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AFRICAN DEVELOPMENT BANK

PROJECT : RURAL ELECTRIFICATION PROJECT (PERU)

COUNTRY : BENIN

PROJECT APPRAISAL REPORT

Date: September 2019

Raymond L. KITANDALA (RDGW.1) Team Leader Senior Energy Officer 4515 Pierre DJAIGBE (COSN/RDGW.1) 6597 Principal Energy Officer Sonia DAH-APIOU (COTG/SNFI.1) 7141 Procurement Specialist Fatimata BALL(RDGW.1) 4499 Financial Analyst Team Members Olympe Pierre JOHNSON (SCCN) 4883 Appraisal Environmental Expert, Consultant Team Abdoulaye TETIE BAKAYOKO (SNFI.2) 5794 Financial Management Expert Tidiane OUEDRAOGO 5350 Gender Expert, Consultant Sector Div. Manager Amadou Bassirou DIALLO 1681 Country Manager John ANDRIARISATA 6201 Director General Marie-Laure AKIN-OLUGBADE 4018 Deputy Dir. General Serge N’GUESSAN 4042 Sector Director Henry Batchi BALDEH 4036

H.M. TOURE (RDGW.1) 4620 Peer F. BRI, (RDGC.1) 2437 Reviewers E.ATTIOGBEVI SOMADO (RDGW.2) 2401 Z. N’ZOMBIE (COBF) 6102

AFRICAN DEVELOPMENT BANK

Public Disclosure authorized Disclosure Public BENIN

RURAL ELECTRIFICATION PROJECT (PERU)

APPRAISAL REPORT

Public Disclosure authorized Disclosure Public

RDGW

September 2019

Translated document

TABLE OF CONTENTS I. STRATEGIC THRUST AND RATIONALE ...... 1 1.1. Project Linkages with Country Strategy and Objectives ...... 1 1.2. Rationale for Bank’s Involvement ...... 2 1.3. Aid Coordination ...... 2 II. PROJECT DESCRIPTION...... 3 2.1. Project Description and Components...... 3 2.2. Technical Solution Retained and Other Alternatives Explored ...... 4 2.3. Project Type ...... 4 2.4. Project Cost and Financing Arrangements ...... 5 2.5. Project Target Area and Beneficiaries ...... 7 2.6. Participatory Process for Project Identification, Design and Implementation ...... 7 2.7. Bank Group Experience, Lessons Learned Reflected in Project Design ...... 7 2.8. Key Performance Indicators ...... 8 III. PROJECT FEASIBILITY ...... 9 3.1. Economic and Financial Performances ...... 9 3.2. Environmetnal and Social Impact ...... 10 3.3. Gender ...... 12 3.4. Social ...... 12 3.5. Employment ...... 13 IV. PROJECT IMPLEMENTATION ...... 13 4.1. Implementation Arrangements ...... 13 4.2. Monitoring ...... 15 4.3. Governance ...... 17 4.4. Sustainability ...... 17 4.5. Risk Management ...... 17 4.6. Knowledge Building ...... 18 V. LEGAL FRAMEWORK ...... 18 5.1 Legal Instrument ...... 18 5.2 Conditions Associated with Bank’s Intervention ...... 18 5.3 Compliance with Bank Policies ...... 20 VI. RECOMMENDATIONS ...... 20

Annex I : Key Comparative Socio-Economic Indicators for Benin ...... I Annex II : The Bank’s Portfolio as at 30 June 2019 ...... II Annex III : Projects Financed by Others in the Sector ...... IV Annex IV : Map of Project Area...... VI Annex V : Justification for the Level of Benin’s Counterpart Contribution to the Project’s Financing ...... VII

CURRENCY EQUIVALENTS June 2019

1 Unit of Account = 1.3776 USD 1 Unit of Account = 1.2354 EUR 1 Unit of Account = 810.3824 CFAF

FISCAL YEAR 1 January to 31 December

WEIGHTS AND MEASURES

1 kilometre (km) = 1 000 m 1 km² = 1 000 000 m² 1 hectare (ha) = 10 000 m² 1 tonne = 1 000 kg 1 kilojoule (kJ) = 1 000 Joules (J) 1 kilovolt (kV) = 1 000 Volts (V) 1 kilovolt-ampere (kVA) = 1 000 Volt – Amperes (VA) 1 kilowatt (kW) = 1 000 Watts 1 Megawatt (MW) = 1 000 000 W = 1 000 kW 1 Gigawatt (GW) = 1 000 000 kW = 1 000 MW 1 kilowatt hour (kWh) = 1 000 Watthours = 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 tonne of oil equivalent (toe) = 41 868 Joules = 11 630 kWh 1 million tonnes of oil equivalent (mtoe) = 1 000 000 toe

ACRONYMS AND ABBREVIATIONS

ABE Benin Environment Agency

ABERME Benin Rural Electrification and Energy Management Agency ADF African Development Fund AFD French Development Agency AfDB African Development Bank BD bidding documents CSP Country Strategy Paper DD detailed design EBID ECOWAS Bank for Investment and Development ESIA Environmental and Social Impact Assessment ESMP Environmental and Social Management Plan EU European Union GAP Government Action Programme HVA High voltage A (1000V≤ voltage ≤50 000 V IEC information, education and communication IsDB Islamic Development Bank LV low voltage MCA Millennium Challenge Account MV medium voltage MW Megawatt OHADA Organisation for the Harmonisation of Business Law in Africa PMU Project Management Unit SBEE Sub-transmission and Distribution System Restructuring and PRESREDI Extension Project REF Rural Electrification Fund RMC Regional Member Countries SBEE Société Béninoise d’Energie Electrique (Benin Power Utility) TFP technical and financial partner UA unit of account USA United States of America WADB West African Development Bank WAEMU West African Economic and Monetary Union WB World Bank

PROJECT INFORMATION SHEET

BORROWER: Republic of Benin EXECUTING AGENCY: Benin Rural Electrification and Energy Management Agency (ABERME) Financing Plan

Sources Amounts (in million EUR) Instrument AfDB 61.77 Loan EBID 23.48 Loan Government 9.81 National counterpart ABERME/REF 1.33 National counterpart TOTAL 96.39

Key AfDB Loan Financing Terms

Loan currency: EURO (EUR) Loan type: Fully flexible loan Tenor: Up to 25 years inclusive of 8-year grace period Grace period: 8 years Average loan maturity** : 16.75 years Repayments: 34 consecutive semi-annual and equal payments after grace period Interest rate: Base rate +Funding cost margin+ Lending margin + Maturity premium Floating rate (EURIBOR set 2 days before the start of the applicable interest Base rate: period). A free option is available for determining the base rate. The Bank funding cost margin as determined twice yearly on 1 January for Funding cost margin: semester ending 3 December and 1 July for semester ending 30 June and applied to EURIBOR rate set on 1st February and 1st August. Lending margin: 80 basis points (0.8%) Maturity premium: 20 basis points (0.2%) 0.25% of the loan amount due at loan effectiveness and payable up to 60 days from Front-end fees: Loan Effective Date 0.25% per annum of the undisbursed amount. Commitment fees start accruing 60 Commitment fee: days from signature of the loan agreement and are payable on interest payment dates, including the grace period. In addition to the free option to convert the floating base rate into a fixed base rate, the Borrower may reconvert the fixed base rate to floating or refix it on part or full Option to convert the base rate * : disbursed amount. Transaction fees are payable.

The Borrower may cap or set both cap and floor on the floating base rate to be applied on part or full disbursed amount. Option to cap or collar the Base Rate * : Transaction fees are payable.

The Borrower may convert the loan currency for both undisbursed or disbursed amounts in full or part to another approved lending currency of the Bank. Option to convert loan currency* *: Transaction fees are payable.

FRR (baseline scenario) 12.20% VAN (scenario de base) : CFAF 17.5 billion ERR (baseline scenario) : 16.0% ENPV (baseline scenario) CFAF 32.5 billion

Timeframe – Main Milestones (expected)

Concept note approval May 2019 Project appraisal June 2019 Loan approval September 2019 Loan effectiveness December 2019 Completion December 2022 Last disbursement March 2023

iii

PROJECT SUMMARY

1. Project Overview: The Rural Electrification Project (PERU) is an investment project concerning the extension and densification of rural electricity distribution networks. The project covers the entire territory of Benin with the exception of the city of Cotonou where the Bank is financing a similar project approved in 2017. PERU concerns 309 localities representing an estimated beneficiary population of one million inhabitants. Its objective is to increase the rural electricity access rate from 8.11% in 2018 to 13.78% in 2022. The project is in keeping with the 2016-2021 Government Action Programme which, among others, aims to build up the country’s energy capacities and improve the population’s living conditions. The total project cost is EUR 96.39 million with an estimated Bank contribution of EUR 61.77 million. The project implementation period is 36 months.

2. Needs Assessment: At the end of 2018, the national electricity access rate was 32% compared to a Sub-Saharan Africa average of 40%. Total installed capacity was 160 MW for an average load of 190 MW and a peak of 250 MW and the country imports 96% of electricity consumed. The transmission and distribution networks are obsolete and the source of huge technical losses estimated at 24% at the end of 2017. Since 2016, the energy gap has been steadily narrowed as a result of actions taken under PAG (2016-2021), in particular, the leasing of generators with a cumulative capacity of about 180 MW, the importation from Nigeria of additional capacity of 60 MW and the rehabilitation of some existing power plants. These efforts are continuing with the commissioning of a 120 MW power plant at Maria Gléta last August, the ongoing construction of solar-powered plants with a cumulative capacity of 75 MWp and the signing of contracts with independent power producers for the construction of new plants with a capacity of almost 240 MW. This project is part of the network strengthening programme aimed at optimising electric power distribution from 2020 and reducing technical losses in distribution networks.

3. Bank’s Added Value: The Bank has comparative advantages because of its long- term involvement in financing the country’s electricity sub-sector. Indeed, this project complements and strengthens the results of ongoing or completed Bank-financed projects in recent years. The Bank has financed the Project for the Electrification of 17 Rural Centres and the Second Rural Electrification Project which were respectively completed in 2007 and 2011. It is currently financing the SBEE Sub-transmission and Distribution System Restructuring and Extension Project approved in 2017. In the electric power transmission sub-sector, the Bank has financed the Benin-Nigeria Interconnection Project and the Ghana-Togo-Benin Interconnection Project respectively completed in 2010 and 2018 as well as the ongoing Nigeria-Niger-Benin-Burkina Interconnection Project. These projects were supplemented by the Energy Sector Budget Support Programme (PASEBE), approved in 2016 and which supported the efforts made by the Government of Benin to restructure the energy sector. The Bank’s project team will capitalise on the lessons learned from the operations with assistance from the Bank’s Country Office in Benin opened in 2017.

4. Knowledge Management: A monitoring-evaluation baseline situation will be established by the Executing Agency in order to allow the Bank and other stakeholders to learn lessons from the project’s implementation. ABERME, the Project Executing Agency, will inventory and update the baseline data which will be used as performance or alert indicators in the quarterly status reports. The main sources of information that will be used by the country and the Bank are the reports on: (i) monitoring-evaluation; (ii) the Bank’s supervision missions; (iii) control missions; (iv) audited accounts; and (v) the procurement audit. The lessons learned from these different reports will be reflected by the country and Bank in the design and implementation of future operations.

RESULTS—BASED LOGICAL FRAMEWORK Country and Project Name: Benin – Rural Electrification Project (PERU) Project Goal: Contribution to an increase in the population’s access to electricity in rural areas PERFORMANCE INDICATORS Baseline Means of RISKS AND MITIGATION MEASURES RESULTS CHAIN Targets Indicators (including CSIs) Situation Verification (2023) (2018)

The living conditions of the - GDP per capita (USD) 829 922 population of the project area are - National electricity access rate 32% 38% improved - Rural electricity access rate 8.11% 13.78%

IMPACT

Access to electricity in rural areas - Number of new localities electrified 832 1065 Reports: Risk:

is increased Ministry of Low household connection rate in rural areas due to very low household - Number of new customers electrified + 48324 Energy incomes. Technical losses in distribution - Technical loss rate 24% 23.6% ABERME network are reduced SBEE Mitigation measure - Permanent jobs created 100 (70M+30W) It is planned to offer promotional connections at CFAF 25,000 instead of - Temporary jobs created - 600 the usual CFAF 90,000.

OUTCOMES - (500M+100W)

- Length of HVA lines constructed - 1447 km Reports: Risks: (i) weak implementation capacities of a large-scale project; (ii) - Length of HVA/LV lines constructed - 167 km ABERME, poor works implementation performance of contractors;

- Length of LV lines constructed - 1305 km SBBE, Electricity infrastructure for rural - Number of HTA/LV transformer sub- stations - 350 AfDB: Mitigation measure: (i) provision of technical assistance to ABERME electrification - Number of public lighting units - 6331 Reports composed of high-level experts to support the PMU in addition to two - Employees trained - 60 (45M+15W) (status, firms of consulting engineers for works control and supervision; (ii) UTPUTS - Schools connected to power grid - 35 supervision, adoption of, and compliance with, carefully prepared qualifications to

O - Temporary jobs created - 600(500M+100W) completion) prevent the recruitment of contractors and service providers without relevant references.

Components Inputs EUR 98.39 million Costs EUR 98.39 million

ES AfDB Loan : EUR 61.77 million Electricity infrastructure : EUR 82.58 million I 1. Electricity infrastructure: Establishment of rural electrification infrastructure (MV and LV lines, MV/LV transformer EBID : EUR 23.48 million Institutional support : EUR 6.90 million sub-stations), connections and drinking water supply in schools, GOVT. : EUR 9.51 million Project management : EUR 6.91 million 2. Institutional support: conduct of studies on new operations, capacity-building ABERME : EUR 1.33 million

ACTIVIT 3. Project management: works control and supervision, implementation of environmental and social management plans, project administration and management, auditing of project accounts and monitoring-evaluation.

PROJECT IMPLEMENTATION SCHEDULE

2023 Project Activities 2019 2020 2021 2022 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1. Project Approval Approval by Board of Directors Effectiveness of Loan Agreements Loan agreement signature Loan agreement effectiveness Fulfilment of conditions precedent to disbursement 2. Construction of Infrastructure Preparation and launching of BD for works Signature of works contracts Construction work on HVA/LV lines and sub- stations Preparation and launching of BD for connection equipment Supply of connection equipment Household connection works Household connection Drinking water supply works in 35 schools 3. Institutional Support Various training sessions Conduct of studies 4. Project Management Works control and supervision Audit of project accounts Procurement audit Information, Education and Communication Compensation for affected people

REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE BANK GROUP TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO FINANCE THE RURAL ELECTRIFICATION PROJECT IN BENIN

Management submits this report and its recommendations on a proposal to award an AfDB loan of EUR 61.77 million to the Republic of Benin to finance the Rural Electrification Project (PERU).

I. STRATEGIC THRUST AND RATIONALE

1.1. Project Linkages with Country Strategy and Objectives

1.1.1 The project is aligned with the Government Action Programme (2016-2021 GAP) approved in 2016, especially its Pillar 2 concerning the structural transformation of the economy (including energy capacity-building) and Pillar 3 on the improvement of the population’s living conditions by providing, among others, access to basic social services including electricity. In the electricity sub-sector, the 2016-2020 GAP has four strategic priorities: (i) guarantee competitive access to electric power; (ii) develop renewable energies; (iii) restructure the national operator and its network, and (iv) better manage energy use. This project is in line with strategic priorities (i) and (iv). The project is also aligned with the Benin Government’s energy strategy set out in the Electricity Sub-sector Sustainable Recovery Plan (PRSE) aimed at ensuring regular, safe, sustainable and affordable supply, particularly by building local generation and electricity network capacities and by diversifying the country’s energy mix. The project stems from the PRSE rural electrification component which concerns the development of electricity networks in rural areas in order to supply households with electricity and promote economic activities.

1.1.2 The main shortcomings of the electricity sub-sector in Benin are a serious demand-supply gap, heavy reliance on the outside world and a low electricity access rate. At the end of 2018, the electricity access rate was 32% compared to a Sub-Saharan average of 40% with wide disparities between urban (58%) and rural (8.11%) areas. The distribution networks are obsolete, saturated and little developed and are the cause of energy losses estimated at 24% in 2017. Under the 2016- 2021 GAP, the Government initiated emergency actions to close the gap and ensure the reliable supply of electric power and expand the networks to provide access to the maximum number of people. These actions concerned: (i) the leasing of thermal plants totalling 180 MW; (ii) rehabilitation of SBEE thermal plants with a cumulative capacity of 30 MW; and (iii) the signing with the Nigerian Paras Energy Group of a contract for the supply of an additional 60 MW; i.e., a total supply of 270 MW. With development partners’ support, several production projects are being implemented, in particular: (i) the construction of a 120 MW thermal plant on the Maria Gléta site with IsDB financing and whose commissioning tests are currently underway; (ii) the envisaged construction of a second 120 MW plant on the same Maria Gléta site, for which funding is being sought and in which the Bank could participate; and (iii) the envisaged construction of photovoltaic solar power plants with a cumulative capacity of 75 MWp with AFD, EU and MCA support. All these actions will provide the country with national supply of about 400 MW by 2021 comprising 300 MW from thermal plants and 100MW from solar plants.

1.1.3 The action taken by the Government has led to a reduction in the frequency and duration of outages due to supply shortages. However, the current state of the networks which are obsolete and saturated could limit the impacts of the government’s efforts. PERU is, therefore, the response to the challenges of (i) developing efficient distribution networks capable of ensuring the short- term transit of expected power supply; (ii) reducing network losses; and (iii) providing more

1 inclusive access to electricity for the population. In time, the project will achieve the electrification of 294 localities and provide access for 48,324 households, which will increase the access rate in rural areas from the current 8.11% to 9.74% in 2022. The national coverage rate will rise from 38.4% to 56.7%, and the national access rate from 32% to 38%.

1.1.4 The project is aligned with the Bank’s Country Strategy Paper for Benin (2017-2021 CSP) which focuses on two strategic thrusts, namely: (i) development of agricultural and agro-industrial value chains; and (ii) strengthening of competitiveness and regional integration support infrastructure. By targeting the electricity distribution networks, PERU is in line with the CSP’s second thrust. The project is not included in the 2012-2017 indicative lending programme which was prepared on the basis of ADF country allocations. The project’s financing became possible thanks to Benin’s recent access to the AfDB window which enabled it to raise supplementary resources.

1.2. Rationale for Bank Involvement

1.2.1 In addition to its compliance with the 2017-2021 CSP, the project is in keeping with the Bank’s Ten-Year Strategy for the 2013-2022 period and, more specifically, with its operational pillar dedicated to the development of sustainable infrastructure that will improve energy security. It is in line with at least three of the Bank’s strategic priorities or ‘Hi-5s’. Indeed PERU will contribute to the achievement of the priority objective ‘Light up and power Africa’ and will also have a catalytic effect on the achievement of the objectives of two other High-5s, namely: ‘Industrialise Africa’ and ‘Improve quality of life for the people of Africa’. The project will also contribute to the implementation of the various programmes of the New Deal on Energy for Africa, in particular: the programme in favour of the ‘bottom of the pyramid’ by connecting 48,324 subscribers in rural areas; the programme to improve the performance of electric power utilities by training employees of the Ministry in charge of Energy, SBEE and ABERME; and the programme to increase the pipeline of bankable projects through the conduct of feasibility studies on two future projects.

1.2.2 The project will also contribute to the implementation of the Bank’s Energy Sector Policy (approved in 2012) which has a dual objective, namely: (i) to support Regional Member Countries (RMCs) in their efforts to provide all of their populations and productive sectors with access to modern, affordable and reliable energy infrastructure and services; and (ii) to assist RMCs in developing their energy sector in a socially, economically and environmentally sustainable manner. The project is also consistent with the Bank’s Gender Strategy (2016-2018) extended to 2019 which recommends the strengthening of women’s economic empowerment. Access to energy will, in fact, contribute to the transformation of the local economy through the enhancement and marketing of local agro-food products, a sector in which women and young people, in particular, excel.

1.3. Aid Coordination 1.3.1 Coordination of these TFPs is structured into 12 thematic groups, each of which is jointly managed by a lead TFP and a sector Ministry. The Ministry of State in charge of Planning and Development through the Resource Mobilisation Committee (CMR), is responsible for monitoring the coordination of TFPs that contribute to the implementation of the 2016-2021 GAP. The following Table summarises the volume of investments by TFPs that have been active in the electricity sub-sector over the last five years (2015-2019).

Importance Sub-sector GDP Export Labour Electricity n.a. n.a n.a. Stakeholders – Annual Public Expenditure (average) 2014-2017 Government Donors - AFD 10.9% MEUR 947.02 MEUR 85.53 MEUR - AfDB 1.60% (100%) (9.03%) 861.49 (90.37%) - EIB 6.207% - IsDB 13.88% - EBID 6.93% - WB 9.83% - WADB 1.77% - GEF 1.09% - KfW 1.65% - UNDP 0.09% - MCA 39.04% - EU 7.08% - OTHERS 7.08% Level of Aid Coordination Existence of thematic working groups Yes Existence of a global sector programme Yes AfDB’s role in aid coordination Member

II. PROJECT DESCRIPTION 2.1 Project Description and Components

2.1.1 The project has the following three components: (a) electricity infrastructure; (b) institutional support; and (c) Project Management. The details and estimated costs of these components are indicated in the Table below.

Table 2.1 Project Components (amounts in MEUR) No. Component Title Cost Description of Activities • Construction of 1447 (606)1 km of 30 kV HVA networks • Construction of 1305 (915) km of low voltage networks • Construction of 165 (71) km of hybrid networks • Installation of 21 (0) 50 kVA transformer sub-stations • Installation of 160 (76) 100 kVA transformer sub-stations ELECTRICITY • Installation of 125 (83) 160 kVA transformer sub-stations A 82.58 INFRASTRUCTURE* • Installation of 1 (0) 250 kVA transformer sub-station • Installation of 65 (65) 400kVA transformer cabins • Installation of 6331 (4384) public lighting units • Procurement of connection equipment for 48 324 (41 000) new customers (social connections at promotional prices) • Implementation of environmental mitigation measures • Conduct of feasibility studies and environmental and social impact assessments on 500 rural localities and the extension of INSTITUTIONAL B 6.90 the distribution network in peri-urban areas SUPPORT • Capacity-building (Training session for ABERME, SBEE and Ministry of Energy employees)

1 The quantities in brackets are financed by the Bank 3

• Recruitment and training of 10 young interns (at least 50% of whom will be women) • Drinking water and electric power supply to 35 schools with a school canteen in the project area • Gender and strengthening women’s empowerment • Works control and supervision; • Audit of accounts and project procurements; • Procurement audit; • Technical assistance to the PMU (recruitment of an expert); PROJECT C 6.91 • Information, Education et Communication ; MANAGEMENT • Office furniture; • IT equipment; • Operation of the Project Management Unit (PMU) • ESMP implementation. TOTAL PROJECT COST 96.39

2.2 Technical Solution Retained and Other Alternatives Explored The localities will be electrified by the extension of HVA lines, the construction of HVA/LV sub- stations and LV lines to connect households and light up the localities. The alternative solutions envisaged are (i) off-grid electrification consisting in the construction of small isolated photovoltaic, diesel or hybrid power plants supplying one or two localities through a mini-grid; and (ii) the supply of home solar systems. The reasons for rejection of these two solutions are indicated in the Table below:

Table 2.2 Other Alternatives Explored and Reasons for their Rejection Alternative Solution Brief Description Reasons for Rejection Electrification on the Construction of isolated - Availability of national interconnected grid and basis of an off-grid thermal, solar or hybrid HVA lines close to the localities to be electrified; system by isolated mini- plants linked to mini-grids and plants linked to small by locality or groups of - Difficulty in obtaining a return and justifying the grids localities investments made in centralised power generation - Difficulty in justifying the use of small power generating units or HSS given the size of the localities concerned; Home Solar System Supply of individual solar - Limited use of electricity from these systems (HSS) electrification kits to households confined to primary domestic needs (lighting, charging telephones and radio and TV), excluding the use of electricity for the processing of agropastoral and handicraft products.

2.3 Project Type

PERU is an investment project that forms part of the Government Action Programme. It will be financed by an AfDB loan to the Republic of Benin under the conditions stipulated on page vi of this report.

2.4 Project Cost and Financing Arrangements

2.4.1 The total cost of this project, excluding taxes and customs duties and including a 5% provision for physical contingencies and 5% for price escalation, is estimated at EUR 96.39 million equivalent to UA78.02 million at the time of project appraisal. The project costs by component, by source of finance and by expenditure category as well as the indicative disbursement schedule are presented in the following tables.

Table 2.3 Estimated Cost by Component

Amounts in MUA Amounts in MEUR Component % F.E. F.E. L.C. Total F.E. L.C. Total Electricity infrastructure 54.68 6.08 60.76 67.56 7.51 75.07 90% Institutional support 3.55 1.52 5.07 4.39 1.88 6.27 70% Project management 3.56 1.53 5.09 4.40 1.89 6.29 70% Base cost 61.79 9.13 70.92 76.35 11.28 87.63 87% Physical contingencies 3.09 0.46 3.55 3.82 0.56 4.38 87% Price contingency 3.09 0.46 3.55 3.82 0.56 4.38 87% Total project cost 67.97 10.05 78.02 83.99 12.40 96.39 87% 2.4.2 As indicated in Table 2.4 below, in addition to the African Development Bank Group, the project is financed by the ECOWAS Bank for Investment and Development, the Government of Benin and the Benin Rural Electrification and Energy Management Agency through the Rural Electrification Fund (REF) from a levy on electricity sales. The Bank’s contribution to the project’s financing is EUR 61.77 million (UA 50 million); i.e., 64.1% of the total cost. The supporting documents for this contribution, which exceeds 50% of the total cost, are presented in Annex V.

Table 2.4 Project Sources of Finance Amounts in MUAs Amounts in MEUR Sources of Finance % Total F.E. L.C. Total F.E. L.C. Total AfDB 42.98 7.02 50.00 53.10 8.67 61.77 64.1% EBID 17.10 1.92 19.01 21.13 2.35 23.48 24.4% Government 7.14 0.79 7.94 8.83 0.98 9.81 10.2% ABERME 0.75 0.32 1.07 0.93 0.40 1.33 1.4% Total Project Cost 67.97 10.05 78.02 83.99 12.40 96.39 100.0%

2.4.3 The project cost by expenditure category is as follows:

Table 2.5.1 Project Cost by Expenditure Category Amounts in MUAs Amounts in MEURs Expenditure Categories % F.E. F.E. L.C. Total F.E. L.C. Total Works 50.76 5.84 56.60 62.72 7.21 69.93 90% Goods 10.10 1.15 11.25 12.48 1.42 13.90 90% Services 5.95 2.55 8.50 7.35 3.15 10.50 70% Operation 1.16 0.51 1.67 1.44 0.62 2.06 70% Total Project Cost 67.97 10.05 78.02 83.99 12.40 96.39 87%

Table 2.5.2 Project Cost by Expenditure Category and Source of Finance Expenditure Amounts in MUAs Amounts in MEURs Categories ABER GOV ABER AfDB EBID GOVT TOTAL AfDB EBID TOTAL ME T ME Works 29.65 19.01 7.93 - 56.60 36.63 23.48 9.81 - 69.93 Goods 11.26 - - - 11.26 13.90 - - - 13.30 Services 8.50 - - - 8.50 10.50 - - - 10.50 Operation 0.59 - - 1.08 1.67 0.73 - - 1.33 2.06 Total Project 50.00 19.01 7.93 1.08 78.02 61.77 23.48 9.81 1.33 96.39 Cost

2.4.4 The estimated project expenditure schedule by component is as follows :

Table 2.6 Expenditure Schedule by Component Amounts in UA million Amounts in EUR million Components 2020 2021 2022 2023 Total 2020 2021 2022 2023 Total Electricity 13.37 23.39 26.73 3.34 66.83 16.51 28.9 33.03 4.14 82.58 Infrastructure Institutional 1.12 1.95 2.23 0.28 5.58 1.38 2.41 2.76 0.35 6.9 Support Project 1.12 1.96 2.24 0.29 5.61 1.38 2.42 2.77 0.34 6.91 Management TOTAL 15.61 27.30 31.20 3.91 78.02 19.27 33.73 38.56 4.83 96.39 % Total 20.00% 35.00% 40.00% 5.00% 100.00% 20.00% 35.00% 40.00% 5.00% 100.00%

2.4.5 The resources of the AfDB loan will be used to partly finance the infrastructure and project management components and fully finance the institutional support component. Details of the allocation and distribution of AfDB loan resources to the different expenditure categories are provided in Section B2 of the Technical Annexes.

Table 2.7 AfDB Resources by Expenditure Category Amounts in MUAs Amounts in MEURs Expenditure Categories % F.E. F.E. L.C. Total F.E. L.C. Total

Works 25.89 2.88 28.76 31.98 3.55 35.53 90.0% Goods 10.10 1.15 11.26 12.48 1.42 13.90 89.8% Services 5.95 2.55 8.50 7.35 3.15 10.50 70.0% Operation 0.42 0.18 0.59 0.51 0.22 0.73 70.0% Other 0.62 0.27 0.89 0.77 0.33 1.11 70.0% Total 42.98 7.02 50.00 53.10 8.67 61.77 100%

2.5 Project Target Area and Beneficiaries 2.5.1 The project covers the following 12 departments of Benin: Alibori, Atakora, Atlantique, Borgou, Collines, Couffo, Donga, Littoral, Mono, Ouémé, Plateau and Zou. Localities were chosen on the basis of the following criteria: (i) administrative status of localities (priority given to district (arrondissement) capitals); (ii) the size of the locality’s population (>1,000 habitants); (iii) the locality’s proximity to the existing grid (most of the localities selected are located less than 20 km from the HVA lines); and (iv) the locality’s strategic position (border area or economic development hub). The project area map is attached as Annex III and the list of localities is given in the Technical Annexes to this report.

2.5.2 The Project’s main beneficiaries are the 48,324 households to be connected to the power grid. It is planned to reduce the connection cost to CFAF 25,000 instead of 90,000 since the project will finance the connection equipment. Thirty-five schools will be connected to the electricity network and will benefit from drinking water supply under the National School Canteens Support Project established by the Government. SBEE is also a direct beneficiary due to the increase in its number of subscribers and the volume of energy sales. The operational capacities of SBEE and ABERME will be built up through training sessions for their employees in charge of planning and operations. Access to electricity will benefit the productive sectors of the economy in the project areas, in particular handicrafts. Finally, local businesses specialising in electrical trades will be invited to bid for the household connection works.

2.6 Participatory Process for Project Identification, Design and Implementation 2.6.1 The project stakeholders were consulted during the different project preparation phases. During the conduct of the technical feasibility studies in 2016 and the environmental and social impact assessments in 2019, the inhabitants of the zones concerned were consulted by the teams responsible for conducting these studies under the oversight of ABERME. During the project Appraisal Mission, the Bank’s teams and ABERME held public meetings in the presence of the administrative and customary authorities. The different meetings revealed the population’s concerns which were chiefly focused on: (i) the cost of connecting households to the power grid which was considered to be very high, (ii) the need to employ local labour for the assembly works, (iii) the criteria for selecting localities for electrification; and (iv) the risks relating to power transmission that could represent a danger.

2.6.2 These concerns were taken into account in the design of this project. It is, in fact, planned to lower the cost of connection from CFAF 90,000 to 25,000 in order to allow families with modest incomes to connect to the power grid. An information, education and communication (IEC) campaign in local languages will be carried out to sensitise the population to the benefits and potential dangers of using electric current. The IEC will also sensitise households on the need to pay their electricity bills and will remind them of their civic duty to protect electrical installations which are considered as public property.

2.7 Bank Group Experience, Lessons Learned Reflected in Project Design

2.7.1 The Bank’s portfolio in Benin as at 30 June 2019 comprised 15 active projects representing total commitments of MUA 363.03 million. They are mainly public sector projects comprising 12 national projects for a total amount of MUA 285.85 (78.7%) and three multinational projects for a total amount of MUA 77.18 (21.3%). The portfolio performance is considered to be satisfactory with an overall score of 3.1 on a scale of 1 to 4. The portfolio does not contain any at-

7 risk or ageing projects. However, difficulties and constraints are impeding project implementation, in particular: (i) delays in mobilising national counterpart funds; (ii) problems related to the planning and budget execution of the projects’ external resources; (iii) delays in the sdubmission of project audits; (iv) procurement delays; (v) weakness of some project management units; (vi) project monitoring-evaluation shortcomings; and (vii) delays sometimes observed in obtaining the Bank’s no-objection opinions.

2.7.2 Some of these constraints also concern PRESREDI, the only energy project in the sector. This project has experienced a delay in the mobilisation of national counterpart funds and in procurement. Moreover, its management unit did not have dedicated personnel since the project engineers, the procurement expert and monitoring and evaluation expert only worked part-time on the project. These generic difficulties common to the entire portfolio are compounded by specific difficulties, in particular, the non-existence of feasibility studies on the ‘sub-station and 63 kV power line component’ which delayed the launching of the selection of contractors. The measures envisaged under this project to address these challenges are set out in the following table:

No. Challenges or constraints Measures envisaged under this project - Use of APA procedure Delay in the procurement process due to lack of 1 - Recruitment of a procurement expert to support the Project ownership of the Bank’s rules and procedures Management Unit - All resources for the project’s financing have been mobilised 2 Slippage on counterpart fund mobilisation (EBID, GOVERNMENT and ABERME) The existing PMU will be strengthened by technical assistance No personnel exclusively dedicated to the 3 comprising international level individual consultants who will project work exclusively for the project - There are plans to recruit a monitoring-evaluation expert for the 4 Weak project monitoring-evaluation PMU whose profile (CV) will be submitted to the Bank for prior approval. Non-existence of feasibility studies for some - Detailed designs were prepared on all the project’s components 5 project components

2.8 Key Performance Indicators

2.8.1 Project performance will be measured through the results-based logical framework indicators. The output indicators are: (i) length of HVA lines constructed; (ii) number of HVA/LV transformer sub-stations constructed; (iii) lengths of LV lines constructed; (iv) number of connections made; (v) number of public lighting units installed; (vi) number of studies conducted; (viii) number of employees trained; and (ix) number of audits conducted. The outcome indicators are: (i) the number of new localities electrified; (ii) number of new customers connected; (iii) technical loss rate; and (iv) number of jobs created. The impact indicators that will be assessed a few years after project completion are: (i) GDP per capita; and (ii) national and rural electricity access rates.

2.8.2 The executing agency through the Project Management Unit, will monitor progress towards achievement of the project outcomes. Data on output and outcome indicators will be provided in: (i) the periodic status reports to be prepared by the consulting engineers in charge of works control and supervision; (ii) the quarterly project status reports prepared by the Project Management Unit; (iii) reports of Bank supervision missions; and (iv) project completion reports (by the Borrower and Bank). An analysis of these indicators will determine their progress and make it possible to make the necessary adjustments if required to meet the targeted values. The impact indicators will be provided in the national reports of the Ministry of Planning and Development,

Ministry in charge of Energy, SBEE, ABERME and INS. An analysis of these indicators will determine their progress and ensure that the necessary adjustments are made, as required, to meet the targeted values. III. PROJECT FEASIBILITY 3.1 Economic and Financial Performances Table 3.1 Project’s Key Financial and Economic Indicators FIRR: 7.96% NPV: CFAF 18.2 billion Baseline scenario EIRR: 15.7% Economic NPV: CFAF 19.6 billion

3.1.1 Financial Performance: The project’s financial internal rate of return (FIRR) and net present value (NPV) were calculated on the basis of costs and revenue related to the completion and commissioning of the project structures. Project revenue accrues from the additional sale of energy as a result of consumption by new subscribers. The project costs are the investment costs excluding the provision for price escalation, annual operating and maintenance costs of the structures and cost price of energy delivered. The discount rate retained for the NPV calculation is 5% corresponding to the weighted cost of capital.

3.1.2 Economic Performance: The economic costs retained for the calculation of the economic internal rate of return (EIRR)and the economic net present value (ENPV) are investment costs, excluding taxes and the provision for price escalation, adjusted by appropriate conversion factors for equipment, works, services and labour. Maintenance and other operating costs were adjusted in a similar manner. The main project benefits factored into the calculation of the ERR and ENPV are: (i) the economic gain for new subscribers on the assumption that the alternative solution assumes self-production using electric generators; (ii) valuation of economic savings resulting from reduced technical losses following project implementation and the sale of energy to long-standing customers whose installations have been enhanced. The discount rate retained to calculate the NPV is 10% which corresponds to the opportunity cost of capital in the country.

3.1.3 Sensitivity of Project Economic and Financial Performance: This was analysed in relation to: (i) a 10% increase in investment costs; (ii) a 10% increase in operating costs; and (iii) a two-year project implementation delay. The analysis shows that the project is more sensitive to the delay during its implementation than to the other two factors. With a two-year delay, the financial rate of return is considerably lower than the cost of capital but the economic rate of return remains higher than the opportunity cost of capital showing that the project remains economically viable. Particular emphasis must be placed on the project implementation delays in order not to reduce its rate of return (the details are presented in Annex B.7).

3.2 Environmental and Social Impact

3.2.1 Environmental and Social Categorisation: The project was classified in Category 2 in view of the identified negative environmental and social impacts, which are of low to medium significance. Indeed, the 1447 km of HTA lines are made up of several sections connecting one or more localities to the national HTA network lines, the longest of which do not exceed 20 km. These lines will comprise concrete poles erected along roads in 50 x 50 cm holes, with a depth of no more than 1.5 metres. The substations will consist of small transformers with a capacity of 50 to 100 kVA mounted on the poles and will not require floor space. The LV lines will comprise wooden poles installed along the avenues of the various localities in 30 x 30 cm holes with a depth of no more than one metre. Hence, the project will not result in population displacements. During the implementation of this project, there will be no physical or economic displacement as most of the economic assets likely to be affected will be avoided. There will only be a loss of trees planted for economic purposes and whose compensation costs are included in the ESMP

3.2.2 Environment: From the environmental and social standpoints, the Bank has classified this project in Category 2 since its reported environmental and social impacts are mainly of low to medium significance. These are positive and negative impacts presented below and for which mitigation measures are proposed. An environmental and social impact assessment (ESIA) divided into three lots was conducted and an Environmental and Social Management Plan (ESMP) prepared. The ESIA and ESMP reports have been validated by the Benin Environmental Agency (ABE) and the Environmental Compliance Certificate has already been issued by the Ministry of the Living Environment. The ESIA/ESMP as well as the complete project reports were published by the Bank on 19 August 2019 and can be accessed through the following links:

https://www.afdb.org/en/documents/benin-projet-delectrification-de-100-localites-au- benin-resume-eies https://www.afdb.org/en/documents/benin-projet-delectrification-de-100-localites-au- benin-resume-eess https://www.afdb.org/en/documents/benin-projet-delectrification-de-100-localites-au- benin-resume-pges

3.2.3 The main positive impacts of the PERU project are of several types. These include the improvement of public and domestic lighting, the economic development of localities benefiting from the project, the development of income-generating activities (IGA) whose implementation requires energy, an improvement in school performance due to learners’ improved conditions, the creation of temporary and permanent jobs (welding, vulcanisation, hairdressing, catering, etc.) during the works phase, improved quality of service delivery by SBEE, an increase in the number of subscribers and the volume of SBEE’s energy sales and the financial recovery of SBEE through reduction of technical losses.

3.2.4 The main negative impacts (environmental, human and socio-economic), may be significant depending on the project’s lifespan.

- In the preparatory phase, from an environmental standpoint, predictable negative impacts mainly comprise: soil degradation and compaction, deterioration of air quality and noise pollution, landscape alteration, deterioration of plant cover (total loss of 5,038 standing trees) and wildlife habitats. However, provision has been made for reforestation and the related financing has been included in the ESMP

costs. On the socio-economic and human front, there will be negative impacts related to security and health, the risks of accidents at work, sexually transmitted infections (STI) and the loss of arable land and farms.

- During the works phase, from a socio-economic standpoint, issues of health and safety would arise for at-risk communities. These concern the phenomenon of migration (workers’ camps close to the project sites) and induced impacts pertaining to safety, health and sanitation, sanitary and safety conditions on the construction sites and, finally, risks of accidents resulting from excavation work or trenches. From an environmental standpoint, the impacts of sites on soil structure (erosion and subsidence) and risks of soil, water and air quality pollution (dust generation, in particular) are highlighted. Equally noteworthy are risks of accidents related to the movement of machinery and vehicles as well as significant noise pollution.

- During the operational phase, the main issues are employees’ health and safety (during equipment maintenance operations) caused by pollution from out-of-service transformers, the risk of fire and explosions directly involving the transformers and the population (risks related to the collapse of structures and electrical installations like cables).

3.2.5 Mitigation Measures: For each of the potential impacts identified, measures will be implemented to avoid, mitigate and offset the potential undesirable impacts on the environment or the population. Thus, during the planning and construction phase, in light of the first field observations, attention will be paid to the environment and the satisfactory location of installations to curb any ecological and social challenges and ensure the adoption of worksite best practices, including the prevention of the risk of industrial accidents and sensitisation of the local communities to electrical risks. During the operational phase, implementation of the Environmental and Social Management Plan (ESMP) will contribute to nuisance management and the monitoring of procedures to ensure people’s safety. The total cost of these mitigation and maximization measures under the ESMP is CFAF 119,104,839 (one hundred and nineteen million one hundred and four thousand eight hundred and thirty-nine CFA francs) for the PERU project.

3.2.6 Monitoring and Supervision of ESMP implementation: The Project Management Unit (PMU) will be responsible for implementing the ESMP with support from the consulting engineers, in close collaboration with the local government services concerned and the local administrative and customary authorities. The PMU will be composed of an environmental expert to be recruited at regional level and paid by the project. ABERME will submit quarterly ESMP implementation reports to the Bank. ABE will be mandated to carry out environmental and social supervision and will produce quarterly reports on project compliance with environmental and social safeguards. In this respect, a memorandum of understanding will be signed between ABERME and ABE.

3.2.7 Climate Change: The design and construction of the HVA lines will be carried out in compliance with the highest international engineering standards and by avoiding as far as possible marshy and flood-prone areas in order to guarantee their physical resistance to the main climate- related risks in the project area. The project’s main positive climate-related impact concerns the benefits provided to households in rural areas through improved access to electricity. These are: (i) fewer polluting alternatives linked to the use of wood fuels (fuelwood and charcoal) and kerosene lamps which are currently the main source of energy for lighting and cooking; (ii) opportunities for processing and preserving perishable products and consequently optimisation of the use of the

11 natural resources used in their production. Furthermore, the project will contribute to a reduction in polluting gas emissions generated by kerosene lamps and small individual electric generators currently used. The project is not vulnerable to climate risks which justifies its category 2 climate change ranking. In terms of mitigation, the project will help to avoid greenhouse gas emissions estimated at 243,090 toe of CO2 per year. Reforestation plantations to restore the ecosystem will contribute to the optimisation of this positive impact of the project.

3.3 Gender 3.3.1 The absence of electricity is a major obstacle to the social and economic development of the population, in particular of women and girls. Indeed, due to the traditional division of labour between men and women in Beninese society, girls and women are responsible for gathering fuelwood for household use. This has a considerable impact on the time and health of women and girls compared to men and boys. The overall vision of the ECOWAS Policy for Gender Mainstreaming in Energy Access is a world where men and women enjoy equal access to modern energy services that are readily available, affordable and contribute to the improvement of living standards and economic development. To that end, the project will take actions that will have a considerable impact in terms of an improvement in the living conditions of women, girls, men and boys. 3.3.2 The project will, therefore, contribute to: (i) the electrification of households headed by widowed or single women with children; (ii) the electrification of basic social services (schools with canteens, health centres); (iii) information and sensitisation on the impacts of using fuelwood on the health of women and girls; (iv) public lighting to reduce insecurity, facilitate the development of income-generating activities and help girls and boys to study at night; (v) the recruitment of young graduate interns, at least 50% of whom will be women; (vi) sensitisation on the use of high-quality electrical equipment (lamps, wires, refrigerators..); (vii) sensitisation of girls attending high school and junior secondary schools on electricity sector trades; (viii) sensitisation on the productive use of energy to develop income-generating activities; (ix) a grant to women’s groups to purchase equipment and connect to the grid; and (x) electrification of and water supply to schools with canteens. 3.3.3 The project also aims to build gender mainstreaming capacities at the Ministry by (i) conducting a gender audit and preparing the Ministry of Energy’s Gender Action Plan; (ii) training members of the Gender Unit and staff of the Ministry in ‘Gender and Energy’; (iii) monitoring and capitalising on gender mainstreaming experiences in the project; and (iv) recruiting two gender experts (M/W) specialised in providing support to women’s organisations. The availability of electricity in households will contribute to the development of income-generating activities that will improve the living conditions of these households. The availability of electricity in rural areas will especially benefit women and children who will be relieved of the burden of collecting wood fuel (biomass) for domestic lighting. It will improve the functioning of basic social services (health and education), micro-enterprises and market gardening or artisanal cooperatives. In time, lighting for classrooms and public places will improve the success rate of girls and boys in schools in the areas concerned. Consequently, the project is classified in Category 3 under the Bank’s Gender Marker System. 3.4 Social: There are plans to directly connect 48,324 households to the electricity network under the project. Benin has agreed to lower the connection cost to CFAF 25,000 to enable low- income households to have access to electricity.

3.5 Employment: Electricity will facilitate the emergence of new job-creating activities in various areas. These chiefly concern agro-food processing, new information and communication technologies, carpentry, maintenance, sewing, embroidery, handicrafts, petty trading and services. The project will have significant socio-economic impacts in the areas covered. It will be able to generate 350 temporary jobs (30% of which are for women) during the electricity network construction works and connection works. There are plans to create 60 permanent jobs (15% of which will be for women) to ensure the operation of the structures and customer management for new subscribers.

IV. PROJECT IMPLEMENTATION 4.1 Implementation Arrangements

4.1.1 Project Executing Agencies

4.1.1.1 The Ministry of Energy is both the project owner and manager. ABERME is the delegated contracting authority and a Project Management Unit (PMU) has been established within it to coordinate and implement the project. The PMU is composed of: one (1) coordinator, one (1) administrative and financial officer (accountant), one (1) accountant to be recruited, four (4) electrical engineers (including two to be recruited), one (1) procurement specialist to be recruited, two (2) environmentalists (including one socio-environmentalist to be recruited), one (1) monitoring-evaluation officer, one (1) civil engineer to be recruited, two (2) SBEE representatives (electrical engineering profiles), 1 gender specialist, one (1) management assistant to be recruited and four (4) drivers (2 of whom are to be recruited).

4.1.1.2 The PMU will be provided with the necessary technical and management resources to carry out all the services required for the project’s technical, administrative and financial management. It will be supported by two firms of consulting engineers who will be responsible for works control and supervision including monitoring the implementation of the project’s Environmental and Social Management Plan (ESMP).

4.1.1.3 The Ministry in charge of Energy will establish a Steering Committee (SC) responsible for establishing the main strategic direction for the project’s implementation. In addition to the representative of the Ministry in charge of Energy who will chair it, the Steering Committee will be composed of representatives of the Ministry of Planning and Development, the Ministry of the Economy and Finance, the Ministry in charge of Local Government, the Ministry in charge of the Family and Women’s Affairs, the Directors-General of SBEE and ABERME as well as the project coordinator who will provide secretariat services.

4.1.2 Procurement Arrangements

4.1.2.1 All goods, works and consultancy services financed with Bank resources will be procured in accordance with the Procurement Policy for Bank Group Funded Operations (‘AfDB Procurement Policy’), October 2015 edition and the provisions of the Financing Agreement. Pursuant to this policy, and following the different assessments carried out, it was agreed that: (a) the following goods, works and consultancy services would be procured in accordance with the country’s procurement system (‘National System’) based on the provisions of Law No. 2017-04 of 19 October 2017 establishing the Public Procurement Code (PPC): (i) subscriber connection works in 162 localities in three lots; (ii) office furniture for PMU; (iii) IT materials and equipment for the PMU; (iv) earth measurement equipment for the PMU; and (v) recruitment of seven NGOs responsible

13 for information, education and communication (IEC) activities in seven vernacular languages; (b) all other procurements would be made in accordance with the Bank’s procurement system (‘AfDB System’).

4.1.2.2 The use of the National System for at least 5.255% of the project amount excluding operation and training (UA 2.57 million out of UA 50 million) will improve efficiency through the achievement of the following outcomes: (i) more effective ownership of the procurement system to be used by the executing agency; (ii) time saving because of no second control (after that of the national entities) represented by the Bank’s prior review. However, the Bank reserves the right to ask the Borrower to return to the use of the Bank’s System if: (a) the legal framework for public procurement in Benin were to change and shift towards a system that is not satisfactory for the Bank; (b) the provisions in force were not complied with by the Executing Agency; or (c) the appropriate risk mitigation measures included in the risk assessment-related Action Plan were not complied with.

4.1.2.3 Procurement Risks and Capacity Assessment (PRCA): In order to take into account the programme’s specificities, the Bank assessed: (i) the risks at national, sector and project level; and (ii) the executing agency’s capacities. The results of these assessments considered the level of procurement risk to be ‘moderate’ and made it possible to determine, subject to the application of the mitigation measures proposed in paragraph 5.9 of Annex B.5, all the procurements to be made in accordance with the Bank’s system and those likely to be implemented without any major risk in accordance with the National System.

4.1.2.4 Use of Advance Procurement Actions: In view of the procurement deadlines and in order to limit their impact on project implementation, the Government wished to submit to the Bank a request for the use of APAs for procurements pertaining to: (i) works on the distribution network in 100 localities; (ii) procurement of IT equipment and hardware for the PMU; (iii) procurement of office furniture for the PMU; (iv) recruitment of a consulting engineering firm to carry out works on rural distribution networks in 100 localities; and (v) the recruitment of additional PMU staff to implement the project (mainly individual consultants: a procurement specialist, an electrical engineer, an electricity network engineer, a civil engineer, a socio-environmentalist and an accountant).

4.1.3 Financial Management Arrangements

4.1.3.1 An analysis of ABERME’s financial management system shows that the present architecture meets the minimum requirements for the traceability of financial information (SUCCESS software, management tools and fiduciary personnel installed). The overall financial management risk was considered to be substantial because of the need to configure the SUCCESS software to allow it to manage PERU, the recruitment of additional PMU staff by a specialised firm, updating of the existing administrative, financial and accounting procedures manual in order to factor in the specificities of PERU which will be funded by the Bank.

4.1.3.2 The assessment proposes the following financial management arrangements which will provide ABERME with an effective and efficient financial management system that will, with reasonable assurance, guarantee: (i) the effective and economical use of PERU resources for their intended purpose; (ii) the timely presentation of the project accounts; (iii) the periodic production of reliable project information; and (iv) the security of assets acquired under the project. The effective application of the implementation modalities of the procedures manual will improve the

14 quality of PERU’s management. Such modalities include: (i) the opening of a special account at the central bank, BCEAO (in foreign exchange) and a transaction account (CFAF) at project level in a commercial bank acceptable to the Bank in order to facilitate disbursement procedures; (ii) the timely preparation and approval of the project’s Annual Work Plan and Budget (AWPB) by the Steering Committee (established by ABERME); and (iii) submission of the quarterly progress reports including the financial monitoring reports (FMR) and audited annual financial statements.

4.1.3.3 The internal audit function within PERU will be the responsibility of ABERME for which a team of internal auditors is being recruited. As regards external auditing, the annual financial statements prepared by the project will be submitted for a financial and accounting audit. It will be carried out by an independent accounting firm recruited on a competitive basis by ABERME for a period not exceeding three (3) years, based on terms of reference previously agreed upon with the Bank. The auditor’s fees will be paid from the project’s resources. The audit reports shall be forwarded to the Bank within six (6) months of the accounting period closing date.

4.2 Monitoring During the entire implementation, and on the basis of the baseline situation established by ABERME and SBEE, regular monitoring-evaluation will be carried out for all project activities:

- The project coordination team will carry out regular monitoring of the implementation of all the project activities (procurement, management of different contracts, coordination between the consulting engineer responsible for the control and supervision of works and contractors, coordination with all the structures and public services concerned, the population and other stakeholders, approval of works progress reports, acceptance and commissioning of completed structures, etc.) and will, if necessary, formulate recommendations for the Steering Committee to ensure timely and smooth project implementation.

- The project will submit quarterly status reports to the Bank. These reports will contain details of the project’s physical implementation status, financial execution including approved commitments and disbursements by component and by source of finance, the main problems or constraints identified that could affect the project’s timely implementation as well as the recommended solutions. They will also highlight the logical framework results gradually obtained from the project indicator trends. The reports of the Bank’s supervision missions and Government’s monitoring missions, of the consulting engineer responsible for works control and supervision and the different audits will ensure the project’s smooth implementation or help to identify constraints or delays, take appropriate actions that will allow the project to be implemented within the agreed time limits and achieve its overall objectives.

- The Bank will monitor the project through the activities summarised in the Table below. These will be carried out in accordance with the project implementation schedule presented on page (vi). The project will be the subject of at least two Bank supervision missions per year. It will also be closely monitored by the Bank’s Country Office in Benin.

- Upon project completion, the project coordination team will prepare and submit a completion report to the Bank. The Bank, in turn, will prepare its own project

completion report. A project performance evaluation report will also be prepared by the Bank to assess the projects’ impacts.

Period Stages Monitoring Activities/Feedback Loop - Approval and Project general information note - Notification to Government September 2019 Loan approval and - Loan agreement signature – December effectiveness - Loan agreement effectiveness 2019 - Fulfilment of conditions precedent to first disbursement - Project launching Recruitment of - Publication of Request for Expressions of Interest August 2019- consulting engineer for - Approval of shortlist and requests for submission of proposals February 2020 works control and - Approval of report on evaluation of proposals supervision - Contract signature - Approval of bidding documents October 2019- Recruitment of works - Publication of invitations to bid April 2020 contractors - Approval of bid evaluation reports - Contract signature - Approval of technical documents - Approval of technical construction drawings January 2020 - Works control and - Factory acceptance test for electrical equipment December 2022 supervision - Site supervision and technical controls - Technical acceptance and commissioning of structures - Preparation of periodic status reports Construction work on - Supply of electrical equipment and materials September 2019 electricity - Assembly of electricity networks and sub-stations - to December infrastructure - ESMP implementation 2020

Recruitment of - Preparation of bidding documents suppliers and delivery - Publication of invitations to bid January 2020 - of connection - Bid evaluation and signature of works contracts December 2020 equipment and energy - Delivery of connection equipment and metres metres - Preparation of bidding documents January 2021 – Implementation of - Publication of invitations to bid March 2022 connection works - Bid evaluation and signature of works contracts - Connection works Recruitment of other - Publication of Request for Expressions of Interest consultants and - Approval of shortlist and requests for submission of proposals January 2020– provision of services - Approval of report on evaluation of proposals December 2022 for studies, training - Contract signature financial audits and - Service delivery (studies, training and audits) contract suits January 2020- - Borrower’s Project Completion Report Project completion June 2023 - Bank’s Project Completion Report

4.3 Governance Governance risks concern the inefficient use of project resources because of possible shortcomings of the actors involved in project implementation. These risks may concern the transparency of the procurement process, the use of resources made available to the project and compliance of equipment and materials intended for the installations with technical standards. Under this project, specific fiduciary risk mitigation and governance measures will be implemented to ensure that the resources are used efficiently and for the purposes for which they were intended. The prior review of, and approval by the Bank of certain procurement activities will be required. The project also plans to recruit independent auditors who will audit the financial statements and procurement processes as well as firms of consulting engineers to ensure compliance of the project’s expected inputs and infrastructure.

4.4 Sustainability 4.4.1 Sustainability of the project’s impacts depends on its ownership by the Government which identified it and included it in the 2016-2020 GAP and financed all its technical and environmental and social impact studies. Sustainability then depends on the positive trend of energy supply as a result of the government’s emergency actions under the 2016-2020 GAP. Indeed, implementation of the sector actions planned in the GAP has resulted in: (i) the renting of generators with a maximum capacity of 180 MW; (ii) the rehabilitation of 15 generators in SBEE’s generation system which made 30MW available; the signing with Nigeria’s PARAS ENERGY of a contract for the supply of energy to SBEE in order to provide additional capacity of 60MW; and the construction of the 120 MW thermal power plant on the Maria Gléta site.

4.4.2 Project infrastructure sustainability will be guaranteed by resources generated from the sale of electric power. The infrastructure will be connected to SBEE on works completion in accordance with the memorandum of understanding on partnership arrangements between ABERME and SBEE. Project sustainability will also depend on SBEE’s capacity to ensure the upkeep and maintenance of equipment and facilities to be provided under the project. In this area, SBEE staff has considerable experience in the operation of similar sub-transmission and distribution networks.

4.5 Risk Management 4.5.1 The main possible project risks are (i) weak implementation capacities for such a large- scale project; (ii) possible performance shortcomings of works contractors; (iii) the recruitment of defaulting contractors and service providers; (iv) the non-existence or weakness of household connections in rural areas due to low household incomes which would affect the achievement of the project’s objectives.

4.5.2 The measures retained to mitigate these risks are: (i) the provision of technical assistance to ABERME comprising high-level experts to support the PMU in addition to two firms of consulting engineers for works control and supervision; (ii) the adoption of very strict qualification criteria to avoid recruiting contractors and service providers without relevant references; and (iii) a reduction in the cost of connecting households to the electricity network from CFAF 90,000 to CFAF 25,000.

4.6 Knowledge-Building 4.6.1 The project provides for capacity-building activities through the training activities for staff of the Ministry in charge of Energy, SBEE and ABERME. The training will concern design techniques and network calculations, sector planning, project management including procurement, contract administrative and financial management and environmental and social monitoring. The knowledge acquired during the different training modules will be supplemented by the lessons learned from this project’s implementation. All this knowledge will bolster effectiveness in the design and implementation of future, similar Bank operations in the country.

4.6.2 The knowledge acquired on and under the project will be disseminated through the different reports planned in particular the quarterly and annual project status reports, the financial audit and contract audit reports and reports of the Bank’s different monitoring missions, in particular the completion report and project performance evaluation report, publication of which will allow the sharing of knowledge acquired during the project’s implementation with Bank staff and the general public.

V. LEGAL FRAMEWORK

5.1 Legal Instrument

The Bank will contribute to the project’s financing through an AfDB sovereign loan that it will grant to the Republic of Benin.

5.2 Conditions Associated with Bank Intervention

A. Conditions Precedent to Effectiveness

5.2.1 Effectiveness of the loan agreement shall be subject to fulfilment by the Borrower, to the Bank’s satisfaction, of the provisions of section 12.01 of the General Conditions Applicable to Loan Agreements and Guarantee Agreements of the African Development Bank.

B. Conditions Precedent to First Disbursement of the Loan Resources

5.2.2 In addition to effectiveness of the Loan Agreement, the first disbursement of AfDB loan resources shall be subject to fulfilment by the Borrower, to the Bank’s satisfaction, of the following conditions:

(i) signature and submission of the Subsidiary Agreement between the Implementing Agency and the Borrower, satisfactory in substance and form to the Bank;

(ii) submission of evidence of extension of the powers of the PMU created within ABERME by Decision No. 015 / ABERME / SP of 29 January 2019, to include management and implementation the project financed by the Bank;

(iii) submission of evidence of recruitment into the PMU of the following key staff, whose respective qualifications and terms of reference have previously been deemed acceptable by the Bank: (i) a procurement officer; and (ii) an accountant;

(iv) submission of evidence of the establishment of the Project Steering Committee (PSC) and the appointment of the following key members: (i) a representative of the Ministry in charge of Energy who will chair the PSC; (ii) a representative of the Ministry of Planning and Development; (iii) a representative of the Ministry of the Economy and Finance; (iv) a representative of the Ministry in charge of local government authorities; (v) a representative of the Ministry in charge of family and women’s affairs; (vi) the General Manager of Société Béninoise d'Energie Electrique (SBEE); (vii) the General Manager of Agence Béninoise d'Electrification Rurale et de Maîtrise d'Energie (ABERME); and (viii) the Project Coordinator who will provide the secretarial services of the PSC.

C. Conditions Precedent to Disbursement for Works Involving Compensation

5.2.3 Subject to the provisions of Section A (Conditions Precedent to Effectiveness) and Section B (Conditions Precedent to First Disbursement) of this Agreement, the Bank's obligation to disburse the resources of the AfDB loan for works involving compensation/reinstallation shall be subject to the Borrower fulfilling, to the Bank's satisfaction, the following additional conditions:

(i) submission of a works and compensation schedule prepared in accordance with the Resettlement Plan (RP) and the Bank's Safeguard Policies, satisfactory in substance and form to the Bank, detailing: (i) each project worksite; and (ii) the time frame for compensation and/or resettlement of all persons affected by the Project (PAP) for each area;

(ii) submission of satisfactory evidence that all PAPs in the works areas have been compensated and/or resettled in accordance with the Environmental and Social Management Plan (ESMP), the RP and/or the works and compensation schedule, as agreed, and the Bank's Safeguard Policies, prior to the commencement of works on the site concerned and in any event, prior to the displacement and/or takeover of the land and/or attendant property of the PAPs; or if such compensation or relocation is not possible for reasons beyond the Borrower's control; or

(iii) in lieu of paragraphs (i) and (ii) above; submission of satisfactory evidence that the resources allocated for the compensation and/or relocation of the PAPs have been deposited in an account opened in a bank acceptable to the Bank or delivered to a third party acceptable to the Bank, where the Borrower can prove to the satisfaction of the Bank that the compensation and/or resettlement of the PAPs, pursuant to paragraphs (i) and (ii) above, could not be completed in whole or in part, for the following reasons: (i) identification of the PAPs by the Borrower is not feasible or possible; (ii) there are ongoing additional disputes and/or useful steps involving the PAPs and/or affecting the compensation and/or resettlement exercise; or (iii) any other reason beyond the Borrower's control, as discussed and agreed with the Bank.

D. Undertakings

5.2.4 The Borrower undertakes to:

(i) submit to the Bank, within three months following approval of the project by the Bank's Board of Directors, satisfactory evidence of the appointment of the following key members of the PMU, whose respective qualifications and experience will have

prior acceptable to the Bank: (i) a specialist in gender issues, (ii) a representative of the Beninese Electric Power Corporation (SBEE), (iii) an electrical engineer and (iv) an administrative and financial officer;

(ii) submit to the Bank, within six months following approval of the project by the Bank's Board of Directors, satisfactory evidence of: (i) configuration of the integrated accounting software that meets the Bank's requirements; (ii) completion of training for the PMU's financial management staff on the use of the integrated accounting software and accounting practices that meet the Bank's requirements; (iii) development of the Project’s Administrative, Financial and Accounting Procedures Manual whose content is deemed satisfactory by the Bank; and (iv) the recruitment into the PMU of the following key staff, whose respective qualifications and terms of reference are deemed acceptable by the Bank: (i) a transformer substation engineer, (ii) a network electrical engineer, (iii) a civil engineer, and (iv) a socio-environmentalist;

(iii) keep the PMU and PSC operational, throughout the duration of the Project; and refrain from modifying its structure, composition, roles and responsibilities as well as the qualifications and experience required of key members, without the Bank’s prior agreement;

(iv) implement the project in compliance with the ESMP, the Bank’s safeguards policies and applicable national legislation in a manner that is satisfactory to the Bank, in form and substance;

(v) prepare and submit to the Bank quarterly reports on ESMP implementation, including shortcomings identified and corrective measures taken;

(vi) refrain from any actions that might impede or hinder ESMP implementation including any modification, suspension, waiver and/or cancellation of any provision relating to it, wholly or partially, without the Bank’s prior written agreement; and

(vii) collaborate fully with the Bank should the project’s implementation or any change in its scope unexpectedly result in the displacement and/or resettlement of the population and undertake not to commence works in the project-affected area until all project- affected people are compensated and/or resettled in accordance with the resettlement plan prepared.

5.3 Compliance with Bank Policies The project complies with all applicable Bank policies.

VI. RECOMMENDATIONS

Management recommends that the Board of Directors approve the proposal to award an AfDB loan of EUR 61.77 million to the Republic of Benin to finance the Rural Electrification Project under the terms and conditions stipulated in this Appraisal Report.

Annex I: Key Comparative Socio-Economic Indicators for Benin

Benin COMPARATIVE SOCIO-ECONOMIC INDICATORS

Develo- Develo- Year Benin Africa ping ped Countries Countries Basic Indicators GNI Per Capita US $ Area ( '000 Km²) 2018 115 30,067 92,017 40,008 Total Population (millions) 2018 11.5 1,286.2 6,432.7 1,197.2 2500 Urban Population (% of Total) 2018 47.3 42.5 50.4 81.5 2000

Population Density (per Km²) 2018 104.3 43.8 71.9 31.6 1500 GNI per Capita (US $) 2017 800 1 767 4 456 40 142 1000 Labor Force Participation *- Total (%) 2018 71.4 65.9 62.1 60.1 Labor Force Participation **- Female (%) 2018 69.8 55.5 47.6 52.2 500

Sex Ratio (per 100 female) 0

2000 2013 2017 2011 2012 2014 2015 2016 2018 99.6 99.8 102.3 99.3 2007 Human Dev elop. Index (Rank among 189 countries) 2017 163 ... … … Popul. Liv ing Below $ 1.90 a Day (% of Population) 2007-2017 49.6 ... 11.9 0.7

Benin Africa Demographic Indicators Population Grow th Rate - Total (%) 2018 2.8 2.5 1.2 0.5 Population Grow th Rate - Urban (%) 2018 4.0 3.6 2.3 0.7 Population < 15 y ears (%) 2018 42.4 40.6 27.5 16.5 Population Growth Rate (%) Population 15-24 y ears (%) 2018 19.8 19.2 16.3 11.7 3.5 Population >= 65 y ears (%) 2018 3.3 3.5 7.2 18.0 3.0 Dependency Ratio (%) 2018 79.3 79.2 53.2 52.8 2.5 Female Population 15-49 y ears (% of total population) 2018 23.6 24.1 25.4 22.2 2.0 Life Ex pectancy at Birth - Total (y ears) 2018 61.4 63.1 67.1 81.3 1.5 Life Ex pectancy at Birth - Female (y ears) 2018 63.0 64.9 69.2 83.8 1.0 Crude Birth Rate (per 1,000) 2018 36.2 33.4 26.4 10.9 0.5

Crude Death Rate (per 1,000) 2018 8.9 8.3 7.7 8.8 0.0

2012 2015 2017 2007 2013 2014 2016 2018 Infant Mortality Rate (per 1,000) 2017 63.5 47.7 32.0 4.6 2000 Child Mortality Rate (per 1,000) 2017 98.3 68.6 42.8 5.4 Total Fertility Rate (per w oman) 2018 4.8 4.4 3.5 1.7 Benin Africa Maternal Mortality Rate (per 100,000) 2015 405.0 444.1 237.0 10.0 Women Using Contraception (%) 2018 19.3 38.3 61.8 …

Health & Nutrition Indicators Phy sicians (per 100,000 people) 2010-2016 15.3 33.6 117.8 300.8 Life Expectancy at Birth Nurses and midw iv es (per 100,000 people) 2010-2016 59.8 123.3 232.6 868.4 (years) Births attended by Trained Health Personnel (%) 2010-2017 77.2 61.7 78.3 99.0 80 Access to Safe Water (% of Population) 2015 77.9 71.6 89.4 99.5 70 60 Access to Sanitation (% of Population) 2015 19.7 39.4 61.5 99.4 50 Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 40 2017 1.0 3.4 1.1 … 30 Incidence of Tuberculosis (per 100,000) 2016 59.0 221.7 163.0 12.0 20 Child Immunization Against Tuberculosis (%) 10

2017 96.0 82.1 84.9 95.8 0

2012 2016 2007 2013 2014 2015 2017 2018 Child Immunization Against Measles (%) 2017 74.0 74.4 84.0 93.7 2000 Underw eight Children (% of children under 5 y ears) 2010-2016 18.0 17.5 15.0 0.9

Prev alence of stunding 2010-2016 34.0 34.0 24.6 2.5 Benin Africa Prev alence of undernourishment (% of pop.) 2016 10.4 18.5 12.4 2.7 Public Ex penditure on Health (as % of GDP) 2014 2.3 2.6 3.0 7.7

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2010-2017 126.6 99.5 102.8 102.6 Primary School - Female 2010-2017 122.3 97.4 102.0 102.5 Infant Mortality Rate Secondary School - Total 2010-2017 59.0 51.9 59.5 108.5 ( Per 1000 ) Secondary School - Female 2010-2017 50.7 49.5 57.9 108.3 100 90 Primary School Female Teaching Staff (% of Total) 2010-2017 25.1 48.7 53.0 81.5 80 Adult literacy Rate - Total (%) 2010-2017 32.9 65.5 73.1 ... 70 60 Adult literacy Rate - Male (%) 2010-2017 45.0 77.0 79.1 ... 50 Adult literacy Rate - Female (%) 2010-2017 22.1 62.6 67.2 ... 40 30 Percentage of GDP Spent on Education 2010-2015 4.4 4.9 4.1 5.2 20 10

2007 2011 2014 2012 2013 2015 2016 2017 Environmental Indicators 2000 Land Use (Arable Land as % of Total Land Area) 2016 23.9 8.0 11.3 10.4 Agricultural Land (as % of land area) 2016 33.3 38.2 37.8 36.5 Forest (As % of Land Area) 2016 37.8 22.0 32.6 27.6 Benin Africa Per Capita CO2 Emissions (metric tons) 2014 0.6 1.1 3.5 11.0

Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update : Febuary 2019 UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports. Note : n.a. : Not Applicable ; … : Data Not Available. * Labor force participation rate, total (% of total population ages 15+) ** Labor force participation rate, female (% of female population ages 15+)

Annex II: Bank’s Portfolio as at 30 June 2019

Disb. Approved No. Projects Approval Closure Ratio Age Amount (UA) % Cashew Nuts Sector and Agricultural Entrepreneurship Development Support Project 03/04/2019 31/12/2024 7 120 000.00 0.00 0.2 (PADEFA-ENA) 1 Cashew Nuts Sector and Agricultural Entrepreneurship Development Support Project 03/04/2019 31/12/2024 5 910 000.00 0.00 0.2 (PADEFA-ENA) Ouémé Valley Agricultural Infrastructure 30/09/2013 31/12/2020 275 695.83 100.00 5.8 Support Project (PAIA-VO) Ouémé Valley Agricultural Infrastructure 23/10/2013 31/12/2020 39 500 000.00 37.09 5.7 Support Project (PAIA-VO) Ouémé Valley Agricultural Infrastructure 23/10/2013 31/12/2020 530 000.00 28.73 5.7 Support Project (PAIA-VO) Ouémé Valley Agricultural Infrastructure 23/10/2013 31/12/2020 5 179 073.67 38.52 5.7 2 Support Project (PAIA-VO) Project to Support Food Production and Build Resilience in Alibori, Borgou and Collines 07/10/2015 31/12/2021 17 263 578.88 27.58 3.7 3 Departments (PAPVIRE -ABC) Community Forest Management Support Project 30/03/2017 31/12/2022 5 000 000.00 13.95 2.3 – Phase II (PAFEMCOM II) Community Forest Management Support Project 30/03/2017 31/12/2022 631 927.43 13.17 2.3 – Phase II (PAFEMCOM II) Community Forest Management Support Project 30/03/2017 31/12/2022 1 889 805.14 3.29 2.3 4 – Phase II (PAFEMCOM II) Programme for Integrated Development and Adaptation to Climate Change in the Niger Basin 07/11/2018 31/12/2025 6 000 000.00 0.00 0.6 (PIDACC/BN)-PIDACC/BENIN/ADF Programme for Integrated Development and Adaptation to Climate Change in the Niger Basin 07/11/2018 31/12/2025 1 055 966.21 0.00 0.6 5 (PIDACC/BN)-PIDACC/BENIN/PAGODA Project for Strengthening Investments for Climate Resilient Development in the Lac Nokoué- 10/10/2017 28/02/2020 427 017.24 12.09 1.7 Lagoon Complex of Porto-Novo (RICC- PNE 6 BENIN) Parakou Urban Transport Project 19/09/2014 31/12/2020 23 800 000.00 47.94 4.8 Parakou Urban Transport Project 19/09/2014 31/12/2020 1 339 059.57 24.45 4.8 Parakou Urban Transport Project – 03/06/2015 31/12/2020 11 530 000.00 38.40 4.1 7 Supplementary Loan Djougou-Pehunco-Banikoara Cotton 13/12/2018 31/12/2023 98 172 114.31 0.00 0.5 Road Development Project Djougou-Pehunco-Banikoara Cotton 13/12/2018 31/12/2023 35 354 403.54 0.00 0.5 8 Road Development Project Project to Reduce Water Losses and Improve the Viability of DWS Systems in Cotonou and Porto- 12/10/2015 30/06/2020 6 000 000.00 50.94 3.7 9 Novo and their urban areas (PRPES) The SBEE Sub-transmission and Distribution 10 System Restructuring and Extension Project 12/12/2017 31/08/2021 6 440 000.00 0.00 1.5 (PRESREDI)

The SBEE Sub-transmission and Distribution System Restructuring and Extension Project 12/12/2017 31/08/2021 5 170 000.00 0.43 1.5 (PRESREDI) Benin Economic Competitiveness 31/10/2018 30/06/2020 4 830 000.00 100.00 0.7 Support Programme (PACEB) 11 Benin Economic Competitiveness 31/10/2018 30/06/2020 2 170 000.00 100.00 0.7 Support Programme (PACEB) 12 Migrant Remittances OITFM-Benin 30/11/2015 30/06/2019 258 620.69 15.00 3.6 285 847 262,51 17.15 2.64 Multinational – Benin/Togo : Project to Rehabilitate the Lomé-Cotonou Road and 05/10/2011 31/12/2019 38 870 000.00 92.47 7.7 Facilitate Transport on the Abidjan-Lagos Corridor 13 Multinational – Benin/Togo : Project to Rehabilitate the Lomé-Cotonou Road and 05/10/2011 31/12/2019 34 270 000.00 79.49 7.7 Facilitate Transport on the Abidjan-Lagos Corridor Lomé-Cotonou Road Rehabilitation (Phase 2) 16/12/2016 31/12/2021 1 000 000.00 0.00 2.5 and Coastal Protection (Benin-Togo) Project 14 Lomé-Cotonou Road Rehabilitation (Phase 2) 29/06/2018 31/12/2021 2 046 446.14 0.00 1.0 and Coastal Protection (Benin-Togo) Project Abidjan-Lagos corridor highway development 15 21/09/2016 31/12/2024 1 000 000.00 38.14 2.8 project Study-Benin 77 186 446.14 82.35 4.36 363 033 708.65 31.01 2.93

III

Annex III: Projects Financed by Others in the Sector

AMOUNT TFP PROJECTS (MEUR) Strengthening the Electricity Distribution Network in Benin Project to Reinforce and Extend SBEE Medium and Low Voltage Networks in the Abomey-Calavi Municipality and 93.87 AFD Atlantique Department The SBEE Sub-transmission and Distribution System

Restructuring and Extension Project (PRESREDI) DEFISSOL Project Strengthening the Electricity Distribution Network in Benin

Rehabilitation of the Lomé - Cotonou - Onigbolo Line EIB 53.4 Project to Reinforce and Extend SBEE Medium and Low Voltage Networks in the Abomey-Calavi Municipality and Atlantique Department IsDB Rehabilitation of the Lomé - Cotonou - Onigbolo Line 119.6 Construction of a 120 MW Power Plant in Maria Gleta (First 400MW Phase) EBID 59.74 Action Programme for the Electrification of Rural Localities in Benin (PAELRB) Action Programme for the Electrification of Rural Localities WADB 15.24 in Benin (PAELRB)

The SBEE Sub-transmission and Distribution System AfDB 13.81 Restructuring and Extension Project (PRESREDI)

Project to Strengthen the Resilience of the Energy Sector in Benin to Climate Change (PANA-ENERGIE) GEF 9.43 Project for the Promotion of Sustainable Biomass- based Electricity Generation in Benin (BIOMASSE- ELECTRICITE) Extension et Modernisation of CEB Dispatching

Increased Access to Modern Energy Project (DAEM) 84.71 IDA Construction of Onigbolo/Parakou et Sakété/Porto-Novo 161 kV lines Energy Service Improvement Project Construction of Onigbolo/Parakou et Sakété/Porto-Novo KFW 14.25 161kV lines

Millennium Challenge Account –Benin 2 (National budget MCA 336.3 counterpart funds)

Energy Service Improvement Project UNDP Millennium Challenge Account –Benin 2 (National budget 0.76 counterpart funds) Strengthening Electricity Distribution Network in Benin ENERGY FACILITY PROGRAMME : ‘Rural electrification in Benin by SBEE grid extension’ EU DEFISSOL Project 60.37

Institutional Support and Capacity Building Project for Stakeholders in the Energy Sector in Benin (RECASEB)

TOTAL 947.02

Annex IV: Map of Project Area

Annex V: Justification for the level of Benin’s Counterpart Contribution to the Project’s Financing

The proposed project will be jointly financed by the Bank and the Government of Benin. The Government’s counterpart funding is estimated at EUR 11.14 million or 11.56% of the project cost. The Bank’s contribution covers 64% of the project’s total cost, excluding taxes and customs duties, in the form of an AfDB loan of UA 50 million (EUR 61.77 million), which exceeds 50% of the total project cost required in accordance with the Policy on Expenditure Eligibility for Bank Group Financing from the AfDB sovereign window. Pursuant to the provisions of Section 4.2.2 of the Policy on Expenditure Eligibility for Bank Group Financing (Revised version of 19 March 2008), this level of counterpart funding was justified on the basis of the following three criteria: i) The country’s commitment to implement its overall development programme

In 2016, the Government adopted the Government Action Programme (GAP) for 2016-2021 focused on three pillars as follows: Pillar 1: Consolidating democracy, rule of law and good governance; Pillar 2: Initiating structural economic change; and Pillar 3: Improving living environments for the people. The total estimated cost of the GAP investment plan is CFA 9039 billion (about USD 14 billion). The Rural Electrification Project (PERU) will contribute to the realisation of GAP Pillars 2 and 3 and especially to the implementation of Key Priority 4: Improving Economic Growth. The GAP Action Plan, which is being implemented, aims to achieve a minimum average annual growth rate of 6.5% over the 2016-2021 period by raising the investment rate from 18.8% of GDP in 2016 to 34% on average. The real GDP growth rate was 6.7% in 2018 compared to 5.8% in 2017. The economic growth rate is expected to remain strong in 2019 at an estimated rate of 6.7%. The medium-term economic outlook is good with a forecasted real GDP growth rate of 6.7% over the 2020-2021 period, partly driven by increased public investments. In the energy sector, the Government aims to achieve an installed capacity of 1400 MW by 2035 through, inter alia, the following priority actions: (i) increased generating capacity, and electric power transmission and distribution resources; (ii) the promotion of rural electrification and energy management; and (iii) institutional and regulatory capacity-building for the energy sector. ii) Financing allocated by the country to the sector targeted by Bank Assistance

The main objective of GAP in the electricity subsector is to enhance the generating capacities as well as the distribution and transmission networks in order to establish a largely independent and competitive energy system and provide a reliable and high-quality electricity supply. To that end, the government has mobilised CFAF 621 billion, comprising CFAF 565 billion from development partners and CFAF 56 billion from its own resources to finance anchor projects, the most important of which are: (i) the SBEE Sub-transmission and Distribution System Restructuring and Extension Project (CFAF 20.94 billion), (ii) Project for the Construction of a 120 Megawatt Thermal Plant at Maria Gléta (CFAF 107.65 billion) ; (iii) Millennium Challenge Account-Benin 2 (CFAF 243 billion); Project to Reinforce and Extend SBEE Medium and Low Voltage Networks in the Abomey-Calavi Municipality and Atlantique Department (CFAF 42.95 billion); and the DEFISSOL Project (CFAF 40 billion). The Bank’s contribution to the sector financing remains low. Its ongoing commitments in the energy sector represent 3% of the portfolio.

VII

iii) Fiscal Situation and Debt Level of Benin

Fiscal management has improved with a fiscal deficit (including grants) which narrowed from 5.9% of GDP in 2017 to 4.0% in 2018 as a result of efforts to mobilise domestic revenue and reduce current expenditure. The fiscal deficit (including grants) is expected to fall to 3% of GDP in 2019, 2.5% in 2020 and 2% in 2021. However, the tax ratio remains low at 13.2% in 2017 and 14% of GDP in 2018. It is expected to reach 14.9% of GDP over the 2019-2021 period which remains below the WAEMU community standard of 20% of GDP.

The debt distress risk is considered to be moderate according to the latest debt sustainability analysis carried out by the IMF and the World Bank in May 2019. Public debt has increased significantly since 2013 from 25.3% of GDP to 56.8% in 2018, because of increased use of the WAEMU government securities market and bank loans contracted to finance public sector investments. Domestic debt, which represents 60% of total public sector debt, was estimated at 30.9% of GDP in 2018 compared to 8.6% of GDP in 2013. In order to reduce the debt burden, in October 2018, the country carried out a debt profiling operation by contracting, from an international bank, a loan of 260 million euros (i.e. 3% of GDP) partly guaranteed by the World Bank to the tune of 40%. This operation enabled Benin to repay a portfolio of existing loans owed to local banks at an average interest rate of 7.5% and average maturity of 2 years by contracting an external loan at an interest rate below 3.5% and a maturity of 12 years. Benin is rated B+ by Standard & Poor’s which, for the first time, in March 2019 enabled the country to issue a €500 million Eurobond with a 5.75% interest rate and a weighted maturity of 8 years. The Eurobond issuance will not increase debt since the authorities have decided to reduce domestic borrowing by the same amount. Total public sector debt is expected to average about 50% of GDP over the next three years, which remains below the WAEMU convergence criterion of 70% of GDP.

Conclusion: In light of the foregoing, it is clear that the Government of Benin is committed to implementing the Government Action Programme (2016-2018 GAP) and giving priority to the energy sector. However, it is experiencing difficulties in raising additional financial resources. Accordingly, and at the Government’s request, it is proposed that, for the AfDB window, the Government’s counterpart contribution be limited to 11.56% of the total project cost in order to fully finance the ESMP management costs, part of the electricity infrastructure costs and PMU operating costs.

VIII