Document of The World Bank

FOR OFFICIAL USE ONLY

Public Disclosure Authorized ReportNo. 4303-EAF

STAFF APPRAISAL REPORT Public Disclosure Authorized BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT Public Disclosure Authorized

May 5, 1983 Public Disclosure Authorized

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

Burundi Franc (FBu) Rwanda Franc (FRw) Zaire (Z) FBu 1 - US$0.01 FRw 1 - US$0.01 Zi - US$0.17 US$1 - FBu 87 US$1 - FRw 87 US$1 - Z5.9

Measurements

GWh gigawatt hour - 1,000,000 kilowatt hours kcal kilocalorie - 3.97 British thermal units kV kilovolt - 1,000 volts kVA kilovolt ampere - 1,000 volt amperes kW kilowatt - 1,999 watts kWh kilowatt hours - 1,000 watt hours MWh megawatt hour - 1,000 kilowatt hours MW megawatt - 1,000 kilowatts toe ton of oil equivalent - 10,500,000 kilocalories ton metric ton - 1.1 US tons

Abbreviations and Acronyms

AfDB African Development Bank BDEGL Banque de dEveloppement des Etats des grands lacs BEI Banque europ6enne d'investissement CCCE Caisse centrale de cooperation economique CEPGL Communaute economique des pays des grands lacs DANIDA Danish International Development Association DHER Departement de l'hydraulique et de l1'lectrique rurale EDF Electricite de France EGL Energie des pays des grands lacs ELECTROGAZ Etablissement public de production, de transport et de distribution d'eau, d'electricite et de gaz FED Fonds europeen de developpement FAC Fonds d'aide et de cooperation FAO Food and Agriculture Organization Government Governments of Burundi, Rwanda and Zaire KBO Organization for the Management and Development of the Kagera River Basin KfW Kreditanstalt fUr Wiederaufbau ONATOUR Office nationale de la tourbe REGIDESO Regie de distribution d'eau et d'l1ectricit6 SINELAC Socifte internationale d'electricite des pays des grands lacs SNEL Societe nationale d'electricite USAID United States Agency for International Development UNIDO United Nations Industrial Development Organization

Financial Year = Calendar Year

REGIDESO (Burundi), ELECTROGAZ (Rwanda) and SNEL (Zaire) SINELAC FOR OFFICIAL USE ONLY

BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

STAFF APPRAISAL REPORT

Table of Contents

I, THE ENERGY SECTOR Page No.

Background ...... 1 Local Energy Resources ...... , 1 Energy Balances. . 0 . 2 Burundi.d...... 2 Rwanda wanda...... 2 Zaire (Kivu)... 2 Recommendations to Improve the Energy Sector. 3 Burundi ...... 3 Rwanda..... 3 Zaire (Kivu) .3...... 3

II. POWER SECTOR BACKGROUND

General... 3 International Institutions. . . 4 Power Supply Entities. . . 4 Historical Demand for Electric Power. 4 (i) Burundir.,d...... 4 (ii) Rwanda.... 4 (iii) Zaire (Kivu) .5...... 5 Existing Generating Facilities ..... 5 Works in Progress ..... 5 (i) Burundi...... 5 (ii) Rwandaa..... 6 (iii) Zaire (Kivu) ...... 6 Rural Electrification ..... 6 (i) Burundi.... 6 (ii) Rwanda and Zaire (Kivu).... 7 Government Strategies in the Power Sectors ... 7 (i) Burundi.... 7 (ii) Rwanda wa...... 7 (iii) Zaire (Kivu).... 8 IDA Strategies in the Power Sectors ..... 8 Regional Development Plan ..... 8 (i) Burundi ...... 8 (ii) Rwanda ..... 9 (iii) Zaire (Kivu).... 9

This report was prepared by J. Boutan, mission leader, and C.H.A Killoran, who visited Burundi, Rwanda and Zaire in July and November, 1982.

This documenthas a restricteddistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwisebe disclosedwithout World Bank authorization. - ii -

III. THE PROJECT

Background ...... 10 Objectives of the Project .. 11 Main Features ...... 11 Environmental Considerations .. 12

IV. PROJECT COST AND FINANCING

Cost Estimates...... 12 Basis for Estimates ...... 14 Financing Plan ...... ,.... 14 Implementation Schedule and Status of Engineering . . 15 Procurement...... 17 Disbursements ...... 17

V. THE BORROWERSAND THE REGIONAL IMPLEMENTING AGENCY

The Borrowers...... 18 SINELAC - The Regional Implementing Agency . . 18 Training...... 19 Audit.. 19 Budget .. 20 Insurance.. 20 Project Monitoring ...... 21

VI. FINANCIAL ANALYSIS

Financing Plan ...... 21 Tariffs ...... ,23 (i) Burundi: REGIDESO . . 25 (ii) Rwanda: ELECTROGAZ ...... 26 (iii) Zaire (Kivu): SNEL . . 26 Convertibility of Currencies .. 27 SINELAC's Future Operations and Financial Position .. 27

VII. JUSTIFICATION FOR THE PROJECT

Power Market ...... 27 (i) Burundi ...... 28 (ii) Rwanda ...... 29 (iii) Zaire (Kivu)...... 29 (iv) Interconnected System ...... 30 Requirements for the Project ...... 30 Comparison of Alternatives - Least Cost Solution...... 31 Rate of Return ...... 31 Risks ...... ,32

VIII. AGREEMENTS REACHED AND RECOMMENDATION

Agreements Reached ...... 33 Recommendation ...... 36 - iii -

LIST OF ANNEXES

Annex 1 Energy Resources in Burundi, Rwanda and Zaire (Kivu) 2 Burundi Commercial Energy Balance 1973-1981 3 Rwanda Commercial Energy Balance 1975-1980 4 Regional Organizations 5 The Three National Electricity Companies: REGIDESO, ELECTROGAZ, SNEL 6 Interconnected System Electricity Sales, Burundi 7 Interconnected System Electricity Sales, Rwanda 8 Interconnected System Electricity Sales in Zaire (Kivu) 9 Generating Facilities, Burundi 10 Generating Facilities, Rwanda 11 Generating Facilities in Zaire (Kivu) 12 Project Description 13 Financing Plan 14 Implementation Schedule 15 Disbursement Schedule 16 SINELAC - Legal and Organizational Framework 17 Project Monitoring 18 SINELAC'S Forecast Income Statements, Funds Flow Statements, Balance Sheets 1987-1995 19 Assumptions in SINELAC's Financial Forecasts 20 Determination of the Minimum Purchase Level from Ruzizi II by REGIDESO, ELECTROGAZ, and SNEL 21 Sales of Ruzizi I and Ruzizi II Facilities in the Period 1983-1995 22 Comparison of the Economic Cost of Electricity Sold to Consumers from Ruzizi I and Ruzizi II 23 REGIDESO's Power Income Statements, Funds Flow Statements, Balance Sheets 1982-1989 24 ELECTROGAZ's Income Statements, Funds Flow Statements, Balance Sheets 1982-1988 25 SNEL's Bukavu - Uvira - Goma (Kivu) Forecast Income Statements, Funds Flow Statements, Fixed Assets 1982-1989 26 Interconnected System Electricity Demand 27 Economic Comparison between the Ruzizi II and Rwegura Projects 28 Diesel Generating Station - Estimate of Cost 29 Least Cost Solution 30 Economic Rate of Return for the Proposed Project 31 Sales of Ruzizi II, with an Annual Rate of Growth of 10% in Regional Demand until 1990 32 Related Documents and Data Available in Project File

MAP IBRD 15919 Ruzizi II Regional Hydroelectric Power Project

BBURUNDI-RWANDA-ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

I. THE ENERGY SECTOR

Background

1.01 Burundi, Rwanda and Kivu province of Zaire lie just south of the equator in eastern central Africa, and in general have similar geographical features, with mountain peaks (elevation 2,700 m) and high level plateaus. Burundi with an area of 27,800 sq km and a population of 4 million, and Rwanda with an area of 26,338 sq km and a population of 4.9 million, are quite densely populated compared to Kivu with an area of about 257,000 sq km and a population of 4.3 million. The growth rate of the three popuilations, averaging about 2.2% per annum, is low compared to other African countries.

Local Energy Resources

1.02 The principal resource in the Great Lakes region 1/, firewood, with its by-product charcoal, is rapidly being depleted in Burundi and Rwanda, and in isolated areas of Kivu. The potential for more hydro-electric development exists in all three countries but is costly due to the sites having low capacity, and being widely scattered. The best hydroelectric resource potential is in the rivers which form the borders of Rwanda with Tanzania and Zaire. There is little potential for oil, although there is a unique potential source of methane in the deep waters of Lake Kivu. Coal is mined at Kalemie, Zaire, about 300 km from Kivu province,and although large deposits of peat have been found in Burundi and Rwanda, the potential has not been fully developed. Hot springs occur in several areas of Burundi and in the northern part of Rwanda, suggesting the possibility of geothermal potential, but to-date this potential has not been fully explored.

1.03 In June 1982 the Bank puLiished Report No. 3778 entitled Burundi: Issues and Options in the Energy Sector, and a second Report No. 3779 entitled Rwanda: Issues and Options in the Energy Sector. In addition, in December 1981, the Bank prepared an Introductory Energy Sector Review of Zaire. Thus, in view of the considerable data available elsewhere, this section of the report on the energy in the region has been abridged, and a summary of the energy situation may be found in Annex 1.

1/ Throughout this report "the region" refers to Burundi, Rwanda and Kivu province of Zaire. -2-

Energy Balances

Burundi

1.04 The demand for commercial energy grew very little between 1973 and 1977 (Annex 2). However, the general economy of Burundi responded to the efforts of the Government to improve the industrial and commercial sectors to such an extent that there was an overall increase in energy demand in 1978 over 1977 of about 25% in petroleum products, and 15% in electricity. In addition, the use of peat grew from 10 tons of oil equivalent (toe) in 1977 to 510 toe in 1978 following the formation of Office Nationale de la tourbe, ONATOUR, (Annex 1). During 1979, Tanzania and Uganda were at war, which prevented further growth in the region and the total energy requirements were reduced about 5%. The use of petroleum products fell from 28,470 toe to 26,120 toe (about 8%) while the annual demand of electricity rose from 8,914 to 9,370 toe (about 5%). The use of peat became more accepted, and increased 33% from 510 toe to 680 toe. Following the suppressed demand for petroleum products in 1979, there was significant increase from 26,120 toe to 34,790 toe (about 33%) in 1980, while the demand for electricity rose about 24%, and the demand for peat reached 1,020 toe - a 50% increase. The total energy increase of about 31% in 1980 is misleading, because of the suppressed demand in 1979. If the period 1977 to 1981 is considered,the increise in total commercial energy requirement rose an average annual rate of about 15% while electricity alone rose at an average annual rate of about 11%. About 75% of commercial energy used in 1981 was in the form of petroleum products, while electricity provided about 22% and peat about 3%.

Rwanda

1.05 As in the case of Burundi, the demand for commercial energy in Rwanda in 1979 was influenced by the events in Tanzania and Uganda (Annex 3). There was zero growth in the demand for commercial energy in 1977 over the demand in 1976, while the growth rates were 13% in 1978, 5% in 1979, and 13% in 1980. During the period 1976 to 1980 the increase in commercial energy demand rose at an average annual rate of about 7% while electricity alone rose at an average annual rate of about 10%.

Zaire (Kivu)

1.06 The growth in demand for energy in Zaire was small prior to 1975, and due to the unfavorable economic climate with the fall in the price of copper, there was virtually zero growth in 1976. The internal disturbances during 1977 and 1978 affected Kivu province as it did the remainder of the country, and the demand for energy actually fell because of disruptions to the economy. Data from which a commercial energy balance could be compiled for Kivu is not available although it is known that the use of petroleum products was reduced significantly, because of transportation difficulties from the seaport at Matadi on the Atlantic coast. -3-

Recommendations to Improve the Energy Sector

Burundi

1.07 The report on energy contains a number of recommendations to improve Burundi's energy sector. Insofar as wood is concerned, attention should be given to training foresters, improving the forestry extension program, the need to introduce conservation methods, and improvement in chlarcoal manufacturing methods. Additional studies are required to promote the sale of peat to industry and the domestic users. With regard to petroleum, in view of the high cost of products from Kenya, the report contains a recommendation to investigate the possibility of purchasing oil on the open market and bringing it in across Tanzania. The principal issue in the electric power sector is the lack of a planning unity to draw up a power sector development plan and to determine priorities on the various alternative sources of potential hydro sites. IDA is presently appraising a third Technical Assistance Credit which would have as a component, assistance to the Ministry of Planning for apropriate energy studies.

Rwanda

1.08 Similarly, Rwanda's report on energy contains a number of recommendations to improve the energy sector, in particular, a sub- stantial increase in forestry extension work, improvement in cook stoves and conservation of forests. The need to identify and develop the peat resources of the country was emphasized as a means of reducing the deforestation now becoming a serious problem. As in Burundi, Rwanda must pay a high cost for petroleum products imported from Kenya, and the report suggests that an investigation be made on the possibility of purchasing oil on the open market and shipping it across Tanzania. With regards to electricity, the recommendations cover overall sector planning and the integration of responsibilities now dispersed among several government institutions; - Planning (planning), Natural Resources (identification of hydro sites), Public Works (construction), and ELECTROGAZ (operation and maintenance).

Zaire (Kivu)

1.09 The introductory review contained a number of recommendations to improve the energy sector of Zaire. Most of these do not apply to Kivu province, but those that would affect this part of the country are: -- the formation of a national energy policy; the promotion and conservation of wood as an energy resource; generation of electricity by mini-hydro; and the generation of electricity in thermal plants fired by wood in regions remote from major power transmission systems.

II. POWER SECTOR BACKGROUND

General

2.01 The availability of electric power to consumers in the region is in general limited to the major cities and towns, and it is estimated - 4 -

that less than 2% of the total population in the region has access to electricity.

International Institutions

2.02 Two organizations coordinate energy matters on a regional basis. The Energie des pays des grands lacs (EGL) which reports to the Communaute gconomique des pays des grands lacs (CEPGL) formed by Burundi, Rwanda, and Zaire, to coordinate energy matters affecting the Great Lakes area; and the Organization for the Management and Development of the Kagera River Basin (KBO) made up of representatives of Burundi, Rwanda, Tanzania and Uganda, to oversee the development of the Kagera River basin which has its source in Burundi and forms the border between Rwanda and Tanzania. A description of these organizations may be found in Annex 4.

2.03 However, the foregoing organizations were designed and funded to carry out studies, are not designed to construct and operate power facilities. Therefore, in order to develop, own and operate the proposed Ruzizi II Project, it has been agreed by the three countries that a new company, Socifte internationale d'electricite des pays des grands lacs (SINELAC), would be formed to construct the project, and upon completion, to supply electricity to the three power authorities (para. 5.02-5.08).

Power Supply Entities

2.04 The organizations which contribute to the electric power sector in each country are as follows: Burundi - Regie de distribution d'eau et d'electricit6 (REGIDESO), Rwanda - Etablissement public de production, de transport et de distribution d'eau, d'electricite et de gaz (ELECTROGAZ); and the Kivu province of Zaire - the Socifte nationale d'electricite (SNEL). A description of the organizations may be found in Annex 5.

Historical Demand for Electric Power

(i) Burundi

2.05 The average annual growth in the demand for electricity in Burundi was about 10% during the past four years, even though the load growth in 1979 was only 5% when economic growth reduced due to the hostilities between Tanzania and Uganda which interrupted transportation facilities and slowed commerce to a minimum. The greatest increase was in industry which averaged 15% over the 4-year period, and reached 17% in the past two years. The growth in demand from the domestic sector averaged about 12% annually, with no significant changes over the period. The provision of electricity to public buildings and street lighting has grown at a rate of about 3% annually, and REGIDESO's own needs for lighting and pumping water increased at an average annual rate of about 5%. Results of the first six months operations indicate that this rate may be exceeded in 1982. Details are shown in Annex 6.

(ii) Rwanda

2.06 The annual increase in the consumption of low voltage electricity in Rwanda grew at almost the same rate as the number of consumers. The number of consumers in this category rose from 2,445 in 1975 to 5,097 in - 5 -

1981 -- an average annual rate of 13.0% -- while the consumption rose from 1.2.4GWh to 25.9 GWh -- an average annual rate of 13.1%. Growth in high voltage energy (basically industrial) demand was somewhat slower however, with an average annual growth rate of 7.7% raising consumptionfrom 24.3 to 38.0 GWh in the same period. The number of high voltage consumers rose from about 79 to 102, an average annual rate of about 5.2%. Thus, the total demand on the system during the past six years grew at an average annual rate of 9.7% and the number of consumers grew at an average annual rate of about 13.4%. The electricity sales for Rwanda from 1975 to 1980 appear in Annex 7.

(iii) Zaire (Kivu)

2.07 Records of electricity sales when the operations were under the responsibilitvof REGIDESO (of Zaire) are not available. However, based on the meagre uIatathat was found, growth in sales of electrical energy in the Kivu province of Zaire prior to 1980 has been virtually zero. In view of the high cost and difficulty of providing fuel oil to an existing brewery in Bukavu, an order was placed for electric boilers to replace the existing oil-fired boilers, and these were put into operation at the end of 1981. The town of Goma was supplied with diesel generated electricity until December 1980 when a connection was made to the Gisenyi generatingplant in Rwanda. The electricity sales in the Kivu province of Zaire are shown in Annex 8.

Existing GeneratingFacilities

2.08 Until recently, the main sources of electricity for the region have been two hydroelectric generating stations constructed.by the Belgian Societe des forces hydroelectriquesde l'est du Congo: one at Ruzizi at the outlet of Lake Kivu on the border between Rwanda and Zaire, and another, Ntaruka, in northern Rwanda. The Ruzizi generating station (two 6.3 MW units, 1978 and two 7.8 MW units in 1972) is now owned and operated by Zaire's electricity utility, SNEL, while the Ntaruka generating station (two 3.75 MW units, 1958 and one in 1962) is now owned and operated by ELECTROGAZ. Since then, the Mukungwa hydroelectric generating station, (two units of 6 MW) located at the outlet of Lake Luhondo immediately downstream of the Ntaruka station was compLeted in February 1982. At about the same time, REGIDESO in Burundi commissioned the Mugere hydroelectric generating station (four 2 MW units) about 25 km south of Bujumbura. All of the foregoing plants are interconnectedby 110 kV, 70 kV, and 30 kV transmission lines. REGIDESO, ELECTROGAZ and SNEL also operate several diesel-driven electric generating units in scattered locations throughout the country. In summary, the generating capability in the region is as follows: Burundi - 13.4 MW (Annex 9); Rwanda - 30 MW (Annex 10); and Zaire - 50 MW (Annex 11).

Works in Progress

(i) Burundi

2.09 Burundi imports almost all its electric power. However, to ensure that at least a strategic portion of its needs are under its control, it is contemplatingthe constructionof the Rwegura hydroelectric power generating station (18 MW), to be financed by the Federal Republic of Germany through Kreditanstalt fur Wiederaufbau (KfW), Caisse centrale de cooperation 'conomique (CCCE), Fonds europeen de developpement (FED), and the Kuwait fund. IDA was requested to consider providing part of the funds required for the financing of this project, and a mission was sent to Burundi (May 1981) to appraise the project. Following appraisal, it was found that the proposed Ruzizi II hydroelectric power generating station (the now proposed project) was the least cost solution for the provision of electrical energy to the region, because it could provide about three times the amount of energy at about the same capital cost, and IDA therefore withdrew its interest in Rwegura (para 2.16, 2.17 and 7.12). There are no other capital works underway in Burundi, except the projects described under the rural electrification program (paras. 2.12 - 2.14).

(ii) Rwanda

2.10 While there are no active generation projects in Rwanda, several transmission line projects at 70 kV, 30 kV and 15 kV are being constructed or will be started shortly. The second Gisenyi hydroelectric project (1.1 MW) financed by KfW has not yet started, but the transmission line linking the nearby Ghira site to Ruhengeri is expected to be completed by 1984. The Federal Republic of Germany through KfW will also fund repairs to the distribution system in Gisenyi, Kibuyi and Nyanza. Belgium has provided BFr 25 million for the construction of a line running north from Rwinkwavu and in the vicinity of Kibungo, for which completion is expected in July 1983. Switzerland has provided a grant of SwFr 12 million for the construction of a transmission line running north from Kibuye, to be completed by the end of 1982. In addition to the above, FED has provided funds for the following transmission line projects to be finished by the end of 1984: Rwamagana south-east to Rusumo on the Burundi border; and Ntaruka north-west to the Uganda border.

(iii) Zaire (Kivu)

2.11 The only active power project in Kivu at this time is a 110 kV transmission line from Katana to Goma, which is being financed and constructed by Yugoslavia. Completion is expected at the end of 1984. At the same time, Yugoslavia will upgrade the line from Ruzizi I to Katana now operated at 70 kV, to 110 kV (Map IBRD 15919).

Rural Electrification

(i) Burundi

2.12 Rural electrification is the responsibility of the Departement de l'hydraulique et de l1'lectrification rurale (DRER). DHER is presently studying sites at Busiga, Bubanza, Ruyigi, Kigwena and at three other sites, for the construction of mini-hydro schemes (100 kW to 150 kW), but the selection of proposed sites and the order of priority is in general determined by the various lending agencies, some of which are encouraging the replacement of petroleum and wood products by electricity.

2.13 No consideration has been given to the maintenance and operation of these projects, nor have administrative and financial procedures been set up to ensure successful operation of the projects. More appropriately, responsibility for these projects should be that of REGIDESO, which has the technical competence to ensure successful operation, and the managerial and financial capability to integrate these new projects into the broad general planning of the electrification of the country as a whole.

2.14 Two engineers financed by Belgium, are presently preparing pre- liminary studies of ten potential hydropower sites in addition to those identified by the Federal Republic of Germany through KfW and FED (Annex 1). The Japanese Government is now providing ten l00-kW, thirty-four 45-kW, and ten 17-kW diesel generating sets to provide electrical energy to hospitals, missions, and other agencies in the public sector. Although REGIDESO has made the necessary arrangements for shipment and installation, operation and maintenance will be the responsibility of the individual recipients, and because no energy will be sold, REGIDESO will have no further involvement with these units.

(ii) Rwanda and Zaire (Kivu)

2.15 Rwanda and Kivu have no rural electrification programs equivalent to those being carried out in Burundi.

Government Strategies in the Power Sector

(i) Burundi

2.16 The Burundian Government has given top priority to the develop- ment of the Rwegura hydroelectric power project in view of the overall importance of the electricity sector to the economic development of Burundi. The expected growth in demand for electricity in the neighboring countries of Burundi, Rwanda and Zaire which are supplied from the same generating station at Ruzizi, requires the immediate development of new facilities so that income-earning opportunities may continue to expand, and serve the basic needs of the population. Although Burundi lacks a compre- hensive energy development plan, the Government is well aware of its over- dependency on imported energy and wishes to replace this drain on the economy by means of indigenous energy sources. The creation of ONATOUR (Annex 1) was a major step in developing its peat resources, and the proposed Rwegura project (para 2.09) is another stage in the attempt to reduce its dependency on foreign sources for the supply of energy, which it regards as being vital to the economy and security of Burundi.

2.17 The Government is well aware of the problems involved in the development of its own hydroelectric power potential and of the Rwegura project in particular. The complex nature of the Rwegura project with its 50m high rock-fill dam and 2200m long tunnel may result in significant delay in the scheduled completion. Even after completion, Burundi will continue to be dependent on the importation of electric power from Zaire. Thus, in order to meet its growing demand for electricity, Burundi has recognized that the Ruzizi II Project is needed, and has therefore joined with Rwanda and Zaire to develop it. -8-

(ii) Rwanda

2.18 The Rwandan Government also gives extremely high priority to the development of the Ruzizi II hydroelectric project in view of its expected increase in demand for electricity, necessary for the economic development of Rwanda. It is therefore concentrating its efforts on the development of the proposed project.

(iii) Zaire (Kivu)

2.19 Kivu province is relatively cut off by distance from Kinshasa and, in the past, the Zairian Government has not been active in respect to Kivu's energy problem. However, it now recognizes the need for additional electrical power generating facilities in the region, and has joined with Burundi and Rwanda in the promotion of the Ruzizi II project.

IDA Strategies in the Power Sector

2.20 IDA has not extended credits to the power sectors of either Burundi or Rwanda, but in April 1982, IDA made a Credit No. 1224-ZR for the Shaba Power System Rehabilitation Project in south-east Zaire. IDA recognizes the importance of maintaining an adequate supply of electrical energy from an indigenous source to the domestic and industrial sectors of the Great Lakes region, and it is aware that the supply of electricity will become insufficient, as the demand in the region increases. It also recognizes that the rapid rise in the cost of oil during the past few years has taxed the financial resources of the governments in the region. Therefore, by providing a reliable supply of hydroelectric energy, IDA expects to foster the growth in the economy of the region, by facilitating industrial expansion, (i.e. glass factory, para. 7.04) which, in turn, will provide new sources of income and employment.

2.21 IDA has also assisted in meeting the projected energy shortages in the region through forestry projects in Burundi and Rwanda (Annex 1). IDA's continued lending in the sector would assist in funding the region's requirement for energy, for technical assistance and training to develop local expertise to fill middle and senior management positions.

Regional Development Plan

2.22 Although EGL has been in operation since 1976, it has not developed an overall long-term development plan to supply electricity to the region, and has concentrated all of its efforts on a short-term plan, namely the construction of Ruzizi II hydroelectric power project. After both the Rwegura and the Ruzizi II power projects have been completed, no additional generating capacity is expected to be necessary in the region until after 1995. Thus the task facing each of the three electricity authorities will be the extension of distribution to potential new consumers, by the construction of new substations and transmission facilities.

(i) Burundi

2.23 With regard to the foregoing, IDA received and subsequently approved a request from the Government of Burundi for a PPF in the amount of US$400,000 to finance the following: - a study to examine the need, to prepare an estimate of cost and a schedule for the construction of a 110 kV transmission line from the Ruzizi II generating station, either to Rwegura from which power would be transmitted to Bujumbura over the proposed Rwegura-Bujumbura line, or alternately to Bujumbu-a directly;

- a study of the economic location, cost and schedule of proposed lines interconnecting Cibitoke, Bubanza , Rugombo and Muzinda to the national grid;

- a study of the tariff structure of REGIDESO;

- the services of an accountant to assist REGIDESO for about one year.

(ii) Rwanda

2.24 IDA received and subsequently approved a request from the Government of Rwanda for a PPF in the amount of US$440,000 to finance the following:

- a study to determine the estimated cost of rehabilitating the transmission system and carry out the recommendations contained in a report now under preparation, funded by the Government of Switzerland;

- a study to determine the technical and economic feasibility of rehabilitating the Ntaruka hydroelectric power project, built in 1958;

- a study of the cost to provide a supply of day-to-day consumables for ELECTROGAZ.

- a study to determine the technical and economic feasibility of enlarging the interconnected grid by extending eight 15 kv and 30 kv transmission lines to serve an additional 18 towns.

- a revaluation of the assets of ELECTROGAZ.

- a study of the tariff structure of ELECTROGAZ.

(iii) Zaire (Kivu)

2.25 IDA received and subsequently approved a request from the Government of Zaire for a PPF in the amount of US$440,000 which they feel necessary to carry out works in the Kivu province of Zaire as follows:

- a study of the technical and economical feasibility of the rehabilitation of the Ruzizi I hydroelectric plant (built in 1958), together with an estimated cost of providing a supply of spare parts and consumables.

- a study of the rehabilitation of the transmission and distribution systems in Bukavu, Goma and Uvira; - 10 -

- a study of the economic and technical feasibility of replacing the existing 15 kV transmission line from Bujumbura to Uvira with a new 30 kV line. - a study of the technical and economic feasibility of constructing a 6 MW thermal electric generating plant fueled by wood, including a study and recommendations on the necessary forest reserves for the facility.

2.26 The Governments feel that their requests for studies to enlarge their distribution systems and to rehabilitate the existing facilities, are urgently needed. These, together with the studies of training needs which form a component of this project would provide a reasonable degree of security for their electricity services. The Governments expect that the work based on these studies would be carried out in parallel with the construction of the Ruzizi II project, so that when the power from Ruzizi II becomes available, new consumers in the area would receive immediate benefits, and receive a more reliable electric power supply. IDA believes that certain items of work are essential to the project. Thus during negotiations, agreement was reached with the three Governments that the various tasks for which PPFs were requested and approved (paras 2.23, 2.24 and 2.25) would be carried out before the commissioning of the Ruzizi II project.

III. THE PROJECT

Background

3.01 The expected growth in demand for electrical energy led the three governments to form Energie des pays des grands lacs (EGL) in 1974 (para. 2.02) whose prime responsibility was to plan the least cost method of providing electricity to the Great Lakes region. As a result, FED was requested to provide funds for a study of a possible hydro development on the Ruzizi River to supply the future needs of the region. Tractionel (Belgium), was retained to perform this study, and their 1977 report proposed the development of 120 MW on the Ruzizi River. IDA reviewed the report and when it was found that the region did not require such a large increase in the supply of electricity, IDA advised EGL that the project was too large, and that further studies on a smaller and less costly project should be made. In 1979, EGL requested Tractionel to review their previous studies, and a new study financed again by FED, covering the Ruzizi II Project (40 MW) which developed only a portion of the head at the site, was completed in 1980. The detailed feasibility study confirms that the Ruzizi II hydroelectric project was the least costly means of providing electric power to the region by 1987.

3.02 As a result, the Governments of Burundi, Rwanda and Zaire requested IDA to give consideration to providing part of the funds necessary to construct the Ruzizi II hydroelectric generating station.

Objectives of the Project

3.03 The main objective of the project is to provide an additional supply of electrical energy to Burundi, Rwanda and Zaire, by early 1987, so as to sustain the economic growth of the industrial, commercial and - 11 - domestic sectors of the country, and the proposed project is the least costly means of meeting this objective. To achieve the above, the project has set up a new international company, SINELAC, which will produce and sell power to the local electrical utilities. Other objectives are to train managerial and technical staff with the help of financial and technical advisers provided under the technical assistance component of the project, and to determine the type and scope of training needed to ensure continued reliable service.

Main Features

3.04 The main features of the project may be found in Annex 12, and are summarized as follows:

- a dam 11 m high; - an overflow spillway and two 8 m x 6.5 m sluice gates; - a 500 m tunnel 6 m in diameter; - a 50 m steel penstock; - a powerhouse; - two 13.3 MW hydroelectric generating units with space for a third similar unit; - a switching station; - 15 km of 110 kV transmission line; - local access roads; - staff housing; - consulting engineering; - a management team; - a panel of experts; - a study of training needs; and - consultants for a tariff study for SINELAC.

3.05 A concrete gravity dam would be constructed at the head of a series of rapids on the Ruzizi River to regulate the river flow for the generation of electric power. The main river control is at the Ruzizi I generating station at the outlet of Lake Kivu about 15 km upstream, where with the large area of the lake, maximum regulation may be obtained with a fluctuation in water level of about one meter. Thus, only daily pondage would be provided at Ruzizi II, and the maximum water level would exceed the historical maximum water level at the site by about 2.2 m. A free overflow section and 2 sluice-gates would be incorporated in the dam with sufficient capacity to pass the maximum expected flood flow. An intake, with trash racks and gates would control the flow through a 6 m diameter tunnel 500 m long to a conventional above ground powerhouse located near the foot of the rapids. Two 13.3 MW generating units, driven by Francis turbines designed to operate under an average head of 30 m would be installed in the powerhouse, together with all necessary control and protection equipment. Space would be provided for a third similar unit to be erected at some future date when the demand for electricity warrants its installation (about 1993). The initial two-unit installation would provide about 140 GWh of electrical energy and about 200 GWh with the third unit, in an average water year. Three single-phase transformers and one spare transformer would be located in an outdoor switching station adjacent to the powerhouse, raising the power produced to 110 kV for transmission to - 12 -

Rwanda and Zaire via the Mururu sub-station, adjacent to Ruzizi I. Provision would be made in the switching station for the addition of facilities to transmit power to Burundi, when the transmission line has been completed (para. 2.26).

3.06 In addition, the project would include a technical assistance component, as well as consultants for the detailed design and supervision of the project. The technical assistance would comprise the provision of technical and financial management assistance during the construction of the project, and after commissioning, to assist SINELAC in the operation and maintenance of the facility. The services of a panel of experts would also be required to advise on technical aspects of the dam. The project also includes a study of training needs and the preparation of a suitable training program for the three electricity authorities.

Environmental Considerations

3.07 The dam and generating station would have little effect on the daily lives of the inhabitants. in the immediate vicinity of the proposed site, because the river water upstream of the dam would be raised only about 2 m above its present maximum level during a peak flood. Compensation would be paid for the removal of about 30 dwellings housing 200 persons, which require relocation to provide space for construction activities and access roads. All water diverted into the powerhouse to drive the turbines, would be returned to the river about 600 m downstream, unadulterated. A fish ladder would be incorporated in the facility to permit the passage of fish around the powerhouse and dam during the migration season.

3.08 During negotiations, agreement was reached with SINELAC that after completion of the project, the dam would be inspected periodically by a panel of experts and the reports on their findings would be submitted to IDA for comment.

3.09 The project would be located on an international inland waterway. Therefore, the downstream states have been informed of the project, and they have expressed no objections. The Governments of Zaire and Rwanda have also agreed not to act or allow any action to be taken which would affect the availability of the flow from Lake Kivu which is essential to the project.

IV. PROJECT COST AND FINANCING

Cost Estimates

4.01 The total project cost is estimated to be US$84.9 million equivalent, not including duties and taxes which the three Governments have agreed would not be levied on the project. The project foreign exchange component is estimated to be US$72.7 million equivalent, about 86% of total project cost, not including interest during construction. The estimated cost of the principal features of the project are shown in a table on the following page. - 13 -

Estimate of Project Costs (US$ thousands)

Foreign as % of Local Foreign Total Total

Civil Works 5,000 31,300 36,300 86 Hydraulic Equipment 200 2,800 3,000 93 Turbines 200 4,700 4,900 96 Generators 200 4,200 4,400 95 Powerhouse Electrical 200 2,000 2,200 91 Switching Station and Transmission Line 700 2,900 3,600 83 Roads and Housing 500 900 1,400 64 Engineering 500 3,500 4,000 87 Technical Assistance 2,100 3,000 5,100 59

BASE COST 9,600 55,300 64,900 85 (September 30, 1982 prices)

Contingencies Physical 1,000 6,800 7,800 87 Price 1,600 10,600 12,200 87

TOTAL PROJECT COST 12,200 72,700 84,900 86

INTEREST DURING CONSTRUCTION (Capitalized) 46,000 - 46,000 0

TOTAL FINANCING REQUIRED 58,200 72,700 130,900 56

Note: 1) No contingencies assumed on technical assistance. Physical contingencies of 15% added to civil works and roads and housing; 10% on other works. Price contingencies were added to base cost plus physical contin- gencies as follows: 1982 and 1983 8%; 1984 7.5%; 1985 7%; 1986 6%.

2) Duties and taxes would not be levied on the project.

3) Technical assistance includes management team, panel of experts, study of need for a training school, SINELAC's audit during construction period, and PPF of US$195,000, and working capital of US$1.2 million (equivalent).

4) The estimates of cost have not been presented in local currency because of the frequent and steep devaluations of the zaire relative to the US Dollar, resulting from the country's economic condition. - 14 -

Basis for Estimates

4.02 Project cost estimates were prepared by the consultant Tractionel of Belgium, on the basis of costs in mid 1980. In view of the significant size of this investment relative to the economy of the area, there was a need to verify the accuracy of the cost estimates, and in order to obtain a second opinion, IDA requested EGL to retain consultants to review and update the cost to September 1982 prices. Upon completion, these revised cost estimates by Lahmeyer of Germany were reviewed by IDA, and were found to be reasonable. Physical contingencies of 15% were applied to the cost of the civil works and roads and housing, because of the possible large variation in quantities due to foundation and structural conditions. Physical contingencies of 10% were applied to all other items. Except for the technical assistance component, price contingencies of 8% in 1983; 7.5% in 1984; 7% in 1985; and 6% in 1986 and 1987 were applied to the consulting engineer's base cost plus physical contingencies to obtain the total project cost of US$84.9 million. Interest during construction would be capitalized, and would amount to US$46.0 million over the eight-year grace period for the onlending of the IDA credit, and the ten-year grace period for the FED credit.

Financing Plan

4.03 The proposed IDA credits of US$ 45.0 million would finance 53% of the estimated project cost (US$84.9 million) and 62% of the estimated foreign component of the project (US$72.7 million), in both cases excluding interest during construction. It would be used to finance:

a) 87% of the total expenditure for the civil works contract; and

b) 100% of the foreign cost of technical assistance and repayment of the three PPFs of US$65,000 (US$195,000).

4.04 A proposed loan of US$1.9 million equivalent from the Banque de developpement des Etats des grands lacs (BDEGL) would be used to finance 100% of the cost of the road and housing contract.

4.05 A proposed loan of US$16.8 million equivalent and a grant of US$3.7 equivalent from FED would be used to finance:

a) 100% of the cost of the hydraulic equipment;

b) 100% of the cost of the turbines;

c) 100% of the cost of the external electrical equipment; and

d) 100% of the cost of engineering design and supervision.

4.06 A proposed grant from the Italian Government in the amount of US$8.5 million equivalent would be used as follows:

a) 100% of the cost of the generators; and

b) 100% of the cost of the powerhouse electrical equipment. - 15 -

4.07 The Governments of Burundi, Rwanda and Zaire would each provide a sum equivalent to US$3.0 million to cover the local cost for the civil works and the technical assistance component.

4.08 7xternal financing, US$75.9 million, would cover 100% of the foreign exchange and 26% of local costs equivalent to 90% of the estimated project cost, excluding interest during construction. The IDA credit to each of the governments would be on standard terms of 50 years including a 10-year grace period with an annual service charge of 3/4% on the principal withdrawn plus a commitment charge of 1/2% on the principal not withdrawn. A condition of effectiveness would be the fulfillment of all conditions precedent to disbursement of cofinancier's funds. Funds from FED would be in two parts: a grant of US$3.7 million equivalent, and a loan of US$16.8 million equivalent on the basis of 1% per annum for 40 years, with a 10-year grace period. The BDEGL loan would be at a rate of 7.5% per annum for thirteen years including a three-year grace period, and the Italian funding is a grant. The project cost borne by the governments would be financed from the electric energy sold by REGIDESO, ELECTROGAZ and SNEL. A summary of the financing plan, as detailed in Annex 13, follows.

Summary of Financing US$ millions)

Local Foreign Total

IDA - 45.0 45.0 BDEGL 0.7 1.2 1.9 FED 2.1 18.4 20.5 Italy 0.4 8.1 8.5 Burundi 3.0 - 3.0 Rwanda 3.0 - 3.0 Zaire 3.0 - 3.0 SINELAC 46.0 - 46.0 58.2 72.7 130.9

Implementation Schedule and Status of Engineering

4.09 The implementation schedule is based on full commercial operation of the two generating units by March 31, 1987. All three governments are anxious that the schedule be maintained because of the potential power shortages which may occur during the dry season of 1986 (July-September), and which, with additional load growth, undoubtedly would be more severe during the dry season of 1987. There is a good possibility of adhering to the project construction schedule, because the civil works are relatively simple, and the underground works are not extensive. The main source of delay might be due to the fact that the site is land-locked, and the difficulties of transportation from Mombasa to the site. Details of the schedule are given in Annex 13. - 16 -

4.10 A feasibility study for the proposed Ruzizi II project was completed by Tractionel of Belgium in February of 1980, with funds provided by FED, and since that time, Tractionel has completed the preliminary design and prepared and issued the contract documents. The cost of engineering services, travel and living expenses, including an allowance for the analysis of bids, is estimated to be US$370,000. Based on 39 man-months of service, the average cost for engineering would be about US$9,500 per man-month. EGL, acting for SINELAC, has decided that the Tractionel contract would be terminated after assisting in bid evaluation, and that new consultants would be retained to take part in the analysis of tenders and to provide all further design and supervision of construction until commissioning of the facility. EGL has been informed that the new consultants would have to be acceptable to IDA. Of the total of about 300 man-months which would be required by the consultants for the design and supervision of this project, approximately 170 man-months would be expended in the Great Lakes region and the remainder in the consultant's home offices. The total cost of the engineering contract (including preliminary design and contract documents) is estimated to be US$4.0 million, of which US$3.5 million would be in foreign exchange. The average cost per man-month including the services, travel and miscellaneous expenses is estimated to be US$13,300.

4.11 At IDA's request, EGL requested Tractionel to provide additional engineering services, including the redesign of the switching station and the design of a fish ladder, at an estimated cost of US$80,000 based on services at US$9,100 per man-month. EGL also engaged the services of Lahmeyer, for a lump sum cost of DM 72,000 (US$32,000), to review the design criteria and assumptions so as to ensure that the various components ofl the project would be capable of carrying out the desired functions and that a successful project would ensue. This consultant also prepared a new estimate of capital cost for the project for a fee of DM 88,000 (US$40,000). This work has now been completed and the comments, where appropriate, would be incorporated into the design of the project. Cost of the foregoing work by Tractionel and Lahmeyer, and the cost of a legal adviser to provide advice and draft the agreement among the Governments to form SINELAC, the by-laws of SINELAC (para. 5.02) and the sales contracts (para. 6.06), have been provided by three PPFs issued by IDA in the amount of US$65,000 to each country.

4.12 In accordance with IDA requirements, SINELAC agreed during negotiations to retain the services of a management team to continuously review the technical and financial aspects of the project, and to provide advice on construction and design problems during various stages of the project (para. 5.05). It is estimated that the 12 man-years of technical assistance which would be required during the implementation of the project, and the additional six man-years of technical assistance during the first two years of operation would require foreign funds of about US$2.4 million and local funds of about US$650,000 - an average rate of about US$14,000 per man-month for consulting services, travel and living expenses.

4.13 In accordance with IDA practice, the design and general conception of the dam has been reviewed by a separate consultant (para. 4.11). In addition, during negotiations SINELAC agreed to retain a panel - 17 - of experts who would make periodic inspections of the dam during construction and afterwards, so as to ensure that all safety precautions have been undertaken. The total cost for these services is estimated to be about US$200,000 or US$12,000 per man-month.

4.14 IDA has estimated that a study of the training needs of the region, and the possibility of constructing a school and training facilities would require from 8 to 12 man-months and is estimated to cost US$100,000 or about US$8,500 per man-month including services, travel and living expenses.

Procurement

4.15 Procurement for work and material to be financed under the IDA Credit would be limited to the civil works contract and the technical assistance component of the project. Tenders for the civil works contract have been called from prequalified contractors, who have responded to a published notice in accordance with IDA guidelines for international competitive bidding. Tenders for the civil works contract have been received and although a full analysis has not been completed, preliminary indications are that the estimate of cost for this component of the project financed by IDA, would not be exceeded. Procurement for mechanical and electrical equipment for the project would be in accordance with the individual lenders' requirements. The technical experts funded under the technical assistance component, would be selected in accordance with IDA guidelines on the use of consultants by the Bank and its borrowers.

Disbursements

4.16 The proceeds of the three credits would be disbursed over six years on the following basis: 87% of the total expenditure for the civil works, and 100% of the foreign cost of technical assistance. The remaining costs would be disbursed from BDEGL, FED and Italian funds and from the three Governments (para. 4.04 - 4.07). All expenditures would be fully documented by SINELAC. The closing date for the credits would be September 30, 1989 and any savings which may accrue due to lower purchase prices, or if all of the contingency funds are not utilized, would be cancelled. The disbursement schedule, found in Annex 15, differs from the average power project and Zaire project disbursement profiles, because IDA would be providing funds for only the civil works, which would be below the total project cost,and the technical assistance component would be spread more or less evenly over several years (paras 4.12 - 4.14). - 18 -

V. THE BORROWERS AND THE REGIONAL IMPLEMENTING AGENCY

The Borrowers

5.01 The borrowers would be the Republic of Burundi, the Republic of Rwanda and the Republic of Zaire, which would receive from IDA SDR 13.8 million (US$15 million) each and would onlend the SDR 41.4 million (US$45 million) to SINELAC.

SINELAC - The Regional Implementing Agency

5.02 On July 9, 1982 in Brussels, after a thorough review by EGL and the co-lenders including IDA, the Ministers of Energy of Burundi, Rwanda and Zaire approved a draft agreement among the three Governments to form the international company, SINELAC, with a view to the construction and operation of the Ruzizi II hydroelectric power generating facilities. They further agreed to obtain formal ratification of the final agreement and SINELAC's by-laws by the three Governments. During negotiations it was agreed that SINELAC would take all necessary steps to acquire land and rights in respect of land needed for carrying out the project and operating the Ruzizi II facilities. Evidence of the transfer of such land and rights to SINELAC would be a condition of effectiveness of the project as well as the presentation of an "accord de siage" concluded between the host countries, i.e the Republics of Zaire and Rwanda, and SINELAC. The general legal organizational framework of SINELAC is given in Annex 16.

5.03 SINELAC, with its head office in Bukavu, Zaire, would be an international public company established for a 50-year renewable period, and the three Governments of Burundi, Rwanda and Zaire would contribute equally to its capital. Although SINELAC would be formed initially for the Ruzizi II project, it could acquire and manage other electric power installations. SINELAC would be governed by the rules of the agreement and its own by-laws, and for cases that are not covered by these rules and regulations by the Investment Code of the Communaute economique des pays des grands lacs (CEPGL), and by the laws of the country of its headquarters, Zaire. SINELAC would operate as a commercial entity with financial objectives defined initially in relation to the project and its electricity tariffs would be established at a level which would produce a satisfactory rate of return for the project (para. 6.04).

5.04 SINELAC would be governed by a General Assembly consisting of the three Ministers of Energy. This General Assembly would meet once a year and its responsibility would be to appoint or dismiss the directors, the general manager, the account controllers (commissaires aux comptes) and the auditors, and to discuss the financial statements of each previous year. The Board of Directors would consist of six members, two from each country. A three member management committee would be in charge of SINELAC's day-to-day operations. SINELAC's General Manager would be appointed by the General Assembly and the Board of Directors would have the responsibility of appointing and removing the other two members of the management committee. The three members of the committee would be from different countries. During negotiations it was agreed that SINELAC would consult with IDA before appointing a new general manager, a technical - 19 - director or a financial and administrative director. Appointment of a general manager satisfactory to IDA would be a condition of effectiveness of the proposed project.

5.05 EGL Is now in charge of the preparation of the proposed Ruzizi II project, and FED has suggested that for continuity, the present general manager of EGL (a Zairian) be appointed general manager of SINELAC. This is acceptable to the borrowers and the lenders, including IDA, and the first General Assembly of SINELAC would confirm his appointment. During negotiations SINELAC provided assurances that it would employ consultants satisfactory to IDA to carry out the project. FED has already funded and recruited an administrative and financial assistant to EGL's general manager, who would be employed eventually by SINELAC. However additional management expertise is required during the construction period and for the first two years of operation of Ruzizi II. Therefore additional assistance to the general manager would be provided by expatriates financed by IDA (para. 3.06). It was agreed at negotiations that a management team composed of one civil and one mechanical and electrical engineer, and a chief accountant, all with appropriate experience from an internationally known utility company, would be retained by SINELAC to supervise the work of the consultants (para 4.10) in its dealings with the contractors, to monitor the construction and advise and assist in the initial operation of the facility. The civil engineer would be appointed by December 31, 1983, the chief accountant by June 30, 1984, and the mechanical and electrical engineer no later than December 31, 1985. The last two experts would remain employed for at least two years after the commissioning date. Upon commissioning, about 60 staff would be required. About one-third would be semi-skilled technical and administrative assistants and during negotiations, assurances were obtained that the three national electricity companies would second appropriate personnel to SINELAC.

5.06 Training - Each expatriate on the management assistance team recruited by SINELAC, would have terms of reference which would specify responsibility for training one or two local counterparts for five years to assist and eventually replace him before March, 1989. Assurances were obtained during negotiations that suitably qualified and experienced personnel would be assigned by REGIDESO, ELECTROGAZ and SNEL to SINELAC to work as counterparts as and when needed.

5.07 As there is no technical training facility in Burundi and Rwanda, and SNEL's training school at Sanga in Bas Zaire is 1,500 km distant from the Ruzizi II site, adequate facilities would be necessary for the training of personnel for the Ruzizi II plant and for the three national electricity companies, i.e. REGIDESO, ELECTROGAZ, SNEL's Eastern region and SINELAC. However, because the detailed requirements for the three regions are unknown, IDA agreed to include only studies for training facilities in this project. Thus a component of this project would be a study, carried out by consultants acceptable to IDA and selected before December 31, 1983, as agreed at negotiations, to define the scope and the size of the training school, the training program, the number of instructors and training aids, its location, and the funds required to operate and maintain it (para. 4.14). The establishment of the school would be carried out separately from the Ruzizi II project. - 20 -

5.08 Audit - SINELAC's accounts would be audited by independent auditors acceptable to IDA. During negotiations agreement was reached that audited accounts and the auditors' report would be made available to IDA not later than six months after the end of each financial year.

5.09 SINELAC's administrative and financial assistant would prepare SINELAC's budget each year with the chief accountant and their local counterparts and before September 30 of each year would furnish it to IDA for its review. This was agreed at negotiations.

5.10 The three national electricity companies, REGIDESO, ELECTROGAZ and SNEL, would be the sole customers of SINELAC. They would participate in the financing of SINELAC through their respective Governments of Burundi, Rwanda, and Zaire (para 6.03). Because of the essential part they play in the proposed project, a detailed description of these three companies is given in Annex 5.

5.11 Because of the previously mentioned close financial relationship among REGIDESO, ELECTROGAZ, SNEL on the one hand, and SINELAC on the other, management covenants for these companies were agreed upon during nego- tiations of the proposed project so that:

- REGIDESO would continue to provide separate annual financial statements for its electricity and water operations, and an annual revaluation of its fixed assets, continue to have its accounts audited each year by a firm acceptable to IDA, and submit to IDA financial statements and auditor's report no later than six months after the end of the financial year;

- ELECTROGAZ would have its annual accounts audited by independent auditors acceptable to IDA and submit them within six months of the end of each financial year; and

- SNEL would prepare yearly financial statements for the Kivu interconnected system as part of the accounting of SNEL's Eastern Region, and, as in the Shaba project (IDA Credit 1224-ZR), SNEL's accounts including Kivu's annual accounts would be audited by external auditors acceptable to IDA, and audit reports and copies of the accounts would be forwarded to IDA within six months of the end of the financial year, and its fixed assets would be revalued each year to determine their economic value.

- In addition the borrowers undertook to advise IDA whenever other expenditures are proposed for their respective power sectors.

Insurance

5.12 During negotiations, agreement was reached that SINELAC would maintain sufficient coverage against loss through fire, machinery breakdown, special perils (such as earthquakes) as well as against consequential loss, in addition to coverage for such things as their motor vehicle fleet, workmen's compensation, personal accidents, third party liability, etc., which would be satisfactory to IDA. - 21 -

Project Monitoring

5.13 During negotiations SINELAC agreed to the project monitoring system (Annex 17), and to IDA's completion report requirements.

VI. FINANCIAL ANALYSIS

6.01 In Brussels on July 9, 1982, the three Ministers of Energy of Burundi, Rwanda and Zaire agreed to form SINELAC (para. 5.02) and to have the treaty and its by-laws ratified by the three Governments. Ratification of the treaty and by-laws by the three respective legislative authorities is scheduled to take place by mid-July 1983 at the latest. In order to ensure that the project execution agency is establishedprior to commitment of IDA funds, ratification would be a condition of Credit signing. SINELAC's opening balance sheet would date from mid-1983 (Annex 18) and the first financialyear would end on December 31, 1983.

Financing Plan

6.02 SINELAC's annual financial statements would be expressed in Special Drawing Rights (SDR) because of its international context and because it is the currency referred to in the statutes of BDEGL. However, for practical purposes SINELAC's financial projection and assumptions (Annexes 18 and 19) have been prepared in US$ with escalation based on international rates of inflation used in para. 4.02. The financing plan for the construction of the proposed project covering the six calendar years 1983 through 1988 is summarized on the following page.

6.03 Three IDA Credits of US$15 million would be made available to each of the three Governments. The proceeds of each credit would be onlent to SINELAC by the three governments under three subsidiary loan agreements at 10.97% rate of interest, with a repayment period of 25 years, including an eight-yeargrace period to reduce obligations from the three Governments under the minimum payment agreement (para. 6.06). Interest during the eight-year grace period would be capitalized. The subsidiary loan agreementswould be respectivelyexpressed in the currencies of each of the three onlending countries, i.e. the Burundi franc, the Rwanda franc and the zaire, and SINELAC would assume the foreign exchange risk. The following would be conditions of effectiveness of the proposed Credits for the financing of the project:

a) the execution of the subsidiary loan agreements between the Governmentsof Burundi, Rwanda and Zaire and SINELAC;

b) the fulfillment of all conditions to initial disbursement of the funds made available to the three Governmentsby the FED (SDR 15.5 million or US$16.8 million equivalent loan at a 1% interest rate, with a repayment period of forty years, including a ten-year grace period, and SDR 3.4 million or US$3.7 million equivalent grant). - 22 -

SINELAC'SFinancing Plan 1983-1988 (US$ million)

Applicationsof Funds Percentage of total Constructionexpenditures Proposed project 83.7 a/ 77 Interest capitalizedduring grace period 22.6 b/c/ 21 106.3 98 Increase in working capital 1.5 1 Debt Service 0.9 1 Total Applications 108.7 100

Sources of Funds

Internal sources Operating income -0.8 Depreciation 7.1 Total 6.3 6

Loans and Grants IDA credit 45.0 41 FED loan 16.8 16 FED grant 3.7 3 Italian Government 8.5 8 BDEGL 1.9 2 Governments'grants Constructionexpenditures 7.8 Working capital 1.2 9.0 8 Interest during grace period added to IDA onlent credit 17.5 b/ 16 Total 102.4 94

Total Sources 108.7 100

a/ Total project cost of US$84.9 million is made of US$83.7 million in constructionexpenditures and US$1.2 million in working capital. b/ The difference between interest capitalized during grace period and interest during grace period added to IDA onlent credits (US$5.1 million) would be made of payments to the Governments (i) for the service charge on the IDA credits and interest during grace period on the FED funds, and (ii) to reduce the amount of accrued interest during the grace period (para. 6.05). c/ Total capitalized interest during grace period is US$46.0 million, as it extends until 1991 (para. 6.05 and Annex 18). - 23 -

c) the fulfillmentof all conditions for initial disbursementof funds to be lent to SINELAC by BDEGL (SDR 1.7 million or US$ 1.9 million equivalent loan at a 7.5% rate, with a repaymentperiod of thirteen years, including a three-year grace period); and

d) the fulfillmentof all conditions for initial disbursementof funds to be made available for the project by the Government of Italy (SDR 7.8 million or US$8.5 million equivalent grant.

The balance of the local project cost including working capital would be financed by three government grants in local currency each equivalent to SDR 2.8 million (US$3.0 million). Total Government contributions to the proposed project amounting to US$9.0 million (Annex 18) would be paid-in capital to SINELAC. During the period of construction ending in March 1987, the three Governments would pay IDA's commitment charge of 0.50% on the amount of undisbursed credit and service charge of 0.75% on withdrawn funds, and FED's interest, totaling about US$1.5 million, or US$0.5 million each. Each of the three national electricity companies, REGIDESO, ELECTROGAZ and SNEL, would supply their respective Governments with the funds needed for the local components of the project, service charges and interest, i.e., US$3.5 million, which they would obtain from their customers through tariffs. The Governments would permit the national companies to adjust their tariffs to meet their obligations. In the event that funds available to SINELAC would be inadequate for its operations and to meet its commitments, the Governments would provide it with the needed funds. The above arrangements were confirmed during negotiations. The payment of $100,000 equivalent to SINELAC by each of the Governments of Burundi, Rwanda and Zaire, for its working capital requirementsduring the first year of construction would be a condition of effectiveness of the proposed credits.

Tariffs

6.04 Draft documents for the creation of SINELAC provide for a 10% financial rate of return for the project. Computation of the average tariff of SINELAC would be based on the cost of the project and the forecast sales from the Ruzizi II facilities. The cost of the project has been taken from the consultants'engineering studies (para. 4.02), and the calculationof Ruzizi II sales takes account of:

- the commissioning of the Ruzizi II project in March 1987 and the Rwegura project in March 1989 (para. 7.12) and the commissioning of the third unit of Ruzizi II in 1993 (para. 3.05);

- the total demand of the interconnected system in the three countries (Annex 21);

- the competition among hydroelectric facilities as long as they are not fully utilized: Ruzizi I, in operation since 1959, Rwegura and Ruzizi II (Annex 22); and

- the minimum payment obligation agreed in principle in Brussels and confirmed during negotiations, would require the three - 24 -

national electricity companies REGIDESO, ELECTROGAZ and SNEL to provide SINELAC with the funds needed to cover at least its yearly cash expenses for operations, maintenance and debt service (Annexes 20 through 22); each of the three companies could then use the quantity of electricity corresponding to the minimum payment under the prevailing tariffs.

6.05 Interest on the subsidiary loans onlent from the IDA credits would be capitalized during the eight-year grace period and consequently would reduce SINELAC's cash expenses and bring the minimum payment obligations and the corresponding quantitities of electricity that could be purchased in line with the initial requirements of the three national companies. Payment of the service charge by SINELAC on the IDA credits from 1987 to 1991 and any payments that SINELAC could make during that period which were estimated to be about US$15 million (Annex 18) would come in deduction of the accrued interest. During the 1987-1991 period, SINELAC would also pay the committment fee on the outstanding amount of the Bank loan, the interest on FED's loan, and service BDEGL's debt.

6.06 Each company would provide SINELAC with budgeted minimum payments quarterly. In the case where needs of an electricity company exceeded the quantity which the minimum payments could purchase, the excess would be debited by SINELAC against the minimum payment of the other companies. The minimum payment agreement would be part of the sales contracts between SINELAC and each of the three national electricity companies which would be discussed during negotiations. The signature of final sales contracts between each electricity company and SINELAC would be a condition of effectiveness of the proposed credit.

6.07 Based on the foregoing, the estimated total minimum annual payment requirements would stay below the value of the estimated purchases of electricity from Ruzizi II by the three national companies (Annex 21). The selling price of Ruzizi II electricity to the national companies before transmission losses is estimated to be US¢7.3/kWh, expressed in 1982 prices, to meet the objective of a 10% financial rate of return for the proposed project (Annex 22). Based on international inflation indices used in para. 4.02, Ruzizi II's bulk electricity supply prices would be:

1987 1988 1989 1990 1991 1992 1993 1994 1995 ------USJ/kWh ------

- in current prices 10.2 10.8 11.5 12.1 12.8 13.7 14.5 15.3 16.2

- in constant 1982 prices 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 a/

a/ this is equivalent to US48.4/kWh after transmission and distribution losses, in constant 1982 prices.

Assurances were obtained during negotiations that near the completion of the project, when the cost of construction is well established, and no later than three months before the planned date for commissioning of the project, SINELAC would have received the report of a consultant acceptable to IDA containing a new calculation of the average tariff based on an - 25 - updated demand forecast for electricity, that would obtain a 10% financial rate of return for the proposed project. The Governments gave assurances that they would take all measures necessary to permit SINELAC to set its tariffs averaging at the required level. To maintain its value in constant terms, such average tariff would be updated each year using the United Nations "Unit value index of manufactured exports from iadustrial to developing countries." Before September 30 of each year after commissioning, SINELAC would review with IDA the basis for the tariff calculation, as agreed during negotiations. The level of earnings are estimated to be sufficient to finance the local costs of the third Ruzizi II unit to be commissioned in 1993 (para. 3.05).

6.08 The tariffs presented are based on average revenue. The tariff, structured to differentiate time of day and season of utilization by the consultant who would calculate the average tariff (para. 6.07), would be incorporated in the sales contract (para. 6.06) and would be effective upon commissioning in 1987. SINELAC's by-laws (para. 5.02) provide that, if the covenanted level of tariffs enables it to accumulate cash in excess of its foreseen requirements, the Board of Directors could decide to distribute dividends to the partners of SINELAC. In the three following paragraphs, retail average tariffs derived from the accounts of the three national electricity companies are discussed to determine whether they are consistent with a spread estimated to be US¢3/kWh for transmission and distribution above SINELAC's USf8.4/kWh bulk tariffs after losses.

(i) Burundi: REGIDESO

6.09 On July 1, 1980, REGIDESO increased its electricity tariffs by 70% to an average of 7.6 FBu/kWh (7.9 FBu/kWh or US49. in 1981) so that electricity income statements would break even in 1982 through 1984 (Annex 21). To finance the Government's contribution to the proposed project, of SDR 3.2 million (US$3.0 million in construction expenditures and US$ 0.5 million in paid-up interest and charges during construction, para. 6.03), and. to finance the expected needs of the country in construction expendi- tures, notably for the Rwegura project and the next project for complemen- tary works to Ruzizi (para. 2.26), REGIDESO would have to increase its average tariffs, which have been estimated as shown in the following table (Annex 24). In 1987, they would reach a level consistent with the esti- mated average retail tariff (para. 6.08).

1982 1983 1984 1985 1986 1987 1988 1989 FBu/kWh a/

Tariffs in current prices 7.9 7.9 7.9 9.0 12.2 16.5 18.1 19.9

Increases in % - 0 0 14 35 35 10 10

Tariffs in 1982 const. prices 7.9 7.1 6.3 6.4 7.9 9.7 9.7 9.7 b/

Tariffs in 1982 const. US¢ a/ 9.1 8.2 7.2 7.4 9.1 11.2 11.1 11.1

a/ US$1 = FBu 87 in 1982. b/ The rates of inflation in Burundi are estimated to be 12% from 1983 through 1985 and 10% in 1986 and thereafter. - 26 -

(ii) Rwanda: ELECTROGAZ

6.10 ELECTROGAZ's fixed assets have not been revalued, and it is therefore impossible to compute appropriate rates of return. Thus, in preparation for the next project for complementary works to Ruzizi II to be carried out in Rwanda, the Rwandese Government has requested IDA to grant a PPF that will cover the cost of evaluation of ELECTROGAZ's fixed assets (para. 2.24). An appropriate rate of return covenant would be drafted at the time of the preparation of the project for complementary works to Ruzizi II (para. 2.26). On January 1, 1982, ELECTROGAZ almost doubled its electricity tariffs, which should enable it to fulfill the earnings cove- nant of the proposed IDA financed water project (Annex 5, para. 20) until 1984: as a result, ELECTROGAZ would generate annually from internal sources funds equivalent to 25% of construction expenditures averaged over the previous, current, and following year. However, to finance the SDR 3.2 million (US$3.0 million in construction expenditures and US$0.5 million in paid-up interest and charges during construction, para. 6.03) Government's contribution to the proposed Ruzizi II project and complementary works to Ruzizi and for future construction expenditures, the above earnings cove- nant would require the tariffs shown in the following table (Annex 24). In 1987 they would reach a level consistent with the estimated average retail tariff (para. 6.08).

1982 1983 1984 1985 1986 1987 1988 FRw/kWh a/

Tariffs in current prices 10.9 10.9 13.0 15.5 15.5 16.0 20

Increases in % - 0 19 19 - 3 25 b/

Tariffs in 1982 const. prices 10.9 9.7 10.4 11.0 10.0 9.4 10.7

Tariffs in 1982 const. US¢ a/ 12.5 11.1 12.0 12.6 11.5 10.8 12.3

a/ US$1 = Rw 87 in 1982. b/ The rates of inflation in Rwanda are estimated to be 12% from 1983 through 1985 and 10% in 1986 and thereafter.

(iii) Zaire (Kivu): SNEL

6.11 Forecasts have been prepared for the interconnected system of the Kivu province, the cities of Bukavu and Uvira which are already part of it, and Goma, after it is linked in 1985 (para. 2.11). SNEL's assets will be revalued under a provision of Credit 1224-ZR (para. 2.20), and an appropriate rate of return covenant would be drafted at the time of the preparation of the project for complementary works to Ruzizi II (para. 2.26). However, in Annex 22, the value of Ruzizi I assets has been estimated on the same basis as that of Ruzizi II and a selling price in 1987, the year of commissioning of Ruzizi II, has been determined on the same basis as that of Ruzizi II to render the comparisons meaningful. Bulk prices of the Ruzizi I electricity sold to Burundi and Rwanda would be increased progressively from their present level to reach the calculated price in 1987. On March 1, 1982, SNEL's domestic prices were doubled as a - 27 - condition of Board presentation of Credit 1224-ZR and the foregoing increases are needed to finance the SDR 3.2 million (US$3.0 million in construction expenditures and US$0.5 million in paid-up interest and charges during construction, para. 6.03) Government's contribution to the proposed Ruzizi II project and complementary works to Ruzizi (para. 2.26) and for future construction expenditures. Because bulk sales from Ruzizi I at a lower price would represent, in 1987, about half of sales from the Kivu interconnected system (Annex 25), the latter's average tariffs would be below the level consistent with the estimated average retail tariff (para. 6.08).

1982 1983 1984 1985 1986 1987 1988 1989 US¢/kWh a/

Average tariffs in current prices 3.7 4.4 6.1 6.9 7.4 8.6 9.2 11.5

Increase in % - 19 39 13 7 16 7 25

Tariffs in constant 1982 prices 3.7 4.1 5.3 5.6 5.6 6.1 6.2 7.3 a/

a/ See rates of international inflation, table of para. 4.08.

Convertibility of Currencies

6.12 The free convertibility of local currencies is provided in the agreement called "Arrangement monetaire entre les banques centrales des Etats membres de la Communaute economique des pays des grands lacs" among the three central banks of Burundi, Rwanda and Zaire, dated June 7, 1978. Free convertibility among the Burundi franc, the Rwanda franc and the zaire would be necessary for all operating activities of the Ruzizi II facili- ties. For example, revenue, debt services and dividends would be expressed in the three currencies, and it is assumed at present that most local salaries would be paid in zaires. During negotiations, agreement was reached that the three central banks would guarantee to clear SINELAC's accounts in the three currencies every three months. Furthermore, it was agreed at negotiations that each of the three central banks would provide SINELAC with one-third of the foreign exchange requirements for maintenance and renewal work and for external auditors.

SINELAC's Future Operations and Financial Position

6.13 On the basis of estimated forecasts for SINELAC's financial posi- tion, maintaining the average bulk tariff before losses at US¢7.3/kWh in constant 1982 prices would accumulate a large amount of working capital. Therefore from 1988 to 1991, funds above SINELAC's needs to cover yearly debt service, operating and maintenance expenses would be paid to reduce the capitalized interest during grace period, and from 1992 onwards as dividends to the three Governments and leave a satisfactory working capital position (Annex 18). Assurances were obtained during negotiations that SINELAC would require IDA's approval before incurring debts of an amount larger than US$500,000 equivalent. - 28 -

VII. JUSTIFICATIONFOR THE PROJECT

Power Market

7.01 The main supply of electricity for the Great Lakes region is the existing Ruzizi generating station in Kivu province, Zaire, at the outlet of Lake Kivu. Thus all discussion on the availabilityof electrical energy and the needs of the region must consider the supply by the interconnected system to Burundi, Rwanda, and the eastern part of Kivu province, Zaire.

7.02 IDA reviewed the forecast of demand for energy and power for the interconnected system which was prepared by the consultant to EGL, Tractionel, the forecast prepared for Gesellschaft fUr technische Zusammenarbeit (GTZ) for a proposed hydroelectric scheme near Gisenyi, Rwanda, and a UNDP report entitled "Planificationa long terme des besoins d'6nergie 6lectrique et des chantiers des ouvrages de production," dated April 1982, and found these forecasts to be somewhat optimistic. Following a detailed discussion of the need for electrical energy with the various parties concerned, IDA prepared the detailed forecasts for Burundi, Rwanda and Zaire shown on Annexes 6, 7 and 8 respectively. The combined demand on the interconnected system was prepared from these forecasts, and the results are shown in tabular form and graphically in Annex 26. The historical growth and the forecasts for each of the countries are discussed below.

(i) Burundi

7.03 Burundi's actual electricity sales 1976 to 1981 and those forecast to 1990 are shown in tabular form in Annex 6. It will be noted that in the past four years the domestic sector has grown at an average rate of about 12%. However, in view of the general decline in economic activity, and because of the larger base in the future, it has been assumed that the growth rate in this sector would be at a somewhat lower pace, and growth for the ensuing period has been calculated at a rate of 10%.

7.04 Growth of electricity demand in the industrial sector has been quite rapid. As is shown in the tabulation,growth rates exceeding 20% occurred in 1977 and 1978, and 1980 and 1981 had rates of 17%. However, the rate of growth in the future is less certain, and therefore, in order to be conservative,the growth rate for general industry was assumed to decrease in later years until 1989, when a rate of 8% has been used. Nevertheless, a significant demand will materialize at the end of 1983, i.e. the commissioningof a glass bottle factory with a planned load of 3 MW. However, full operation may not begin immediately, either due to start-up troubles, or due to lack of market. Therefore, to make the forecasts conservative,IDA has assumed that the demand would be 5 GWh in 1984, rising to 10 GWh in 1986, which is well below the annual demand of 17 GWhforecast by the owners. The decision to reduce the expected demand for electricitywas based on the experience with the textile mill (planned load 2.5 MW), where after several years of operation, the output is only one-third of capacity, i.e. annual demand of about 5 GWh instead of about 15 GWh. This low requirement for energy is due primarily to a lack of markets for the manufactured goods. The supply of electricity to public buildings and lighting has varied somewhat during the last years and for - 29 - the purposes of this report it has been assumed that this sector would increase at a rate of about 5% per annum. Also included in this category is REGIDESO's electrical needs for pumping and internal uses which have varied during the past few years. It is forecast that the demand for water will increase at a rate of about 9% per annum but this does not translate directly into pumping requirements,since there are a number of fixed loads which do not vary with growth and, therefore, a growth rate of 7% has been assumed for the sector. The average growth for the public sector is therefore assumed to be about 6% per year for the interconnectedsystem.

7.05 Based on the knowledge that there is a suppresseddemand and the assumptionthat the interconnectedsystem would be extended as requestedby the Government (para. 2.26) and also taking into account the foregoing factors, IDA has calculateda rate of growth for the interconnectedsystem in Burundi of 11 % in 1982 and 1983, 20% in 1984, 15% in 1985, 12% in 1986, and 9% in 1987 and 1988 and 8% in 1989 and 1990.

(ii) Rwanda

7.06 It will be noted in Annex 7 that there has been a significant increase in the demand for electrical energy from the domestic sector during the past few years, which, since 1977, has resulted in an annual average growth of 25% due primarily to the completion of the 110 kV line from Ruzizi I to Kigali. IDA feels that this high rate of growth cannot be maintained, and has conservatively assumed that the growth rate in the domestic sector in 1982-1983 would be about 16%, falling to 11% in the 1987-1990 period. A new transmission line is expected to join Gisenyi to Ruhengeri by 1986, and its demand of 5 GWh after it joins the intercon- nected system is reflectedby the 31% increase in 1986.

7.07 Significant growth has also been experienced in the demand for energy in the commercial sector, which since 1977, has had an average annual growth of about 20%. This rate is not expected to continue and a more prudent assumptionfor a growth rate of 14% for 1982 and 1983, falling to 11% in 1989 and 1990, was used. These growth rates have been offset to some extent by the reduced demand from the mining industry. Discussions with various parties in Rwanda have resulted in reducing demand projections about 12 GWh in 1981 to about 9 GWh in 1985. A large foreign radio instal- lation in Rwanda consumes a significant amount of electrical energy (about 12% in 1981), but virtually no growth is expected to take place during the ensuing years.

7.08 As a result of the foregoing, IDA has concluded that in Rwanda, even though some of the suppressed demand has been satisfied with the con- struction of the 110 kv transmissionline from Ruzizi (para. 7.06), much of the country remains to be served. Thus with the extensions proposed by the Government (para. 2.26) it is forecast that electricity sales would increase as follows: 8% in 1982-1984; 10% in 1985; 15% in 1986, and 9% in 1987-1990.

(iii) Zaire (Kivu)

7.09 The lack of funds to extend the transmissionnetwork has resulted in a suppresseddemand for electricity in the past, and virtually no growth - 30 -

is expected for Bukavu and its environs before 1984 (Annex 8). However, before Ruzizi II is commissioned in 1987, some of the projects involving the rehabilitation and extension of service to new consumers would have been completed to satisfy this demand (para. 2.26), and a growth rate of 6% has been assumed for 1985, 8% for 1986-1988, falling to 6% in 1989-1990. The construction of the transmission line from Katana to Goma is now under way and is expected to be completed by the end of 1984 (para. 2.11). Thus the growth of 33% in 1985 has been based on the assumption that Goma would require about 5 GWh, rising slowly to 8.8 GWh in 1990. The brewery in Bukavu has become a new major consumer of electrical energy with the switch-over from oil to electric furnaces (5 MW) in December of 1981. IDA was advised that the brewery is now working at about 25% capacity due to the scarcity of raw materials, and that by 1984 the circumstances would be such that it may operate at about 50% capacity. Thus, in preparing the forecast, it has been assumed that the 1982 demand of 5 GWh would rise to 10 GWh by 1984,with a slow growth to 12.5 GWh during the 1988-1990 period. The rehabilitation and upgrading of the transmission lines to Uvira, Ngweshe and Nyangezi, from 15 kW to 30 kW would provide additional energy to industrial plants which to date has been suppressed due to the lack of material to extend services.

7.10 From the foregoing, growth rates varying from 33% to 8% annually have been assumed for the electricity sales in Kivu. Although these rates appear high, it should be recognized that the forecast base is at a very low level, and expansion has been prevented due to the lack of funds.

(iv) Interconnected System

7.11 When the results of the individual forecasts were added together (Annex 26), it was found that the average annual rate of growth for the interconnected system during the 1982-1990 period would be about 11%, an amount which is not unreasonable considering the complementary works prepared by studies financed by PPFs (paras. 2.23-2.25) would be undertaken in each of the three countries to tap potential demand that has been suppressed by lack of funds to service new consumers, and improve the reliability to existing consumers. This 11% rate of growth is assumed to be conservative, bearing in mind the assumed reduced demand for the three largest consumers - the bottle factory and textile mill (para. 7.04) and the brewery (para. 7.09).

Requirements for the Project

7.12 The expected growth in demand for electrical energy in the interconnected system thus implies that by 1986 the existing generating facilities would be inadequate. During the dry season, in particular, the output of the Mugere hydroelectric generating station would be curtailed considerably because there is no reservoir to store water for release during the low river flow seasons. The Ruzizi I generating station has considerable storage upstream in Lake Kivu, and its output is not significantly affected by fluctuations in river flow due to seasonal variations in rainfall. Although there are sufficient generating facilities in the region to meet instantaneous peak demands, if neither the Rwegura nor Ruzizi II developments are constructed there would be a seasonal deficiency of 27 GWh in 1987 which would grow annually at the rate - 31 - of about 30 GWh per year. The Burundian Government has scheduled the Rwegura project to be in service early in 1987. However, IDA is of the opinion that due to the extensive civil works involving a 50 m high rock-fill dam, 2,200 m of tunnelling,and a 1,800 m penstock, the scheduled completion date is optimistic, and therefore for the purposes of this report, a more realistic completion date of early 1989 has been assumed for the Rwegura project. The difficulty facing EGL at present is to devise a plan to develop its resources, whereby the possibilityof a deficiencyin electrical energy from 1987 onwards is minimized. For this reason, therefore, the proposed Ruzizi II project has been scheduled to be completed in March 1987.

Comparison of Alternatives- Least Cost Solution

7.13 IDA estimates that if either the Ruzizi II or Rwegura plants were to be in operation alone in 1987, the average bulk tariffs required to produce a 10% financial rate of return would be US¢6.4/kWh and 15.3/kWh respectively, indicating that the Ruzizi II project is the lesser cost solution and that building the Rwegura project, before the Ruzizi II capability is fully utilized, would cause the selling price of Ruzizi II energy to be increased by more than 10% from US¢t6.4/kWhto 7.3/kWh (Annex 27).

7.14 The constructionof the Rusumo Falls hydroelectricproject on the Kagera River which forms the border between Rwanda and Tanzania is the only viable alternativeto the constructionof the Ruzizi II project. The high cost of fuel oil precludes the consideration of conventional steam generating stations and the general lack of transportation and handling facilities eliminates the possibility of using coal from the Kalemie coal fields, about 300 km south of Bujumbura on Lake Tanganyika. As there is little data to determine if other mini-hydro sites could be commissionedin time to satisfy the expected demand, there remains therefore the possibility of developing the Rusumo Falls site at an estimated cost of US$160 million. Thus, the proposed project was compared to the alternative of constructionof the Rusumo Falls on the following basis:

The Rwegura hydroelectric project (18 MW) to be commissioned early in 1989 would be followed by the commissioning of the Rusumo Falls development (80 MW) in 1991. There would be a deficiencyin energy from 1986 to 1990 inclusive and the cost of a 10 MW diesel plant, for generation of electricity during the period, is included. Details of the computationsmay be found in Annexes 28 and 29.

7.15 The least cost solution was found to be the Ruzizi II project at discount rates up to 35% (Annex 29).

Rate of Return

7.16 Given the 1987 US¢7.3/kWh average bulk tariff expressed in 1982 prices, to achieve a 10% rate of return (para. 6.07) the sensitivity analysis shows that with an increase in construction costs of 10%, the financial rate of return would be 9.2%; with a reduction in annual growth of the regional demand in the period 1981-1990, from 11.1% down to 10% - 32 -

(Annex 31), it would be 8.9% with purchases from Ruzizi II matching minimum payments, and 8.7% if cheaper power from Rwegura and Ruzizi I is consumed; with a deferment of commissioningby one year it would be 9.2%. In case of an increase in costs of 10%, or a decrease in annual growth of the regional demand of 10%, or a deferment of one year, the average tariffs should be respectivelyUS¢8.1, 8.7 and 8.1/kWh, for a 10% financial rate of return.

7.17 An economic rate of return has been computed at the distribution or retail level for the proposed project combined with a planned project to rehabilitate and extend the interconnected distribution systems of the three countries (para. 2.26). The average retail tariff is estimated at US411.4/kWh (para. 6.08) in 1982 prices and would produce a rate of return of 8.9% (Annex 30). By taking into account the economic benefit deriving from the availabilityof hydropower rather.than high cost diesel-generated power which some consumers would be ready to buy the economic rate of return would be substantially higher (consumers' surplus, Annex 30). Forecasts for the three national electricity companies indicate that such a tariff averaged among the three countries could be attained in 1987 and thereafter(para. 6.09 to 6.11), at the time of commissioningof the Ruzizi II facilities and probably also of the rehabilitationand extension of the interconnecteddistribution systems.

Risks

7.18 A number of risks are associatedwith the implementationof this project, the first being the involvement of three separate government entities who would borrow the necessary funds for the constructionof this facility. IDA does not consider this to be an insuperableproblem, because in the past the governments have been very cooperative in the use of elec- trical energy from the Ruzizi I generating station. Also, with the forma- tion of EGL (Annex 4) whose prime responsibilityis to coordinate energy matters in the region and its effectiveness since then, the involvement of the three governmentsis not considered to be an impediment to the success- ful completion of the project. In addition, the formation of SINELAC, an autonomous institution,provides protectionfrom day to day interferenceby the Governments.

7.19 Of greater concern, however, is a second risk, institutionalin nature, relating to the capability of the newly formed SINELAC to adminis- ter the project properly. With its location far from the sea, requiring the transportation of heavy equipment across several international borders, and with little or no local construction materials or supplies, the possi- bility of delays in construction progress is great. However, the project with its relatively simple dam and spillway (rlm high), short tunnel (500m), and conventional above-ground powerhouse, would present a minimum of difficulty to potential contractors. This risk of failure to complete the project succesfully, has been addressed by including a technical assis- tance component, whereby several experts in various disciplines of engi- neering and finance would assist SINELAC during the implementationperiod, and for at least two years after commissioning(para. 4.10).

7.20 A third risk is technical, and involves the suitability of each segment of the proposed project to carry out its intended functions successfully. This risk has beer minimized by the IDA requirement that - 33 -

SINELAC retain consultants with appropriate experience to carry out the design of the project, and to retain a second group to review and coment on the final documents. In addition, IDA has requested SINELAC to engage a panel of experts to advise on design and construction procedures and if necessary make recommendationson any claims which may be submitted during the course of the work by the various contractors. Continuous advice and direction would be provided by experts funded under the technical assistance component of the project (para. 3.06).

7.21 A fourth risk is the possibility that the anticipated rate of growth in the demand for electricity would not be realized, and that constructionof the project would be premature. IDA is of the opinion that this risk is minimal, and that the load forecasts for each of the countries are conservative. With the completion of-the complementaryworks described in para. 2.23 -2.26, the rate of increase in demand for electrical energy is expected to equal or exceed the forecasts.

7.22 The financial risk of the proposed project and the ability of SINELAC to repay the borrowed funds has been met by the requirement that the three national electricity companies make minimum payments to SINELAC (para. 6.04). SINELAC has agreed to set its tariffs at the covenanted level, which is in fact higher than its needs to maintain a sound financial position in the future (6.08). Risk of cost overruns, which is the most difficult to estimate accurately,would be minimal, because tenders for the civil works have been received (para. 4.15).

VIII. AGREEMENTS REACHED AND RECOMMENDATION

Agreements Reached

8.01 The treaty and by-laws establishingSINELAC have been agreed upon by the three Borrowers and are scheduled to be ratified by their respective legislative authorities by mid-July at the latest. Ratification of these agreements would be a condition of Credit signing.

8.02 During negotiations,the three Governments of Burundi, Rwanda and Zaire agreed:

(a) to cause each of the three national electricity companies, REGIDESO, ELECTROGAZ and SNEL, to assign qualified and experienced personnel for the operation and maintenance of SINELAC's facilities and when needed, to be trained as counterparts of the management team providing technical assistance to SINELAC (paras. 5.05 and 5.06);

(b) to cause the three national electricity companies to provide US$3.0 million equivalent in. local currencies to enable the Governments to contribute in financing the local cost of the project and US$0.5 million to cover financial charges during the construction period; to allow them to adjust their tariffs for that purpose if necessary; and to provide SINELAC with any funds required to carry out its operations and meet its obligations (para 6.03); - 34 -

(c) to cause the three national electricity companies to provide SINELAC with the funds needed to cover at least its cash expenses for operations, maintenance and debt service and to include such minimum payment obligation in sales contracts between SINELAC and the three national electricity companies (para. 6.04);

(d) to take all measures necessary to permit SINELAC to comply with its tariff covenant (para. 6.07); and

(e) to require that the three central banks provide SINELAC with foreign exchange for all its needs for maintenance and renewal work (para. 6.12).

8.03 During negotiations, the Government of Burundi agreed:

(a) to cause REGIDESO to retain consultants to complete a tariff study by December 31, 1983 (para. 2.23 and 2.26);

(b) to commit REGIDESO to construct a transmission line from Ruzizi II to Burundi, and transmission lines connecting Rugombo, Muzinda, Cibitoke and Bubanza, and to retain consultants to prepare a report on their construction by December 31, 1983 (para. 2.23 and 2.26);

(c) to advise IDA whenever other expenditures are proposed in the power sector (para. 5.11); and

(d) to cause REGIDESO to provide separate annual financial statements for its electricity and water operations, to update annually the revaluation of its fixed assets and to have its accounts audited each year by a firm acceptable to IDA and to submit audited financial statements and auditors' report no later than six months after the end of the financial year (para. 5.11).

8.04 During negotiations, the Government of Rwanda agreed:

(a) to cause ELECTROGAZ to carry out a revaluation of its assets and a study of electricity tariff structure by December 31, 1983 (para. 2.24 and 2.26);

(b) to commit ELECTROGAZ to carry out works for the rehabilitation of the Ntaruka hydroelectric plant, the rehabilitation of the electricity transmission system and to construct lines to enlarge it, and to retain consultants to prepare a report on such works by December 31, 1983 (para. 2.24 and 2.26);

(c) to advise IDA whenever other expenditures are proposed in the power sector (para. 5.11); and

(d) to cause ELECTROGAZ to have its annual accounts audited by an independent firm acceptable to IDA and to submit audited - 35 -

accounts and auditors' report no later than six mnths after the end of the financial year (para. 5.11);

8.05 During negotiations,the Governmentof Zaire agreed:

(a) to commit SNEL to carry out works for the rehabilitationof the Ruzizi I hydroelectric plant, the rehabilitationof the transmission and distribution systems in Bukavu, Goma and Uvira, to construct a 30 kV transmission line from Bujumbura to Uvira, and to construct a wood-fueled generatingplant if it is shown to be feasible, and to retain consultants to prepare a report on such works by December 31, 1983 (para. 2.25 and 2.26);

(b) to advise IDA whenever other expendituresare proposed in the power sector (para. 5.11); and

(c) to cause SNEL to have its annual accounts as well as separate Kivu's accounts audited by an independent firm acceptable to IDA and to submit audited accounts and auditors' report no later than six months after the end of the financial year, and to revalue annually its fixed assets (para. 5.11).

8.06 During negotiations,SINELAC agreed:

(a) to retain the services of a panel of experts who would make periodic inspections of the dam, and submit their reports to IDA for comment (para. 3.08);

(b) to take all necessary steps to acquire land and rights necessary to carry out the project and operate the Ruzizi II facilities (para. 5.02);

(c) to consult with IDA before appointment of a general manager, a technical director and a financial and administrative director (para. 5.04);

(d) to continue to employ consultants and an administrative and financial assistant satisfactoryto IDA; and to hire members of a management team from an internationallyknown utility company, who would be appointed at specified dates, to supervise the work of the consultant who would monitor the construction of the proposed project, and to provide advice on the initial operation of the plant (para. 5.05);

(e) to hire consultants acceptable to IDA to carry out a study for regional training facilities (para. 5.07);

(f) to have its annual accounts audited by an independent firm acceptable to IDA and to submit audited accounts and auditors' report no later than six months after the end of the financial year (para. 5.08); - 36 -

(g) to discuss its budget with IDA each year (5.09);

(h) to maintain proper insurance on its facilities and against third party claims (para. 5.12);

(i) to comply with the project monitoring system and to completion report requirements(para. 5.13);

(j) to establish tariffs for the first year of operation of the Ruzizi II facilities at a level sufficient to obtain a 10% financial rate of return for the proposed project on the basis of a study prepared no later than three months before commissioning, and each year to update it to maintain the tariffs at the same level in constant terms and to review with IDA the basis for their calculations(para. 6.07); and

(k) to require IDA's aproval before incurring debts of more than US$500,000 equivalent (para. 6.13).

8.07 The conditions of effectivenessof the Credit would be (a) the transfer of land rights to SINELAC and the presentationof an "accord de siage" concluded between the Republics of Zaire and Rwanda, and SINELAC (para. 5.02); (b) the appointment of SINELAC's general manager (para. 5.04); (c) the execution of the subsidiary loan agreements between the Governments of Burundi, Rwanda and Zaire, and SINELAC; (d) the fulfillment of all conditions precedent to disbursementof cofinanciers'funds; (e) the signing of the agreement between BDEGL and SINELAC; (f) the signing of sales contracts between SINELAC and the three national electricity companies, REGIDESO, ELECTROGAZ and SNEL (paras. 6.03 and.6.06); and (g) the payment of $100,000 equivalent to SINELAC by each of the Governmentsof Burundi, Rwanda and Zaire for its working capital requirementsof the first year of t'neproject (para. 6.03).

Recommendation

8.08 With the above agreements, the project is suitable for three IDA Credits of SDR 13.8 million (US$15 million) each. - 37 - ANNEX I Page 1 of 11

BURUNDI -RWANDA-ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

Energy Resources in Burundi, Rwanda and Zaire (Kivu)

(i) Wood Resources

1. Burundi - Firewood, with some agricultural waste, and charcoal are the principal sources of energy for the majority of Burundi's populatior,. The dependenev of .zhe large population on fuelwood for cooking and its inefficient use has resulted in severe deforestation, creating both a fuelwood shortage and soil erosion. The forests now cover about 3% of the country's total area, and average forest replenishment through natural growth is about one-third of the annual consumption. Agricultural waste, used as a primary fuel in some areas of the country due to the scarcity of fuelwood, has resulted in a reduction in soil fertility and crop yields. The urban population relies mostly on charcoal because of its lower transportation costs, with a resulting increase in the general depletion of resources, because of the innefficient methods by which charcoal is produced.

2. Management of the sector is under the direction of the Forestry Department which is also responsible for fisheries and wild life. Operational funds for this sector have been given low priority in the government budget allocation, and programs for further forestry development have not been extensive. Training programs are virtually non-existent as evidenced by the fact that the Government of Burundi has only one trained forester on its staff. The Bank is well aware of the problem and an IDA project, Burundi Forestry Project, Credit 918-BU, 1979, has been approved for the establishment of three nurseries for eucalyptus plantations, a pine plantation, project management, training, technical assistance, and further studies in Burundi's energy use. This project also includes a component covering a survey of wood and agricultural waste use in rural households, which will provide better data for future planning. In addition, several IDA rural development projects have forestry components which provide assistance to Burundi and its fuelwood problems. Other agencies are also providing funds; the Fonds europeen de developpement (FED) to develop a pine tree plantation; the French fonds d'aide et de cooperation (FAC) to provide a protective belt of new trees around the natural forest in the north to prevent its further depletion; Belgium and Saudi Arabia are co-financing a project for pine, eucalyptus, and callitris trees in the southern part of the country; and an FAO-UNDP Project to train 35 forestry technicians by 1982. Both FAO and USAID are planning additional forestry projects for conservation and production in the country. - 38 - ANNEX 1 Page 2 of 11

3. Efforts are being made to conserve this forestry resource by providing more efficient stoves and more efficient kilns for charcoal manufacture. USAID has estimated that by 1986 the production of fuelwood would decline to such an extent that the population will need an unreasonable amount of time to gather fuelwood because of its distance from the point of use, and the cost of wood for fuel will become extremely high. It is expected that the programs now in effect will at least reduce the crisis to a manageable level and will provide for future supplies.

4. Rwanda - Rural households in Rwanda use either firewood or agricultural wastes for their cooking and heating, although in Kigali charcoal is used as a principal cooking fuel. In rural areas, schools, hospitals and other government institutions use wood for fuel.

5. The Directorate of Waters and Forests under the Ministry of Agriculture and Livestock is responsible for the forestry sector in Rwanda. An association of research institutions made up of government departments and local authorities involved in forestry, called Groupe forestier de Rwanda, meets about twice a year to discuss forestry problems. As in the case of Burundi, there is a serious lack of well trained extension workers and foresters in Rwanda.

6. IDA is well aware of the problems of forestry in Rwanda and as such, has included reforestation of several hundred acres in the Bugesera/Gisaka/Migongo and Mutara projects. In addition, the proposed Integrated Forestry and Livestock Development Project would include components to strengthen forestry services within the Ministry of Agriculture and Livestock, develop 8,000 ha of short-rotation plantations to supply charcoal, firewood and building poles for the urban populations of Kigali and Butare, rural woodlots to supply firewood and building poles for the rural population, development of an additional 4,000 ha as part of a long-term integrated forestry and livestock development program within the Gishwati Forest, studies and field trials of more efficient charcoal production techniques, development of new cooking methods for the rural population, project monitoring and evaluation, further project preparation, and scholarships in forestry, livestock and financial disciplines.

7. In addition to the foregoing, other countries and organizations are providing forestry assistance as follows:

a) Switzerland. The Swiss have been involved in the forestry sector since 1967 through the Projet Pilote Forestier, recently changed to become a Forestry Development Project. It provides for training, reforestation (about 2,000 ha in 1981), forest conservation in Nyungwe, and forestry education and extension. It also provides a technical - 39 - ANNEX 1 Page 3 of 11

adviser to the Department of Waters & Forestry. This is the only project which attempts to deal with the overall development of the sub-sector.

b) Federal Republic of Germany. Agricultural intensification projects in Ramba and Gaseke communes, include reforestation of 100 ha per year.

c) African Development Bank. A project in Karago and Giciye communes, reforestation of 2,000 ha over five years.

d) UNDP. A project for agricultural development in the Gikongoro prefecture includes reforestation of the Nyungwe forest.

e) FED. A 2,000 ha reforestation project is included in its current plan.

f) Various. Some tea projects provide for the planting of 200-400 ha to produce wood for their own use.

g) SOMIRWA. The tin foundry has begun planting trees for charcoal production near Kigali.

h) AIDR. An improved cookstove project. They are developing several charcoal stove models in Brussels to introduce in Kigali.

i) Belgium. A planned project would plant 150 ha every year for 15 years on the eastern borders of the Nyungwe reserve, but this project has not yet been fully appraised and financed.

8. Progress in conservation of wood fuel both in the preparation of charcoal and in the improvement in design of energy saving cookstoves has been virtually at a standstill.

9. Zaire (Kivu) - Although there is an extensive use of wood and charcoal in Kivu, both rural and urban, there is little direct management of forestry activities in Kivu. The Department de l'environnement, de la conservation de la nature, et du tourisme has management responsibility, but the lack of funds, and the priority needs of other areas of the country do not allow this department to take much interest in Kivu province. Deforestation has not been a problem in Kivu except in isolated localities, because of its extensive forests and a less dense population. Thus, no programs to improve the forestry section in Kivu are foreseen at this time. - 40 - ANNEX 1 Page 4 of 11

(ii) Hydroelectric Resources

10. The region is high and mountainous (maximum elevation 2,700 m) and forms the continental divide between the headwaters of the Nile River flowing north to the Mediterranean, and the Zaire River flowing west to the Atlantic. The region has two dry seasons; June to September and December and January, and two wet seasons--heavy rains from February to May, and light rains in October and November. At the crest of the divide, above elevation 2,000 m, the average annual rainfall is about 1,500 mm while in the central high plateau (elevation 1,400 m - 1800 m) the average annual rainfall is about 1,250 mm. The combination of mountains and abundant rainfall results in significant potential for the generation of electricity by small hydroelectric generating stations in the numerous, steep, fast flowing rivers and streams.

11. Burundi - An inventory of possible hydro sites in north eastern Burundi was carried out by Siemens of Germany in 1979, with funds supplied by the Federal Republic of Germany through KfW. Also, Electricite de France (EDF) financed by Caisse centrale cooperation economique (CCCE) is making a similar survey of potential hydro sites in the southern and northern part of the country. Recently, FED funded Coyne & Bellier, consultants, to assemble an inventory of all potential hydro sites in Burundi. The total power potential is estimated to be about 300 MW with an annual energy production of about 1,600 GWh. A list of 32 potential hydroelectric power sites which are estimated to be capable of producing about 300 MW or 1,600 Gwh annually may be found at the end of this annex.

12. Rwanda - The electric power activities in Rwanda have been focused on the development of the Ruzizi II Project on the Zaire border, and the Rusumo Falls Project on the Tanzanian border. The Ruzizi II project is being promoted by the Cooperation economique des pays des grands lacs (CEPGL) countries through Energie des pays des grands lacs (EGL). The planning for the development of the Rusumo Fall site is not as far advanced and it appears that this site could not be developed before 1990. A list of 15 potential mini-hydroelectric power sites which are estimated to be capable of providing about 42 MW or about 260 GWh annually may be found at the end of this annex.

13. Zaire (Kivu) - There is a great potential for the development of hydroelectric projects in Kivu. In addition to the Ruzizi II site (the project) 24 sites ranging in potential from 0.2 MW to 240 MW have been identified, with a potential output of over 400 MW. A list of potential sites may be found at the end of this annex. -41- ANNEX 1 Page 5 of 11

(iii) Peat

14. Burundi - Peat resources in Burundi, estimated at 500 million tons (dry weight), are considerable and if developed, could be a medium-term solution to the fuelwood crisis until the reforested areas (para. 2) mature for harvest. In 1977, the Office nationale de la tourbe (ONATOUR) was created as a planning and coordinating agency for development of the peat industry, and, being a very small institution, depends on outside agencies for funding. The Governments of Ireland and Finland have been assisting the problem of peat production in Burundi, and have prepared extensive studies on methods of recovery and the efficient use of peat. USAID has funded a US$11 million program to develop a market for peat, and it expects-that by 1985 the total annual demand will reach about 50,000 tons per year. EDF has provided assistance to develop a peat bog near Kigozi, to supply EDF-financed tea factories. USAID's current second project--a grant of US$8 million over four years, beginning in 1981, is expected to increase availability and acceptability of peat as an alternative energy resource and to strengthen the institutional capability of ONATOUR. DANIDA, the Danish assistance agency, has also provided funds for an assessment of Burundi's peat resources. In June 1981, IDA approved a loan for the study of a proposed nickel project (Credit 1154-BU), and consideration is being given to the possible use of peat as a source of energy from a peat bog near Buyongwe.

15. Consumption of peat has been very low--only about 1% of the urban poor use it--and the Burundian army purchases about 80% of all peat produced. The greatest potential market, of course, is in household use, but considerable time and exposure to use of this fuel, (which is not traditional), would be required to make it acceptable. Technological issues, such as the improvement of stoves to burn the peat efficiently and to minimize the acrid smoke which is emitted during burning, also require solution before Burundi can benefit from this resource.

16. Rwanda - There has been no reliable estimate of the available peat reserves or the extent of the exploitable resources. Two bogs near Ruhengheri are under small scale production, and the principal consumer is a cement plant with a 10,000 ton per annum capacity. In addition, a pyrethrum flower processing plant, (widely used for insecticides) near Ruhengheri uses about 2,000 tons of peat per year.

17. The development of peat is under the jurisdiction of the Ministry of Natural Resources, which has a geological engineer working full-time. The Irish government is currently providing external assistance for peat prospecting and experimental extraction at Busoro. Over US$380,000 of assistance is being provided, and some of these funds will be used for pilot testing of a method to briquet papyrus stalks. A program funded by UNIDO for development of peat was completed in 1980. The French government has now proposed to finance a feasibility study - 42 - ANNEX 1 Page 6 of 11

for a cyanamide plant near Cyangugu, and one component of the study would be an assessment of the possibilities of using the peat as fuel. At present, the Belgian government is financing a project to use peat from the Cyabaralika peat bog for a cement plant.

18. Zaire (Kivu) - There are no known sources of peat in the Kivu province, although it is found extensively in other parts of the country.

(iv) Other Resources

19. Solar - With the region located just south of the equator, solar radiation is quite high and should provide an attractive alternative to a portion of the high cost imported energy; however, except in Rwanda where solar heating is being used, little advantage is being taken of this solar energy either for water heating or for crop drying. The Centre d'etudes et d'applications de l'energie au Rwanda has done considerable work on solar installations, and several units have been installed to heat water in homes and hotels.

20. Methane - There is an enormous potential resource in the methane content of Lake Kivu, where, unlike almost any other lake, its temperature increases with depth. The warm water at the bottom contains more dissolved salt than the cool water above it, and being more dense, normal thermal convection is prevented. About 1.4 cu. m of gas methane is dissolved in each cubic meter of water. Its source is not clearly understood. The extraction of methane is quite straightforward, in that low level water is brought to the surface through a pipe, and as it rises to lower pressure levels, the gas comes out of solution. During 1963 to 1976, a small scale plant extracted gas which was used in the Gisenyi brewery, but the facility eventually failed due to lack of maintenance and repair. The plant is now being repaired under a UNIDO financed project, and the bulk of the gas would be used to produce electricity in a 700-kW former diesel-electric generating plant. Zaire and Rwanda are studying institutional problems associated with the sharing of this resource, and discussions are now underway on the economics of large scale gas production for fertilizers and chemicals, for vehicles and small stationary engines, and for process heat or electricity generation. With this potential contribution to the energy sector, there is ample justification to study this potential in greater detail than has occurred to-date. - 43 - ANNEX 1 Page 7 of 11

21. Geothermal - Both Burundi and Rwanda have geothermal potential, estimated at about 50 MW and 100 MW respectively,l/ but few funds have been made available for detailed study or reconnaissance. At present, the enormous cost of exploratory drilling does not seem to be worthwhile.

Imported Energy: Petroleum

22. Both Burundi and Rwanda are entirely dependent on foreign sources for their supply of petroleum products. Due to their their landlocked location, they are particularly at a disadvantage to potential suppliers, and as a result the cost of imported petroleum is about US$100 per barrel, including about US$37 freight. Until 1977, almost all of the oil imports crossed Tanzania by rail from Dar es Salaam to Kigoma and was then barged up Lake Tanganyika to Bujumbura. However, tank car shortages reduced the capacity of the railway, and as a result since 1981 all of the oil imported to Burundi and Rwanda is refined in Mombasa, transported by pipeline to Nairobi, and loaded into tank trucks for a 1,500 to 1,700 kilometer journey via Uganda. Zaire has a similar problem. It must depend on the importation of its petroleum needs at Matadi on the Atlantic, shipment by rail and barge to Kisangani (1600 km), and transportation a further 1,200 km by road to Bukavu. A study of the possibility of obtaining oil at a lower price by building a pipeline from the Indian Ocean to Burundi and Rwanda, indicated that the project would be uneconomical because of the low volume of petroleum products used in the region.

23. Burundi - The per capita consumption of oil products in Burundi is quite low, about 11 liters per year and the total demand for the country is only 800 barrels per day. In 1980, petroleum products amounted to 10% of the value of the total imports. There is very little opportunity to develop indigenous resources as a substitute to petroleum since the largest quantity of the petroleum products is used in the transportation industry. A number of mini hydro schemes under construction will reduce the demand for petroleum products used for the generation of electricity in small remote centers. However, due to cost and convenience, the generation of electricity in small units for hospitals and administrative centers scattered throughout the countryside will continue to increase the demand for fuel. The substitution of electric boilers for oil-fired boilers in industry is also a possibility, but this cannot occur until the availability of low-cost electricity is more widespread and sufficiently abundant to provide supply to a reliable industry.

1/ "The Geothermal Potential of East Africa, Geothermal Ex, Inc. Consultants), June, 1982. - 44 - ANNEX 1 Page 8 of 11

24. Rwanda - The problems which plague Burundi also result in the high cost of petroleum products in Rwanda. The per capita consumption is quite low, about 13 liters per year, and there is very little use other than in motor vehicles. Rwanda's economy is very vulnerable to interruptions in the transportation of oil, such as that which occured during the early part of 1979, when events in Uganda led to the closure of the road to Kenya. As a result, Rwanda is now considering the installation of oil storage tanks sufficient to store an additional 10 million liters, - or about two months' supply. At present, about 6 million liters are in storage and the Fonds d'aide et de coopgration (FAC) has been requested to assist in construction of the additional storage capacity.

1.25 Zaire - Although Zaire has its own petroleum fields on the Atlantic coast, and in Bandandu province in the west,it is unable to process this oil in its own refinery, because the refinery was designed to process a lighter grade of imported oil. All fuel for Zaire is imported through the port of Matadi, some 3000 km distant from Kivu. Thus, the Kivu region suffers from the same problems of Burundi and Rwanda in extremely high fuel costs, and the lack of a direct reliable service. Kivu has attempted to reduce its dependency on petroleum by changing the oil-fired boilers in Burri and Bukavu to electric power, with a result in saving of about 6,000 liters per annum of fuel oil. The per capita consumption of oil product in Kivu is quite low, and there is little possible of developing any resources to displace this small portion of petroleum, because most consumption is in the transportation industry for which substitutes are not available. - 45 - ANNEX 1 Page 9 of 11

BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

Potential Hydroelectric Sites in Rwanda

Estimated River Site Installed Power Annual Production _____ (MW) (Gwh/Year)

Ruvubu Gitega 25 117 Mumwendo 30 157 Murongwe 11 47.3

Kitenge Rwegura 18 64 Kagunuzi Masango 8 33 Kabulantwa Rushiha 16 100 Bitare 26,0 153.2 Kagunuzi A 26.1 153.2 Kagunuzi B 12.8 75.4

Mpanda A 9t8 57.1 B 1.7 12.3 C 18 11.6 D 3.9 23.0 E 2.0 12.7

Muzazi Mubimbi 1.8 13.3 Mumasumo 1.7 12.2 Rushubi 2.3 16.9 Muzinda 3.5 25.6

Ntahangwa Ntahangwa 4.0 32.2

Kanyosha A 2.9 17.5 B 4.8 30.0

Mugere Mugere 8.0 48.4

Karonge/ A 3.5 20.4 Kirasa B 10.2 63.5 C 6.1 38.4 D 0.6 15.1 E 12.6. 73.5

Ruzibazi A 1.8 10.3 B 5.3 32.0 C 6.1 39.1 D 5.2 33.1 E 14.2 92.8

TOTAL 32 Sites 304.9 1.630.8 - 46 -

ANNEX 1 Page 10 of 11 BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

Potential Hydroelectric Sites in Burundi

Estimated Installed Power Annual Production River Site (MW) (Gwh/year)

Rusumu Rusumu 2.6 12.2

Nyabarongo Nyabarongo 12.6 88.3

Sebeya Gihira 1.0 8.1

Sebeya Nyundo (Keya) 1.8 11.6

Mukumgwa Mukungwa II 2.9 14.6

Base Base 3.4 19.7

Akanyary Akanyaru I 0.48 3.78

Akanyaru Akanyaru II 2.0 16.1

Rukarara Rukarara 6.4 23.5

Ruhwa Ruhwa 6.0 35.0

Kamiranzovu Kamiranzovu 0.7 5.3

Karundura Karundura 1.3 11.4

Kdaba Ndaba 0.24 2.1

Nkora Nkora 0.15 0.6

Satinsyi Satinsyi 0.55 4.8

TOTAL 15 Sites 42.12 257.0 - 47 - ANNEX I Page 11 of 11

BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

Potential Hydroelectric Sites in ZAIRE (Kivu)

Theoretical Head Discharge Power Output River Name (m) (m3/sec) (MW)

Ruzizi Panzi 66.00 36.0 Ruzizi Kitimba 33.6 Ruzizi Kamanyola 240.0 Luberizi Luberizi 28.00 1.50 0.3 Mutambala Malitchia 6.50 11.20 0.6 Kiringye 0.2 Kiliba Kiliba 545.00 2.00 15.0 Luhulu Mugomba 140.00 16.60 18.0 Lubero Lubero 45.00 2.50 1.7 Musosa Itav-Butembo 7.60 1.50 0.1 Semliki Smeliki 20.00 23.00 28.0 Butawo Ruwenzori I 180.00 3.10 6.0 Lusilube Ruwenzori II 180.00 2.50 6.0 Luhulu Kisalala 175.00 3.10 5.0 Musosa Ivugha 60.00 2.0 Rutshuru Rutshuru 23.00 14.00 2.6 Fuku-Fuku Rutshuru F 25.00 1.40 0.3 Ulindi Mwenga 30.00 27.50 6.6 Talya Sud Muhuma 280.00 8.10 25.0 Mweso Ngingwe 15.00 18.00 2.2 Mweso Binza 25.00 12.00 2.5 Nyakisuma Nyakisuma 172.00 0.50 0.7 Osso Osso 10.00 17.20 1.4 Elila Kindu

TOTAL 24 sites 433.8 BURUNDI - RWANDA - ZAIRE

Ruzizi II Regional Hydroelectric Power Project BURUNDI - CO'YYCERICALENERGY BAILNCE, 1973-81 (tons oil equivalent)

1973 1974 1975 1976 1977 1978 1979 1980 1981

PRISARY PRODUCTION

Hydro - - 1080 330 Peat - - - - 10 510 680 1020 1860 Total 10 510 680 2100 2190

IMPORTS

Gasoline 9800 13500 10100 12700 12890 15270 13700 18050 20500 Kerosene 3200 2500 1700 1700 1040 1310 1070 910 1560 Diesel & Fuel Oil 6500 9900 7000 9100 9210 12290 11750 16300 18900 (Subtotal) (19500) (25900) (18800) (23500) (23140) (28870) (26520) (35260) (40960) Electricity 4 5990 6170 6330 6720 7540 8630 9100 10200 11270 25490 32070 25130 30220 30680 37500 35620 45460 3z 5

TR.LNSFO2N'ATION m

Petroleum Products -370 -370 -340 -340 -340 _400 400 _220 -380 Electricity 260 260 240 240 240 280 280 150 270

FINAL CONSUMPTION

Petroleum Products 19130 25530 18460 23160 22800 28470 26120 35040 40540 75 Electricity 6250 6430 6570 6960 7780 8910 9380 11430 11870 22 Peat - - - - 10 510 680 AQQ 18603 Total 25380 31960 25030 i9120 30590 37890 36180 47490 54270 100 % Change - 25 -22 20 2 24 -5 31 14

Sources: M.inistryof Commerce and Industry. Notes: Ton of oil equivalent taken as 10.5 Banque de la Republique du Burundi million kcal. Bank, IXF, and USAID estimates. Electricity converted at 2666 kcal/kWh. Thermal generation assumed to require 3800 kcal/kWh. Stock changes included in consumption. Traditional fuels excluded since only very rough estimates based on presumed annual population could be provided. - 49 - ANNEX 3

BURUNDI - RWANDA - ZAIRE

Ruzizi II Regional-Hydroelectric Power Project

Rwanda - Commercial Energy Balance (ton oil equivalent) 1975 1976 1977 1978 1979 1980

PRIMARY PRODUCTION

Methane 1000 1000 - liydroelectricity 9537 10581 10748 5363 7744 10092 Total 10537 11581 10748 10092 7744 5363

IMPORTS

Gasoline 13188 16392 19111 22334 20089 26450 Kerosene 6077 4311 3111 5199 6618 7325 Gas-oil 10862 15065 12243 12614 12746 14479 Other Pet. Products 3703 3895 6137 3930 5370 4190 (Subtotal) (33830) (39663) (40602) (44077) (44823) (52444) Electricity 288 477 530 4179 8432 11385 Total 34118 40140 41132 48256 53255 632-9

TRANSFORLYMrION

Petroleum Products -734 -659 -810 -171 -185 -522 Electricity 515 462 568 120 130 366

C0ONSUMPTION

Petroleum Products 33096 39004 39792 43906 44638 51922 Electricity 10341 11520 11847 14391 16306 17113 Methane 1000 1000 - - - - Total 44437 51524 51.639 58297 60944 69035

Sources: Ministries of Natural Resources and Planning, UN Energy Statistics. 1980 petroleum figures are six-monttt data multiplied by two. NZotes: Ton oil equivalent taken as 10.5 millioni kcal. Electricity converted at 2666 kcal/kWh for international comparability. Thermal generation assumed to require 3800 kcal/kWh. Stock changes included in consumption. - 50 -

ANNEX 4 Page 1 of 2

BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

Regional Organizations

Communaute economique des pays des grands lacs (CEPGL)

1. The Communaut6 economique des pays des grands lacs (CEPGL), is an organization which was established in September 1976 to revive the former cooperation among the three countries which existed under the Belgian administration prior to independence. CEPGL was formed to promote free movement of persons and goods within the area, and to cooperate politically and economically within the region as it relates to other countries in Africa. The entity is made up of a council of ministers, one from each of the countries, which meets twice a year and reports to an annual meeting of the presidents of the three countries - the highest authority of the organization. The day-to-day activities including the preparation and execution of programs and coordination within the administration of the three countries is handled by a Secretariat located in Gisenyi, Rwanda. CEPGL receives assistance from USAID, France, Belgium and FED for the preparation of feasibility studies. The Bank is carrying out a study of CEPGL (to be completed in FY84) which would include a review of proposed projects, the exploration of potential operations of the regional development bank (BDEGL), the possibility of expanding trade among the member countries, and the need for a regional transportation policy.

2. CEPGL has sponsored a glass bottle manufacturing factory in Burundi, and in June 1981, the International Finance Corporation (IFC) approved a loan of US$4.0 million and an equity investment of US$0.75 million for its construction. Another activity is exploring the potential for the production of methane from the deep waters of Lake Kivu (Annex 1, para. 20). Several issues need to be resolved before an investment program for gas development can be defined; for example, the legal and institutional framework for gas extraction by Rwanda and Zaire; the safety limitation and the establishment of the rate at which the gas can be extracted; and the nature and the extent of the market and the derivative products. The potential contribution of the development of gas to this area is still in the distant future.

Energie des pays des grands lacs (EGL)

3. EGL was set up to ensure the availability of electric power in the region, and as a result has promoted the construction of the Ruzizi II hydroelectric power project on the Ruzizi River downstream from the existing Ruzizi generating station on the border between Zaire and Rwanda (Map IBRD 15917). This organization, located in Bujumbura, Burundi, is staffed with three technical experts - one each seconded from REGIDESO, - 51 -

ANNEX 4 Page 2 of 2

Burundi; ELECTROGAZ,Rwanda, and SNEL, Zaire; together with a small support staff.

Kagera Basin Organization(KBO)

4. This organizationhas its headquartersin Kigali, Rwanda, and as in the case of EGL, is made up of a small staff seconded from each country. At the request of KBO, several reports have been prepared on the development of the Kagera River - 1967, Lahmeyer International; 1976, Norconsult and Electrowatt;1979, Tractionel and Electrobel.

5. Little action was taken on the final report until 1981 when, during meetings held by KBO in Bujumbura in May, which were headed by the Presidents of Burundi, Rwanda and Tanzania, a decision was made to proceed with further study of the low-head i.e. a run-of-river scheme, at the Rusumo Falls site on the Kagera River. However, a source of funds for the study has not yet been found. Because of its magnitude and cost, it is likely that constructionon this project may not begin until near the end of the 1980s. Nevertheless, Tanzania is interested in the development of this project because, of the three countries, it has the least potential for hydro generated power in this region. - 52 -

ANNEX 5 Page 1 of 8

BURUNDI -RWANDA- ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

The Three National Electricity Companies:

REGIDESO - ELECTROGAZ - SNEL

Burundi: REGIDESO

1. REGIDESO is an enterprise wholly owned by the Government of Burundi, created and organized by a Government decree numbered 1/196 and dated October 2, 1968. The objectives of REGIDESO are to generate, transmit and distribute electricity, and to pump, treat and distribute water, and execute or supervise studies and works for new electricity and water facilities. Its electricity and water tariffs should be periodically adjusted to obtain a "reasonable" rate of return on the net revalued fixed assets in operations. REGIDESO has the monopoly of distribution of electricity and water throughout the country but in fact it only operates in urban centres of Bujumbura, Gitega, and Burundi for electricity and water, and eight other towns for water alone.l/ In addition, REGIDESO is planning to supply an additional ten centres with electricity or water within the next three years. A presidential decree 100/48 dated March 14, 1979 created and organized a Sanitation Division within REGIDESO, but its functioning is not related to the rest of the company.

2. REGIDESO is under the supervision of the Ministry of Energy, Mines and Public Works through the Director General of Energy, who has been appointed Chairman of REGIDESO's Board of Directors by the Ministry of Energy and Mines. Three of the statutory members are the Directors General of the Ministries of Finance, Planning and Public Health, and two additional members, one appointed by the Chamber of Commerce to represent industrial consumers, the other by the Municipality of Bujumbura to represent the small consumer. Both of the latter appointments require the approval of the Ministry of Energy and Mines. The Board is responsible for all decisions necessary or useful to the achievement of REGIDESO's objectives, and it is solely authorized to make decisions regarding REGIDESO's assets, establish REGIDESO's administrative and financial rules, regulate personnel organization, propose tariff increases and prepare the annual budget. The General Manager, responsible for REGIDESO's day-to-day operations, is appointed by the President of the Republic on the recommendation of the Minister of Energy, Mines and Public Works with the approval of the Board of Directors. Two account controllers (commissaires aux comptes) are appointed by the Minister of Finance with wide powers to

1/ Bukirasazi, Kirundo, Muramvya, Muyinga, Ngozi, Rumonge, Rutana and Ruyigi. - 53 -

ANNEX 5 Page 2 of 8 verify the company books and to approve the accounting systems and procedures, and they report to the Ministers of Finance and of Energy and Mines annually.

3. REGIDESO is well organized. Three managers, including the manager of the Sanitation Division (para. 1), report to the General Manager. The Technical Manager supervises electricity and water operations, which are subdivided as follows: operations in Bujumbura, operations in other towns, studies, and projects; he also supervises civil works, and the garage and maintenance divisions. The Administrative and Financial Manager supervises billing, collecting, procurement, accounting, and personnel. The present General Manager was appointed to his position in November 1978 and has managed the company satisfactorily.

4. Personnel and Training - REGIDESO employed a total staff of 610 at the end of 1981, of whom 24 were university graduates: 190 for electricity, 220 for water, 10 for civil works, garage and workshop; and 90 for administrative and financial tasks. There are 70 managerial staff members and 540 skilled and unskilled workers. As there are 5,550 electricity consumers in Burundi, REGIDESO has an average of one employee per 19 consumers. In view of the small size of its system, REGIDESO's ratio of employees to consumers does not seem excessive in comparison with other East African countries. 2/ From 1975 to 1978, when the volume of sales of electricity and water increased respectively by 58% and 52%, manpower more than doubled. Future increases of skilled and unskilled workers should be monitored carefully to be kept within the limits of the increase in activity. Eight expatriates, funded by German government assistance, work for the electricity and water divisions where they train counterparts - three as senior advisers for electricity, water and finance, and five as technicians. In addition to the Technical Manager and the two officers responsible for electricity and water operations, there are eleven engineers for electricity and three for water. These engineers, educated abroad, are employed in the studies and projects unit and assigned to the various works under construction.

5. Accounting and Audit - REGIDESO's accounting department is under the supervision of the Administrative and Financial Manager. Aware of the accounting department's inability to produce financial statements acceptable to IDA, in November 1979 REGIDESO asked IDA to provide funds for consultancy work in accounting and audit, including revaluation of fixed assets, and received US$100,000 of Technical Assistance Credit 917-BU (later increased to US$125,000). REGIDESO chose the Nairobi branch of the international audit firm, Touche Ross, which worked in Bujumbura from June through August 1981 and produced a report in which it:

2/ Botswana 9; Malawi 12; Zaire 21; Swaziland 23; Sudan 24; Madagascar 38; Kenya 40; Ethiopia 60; Mauritius 74. - 54 -

ANNEX 5 Page 3 of 8

- valued REGIDESO's fixed assets as the result of the work of the consultants,Gordon, Melvin and Partners; estimated at FBu 2,300 million (US$25 million) the value of the Mugere hydro- electric station financed by the Chinese Government and built by a Chinese team, for which there were no financial records; revalued all other assets; increased the revaluation reserve by FBu 550 million;

- separated the electricity and water accounts and audited REGIDESO's 1980 accounts but was unable to audit the accounts for the previous years, because of the poor state of REGIDESO's accounting;

- made recommendations for better adaptation of REGIDESO's accounting to the national accounting system for improving accounting procedures and for implementation of cost accounting,budget control system and long-term forecasts;

- recommended that an experienced chief accountant help REGIDESO implement its recommendations,as the present personnel would be unable to do so;

- recommended training of cash, cost, budget and general accountants in another French speaking country.

6. REGIDESO has asked IDA to finance an accounting expert to improve REGIDESO's accounting system (para. 2.23), who would work closely with the administrativeand financialadviser financed by German aid. In July 1982 Touche Ross returned to audit REGIDESO's 1981 accounts. To continue the work that has been started, management covenants for REGIDESO were agreed upon at negotiationsof the prepared project (para. 5.11).

7. A unit under the supervision of the Administrativeand Financial Manager deals with procurement and budget. The budgets it produces are simplisticand would be improved with the coming of the proposed accounting expert.

8. Insurance - REGIDESO's assets in operation are not insured through commercial organizations against the usual risks of fire, explosion, third party, etc. The assets are looked upon as being Government-ownedand the risks to the assets are therefore assumed by the Government, although no specific insurance fund exists within the Government. Contractors employed by REGIDESO are required to obtain the usual transit and other insurance cover under the terms of their contracts. These insurance provisions are acceptable to the Association. - 55 -

ANNEX 5 Page 4 of 8

Rwanda: ELECTROGAZ

9. ELECTROGAZ is the parastatal organization wholly owned by the Government of Rwanda, and is responsible for the generation, production, transmission and distribution of water in urban areas and electricity and gas throughout the country and its monopoly of this responsibility for a period of 99 years was established by Decree Law No. 18 in 1976. It currently reports to the Ministry of Public Works.

10. ELECTROGAZ is governed by a Board of Directors consisting of five members including a Chairman. Members are appointed for three years by the President of the Republic from nominations made by the Minister of Public Works. The law also provides for a Commissioner of the Government to oversee the activities of ELECTROGAZ and monitor decisions of the Board. He is invited to all meetings of the Board where he acts in an advisory role. He has a right of recourse to the responsible Minister within eight days if he considers a decision of the Board to be contrary to the law or against the public interest. The Minister's decision must be given within 30 days of receipt of the notification from the Commissioner, otherwise the Board's decision is final.

I1. The decree (para 9) also provides for the appointment of two account controllers (commissaires aux comptes) with the responsibility of overseeing the accounting and financial operations of ELECTROGAZ. They are required to report to the Minister on the annual balance sheet and income statement. The controllers are notmally laymen (one is the Rwanda Consul in Mombasa) and cannot be accepted in lieu of an independent auditor.

12. ELECTROGAZ is currently organized into three departments:

- Water and Gas Department;

- Electricity Department; and

- Administrative and Finance Department.

The three department heads report to the General Manager. However, management is ineffective, both because of a shortage of adequately qualified and experienced personnel, and a lack of financial resources with which to operate efficiently.

13. Long term planning for both water and electricity is non-existent. Electric power projects are planned and implemented by the Ministry of Public Works, on an ad hoc basis. However, the planning may be improved as a result of work financed by the Swiss Government and to be completed in 1983 by the Institut polytechnique de Lausanne, to produce a least cost long term power development program. - 56 -

ANNEX 5 Page 5 of 8

14. Project management and accounting for the power projects are inadequate as the cost of works in progress and of completed projects is unknown. In turn this creates doubt about the accuracy of the historical values of fixed assets and work in progress.

15. ELECTROGAZ'soperational management requires improvement in all areas: technical, financial, administrative,procurement and planning. A preliminarymanagement study has been carried out by Societe d'amenagement urbain et rural (SAUR), a French water utility, financed by CCCE which also intends to finance the follow up studies and the technical assistance that will ensue. IDA was consulted and approved the terms of reference for the management assistance for the Rwanda Water Project (para. 20). The management team will be expected to address numerous tasks including tariff studies, accounting, financial management and operations of a combined water, electricityand gas utility. The management team is expected to be drawn from SAUR, the third largest water utility in France.

16. Personnel and Training - ELECTROGAZhad a staff of 898 in mid-1982 of whom 28 were university graduates. All categories of staff are in need of training from management levels downwards. ELECTROGAZhas about 4,300 water customers and 4,700 electricity consumers which gives an employee/consumer ratio of about 1:10 on an aggregate basis, indicating that ELECTROGAZis overstaffed, or more significantly that the number of connections is low and that most of the stations are on a small scale. Many of Electrogaz's provincial power stations have less than 100 consumers which require a basic minimum of staff. The excess of employees is difficult to estimate without the findings of the management assistance team (para. 15). Standards and organizationof work need to be improved in all areas of the utility's operations as ELECTROGAZ suffers from a shortage of trained staff rather than a shortage of staff. Five expatriates,funded by German Government assistance, and two others funded by FED, are senior advisers for electricity.

17. Accounting and Audit - ELECTROGAZ has a detailed accounting system which is designed to produce useful informationon annual operating costs and statistics. However, data arrives late from branches, consolidation into the annual summaries is delayed, and the method of presentationobscures an overview of the operations. No accounting system for capital works exists and the cost of projects are obtained from often incomplete estimates by the planning unit of the Power Service and the Ministry of Public Works. Detailed information is available on receivables but other asset and liability figures in the balance sheet require reconciliation to prove their accuracy. ELECTROGAZis working on this in respect of 1981 accounts.

18. 'Consumers' billing is carried out on a National Cash Register mini-computer which was installed early in 1982, and the production of monthly bills is working well. In time, payroll, stores and general accounting will be transferred to the computer with an expected improvement in the accounting efficiency. - 57 -

ANNEX 5 Page 6 of 8

19. A financial management/accounting expert will be included in the proposed management assistance team (para. 15) to improve tLe financial management and accounting of ELECTROGAZ, to install a capital expenditure system and improve the accounting generally.

20. An external audit of ELECTROGAZ's annual accounts has never been carried out, although from time to time, checks have been made by the controllers (para. 11). The first Rwanda Water Project now in process will require that the first audit of ELECTROGAZ be carried out for FY81 by a firm of auditors acceptable to IDA to be a-vailable prior to presentation of the project to the Board in June 1983. Thereafter, ELECTROGAZ would have to comply with management covenants agreed upon at negotiations for the proposed project (5.10).

21. Insurance - Insurance in the past, apart from statutory insurance, has only covered freight and transport of goods as ELECTROGAZ has operated on the Government basis of self insurance without making any provision for an insurance fund. Under the water project (para. 20) ELECTROGAZ would be requested at negotiations to undertake a review of this policy with a view to providing insurance cover for assets the loss of which could cause an unacceptable risk to ELECTROGAZ and Rwanda.

22. Management - Systematic management is almost wholly absent from the operations of ELECTROGAZ. Progress reports are produced for AfDB financed projects when supervision missions require them, otherwise reports related to physical and financial progress are not produced. Annual reports covering the technical and financial aspects of operations are produced months after the end of each year and lose their value for management. Monthly, quarterly or half-yearly financial reports are not produced. The management assistance team (para. 15) will be required to establish a management reporting system.

Zaire (Kivu): SNEL

23. SNEL is a Government-owned public enterprise created in 1970 3/ but effectively recreated in its present form by Ordinance 78-196 dated May 5, 1978, which gave SNEL a new statute setting out in detail the organization and authority necessary to discharge its responsibility for the generation, transmission and distribution of electricity throughout Zaire under the Ministries of Energy and of Investment (Portefeuille).

3/ SNEL was initially technically created by Ordinance 70-033 of May 16, 1970 with responsibility for the construction of Inga I hydroelectric generating station. Ordinance 74-023 of February 9, 1974 extended SNEL's powers to the operation of the sector and Ordinance 74-012 of July 10, 1974 dissolved the six existing private power companies COMETRIK, Les Forces de 1'est, Les Forces du Bas Zaire, SOGEFOR, SOGELEC and COGELIN. - 58 -

ANNEX 5 Page 7 of 8

Under article 16 of its Ordinance, SNEL is required to operate at a profit sufficient to cover previous losses, to set aside a statutory reserve of 5% of its profit (up to 10% of its capital), and to generate such other reserves as may be agreed by the ministries.

24. SNEL is governed by a Board of Directors of five to nine members, all nominated by the President of the Republic for a five year term. The Directors include the Delegue general (DG) and two directors of the Management Committee. The President of the Board of Directors which meets at least every two months, is also the DG of the Management Committee. The Directors and a Workers' Representative are responsible for the executive management of SNEL. A four member controller commission (College des commissaires des comptes), has the right to examine all of SNEL's activities and operations.

25. SNEL, with its head office in Kinshasa, is organized into five geographical regions and Kivu is part of the Eastern region with its head office in Kisangani. Accounts are kept centrally and separate accounts are maintained covering Head Office, five regional and four subregional units, three administrative units covering the systems transferred from REGIDESO (Zaire) in January 1979, Inga I generating station, and the existing transmission system. In practice, some 122 positions of senior management (40%) are either vacant or in some cases are held by the same person because of a severe shortage of suitably qualified candidates.

26. The Eastern region comprises a technically autonomous regional office in Kisangani responsible for regional management, technical control, the transmission system and local distribution. Financial control is exercised by the Head Office in Kinshasa, including the accounting and central pool bank account. Bukavu is the head office of SNEL's Kivu subregion that comprises the production and distribution systems in the cities of Bukavu, Goma, Uvira, Kindu, Kasongo and Butembo. The Ruzizi I hydroelectric station supplies Bukavu directly, and Uvira through Bujumbura. It will supply Goma when the transmission line Katana-Goma is completed at the end of 1984 (para. 2.11). The Kivu local staff and management are competent, and power failures have been mainly due to shortages of materials and the lack of replacement equipment which requires foreign exchange.

27. Personnel - In 1979 SNEL employed 4,481 staff to supply some 95,000 consumers - an average of one employee per 21 consumers. In view of the nature of SNEL's operations which include some 32 diesel installations, 12 hydro-generating stations, and a number of widely scattered isolated systems, the ratio of employees to consumers does not appear to be excessive in comparison with other East African countries (footnote 2, para. 4). In the three cities of Bukavu, Goma and Uvira alone, there are 250 staff for 5,000 consumers, with approximately the same ratio as for SNEL as a whole. - 59 -

ANNEX 5 Page 8 of 8

28. By the end of 1979, expatriate staff had declined to 32 out of a total 665 employees of technician grade or higher. SNEL is endeavouring to improve its public utility, management and business practices and to this end a French expatriate Secretary General presently advises the DG and also undertakes some executive management functions, an expatriate financial director and a chief accountant are financed by CCCE. Technical assistance will also be provided by IDA under Credit 1224-ZR for the Shaba project (para. 2.20).

29. Accounting and Audit - In its loan to Zaire for the rehabilita- tion project of the Kinshasa distribution system, CCCE included the appointment of the accounting and audit firm Helios to carry out a partial audit of SNEL. In view of deficiencies in SNEL's accounting and billing system, SNEL's 1979 and 1980 accounts must be accepted with extreme caution. But as a result of new appointments to the positions of financial manager in 1981 and chief accountant in early 1982 (para. 28), more reliable accounts are expected for 1981. Furthermore, SNEL's accounting structure will soon be reinforced by the provision for the appointment of a financial manager for the Southern region and for a study of SNEL's manage- ment, financial and commercial organization by a management consultant as part of the Shaba project (para. 28). As there are no separate accounts for the Kivu province or for the Kivu interconnected system which will be connected to Ruzizi II, management covenants were agreed upon for SNEL at negotiations for the proposed project (para. 5.11).

30. Insurance - SNEL's assets in operation are not insured through commercial organizations against the usual risks of fire, explosion, third party, etc. The assets are looked upon as being Government owned and the risks to the assets are therefore assumed by the Government, although no specific insurance fund exists within the Government. Contractors employed by SNEL are required to obtain the usual transit and other insurance cover under the terms of their contracts. These insurance provisions are accept- able to the Association. -60- ANNEX 6

BURUNDIRWANDA ZAIRE

Ruzizi II Regional Hydroelectric Power Project

Interconnected System Electricity Sales (MWh)in BURUNDI

X % Publ.Bldg.Serv. % x Year Domestic Change Industry Change and Lighting Change TOTAL Change

Actual

1976 10,191 - 7,612 - 8,555 - 26,358 - 1977 10,628 4 9,408 23 9,666 14 29,702 13 1978 11,691 10 11,445 22 10,870 11 34,006 14 1979 13,445 15 12,011 5 10,372 -7 35,828 5 1980 14,950 11 14,101 17 11,120 11 40,171 12 1981 16,724 12 16,434 17 11,236 -1 44,394 11

Forecast

1982 18,400 10 19,200 17 11,900 6 49,500 12 1983 20,200 10 22,300 16 12,600 6 55,100 11 1984 22,300 10 30,600 37 13,400 6 66,300 20 1985 24,500 10 37,200 21 14,100 6 75,800 14 1986 26,900 10 43,000 16 15,000 6 84,900 12 1987 29,600 10 47,000 9 15,900 6 92,500 9 1988 32,600 10 51,100 9 16,800 6 100,500 9 1989 35,800 10 55,200 8 17,800 6 108,800 8 1990 39,400 10 59,700 8 18,900 6 118,000 8 - 61 - ANNEX7

BURUNDI RWANDA ZAIRE

Ruzizi II Regional HydroelectricPower Project

InterconnectedSystem ElectricitySales (MWh) in RWANDA

% Public % Cormerce & % % Year Domestic Change Agencies Change Industry Change Total Change

Actual

1975 4,781 - 6,930 - -24,889 - 36,600 1976 5,328 11 7,266 5 27,686 11 40,280 10 1977 6,495 22 9,159 26 28,817 4 44,471 10 1978 7,917 22 11,301 23 29,170 1 48,388 9 1979 11,009 39 10,906 -3 31,426 7 53,341 10 1980 13,421 22 9,476 -13 35,771 14 58,668 10 1981 15,615 16 10,075 6 38,127 7 63,817 9

Forecast

1982 18,100 16 10,500 4 40,400 6 69,000 8 1983 21,000 16 10,900 4 42,500 5 74,400 8 1984 24,200 15 11,300 4 45,000 6 80,500 8 1985 27,500 14 11,800 4 49,100 9 88,400 10 1986 36,100 31 12,300 4 53,400 9 101,800 15 1987 39,900 11 12,700 4 58,000 9 110,600 9 1988 44,700 11 13,300 4 63,300 8 120,600 9 1989 43,700 11 13,800 4 69,000 9 131,500 9 1990 49,000 11 14,300 4 75,000 9 143,300 9 - 62 - ANNEX 8

BURUNDI RWANDA ZAIRE

Ruzizi II Regional Hydroelectric Power Project

Interconnected System-Electricity Sales (MWh) in ZAIRE (Kivu)

Year Domestic Change Industry Change TOTAL Change

Actual

1980 16,440 - 700 - 17,140 1981 17,730 - 1,190 70 18,920 10

Forecast

1982 17,800 - 6,700 460 24,500 30 1983 17,900 - 9,200 37 27,100 11 1984 18,500 3 11,700 27 30,200 11 1985 24,600 33 151 1988 32,000 9 26,500 25 58,500 16 1989 34,100 7 28,900 9 63,000 8 1990 35,800 1988 32,000 9 26,500 25 58,500 16 1989 34,100 7 28,900 9 63,000 8 1990 35,800 5 32,000 9 67,800 8 - 63 -

ANNEX9

BURUNDIRWANDA ZAIRE

Ruzizi II Regional HydroelectricPower Project

Generating Facilities, Burundi

REGIDESO InterconnectedSystem

Rated Available Site No Type Capacity Capacity (kW) (kW) Bujumbura 1 Diesel 320 2 Diesel 1500 3 Diesel 440 4 Diesel 440 5 Diesel 440 6 Diesel 440 7 Diesel 920 8 Diesel 1000 5550 About 2000

Mugere 1 Hydro 2000 2 Hydro 2000 3 Hydro 2000 4 Hydro 2000 8000 6,000

REGIDESO Isolated Generating Plants

Gitega 1 Diesel 120 120 2 Diesel 200 0 3 Diesel 240 240 560 360

Gitega 1 Hydro 400 400 2 Hydro 400 400 800 800

Kirunlo 1 Hydro 240 240

Muramvya 1 Hydro 425 2 Hydro 425 _ 850 850

Muyinga I Hydro 425 425 2 Hydro 425 425 850 850

List of Privately Owned Generating Equipment

Owner

Taza 1 Hydro Tea estate 340 200 2 Diesel Tea estate 300 300 3 Diesel Tea estate 300 300 940 800

Rwegura Diesel Tea estate 200 200 Cibitoka Hydro Mission 80 80 Mugere Hydro Mission 60 60 Mwara Hydro Sanatorium 80 80 Imbo Diesel Farm 200 200 Kihonga Diesel Mission 60 60 Ngozi Diesel Mission 80 80 Diesel School 40 40 Burasira Hydro Mission 20 Miscellaneousmissions Diesel 60 Missions 360 360 Provincial HQ Diesel 7 provinces 40 40 Hospitals Diesel 5 hospitals 100 100 Post & TelephoneOffices Diesel 17 offices 100 100 Others Diesel Private 100 100

GRAND TOTAL 13,400 -64-

BURUNDI - RWANDA- ZAIRE ANNEX10 Ruzizi II Regional Hydroelectric Power Project

Generating Facilities, Rwanda

ELECTROGAZ

HYDRO Unit No. Capacity (MW) Year Installed

Ntaruka 1 3.75 1958 2 3.75 1958 3 3.-75 1970

Gisenyi 1 0.5 1980 2 0.5 1980

Mukungwa 2 12.0 1981

DIESEL

Gisenyi 1 0.2 1979 2 0.1 1979

Gatsaka 1 0.7 1978 2 0.7 1978 3 0.7 1978

Kibuye 1 .50 KVA 1974 (out of service)

Kibongo 1 0.75 1974

Private

Unit No. capacity (1iW) Year Installed RPM

Bralirwa Brewery 1 .3 1978 1,500 2 .3 1976 1,500 3 .3 1976 1,500

Rwandex Coffee 1 .16 1979 1,500 2 .16 1979 1,500

Pfunda Tea Factory 1 .35 1978 ANNEX 11 - 65 -

BURUNDI - RWANDA - ZAIRE

RUZIZI REGIONAL HYDROELECTRIC POWER PROJECT

Generating Facilities, ZAIRE (Kivu)

Hydroelectric Installations Diesel Installations

Rating Year Capacity Year Name Location Unit No. (MW) Installed Name (MW) Installed

Ruzizi Bukavu 1 6.3 1958 Butembo 0.3 1969-71 2 6.3 1958 Kasongo 0.6 1970 3 7.8 1972 Goma 1.2 1972 4 7.8 1972 Kindu 1.2 1955 Total 28.2 3.3

Summary of Privately Owned Hydro Stations

Year Rating Name Owner Installed (MW)

Ambwe Sominki 1955 2.30 Belia Sominki 2.00 Kalima I Sominki 1943 3.10 Kalima II Sominki 1952 3.30 Kampene Sominki 1954 1.67 Lubindja Sominki 1954 0.44 Lubilu Linenga 1955 0.735 Lutunguru M.G.L.-Nord 0.22 Mangembe Sominki 1955 2.47 Monkoto Opak 0.22 Nyabiondo Theki 0.135 Zizi M.G.L.-Sud 1.53 Kunda Sominki

Lutshurukuru Sominki

18.1 - 66 - ANNEX 12 page 1 of 3

BURUNDI RWANDA ZAIRE

Ruzizi II Regional HydroelectricPower Project

Project Description

Location

1. The proposed project would be located on the Ruzizi River, which forms a border between Rwanda and Zaire, about 15 miles south of the existing Ruzizi generatingstation at the outlet of Lake Kivu. Most of the dam and all of the intake, tunnel, powerhouse, switching station, access roads, and operators'housing would be located in Zaire. At this site, the river flows through a wide valley on its approach to a series of rapids where the fall is about 30 m over a distance of about 600 m.

Reservoir

2. There would be little need for an extensive reservoir at the Ruzizi II station, because the original Ruzizi plant provides ample storage in Lake Kivu. The only storage required would be to prevent spillage or waste of water during periods of fluctuating daily demand for power in parallel with the existing Ruzizi station. Normally the water level would vary between elevation 1,390 m and 1,394 m providing storage amounting to 2.6 million m3, which is equivalentto the generation of about 63 MWh. In the event of a catastrophicflood, the water level may attain an elevation of 1,396 m.

Dam

3. A concrete dam with a maximum height of 11 m and with a crest elevation of 1,396.5 m, would be constructed across the river immediately upstream from a series of rapids. Its total length would be 91 m and a free overflow spillway section, 42 m long, with a crest elevation of 1,394.0 m, would be located in the central part of the dam. A spillway section would be incorporatedon the right side of the dam, containingtwo control gates 8 m wide and 5.8 m high.

Intake

4. A conventional intake would be located on the right bank of the river containing 2 head-gates each 3 m wide and 6 m high, to control the flow of water entering the tunnel. Trash racks upstream of the head-gates would prevent debris from entering the tunnel. Suitable facilities to clean the trash racks would be provided.

Tunnel, Surge Tank and Penstock

5. The power supply tunnel would be excavated from the rock and lined with concrete. The 6 m diameter tunnel would be about 500 m long. - 67 - ANNEX 12 page 2 of 3

6. The surge tank would be of the orifice type, and would have an internal diameter of 18 m, with the top at an elevation of 1,400 m. In order to provide the greatest security to the equipment during sudden load changes, three sizes of orifices would be provided: 3.9 m, 4.0 m, and 4.1 m in diameter. The orifice could be changed in accordance with operating experience and when the third unit is installed. The penstock, with an inside diameter of 5.2 m, would be about 50 m long. At the lower end, the penstock would branch into three outlets leading into the powerhouse, where a control valve would be located immediately upstream of each turbine.

Powerhouse Equipment

7. Two turbines and generators each rated at 13.3 MW would be installed in the initial stage, with space provided for a third similar unit. The turbines would be designed to operate under a head varying from 28.1 m to 32.25 m, at a speed of 187.5 rpm. All of the necessary auxiliaries required for control and safety of the equipment would be provided. The generator, directly coupled to the turbine shaft, would have a thrust and guide bearing located below the generator, and an upper guide bearing. Current and voltage control would be provided to ensure a secure and reliable service. The generators would produce power at 6.6 kV, 50 hz. Auxiliary services, such as cooling water, air, and lubricating oil systems would be included. The control room in the powerhouse would contain the necessary equipment to operate the units from the control panel automatically, i.e., open and close the control valve upstream of the turbine, change the output of the generators, and shut down in the case of emergency. All necessary alarms and safety equipment would be provided for all important functions. Other auxiliary services, such as lighting, grounding, telephone, fire protection and a workshop would be incorporated in the powerhouse. In addition, an inventory of spare parts and consumable supplies, sufficient to cover about three years of operation, would be provided by each of the equipment suppliers.

Operators' Colony

8. The proposed project would be situated close to the town of Bukavu; therefore, on the assumption that the lower level staff would reside in Bukavu at a minimal expense, only a minimum of housing need be located close to the powerhouse for the senior staff. Fifteen houses would be provided as follows:

Manager 1 Station Superintendent 1 Administration 1 Chief Operators 3 Operators 8 Guest House 1

Consultants

9. The consultants to EGL for the preparation of the feasibility report, advice during the colenders' meeting, and the preparation of tender documents and analysis of bids have been provided by Tractionel, from - 68 - ANNEX12 page 3 of 3

Brussels, Belgium. EGL has decided to terminate the contract with Tractionel and is in the process of negotiatinga contract with a new firm of consultantsto carry out the final design phase and supervise construction.

10. IDA is aware that SINELAC would have only a minimum of staff available to manage a project of this magnitude. Thus, SINELAC would be requested to a employ a management team consisting of a civil engineer, a mechanical-electricalengineer and a financial expert to advise and assist in the day-to-day management of the project. In addition, a panel of experts would be retained to advise on specific design and construction problems relating to the dam, and to make periodic inspectionsafter completionof construction.

11. The training of adequate staff to operate and maintain the project, once completed, would be an essential element of the project. To this end, therefore,a component of the project would be a study of the training needs of not only the Ruzizi II project, but those of REGIDESO, ELECTROGAZ,and SNEL as well. The terms of reference of the management team would include a responsibilityto train counterpartstaff, so that when the management team leaves, about two years after the commissioningof the generating station, staff with the necessary experiencewould be capable of providing a supply of reliable electric power to the region. BURUNDI-RWANDA-ZAIRE ANNEX 13

RUZIZI II REGIONAL HYDROELECTRICPOWR PROJECT

FINANCING PLAN

(US$ millions)

Int. During Govt. Govt. G(vt. Grace Period (Gand IDA BDEGL FED Italy Burundi Rwanda Zaire (Capitalized) Total Total Total Total L F L F L F L F L F L F L F L L F Civil Works - 42.0 ------2.3- 2.3- 2.3 - 6.9 42.0 48.9 Hydraulic Equipment - - 0.3 3.7 -- - - - 0.3 3.7 4.0 Turbines - - - - 0.2 6.3 ------0.2 6.3 6.5 Generators ------0.2 5.5 ------0.2 5.5 5.7 Powerhouse (Elec.Equip) ------0.2 2.6 ------0.2 2.6 2.8 External (Elec. Equip) - - - - 0.9 3.9 ------0.9 3.9 4.8 Road & Housing - - 0.7 1.2 ------0.7 1.2 1.9 Engineering - - - - 0.7 4.5 ------0.7 4.5 5.2 Technical Assistance 1/ - 3.0 _ _ - _ - - 0.7 - 0.7 - 0.7 - 2.1 3.0 5.1

Total Project Cost - 45.0 0.7 1.2 2.1 18.4 0.4 8.1 3.0 - 3.0 - 3.0 - 12.2 72.7 84.9

Interest during grace period (8 years/10 years) (capitalized) - - - _ _ …46.0 46.0- 46.0

TOTAL 45.0 0.7 1.2 2.1 18.4 0.4 8.1 3.0 3.0 3.0 46.0 58.2 72.7 130.9

1/ Includes cost of study of need for a training school, the PPF of $195.000, Panel of Experts, and working capital of US$1.2 million. BURUNDI- RWANDA- ZAIRE RUZIZI11 REGIONAL HYDROELECTRIC POWER PROJECT Implementation Schedule

1982 1983 1984 1985 1986 1987 1988 1989

T2E3 4234 1 23 3 4 1 23 4 1 2 3 1 42 3 4 1 2 3 4 234

CML WORKS * ------L HYDRAULICEQUJIPMENT I - - --

TURBINES l _ _ _- - -

GENERATORS------

POWERHOUSEELECTRICAL U Sv------

SWATCHINGSTATIONS * v _ _ _ _ _ i - e -

TRANSMISSIONLINE a S

ROADSAND HOUSING . _ _ _ _V _ _ -

ENGINEERING------

TECHNICALASSISTANCE------

Legend:

* TenderDocuments Issued WorkIn Progress 41- * Receipt of Tenders W In ServiceDate

V Contract Award World Bank-24561 - 71 - ANNEX 15

BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRICPOWER PROJECT

DisbursementSchedule (US$ millions)

IDA Fiscal Year Quarterly CumulativeDisbursements Quarter Ending Disbursement at end of Quarter

1984 September30, 1983 4.0 4.0 December 31, 1983 1.0 5.0 March 31, 1984 3.0 8.0 June 30, 1984 3.0 11.0

1985 September 30, 1984 4.0 15.0 December 31, 1984 5.0 20.0 March 31, 1985 5.0 25.0 June 30, 1985 5.0 30.0

1986 September30, 1985 4.0 34.0 December 31, 1985 3.0 37.0 March 31, 1986 2.0 39.0 June 30, 1986 2.0 41.0

1987 September30, 1986 2.0 43.0 December 31, 1986 1.0 44.0 March 31, 1987 0.1 44.1 June 30, 1987 0.2 44.2

1988 September30, 1987 0.1 44.3 December 31, 1987 0.1 44.4 March 31, 1988 0.1 44.5 June 30, 1988 0.1 44.6

1989 September 30, 1988 0.1 44.7 December 31, 1988 0.1 44.8 March 31, 1989 0.1 44.9 June 30, 1989 0.1 45.0 - 72 -

ANNEX 16 page i of 3

SINELAC - Legal and Organizational Framework

A. General

SINELAC is an etablissement de droit public international, i.e., an international public enterprise which will operate as a commercial company. It is established by a Treaty which has been agreed upon and is scheduled to be ratified by the three contracting states. It is governed by:

(i) the Regional Treaty between the three Governments, which was drawn up specifically for the purpose of the Ruzizi II Project;

(ii) the Statutes of SINELAC which contain its corporate by-laws and which form an integral part of the Treaty; and

(iii) subsidiarily by the Investment Code of the Community of the Great Lakes and the law of SINELAC's headquarters (i.e. Bukavu, Zaire).

B. The Regional Treaty

The Regional Treaty defines the legal, organizational and financial framework of SINELAC (the Company) and stipulates in particular that:

(i) SINELAC has as its principal objective the construction and operation of Ruzizi II. SINELAC is also empowered to construct, acquire and manage other energy installations.

(ii) SINELAC's shareholders are the three contracting states, who will contribute equally to its capital. Shares are denominated in SDR.

(iii) The Company is established for a 50-year renewable period and its headquarters are at Bukavu, Zaire.

(iv) The Company is exempt from all taxes and its personnel are entitled to the privileges and immunities granted to the personnel of other community institutions as set out in the Community Statutes, dated September 9, 1977.

(v) The Company is administered by three bodies: the General Assembly, the Board of Directors and the Management Committee. These are described in greater detail below.

(vi) The Company will operate on a commercial basis. Production will be sold wholesale to the three national electricity companies who will undertake to cover at a minimum SINELAC's operation and maintenance expenditures and debt service.

(vii) The Company's average electricity tariffs will be established initially at a level close to the long term marginal cost of electricity. - 73 - ANNEX 16 page 2 of 3

(viii) Arbitration: The Community has an arbitration commission to which the three countries have agreed to submit disputes between themselves.l/

C. The Statutes

The Statutes of SINELAC are annexed to the Regional Treaty and define in detail the organizationaland administrativestructure of the Company. In particular,the Statutes state that:

(i) Each contracting party will contribute four million SDR to the capital of the Company. Payment of initial equity contributions is a condition of effectivenessof the credit.

(ii) The General Assembly will consist of the three ministers of energy who will meet once a year. Its purposes are (1) to appoint directors to the Board (2) to appoint the General Manager of the Management Committee, (3) to appoint the accounts controllers (commissairesaux comptes), and (4) to discuss and approve the financial statements of the company for the previous year. Decisions are to be made on a concensus basis.

(iii) The Board of Directors has six members, two from each country. They are nominated by the General Assembly for a five-year term which is both renewable and revocable. The Director General of the Management Committee also sits on the Board in a consultative capacity. The Board elects a President and two Vice Presidents each year; the three individualshaving different nationalities.

(iv) The Board shall meet as frequently as the interests of the Company require and whenever the Board considers it necessary. In any event, Board meetings will take place at least once every six months. The Board's powers shall include among others: considerationof all operations affecting the Company, approval of the company's budget for the following year as proposed to it by the ManagementCommittee, and establishmentof annual and long term investment and operational plans. Director's remuneration is decided by the General Assembly and falls within the Company's general operating costs.

D. The ManagementCommittee comprises three members - the Director-general who is nominated by the General Assembly and two others who are nominated by the Board. The three members will have different nationalities. The Management Committee has wide-ranging powers which include all functions necessary for the day-to-day operation of the Company, i.e., representation of the Company, appointment and removal of all managers, employees, representatives and agents and approval and acceptance of all agreements, contracts, bids, undertakings, leases etc. In particular the Management Committee proposes tariff increases to the Board of Directors. At the time

I/ The three Credit Agreements and the Project Agreement have arbitration provisions in the event of dispute with the Association. - 74 -

ANNEX 16 page 3 of 3 of making the proposal it also consults with the three national electricity companies. In the absence of objection from the Company's Board within 60 days of the Management Committee's proposal, the proposal comes into immediate effect (Article 17.4 of the Regional Treaty).

Existing Agreements between the three Contracting Statutes

1. Financial

(a) Raglement Financier of CEPGL, dated September 9, 1977.

(b) Arrangement Monetaire between the three Central Banks, dated June 7, 1978.

2. Freedom of Movement

(a) Commercial and Customs Cooperation Agreement, dated September 10, 1978.

3. Labor

(a) Statutes of community personnel, dated September 9, 1977. This sets out detailed provisions on recruitment, nomination, promo- tion, responsibilities, privileges, immunities, remuneration, holidays and travel expenses, disciplinary measures, termination of services and a model employment contract.

(b) Convention on social security, dated September 10, 1978.

(c) Administrative arrangements for social security. - 75 -

ANNEX 17

BURUNDI - RWANDA- ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

Project Monitoring

1. Several factors affect the project schedule and the ultimate completion of the work. The main items to be monitored are as follows:

(a) Call for tenders and signing of contracts;

(b) Progress on delivery of material and equipment;

(c) On-line date for Units 1 and 2;

Technical Assistance

2. Progress and effectiveness of the technical assistance provided.

Financial

3. During project construction, IDA would ensure that SINELAC's accounts are prepared yearly, and that the three national electricity companies provide their respective Governments with the funds necessary for project financing, estimated to be US$0.9 million in 1983, US$2.8 million in 1984, US$3.1 million in 1985, US$1.5 million in 1986, and US$0.2 million in each year 1987 and 1988.

4. In the year prior to commissioning, IDA would review with SINELAC and a consultant the calculation of the average tariff to obtain a 10% financial rate of return for the project, in view of the revised costs of construction, the latest demand projections and SINELAC's cash requirements. IDA would also review with SINELAC and the three national electricity companies the minimum payment requirements of the first years of operation.

5. After commissioning expected in 1987, IDA would monitor semiannually the adherence to the rate of return covenant. It would ask SINELAC to prepare each year five-year financial forecasts for discussion before the end of any year of the level of tariffs for the following year. IDA would also monitor semiannually the minimum payment requirements by the three companies, the convertibility of SINELAC's quarterly balances among the regional currencies by the three central banks, and the payment of dividends by SINELAC to the three Governments, whenever SINELAC has cash in excess of its normal needs. - 76 - ANNEX 18 Page 1 of 3

BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

SINELAC's Forecast Income Statements 1983-1995 (US$ million)

1987 1988 1989 1990 1991 1992 1993 1994 1995

Sales in GWh (before losses) 27 57 18 48 79 113 149 188 200

US cents/kWh sold 10.2 10.8 11.5 12.1 12.8 13.7 14.5 15.3 16.2

Operating Revenues 2.8 6.2 2.1 5.8 10.1 15.5 21.6 28.8 32.4

Operating Expenses Salar.& Materials 1.0 1.0 1.1 1.2 1.2 1.3 1.4 1.6 1.7 Depreciation on: Assets 0.6 0.7 0.7 0.9 1.0 1.1 1.3 1.5 1.7 Current expenses during construction & interest capitalized 0.2 0.2 0.2 0.2 0.2 - - 2.1 2.1 Total 1.8 1.9 2.0 2.3 2.4 2.4 2.7 5.2 5.5

Operating Income 1.0 4.3 0.1 3.5 7.7 13.1 18.9 23.6 26.9

Interest charged 0.1 0.1 0.1 0.1 0.1 8.0 7.5 7.2 6.7

Net Income 0.9 4.2 - 3.4 7.6 5.1 11.4 16.4 20.2

Dividends paid ------15.0 19.0

Earnings after 0.9 4.2 - 3.4 7.6 5.1 11.4 1.4 1.2 payment of dividends

Retained Earnings 0.9 5.1 5.1 8.5 16.1 21.2 32.6 34.0 - 77 - ANNEX 18 Page 2 of 3

SINELAC's Forecast Funds Flow Statements 1983-1995 (US$ million)

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Sources of Funds Generated from operations Operating Income 1.0 4.3 0.1 3.5 7.7 13.1 18.9 23.6 26.9 Depreciation 0.8 0.9 0.9 1.1 1.2 1.1 1.3 3.6 3.8 Total 1.8 5.2 1.0 4.6 8.9 14.2 20.2 27.2 30.7

Loans and Grants IDA onlent loan 5.3 14.9 17.1 6.5 0.6 0.6 ------FED loan 1.0 5.4 5.2 5.2 ------FED grant 0.3 1.2 1.1 1.1 ------Italian Govt grant - 2.9 2.4 3.2 ------BDEGL 1.4 0.5 ------Reg.Govts for proj.components 0.8 2.5 2.9 1.2 0.2 0.2 ------Reg.Govts for working capital 0.1 0.3 0.4 0.4 ------Loan for interest during grace period 1/ - 1.4 3.3 5.0 5.6 2.2 6.5 3.7 0.2 - - - - Total 8.9 29.1 32.4 22.6 6.4 3.0 6.5 3.7 0.2 - - - -

Total Sources 8.9 29.1 32.4 22.6 8.2 8.2 7.5 8.3 9.1 14.2 20.2 27.2 30.7

Application of Funds Construction expenditures Ruzizi II components 8.8 27.4 28.7 17.2 0.8 0.8 - - - 8.0 - - Interest capi- talized during grace period IDA 1/ - 1.4 3.3 5.0 5.9 6.6 6.8 7.6 8.0 - - - - FED - - - - 0.2 0.2 0.2 0.2 0.2 0.2 0.2 - - Current expenses during construction period 0.1 0.2 0.2 0.2 ------Total 8.9 29.0 32.2 22.4 6.9 7.6 7.0 7.8 8.2 0.2 8.2 - - Debt service Repayment - - - - 0.2 0.2 0.2 0.2 0.2 4.5 4.5 5.1 5.1 Interest - 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 8.0 7.5 7.2 6.7 Total - 0.1 0.1 0.1 0.3 0.3 0.3 0.3 0.3 12.5 12.0 12.3 11.8 Dividends ------15.0 19.0 Total Applications 8.9 29.1 32.3 22.5 7.2 7.9 7.3 8.1 8.5 12.7 20.2 27.3 30.8

Increase in Working Capital - - 0.1 0.1 1.0 0.3 0.2 0.2 0.6 1.5 - -0.1 -0.1

Accumulated Working Capital - - 0.1 0.2 1.2 1.5 1.7 1.9 2.5 4.0 4.0 3.9 3.8

1/ The loan for interest during grace period would be capitalized, and would be added to the on-lent amounts at the time such interest would be normally due. The differences in yearly amounts between the loan for interest during grace period and IDA interest capitalized during grace period are the result of SINELAC's payments of IDA credit service charges and FED's interest (Annex 20, table 1) and payments of US$4 million in 1988, US$3.5 million in 1990 and US$7.5 million in 1991 to reduce the interest accrued during the grace period. - 78 - ANNEX 18 Page 3 of 3

SINELAC'sForecast Balance Sheets 1983-1995 (US$million)

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Assets Plant in operation - - - - 93.8 100.2 106.2 112.6 119.4 126.5 142.1 150.7 159.7 less: depreciation - - - - 0.6 1.3 2.1 3.1 4.3 5.7 7.3 9.3 11.5 Net plant - - - - 93.2 98.9 104.1 109.5 115.1 120.8 134.8 141.4 148.2 I/ Works in progress 10.0 38.8 70.8 93.0 ------Current expenses & interest paid during constructionperiod, and interestcapitalized during grace period after construction0.1 0.4 0.7 1.0 7.1 13.9.20.9 28.7 36.9 37.1 37.3 37.3 37.3

less depreciation - - - - 0.2 0.4 0.6 0.8 1.0 1.0 1.0 3.1 5.2 Net capitalized expenses 0.1 0.4 0.7 1.0 6.9 13.5 20.3 27.9 35.9 36.1 36.3 34.2 32.1

Net working cap. - - 0.1 0.2 1.2 1.5 1.7 1.9 2.5 4.0 4.0 3.9 3.8

TotalAssets 10.1 39.2 71.6 94.2 101.3113.9 126.1 139.3 153.5160.9 175.1179.5 184.1

Liabilities Equity -Capital1/ 2.1 4.9 8.2 9.8 10.0 10.2 10.2 10.2 10.2 10.2 10.2 10.2 10.2 -Retd Earnings - - - - 0.9 5.1 5.1 8.5 16.1 21.2 32.6 34.0 35.2 -Grants(Italy&FED)0.34.4 7.9 12.2 12.2 12.2 12.2 12.2 12.2 12.2 12.2 12.2 12.2 -Revaluation reserve - - - - - 5.6 11.5 17.8 24.4 31.2 38.5 46.6 55.1 Total 2.4 9.3 16.122.0 23.1 33.1 39.0 48.7 62.9 74.8 93.5 103.0 112.7

Long term debt 7.7 29.9 55.5 72.2 78.2 80.8 87.1 90.6 90.6 86.1 81.6 76.5 71.4

Total Liabilities 10.1 39.2 71.6 94.2 101.3 113.9 126.1 139.3 153.5 160.9 175.1 179.5 184.1

1/ Including initial capital of $1.2 million representing the value of FED financed studies for EGL. - 79 - ANNEX 19 Page 1 of 2

BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRICPOWER PROJECT

Assumptions in SINELAC's Financial Forecasts

Sales

1. Sales for the period 1987-1995were calculated on the basis of the mission's demand estimates, the preferences of the three national companies, REGIDESO, ELECTROGAZ and SNEL, for any of the three main available sources of supply, Ruzizi I, Ruzizi II and Rwegura facilities, and from the requirement of minimum payments by each of the national companies from the Ruzizi II plant (Annex 18).

Tariffs

2. Average tariffs expressed in 1982 prices have been calculated to enable the Ruzizi II project to obtain a 10% financial rate of return. They have been increased in nominal terms from 1988 onwards by a 6% annual rate of inflation, to keep their level constant in 1982 prices.

Operating expenses

3. Through dividends received from the three national electricity companies (para. 7 below), Governments would provide SINELAC with sufficient funds for its working capital requirements during the constructionperiod and a first payment of US$300,000 for 1984 would be a condition of effectivenessfor the project.

4. Salaries,materials and maintenance expenditureare assumed to be equal to 1% of the construction costs of the Ruzizi II facilities and a year's depreciationto be equal to 3.5% of the average revalued gross fixed assets at the beginning and the end of that year.

Depreciation

5. Progressivedepreciation is modelled on the schedule of a sinking fund calculation in order to obtain an amount equal to the facilities expenditures back in thirty years, given a 30% salvage value. Money set aside is assumed to be invested at 8% from 1987 onwards, providing for a drop in interest rates. Depreciation is revalued by the same index as the fixed assets (para. 8 below).

Constructionexpenditures

6. Constructionexpenditures are as estimated by the consultant for the Ruzizi II project. - 80 - ANNEX 19 Page 2 of 2

Financing of the project

7. Terms of borrowing of the onlent IDA credit are assumed to be a repayment period of twenty-five years including an eight-year grace period and a 10.97% rate of interest. Terms of borrowing of the BDEGL loan are assumed to be a repayment period of thirteen years, including a three-year grace period and a 7.5% rate of interest. Terms of borrowing of the FED loan are assumed to be a repayment period of forty years including a ten-year grace period and a 1% rate of interest for one part of its contribution, the other part being a grant. The Italian Government's financing and the three regional Governments' are assumed to be grants. Funds for Governments' contributions would be provided by the three national electricitycompanies which would increase their tariffs to obtain enough cash to pay necessary dividends.

Revaluationof assets

8. Assets are revalued with the international inflation indexes (para. 4.02). - 81 - ANNEX 20 Page 1 of 2

BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRICPOWER PROJECT

Determinationof the Minimum Purchase Level from Ruzizi II by REGIDESO, ELECTROGAZ and SNEL

It was agreed on July 9, 1982 in Brussels that the three aational electricity companies, REGIDESO, ELECTROGAZ and SNEL would commit them- selves to provide SINELAC with at least one third of the funds needed to cover its cash expenditures for operations, maintenance and debt service. Each of the three companies would be assumed to purchase the corresponding quantity of electricity,as it would be paid for. Estimation of SINELAC's cash expenditures is derived from the works of the consultants (Trac- tionel's estimates revised by Lahmeyer) for the project. Physical supply from the three plants of Ruzizi I, Ruzizi II and Rwegura comes out of the demand projection (Annex 19) and the cost of Ruzizi II electricity is determined by requiring a 10% financial rate of return for the project. The cost of Ruzizi II electricity is then utilized to compute the minimum purchase requirement in gigawatt hours.1/ The supply quantity from the plants, the price of Ruzizi II electricity and minimum purchase require- ments are all interrelatedand several iterations are necessary to attain the final results as it is presented in the followingparagraphs.

SINELAC's debt service has been computed for IDA's onlent credit of US$45 million with a 10.97% interest rate and a repayment period of 25 years including eight years of grace, for a direct loan from BDEGL of US$1.9 million with a 7.5% interest rate and a repayment period of thirteen years including three years of grace, and for FED's direct loan of US$16.8 million with a 1% interest rate and a repayment period of forty years, including ten years of grace. It has been assumed that SINELAC would pay IDA's annual service charge of 0.75% after commissioningof the Ruzizi II facilities and that interest on the onlending of the IDA credit would be capitalized during the grace period and would accrue to the loan, after deduction of the amounts paid as service charges and interest, and of any other amount paid to reduce the interest charge capitalized during the grace period. SINELAC's cash expendituresincluding debt service on these three loans would be as follows:

1/ The economic cost of Ruzizi I electricity (before losses) has also been calculated, on the basis of a replacement value of US$1.8 million/MW, similar to the unit cost of Ruzizi II, to verify that it is smaller than the economic cost of Ruzizi II (US¢3.8/kWh compared to USt7.3/kWh) and that whenever they have the opportunity, the national electricity companieswould prefer to buy electricity from Ruzizi I rather than from Ruzizi II. - 82 - ANNEX 20 Page 2 of 2

Table I

In current US$ million 1987 1988 1989 1990 1991 1992 1993 1994 1995 Operating costs 1.0 1.0 1.1 1.2 1.2 1.3 1.4 1.6 1.7 Debt service/IDA repaymt - - - - - 4.3 4.3 4.3 4.3 IDA interest2 / 0.3 0.4 0.3 0.3 0.4 7.9 7.4 6.9 6.5 FED repayment ------0.6 0.6 FED int. 3/ 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 BDEGL repaymt 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 BDEGL interest 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 - Total cash expenditures 1.8 1.9 1.9 2.0 2.1 14.0 13.6 13.9 13.5

These cash expenditures,expressed in GWh with Ruzizi II's 1982 price of electri- city, updated with international inflation (Annex 17, para. 2), are equal to the minimum payment requirementsof the three national electricity companies and the correspondingproduction of Ruzizi II.

Table 2 (quantitiesof electricityare expresssedbefore losses)

1987 1988 1989 1990 1991 1992 1993 1994 1995 Ruzizi II's current price of electricityin US¢/kWh, using internatl.inflation indexes (US¢7.3/kWh in 1982 prices) (1) 10.2 10.8 11.5 12.1 12.8 13.7 14.5 15.3 16.2

Ruzizi II's total cash ex- penditures(inUS$mill.)(2) 1.8 1.9 1.9 2.0 2.1 14.0 13.6 13.9 13.5 4/ (in GWh) 100x(2) (1) = (3) 18 18 17 17 16 102 94 91 83

2/ Service charge on IDA credit until 1991, interest charged to operations from 1992 onwards. 3/ Interest during grace period from 1987 through 1993, interest charged to operations in 1994 and 1995. 4/ From Table 1 - 83 - ANNEX 21 Page 1 of 2

BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

Forecast Sales of Ruzizi I and Ruzizi II Facilities in the Period 1983-1995

The capacity and demand of the interconnected system are shown in the attached table. Because there would be a choice of two sources of supply in 1987 and in 1988 (Ruzizi I and II) and of three sources of supply from 1989 on, to compute the sales of Ruzizi I and Ruzizi II, the preference of REGIDESO, ELECTROGAZ and SNEL have been determined on the following assumptions:

- the Ruzizi II plant would be commissioned in March 1987 and the Rwegura plant in March 1989;

- the three national companies would first purchase from Ruzizi II the quantity of electricity corresponding to the minimum purchase agreement because it would be paid for;

- SNEL would buy the balance of its needs from Ruzizi I because the plant is a sunk cost and the cost of its electricity is zero;

- REGIDESO would buy from Ruzizi I the 33 GWh 1/ which SNEL is obliged to supply to REGIDESO and the Government of Burundi under the 1980 twenty-five year long-term agreement following settlement of claims at the time of independence (in 1987 and 1988 it would take from Ruzizi I all that is available). It would take the balance of its needs first from Rwegura, because the plant is a sunk cost and the cost of its electricity is zero, then from Ruzizi II;

- ELECTROGAZ would buy the balance of its needs first from what is available from Ruzizi I after SNEL and REGIDESO are supplied, because its electricity is less expensive than that of Ruzizi II (Annex 20), then from Ruzizi II.

In 1987 and 1988, purchases of electricity corresponding to the total minimum payment requirements would be 18 GWh each year (Annex 20, table 2) and would be exceeded by REGIDESO's and ELECTROGAZ's consumption (in 1987, 13 and 22 GWh respectively; in 1988, 29 and 28 GWh respectively, table next page), so that SNEL's minimum payment would be reimbursed by SINELAC (para. 6.06). In 1989 after commissioning of the Rwegura facilities, purchases of electricity corresponding to the total minimum payment requirements would be 17 GWh. They would be exceeded by ELECTROGAZ's consumption (18 GWh), and REGIDESO's and SNEL's minimum payments would be reimbursed by SINELAC. From 1990 onwards, actual consumption would far exceed the quantity corresponding to the total minimum payment requirements.

1/ 31 GW4h after losses -84- ANNEX21 Page 2 of 2

Capability and Demand in the Three-Country Interconnected System (in GWhbefore losses)

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Capability BURUNDI Mugere 10 25 25 25 25 25 25 25 25 25 25 25 25 25 Rwegura ------64 64 64 64 64 6464 RWANDA Ntaruka 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Mukungwa 48 48 48 48 48 48 48 48 48 48 48 48 48 48 Gisenyi-Gihira - - - - 23 23 23 23 23 23 23 23 23 23 ZAIRE Ruzizi I 150 150 150 150 150 150 150 150 150 150 150 150 150 150 Ruzizi II - - - - - 140 140 140 140 140 140 200 200 200

Total Capability 228 243 243 243 266 406 406 470 470 470 470 530 530 530 Demand + 8%- - BURUNDI 57 63 76 88 98 107 116 125 136 147 159 171 185 200 Burundi - domestic 10 25 25 25 25 25 25 89 89 89 89 89 89 89 Ruzizi I 47 38 51 63 73 69 62 36 33 33 33 33 33 33 Ruzizi II 13 29 - 14 25 37 49 63 78 + 8%- - _ RWANDA 80 85 93 101 117 127 139 151 164 177 191 207 223 241 Rwanda- domestic 68 68 68 68 91 91 91 91 91 91 91 91 91 91 RuziziI 12 17 25 33 26 22 20 42 39 32 24 16 7 - RuziziII 14 28 18 34 54 76 100 125 119 Deficit 31 + 9% ZAIRE 28 31 35 46 53 59 68 72 78 85 93 101 110 120 RuziziI 28 31 35 46 53 59 68 72 78 85 93 101 110 117 Ruzizi II ------3

TOTAL DEMAND 165 179 204 235 268 293 323 348 378 409 443 479 518 561

SURPLUS 63 64 39 8 -2 113 83 122 92 61 27 51 12 -31 (Rwegura ------from (Ruzizi I 63 64 39 8 -2 ------(Ruzizi II 113 83 122 92 61 27 51 12 -

RuziziII Sales 0 0 0 0 0 27 57 18 48 79 113 149 188 200

RuziziI Sales 87 86 111 142 152 150 150 150 150 150 150 150 150 150 ANNEX 22 Page 1 of 2

BURUNDI - RWANDA- ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

Comparision of the Economic Cost of Electricity

Sold to Consumers from Ruzizi I and Ruzizi II

Ruzizi II

(The cost amounts are in constant US$ September 1982 million)

Sales of Construct. Total Ruzizi II Cost & Tech Operating Cost of Cost (GWh) Years Assistance Costs (1%) renewal Ruzizi II (before losses)

1983 8.21 0.00 0.00 8.21 0 1984 24.14 0.00 0.00 24.14 0 1985 23.87 0.00 0.00 23.87 0 1986 13.63 0.00 0.00 13.63 0 1987 0.78 0.70 0.00 1.48 27 1988 0.78 0.70 0.00 1.48 57 1989 0.00 0.70 0.00 0.70 18 1990 0.00 0.70 0.00 0.70 48 1991 0.00 0.70 0.00 0.70 79 1992 0.00 0.70 0.00 0.70 113 1993 4.03 0.70 0.00 4.73 149 1994 0.00 0.75 0.00 0.75 188 1995-2005 0.00 0.75 0.00 0.75 200 2006 0.00 0.75 8.00 8.75 200 2007-2016 0.00 0.75 0.00 0.75 200 2017 -30.00 0.75 0.00 -29.25 200

Present Value

Total Cost Total Sales Discount Rate Ruzizi II of Ruzizi II

10% US$61.4 million 835.9 GWh

The economic cost of electricity of Ruzizi II at a 10% financial rate of return would then be:

61.4 = USV7.3/kWh in September 1982 prices. 835.9 - 86 - ANNEX 22 Page 2 of 2

Ruzizi I

(The cost amounts are in constant US$ September 1982 million)

Sales of Cost of renewal Ruzizi II Constr. Operating and of rehabilit. Total Cost (GWh) Years Cost Costs (1%) (US$ 1.5 million) Ruzizi I (before losses) 1983 50.00 0.50 0.00 50.50 86 1984 0.0 0.50 1.50 2.00 111 1985 0.0 0.50 0.00 0.50 142 1986 0.0 0.50 0.00 0.50 152 1987-2005 0.0 0.50 0.00 0.50 150 2006 0.00 0.50 5.00 5.50 150 2007-2016 0.00 0.50 0.00 0.50 150 2017 -10.00 0.50 0.00 -9.50 150

The constructioncost of Ruzizi I is estimated on the basis of US $1.8 million/MW,as for Ruzizi II's.

Present Value

Discount Total Cost Total Sales Rate of Ruzizi I of Ruzizi I

10% US$51.7 million 1,351.6 GWh

The economic cost of electricityof Ruzizi I at a 10% financial rate of return would then be:

51.7 = US+3.8/kWh in September 1982 prices. 1,351.6

It has been assumed in forecasts of financial statements for REGIDESO, ELECTROGAZand SNEL that Ruzizi I would progressivelyincrease its tariffs to reach in 1987 USV3.8/kWh, expressed in September 1982 prices. - 87 - ANNEX 23 Page 1 of 4

BURUNDI- RWANDA- ZAIRE RUZIZI II REGIONALHYDROELECTRIC POWER PROJECT REGIDESO POWER

Income Statements- 1982-1989 (FBu Millions)

1982 1983 1984 1985 1986 1987 1988 1989

SALES IN GWH

INDUSTRIALCOMM GW 27.3 31.1 40.0 47.3 53.9 58.8 63.8 69.3 DOMESTICGWH 24.1 26.9 30.1 33.4 36.3 40.0 44.0 48.7 TOTAL 51.4 58.0 70.1 80.7 90.2 98.8 107.8 118.0

REVENUE/KWHSOLD

INDUSTRIALFBU/KWH 8.200 8.200 8.200 8.200 11.400 15.700 17.300 19.100 DOMESTICFBU/KWH 7.600 7.600 7.600 10.200 13.400 17.700 19.300 21.100 AVE REV/KWHSOLD 7.918 7.922 7.941 9.027 12.204 16.509 18.116 19.925

OPERATING REVENUES

INDUSTRIAL& COMM 224.0 254.7 328.0 388.0 615.0 923.2 1103.8 1323.4 DOMESTIC 183.4 204.5 228.8 340.6 486.0 707.4 848.4 1026.8 METERS 1.7 2.1 2.6 3.2 3.8 4.6 5.5 6.6 CONNECTIONWORKS 81.0 98.8 120.6 147.1 176.5 211.8 254.2 305.0 TOTAL SALES REV 490.1 560.2 680.0 878.9 1281.3 1847.0 2211.9 2661.8

OPERATING EXPENSES

SALARIES 78.8 89.0 100.6 113.6 126.1 153.9 169.3 186.2 PURCHASEDENERGY 80.6 80.8 134.1 205.2 293.4 469.5 647.9 220.3 MATERIALS 127.5 145.4 165.7 188.9 211.6 237.0 265.4 297.3 ADMINISTRATION 12.2 13.8 15.5 17.4 19.3 21.7 23.8 26.2 DEPRECIATION 120.4 170.6 191.6 223.9 251.2 301.3 408.6 629.1 TOTAL 419.6 499.6 607.5 749.1 901.7 1183.4 1515.1 1359.1 OPERATINGINCOME 70.5 60.6 72.5 129.8 379.6 663.6 696.8 1302.7 INT CHARGEDOP 1.2 0.9 5.4 10.2 33.7 63.7 61.2 418.5 NET INCOME 69.3 59.7 67.1 119.6 345.9 599.9 635.6 884.2

RATE OF RETURN 2.8 1.6 1.8 2.8 7.5 10.9 8.1 9.1 OPERATING RATIO % 85.6 89.2 89.3 85.2 70.4 64.1 68.5 51.1 DEPREC/GROSSPLANT 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.50 APPLICATIONOF NET INCOME -DIVIDENDS 0.0 26.0 84.0 99.0 55.0 20.0 20.0 0.0 -RETAINED EARNINGS 69.3 33.7 -16.9 20.6 290.9 579.9 615.6 884.2 - 88 - ANNEX 23 Page 2 of 4

REGIDESOPOWER

Funds Flow Statements 1982-1989 (FBu Millions)

1982 1983 1984 1985 1986 1987 1988 1989

SOURCES OF FUNDS

GENERATEDFROM OPERATIONS NET OPERAT INCOME 70.5 60.6 72.5 129.8 379.6 663.6 696.8 1302.7 DEPRECIATION 120.4 170.6 191.6 223.9 251.2 301.3 408.6 629.1 TOTAL 190.9 231.2 264.1 353.7 630.8 964.9 1105.4 1931.8

INVESTMENTS 0.0 0.0 0.0 0.0 0.0 0.0 44.0 60.0

CONSUMERS CONTRIB 3.7 4.6 5.6 6.8 8.2 9.8 11.8 14.1

EQUITY (NOTE 1) 156.0 400.0 350.0 300.0 274.0 130.0 112.0 0.0

LOANS (NOTE 2) 495.7 1348.9 1444.8 2058.8 1338.9 1277.8 1363.8 83.5

TOTAL SOURCES 846.3 1984.7 2064.5 2719.3 2251.9 2382.5 2637.0 2089.4

APPLICATIONS OF FUNDS

CAPITAL EXPENDI- TURES (NOTE 3) 778.0 1920.0 1960.8 2591.8 2011.4 2117.8 2345.8 1173.5

DEBT SERVICE REPAYMENTS 16.0 16.1 7.7 15.5 59.2 109.1 109.1 415.0 INTEREST 36.8 39.8 39.2 38.5 54.7 70.8 74.1 425.7 TOTAL 52.8 55.9 46.9 54.0 113.9 179.9 183.2 840.7

DIVIDENDS 0.0 26.0 84.0 99.0 55.0 20.0 20.0 0.0 INVESTMENTS 16.6 60.0 68.0 76.0 83.0 89.0 0.0 0.0 OTHER -41.6 -93.0 -112.0 -133.0 -159.0 -190.0 -67.0 -62.0 TOTAL -25.0 -7.0 40.0 42.0 -21.0 -81.0 -47.0 -62.0

TOTAL APPLICATIONS 805.8 1968.9 2047.7 2687.8 2104.3 2216.7 2482.0 1952.2 - 89 - ANNEX23 Page 3 of 4

1982 1983 1984 1985 1986 1987 1988 1989

NOTE 1: EQUITY MUGEREGRANT 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 KFWRWEGURA GRANT 0.0 400.0 250.0 250.0 250.0 130.0 112.0 0.0 GVT RWEGURAGRANT 156.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 GVT RUZIZI II GRAN 0.0 0.0 100.0 50.0 24.0 0.0 0.0 0.0 OTHERELEC GRANTS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL 156.0 400.0 350.0 300.0 274.0 130.0 112.0 0.0

NOTE 2: LOANS CAISSE CEN NYANZA 186.0 349.0 58.0 0.0 0.0 0.0 0.0 0.0 CAISSE CEN RWEGURA 0.0 0.0 0.0 0.0 250.0 600.0 530.0 0.0 AFDB RWEGURA 0.0 350.0 226.0 250.0 218.0 0.0 0.0 0.0 FED RWEGURA 0.0 0.0 0.0 0.0 62.0 270.0 372.0 0.0 KOWEITF.RWEGURA 0.0 450.0 450.0 500.0 220.0 0.0 0.0 0.0 IDA RUZIZI II 0.0 0.0 200.0 450.0 89.5 0.0 0.0 0.0 UNIDENT RUZIZI II 0.0 0.0 300.0 600.0 144.0 0.0 0.0 0.0 KFW ELEC CREDITS 296.1 41.5 0.0 0.0 0.0 0.0 0.0 0.0 OPEC F.RWEGURA 0.0 100.0 74.0 0.0 0.0 0.0 0.0 0.0 IDC LOAN 13.6 58.4 136.8 258.8 355.4 407.8 461.8 83.5 TOTAL 495.7 1348.9 1444.8 2058.8 1338.9 1277.8 1363.8 83.5

NOTE 3: CAPITAL EXPENDITURES MUGERE 100.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 RWEGURA 156.0 1300.0 1000.0 1000.0 1000.0 1000.0 1014.0 0.0 MUYINGA 216.3 47.6 0.0 0.0 0.0 0.0 0.0 0.0 KIRUNDO 106.1 25.0 0.0 0.0 0.0 0.0 0.0 0.0 NYANZA 186.0 349.0 58.0 0.0 0.0 0.0 0.0 0.0 COMPLEMRUZIZI II 0.0 0.0 696.0 1253.0 296.0 0.0 0.0 0.0 IDC CAPITALIZ 13.6 58.4 136.8 258.8 355.4 407.8 461.8 83.5 OTHERELEC 0.0 140.0 70.0 80.0 360.0 710.0 870.0 1090.0 TOTAL 778.0 1920.0 1960.8 2591.8 2011.4 2117.8 2345.8 1173.5

NOTE 4: NET AVAI- LABLE FROM OPERAT GENER FROM OPERAT 190.9 231.2 264.1 353.7 630.8 964.9 1105.4 1931.8 +DISPOSED ASSETS 0.0 0.0 0.0 0.0 0.0 0.0 44.0 60.0 +CONSUMERS CONTRIB 3.7 4.6 5.6 6.8 8.2 9.8 11.8 14.1 +INCR IN CASH -38.9 6.8 -5.6 -4.9 69.7 7.6 44.8 3.4 -DEBT SERVICE -52.8 -55.9 -46.9 -54.0 -113.9 -179.9 -183.2 -840.7 -INCR WKG CAPITAL -40.5 -15.8 -16.8 -31.5 -147.6 -165.8 -155.0 -137.2 -OTHER APPLICAT 41.6 93.0 112.0 133.0 159.0 190.0 67.0 62.0 TOTAL 104.0 263.9 312.4 403.1 606.2 826.6 934.8 1093.4 - 90 - ANNEX 23 page 4 of 4

REGIDESOPOWER

Balance Sheets 1982-1989 (FBu Millions)

1982 1983 1984 1985 1986 1987 1988 1989

ASSETS

PLANT IN OPERATION 4672.6 5076.4 5872.1 6920.1 7435.3 9781.4 13568.3 22382.4 LESS: DEPRECIATION 1052.4 1307.2 1596.8 1932.5 2299.6 2738.9 3311.8 4139.6 NET PLANT 3620.2 3769.2 4275.3 4987.6 5135.7 7042.5 10256.5 18242.8 WORK IN PROGRESS 791.1 2720.0 4299.6 6282.7 8215.1 8440.0 7598.7 779.4

L/T INVESTMENTS 290.0 350.0 418.0 494.0 577.0 666.0 622.0 562.0

CURRENT ASSETS -CASH & BANKS 85.5 92.3 86.7 81.8 151.5 159.1 203.9 207.3 -ACCOUNTS REC 161.7 140.0 170.0 219.7 320.3 461.7 553.0 665.4 -INVENTORIES 223.2 232.6 232.0 226.7 211.6 237.0 2C65.4 297.7 -OTHER I 13.1 14.7 16.4 18.4 20.3 22.3 24.5 27.0 TOTAL 483.5 479.6 505.1 546.6 703.7 880.1 1046.8 1197.0

l'OTAL 5184.8 7318.8 9498.0 12310.9 14631.5 17028.6 19524.0 20781.2

LIABILITIES

EQUITY -CAPITAL 185.1 185.1 185.1 185.1 185.1 185.1 185.1 185.1 -RETAINED EARNINGS 37.4 71.1 54.2 74.8 365.7 945.6 1561.2 2445.4 -GRANTS 2757.3 3157.3 3507.3 3807.3 4081.3 4211.3 4323.3 4323.3 -CAPITAL RESERVE 290.7 290.7 290.7 290.7 290.7 290.7 290.7 290.7 -REVALUATIONRESER 642.3 931.9 1214.6 1513.8 1813.1 2121.2 2543.8 3159.2 TOTAL 3912.8 4636.1 5251.9 5871.7 6735.9 7753.9 8904.1 10403.7

LONGTERM DEBT 1116.8 2449.6 3886.7 5930.1 7209.7 8378.4 9633.0 9301.6

CUR'NT LIABILITIES -ACCOUNTS PAYABLE 31.9 29.1 33.1 37.8 42.3 47.4 53.1 59.5 -OTHER 56.5 39.6 44.3 49.6 54.6 60.1 66.1 72.7 TOTAL 88.4 68.7 77.4 87.4 96.9 107.5 119.2 132.2

CONSUMERCONTRIBUT 25.2 29.8 35.4 42.2 50.4 60.2 72.0 86.1 OTHER LIABILITIES 41.6 134.6 246.6 379.5 538.6 728.6 795.7 857.6 TOTAL 5184.8 7318.8 9498.0 12310.9 14631.5 17028.6 19524.0 20781.2

DEBT/DEBT & EQUITY 22.2 34.6 42.5 50.2 51.7 51.9 52.0 47.2 CURRENT RATIO 5.5 7.0 6.5 6.3 7.3 8.2 8.8 9.1 RECEIVABLES/REV% 33.0 25.0 25.0 25.0 25.0 25.0 25.0 25.0 ANNUALREVALUATION 8.0 8.0 7.5 7.0 6.0 6.0 6.0 6.0 -91 - ANNEX 24 Page 1 of 3 BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRICPOWER PROJECT

ELECTROGAZ Income Statements 1982-1988 (FRw Millions)

1982 1983 1984 1985 1986 1987 1988

Sales in GWh 69 74.4 80.5 88.4 101.8 110.6 120.6 Average Tariff FRw/kWh 10.9 10.9 13 15.5 15.5 16 20

Water Revenue 253 302. 362 544 718 1075 1262 Gas Revenue 43 43 43 54 59 74 74 ElectricityRevenue 752 811 1046 1370 1578 1770 2412 Other Revenue 43 46 51 57 64 71 79

TOTAL REVENUES 1091 1202 1502 2025 2419 2990 3827

OPERATINGEXPENSES

Salaries 249 285 328 373 423 478 543 Purchased energy 20 40 75 130 130 220 350 Materials 194 243 305 382 477 596 734 Administration 94 110 127 147 170 194 222 Depreciation 503 560 622 725 817 1088 1370

TOTAL EXPENSES 1060 1238 1457 1757 2017 2576 3219

OPERATING INCOME 31 -36 45 268 402 414 608

Interest charged Op 66 74 94 112 187 259 588

NET INCOME -35 -110 -49 156 215 155 20 Dividends - 28 84 99 55 20 20 RETAINED EARNINGS -35 -138 -133 57 160 135 0

ACCUM.RETAINEDEARNINGS -318 -456 -589 -532 -372 -237 -237 - 92 - ANNEX 24 Page 2 of 3

ELECTROGAZ Funds Flow Statements 1982-1988 (FRw Millions)

1982 1983 1984 1985 1986 1987 1988

Sources of Funds Generated from operation Operating income 31 -36 45 268 402 414 608 Depreciation 503 560 622 725 817 1088 1370 Total 534 524 667 993 1219 1502 1978 Equity Complement.Ruzizi II - - 30 40 13 - - Other 896 240 - - 444 911 38 Total 896 240 30 40 457 911 38 Borrowings Complement.Ruzizi II - - 270 510 50 - - Other 224 637 1437 2188 2402 1972 1020 Total 224 637 1707 2698 2452 1972 1020

TOTAL SOURCES 1654 1401 2404 3731 4128 4385 3036

Applicationsof Funds Capital expenditures Water and gas 182 395 458 1148 1335 1236 700 Complement.Ruzizi II - - 350 635 68 - - Other electricity 889 563 1174 1471 1812 1361 618 IDC 2 21 89 255 392 493 264 Total 1073 979 2071 3509 3607 3090 1582 Debt Service Repayment 43 43 71 80 88 209 325 Interest 66 74 94 112 187 259 588 Total 109 117 165 192 275 468 913

Dividends - 28 84 99 55 20 20

TOTAL APPLICATIONS1182 1124 2320 3800 3937 3578 2515

Increase in Working Capital Cash -132 156 126 -168 44 -17 30 Other working capital 604 121 -42 99 147 824 491 Total 472 277 84 -69 191 807 521

Accumulated cash -112 44 170 2 46 29 59 - 93 - ANNEX 24 Page 3 of 3

ELECTROGAZ Balance Sheets 1982-1988 (FRw Millions)

1982 1983 1984 1985 1986 1987 1988 ASSETS

Fixed Assets

Plant in Service 14365 15989 17762 20706 23356 31214 39384 Less: Depreciation 1379 2066 2874 3849 4979 6455 8326 Operating Plant 12986 13923 14888 16857 18377 24759 31058

Work in progress 101 778 2515 4625 7267 4321 185

Current Assets

Cash 0 44 170 2 46 29 59 Inventories 575 640 710 828 934 1502 1905 Receivables 448 502 554 748 911 1226 1307 Total 1023 1186 1434 1578 1891 2757 3271

Other Assets 10 10 10 10 10 10 10

TOTAL ASSETS 14120 15897 18847 23070 27545 31847 34524

EQUITY AND LIABLILITES

Equity

Paid in Capital 11290 11530 11560 11600 12057 12968 13006 Retained Earnings -318 -456 -589 -532 -372 -237 -237 Revaluation Reserve 335 1530 2783 4078 5450 6884 8835

Total 11307 12604 13754 15146 17135 19615 21604

Long Term Debt 2350 2944 4580 7198 9562 11325 12020

Current Liabilities

Payables 217 234 376 563 650 674 622 Other 134 115 137 163 198 233 278 Bank Overdraft 112 0 0 0 0 0 0

Total 463 349 513 726 848 907 900

TOTAL EQUITY AND LIABILITIES 14120 15897 18847 23070 27545 31847 34524 -94 - ANNEX 25

BURUNDI-RWANDA-ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

SNEL's BUKAVU-UVIRA-GOMA 1/ (KIVU) Financial Statements

(US$ million)

1982 1983 1984 1985 1986 1987 1988 1989

I. INCOME STATEMENTS Domestic Sales in GWh 24.5 27.1 30.2 39.9 45.5 50.6 58.5 63.0 Export Sales in GWh 2/ 20 17 35 52 55 51 44 28 TOTAL SALES in GWh 44.5 44.1 65.2 91.9 100.5 101.6 102.5 91.0

Domestic Revenue USV/kWh sold 5 5.5 9.5 11 11 12 12 14 Export Revenue USt/kWh sold 2.2 2.6 3.1 3.7 4.4 5.3 5.6 6.0 Average tariff-US+/kWh sold 3.7 4.4 6.1 6.9 7.4 8.6 9.2 11.5

Operating Revenues 1.66 1.93 3.95 6.31 7.42 8.78 9.48 10.5

Operating Expenses Salaries 0.31 0.33 0.36 0.47 0.50 0.53 0.56 0.60 Materials 0.22 0.24 0.26 0.31 0.33 0.35 0.37 0.40 Administration 0.65 0.70 0.75 0.86 0.91 0.96 1.02 1.08 Depreciation 2.0 2.1 2.3 2.7 3.1 3.5 3.9 4.4 TOTAL 3.18 3.37 3.67 4.34 4.84 5.34 5.85 6.48

Operating Income -1.52 -1.44 0.28 1.97 2.58 3.44 3.63 4.02 Rate of Return (in 7) - - 0.5 2.9 3.4 4.1 4.0 4.1

II.FUNDS FLOW STATEMENTS Sources of funds generated from Operation Operating Income -1.52 -1.43 0.28 1.97 2.58 3.44 3.63 4.02 Depreciation 2.0 2.1 2.3 2.7 3.1 3.5 3.9 4.2 TOTAL 0.48 0.67 2.58 4.67 5.68 6.94 7.53 8.22

Yougoslav credit - 4.5 4.5 - - - - - Other credit - - 0.5 1.5 1.5 - - - Total credits 4.5 5.0 1.5 1.5 TOTAL Sources 0.48 5.17 7.58 6.17 7.18 6.94 7.53 8.22

Application of Funds Line Katana Goma 5.0 5.0 - - Rehabilitation and extension of Kivu network - 1.7 5.2 5.2 Dividends for financing Ruzizi II 0.3 1.0 1.1 0.7 0.2 0.2 Other Construction - - - 1.0 6 7 8.0 Total Application - 5.30 7.70 6.30 6.9 6.2 7.2 8.0 Working Capital 0.48 -0.13 -0.12 -0.13 0.28 0.74 0.33 0.22 Cumulated Working Capital 0.48 0.35 0.23 0.10 0.38 1.12 1.45 1.67

III. FIXED ASSETS

Gross Assets 58 62.6 67.3 85.1 90.2 107.7 114.2 135.1

Minus Depreciation 2.0 4.3 6.9 10.1 13.8 18.1 23.1 28.9

NET Assets 56 58.3 60.4 75.0 76.4 89.6 91.1 106.2

Works in Progress - 5.0 11.7 6.9 13.1 7 14 8.0

1/ Goma is part of the interconnected system at the end of 1984. 2/ Export quantities are each year 31 GWh higher, but the latter correspond to the repayment of a loan due by SNEL to Burundi. ANNEX 26 Page 1 of 2 - 95 -

RUZIZI II REGIONALHYDROELECTRIC POWER PROJECT

Interconnected System Electricity Demand

Burundi Rwanda Zaire Total Total System Deficit Installed System Sales Demand Capability Surplus Capacity Peak Actual ---- GWh ----- MW-

1976 26 40 - - - 170 - 39.4 1977 30 44 - - - 170 - 39.4 1978 34 48 - - - 170 - 39.4 20 1979 36 53 - - - 170 - 39.4 22 1980 40 59 17 116 133 170 15.4 39.4 24 1981 44 64 19 127 146 218 91 51.4 26

Forecast

1982 50 69 25 144 165 228 63 59.4 29 1983 55 74 27 156 179 243 64 59.4 31 1984 66 81 30 177 204 243 39 59.4 36 1985 76 88 40 204 235 243 8 59.4 41 1986 85 102 46 233 268 266 -2 62.4 47 1987 93 111 51 255 293 406 113 103.7 51 1988 101 121 59 281 323 406 83 103.7 57 1989 109 131 63 303 348 470 122 103.7 61 1990 118 143 68 329 378 470 92 103.7 66

Notes: 1976-1980 Ruzizi I and Ntaruka 39 MW; 170 GWh annually. 1981 Mukungwa 12 MW; 48 GWh annually. 1982 Mugere 8 MW; 25 GWh annually. 1986 Gihira 2 MW and Gisenyi 1.1 MW; 3 MWh annually connected to grid. 1987 Ruzizi II 26.6 MW; and 140 GWh anually. 1989 Rwegura 18 MW; 64 GWh, annually. - 96 -

ANNEX26 BURUNDI- RWANDA- ZAIRE page 2 of 2 RVZIZI11RROIONAL HYDROELECTRIC POWER PROJECT Energy-ForecastDemand and AvailableSupply

500

RWEGURA

40_

RUZIZIII

AVAILABLE- 300 - SUPPLY

& - s / ~~~~~~~~~~~~~FORECAST

2 ~~~~~~~~~GIHIRA u ~~~~~~~~GISENYI

... 200 -

01

1981 1982 1983 1984 1985_ 1986 1987 1988 1989 1990

WorldBan-k-24562 - 97 - ANNEX 27 Page 1 of 4

BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC POWER PROJECT

Economic Comparison between the Ruzizi II and Rwegura Projects

Demand

1. The mission's demand estimates for the regional interconnected system expressed in gross GWh 1/ are as follows from 1986 to 1995:

(Gross GWh) 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Burundi 98 107 116 125 136 147 159 171 185 200 Rwanda 117 127 139 151 164 177 191 207 223 241 Zaire 53 59 68 72 78 85 93 101 110 120

Total Demand 268 293 323 348 378 409 443 479 518 561

In 1986, the total capability for the interconnected system would be 266 GWh, therefore there would be a deficit of about 2 GWh.

Capabilities

2. The annual capability of Ruzizi II with three units would be 200 GWh, that of Rwegura would be 64 GWh. Therefore, if either plant were commissioned alone in 1987, Ruzizi II's capacity would be fully utilized during 1993 (with its third unit commissionedin 1991) and Rwegura's at the beginning of 1989.

Financial rate of return of 10%

3. Given the present cost estimates of Ruzizi II and Rwegura --US$75.4 million and US$64.8 million in September 1982 prices 2/--and the estimated demand above, the price at which electricity should be sold by

1/ 1 GWh = 1 million kWh. Gross GWh are produced GWh; they are 15% bigger than sold GWh, because of transmissionlosses.

2/ The above cost of Rwegura has been confirmed when REGIDESO received the bids on November 15, 1982. -98 - ANNEX 27 Page 2 of 4 each operating plant alone, to obtain a 10% financial rate of return, would be US46.4/kWh at Ruzizi II and US415.3/kWhat Rwegura, in September 1982 US cents. Ruzizi II is clearly the lesser cost solution.

Demand Sensitivity

4. Increased demand by 10% for 1986 and subsequent years would mean fully utilized capacity during 1992 for Ruzizi II and in 1988 for Rwegura, if either were commissioned alone. Selling prices for Ruzizi II and Rwegura given above would be reduced with increaseddemand, but their ratio would be about the same. Ruzizi II would remain the lesser cost solution and should therefore be built first, if only economic factors are considered. No argum.entfor simultaneous construction holds on economic grounds.

Scenario Proposed for the Appraisal Report

5. Given the obligation of the three national companies to make minimal payments of electricity to SINELAC, the preference of REGIDESO for Rwegura power and of ELECTROGAZ and SNEL for Ruzizi I power, and the commissioning of Ruzizi II in 1987 and Rwegura in 1989, the bulk price of Ruzizi II electricity enabling the facilities to obtain a 10% financial rate of return would be US+7.3/KWh in 1982 prices, if the third unit is commissionedin 1993 (Annexes 18, 19, 20). - 99 - ANNEX 27 Page 3 of 4

Economic Price of Ruzizi II Electricity (The cost amounts are in constant US$ September 1982 million)

Sales of Ruzizi II Construct. Operating Total Cost (GWh) Years Cost Costs (1%) Cost of Renewal Ruzizi II (before losses) 1983 8.21 0.00 0.00 8.21 0 1984 24.14 0.00 0.00 24.14 0 1985 23.87 0.00 0.00 23.87 0 1986 13.63 0.00 0.00 13.63 0 1987 0.78 0.70 0.00 1.48 27 1988 0.78 0.70 0.00 1.48 57 1989 0.00 0.70 0.00 0.70 82 1990 0.00 0.70 0.00 0.70 112 1991 4.03 0.70 0.00 4.73 143 1992 0.00 0.75 0.00 0.75 177 1993-2005 0.00 0.75 0.00 0.75 200 2006 0.00 0.75 8.00 8.75 200 2007-2016 0.00 0.75 0.00 0.75 200 2017 -71.54 0.75 0.00 -29.25 200

Present Value

Total Cost Total Sales Discount Rate of Ruzizi II of Ruzizi II

10% US$61.8 million 972.1 GWh

The economic price of electricity of Ruzizi II at a 10% financial rate of return, in the absence of the Rwegura project (para. 2), would then be:

61.8 = USO6.4/kWh in September 1982 prices. 972.1 - 100 - ANNEX 27 Page 4 of 4

Economic price of Rwegura electricity (The cost amounts are in constant US$ December 1981 million)

Sales of Constr. Operating Cost of Total Cost Rwegura (GWh) Years Cost Costs Renewal Rwegura (before losses)

1982 8.28 0.00 0.00 8.28 0 1983 19.70 0.00 0.00 19.70 0 1984 17.13 0.00 0.00 17.13 0 1985 12.48 0.00 0.00 12.48 0 1986 3.48 0.00 0.00 3.48 0 1987 0.00 0.61 0.00 0.61 27 1988 0.00 0.61 0.00 0.61 57 1989-2005 0.00 0.61 0.00 0.61 64 2006 0.00 0.61 6.00 6.61 64 2007-2016 0.00 0.61 0.00 0.61 64 2017 -25.00 0.61 0.00 -24.39 64

Present Value

Discount Total Cost Total Sales Rate of Rwegura of Rwegura

10% US$50.7 million 352.2 GWh

The economic price of Rwegura at a 10% financial rate of return would then be:

50.7 = USt14.4/kWh in December 1981 prices and 352.2

14.4 x 1.06 = US415.3/kWh in September 1982 prices. - 101 -

ANNEX 28

BURUNDI-RWANDA-ZAIRE

RUZIZI REGIONAL HYDROELECTRICPOWER PROJECT

(September30, 1982 Prices)

Diesel Generating Station

Estimate of Cost

10 MW INSTALLATION

L F T Item -- US$ thousands

Civil Works 1,140 400 1,540 GeneratingEquipment 600 8,800 9,400 Electric Equipment - 300 300 Fuel Storage 40 360 400 Engineering 60 770 830

Subtotal 1,840 10,630 12,470

Physical Contingencies 260 1,570 1,830

TOTAL 2,100 12,200 14,300

Note: Interest during construction,escalation, and taxes are not included. - 102 - ANNEX29

BURUNDI- RIANDA- ZAIRE

RUZIZI II REGIONALHYDROELECIRIC POWER PROJECT

Least Cost Solution (US$ million)

THE PRaJECr ALTERNATIVE

Diesel RusumnFalls Capital Operatirg Total Capital Operating Fuel Capital Operating Total Years Cost Cost Cost Cost Cost Cost Cost

1983 8.21 - 8.21 1984 24.14 - 24.14 ------1985 23.87 - 23.87 1.0 - - - - 1.00 1986 13.63 - 13.63 6.0 0.1 0.5 10.0 - 16.60 1987 0.78 0.7 1.48 6.0 0.2 6.8 35.0 - 48.00 1988 0.78 0.7 1.48 2.0 0.3 14.3 60.0 - 76.60 1989 - 0.7 0.70 - 0.3 4.5 45.0 - 49.80 1990 - 0.7 0.70 - 0.3 12.0 10.0 - 22.30 1991 5.0 0.7 5.70 -8.0 - - - 1.6 -6.60 1992 15.0 0.7 15.70 - - - - 1.6 1.60 1993 25.0 0.7 25.70 - - - - 1.6 1.60 1994 25.0 0.75 25.75 - - - - 1.6 1.60 1995 15.0 0.75 15.75 - - - - 1.6 1.60 1996 - 1.45 1.45 - - - - 1.6 1.60 1997-2005 - 1.45 1.45 - - - - 1.6 1.60 2006 - 9.45 9.45 - - - - 16.0 16.00 2007-2014 - 1.45 1.45 - - - - 1.6 1.60 2015 - 9.45 9.45 - - - - 1.6 1.60 2016-2026 - 1.45 1.45 - - - - 1.6 1.60 2027 -50.0 - 50.00 - - - -50.0 - -50.00

Assumptions:

Costs based on September 1982 prices; Fuel cost for diesel, US$250,000per GWh; 10 MW diesel plant output (MW) 1986 - 2; 1987 -27; 1988- 57; 1989 - 18 1990 - 48 Rwegura Hydroelectric Station in operation: 1989 - onwards; Life of project: 40 years; The third 13.5 MWunit installed in the project in 1993 and a second 40 MWplant to be commissioned in 1995 to raise project output to 80 MW- the same as 80 MWRusumo Falls; IDC, escalation and taxes not included; Salvage value hydro projects: US$50 million; Salvage value diesel plant: US$ 8 million.

The equalizing discount rate is 35%. - 103 - ANNEX 30 page 1 of 4

BURUND I-RWANDA- ZAIRE RUZIZI REGIONAL HYDROELECTRIC POWER PROJECT Economic Rate of Return for the Proposed Project

1. We assume that the spread between the US48.4/kWh SINELAC's average bulk tariff and the average retail tariff in the region is USO3/kWh and we wish to determine (i) the financial rate of return for the proposed project and the next one for rehabilitation and extension of the interconnected network, without taking benefits into account, and (ii) the economic rate of return with taking benefits into account. We then make the two following assumptions:

A. The next project involving rehabilitation and extension of the electricity networks of the three countries would be completed in 1987 at the time the Ruzizi II facilities are commissioned, with the following construction costs (in US$million):

1984 1985 1986 Total

Burundi 8.0 14.4 3.4 25.8 Rwanda 4.0 7.3 0.8 12.1 Zaire (Kivu) 1.7 5.2 5.2 12.1

Total 13.7 26.9 9.4 50.0

Total in 1982 prices 11.8 21.7 7.1 40.6

B. The consumers in the region whose consumption represents about 15% of the total demand from Ruzizi II would be ready in case the Ruzizi II project were not built, to buy their electricity from a diesel-fueled generating station, at a cost of at least USJ25/kWh (Annex 26). Either these consumers would have an urgent need for electricity (hospital, water pumping, Government agencies) or their demand is very inelastic (industries for which electricity is a small part of their cost and which can pass the increase in electricity cost to their customers, expatriates whose living expenses are paid for, etc.). The demand curve for the region could be drawn with two points (100% consumption at the average tariff, and 15% at diesel cost), and a consumers' surplus could be calculated that would increase the benefits of the project: - 104 - ANNEX 30 page 2 of 4

Price of elec- tricity

Diesel e _ cost D

Demand curve Tariff | T b ------… ------Ig jc I 1

a d

0.15Q Quantity which Q Quantity sold by quantity some consumers are Ruzizi II in one of willing to buy at year at tariff T electricity diesel cost D - 105 - ANNEX 30 page 3 of 4

The revenue of the sale of Ruzizi II electricity is represented by the area abcd, the value of which is TxQ. The theoretical surplus of consumers ready to buy electricity up to the diesel cost D is represented by the area above the tariff line limited by the demand curve: ebcf. To simplify the calculation, we assume that the fc curve is a straight line, thus the value of the consumers' surplus is: 0.15(D-T)Q + i 0.85(D-T)Q 0.575(D-T)Q.

2. With construction expendituresC and revenues TQ and the above consumers' surplus, the discount rate is the rate at which there is equilibriumbetween C and TQ + 0.575(D-T)Q= (0.425T+ 0.575D)Q. With D = USF25/kWh and T = UStl1.4/kWh (8.4 + 3), the equilibrium must be found between discountedC and discounted 0.1922Q,-both in millions of dollars. - 106 - ANNEX 30 page 4 of 4

Numerical values are given by the following table (costs are in US$ million):

Construction cost of com- Total Sales of Construction plementary Opera- Costs of Ruzizi II cost of works in the ting Cost of the two (Gwh) Years Ruzizi II three countries costs Renewal projects (before losses 1983 8.21 0.00 0.00 0.00 8.21 0.00 1984 24.14 11.80 0.00 0.00 35.94 0.00 1985 23.87 21.70 0.00 0.00 45.57 0.00 1986 13.63 7.10 0.00 0.00 20.73 0.00 1987 0.78 0.00 1.10 0.00 1.88 23.00 1988 0.78 0.00 1.10 0.00 1.88 50.00 1989 0.00 0.00 1.10 0.00 1.10 16.00 1990 0.00 0.00 1.10 0.00 1.10 42.00 1991 0.00 0.00 1.10 0.00 1.10 69.00 1992 0.00 0.00 1.10 0.00 1.10 98.00 1993 4.03 0.00 1.10 0.00 5.13 130.00 1994 0.00 0.00 1.15 0.00 1.15 163.00 1995-2005 0.00 0.00 1.15 0.00 1.15 174.00 2006 0.00 0.00 1.15 12.00 13.15 174.00 2007-2016 0.00 0.00 1.15 0.00 1.15 174.00 2017 -30.00 -12.00 1.15 0.00 -40.85 174.00

3. The financial rate of return of an average retail tariff of US+11.4/kWh (8.4 + 3) would be: 8.9%.

4. The economic rate of return of the same average retail tariff, taking into account the consumers' surplus would be: 13.4%. - 107 - ANNEX31 page 1 of 1

BURUNDI - RWANDA - ZAIRE

RUZIZI II REGIONALHYDROELECTRIC POWER PROJECT

Sales of Ruzizi II with an annual rate of growth of 10% in regional demand until 1990

This annex shows the sales of Ruzizi II facilities if the annual rate of growth in regional demand from 1981 to 1990 is reduced from 11.1% to 10%. The annual rate of growth thereafter would remain at about 8.3%.

Production of Productionof Ruzizi II Ruzizi II with no purchase Present with purchases if cheaper power Regional Surplus from matching from Rwegura or Demand Capability minimum Ruzizi II is in GWh (Annex 19) Reduced Demand (Annex 19) payment consumed

1987 293 259 147 18 0 1988 323 285 121 18 19 i989 348 313 157 17 0 1990 378 344 126 17 14 1991 409 373 97 43 43 1992 443 403 67 73 73 1993 479 437 33 107 107 1994 518 473 57 143 143 1995 561 513 17 183 183 1996 608 556 neg. 200 200 - 108 -

ANNEX 32 Page 1 of 2

BURUNDI-RWANDA- ZAIRE

RUZIZI II REGIONAL HYDROELECTRIC PROJECT

Related Documents and Data Available in Report File

Sector

Planification a long terme des besoins d'energie electrique et l1'ch6ancier des ouvrages de production (Burundi). United Nations, April 1982.

Rapport preliminaire concernant la mission de Georges Vandanescu - consultant des Nations Unies au Burundi. February, 1982.

Hydro Power Potential of Burundi. Siemens, 1978.

Factibilite d'une centrale hydro-electrique de Rwegura sur la Kitenge, Siemens, May, 1979.

Organisation pour l'amenagement et le developpement du bassin de la riviare Kagera. WHO, May, 1980.

Etude du secteur energetique au Rwanda - Plan directeur d'6lectrification - Rapport definitif, premiere etape - Bureau national d'6tudes de projets, BUNEP, Kigali, Rwanda; Ecole polytechnique federale EPFL, Lausanne, Suisse; November, 1981.

Project

Projet definitif d'une deuxiame centrale hydroelectrique sur le Ruzizi. Rapport final, Tractionel, February, 1981.

Dossier d'estimation des coats du projet de construction de 1'amenage- ment hydroelectrique Ruzizi II, Lahmeyer International, October 1982.

Rapport de verification de la conception du projet l'amenagement hydro- electrique Ruzizi II, Lahmeyer International, January 1983.

Legal

Convention portant creation de la socifte internationale d'electricite des pays des Grands Lacs (SINELAC), Tractionel, Brussels, April, 1983.

Statuts de la socifte internationale d'6lectricite des pays des grands lacs (SINELAC), Tractionel, Brussels, April, 1983. - 109 - ANNEX 32 Page 2 of 2

Legal (contd.)

Agreements between the three Governments

Financial

Raglement Financier of CEPGL, dated September 9, 1977.

Arrangement Monetaire between the three Central Banks, dated June 7, 1978.

Freedom of Movement

Commercial and Customs Cooperation Agreement, September 10, 1978.

Labor

Statuts of community personnel, dated September 9, 1977. This sets out detailed provisions on recruitment, nomination, promotion; responsibilities, privileges, immunities; remuneration; holidays and travel expenses, disciplinary measures, termination of services and a model employment contract.

Convention on socal security, dated September 10, 1978.

Administrative arrangements for social security.

Selected Working Papers

Financial statements and projected accounts for REGIDESO, ELECTROGAZ and SNEL. - r UGANDA e 30° 3jo

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