Document of The World Bank Group FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 110675-ZM PROJECT APPRAISAL DOCUMENT ON A PROPOSED IDA GUARANTEE IN THE AMOUNT OF UP TO US$3.5 MILLION EQUIVALENT TO THE REPUBLIC OF ZAMBIA Public Disclosure Authorized AND ON A PROPOSED IFC FINANCING CONSISTING OF AN A-LOAN IN THE AMOUNT OF UP TO US$15 MILLION, A SENIOR LOAN IN THE AMOUNT OF UP TO US$15 MILLION FROM IFC ACTING AS IMPLEMENTING ENTITY OF THE IFC-CANADA CLIMATE CHANGE PROGRAM (IFC-CCCP), AND USD INTEREST RATE SWAPS REPRESENTING A LOAN EQUIVALENT EXPOSURE OF UP TO US$3 MILLION TO BANGWEULU POWER COMPANY LIMITED FOR THE Public Disclosure Authorized WEST LUNGA SCALING SOLAR ENERGY PROJECT January 25, 2017 Extractives Global Practice Africa Region, World Bank Infrastructure Department International Finance Corporation Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective: December 31, 2016) Currency Unit = Zambian Kwacha (ZMW) ZMW 9.92 = US$ 1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AC Alternating Current CEC Copperbelt Energy Corporation CDP Community Development Plan CLO Community Liaison Officer CPS Country Partnership Strategy CSP Concentrated Solar Power DC Direct Current DMMU Disaster Management and Mitigation Unit DFIs Development Finance Institutions DSCR Debt Service Coverage Ratio EBITDA Earnings Before Interest, Tax, Depreciation and Amortization EIRR Economic Internal Rate of Return EHS Environmental Health and Safety EGP Enel Green Power EMP Environmental Management Plan EROIC Annual Economic Return on Invested Capital ESAP Environmental and Social Action Plan ESIA Environmental and Social Impact Assessment ESMP Environmental and Social Management Plan ESRS Environmental and Social Review Summary EPC Engineering, Procurement and Construction ERB Energy Regulation Board ESMS Environmental and Social Assessment and Management System FASA Financial Advisory Services Agreement GDP Gross Domestic Product GHG Greenhouse Gas GHI Global Horizontal Irradiation GRS Grievance Redress Service GRZ Government of the Republic of Zambia GSA Government Support Agreement GWh Gigawatt Hour HFO Heavy Fuel Oil HSE Health, Safety and Environmental IDA International Development Association i IDC Industrial Development Company IFC International Finance Corporation IFC-CCCP IFC-Canada Climate Change Program IPP Independent Power Producer ISP Implementation Support Plan KGL Kafue Gorge Lower KPI Key Performance Indicator KWh Kilowatt Hour LC Letter of Credit NPV Net Present Value MIGA Multilateral Investment Guarantee Agency MFEZ Multi Facility Economic Zone MOF Ministry of Finance MOE Ministry of Energy MVA Megavolt Amperes MW Megawatt MWp Megawatt peak (the installed DC power of solar PV panels) O&M Operation and Maintenance OFC Offshore Financial Center OHS Occupational Health and Safety OPIC Overseas Private Investment Corporation PAD Project Appraisal Document PDO Project Development Objective PLA Project Labor Agreement PPA Power Purchase Agreement PPP Public Private Partnership PS Performance Standards PV Photovoltaic RFP Request for Proposals ROIC Annual Return on Invested Capital SEP Stakeholder Engagement Plan SPV Special Purpose Vehicle SSA Sub-Saharan Africa TTL Task Team Leader VRE Variable Renewable Energy WBG World Bank Group WTP Willingness to Pay ZEMA Zambia Environmental Management Agency ZESCO Zambia Electricity Supply Corporation Limited ZMW Zambian Kwacha ii International Development Association (IDA) Regional Vice President: Makhtar Diop Acting Country Director: Ivan Velev Senior Global Practice Director: Riccardo Puliti Global Practice Director: Lucio Monari Practice Manager: Wendy Hughes Practice Manager Guarantees: Pankaj Gupta Task Team Leaders: Mirlan Aldayarov, Arnaud Braud International Finance Corporation (IFC) Vice President: Dimitris Tsitsiragos Global Industry Director: Bernard E. Sheahan Regional Director: Oumar Seydi Regional Head of Industry: Bertrand Heysch de la Borde Global Industry Manager: Sumeet Thakur Country Managers: Jumoke Jagun-Dokunmu, Saleem Karimjee Transaction Manager: Yasser Charafi Regional Portfolio Manager: Linda Munyengeterwa Investment Officers: Soumya Banerjee, Rory L. Jones, Nancy Wang, Imraan Solwa Principal Counsel: Helen Ibbotson iii REPUBLIC OF ZAMBIA West Lunga Scaling Solar Energy Project (P157943) TABLE OF CONTENTS Page I. STRATEGIC CONTEXT .................................................................................................1 A. Country Context ............................................................................................................ 1 B. Sectoral and Institutional Context ................................................................................. 2 C. Higher Level Objectives to which the Project Contributes .......................................... 6 II. PROJECT DEVELOPMENT OBJECTIVES ................................................................7 A. PDO............................................................................................................................... 7 B. Project Beneficiaries ..................................................................................................... 7 C. PDO Level Results Indicators ....................................................................................... 8 III. PROJECT DESCRIPTION ..............................................................................................8 A. World Bank Group Scaling Solar Program .................................................................. 8 B. Zambia’s Scaling Solar Round 1 Background ............................................................ 10 C. Project Summary ......................................................................................................... 11 D. World Bank Group Instruments .................................................................................. 11 E. Project Costs and Financing........................................................................................ 12 F. Expected Future Scaling Solar Projects in Zambia (for information purpose) ........... 13 G. Rationale for IFC Blended Finance Involvement ....................................................... 14 H. Lessons Learned and Reflected in the Project Design ................................................ 15 IV. IMPLEMENTATION .....................................................................................................16 A. Institutional and Implementation Arrangements ........................................................ 16 B. Results Monitoring and Evaluation ............................................................................ 18 C. Sustainability............................................................................................................... 18 V. KEY RISKS ......................................................................................................................19 A. Overall Risk Rating and Explanation of Key Risks .................................................... 19 VI. APPRAISAL SUMMARY ..............................................................................................21 A. Economic and Financial Analysis ............................................................................... 21 B. Technical ..................................................................................................................... 22 iv C. Financial Management ................................................................................................ 24 D. Procurement ................................................................................................................ 24 E. Environment ................................................................................................................ 25 F. Social........................................................................................................................... 26 G. World Bank Grievance Redress .................................................................................. 26 Annex 1a: IDA Results Framework and Monitoring ...............................................................28 Annex 1b: IFC Development Impact Indicators .......................................................................29 Annex 2: Detailed Project Description .......................................................................................30 Annex 3: Implementation Arrangements ..................................................................................40 Annex 4: Environmental and Social Review Summary ...........................................................45 Annex 5: Implementation Support Plan ....................................................................................60 Annex 6: Economic and Financial Analysis ..............................................................................62 Annex 7: IDA Payment Guarantee Term Sheet ........................................................................74 Annex 8: Ownership and Structure – Application of Offshore Financial Centers Policy ...84 Annex 9: Statement of IFC’s Committed and Outstanding Portfolio in Zambia ..................87 v PAD DATA SHEET Zambia West Lunga Scaling Solar Energy Project PROJECT APPRAISAL DOCUMENT AFRICA Basic Information Project ID Environmental