PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB3692 Project Name. CM PRG for Kribi Gas to Power Project (FY09) Region

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1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB3692 Project Name CM PRG for Kribi Gas to Power Project (FY09) Region AFRICA Sector Power (100%) Project ID P Borrower(s) REPUBLIC OF CAMEROON Implementing Agency Environment Category [] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared February 25, 2008 Estimated Date of September 15, 2008 Appraisal Authorization Estimated Date of Board October 30, 2008 Approval 1. KEY DEVELOPMENT ISSUES AND RATIONALE FOR BANK INVOLVEMENT Reliable electricity supply is a top priority for growth and poverty reduction in Cameroon. Electricity access rates in Cameroon are estimated at about 46% overall but only about 11% for rural households. The vertically integrated power utility, the private electricity concessionaire AES Sonel had 536,974 total connections at the end of According to the World Bank s Investment Climate Assessment, limited access to reliable electricity is a core obstacle to doing business. It is estimated that the lack of reliable energy services is costing Cameroon close to 2% of GDP growth. The Government of Cameroon (GOC) initiated in 1998 a series of policy and structural reforms to promote the efficient operations of the power sector and increased private sector participation. GOC adopted an Electricity Law in 1998, a complementary Electricity Decree in 2000 and established a sector regulator (ARSEL) and a rural electrification agency (AER). The state-owned power utility was privatized through a 20-year concession in 2001 to AES Sonel 1 and was granted a monopoly over transmission and distribution throughout its concession area and the right to own up to 1,000 MW of installed capacity. A Presidential Decree of November 29, 2006 created the Electricity Development Corporation (EDC) which, among others, is responsible for the management of public sector assets in the power sector and the development of Cameroon s hydro power ressources. Investments in Cameroon s hydro dominated power system have not kept up with demand growth, creating the risk of power shortages from 2009 onwards. 721 MW of AES Sonel s installed capacity of 933 MW is hydro capacity (77%), while thermal capacity (diesel and heavy fuel oil) accounts for the balance (212 MW or 23%). Available capacity is significantly lower (about 750 MW in total) as the two largest hydro power generation plants at Edea and Song Loulou require rehabilitation. Historical growth rates of electricity supply of 2.3% in % AES, 46% GOC.

2 (4,003 GWh) and 3.6% in 2006 (4,147 GWh) are below projected average demand growth of 6% going forward. To avoid potentially significant power shortages from 2009 onwards, AES Sonel is in the process of installing an 86 MW HFO emergency power plant near Douala (Dibamba) and is developing the Kribi gas to power project with an expected commissioning date in The Kribi gas to power project will provide incremental generation capacity of at least 150 MW and increase reliability of electricity supply by diversifying production sources. Economic analysis confirms that the Kribi gas power project and the planned Lom Pangar Hydropower Project are the next least cost capacity additions in Cameroon s electricity sector. The Kribi project consists of a gas-fired power plant of at least 150 MW and a 100 km 225 kv dual transmission line. The plant site is close to the Sanaga Sud gas field, which will supply gas to the plant. The Kribi project provides a low cost diversification of generation resources and increases the reliability of electricity supply, particular in an environment of decreasing hydrology and rising fuel prices. The Kribi gas power plant will provide peaking capacity and add much needed spinning reserve in the system which will add to the stability and reliability of Cameroon s electricity system. In addition, the project will allow for the necessary rehabilitation of existing hydro power stations to take place and increase long-term reliability of electricity supply during the dry season and in years with low rainfall. The Kribi project will provide the anchor investment to develop the gas reserves in the Sanaga Sud gas field which exceed the gas needs of the Kribi project. Other gas developments projects are planned by the Republic of Cameroon according to a Gas Masterplan developed by SNH. Further development of Cameroon s gas reserves could provide the opportunity to transform some of the existing HFOfired power stations to lower cost gas-fired solutions in the future. As Cameroon s first Independent Power Producer (IPP), the Kribi gas power project will provide private finance for the development of Cameroon s energy sector, including longterm local currency finance to be made available from local commercial banks. The Kribi project is structured under a Built, Own, Operate (BOO) model and will be managed by Kribi Power Development Corporation (KPDC), an affiliate of AES Sonel. Depending on the choice of technology, total project costs are estimated in the area of $300 mm and will be financed 75% by debt and 25% by equity. Debt finance is expected to include a local currency tranche to be made available by local commercial banks. The World Bank will provide a Partial Risk Guarantee which will allow local banks to lend to KPDC with a long-term maturity. This will be first long-term loan from local commercial banks to an infrastructure project, thereby enhancing the development of Cameroon s financial system to provide term finance for infrastructure investments. World Bank Group (WBG) Strategy. IFC acted as advisor to GOC in the privatization of AES Sonel and was the lead arranger for a EUR250 mm syndicated loan signed in December 2006 for AES Sonel s EUR380 mm five-year investment program, providing EUR70 mm. The World Bank recently approved a $65 mm Energy Sector Development Project (ESDP) to improve access to electricity in rural areas through the creation of a Rural Energy Fund and strengthen the capacity of the Ministry of Energy and Water (MINEE), ARSEL, AER and EDC in planning and preparing investment projects in the energy sector, including future hydro power projects and rural energy projects. A parallel project on Environmental and Social Capacity Building for the

3 Energy Sector ($20 mm) has been approved to improve GOC s capacity to manage large energy infrastructure investments in a sustainable way. Through its Africa Action Plan and under the Clean Investment Framework on Energy for Development and Access for the Poor (in particular, Track 2 - Additional generation capacity of Pillar One), the World Bank is committed to scaling up support to electricity generation development in Africa. The WBG s Interim Strategy Note (ISN) for Cameroon defines improved generation capacity and access to electricity as a strategic priority for WBG support. The proposed projects contribute to the realization of this strategic orientation. Indications of GOC Commitment. The GOC requested World Bank support for the electricity sector in February 2007 and reiterated its request for World Bank assistance in a letter from the Minister of Economy and Planning in November 2007, including a request for a Partial Risk Guarantee (PRG) for the Kribi project. GOC is highly committed to the speedy implementation of the project as reliable energy supply is at the core of GOC s revised Growth and Poverty Reduction Strategy which is in the process of being elaborated. 2. PROPOSED DEVELOPMENT OBJECTIVES The primary project development objective for the project is to increase the capacity and reliability of electricity supply in Cameroon through the implementation of the Kribi gas to power generation project, thereby contributing to growth and poverty reduction in Cameroon. A secondary project development objective is to improve access to private finance for the development of Cameroon s electricity sector, including local currency financing. 3. PRELIMINARY PROJECT DESCRIPTION The Kribi gas power project is Cameroon s first IPP and will be operated by Kribi Power Development Corporation (KPDC), an affiliate of AES Sonel. KPDC will receive electricity production and sales licenses from the electricity regulator ARSEL. The Kribi project consists of a gas-fired power plant with a capacity of at least 150 MW located in the Mbolongwe village, 9 km north of the coastal city of Kribi in the southern province of Cameroon. A 100 km 225 kv dual transmission line will run between Kribi and the existing Mangombe 225/90kV substation at Edéa in the Littoral Province. The choice of technology for the power plant (gas engines or turbines) is being finalized. Additional investment components include the Sanaga South gas field which is being developed by a joint venture between the national oil company (Societé Nationale des Hydrocarbures - SNH) and the private company Perenco Cameroun under a production sharing agreement and financed by Perenco, and the CPF site at Bipaga and a gas pipeline linking the CPF and the power plant at Mpolongwe, financed by SNH. Gas supply arrangements between SNH and Perenco (GSA 1) and SNH and KPDC (GSA 2) are being finalized. AES Sonel will be the sole off-taker of electricity produced by KPDC under an arms length Power Purchase Agreement (PPA) under negotiation. KPDC will sign an operations and maintenance contract with AES Sonel. The aluminum smelter, Alucam, Cameroon s single

4 largest industrial electricity consumer, will ensure a stable base load for the project by taking up to 50 MW. Depending on the choice of technology, total project cost is estimated in the area of US$300 mm, of which up to US$225 mm debt financing (75%) and US$75 mm equity (25%). The World Bank will provide a Partial Risk Guarantee (PRG) for the Kribi gas power generation project for a total amount up to $60 million. The PRG is expected to cover GOC obligations under the GSA 2, IPP licenses and other project documents as relevant. The PRG will allow local Cameroonian banks to participate in the project financing. 2 Local currency finance will reduce foreign exchange risk, allow local banks to lend to KPDC with a long-term maturity and reduce interest rates with positive impacts on consumer tariffs. Other Development Finance Institutions including IFC will provide foreign currency syndicated loan financing for the project. 4. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples ( OP/BP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60) * Projects on International Waterways (OP/BP 7.50) Piloting the Use of Borrower Systems to Address Environmental and Social Issues in Bank-Supported Projects (OP/BP 4.00) 5. Tentative financing Source: ($m.) BORROWER/RECIPIENT 0 International Development Association (IDA) Guarantee 60 Total Contact point Contact: Astrid Manroth Title: Energy Specialist Tel: amanroth@worldbank.org 2 The WB-IMF Financial Sector Assessment for Cameroon conducted in June 2007 confirmed the stability and strong solvency and liquidity of Cameroon s banks. The banking supervisor, COBAC, has confirmed that the IDA PRG is in line with existing regulation and does not require specific approvals. * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

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