000 kW 1 kilowatt-hour (kWh) = 1,000 Watt/hour = 3,600,000 Joules (J) 1 megawatt-hour (MWh) = 1,000,000 Wh = 1,000 kWh 1 gigawatt-hour (GWh) = 1,000,000 kWh = 1,000 MWh 1 ton of oil equivalent (TOE) = 41,868 Joules = 11,630 kWh 1 million ton of oil equivalent (MTOE) = 1 000 000 TOE

ACRONYMS AND ABBREVIATIONS

AFD French Development Agency DPD Detailed Preliminary Design ICB International competitive bidding AfDB African Development Bank EBID ECOWAS Bank for Investment and Development WB World Bank WADB West African Development Bank LV Low Voltage CAA Autonomous Amortization Fund BD Bidding documents CSP Country Strategy Paper ESIA Environmental and Social Impact Assessment ADF African Development Fund HV High voltage IEC Information, education and communication MV Medium voltage MW Megawatt ESMP Environmental and Social Management Plan TFP Technical and financial partners ERR Economic rate of return IRR Internal rate of return UA Unit of Account EU European Union WAEMU West African Economic and Monetary Union USD United States Dollar NPV Net present value ENPV Economic Net Present Value SBEE Société béninoise d’énergie électrique [Electricity Corporation of Benin]

PROJECT INFORMATION SHEET

BORROWER : Republic of Benin EXECUTING AGENCY : Société béninoise d’énergie électrique

Financing Plan

Sources Amounts (in UA million) Instrument ADF 6.44 Loan ADF 5.17 Grant AFD 12.62 Loan SBEE 2.61 Counterpart funds TOTAL 26.84

KEY FINANCIAL INFORMATION ON THE ADF LOAN

Loan currency Unit of Account Interest Type Not applicable Interest rate margin Not applicable Service commission 0.75% per year of the disbursed loan amount not yet reimbursed Commitment fee 0.50% of the loan amount not disbursed 120 days after signature of the Loan Agreement Other Expenses None Maturity 40 years Grace period 5 years

Time frame – Main Milestones (expected)

Approval of the concept note February 2016 Project appraisal April 2016 Project re-appraisal October 2017 Project approval December 2017 ADF loan effectiveness April 2018 Completion December 2020 Last disbursement March 2021

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PROJECT SUMMARY

Overview of Project: The SBEE Sub-transmission and Distribution System Restructuring and Extension Project (PRESREDI) is a major investment project to expand electricity grids and connect more subscribers. The goal of the project is to: increase the electricity access rate in Benin and more specifically in the cities of Cotonou, Porto-Novo, Abomey, Bohicon and Lokossa and their environs; and improve electricity supply and reduce overall energy losses (evaluated at 23% in 2015) in the sub-transmission and distribution networks of the SBEE. Specifically, the project seeks to consolidate and expand the medium- and low-voltage distribution networks in the abovementioned localities and connect 10,000 new households. The project will be co-financed by the ADF (43%), the French Development Agency (AFD) (47%) and the SBEE (10%). The implementation period is 36 months from 2018 to 2020.

Project Impact: The direct beneficiaries of the project are the inhabitants of the municipalities of Cotonou, Porto-Novo, Akpro-Misserete and Seme-Kpodji (in Oueme Department); Lokossa (Department of Mono); Dogbo, Djakotomey, Klouekanme and Toviklin (in Couffo Department); and Abomey, Bohicon and Zogbodomey (in Department of Zou). The project will provide a regular electricity supply to the inhabitants of these towns and their environs, including schools, health centres, as well as commercial and industrial companies. Specifically, the project will provide the SBEE with an additional 40,000 new connections, covering at least 212,000 individuals including at least 109,000 women (51%). The project will benefit SBEE employees through a capacity-building programme.

Needs Assessment: Limited investment in electricity infrastructure has undermined the quality of SBEE services and slowed down the electrification of the country. Consequently, the electricity access rate in Benin is only 32%, which is well below the African average of 40% in 2015. The unavailability and high cost of electricity has severely harmed national economic prosperity and competitiveness. This project is part of a structured programme that will give project area communities access to reliable, quality, clean and affordable electricity.

Value-added of the Bank: The Bank has broad knowledge of and long-standing experience in Benin's electricity sector. It has funded multinational grid interconnection projects between Benin and neighbouring countries including: (i) the 330 kV grid interconnection of CEB (Benin/Togo) with Nigeria (completed in 2010); and (ii) the Ghana-Togo-Benin 330 kV grid interconnection project which is underway. At the national level, the Bank has financed several electricity projects, the most recent being the electrification project for 17 rural localities and the second rural electrification project completed in 2007 and 2011 respectively. The current project comes just after approval by the Bank in April 2017 of the Energy Sector Budget Support Programme of Benin (PASEBE) - Phase I which seeks to support the Government of Benin in its efforts to streamline the energy sector.

Knowledge Management: The project has a solid capacity-building component aimed at developing the capacity of the employees of Société béninoise d’énergie électrique (SBEE). Building the capacity and skills of SBEE employees will enhance asset management and project sustainability. The attainment of project objectives will be monitored through the Bank's supervision reports, quarterly project reports and auditor's reports.

RESULTS-BASED LOGICAL FRAMEWORK

Country and Project Name: SBEE Sub-Transmission and Distribution System Restructuring and Extension Project (PRESREDI) Project Objective: Consolidate the electricity infrastructure of SBEE in order to improve electricity supply to the following towns and their environs: Cotonou (in Littoral Department), Porto-Novo, Akpro- Misserete and Seme-Kpodji (in Ouémé Department); Lokossa (in Mono Department); and Dogbo, Djakotomey, Klouekanme and Toviklin (in Couffo Department); Abomey, Bohicon and Zogbodomey (in Zou Department). PERFORMANCE INDICATORS RISKS / MITIGATIVE MEASURES Results Chain Baseline situation Means of Verification Indicator (including ISCs) Targets (2021) (2015) The living conditions of project area  Electricity access rate in the project 52% 60 % Reports: Risks communities are improved through area (2015) (2021)

access to quality energy supply. Ministries of Energy, SBEE  Availability of national counterpart contribution

Impact  Weak operational capacity of SBEE to implement the project

◦ Risk mitigation measures Improved network performance  Overall energy loss rates of the SBEE 23% 18 % (2015) (2021)  The SBEE Board of Directors meeting  Number of new subscribers in June 2017 undertook to make funds Increase in the number of subscribers 40,000 new available for the compensation of connected to the network  Number of jobs created subscribers persons affected by the project, which amount to 75% of counterpart funds. Job creation  Number of internship posts created 130 The remaining 25% covers project

OUTCOMES operating costs including the salaries 15 of SBEE staff posted to the project.

 Existing 63/15 kV sub-stations  63/15 kV sub-station of Akpakpa - 01 Reports  Recruitment of a consultant engineer strengthened extended (new 63 kV bay) and Ministries of energy to support the SBEE in works control strengthened by installing a new SBEE and supervision 63/15 kV transformer with an output Consultant engineer of 20 MW Bank supervisions  Ongoing actions for the benefit of the  63/15 kV sub-station of Gbegamey - 01 Status reports SBEE to boost its income and improve extended (63 kV bay) and Project completion report. management. The actions conducted strengthened by installing a new Audit reports by TFPs will enable the SBEE to 63/15 kV transformer with an output reform, cut its losses and supply of 40 MW. electricity to more subscribers, thus

 CEB 63/20 kV sub-station of Lokossa - 01 increasing its revenue. With ADF extended (60 kV bay). support, the SBEE is already  New 63/20 kV sub-station built deploying a new technical and  New 63/20 kV substation in - 01 financial model which will enhance

OUTPUTS  63 kV grid built Hagoume built and equipped with a the planning of investments while  MV networks built 63/20 kV transformer with an output 30 km ensuring that they are profitable in the  LV networks built of 20 MVA short, medium and long terms.  MV/LV transformer sub-  63 kV line (Lokassa - Hagoume) built 105 km stations built  MV lines built  Connection kits procured and  LV lines built 279 km

installed  Several MV/LV transformer stations 148 built

 Several connection kits procured and 10,000 installed

COMPONENTS RESOURCES

Resources (UA 26.84 million) A. Reinforcement of the 63/15 kV sub-stations of Akpaka and Gbégamey (Cotonou)  ADF loan and grant UA 11.61 million B. 63 kV line and sub-station 63/20 kV of Hagoumè  Other donors UA 12.62 million C. Reinforcement and extension of the distribution networks  SBEE UA 2.61 million D. Project management Expenditure (UA 26.84 million)  Component A: UA 2.70 million  Component B: UA 7.09 million

KEY ACTIVITIES  Component C: UA 11.87 million.  Component D: UA 5.17 million.

PROJECT IMPLEMENTATION SCHEDULE

SBEE SUB-TRANSMISSION AND DISTRIBUTION SYSTEM RESTRUCTURING AND EXTENSION PROJECT

2017 2018 2019 2020 2021 DESIGNATION N° 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 A ADB_AFD APPRAISAL MISSION APPROVAL AND EFFECTIVENESS OF THE ADF LOAN Board Approval of the ADF Loan B Signature of the ADF Loan Agreement Effectiveness of the ADF Loan Agreement ELECTRICAL INFRASTRUCTURE Supplementary Technical Studies on the 63 kV Structures Recruitment of a Consulting Firm Conduct of Studies Strengthening of the Akpakpa and Gbegamey Sub-stations Recruitment of Contractors Supply of Equipment, Assembly and Strengthening of the Sub-stations Construction of the Hagoume Station and Extension of the Lokossa CEB Station Recruitment of Contractors C Supply of Equipment and Construction of the Station Construction of the 63 kV Lokossa-Hagoume Line Recruitment of Contractors Supply of Equipment and Construction of the Line Extensions of the HVA/LV Networks Recruitment of Contractors Supply of Equipment, construction and Extension of Networks Connections Procurement of 10,000 Connection Kits Réalisation des branchements TRAINING AND CAPACITY BUILDING D Recruitment of Consultants/Training Institutions PROJECT ADMINISTRATION AND MANAGEMENT Works Inspection and Supervision Recruitment of the Consulting Engineer Inspection and Supervision of the HVB Works Component External Audit of the Project's Financial Statements Recruitment of the External Auditor Conduct of the External Audit of the Project Finances Procurement Audit Recruitment of the External Auditor Conduct of Procurement Audits E Procurement of Computer Equipment and Office Furniture Procurement of 2 Supervision Vehicles Environmental and Social Management of the Project Implementation of the Resettlement Action Plan (RAP) Recruitment of a Firm for Implementation of the RAP Updating of the Environmental-Conformity Certificate Establishment of the Institutional Framework Implementation of the RAP Project Implementation Monitoring by the Implementation Unit Project Completion

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REPORT AND RECOMMENDATIONS OF BANK GROUP MANAGEMENT TO THE BOARD OF DIRECTORS REGARDING A PROPOSAL TO AWARD AN ADF LOAN AND AN ADF GRANT TO FINANCE THE SBEE SUB-TRANSMISSION AND DISTRIBUTION SYSTEM RESTRUCTURING AND EXTENSION PROJECT.

Management hereby submits this report and recommendations on a proposal to award an ADF loan of UA 6.44 million and an ADF grant of UA 5.17 million to the Republic of Benin to finance the SBEE Sub-transmission and Distribution System Restructuring and Extension Project (PRESREDI).

1 STRATEGIC THRUST AND RATIONALE

1.1 Project Linkages to Country Strategy and Objectives

1.1.1 With a national electricity access rate of 32%, Benin has one of the lowest rates relative to the African average of 40% (2015). The access rate is 54% in urban areas and 8% in rural areas. Hence, a significant proportion of the population in Benin, especially in peri-urban and rural areas, has no access to electricity.

1.1.2 The project is consistent with: (i) the Government Action Programme (2016-2021 PAG) approved in October 2016 and focused on improving governance and promoting growth support infrastructure; the 2016-2021 PAG which includes energy capacity development among national priorities and under which the Government seeks to endow the country with the means needed to provide sufficient and good quality energy services under optimal cost and safety conditions; (ii) Benin's energy sector policy which seeks to endow the country with the means needed to provide sufficient good quality energy services under optimal cost and safety conditions; the goal of this policy is to increase electricity production, transmission and distribution capacity in order to guarantee 70% energy self-sufficiency by 2025; and (iii) the second pillar of the Bank’s country strategy paper (CSP) 2017-2021 for Benin which relates to the development of infrastructure that boosts competitiveness and regional integration, and which also targets energy. PRESREDI was selected as one of the Bank's priority interventions in Benin under 2017-2021 CSP.

1.2 Rationale for Bank Involvement

1.2.1 The Bank's intervention is justified by the obsolescence of SBEE distribution infrastructure and the lack of investment which have a negative impact on SBEE energy supply quality, in terms of saturation of transformers and power lines or even significant energy losses in SBEE networks. In 2015, total energy losses (technical and commercial losses) were assessed at 23%1 of the total energy injected into the sub-transmission and distribution networks of the SBEE. The current operation supplements the budget support program (PASEBE-I) worth UA 19.92 million that the Bank approved for Benin in April 2017. This program specifically focuses electricity sub-sector support measures to provide Benin with immediate temporary additional capacity of 310 MW while structural actions are undertaken to endow the country with a national installed capacity of at least 335 MW by 2019-2020. PASEBE-I also led to the clearance of cross-debts between the SBEE and the State which puts the SBEE in a better position to contribute to the funding of PRESREDI activities.

1 According to the SBEE activity report for 2015. 1

1.2.2 AfDB intervention is justified by the fact that the project is included on the indicative programme of operations found in the Bank's CSP 2017-2021 for Benin under Pillar 2 which focuses on infrastructure development to boost competitiveness and regional integration. The project will therefore contribute to the achievement of CSP Pillar II objectives by reinforcing infrastructure for electricity supply to urban and peri-urban communities in and around Cotonou. Porto-Novo, Abomey, Bohicon and Lokossa, where demand is rising due to rapid population growth and a boom in economic activities.

1.2.3 The project is consistent with the Bank's 2013-2022 Ten-Year Strategy whose operational pillar focuses on developing sustainable infrastructure that can improve energy security. The project will contribute to the achievement of two of the Bank's new strategic objectives defined in the High-5 priorities in 2015, namely: (i) to light up and power Africa; and (ii) to improve quality of life for the people of Africa. The project contributes to the implementation of the Bank's Energy Sector Policy (approved in 2012) which is geared towards supporting regional member countries in their efforts to improve access to modern, reliable and affordable energy supply. The Bank’s participation in project funding is therefore consistent with its strategic objectives since the project seeks to improve access to electricity for urban and semi-urban communities. Lastly, AfDB intervention is also justified by the project's consistency with the Bank's New Deal on Energy for Africa (2016), which seeks to achieve universal access to energy by 2025, with access rates of 100% in urban areas and 95% in rural areas, through on-grid and off-grid solutions, including related technological innovations.

1.3 Aid Coordination

1.3.1 The main development partners involved in the electricity sub-sector in Benin are: the Bank, the French Development Agency (AFD), the World Bank (WB), the West African Development Bank (WADB), ECOWAS Bank for Investment and Development (EBID), German International Cooperation (GIZ), KfW, the West African Economic and Monetary Union (WAEMU), the European Union (EU), and the Millennium Challenge Account (MCA). The project is part of a more general programme to consolidate the distribution network in Benin which already receives support from donors like the AFD, EU, MCA-Benin and WB. This demonstrates a synergy between donor interventions in the sector. Development partners are also formed into a coordination group which meets at least once a year with the Minister in charge of energy to update and coordinate sector activities.

2 PROJECT DESCRIPTION

2.1 Project Description and Components

2.1.1 PRESPREDI is aimed at reinforcing the SBEE's electricity infrastructure in order to improve the quality of electricity supply in Cotonou, Porto-Novo, Abomey, Bohicon, Lokossa and their environs. Specifically, it seeks to reinforce and expand sub-transmission and distribution networks in these towns and their environs and to connect 10,000 more households to the grid.

2.1.2 The project stems from a preliminary design study (PDS) and a final design study (FDS) conducted by the SBEE. It focuses on the following four components:

Table 2.1 Project Components (amounts in UA million) Cost No. Name of Components Description of Components Estimate Cotonou Reinforcement of the

A Existing 63/15 kV 2.55 Installation of a 63kV/20MVA transformer in Akpakpa Substations Installation of a 63kV/40MVA transformer in Gbégamey Mono - Couffo Department

63 kV Lokossa-Hagoume Construction of the 63 kV Hagoume-Lokossa line B Line and 63/20 kV Sub- 6.69 Development of the CEB station in Lokossa (construction of a switch bay station in Lokossa with an output voltage of 63 km) Installation of a 63kV/20MVA transformer in Hagoume Cotonou, Porto-Novo, Abomey, Bohicon and Lokossa Extension and restructuring of MV/LV lines Extension and restructuring of LV lines Prefabricated MV/LV 400kVA sub-stations Reinforcement and Prefabricated MV/LV 630kVA substations C Extension of Distribution 11.19 MV/LV overhead substations Networks (MV/LV) Procurement of connection kits Establishment of connections and installation of metres in rural areas Establishment of connections and installation of metres in urban areas Public lighting (streets, schools and health centres) Works control and supervision Mitigation of environmental and social impacts (ESMP, RAP) Training Audit of project accounts D Project Management 4.88 Procurement audit Procurement of two project supervision vehicles Information, communication and awareness-raising Functioning of the project unit Baseline Cost 25.32 Contingencies (physical: 3%; 1.52 price contingencies: 3%) Total Project Cost 26.84

2.2 Technical Solution Adopted and Alternative Solutions Considered

2.2.1 Project works will be integrated into an existing scheme to develop the electricity networks of the SBEE. These include: (i) reinforcing two existing 63/15 kV substations by installing new 63/15 kV 20 MVA transformers in Akpakpa and a new 63/15 kV de 40 MVA transformer in Gbegamey that will ensure safety (N-1) of the sub-stations in case of non- availability of the sole 63/15 kV transformer currently in service; (ii) installing a 63 kV Lokossa - Hagoumè overhead line (30 km) by extending the 63 kV line supplying power to the 63/20 kV CEB substation in Lokossa and building a new 63/20 kV substation, equipped with a 20 MVA transformer at Hagoumè to improve voltage levels in Mono-Couffo Department and cut technical energy losses; (iii) reinforcing and expanding MV/LV distribution networks (mainly overhead types) in the major towns and environs of the project area.

2.2.2 In light of the above, the only option considered and adopted is the reinforcement and expansion of existing networks by installing new transformers and new lines adapted to existing technical solutions.

2.3 Project Cost and Financing Mechanisms

2.3.1 The total project cost, net of taxes and customs duties, is estimated at UA 26.84 million, comprising UA 18.08 million in foreign exchange (67%) and UA 8.76 million in local currency (33%). It was estimated from the unit costs of similar works and supplies obtained from recent competitive bidding launched by SBEE. This cost includes a 3% provision for physical and technical contingencies and a 3% provision for price increase. Project costs by component, financing source and expenditure category are presented in the tables below. The conversion rates used are indicated on page (i).

Table 2.3 Estimated Project Cost by Component (in UA thousand) Components Cost in Cost in Local Total % Foreign F.E. Currency Cost Exchange Reinforcement of the 63/15 kV Sub-stations 2.16 0.54 2.70 80% (Akpaka and Gbégamey) 63 kV line (Hagoumé-Lokossa) and 63/20 kV 5.68 1.42 7.10 80% Sub-station (Hagoumè) Reinforcement and Extension of the 8.94 2.93 11.87 75% Distribution Networks (MV/LV) Project Management 1.30 3.87 5.17 25% Total Project Cost 18.08 8.76 26.84 67%

2.3.2 The project is co-financed by the Bank, the AFD and the SBEE (counterpart funds). The Bank's financing comprises an ADF loan of UA 6.44 million and an ADF grant of UA 5.17 million. The AFD contribution is EUR 15.20 million, or approximately UA 12.61 million. The SBEE contribution is UA 2.61 million which represents 10% of the project cost.

Table 2.4 Project Financing Sources (in UA million) Financing Sources F.E. Local Currency Total % Total ADF Loan 5.15 1.29 6.44 24% ADF Grant 2.62 2.55 5.17 19% AFD 10.09 2.52 12.62 47% SBEE 0.22 2.40 2.61 10% Total Project Cost 18.08 8.76 26.84 100%

2.3.3 Project cost by expenditure category is presented as follows:

Table 2.5 Programme Cost by Expenditure Category [in UA million] Expenditure Categories Cost in F.E. Cost in Local Total Cost % Foreign Currency Exchange Works 13.11 3.97 17.08 77% Goods 3.46 0.97 4.43 78% Services 1.51 3.62 5.13 29% Functioning 0 0.20 0.20 0% Total Project Cost 18.08 8.76 26.84 67%

The provisional project expenditure schedule by component is as follows:

Table 2.6 Expenditure Schedule by Component (in UA million) Components 2018 2019 2020 Total Reinforcement of 63/15 kV Substations (Akpaka and Gbégamey) 0 1.35 1.35 2.70 63 kV line (Lokossa - Hagoume) and 63/20 kV Substation (Hagoume) 0.27 3.41 3.42 7.10 Reinforcement and Extension of the Distribution Networks 0 6.40 5.47 11.87 Project Management 1.79 2.26 1.12 5.17 Total Project Cost 2.06 13.43 11.36 26.84 % Total 8% 50% 42% 100%

2.3.4 ADF resources will be used mainly to finance infrastructure components such as works on the 63 kV Lokossa - Hagoume line and project management such as payment of the services of the consultant engineer. The distribution of ADF funding by expenditure category is presented in the table below:

Table 2.7.1: FAD Funding- Expenditure Categories (UA million) Expenditure Categories Cost in F.E Cost in local Total cost % Foreign currency exchange Works 5.17 1.78 6.95 75% Goods 1.30 0.43 1.73 74% Services 1.30 1.63 2.93 44% Functioning 0 0 0 - Total 7.77 3.84 11.61 67%

2.4 Project Area and Beneficiaries

2.4.1 Project Location: The project area covers the following towns and their suburbs as well as neighbouring rural communities: the communes of Cotonou, Porto-Novo, Akpro- Misserete and Seme-Kpodji (in Oueme Department); Lokossa (in Mono Department); Dogbo, Djakotomey, Klouekanme and Toviklin (in Couffo Department); Abomey, Bohicon and Zogbodomey (in Zou Department). They all belong to the territorial area known as South- Benin. According to the 4th General Population and Housing Census (RGPH) of 2013 conducted in Cotonou and Seme-Kpodji, the Littoral Department has a population of 679,012 inhabitants of which 52% are women. The area thrives in a variety of economic activities predominantly in manufacturing industries, fishing, stockbreeding, market gardening and especially trade. In Porto-Novo and its environs (Oueme Department), there are 1,100,404 inhabitants of which 52% are women. Agriculture is the main livelihood in this area. In Couffo and Lokossa, there are 745,328 inhabitants, with 396,754 being women. The population in Couffo Department mainly engages in agriculture, stockbreeding and fishing (73%). They are also involved in trade (13%), food processing and handicrafts. Lastly, in Zou, there are 851,580 inhabitants, of which 444,550 (55%) are women. The main livelihoods in Zou Department are agriculture (47%), and trade (29%). Retail trade essentially focuses on foodstuff.

2.4.2 Project Beneficiaries: The project will enable the SBEE to satisfy the electricity demand of its current subscribers and benefit from a potential customer base of at least 40,000 new subscribers. The energy supply capacity of the SBEE will also be boosted in the localities concerned. The project will provide electricity access to at least 212,000 people, including at least 109,000 women. The improvement of network quality will also benefit businesses, companies, factories and industries located in these areas.

2.5 Participatory Approach to Project Identification, Design and Implementation

2.5.1 A participatory approach was adopted to ensure that various stakeholders participate in the project. Hence, participatory plenary sessions were held in town halls and in project area neighbourhoods. These meetings edified the municipal authorities and heads of targeted neighbourhoods on the project and its potential impact on the natural and social environment.

2.5.2 The meetings also helped to raise the following concerns and expectations of local authorities and leaders about the project: information on the exact route of transmission lines; time frame for studies and project implementation; requests to bypass residential areas; compensation for affected persons; and adapted connection costs for low-income households.

2.5.3 These meetings revealed the level of support from these stakeholders who are committed to promoting the project in their respective communities. With regard to preparation of the ESIA and resettlement plan, public consultations were also held with regional and local authorities, the population and persons affected by the project to: (i) brief them on the content of the project; (ii) hear their views, concerns and expectations on the project; (iii) acquaint them with the negative impacts of the project and hear their views on mitigative or rehabilitative measures. The minutes of these meetings should be submitted by the SBEE.

2.5.4 The SBEE will maintain this participatory process throughout the project. For example, information and communication campaigns on the project should be organized prior to the commencement of works. Furthermore, other information campaigns on safety measures when using electricity will be conducted by the SBEE in newly-connected localities prior to powering on the electricity networks constructed under the project. Lastly, information and identification campaigns targeting new customers will be organized as part of a promotional connection drive that benefits households.

2.5.5 At project commencement, the SBEE should operationalize the system for recording and processing complaints and grievances, as well as the complaints management mechanism, offering all stakeholders or interested parties the possibility to make comments, share their concerns, get information and, if necessary, formally file a complaint and claim damages under the redress mechanism.

2.5.6 Lastly, the African Development Bank duly posted the summaries of the ESIA and RAP on its website on 07/12/17.

2.6 Bank Group Experience and Lessons Reflected in Project Design

2.6.1 The Bank has financed the following multinational projects in the electricity sub- sector in Benin: (i) the multinational Benin/Togo Communauté Electrique du Bénin (CEB) Energy Production, Dispatching and Transmission Project, completed in November 1999 which produced a completion report in November 1999 and a project performance appraisal project in December 2002; (ii) the multinational 330 kV grid interconnection project between CEB (Benin/Togo) and Nigeria, approved in 2002 and completed in 2010; and (iii) the multinational 330 kV Ghana-Togo-Benin interconnection project approved in April 2009 and currently underway. At the national level, the Bank has financed nine operations in the electricity sub- sector in Benin, the two most recent being: (i) the electrification project for 17 rural areas (approved in 2000), completed in 2005 and which produced a project completion report in September 2006 and a performance appraisal project in May 2011; and (ii) the second rural electrification project (approved in 2003) completed in 2011 and whose completion report was produced in November 2011.

2.6.2 The overall portfolio performance in Benin is deemed to be satisfactory. The proportion of risky projects plummeted from 47% in 2010 to 10% in 2015, reflecting a significant improvement in the country's implementation capacity. The main lessons learned from these operations relate to: (i) shortening of the time frame for ratification of loan/grant agreements and procurement; (ii) reduction of delays in the provision of counterpart funds; and (iii) recourse to perennial project implementation structures. The lessons learned were factored into this project as follows: (i) to ensure the availability of resources, the opening and provisioning of an account for counterpart funds will be a condition precedent to first disbursement; (ii) it has been proposed that the project execution unit be hosted within the Directorate for Studies and Development of the SBEE which is a permanent structure responsible for implementing various electricity projects funded by the TFPs for the SBEE.

2.7 Key Performance Indicators

2.7.1 Project performance will be measured through the results-based logical framework of the project. The output indicators of the project are: (i) the number of 63/15 kV substations reinforced; (ii) the number of 63/20 kV substations built; (iii) length of 63 kV line built; (iv) total size of overhead the MV network built; (v) total size of LV networks built; (vi) number of MV/LV transformer substations built; (vii) number of connection kits procured; and (v) number of audits completed. The output indicators are: (i) reduction of the loss rate in the network; (ii) the number of new subscribers connected; and (iii) the number of jobs created by the project. The project impact indicators are the average electricity access rates in the project area

2.7.2 Data on these project performance indicators will be provided in the periodic reports of the consultant engineer responsible for works control and supervision, the quarterly project progress report to be submitted to the Bank, the SBEE activity reports, reports of the Bank's supervision missions, the project completion reports (of the Borrower and the Bank), and audit reports on project accounts. Analysis of the indicators will make it possible to measure their progress and make the necessary adjustments to achieve set targets.

3 PROJECT FEASIBILITY

3.1 Economic and Financial Performance

Table 3.1 Key Economic and Financial Data of the Project FIRR 17% NPV EUR 8.4 million Baseline Scenario EIRR 20% ENPV EUR 15.6 million

3.1.1 Financial performance: The financial rate of return (FRR) and net present value (NPV) were calculated using the cost-benefit method for project implementation and operation. The financial benefits considered include proceeds from the sale of electricity to new subscribers which the SBEE can connect to the distribution network of the project. The related costs primarily concern the operation and maintenance of infrastructure. The analysis covers a period of 30 years. The positive NPV of EUR 8.4 million and the FIRR of 17%, which is higher than the 10% opportunity cost, shows that the project is financially sustainable.

3.1.2 Economic Performance: The economic costs used to calculate the economic internal rate of return (EIRR) and economic net present value (VANE) are project costs, net of taxes. Maintenance costs and other operating expenses are subject to the same process. Apart from proceeds from the sale of electricity to newly-connected subscribers, the economic benefits of the project include the value that will be generated by the jobs created during project execution. The economic costs are net of taxes. The result of the analysis indicates a positive EIRR higher

than the 10% opportunity cost. It also indicates that the project can effectively use the allocated resources.

3.1.3 Sensitivity Analysis: Analysis of the sensitivity test results shows that the project can withstand (i) a 10% increase in project costs; (ii) a 10% increase in operating costs; and (iii) a 10% decrease in electricity rates. The FIRR amounts to 15%, 16% and 14%, respectively.

3.2 Environmental and Social Impact

3.2.1 Environment: The Project to Restructure and Expand the Sub-transmission and Distribution System of Société Béninoise d’Energie Electrique (SBEE) was classified in category 1 in accordance with the Bank’s environmental and social assessment procedures. The Environmental and Social Impact Assessment (ESIA) prepared in January 2017 was approved by the Benin Environment Agency (ABE) and an environmental and social compliance certificate was issued in March 2017. Beyond March 2018, this certificate should be renewed because it has a validity of one year if project implementation has not started.

Although the demarcation of the route for the transmission line is optimal from the environmental and social standpoints relative to the analysed alternatives, the adopted alternative will generate the following major positive and negative impacts during construction and operation:

Positive Impacts: The following positive impacts were identified through the ESIA: (i) improved electricity supply (enhanced voltage level) for the population; (ii) improved electricity distribution by the SBEE; (iii) increase in the number of SBEE subscribers; (iv) creation of permanent jobs by SBEE (recruitment of new staff); (v) development of several income-generating activities and creation of permanent jobs thanks to the presence electrification; (vi) improved academic performance; (vii) reduction of rural exodus; (viii) enhancement of real estate value; and (ix) diversification leisure spots for the youth.

Negative Impact: The potential negative impact of project implementation on the environment is as follows: (i) impact on flora with the destruction of 900,000 m2 of vegetation cover or approximately 90 hectares cleared for construction works on the 63/20 kV-20 MVA line; some trees could also be felled during network expansion works in various beneficiary localities; (ii) temporary specific impacts on wildlife due to disruption of wildlife habitat along the route of the 63/20 kV-20 MVA line.

The negative social and economic impact of the works are as follows: (i) the project will affect people; its impact on property - mainly agricultural lands with perennial and non-perennial crops, a limestone quarry, a gravel pit and numerous trees; (ii) impact on people’s perceptions regarding landscape (encumbrance of the project site by construction machinery, stocks of electricity poles, provisional storage and transportation of excavated material, gas and dust emissions - limited in time and space, noise and vibrations resulting from the operation of machinery, odours, wastewater and garbage from workers’ camps) etc.; (iii) impact on human health due to increased risk of sexually transmitted infections (STIs) and AIDS with the arrival of workers, the possible presence of workers’ camps and intermingling of the population; as well as stagnant water on worksites that can promote the development of disease vectors; and (iv) impact on human safety related to risks of accident, traffic disruption on roads during power grid extension works, the presence and movement of construction equipment, non-compliance with the mandatory wearing of personal protective gear (PPG) by workers.

Mitigative Measures: Provision is made for mitigative measures to address all the negative impacts and identified risks. Mitigation of the negative effects identified during the implementation phase will mainly depend on the organization of work, as recommended in the terms of reference for companies. Such organization is based on binding clauses for companies and the Consultant Engineer, the obligation to have a Health, Safety and Environmental Plan that includes emergency provisions, as well as an environmental protection plan for sensitive environments. The total cost of the ESMP (excluding RAP) is estimated at CFA.F 565,832,000.

3.2.2 Monitoring of ESMP implementation: The Project Management Unit within the SBEE shall have an environmentalist responsible for monitoring ESMP implementation. He shall be assisted in project implementation by a young intern who is a graduate in environmental studies, supported by the environmentalist of the Consultant Engineer and work closely with the Socio- economist in charge of RAP implementation. Environmental and social compliance in ESMP implementation will be monitored and controlled by the Benin Environment Agency (ABE) competent in this area. This will be the subject of a memorandum of understanding between the EBA and the PMU/SBEE. This protocol will define the actions to be taken as well as the logistical and financial arrangements made.

3.2.3 Climate change: In terms of climate change, the project was classified in Category 2 (average risk) in accordance with the Bank's climate safeguards system. Its main major climatic challenges are: drought, late and heavy rains, floods and coastal erosion especially in localities that fall more or less within agro-ecological zone 8, the fisheries area. The analysis of wind data in this area indicates average speeds of 4 to 6 m/s or at most 21 km/h. With regard to climate risk adaptation measures, special attention will be paid to: (i) the selection of sites for pad- mounted transformers to avoid flood-prone and submersible areas; (ii) sizing of platforms for pad-mounted platforms to keep them above water; (iii) sizing of pylons, taking into account the reference speeds of the prevailing winds. The cost of the measurements is included in the works costs. The specifications are provided in the PBQ and will be reflected in the BDs.

3.2.4 Gender: In the project area, women are responsible for domestic chores (fetching water, collecting firewood, processing and cooking food) and participate in agricultural production (planting, weeding and harvesting) in semi-urban and rural areas. They are generally responsible for post-harvest storage and sale of agricultural products. Access to modern energy for women remains a concern in the community because such access would put an end to the use of fuelwood and hurricane lamps that often cause domestic incidents. The lack of lighting compromises children's education. The project would alleviate the hardship of women's chores through the use of electric grain mills and hulling machines. It would also facilitate the promotion of growth-oriented income-generating activities.

To help improve the living conditions of the people, particularly women and children during the electrification of selected localities, the project provides for the following operational social provisions governing households: (i) all households in the project area are eligible for customer subscription; accordingly, the project will cover the area to the extent possible such that the greatest number of potential subscribers do not have to pay for the installation of additional poles; (ii) the project provides for the procurement of 10,000 connection kits for UA 1.62 million from the ADF grant; these kits will be offered at a promotional price in urban areas and at a flat discounted price in rural areas until the expected number of subscribers is reached; (iii) SBEE will establish a schedule of 12 months with a down payment of 10% for new subscribers who cannot pay the full subscription fee; (iv) the project will pay the connection costs for schools, health centres, community water pumping stations and multipurpose public halls in close collaboration with the relevant ministries and management committees of such structures;

(v) the project provides for an information, awareness-raising and marketing campaign to encourage customers to adopt the prepaid format.

3.2.5 Jobs: The project will create at least a hundred temporary direct jobs during the construction phase and about 30 direct and indirect permanent jobs. Moreover, to promote the employability of young job-seeking graduates, the project will recruit 15 young graduate interns, with at least 50% being girls. The recruitment will be done in two batches of seven and eight interns for a period of 6 months, renewable once. These interns will be posted to the PMU/SBEE and to the engineering consultant.

3.2.6 Forced Resettlement: The project will affect 365 property owners, representing 1825 people in total. Accordingly, a resettlement action plan (RAP) was prepared and submitted to the Bank. The summary of the Resettlement Action Plan (RAP) submitted in January 2017 was posted on the Bank's website on 12/07/2017. The overall cost of implementing the RAP is CFA.F 1,734,542,250. The RAP will be updated prior to implementation and will be financed by the SBEE.

4 PROJECT IMPLEMENTATION

4.1 Implementation Arrangements

4.1.1 Project Implementation: The SBEE will be the project executing agency to which the ADF resources will be transferred by the Government. The project will be executed by a Project Management Unit (PMU) established within the SBEE Directorate for Studies (DED). Accordingly, SBEE has provided PRESREDI with: (i) an engineer, project manager; (ii) 5 (five) engineers, comprising 1 (one) design engineer, 2 (two) sub-station engineers, and 2 (two) network distribution (MV/LV) engineers; (iii) one technician for the 63 kV facilities (substations and lines); (iv) one procurement expert; (v) one accountant; and (vi) an environmentalist and a socio-economist. The accountant will be posted to the cash-flow and disbursements service to prepare the financial and accounting statements of the project. The socio-economist will support DED to oversee ESMP and RAP implementation. The SBEE has already appointed the staff of the PMU. The curricula vitae of project experts will be submitted to the Bank for approval. PMU staff members will sign performance contracts with SBEE management that will be subject to prior annual review.

4.1.2 A ministerial order will be issued setting up the project steering committee that will be chaired by the representative of the Minister of Energy and comprise representatives of the ministries in charge of development and finance, the Autonomous Amortization Fund (CAA) and the SBEE. The steering committee shall meet at least once every six months to: (i) review the project implementation plan, periodic progress and financial reports, programmes of activity, the budget and the procurement plan; (ii) ensure implementation of the recommendations of the Steering Committee, supervision and monitoring missions and the various audits; (iii) assess the performance of the Project Coordinator relative to his mission statement; (iv) make recommendations to the Project Coordinator; (v) approve project financial statements; (vi) review any submitted files; and (vii) ensure the lifting of any inter-ministerial bottlenecks facing the project.

4.1.3 Procurement Arrangements: Goods (including services other than consultancy services) funded by the Bank under the project shall be procured in accordance with the Procurement Framework for Bank Group-funded Operations, October 2015 edition and in accordance with the provisions set out in the loan and grant agreements. Specifically, procurement shall be done according to:

 The Procurement System of the Borrower: The procurement methods and procedures (PMP) of Benin comprising its applicable laws and decrees (Law No. 2009-02 of 07/08/2009 to define the public procurement code, as amended by Law No. 2017-04 of 19 October 2017 and its various implementing instruments), using standard national competitive bidding documents (SNCBDs) or other bidding documents approved during project negotiations for the procurement of basic, simple, low-cost goods provided for under the project and generally available in Benin.

 The Bank’s Procurement Methods and Procedures (BPM): The Bank's standard procurement methods and procedures, based on the relevant standard bidding documents (SBDs) for works, major and complex goods, and the most suitable consultancy services.

4.1.4 Assessment of procurement risks and capacity (APRC): An assessment of project risks at the national, sector and project levels and of the procurement capacity of the executing agency (EA) was conducted and the results served as the basis for choosing the procurement system (Borrower’s or Bank’s) used for given activities or set of similar activities under the project. The appropriate risk mitigation measures have been included in the PERCA action plan indicated in Paragraph. B.5.9. of Annex B5.

4.1.5 The established PMU is finalizing the bidding documents relating to: (i) procurement of MV/LV network consolidation and extension works; and (ii) monitoring and control.

4.1.6 Financial Arrangements: The financial and accounting management of SBEE is based on the OHADA accounting system of OHADA, which is modelled on SYSCOA. Annual financial statements are produced by the Directorate-General and submitted for verification to two auditors and subsequently to the Board of Directors for approval. The laws in Benin do not provide for a general meeting of shareholders, which normally adopts the budget, approves the accounts, takes strategic decisions and formulates policy. Since such a structure is non-existent among the statutory bodies of companies, these powers are conferred on the Board of Directors.

4.1.7 With regard to management tools, the SBEE has a procedures manual whose application is concurrently controlled by the internal audit and the management control and procedures services. It also has a financial management and accounting software (GD'OR ) which does not handle analytical project management as recommended by the Bank. Indeed, the software can only generate financial statements and SYSCOA general accounting statements, with the operations of each project managed through a dedicated log that is integrated into SBEE statements. However, non-accounting monitoring makes it possible to establish the status of project revenue and expenditure but does not guarantee the reliability offered by accounting software. Moreover, auditors do not issue a special opinion on project implementation. Adequate configuration of the accounting software is essential for complete and reliable project management support.

4.1.8 The financial management demands of the project require the SBEE to produce quarterly monitoring reports no later than 45 days after the end of each calendar quarter, and to produce annual financial statements no later than three months after the end of the fiscal year so that an external audit can be conducted.

4.1.9 Staff of the Studies and Development Department (DED), the Accounts and Finance Department (DFC) and the control bodies is barely sufficient in quality and number to adequately execute the management tasks of the SBEE and projects. Hence, the project has to consolidate its own management by recruiting an accountant who will be posted to the cash- flow and disbursements service to prepare its financial and accounting statements.

4.1.10 Disbursement Arrangements: ADF loan and grant resources will be disbursed in accordance with Bank rules and procedures in two ways, namely: direct payment and reimbursement. The direct payment method will be used for payment of works, goods and services contracts signed with enterprises, suppliers and service providers; and (ii) the reimbursement method will be used to defray expenditure eligible for loan and grant resources and effected by the Borrower on own resources, after prior formal approval from the Bank.

4.1.11 External Audit Arrangements: In the reports of the last two years, auditors expressed reservations on capital asset inventories and receivables, which is symptomatic of poor monitoring of these key items which are crucial to the SBEE. According to the DCF, recovery measures are being implemented for the accounts concerned. For the external audit of the project, and independent external auditor will be recruited on a competitive basis, on terms of reference approved by the Bank. The audit reports must reach the Bank no later than six months following the end of the fiscal year. The audit contract may not exceed three years according to Bank directives, and may continue in the second and last years only if the Bank approves the audit report of the first year.

4.2 Monitoring

4.2.1 During its execution and based on the baseline situation established by the SBEE, regular monitoring will be conducted on all project activities:

(i) The PMU will regularly monitor the execution of all project activities (contract award; contract management; procurement; coordination between the consultant engineer in charge of works control and supervision and the companies; coordination with all competent public structures and services, the population and other stakeholders; approval of works progress reports; acceptance and commissioning of completed works, etc.) and, where appropriate, make recommendations to the Steering Committee on successful and timely implementation of the project.

(ii) The PMU shall submit project progress reports to the Bank on a quarterly basis. These reports will detail the physical progress status of the project, its financial performance including approved commitments and disbursements per component and financing source, the main identified problems or constraints that could affect timely performance and recommended solutions. The reports of the Bank's supervision missions, the consultant engineer tasked with works control and supervision and the different audits will be used to ensure proper project implementation; identify the constraints or bottlenecks; and carry out appropriate actions that facilitate timely project implementation and the achievement of project objectives.

(iii) The Bank will monitor the project through the activities summarized in the table below. These activities will be conducted following the project implementation schedule presented in page (vi). At least two project supervision missions will be conducted annually by the Bank.

(iv) At completion, the PMU will prepare and submit a completion report to the Bank. The Bank will also prepare its own completion report. A project appraisal report will also be prepared later by the Bank to measure project impact.

The main project implementation stages are presented below:

Period Stages Monitoring Activities/Feedback Loop - Approval and general procurement notice of the project - Notification to the Government Approval and - Signing of ADF loan and grant agreements December 2017 - - Grant effectiveness effectiveness of the ADF April 2018 - Loan effectiveness grant/loan - Lifting of conditions precedent to effectiveness and first disbursement of the ADF grant and loan - Launching of project Recruitment of the - Publication of the call for expressions of interest January 2010 - consultant engineer for - Approval of shortlist and consultancy documents December 2018 works monitoring and - Approval of the proposals evaluation report control - Signature of contract - Conduct of bidding documents January 2018 - Construction of works - Publication of invitations to tender May 2019 companies - Approval of bid evaluation reports - Signing of contracts January 2019 - Works control and - Works control and supervision November 2020 supervision - Provision of electrical equipment and supplies Construction of January 2019 - - Construction works electricity infrastructure - Installation of electricity networks and substations December 2020 - Establishment of new connections - ESMP Implementation: January 2018 - Implementation of the - Updating of the RAP - Compensation December 2020 ESMP and RAP - ESMP Implementation - Publication of the call for expressions of interest January 2018 - Recruitment of the - Approval of the shortlist and consultancy documents - Approval of the proposals evaluation report July 2018 external auditor - Signature of contract - Services provision December 2020 - - Borrower’s project completion report Project completion March 2021 - The Bank’s project completion report

4.3 Governance

4.3.1 In the audit reports of the last two years, auditors expressed reservations on capital asset inventories and receivables, which is symptomatic of poor monitoring of these key items which are crucial to the SBEE. Recovery measures for the accounts involved have been implemented by the DCF. Hence, although there may well be a risk in the economic governance of the project, such risk will be mitigated by the fact that project accounts will be audited and certified by an independent external auditor, hired on terms of reference previously approved by the Bank. The audit reports will be approved by the Bank. The risk is also mitigated by the current project, funded by MCA-Benin and aimed at improving the management performance of the SBEE. Indeed, MCA-Benin is funding the recruitment of a consultant tasked with proposing the most appropriate management scheme for enhancing SBEE performance. The solutions considered include a delegated management contract.

4.4 Sustainability

4.4.1 The project’s sustainability is predicated on electricity supply that is regular and sufficient to meet the needs of existing customers and the new subscribers who will be connected to the grid through the project.

4.4.2 The electricity supply situation in Benin should improve significantly over the next few years thanks to several ongoing operations. These include: (i) the Ghana-Togo-Benin interconnection line financed by the Bank and which will provide the possibility of importing energy from Ghana; (ii) the electricity distribution network reinforcement project in Benin co- financed by the AFD, EU and EIB; (iii) expansion of the production capacity of the Maria Gleta power plant to 120 MW plant co-financed by the IsDB, WADB, EBID and the Government; (iv) the investment programme of MCA-Benin in the energy sector worth USD 136 million to reinforce the distribution network of the SBEE and increase electricity production in Benin by three solar power plants with a total production capacity of 45 MW; (iv) construction of a 20 MW solar plant (DEFISOL project) financed by the AFD; and (v) the rehabilitation of 15 diesel- powered generators in SBEE plants financed by the Government.

4.4.3 Project sustainability is based essentially on the SBEE's capacity to repair and maintain the equipment and facilities that will be constructed under the project. SBEE staff has long- standing experience in operating sub-transmission and distribution networks. Furthermore, SBEE engineers and technicians will benefit from the training and capacity-building component of the project, such that the company will be able to ensure sustainable management of the infrastructure financed under PRESREDI.

4.5 Risk Management

4.5.1 The potential risks of the project primarily reside in the weak financial capacity of the SBEE to: (i) ensure maintenance of project facilities; and (ii) raise counterpart funding for the project.

4.5.2 Mitigative Measures: These risks will be mitigated, firstly, through the sectoral budget support actions of the Bank and current initiatives to boost the revenue and improve management of the SBEE. The actions initiated by TFPs and the Government will enable the SBEE to reform, cut its losses and supply electricity to more subscribers, thus increasing its revenue. With ADF support, the SBEE is currently deploying a new technical and financial model that will enhance investment planning while ensuring that such investment is profitable in the short, medium and long terms. Secondly, to enable the company to finance the compensations, the SBEE Board has already approved the allocation of CFAF 1.2 billion under the 2018 budget. The balance of CFAF 300 million will be entered into the 2019 budget.

4.6 Knowledge Development

4.6.1 The project provides for capacity-building through training of the SBEE staff responsible for the operation and maintenance of electricity distribution networks.

4.6.2 Knowledge from the current operation will be disseminated through quarterly and annual project progress reports, financial audit reports and contract audit reports which constitute the information sources for this project. The same applies to reports of the Bank's supervision missions and the Government's monitoring missions. It will be possible to learn and share lessons on project implementation from all the aforementioned reports and the project completion reports. The Bank’s project completion report and project performance appraisal report will make it possible to share project implementation knowledge with Bank staff and the public. The lessons learned will enhance the design of similar future projects funded by the Bank in its regional member countries.

5 LEGAL FRAMEWORK

5.1 Legal Instrument

5.1.1 To finance this project, the Bank will award an ADF loan of UA 6.44 million and an ADF grant of UA 5.17 million to the Republic of Benin, for onlending to the SBEE as sole beneficiary.

5.2 Conditions Associated with the Bank’s Intervention

A) Conditions Precedent to EffectivenessIn addition to its signature by the Bank and the Borrower, the ADF loan agreement shall become effective subject to the Borrower’s fulfilment of the conditions provided for in Section 12.01 of the General Conditions for Loan Agreements and Guarantee Agreements of the African Development Fund.

5.2.2 Entry into force of the ADF grant memorandum of understanding shall be subject to its signature by the Donee and the Fund.

B) Conditions Precedent to First Disbursement of ADF Resources:

5.2.3 Apart from entry into force of the loan/grant memorandum of understanding, first disbursement of grant resources shall be subject to fulfilment by the Borrower of the following specific conditions to the satisfaction of the Fund:

(i) provide the Fund with evidence of the establishment the (a) Project Management Unit, including the appointment of its members and (b) the Steering Committee;

(ii) provide the Fund with evidence of project-financing closure by the “Agence française du développement” (AFD - the French Development-finance Agency); and

(iii) provide the Fund with evidence of the signature of an agreement to on-lend the loan resources to SBEE; the terms and conditions of the agreement should be acceptable to the Fund.

C) Conditions Precedent to Disbursement of the Loan Resources relating to Works that Require Expropriation

5.2.4 In addition to the entry into force of the present Agreement, and satisfaction of the condition precedent to disbursement of the first tranche of the loan resources and disbursement of the loan resources relating to works requiring expropriation, shall be subject to fulfilment by the Borrower of the following condition:

(i) as the works progress and before commencement of works in the area concerned, tender evidence: (a) either of procurement of the lands required for the construction; (b) or of compensation and/or resettlement of project-affected persons in the said area, in keeping with the Environmental and Social Management Plan (ESMP), the Comprehensive Resettlement Plan (CRP) for the populations concerned, and the Bank’s relevant rules and procedures, particularly its Involuntary Resettlement Policy and its Integrated Safeguards Systems. It is specified that when such compensation or resettlement is not possible, owing to the impossibility of identifying the beneficiaries or in the event of contestation, dispute or any other duly justified hindrance acceptable to

the Fund (hereinafter referred to as «contentious cases»), the condition precedent could be considered as having been fulfilled if the Borrower tenders evidence that the resources allocated to the compensation and/or resettlement of contentious cases, as defined in the CRP, have been deposited either in a dedicated account opened at the Treasury and earmarked for compensation and/or resettlement, or in another bank account acceptable to the two parties and specially earmarked for the said compensation and/or resettlement, or deposited with a reliable third party acceptable to the two sides.

D) Other Conditions

5.2.5 Furthermore, the Borrower shall fulfil the following conditions to the satisfaction of the Fund:

(i) tender to the Fund, evidence of the opening of an account, in the name of the project, in a bank deemed acceptable by the Fund, for receiving the counterparty contributions;

E) Commitments

5.2.6 The Borrower undertakes to:

(i) implement the project, the ESMP and the RAP and have them executed by its contractors in accordance with (a) the rules and procedures of the Fund, (b) domestic legislation and (c) the recommendations, stipulations and procedures contained in the ESMP and the RAP;

(ii) refrain from commencing works on a given area until such time when the affected persons in that area have been fully compensated; and

(iii) submit to the Fund half-yearly reports on the ESMP and RAP implementation, including, where applicable, indication of any shortcomings and corrective measures initiated or to be initiated.

5.3 Compliance with Bank Policies

The SBEE Sub-transmission and Distribution System Restructuring and Extension Project is consistent with all applicable Bank policies.

6 RECOMMENDATIONS

Management recommends that the Board of Directors approve the proposal to award an ADF loan of UA 6.44 million and an ADF grant of UA 5.17 million to the Republic of Benin to finance the SBEE Sub-Transmission and Distribution System Restructuring and Extension Project (PRESREDI), in accordance with the terms and conditions set forth in this report.

Annex I: Comparative Socioeconomic Indicators of Benin Benin Selected Macroeconomic Indicators

Indicators Unit 2000 2011 2012 2013 2014 2015 2016 (e)

National Accounts GNI at Current Prices Million US $ 2 710 7 530 7 939 8 877 9 433 9 357 ... GNI per Capita US$ 390 770 790 860 890 860 ... GDP at Current Prices Million US $ 2 360 7 788 8 015 9 068 9 524 8 415 9 937 GDP at 2000 Constant prices Million US $ 2 360 3 578 3 770 3 983 4 244 4 466 4 644 Real GDP Growth Rate % 4,9 3,3 5,4 5,6 6,5 5,2 4,0 Real per Capita GDP Growth Rate % 1,7 0,4 2,6 2,9 3,8 2,5 1,3 Gross Domestic Investment % GDP 18,7 23,9 21,7 28,2 24,6 22,1 25,3 Public Investment % GDP 6,4 6,4 5,7 6,1 5,4 7,6 7,6 Private Investment % GDP 12,2 17,5 15,9 22,0 19,1 14,5 17,7 Gross National Savings % GDP 13,6 16,8 15,2 20,5 16,3 16,7 16,3

Prices and Money Inflation (CPI) % 4,2 2,7 6,7 1,0 -1,1 0,4 0,2 Exchange Rate (Annual Average) local currency/US$ 712,0 471,9 510,5 494,0 494,4 591,4 588,3 Monetary Growth (M2) % 66,5 9,0 10,8 14,9 17,3 7,7 7,1 Money and Quasi Money as % of GDP % 37,7 56,8 56,5 59,3 66,2 67,4 61,5

Government Finance Total Revenue and Grants % GDP 17,5 18,8 19,0 18,2 19,4 18,5 18,5 Total Expenditure and Net Lending % GDP 19,2 20,5 19,9 21,3 19,5 25,0 24,5 Overall Deficit (-) / Surplus (+) % GDP -1,7 -1,5 -1,8 -1,8 -0,9 -6,5 -6,2

External Sector Exports Volume Growth (Goods) % 43,2 -6,4 19,6 102,1 32,4 5,1 14,8 Imports Volume Growth (Goods) % -6,9 7,3 6,6 34,9 22,7 0,7 9,7 Terms of Trade Growth % -28,1 7,4 -30,9 -14,3 -4,4 -2,6 -3,2 Current Account Balance Million US $ -104 -516 -587 -673 -885 -551 -703 Current Account Balance % GDP -4,4 -6,6 -7,3 -7,4 -9,3 -6,5 -7,1 External Reserves months of imports 8,6 5,2 4,2 3,2 2,9 0,3 0,2

Debt and Financial Flows Debt Service % exports 16,3 4,4 6,5 5,6 5,3 5,5 6,3 External Debt % GDP 55,9 15,8 15,9 17,4 18,8 20,1 19,1 Net Total Financial Flows Million US $ 232 703 588 698 563 372 ... Net Official Development Assistance Million US $ 243 673 508 660 599 430 ... Net Foreign Direct Investment Million US $ 60 161 230 360 405 229 ...

Real GDP Growth Rate, 2004-2016 Inflation (CPI), Current Account Balance as % of GDP,

2004-2016 2004-2016 % 7,0 10 0,0 6,0 8 -1,0 5,0 -2,0 6 -3,0 4,0 -4,0 4 -5,0 3,0 -6,0 2 2,0 -7,0 0 -8,0 1,0 -9,0

-2 -10,0

2011 2012 2013 2014 2 006 2 009 2 013 2 016 2004 2005 2006 2007 2008 2009 2010 2015 2016 2 004 2 005 2 007 2 008 2 010 2 011 2 012 2 014 2 015

2006 2011 2013 2005 2007 2008 2009 2010 2012 2014 2015 2016 0,0 2004

Source : AfDB Statistics Department; IMF: World Economic Outlook, April 2017 and International Financial Statistics, April 2017; AfDB Statistics Department: Development Data Portal Database, March 2017. United Nations: OECD, Reporting System Division. Notes: … Data Not Available ( e ) Estimations ( p ) Projections Last Update: June 2017

Annex II: Major Related Ongoing Projects in Benin Financed by the Bank and Other Development Partners as at 30/6/2017

N Project Title Donors and Funding Status o. 1 EUR 20 million with financing from the Approval in December 2015 Reinforcement of the Electricity Distribution Network in Benin; AFD/EIB/EU 2 Physical progress status 50% Extension and modernization CFA.F 5,906,766,957 FCFA on IDA financing Financial progress status 36% Dispatching

3 European Commission (EC): CFA.F 5,050,861,000 Physical progress status > 80%

DGIS, ENDEV/GTZ: CFA.F 1,443,103,000 ENERGY FACILITY PROGRAMME: Financial progress status > 93% Rural Electrification Project through AFD: CFA.F 5,116,456,000 Connection to the SBEE Grid SBEE: CFA.F 1,574,294,000

4 IDA: USD 30.13 million or CFA.F 15.065 billion Physical progress status > 25% Access to Modern Energy SBEE: USD 1.5 million or CFA.F 750 million Financial progress status > 15% Development Project (DAEM)

5 CFA.F 5,994,006,143 on EIB financing Physical progress status 18% Rehabilitation of the Lome-Cotonou- Financial progress status 20% Onigbolo Line

6 CFA.F 5.495 billion funded by AID Physical progress status 18% Construction of the 161 kV CFA.F 11.545 billion F CFA financed by the EIB Onigbolo/Parakou and Sakete/Porto- CFA.F 1.94 billion with CEB own funds Financial progress status 25% Novo Lines German Cooperation grant to KfW amounting to CFA.F 9.35 billion CFA.F 2.185 billion with CEB own funds

Annex III: Map of the Project Area

III