PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE. Gaza Electricity Network Rehab Region. Middle East and North Africa Country

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1 64476 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Project Name Gaza Electricity Network Rehab Region Middle East and North Africa Country West Bank and Gaza Sector Energy Lending Instrument Specific Investment Loan Project ID P Parent Project ID N/A Borrower(s) Palestinian Liberation Organization Implementing Agency Palestinian Energy and Natural Resource Authority Environmental Screening Category [ ]A []B [ ]C [ ]FI [ ]TBD Date PID Prepared September 13, 2011 Estimated Date of Appraisal December 31, 2011 Completion Estimated Date of Board Approval February 23, 2012 Concept Review Decision Following the review of the concept, the decision was taken to proceed with the preparation of the operation. Other Decision N/A I. Introduction and Context A. Country Context 1. The economic situation in the Palestinian Territories is fragile and largely sustained by high capital inflows from donors, bilateral assistance programs and the United Nations. In 2009, the Palestinian Authority (PA) received more than US$1.355 billion in budget support from donors alone. 1 As a result, real Gross Domestic Product (GDP) grew by 6.8 percent in 2009 but despite this growth, real GDP per capita was still 15 percent below the 1999 pre-intifada level. Moreover, there is significant divergence between the situations in the West Bank versus Gaza. Based on International Monetary Fund (IMF) and Palestinian Central Bureau of Statistics (PCBS) estimates, real GDP grew by 8.5 percent in West Bank, while it grew only by 1 percent in Gaza due to and despite the blockade Restrictions currently in place limit private sector contribution to GDP, but investor confidence has increased with less stringent security restrictions by the Government of Israel (GOI) and reforms implemented by the PA that have improved security and service delivery The population in the Palestinian Territories was about 4 million in 2009 with growth averaging 2.1 percent per annum. 4 Income per capita in 2008 averaged US$1,340 (about 1 US$1.8 billion in 2008 and almost US$1 billion in These figures were presented by PA officials in meetings with donors 3 West Bank CPI was 0.6 percent, East Jerusalem was 3.5 percent and Gaza was 4.4 percent 4 International Financial Statistics, IMF

2 US$1, in West Bank and US$ in Gaza based on PCBS data). Unemployment declined slight, but remained high in 2009 at 24.5 percent primarily due to the situation in Gaza which reported an unemployment rate of almost 40 percent Over the last few years, Gaza has been split from the West Bank and ruled by another government, isolated by Israeli closures. However, the recent political reconciliation among the Palestinians and associated efforts to establish a unity government of technocrats with one of its objectives is the reconstruction of Gaza will make the implementation of the Gaza Recovery and Reconstruction a priority. 5. The economic crisis prevailing in Gaza over the last several years has deepened with the destruction of homes and infrastructure after the December 2008 conflict with Israel. Donor pledges of US$4.7 billion made at Sharm Al-Sheikh in March 2009 for Gaza s recovery and reconstruction remain largely undisbursed. The PA anticipates that the majority of the recovery and reconstruction requirements will be disbursed during Large part of the recovery requirements in Gaza is for the rehabilitation of the infrastructure networks (including electricity) which have been severely compromised by years of neglect and destruction. The economy and businesses in Gaza are trying to survive until circumstances permit them to fully operate again. In many cases enterprises have transformed themselves to offer different services. But most remain closed. A recent survey by the Palestinian Federation of Industries found that only 54 percent of industrial establishments destroyed in the December 2008 conflict were fully or partially rebuilt and only 23 percent of the work force was re-hired. 6 The longer the closure and the failing infrastructure continue, the more difficult it will be for businesses to resume normal operations. B. Sectoral and Institutional Context 7. The PA has implemented much of its medium-term power development strategy that is set out in the 1997 policy statement through the Palestine Energy and Natural Resources Authority (PEA) 7 and embarked on policies to reduce net lending on electricity. In addition to the Jerusalem District Electricity Company (JDECO) servicing the Jerusalem area and the Gaza Electricity Distribution Company (GEDCO) servicing the Gaza area, it has created three additional electricity distribution companies: the Northern Electric Distribution Company (NEDCO) that was established in the northern region of the West Bank; and the Hebron Electric Power Company (HEPCO) and Southern Electric Power Company (SELCO) that were created around in the southern region of the West Bank. In addition, it also approved the Electricity Law in May 2009 and in February 2010 the President approved the establishment of the Palestinian Electricity Regulatory Commission (PERC). 5 Source: International Labour Organization 6 PalTrade 2010: One Year after the Military Operation, an Outlook on: Gaza Strip Crossings & Damaged Industrial Establishments, page 9 7 Palestine National Authority, the Palestine Energy Authority, the Power Sector, Letter of Sector Policy, August 7, 1997.

3 8. Despite the troubles of early 2000s, energy demand in West Bank and Gaza has continued to grow quite rapidly. Consumption of electricity in the West Bank reportedly grew at 6.4% annually from 1999 to 2005 and 8% between 2006 and 2010, and is projected to grow steadily at a rate of about 7% from Consumption of electricity in Gaza reportedly grew on average at about 10% annually from 1999 to However, in recent years, electricity demand and growth in Gaza have been limited by the shortage of supply, damage to electricity networks and the blockade. 9. The Israel Electricity Company (IEC) supplies electricity to the Palestinian Territories with over 85 percent market share, making it the largest provider of electricity. The West Bank is highly dependent on electricity from the IEC, which is at 98 percent of total electricity supplied in While in Gaza, the electricity comes from three different sources: (i) import from IEC, (ii) import from Egypt, and (iii) the Gaza Power Plant (GPP). 10. The existing supply capacity from IEC to Gaza is approximately 120 MW and energy is fed from Israel through 10 points along the border from north to south via 22 kv lines. The generating capacity of the diesel GPP is 140 MW; however, the maximum dispatchable capacity is restricted to 60 MW due to the available transmission capacity from the plant after Israeli bombing in The plant has, furthermore, been used at lower utilization due to the limited availability of diesel. Finally, Gaza receives up to 17 MW from Egypt, provided since 2006 as an emergency measure via two 22kV feeder lines. 11. Electricity transmission to West Bank and Gaza is handled through IEC s medium voltage lines (22kV or 33kV), while distribution networks are rather fragmented and have been handled by a combination of distribution utilities and municipalities. 12. Therefore, depending on the available generation capacity at the GPP, total electricity supply ranges from 167 MW to 197 MW assuming available capacity at the GPP ranges from 30 MW to 60 MW. Total peak electricity demand in Gaza was estimated at 280 MW in 2010 which was much higher than the available capacity. To cope with the situation, scheduled electricity cuts impacting the full population of Gaza for up to 8 hours a day are necessary. GEDCO estimates the number of impacted people during hourly electricity cuts as shown in Exhibit 1. Exhibit 1: 2010 Gaza Power Demand and Deficit and Population Impact Total Available Power % of Deficit Power Number of People Affected 167 MW 40.4% 605, MW 29.6% 444, The shortage of electricity supply is further exacerbated by the deteriorated conditions of the electricity networks in Gaza. Despite some progress being made during the last two year in repairing part of the damages (due to the 2008 Israeli war on Gaza) in the electricity distribution networks, however, the networks themselves are laden with many problems including:

4 Overloaded and limited capacity of the medium voltage feeders from the main supply points (IEC, GPP and Egypt border) to the main load centers. Inadequate capacity of the low voltage networks to meet existing loads including unsafe installations and very low reliability and voltage profiles. High network losses reaching up to more 30% of the electricity supply which therefore worsen the level of electricity cuts. 14. These conditions have aggravated the already difficult living conditions of the population in Gaza. Electricity shortages and cuts are negatively impacting all social and economic aspects of daily life ranging from hospitals, clinics, and education to water, sanitation, agriculture, commercial business and the remaining functioning industries. Private backup generators are extensively used during periods of electricity cuts. These generators in many cases are unsafe and environmentally polluting as well as are not available to all sectors of the population. 15. Due to the challenging political environment, addressing the shortages of electricity supply and meeting the growing demand in Gaza remains a main challenge for the PA and PEA. However, from the electricity sector perspective, Gaza has a good choice of options for increasing power supply which could be further developed and implemented as the evolving political environment allows. These options include: (i) convert GPP to burn natural gas; (ii) interconnection with Egypt; and (iii) increase import from IEC. 16. The PEA is planning to develop a long term electricity supply plan for Gaza. As supply options become viable and in order to increase the performance efficiency, safety and utilization of the distribution networks, and to reinforce the networks capacity to be able to support additional level of electricity supply, rehabilitation and expansion of the electricity networks in Gaza will be required including major investments in the mediumand low-voltage distribution systems and metering. To assist in achieving this objective, this proposed Gaza Electricity Networks Project ( the Project ) aims to finance part of GEDCO s electricity investment needs and improve its technical, financial and institutional capacity. C. Relationship to CAS 17. The proposed Project provides financing support to PA s National Development Plan designating more than US$500 million for reconstruction and rehabilitation of infrastructure (including electricity) in Gaza. The project also appeals to two of the four pillars set out in the Interim Strategy for West Bank and Gaza (ISWBG) These pillars are: (i) support economic and private sector development; and (ii) support public infrastructure development. 18. The proposed Project is very important to Gaza despite its modest size when compared to the enormous investment needs required to improve electricity supply. Consequently, the scope of the project is also limited to electricity network reinforcement and does not include supply resources. Nonetheless, the Project is critical to improving the deteriorated electricity networks to boost the level of efficiency while expanding its capacity to allow for the transfer of any additional supply resources that may become available to Gaza.

5 II. Proposed Development Objective(s) Proposed PDO 19. The project development objective is to improve the reliability of the electricity networks in Gaza and GEDCO s capacity in system operations and management. Key Results 20. The project development objective will be measured using the following indicators: Increase MW capacity of medium voltage feeders rehabilitated and/or constructed; Increase collections; Reduce power interruption due to network outages; and Complete a Gaza electricity master plan. III. Preliminary Description 21. The total cost of the Project is estimated at $US16 million and will include the following components the scope of which will be further finalized during project preparation and appraisal and assessments being undertaken by PEA on the priority investment needs of Gaza electricity networks. Component 1: Network Rehabilitation and Expansion o Subcomponent 1: Rehabilitation of Medium and Low Voltage Networks. This subcomponent will rehabilitate the medium and low voltage networks to relieve existing equipment overloading, reduce losses and improve network voltage operation. o Subcomponent 2: Network Supply Improvement. This subcomponent will install new medium voltage feeder lines to reduce loading of existing feeders and increase the transfer of electricity from Gaza Power Plant and IEC supply point at Northern Gaza to demand centers in Gaza City. o Subcomponent 3: Increase Collection. This subcomponent will finance the supply and installation of pre-paid meters to reduce network losses and improve collection. Installation of pre-paid meters will be gradual and initiated on pilot basis. Component 2: Utility Capacity Building o Subcomponent 1: Supply of Vehicles, Tools and IT Systems. This subcomponent will support the purchase of utility tucks, equipment, tools and IT Systems to improve GEDCO operation and maintenance activities. o Subcomponent 2: Technical Assistance for GEDCO. This subcomponent may include the provision of technical assistance to improve the administration, financial management, tariff regulation and operational capacity of GEDCO. The

6 subcomponent will also finance a master plan for the electricity supply and transmission system in Gaza. IV. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples ( OP/BP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60) * Projects on International Waterways (OP/BP 7.50) The borrower will prepare an Environmental and Social Impact Assessment (ESIA) and a Resettlement Policy Framework (RPF). Both documents will be disclosed at the Bank s Infoshop and in-country prior to project appraisal. V. Tentative financing ($m.) Source: Borrower/Recipient IBRD IDA Special Financing 8.0 Islamic Development Bank 8.0 Total 16.0 VI. Contact point World Bank Contact: Husam Mohamed Beides Title: Senior Energy Specialist Tel: ext hbeides@worldbank.org Borrower/Client/Recipient Contact: H.E. Salam Fayyad Title: Prime Minister and Minister of Finance Tel: + 970(972) jya@menr.org Implementing Agencies Contact: Jamal Abu Ghosh * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

7 Title: Project Management Unit Director Tel: + 970(972) jya@menr.org VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: