Document of The World Bank Public Disclosure Authorized FOR OFFICIAL USE ONLY Report No: 41425-ET PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 26.44 MILLION (US$41.05 MILLION EQUIVALENT) Public Disclosure Authorized TO THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA FOR AN ETHIOPIA/NILE BASIN INITIATIVE POWER EXPORT PROJECT: ETHIOPIA-SUDAN INTERCONNECTOR Public Disclosure Authorized November 20, 2007 Energy Team Sustainable Development Department Africa Region 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 Currency Unit = Ethiopian Birr US$1 = ETB 9.086 (as of November 14, 2007) US$1.551 = 1 SDR FISCAL YEAR July 8 – July 7 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank APL Adaptable Program Loan CA Construction Agreement to be signed between EEPCo and NEC related to the construction of the transmission interconnection between the two utilities CAS/ISN Country Assistance Strategy/Interim Strategy Note CDM Clean Development Mechanism EEPCo Ethiopian Electric Power Corporation EIRR Economic Internal Rate of Return EMP Environmental Management Plan for the Project, dated January 2007 EMP (Sd) Environmental Management Plan, dated January 2007, relating to NEC’s extension of its grid to the Ethiopian border EEA Ethiopian Electric Agency EMU EEPCo’s Environmental Monitoring Unit ENSAP Eastern Nile Subsidiary Action Program ENTRO Eastern Nile Technical Regional Office EPSEMP Ethiopian Power System Expansion Master Plan ESIA Environmental and Social Impact Assessment ESIA Project EMP, EMP (Sd), RAP and RAP (Sd) ETB Ethiopian Birr FA Fiduciary Assessment FIRR Financial Internal Rate of Return FRR Financial Rate of Return FY EEPCo’s fiscal year, beginning July 8 and ending July 7 GDP Gross Domestic Product GoE Government of Ethiopia GoS Government of Sudan ICAS Interim Country Assistance Strategy ICS National Interconnected System, namely the interconnected electricity grid IDA International Development Association IPP Independent Power Producer LDC Load Dispatch Center MDGs Millennium Development Goals MW Megawatt NBI Nile Basin Initiative NBTF Nile Basin Trust Fund NEC National Electric Corporation, Sudan’s power utility NPV Net Present Value O&M Operation & Maintenance ii FOR OFFICIAL USE ONLY OMA Operation and Maintenance Agreement to be entered into between EEPCo and NEC related to the implementation of the transmission interconnection between the two utilities OPGW Optical Ground Wires PAPs Project Affected Peoples PASDEP Plan for Accelerated and Sustainable Development to End Poverty PEFA Public Expenditure and Financial Assessment PMU Project Management Unit PPA Power Purchase Agreement (to be entered into between by EEPCo and NEC) RAP Resettlement Action Plan for the Project, dated January 2007 RAP(Sd) Resettlement Action Plan, dated January 2007, relating to NEC’s extension of its grid to the Ethiopian border RTUs Remote Terminal Unit SCS Self Contained Systems, namely isolated electricity grids SDPRP Sustainable Development and Poverty Reduction Program 5YPSIP Five Year Power Sector Investment Plan Vice President: Obiageli Katryn Ezekwesili Country Director: Kenichi Ohashi Sector Manager: S. Vijay Iyer Task Team Leader: Philippe Benoit This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. iii ETHIOPIA ETHIOPIA/NILE BASIN INITIATIVE POWER EXPORT PROJECT: ETHIOPIA-SUDAN INTERCONNECTOR TABLE OF CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE.................................................................1 1. Regional, Country and Sectoral Background ................................................................1 2. Rationale for Bank Involvement ....................................................................................8 3. Higher Level Objectives to Which the Project Contributes ...........................................8 B. PROJECT DESCRIPTION................................................................................................9 1. Lending Instrument........................................................................................................9 2. Project Development Objective and Key Indicators ......................................................9 3. Project Components........................................................................................................9 4. Lessons Learned and Reflected in the Project Design .................................................11 5. Alternatives Considered and Reasons for Rejection ....................................................12 C. IMPLEMENTATION ......................................................................................................13 1. Partnership Arrangements............................................................................................13 2. Institutional and Implementation Arrangements..........................................................14 3. Monitoring and Evaluation of Outcomes/Results ........................................................14 4. Sustainability ................................................................................................................15 5. Critical Risks and Possible Controversial Aspects.......................................................15 6. Loan/Credit Conditions and Covenants........................................................................17 D. APPRAISAL SUMMARY...............................................................................................18 1. Economic and Financial Analyses................................................................................18 2. Technical ......................................................................................................................24 3. Fiduciary.......................................................................................................................25 4. Social ............................................................................................................................25 5. Environment .................................................................................................................26 6. Safeguard policies........................................................................................................27 7. Policy Exceptions and Readiness .................................................................................27 Annex 1: Country and Sector or Program Background............................................................28 Annex 2: Major Related Projects Financed by the Bank and/or Other Agencies ....................40 Annex 3: Results Framework and Monitoring .........................................................................43 Annex 4: Detailed Project Description.....................................................................................45 Annex 5: Project Costs .............................................................................................................49 Annex 6: Implementation Arrangements .................................................................................50 Annex 7: Financial Management and Disbursement Arrangements........................................56 Annex 8: Procurement Arrangements ......................................................................................65 Annex 9: Economic and Financial Analysis ............................................................................72 Annex 10: Safeguard Policy Issues ..........................................................................................90 Annex 11: Project Preparation and Supervision.......................................................................94 Annex 12: Documents in the Project File.................................................................................95 Annex 13: Statement of Loans and Credits..............................................................................96 Annex 14: Country at a Glance ................................................................................................98 iv ETHIOPIA ETHIOPIA/NILE BASIN INITIATIVE POWER EXPORT PROJECT: ETHIOPIA-SUDAN INTERCONNECTOR PROJECT APPRAISAL DOCUMENT AFRICA AFTEG Date: November 20, 2007 Team Leader: Philippe Charles Benoit Country Director: Kenichi Ohashi Sectors: Power (100%) Sector Manager/Director: S. Vijay Iyer Themes: Infrastructure services for private sector development (P) Project ID: P074011 Environmental screening category: Partial Assessment (B) Lending Instrument: Specific Investment Loan Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 41.05 Proposed terms: Standard IDA terms, maturity of 40 years, including a grace period of 10 years Financing Plan (US$m) Source Local Foreign Total BORROWER(GoE)/RECIPIENT (EEPCo) 1.30 0.75 2.05 INTERNATIONAL DEVELOPMENT 4.33 36.72 41.05 ASSOCIATION Total: 5.63 37.47 43.10 Retroactive Financing: In accordance with OP 6.00, the Project will be able to charge up to US$8 million of the credit amount for expenditures occurring on or after January 1st, 2008 and up to the credit signing date. The retroactive financing will apply to works and consultant services. Borrower: Federal Democratic