Date of Submission to Coordination Unit: 7 April, 2014

A. GENERAL INFORMATION

1. Activity Name Libya-Electricity Sector Reform Technical Assistance

2. Requestor Information Name: H. E. Al Kilani Abulkarim Al Jazi Title: Minister of Finance Organization and Address: Ministry of Finance, Tripoli, Libya

Telephone: +218 21 3620145 Email:

3. Recipient Entity Name: H.E. Ali Maharig Title: Minister of Electricity Organization and Address: Ministry of Electricity, Triploi, Libya Telephone: Email: [email protected]

4. ISA SC Representative Name: Junaid Ahmad Title: Sector Director MNSSD

Organization and Address: World Bank, 1818 H street, NW, Washington DC 20433, USA Telephone:+1 202 458 8470 Email: [email protected]

5. Type of Execution (check the applicable box) √ Type Endorsements Justification Country-Execution Attach written endorsement from designated ISA Joint Country/ISA- Attach written endorsement from (Provide justification for ISA-Execution) Execution designated ISA √ ISA-Execution for Attach written endorsement from Low capacity of Gov. institutions. High Country designated ISA turnover of staff in the aftermath of the revolution has depleted managerial and fiduciary experience and technical expertise broadly in the Government and specifically in those agencies responsible for electricity. Moreover, following the revolution fiduciary equivalence of implementation processes in Libya with respect to procurement, financial management, and environmental and social safeguards has not yet been established. Therefore, the emphasis will be put on involving the Government of Libya representatives as closely as possible, not only in the technical area (drafting of terms of reference and technical parameters) but also in the fiduciary area (procurement - evaluation of proposals, financial management – project accounting, training on safeguards) with the aim of ensuring that a follow-on activity (Phase II) would be implemented by the Libyan authorities themselves. The arrangements are described below. ISA-Execution for Attach written endorsements from Parliaments designated Ministry and ISA 6. Geographic Focus √ Individual country (name of country): This request focuses on Libya Regional or multiple countries (list countries): 7. Amount Requested (USD) Amount Requested for direct Project Activities: USD 1,500,000 (of which Amount Requested for direct ISA-Executed Project (USD1,500,000) Activities): Amount Requested for ISA Indirect Costs:1 USD 500,000 Total Amount Requested: USD 2,000,000

8. Expected Project Start, Closing and Final Disbursement Dates Start September 1, Closing December31, End March 31, 2017 Date: 2014 Date: 2016 Disbursement Date:

9. Pillar(s) to which Activity Responds Pillar Primary Secondary Pillar Primary Secondary (One (All that (One (All that only) apply) only) apply) Investing in Sustainable √ Enhancing Economic √ Growth. This could include such Governance. This could include topics as innovation and areas such as transparency, anti- technology policy, enhancing the corruption and accountability business environment (including policies, asset recovery, public for small and medium-sized financial management and

1 ISA indirect costs are for grant preparation, administration, management (implementation support/supervision) including staff time, travel, consultant costs, etc. enterprises as well as for local and oversight, public sector audit and foreign investment promotion), evaluation, integrity, procurement competition policy, private sector reform, regulatory quality and development strategies, access to administrative simplification, finance, addressing urban investor and consumer protection, congestion and energy intensity. access to economic data and information, management of environmental and social impacts, capacity building for local government and decentralization, support for the Open Government Partnership, creation of new and innovative government agencies related to new transitional reforms, reform of public service delivery in the social and infrastructure sectors, and sound banking systems. Inclusive Development and √ Competitiveness and √ Job Creation. This could Integration. This could include include support of policies for such topics as logistics, behind- integrating lagging regions, skills the-border regulatory convergence, and labor market policies, trade strategy and negotiations, increasing youth employability, planning and facilitation of cross- enhancing female labor force border infrastructure, and participation, integrating people promoting and facilitating with disabilities, vocational infrastructure projects, particularly training, pension reform, in the areas of urban infrastructure, improving job conditions and transport, trade facilitation and regulations, financial inclusion, private sector development. promoting equitable fiscal policies and social safety net reform.

B. STRATEGIC CONTEXT

1. Country and Sector Issues Country Context: Libya is an oil-rich middle-income country with a population of 6.4 million, emerging from revolution and civil war. Two years after the declaration of liberation, uncertainty continues to mark the political and economic transition. An interim parliament, the General National Council (GNC) was elected in July 2012 as the legislative authority to oversee the transition and draft a new constitution by end of 2013. However, due to political disagreements, a disruption in the country’s oil exports, and security problems, the schedule to formulate the new constitution has been significantly delayed. Despite these challenges, the interim government continues to focus on restoring security and rebuilding government institutions to provide basic goods and services.

The country is highly dependent on the hydrocarbon sector, which represents four-fifths of GDP. In 2011-12, it generated about 95 percent of total fiscal revenue and 98 percent of export receipts. As budget revenues come mainly from oil and gas sales, Libya is very sensitive to oil price shocks since the revolution. This is due to the significant increases in public sector wages and subsidies, which were an attempt to appease popular demands. According to IMF, the wage bill is more than LD1.8 billion2 higher than in the 2012 budget and the increase in the wage bill continues to undermine fiscal stabilization efforts, given the volatility of oil prices and a narrow non-hydrocarbon tax revenue base. As for subsidies, they impose a significant and visible cost to the budget, around 11% of GDP in 2012, of which 8.6% is allocated to fuel and electricity. In addition, the budget is being considerably impacted by the fall in oil production during the summer 2013 caused by the attacks on production and export facilities across Libya. As of end-September, output was approximately 40% of capacity, at about 0.6 million bpd, significantly lower than the envisaged 1.7 million bpd. This has led to a decrease in GDP growth from 104.5 % in 2012 to -5.1% in 20133. In 2012, the Libyan economy began to recover with oil production nearly reaching its pre-revolution levels of 1.6 million barrels per day (bpd). However, in July 2013 oil crisis erupted in Libya, when oil installation security guards launched a blockade on the key oil ports, accusing the authorities of corruption and demanding a more equitable distribution of oil revenues. Following the blockade, production plunged to around 250,000 barrels per day from 1.5 million bpd, leading the country to run out of cash and to suffer of a profound economic crisis in a country that relies on hydrocarbon revenues for 96 per cent of its gross domestic product. Though there are political efforts to get to an end of this oil blockade, such disruptions may not allow Libya to quickly return to its previous full output level. The fiscal deficit is therefore continuing to increase and the government is lacking the resources to invest in order to fully restore public services and operations, of which the electricity sector as it faces enormous problems in terms of services provided to citizens. Clearly, with the rapid deterioration of the fiscal outlook and the considerable developmental and social needs that require significant resources in order to put Libya’s economy on the right track, the pressure will be strong on the government to contain current spending and improve the quality of the budget process. Public expenditure should be reoriented from wages and subsidies to service delivery and institution building. More recently, the authorities have made efforts toward examining the prevailing issues. Among others, an assessment of subsidies reform options and the impact of price increases on household expenditures was conducted by the Ministry of Economy in 2013. Another study looking specifically at the impact of energy policy pricing and energy subsidies on the electricity system was conducted by Renewable Energy Authority of Libya (REAoL) and the Ministry of Electricity (January 2014). The latter showed that in 2012, the subsidy level evaluated at international prices amounted to LD7.4 billion or US$6 billion (with an average cost of subsidyof 353 Dirham/KWh or US cents28). For the residential sector alone, this amount is around LD3.3 billion or US$2.7 billion.

Sector Context: Libya currently has an electric power production capacity of about 8.3 Gigawatt (GW), with a peak load of around 5.98 GW and the total electric generation has reached 33.98 Gwh in 2012. The electrification of Libya reached almost 100% of the population. Most of Libya's existing power stations are gas-fired. The gas consumption in electricity generation plants has increased considerably because some turbines have been converted to gas to increase oil capacity available for export and other uses4. In 2012, the natural gas represented 61% of the total fuel consumed in the electric sector (10,197 2 LD Libyan Dinar 3According to IMF, GDP growth is projected to reach 25.5% in 2014. Toe), the rest is covered by the light fuel (21%) and the heavy fuel (9%).

The Libyan grid is composed of approximately 1,900 km of mainly 220 kV double circuit lines and a few single circuit 400 kV lines that are divided among 4 geographic areas – East (Tripoli to Zawia), Central (Tripoli to Misrata), West (Misrata to Benghazi), and South (Misrata to Sebha). The grid is also connected to Algeria, Egypt and Tunisia, which have further connections to other networks in Turkey and Morocco with forward links to Europe. Though electricity exchanges through the connections with Egypt and Tunisia are not used on a regular basis because supply is seasonable and time limited (around 61GWh imported and 14 GWh exported in 2012).

75% of plants in Libya are controlled by Automatic Generation Controls (AGC). It is unclear how the remaining 25% are controlled. Economic dispatch can be used for only 450 MW of the total generation on the system, but this is not presently an issue as all of the installed capacity is needed to meet current demand. In addition, there is currently no grid code; however the power company is in the process of developing one. The first phase of the process is under the bidding stage, and the second phase is expected to cover developing terms of reference for the staff involved in grid operations.

The Ministry of Electricity MoE regulates and operates the electric power sector. The state-owned companies under its jurisdiction are: the General Electricity Company of Libya (GECOL) and the Renewable Energy Authority of Libya (REAOL) in addition to 10 other public consulting and engineering enterprises. GECOL is a vertically structured power utility and has the monopole of generation, transmission and distribution of electric power throughout Libya. As for REAoL, its main objectives are: i) mapping of renewable energy sources in Libya ii) implementation of renewable energy projects ii) raising the contribution of RE in the national energy mix by 10% by 2020 iv) encouraging and supporting the industries related to renewable energy v) proposing the legislation and regulation necessary to support and facilitate the use renewable energy and vi) Promotion and implementation of the programs related to the energy efficiency. Key Issues: Libya’s electricity system cannot meet increasing demand- Libya's power demand is growing rapidly (around 6%-8% annually). In 2012, the total electricity consumption reached 25.61 Mwh with an average consumption per capita of about 4850 Kwh, which increased of 4.37% from 2010. This is considered relatively high compared to other neighboring countries such as Egypt (1439 Kwh/capita), Algeria (1050 Kwh/capita), Tunisia (1252 Kwh/capita), Morocco (744 Kwh/capita).

The residential sector accounts for the largest share of overall electricity consumption, representing 35%, followed by street lighting (15%), public building (18%), commercial building (12%), agriculture (10%) and industry (8%). The growth rate of the peak load increased substantially of 3.85% in only two years from 2010 to 2012. In a DSM potential assessment conducted by the GECOL (2013), it was identified that the largest areas that are technically feasible for DSM projects are residential and street lighting. The economic potential

4 Statistics 2012, GECOL website is estimated to be 52% in the residential sector, mainly due to the exponential increase in the use of household appliances and air conditioners. Furthermore, this exercise recommended three main priorities: The first is Energy Conservation through applying new policies for pricing & incentives that will lead to a behavior change and eventually reduction of energy use or demand savings, the second is the Codes And Standards for Infrastructure, new buildings & new projects design and the third is the Energy Efficiency measures. GECOL distributed 1 million efficient light bulbs as part of an effort to reduce load.

In addition, another issue noted stems from the technical losses on the transmission system. The main cause is the misalignment of the transmission system with respect to the location of generation stations, which are largely located in the East and West, and load, which are largely located in Central and South. The problem is particularly acute in the South where there is little generation capacity and approximately 700 MW of load. There are almost 1000 km of transmission lines from the north part of the country to the southern part that move generation capacity from the East and West regions to the South to meet this load. The distance causes line losses that are currently unavoidable.

Transfers between East to West are also limited to 530 MW, limiting GECOL in how it can move power around its grid. West usually has 2,000 MW of generation but only 1,000 MW of demand so the rest need to be moved to other regions to meet demand there.

GECOL has installed rented diesel sets in the south to begin addressing the South load and reducing the line losses. It expects to install more permanent GE generation sets soon, but this will not completely alleviate the problem in the South. Further, lack of generation capacity in the South sometimes causes grid instability to the extent that GECOL has to load shed even when it has sufficient generation capacity in other regions to meet the total generation demand on its system.

There is 1,200 MW of load shedding on the system, which is approximately 20% of total system load. This problem developed after the revolution because of the damage to the grid and lack of maintenance in some generation stations.

The main control center was originally located in Sirte, but was destroyed after the revolution. GECOL is now relying on a regional control center in Tripoli to manage the national grid. However, the center is faced with the problem of managing outage on the grid for maintenance purposes as there is no proper procedures/process for scheduling maintenance on subsidiary lines.

As a result, the power system continues to face significant outages that can last for longer hours in some areas. Consequently, discontent towards electricity service has increased and many have been installing individual generators instead.

Electricity prices are highly subsidized- Libya's energy market is characterized by distorted price through high subsidies for fossil fuels. The electricity prices are highly subsidized, particularly for the residential sector, it’s a flat rate of 20 Dirham/kWh (equivalent to UScents1.6). Historically, the retail tariff was divided into 6 tranches, which then were consolidated in 2006 into 3 tranches5 and then into 1 tranche in 2012 when people complained of high tariffs. As for the public and commercial sectors, they

50.02Libyan Dirhamfor[0-1kwh], 0.03LD for [1.001kwh-1.4kwh] and 0.05 LD for over 1.4 kwh. are charged a higher tariff (68 Dirham/kWh).

IMF6 estimates the amount of subsidies (excluding implicit subsidies) only for electricity is US$0.9 billion (1% of GDP) and for fuel is US$6.4 billion (7.6% of GDP).

Another study was conducted by REAoL and GECOL with support from International Renewable Energy Agency (IRENA) and the Regional Center for Renewable Energy and Energy Efficiency (RECREE) in 2014 that examines the impact of energy policy pricing and energy subsidies on the electricity system. The analysis used the International Institute for Sustainable Development (IISD) methodology, comparing the amount of subsidies in the electricity sector using local fuel prices in the production of electricity. At local prices the fuel subsidy amounted to LD 678 million, equivalent to US$550 million. The accurate evaluation of subsidies, however, requires the comparison with international fuel prices, as only those capture the true opportunity cost of fuel: if the fuel used locally were to be sold internationally, Libya would be able to earn the international price for the fuel and not only the locally paid amount for the fuel. In 2012 the subsidy level evaluated at international prices amounted to LD 7.4 billion or US$6 billion (with an average cost of subsidy of 353 Dirham/KWh or US cents 28). For the residential sector alone, this amount is around LD 3.3 billion or US$2.7 billion.

GECOL’s unsustainable financial situation - GECOL is facing serious financial issues. GECOL does not recover its costs. In 2012, its expenses added up to LD 1,699 million, of which the share of salaries represented 47% and operating material (fuel cost) represented 33%. GECOL has over 40,000 employees in 19 separate departments but little job descriptions is available. Revenues from the sale of electricity were LD 921.6 million, resulting in a budget deficit of LD 677.8 million.

The recovery of payments for electricity is challenging. Even before the revolution, the share of unpaid bills was high and commonly around 40 percent. However, post-revolution the situation has worsened significantly. In 2012, the share of unpaid bills reached more than 70 percent. Additionally, commercial losses accounted for 30% in the domestic sector alone in 2012, mainly due to a large number of illegal connections. Technical losses are also high at around 17 percent. Electricity bills are issued and delivered quarterly to households who then have to pay them at one of the 188 commercial centers all around the country. A small percentage of around 10 percent of customers does pay their invoices through state bank transfers. However, there are no clear procedures for the enforcement of non- payment.

When GECOL was established in 1984, it was supposed to focus only on operation and maintenance of the grid and power plants. It was not supposed to work on capital projects. GECOL was supposed to cover its budget from the retail tariff, and, because it was already known that this tariff was not enough to cover even GECOL’s O&M budget, the law required the government to cover the incremental difference. Another agency was supposed to undertake capital projects and funded by a separate budget from the government. This agency ultimately did not move forward and GECOL was asked to take over this scope. As a result, GECOL has two budgets to this day: one that is funded by the retail tariff and another directly from the government to cover capital projects. Unfortunately, GECOL cannot predict what the capital projects budget will be so they decided on what generation, transmission, and distributions projects they will do based on the amount of funding that is made available to them each year. As a result, many important projects, transmission line and other equipment replacements do not

6 IMF, 2013 move forward.

In 2005, the consulting firm, Booz Allen, undertook an analysis GECOL restructuring and recommended restructuring GECOL into 3 independent business units with application of account unbundling as a first stage that will lead to legal unbundling of GECOL in o 5 years time. The analysis recommended that the utility planning should not be centralized and should depend on recommendations from separate departments that are only consolidated by some central unit. Also, it was recommended that GECOL outsource 13 different areas, but, while there were some proposals to implement this, none moved forward.

While the conclusion of the study was in favor of unbundling via replacing GECOL by a new holding company and creating new entities for power Generation, Transmission and Distribution, such solution was not selected due to the fact that no regulator was foreseen at that time. To help GECOL moving towards legal unbundling in five-year time, interim solution of account unbundling was proposed instead, as to keep GECOL as one integrated company with a set of independent Business Units operating on Profit & Loss.

In 2007 a new Ministry for electricity Water and Gas was formed, and which put forward a project to establish a regulator. A new road map for the sector reform was elaborated in full cooperation with relevant Libyan Governmental Authorities namely, the National Economic Development Council “EDB” and the Ministry of Economy. A new electricity law and a new water law were drafted as well.

The new Sector Reform Roadmap was presented to the Council of Ministers on January, 9th, 2009, and was given a preliminary approval. However, in March, 2009, The Ministry of Electricity, Water and Gas was dissolved and the process of GECOL unbundling and sector reform programs was put on hold.

Until after the revolution, the Government of Libya showed a strong commitment, reflected in making power sector reform a priority in the government agenda, within the overall framework of improving service delivery to citizen, reducing subsidies and freeing up government resources for other priority sectors and enhancing governance. Indeed, a ministerial decision (N° 539) was adopted on September 11th, 2013 with the aim of aiding reforms. The decision introduces a new organizational chart and prerogatives for the Ministry of Electricity. Article 5, in particular, stipulates that “the Ministry of Electricity is directly responsible for restructuring, organization and development of the companies under its jurisdictions.

The envisaged restructuring includes the separation of power generation, transmission and distribution. It also includes the establishment of an organizational and operational framework to undertake these various activities. The decision empowers the Ministry to undertake necessary measures in order to realize its mission, which may include proposals for the creation, the merger, the elimination or the reform of the companies under its jurisdictions, in accordance with the law N° 16 of year 1991 and the commercial law N° 23 of year 2010. The Ministry requested the World Bank to support its efforts in the implementation of the decision, especially with the sector reforms, including sector policy, regulations and institution strengthening.

The decision envisaged that all measures will be taken to assist the authorities in transitioning the relevant assets, liabilities, operations and personnel from GECOL to the new entities, and to assist the Government in improving the performance and upgrading the various systems to the highest standards. It is also foreseen that Transmission entity will be wholly owned by the Government while Generation and Distribution will be subject to an exploration of feasible options for management agreement and/or a Joint Venture Agreement with the private sector. Therefore, the proposed project comes at an opportune time to help and advise the government in implementing this ambitious reform program.

Institutional framework is weak- There is an overlap in the role and mission of the different entities under the Ministry of Electricity. For instance, the development and implementation of renewable projects is carried out by REAOL and GECOL without coordination. GECOL has initiated a call for bids to build a solar PV power plant (600MW) [a series of 100MW projects]. REAOL is in the process of evaluating bids for the project 14MW PV solar and the contract is planned to be awarded in April. Another project 40MW in Sebha is under preparation.

There is no national plan for RE, and each of the companies are implementing projects in a piecemeal approach. There was no assessment of the potential contribution of RE in the current energy mix, nor a planning of how the target of 10% by 2025 will be achieved as proposed in the national strategy.

Energy efficiency constitutes a priority for the Ministry of Electricity. GECOL has a DSM department and was involved in energy efficiency projects at its generation stations. An initial action plan was drafted by REAOL and submitted to the Minister of Electricity for approval. However, the government has not decided on which institution should be in charge of this agenda and implementation of action plan. Therefore an institutional framework and regulatory for EE is urgently needed. Additionally, there is a very limited technical and managerial capacity of the employees in these companies.

Libya has a large potential of Renewable Energy and Energy Efficiency that is not deployed- Libya has a high potential of Renewable Energy which can be used to generate electricity from wind and solar (photovoltaic and CSP). In 2012, REAOL proposed a national strategy for the development of RE in Libya (2013 – 2025), that sets an ambitious RE target at 10% of its total energy generation mix by 2025. This is in line with the government’s commitment as member of the UNFCCC and the Kyoto Protocol and shows the level of efforts to climate change mitigation. So far, there has been no assessment of power supply options in Libya , including the RE contribution that could achieve a well-balanced energy system.

However, the Ministry of Electricity is committed to develop RE projects. REAOL has a pipeline of short-term projects to be implemented during the phase (2013 – 2015). These include 3 wind power Projects (total capacity is 260MW), a number of solar PV Projects (total capacity 124MW), and projects of solar water heaters (60MW). All these projects have been funded by the government budget.

Private sector interest in Libya’s RE sector has been very low. The regulatory framework to promote private investments in the sector is not in place. There is no Law on RE nor a feed-in-tariff is in place. Lack of legal framework for IPP.

Also the high level of the energy intensity shows that there is a great potential of Energy Efficiency in the different sectors and particularly in the domestic sector.

EE and RE barriers exist- Development barriers facing the EE and RE sectors in Libya today include economic, institutional, legal and regulatory and financial impediments. Fundamental to the sector is the rationalization of energy prices, which when low, make RE options uncompetitive and EE improvements unattractive to end users.

The legal and regulatory framework still lack essential legislations and regulations and other critical elements for the country to realize its ambitious goals and targets. Lack of credible and complete information, with respect to RE resource availability, energy use patterns, etc. also hinders greater private sector participation in these sectors. Further, there remains an insufficient enabling environment to support the EE and RE markets—lack of awareness, low technical capacity, no standardized contracts and protocols, underdeveloped financing modalities, etc. that further constraining accelerated sustainable energy investments.

2. Alignment with Transition Fund Objectives The scope of the proposed project directly responds to this objective by focusing on assessing the gaps and setting-up regulatory and legal framework as well as strategic plans relevant to improving the efficiency and performance of the sector.

(a) Investing in sustainable growth, by improving the financial viability of the power sector through undertaking a comprehensive assessment of the operations and management of the public power utility with a special focus on the distribution sector to identify quick winning strategies to increase cost recovery. The project will also support reducing the energy intensity through the introduction of the regulatory framework for the development of renewable energies and a pilot framework for a PPP transaction in renewables.

(b) Enhancing economic governance by supporting the institutional and legal development of the power sector through undertaking a comprehensive gap analysis of the current structure of the power sector, including organizational, governance, financial and accounting management.

(c) Contributing to inclusive development by addressing key challenges faced by citizen while dealing with a very weak and inefficient electricity service, from the application for the installment of meters that takes longtime to an inefficient billing and collection system, especially for women where in the cultural context are in an uncomfortable situation to access the bills and make payment. The project aims at assessing the operations of the distribution sector and introduce solutions to improve it.

(d) Enhancing Competitiveness and Integration by assisting the authorities to improve energy sector- related services delivery, as well as ensure predictability and equitability which is critical for private sector, small business to operate and grow.

3. Alignment with Country’s National Strategy The regulatory reforms in the energy have been recognized in Libya for the past decade as a crucial input for economic recovery, as the sector heavily relies on subsidies. It was also noted that establishing the necessary regulatory framework towards creating a competitive energy market requires the strengthening of “regulatory governance” in Libya. The Government of Libya adopted a ministerial decision (N° 539) on September 11th, 2013 with the aim of supporting reforms in the sector. The decision introduces a new organizational chart and prerogatives for the Ministry of Electricity. Article 5, in particular, stipulates that “the Ministry of Electricity is directly responsible for restructuring, organization and development of the companies under its jurisdictions.” The proposed technical assistance inscribes itself into this framework and aims at supporting the ongoing efforts of the government in the implementation of the decision, especially with the sector reforms, including sector policy, regulations and institution strengthening. The support provided under this project is considered the center-piece for the implementation of the ministerial decision. In addition, the project will draw on the ongoing work that the government is leading with support from the World Bank on subsidies reform, including in the energy sector.

C. PROJECT DESCRIPTION

1. Project Objective The overall objective of the Technical Assistance activity would be to support the Government of Libya in its efforts to reform the electricity sector and its institutions with a view of enhancing the technical and financial viability of the sector. The project is a timely response to address the increasing needs related to regulatory reforms of the power sector, which for the Libyan authorities constitutes a crucial input towards economic recovery and civic peace. Electricity prices are among the most heavily subsidized world-wide, which substantially reduces the fiscal space available for public expenditures – such as health and education – encourages the inefficient use of energy, and prevents the development of renewable energy and energy efficiency alternatives. In order to achieve this objective, the project will be implemented in two phases. The purpose of sequencing project activities is to ensure a less risky and more sustainable process. The first phase of the proposed project, which is covered in the present concept note, will focus on priority steps in the reform process and target the following priority areas: (i) assisting the setting up of a proper regulatory and institutional framework for sector operations and supervision, (ii) supporting the design of the framework to establish a regulatory authority,(iii) identifying options for restructuring the power company (GECOL) with a special emphasis on resolving cost recovery issues in the distribution sector, (iv) developing and piloting a framework for the development of a renewable energy project, and (v) building the capacities of stakeholders in Libya’s electricity sector. The subsequent phase, which will be subject to a future project, will focus on developing a clear action plan to unbundle or introduce private sector management according to the identified target model. The plan will detail the scope of the work required to launch the restructuring of GECOL such that each phase builds upon the previous phases. The second phase will also support the establishment of fully functioning and effective successor entities through developing general framework for operation and management. Establishment of an energy efficiency agency will be part of the second phase.

Additional financing will have to be sought to finance the second phase. The Ministry of electricity intends to prepare and submit a follow-up proposal for the second phase to MNA Transition fund, to ensure that the reform program is completed.

Below a diagram illustrating the sequencing of project activities in the first phase:. Phase 1 Activities 2014 2015 2016

Pillar 1- Support the Reform of the Legal and Institutional Framework in the Electricity Sector

· Drafting the “Libya- Electricity · Gap Analysis and Roadmap Market Law” · Framework to establish a Libyan Regulatory & Institution · High level strategic policy · Public stakeholders Market Regulatory Authority Framework document (including EE) consultations & Communication (LEMRA) · Public stakeholders · Public stakeholders consultations consultations & Communication GECoL Restructuring · Assessment of GECoL Action plan for GECoL (Overall Aspects) Operations restructuring Design of Management/Service Distribution Specific · Audit Contract for Distribution focusing Aspects · loss reduction Action Plan on commercial aspects Pillar 2: Development of a Framework for the Deployment of Renewable Energy RE

· Updated Least-cost Expansion Development of a Plan with RE Framework for the · a Strategic Plan for the · Prepare a Framework for a Deployment of Development RE Pilot PPP Transaction (Cont.) Renewable Energy · Identify and Prepare a Framework for a Pilot PPP Transaction

Pillar 3: Staff training program

Design & implementation of the · trainings training program Implementation Implementation · Bank staff time, travel and the Advisory Panel

2. Project Components Component 1.Support the Reform of the Legal and Institutional Framework in the Electricity Sector

Objectives Assist the Ministry of Electricity in the reform of the electricity sector with the aim of addressing the above-mentioned challenges.

Activities Activity 1-1. Gap analysis. Libya’s electricity sector is marked by a single vertically-integrated power utility, which is overseen by the Ministry of Electricity. The historic practice of providing consumers with electricity from a monopoly provider has proven not to be economically efficient in the context of Libya. However, experience has shown that the reforming/unbundling process can be difficult and complex to implement. A gap analysis will be conducted by the World Bank (and supported by international experts) to assess the current structure of the electricity sector, including legal, organizational and governance aspects with the aim of identifying areas where the current framework can be enhanced. The analysis will built on the significant work conducted by Booz Allen. This assessment will propose options for restructuring and organization of the entire sector. The analysis will also include a review of the most relevant regulatory arrangements applicable from other countries; identify lessons learned and evaluate the strengths and weaknesses of the approaches used. The following outputs are envisaged:  Report with options for the reform;  High level strategic policy document

Activity 1-2. Development of a regulatory framework. Based on the option and scenario selected, the regulatory framework will be developed focusing mainly on defining the sector’s new structure and the roles and responsibilities of the power sector actors, including for renewable energy and energy efficiency. A roadmap will be developed providing targets and time tables for implementation of the new regulatory framework. The following outputs are envisaged:

 Assistance to drafting the “Libya- Electricity Market Law;”  A roadmap with targets and timetables for the implementation of the new regulatory framework over a three-year period.

Activity 1-3. Development of the framework for establishing the Libyan Electricity Market Regulatory Authority (LEMRA). A). This component will assist in designing the framework for the establishment of an entity in charge of regulating the electricity sector. The objective is to outline the functions and responsibilities of the regulator. As part of the functions, the regulator would review tariff levels and develop a transparent tariff methodology. This will also include the review of the institutional arrangements, such as staffing, management, and operating procedures and other resources required for the regulatory body. The following output is envisaged:

 Business Plan for LEMRA.

Accompanying program: a series of workshops would be organized to build consensus within Government and among stakeholders to complement the above listed sub-components. This process will ensure that the MOE’s recommendations get accepted and endorsed by Government. Such a process is essential if proposed legislation is to be implemented.

 2-3 stakeholder workshops;  Specific know-how sharing events with other regulatory authorities;  Communication and outreach events

Activity 1-4. Assessment of GECoL Operations and Roadmap (overall aspects). The objective is to develop a roadmap for GECOL to address the issues identified in the institutional gap analysis (activity 1-1) and to help facilitate the gradual commercialization and corporatization of the power utility. This activity will include a comprehensive analysis and assessment of the current state of GECOL and the activities performed and propose recommendations for improving management and operations of current GECOL activities overall. As such, scope of the proposed assessment will evolve around collecting and analyzing the data on electricity sales and trends in the country, identifying financial and accounting management systems, assessing the costs of managing a publicly-own power utility, as well as estimating the potential market scope over the next 20 years, among others. The assessment will also include review of the tariff and subsidy policies and practices while drawing on the ongoing work the World Bank is conducting on energy subsidies with the Ministry of Economy. Another part of the scope of the proposed assessment will focus on a technical analysis of losses in the system using load-flow analysis. This analysis will identify where technical losses are most important and what technical measures can be used to reduce these. It will also quantify the costs of introducing such measures. By supporting GECOL throughout the restructuring steps, this component aims to contribute towards a creation of an enabling environment conducive to private investments and efficient use of resources.

 Report summarizing the outcomes of the assessment  a multi-phase Roadmap for GECoL restructuring

Activity 1-5. Review of distribution operations and develop an action plan (Specific Aspects): activity will build on the outcomes of the previous activity and focus particularly on the distribution segment due to the significant problems it faces and its critical role in the financial viability of the power utility.

GECOL is in the process of assessing the distribution planning criteria to future investment. Building on this work and conclusions from previous studies ( consulting firm Booz Allen), this activity will first undertake an audit of the electricity distribution sector to assess the current performance and identify issues affecting this performance and the efficiency and effectiveness of current management structures and billing and collection systems. This activity will also look and outline possible solutions applicable given the context of Libya.

 An Action Plan, with key milestones, timeline, and detailed scope of work to complete implementation of the identified solutions.

Implementation This sub-component will be implemented by the World Bank together with the PIU.

Component 2. Development of a Framework for the Deployment of Renewable Energy RE

Objective Assist the Libyan authorities in developing RE

1- Energy Mix Assessment. With GECOL team, a least-cost expansion plan will be updated, which includes dedicated renewable energy scenarios will be developed, that would confirm the economically optimal level of mix of renewables (large-scale or small-scale) including for specific applications (e.g., desalination, if applicable). The following output is envisaged:

 Least-cost expansion plan that includes optimal renewable energy mix 2- Prepare a Strategic Plan for the Development Renewable Energy. This component will include preparing and developing the regulatory framework, consist with the framework developed under Component 1, for developing and implementing a sound renewable energy strategy in Libya. The following output is envisaged:  A renewable energy strategy and associated regulatory framework

3- Identify and Prepare a Framework for a Pilot Private-Public Partnership (PPP) Transaction. Experience indicates that the most relevant new legal frameworks can only be created when the challenges of actual operations on the ground can be tested through implementation of an actual project, which supports a practical knowledge base upon which a sound regulatory base can be developed. As such, this component will include the following:

 Preparing a set of standardized documents for Public Private Partnership (PPP) transactions, such as Power Purchase Agreement(s) (PPAs) that should be used both for conventional and renewable energy projects.  Assisting in identification and reserving a dedicated site for a pilot PPP transaction. This would include a feasibility study of the project and its legal framework. One example of best practice for such a PPP transaction and the necessary legal framework is the Noor Solar Complex near Ouarzazate, Morocco, and its associated legal framework.  Implementation This sub-component will be implemented by the World Bank with the PIU. Component 3: Development and implementation of staff training program for energy experts, senior experts and administrative staff.

Objective Building capacities and training program for

The activity will assess the capacity building needs and design a training program that targets energy experts, senior experts and administrative staff. This component will include:

 Relevant software required for staff training;  Training shall concentrate on basic regulatory issues, legislation and regulations relevant to the operation and development of the Libyan electricity markets, as well as on management and corporate culture issues.  Technical training on: o Policy making and infrastructure expansion planning for electricity sector o Evolution of market reforms towards competition and utilization and development of renewable energy sources. o Monitoring of security of supply including risk management environment, energy efficiency, demand side management. o Market monitoring, and Protection of consumer rights and settlement of dispute mechanisms and procedures.  Knowledge exchange with other advanced regulatory authorities will be included.

3. Key Indicators Linked to Objectives Key indicators for measuring the results of the project in include: Section E (Results Framework and Monitoring) identifies the project’s key indicators and progress measures of intermediate results. The World Bank will be in charge of the monitoring and evaluation (M&E) system.

D. IMPLEMENTATION

1. Partnership Arrangements (if applicable)

N/A

2. Coordination with Country-led Mechanism/Donor Implemented Activities The project will be implemented in coordination with complementary donor projects to take advantage of synergies between different donor-funded activities. The proposed programs under this TA will complement and augment on-going efforts by other donors on ground as well as cover new areas where Libyan authorities would need our support. During project preparation, the following points of coordination and collaboration have been identified and will be an important aspect of project implementation: World Bank Group (IFC) - IFC is keen to support the private sector in Libya through its investment and advisory services. IFC has started to work with the government of Libya, through advisory service, to raise awareness and provide capacity building for the financial sector as well as private participation in infrastructure development.The World Bank team will cooperate with the IFC team, and possibly through promoting and piloting PPPs in the power sector. The World Bank is providing a TA on subsidies where in a first phase a paper “the Libya Subsidy Incidence Analysis” was produced and covered the energy sector to some extent only. This will be complementary to the work under this project. The World Bank is providing TA to the main Libyan producers of statistics to modernize the Libyan National Statistical System. In particular technical support is provided to the Bureau of Statistics and Census (BSC) to help them in the design and implementation phase of the Households Consumption and Income Survey which is planned to be launched later this year. The World Bank project “Supporting Finance and Private Sector Development in Libya” was approved in late 2013 for funding under the MENA Transition Fund has recently approved The project development objective of this TA is (i) to improve the capacity of key Libyan financial institutions to assess and reform the foundational elements of financial infrastructure; and (ii) to strengthen the capacity of institutions responsible for promoting private investment and private sector development. The studies and analyses to be conducted under this TA will benefit the proposed project, especially in the areas of “private sector development” and “Privatization and Public Private Partnership (PPP) framework”

3. Institutional and Implementation Arrangements The Project will be a programmatic Technical Assistance financed under a World Bank executed Trust Fund. It will follow the World Bank’s standard operational policies and procedures, including procurement and financial management policies. The project will finance a World Bank Technical Staff who will be based in Libya to help with project implementation. He/she will assist the Government to launch and sustain the process, ensure coordination with other World Bank and donors’ initiatives. He/she will be part of world Bank team with an appropriate skill mix responsible, which will be responsible for the day-to-day running of the project and overall technical advisory support. It will also coordinate monitoring and evaluation for the project. Budget will be allocated to monitoring and evaluation of activities to ensure indicators are established and verified and the outputs and outcomes are attained.

Project implementation. The project will be implemented in close coordination with the following entities: Project Implementation Unit (PIU): This unit will be established within the Ministry and appropriately staffed with the required technical skills to support the rapid and efficient implementation of the project. PIU will work closely with the Bank team in the day –to-day tasks such as drafting TORs, recruitment of consultants, communication, organization of workshop/trainings. a) Advisory Committee: The committee already set up by the Government to monitor and lead projects to be submitted to the Deauville Partnership will serve as the steering committee for this proposed project. The committee is led by the minister of finance. (b) Technical Committee. The World Bank counterpart for project implementation will be a technical committee that will support the advisory committee. The committee is led by the Minister of Electricity and will be composed of representatives from the Ministry of Electricity, REoL, and GECoL and other relevant stakeholders as necessary. (c ) Panel of experts. The Panel of Experts is a Technical Advisory Panel. The role of the Panel of Experts is to act as an independent “peer reviewer‟ to undertake quality control functions of the various analytical outputs that will be generated under this TA. There will be 2 meetings held with the panel.

Advisory Committee: Oversee project implementation

The Advisory Panel Technical Committee

PIU

WB Team

4. Monitoring and Evaluation of Results The ISA will be responsible for the overall monitoring and evaluation of the project with the support of the project Technical Committees. It will coordinate with these committees to establish the baselines, control the quality of the work of the different consultants, and will follow up on the targets and monitor the achievement of the objectives. E. PROJECT BUDGETING AND FINANCING 5. Project Financing (including ISA Direct Costs7)

Cost by Component Transition Fund Country Co- Other Co- Total (USD) Financing (USD) Financing (USD) (USD) Component 1: Support the Reform of the 300,000 Legal and Institutional Framework in the 900,000 1,200,000 Electricity Sector Component 2: Development a Framework 500,000 150,000 650,000 for Renewable Energy Component 4: Development and implementation of staff training program for 300,000 150,000 450,000 energy experts, senior experts and administrative staff Total Project Cost 1,500,000 800,000 2,300,000 The other co-financing includes financing from World Bank managed trustfunds and from the Clean Technology Fund.

The Terms of Reference (TORs) of the different studies and consultants services will be validated in coordination with the Government committees, for the various activities to be financed under the Transition Fund. 6. Budget Breakdown of Indirect Costs Requested (USD)

Description Transition Fund Total (USD) For grant preparation and administration and implementation support: Staff time 400,000 400,000 Staff travel and administration 100,000 100,000 Total Indirect Costs 500,000 500,000

7

7 ISA direct costs are those costs related to the ISA’s direct provision of technical assistance within the project. F. Results Framework and Monitoring

Project Development Objective (PDO): The Project Development objective of this Technical Assistance Project is to support the Government of Libya in its efforts to reform the electricity sector and its institutions with a view of enhancing the technical and financial viability of the sector.

Cumulative Target Values** Description Data Responsibility (indicator PDO Level Results Unit of Baseline YR 1 YR 2 YR3 Frequency Source/Meth for Data definition Indicators* Measure odology Collection etc.) 2014 2015 2016

Options for restructuring Text Ministerial - Gap analysis WB Team and Report the power sector analyzed decision - · High level the Technical N°539 that strategic policy Committee. empowers the document MoE to undertake necessary reform measures Electricity Market Law Text Law N°17 on - Law drafted WB Team and Law adopted creation of and endorsed by the Technical GECoL the advisory Committee. committee The Libyan Electricity Authority None - Sr Expert - Framework - Business Plan for WB Team and Authority Market Regulatory recruited developed LEMRA developed the Technical responsible of Authority (LEMRA) Committee. power Established. regulation

Roadmap and Action Plan Text None - Assessment of - Roadmap and WB Team and Plan for GECoL Restructuring GECoL Action Plan for the Technical developed Operations GECoL Committee. prepared Restructuring - Technical analysis of losses in the system prepared Development of a Text None Energy Mix - a Strategic Plan for - A Framework for WB Team and Studies and Framework for Renewable Assessment RE Development a Pilot Private- the Technical plans Energy(RE) and Energy reviewed and prepared Public Partnership Committee. Efficiency (EE) updated - Libya EE agency (PPP) Transaction Development established prepared INTERMEDIATE RESULTS

- A series of stakeholders’ Number of 0 2 4 4 quarterly WB Team and consultation workshop consultati the Technical will be organized to build ons Committee. consensus around the reform options. - Capacity building Number 0 0 4 4 quarterly WB Team and program is developed and the Technical number of training Committee. workshops are organized and exchange events - a dedicated site project None a feasibility study WB Team and identified and reserved to of the project and the Technical pilot a PPP transaction for its legal framework Committee. a RE project conducted