Status: S3 programme/project structuring and promotion to obtain financing. Project Number: E.07.1 Project Title: Sambangalou Dam

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1 Project Number: E.07.1 Project Title: Sambangalou Dam Status: S3 programme/project structuring and promotion to obtain financing Countries Region Senegal, Guinea, Gambia West Africa Project Location It is located 930 km upstream from the mouth of the Gambia River and about 25km south of Kédougou. The dam will be located in Senegal, and part of the 185 km 2 reservoir will be in Guinea. Sector Sub-Sector Energy Generation Project description This project entails the construction of a gravity dam with a 128 megawatt capacity, as well as a 185 square kilometre reservoir. Objectives Supply of sustainable electricity to the three countries Control of the water level in the river basin Promotion of peace and stability in the region Economic Sustainability and expected benefits Through the development of this 128 MW hydropower plant on the Gambia River, the countries involved namely Senegal, Guinea, Guinea-Bissau and the Gambia will enjoy low-cost, renewable energy. This project originally formed part of a larger Gambia River Basin Development Organisation (OMVG) project which entailed an interconnecting power grid with the Kaleta Dam in Guinea. The availability of low-cost electricity will lead to increased regional power trade and enable regional integration. The additional electricity made available through this project will also increase the region s energy security. REC ECOWAS, CEN - SAD Project Sponsors Governments of Senegal, Guinea, Gambia Implementing Authority Lead Agency: Gambia River Basin Development Organisation (OMVG) ECOWAS, ECOWAS Bank for Investment and Development and the West African Power Pool will play key roles in the implementation. Project Status Feasibility study completed in detailed social and environmental impact assessments were done to avert any possible environmental impact. It was determined that a resettlement programme is necessary All documents, policies, studies and legal framework have been completed; will be updated by new transaction advisor once the financing is in place. The permits are in place Total estimated Project Value USD 454, 500, 000 Way Forward Dedicated co-ordination unit to be formed to manage the implementation process Updated inter-governmental agreement to be drafted Project sponsors to decide whether PPP structure is to be employed Construction to begin in 2014; Construction duration would be 4 years Political Support This project enjoys strong political support in all countries involved. There is a single agency, OMVG, to co-ordinate between the three countries, thus presenting a unified policy to development finance institutions and private sector financiers. 1

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3 Background This project originally formed part of a larger Gambia River Basin Development Organisation (OMVG) project which entailed an interconnecting power grid with the Kaleta Dam in Guinea. The OMVG was established in 1978 with the three principal thrusts of energy, food security and communication. The original OMVG Energy Project involved the four countries of Gambia, Guinea, Guinea-Bissau and Senegal and focussed on the rational management of common resources of the Gambia, Kayanga-Géba and Koliba- Corubal Rivers. The three physical components of the OMVG Energy Project were a) Sambangalou Dam, b) Kaléta Dam and c) an interconnection transmission line (T-Line) circuit linking the two dams to the electric grid of the four member countries. This project had been the subject of a detailed environmental and social impact assessment (ESIA) with resettlement action plans (RAPs) to meet regulations applicable within OMVG countries and those of AfDB. These river basins provide an opportunity for power production and studies have been financed by OMVG countries with international assistance in particularly from the African Development Bank (AfDB). A first study on power production and transmission investments in OMVG member countries was conducted from 1994 to It identified a program of hydroelectric sites development and an interconnection line. AfDB then financed the technical, economic, environmental and institutional feasibility studies for the OMVG Energy Project. This work was conducted from February 2002 to May 2004 by the same consortium retained in the first set of studies (COTECO). Detailed technical studies and the preparation of request of proposals documents, including the update of the environmental and social impact studies were done. The Project documentation also included an Environmental and Social Management Plan (ESMP) approved at a restitution meeting in Dakar in December Both the Sambangalou Dam and the Kaléta Dam are now PIDA projects. The OMVG will still take the lead on this project, while the Economic Community of West African States (ECOWAS), the ECOWAS Bank for Investment and Development and the West African Power Pool will play key roles in the implementation. Economic Sustainability and Strategic Importance The main objective of the Sambangalou Hydroelectric development project is to generate 128 MW capacity of hydro capacity to meet the projected growth of electricity demand in the West Africa region, to be shared between Senegal, Guinea, Guinea Bissau and the Gambia in proportions to be determined. A subsidiary objective is to increase the share of non-ghg emitting power generation to improve the technology mix of the sub-region The site of Sambangalou Dam is located in Senegal 930 km upstream from the mouth of the Gambia River and about 25 km south of Kédougou. It consists of a well-established dam site with a capacity of 128 MW and a potential for 400 GWh, with irrigation and flood control prospects. This site was chosen given the 3

4 power deficit in the region and the high dependence on imported oil and use of environmentally damaging hydrocarbon power generation. The proposed dam and reservoir at Sambangalou is in Senegal and the reservoir overlaps Senegal and Guinea. The project zone covers Guinea (reservoir and relocation zone), Senegal (main dam works, including part of the reservoir), a downstream Senegalese reach and then a Gambian downstream reach to the sea. Guinea-Bissau is not directly affected. The project will impact 186 households (1,320 persons) and 1,250 ha of land (of which 850 ha of cultivated land). The beneficiary countries will be Gambia, Guinea, Guinea-Bissau and Senegal. ECONOMIC IMPACT: It is expected that the project will create 3000 permanent jobs per annum in the construction phase, and 1400 in the operation phase. Improvement in the quality of life in host sites Allow land tenure security and Creation of income opportunities. The availability of low-cost electricity will lead to increased regional power trade. The additional electricity made available through this project will also increase the region s energy security. The project will supply additional low GHG electricity to neighbouring countries, in particular the Gambia, Guinea, Guinea-Bissau and Senegal. This dam, combined with the Kaleta Dam and the transmission lines in the Gambia River basin are expected to meet 22% of the region s energy needs. It will contribute to a multi-sector (water and power) approach to regional integration. ENVIRONMENTAL IMPACT: Environmental and social risks will necessitate diligent management, notably regarding relocation of populations and downstream environmental impact on the Gambia River. This zone is dominated by upstream forest in the catchment area and a mix of forest and open savannah. The River also passes notably through the Niokolo-Koba National Park in Senegal before continuing into Gambia. The park has suffered considerable degradation in its conservation value as a result of changing climatic conditions and water availability in its cuvettes, or wetland depressions. It has also suffered from poaching. Tourism is very limited and makes a minimal contribution to the management of the park. The river subsequently traverses a very extensive level and low lying agricultural basin subject to seasonal and occasionally severe and damaging floods (notably in 1999 and 2003/04). In the vast tidal reaches of the Gambia River extensive mangroves dominate. The study area is clearly immense and covers significant parts of the three countries. The dam site environment might be described as of Guinean wooded savannah type with gallery forest in valley bottoms. The landscape is degraded from its natural state by the presence of man and through burning and shifting field development, and opening of tapades for cultivation. Natural stands of palm trees are used for oil extraction and are a particular feature of the Kaleta area. One obvious impact is in loss of natural resources such as soils and vegetation, as well as to the loss of faunal habitats because of the creation of a reservoir of 185 km 2. These impacts clearly cannot be mitigated because 4

5 of their irreversible character. Reservoir inundation will displace local populations, while there is a potential for health impacts. Agricultural lands will be lost as well as access to cross the river easily during the dry season. In the operation phase, Sambangalou will have major impacts on the river regime. These impacts are linked to modification of the hydraulic balance in the wet zones of the Senegalese and Gambian reaches. There will be a recession of the saline front during the dry season (positive and negative impact) and for a period a deteriorated quality of water downstream of the dam (and in the reservoir). In particular there will be modification of the morpho-sedimentary balance of the estuary and progressive impoverishment of the mangrove swamp in the central estuary area. This will lead to a loss of certain habitats downstream during the dry season and there will be modification of some animal populations in such reaches. With regard to the human habitat, the negative impacts of the operation of Sambangalou Dam are linked to health, especially with regard to risks of waterborne illnesses. There will be an initial reduction of fishing yields downstream of the dam. However, many positive impacts will compensate these disadvantages, such as the potential for improvement of supply of rural electricity, the opening up of the reservoir zone to economic development, agricultural opportunities and flood protection. Impacts Mitigation and Enhancement: To minimise, mitigate or compensate the impacts of Sambangalou Dam, the ESMP includes a program of measures for both pre-construction /construction and operation phases. In the pre-construction and construction phase, the recommended mitigation consists of contractor best practice stipulations to minimise, for example, nuisance caused to local populations and the risks of degrading natural resources (water, vegetation, wildlife, etc.). In the operation phase, the ESMP mostly aims to mitigate the impacts downstream of Sambangalou Dam. For example, there is a proposal for an eventual artificial flood to mitigate the impacts on wetlands downstream. Also, it is recommended that there be an artificial low water level in order to enable wildlife to cross Gambia river in the dry season, especially in Niokolo-Koba National Park, and to allow replenishment of brackish water to the mangrove located in the saline front withdrawal area. The ESMP identifies stakeholders for implementation and monitoring environmental change. MOUs have been signed with Wetlands International and IUCN to participate in studies to monitor environmental change and develop cost-effective mitigation response measures. The conclusion of COTECO at the time of the feasibility study of was that this component of the OMVG Energy Project despite its inevitable and varied likely impacts did not represent risks to challenge the project context. Among the solutions for mitigation and compensation particular attention was focused on: a) populations in the zone of the reservoir, but also to villages directly downstream the dam (M bara, Roundé M bara, Tépéré Diantou and Kédougou), b) the Niokolo-Koba National Park, c) the fishing zone located in the area of recession of the saline front in Gambia, and d) the totality of downstream wetlands. The upstream impact study proved to be an important element in the choice of elevation 200 for the height of the dam, allowing minimisation of impacts. One of the most critical impacts will be the relocation of more than 1,300 persons presently living within the area of the future Sambangalou reservoir. The RAP relocation plan defines the arrangements for managing resettlement and compensation. Significant environmental (and 5

6 social) impacts in the Senegalese and Gambian downstream reaches are also anticipated, and measures are proposed to mitigate these through control and management of water flows from the dam. Technical Specifications The SambangalouDam will be a multi-purpose dam. It will have an installed capacity of 128 MW and the mean energy production will be 402 GWh per year. The total capacity will be 3,800,000,000 MW. The design involves the construction of a gravity dam and 4 turbines of 32 MW each. The plant production cost is estimated at US Cents 16.2/kWh at the bus bar. Project Structure Other implementing partners: West African Power Pool, ECOWAS Project Sponsors: Govt.s of Senegal, Guinea, Gambia Sambangalou Dam Co-ordinating agency on behalf of the 3 countries: Gambia River Basin Development Organisation (OMVG) Development Finance Institutions: ECOWAS Bank for Investment and Development, AfDB Off - takers: Senegal, Guinea, Guinea-Bissau and the Gambia 6

7 The project is being developed by OMVG as a regional organization, with the oversight of the West African Power Pool. It is developed as a public sector project. Proposed financing structure: PPP was envisaged, but this option seems to be no longer the preferred approach and more concessional funding is being sought. Private sector financing is being sought to fill the financing gap, but little progress has been achieved under the proposed project structure which rests on public sector control. PPP viability: PPP can be envisaged with IFI risk management support to cover the performance risk of utilities. PPP seems to be the most practical approach to fill the project financing gap, but a consensus needs to be found on the opportunity of PPP. PPP feasibility depends above all on the creditworthiness of the offtaker utilities, which will require performance guarantee from the respective governments. A sensitive aspect is that PPP would involve the loss of control of OMVG and the countries on the project, which would be commercially run. This vision is not fully endorsed by all partners. Project Status Feasibility study completed in detailed social and environmental impact assessments were done to avert any possible environmental impact. It was determined that a resettlement programme is necessary Dedicated co-ordination unit to be formed to manage the implementation process Updated inter-governmental agreement to be drafted Project sponsors to decide whether PPP structure is to be employed EoIs released by OMVG in July 2013 for: o technical, legal, and transactions consultant to update technical studies of the project, structure transactions and legal agreements, define terms of electricity sales from the Kaleta project, study OMVG restructuring, and study regulatory mechanisms o environmental and social consultant to review studies of environmental and social assessment and formulate a project of mitigation and conservation of watershed ecosystems Discussions on-going on financing; the next step is the finalization of the financing plan. It is under the responsibility of OMVG. Commissioning scheduled in

8 Risk Analysis Certain assumptions were made in the course of project development, which if not borne out, present risks for the project. Mitigation arrangements would have to be made for safeguarding against these risks. Assumption Risk Mitigation Arrangement If the project cannot be fully funded by grants, the capacity of OMVG to service the debt will have to be strengthened. OMVG is capable of filling the financing gap without calling on the private sector. The project is financially sustainable. OMVG is developing this as a public sector project. Financing plan is incomplete by a large amount and donors regional allocation of funds is unlikely to be sufficient to fill the gap. Project financial sustainability is not established. The structuring of the project as a public sector project raises two issues: it may not allow the mobilization of the missing resources to fill the financial gap of the project. In addition, it is unlikely the envisaged institutional arrangements will guarantee the financial sustainability of the project. Similar structures have net with recurrent financial and management issues. The envisaged operation by a private company under an O&M contract is unlikely to be sustainable, as evidenced by the Manantali case. Even as a public sector project, there is no credible mechanism to ensure the sustainability of the project. ECOWAS, WAPP and OMVG to reconsider the decision to develop the project as public sector and consider PPP structure. OMVG to develop the project to private investor selection point. Financing gap to be filled by private investors/lenders Cost of the project can be fully covered by electricity sales. OMVG has the institutional and financial capacity to implement the project, including the water management component. Cost of electricity is close to $ Cents 15/kWh, which provides little incentives for other countries to purchase electricity from Sambagalou. Terms of power off-take from sub-regional utilities are not finalized yet. Implementation capacity of OMVG may need to be strengthened. Off-take agreements to be negotiated Performance guarantees for the performance of utilities to be established 8

9 Financial Status Total estimated Project Value USD 454, 500, 000 Potential Financiers (2013): Proportion AfDB 14% Debt Chinese government 86% Debt Projected financial position (2013): Break even year 25 Financial Internal Rate of return 15.5% per year Cumulative benefit to cost ratio 0.6 Existing financing: The project will be financed by the OMVG members with assistance from the African Development Bank, EIB, the World Bank, AFD, BIDC, BOAD, KFW, Abu Dhabi. The AfDB has actively sought to promote private sector participation in the project, through equity or debt participation, pending further discussions on the project. The financing plan is not yet finalized. Donors have pledged about USD 190 million for the project, leaving a financing gap of about USD 265 million. Funding Gap USD 265 million 9