Project Information Document (Pid) s13

PROJECT INFORMATION DOCUMENT (PID)

CONCEPT STAGE

Report No.: AB2270

1. Key development issues and rationale for Bank involvement

Key Development Issues. Citizens of the Kagera River Basin (shared by Burundi, Rwanda, western Tanzania and Uganda) suffer from the aftermath of years of civil strife and limited investments in social, infrastructure and environmental assets. There is a strong commitment amongst the Kagera Basin governments towards addressing the regional energy crisis, expanding electricity access, and supporting development, to break out of a downward spiral of land degradation, unsustainable use of water, low access to public infrastructure and services, and constraints to private sector development. Lack of electricity is a key constraint hampering development in the sub-region. Most urban and rural households rely on biomass for their cooking and heating needs, leading to deforestation and soil erosion. Current electricity demand by far exceeds supply and load shedding is systemic. Businesses are forced to invest in expensive generators to prevent frequent black-outs and brown-outs that disrupt economic activities.

A multi-purpose Kagera Basin development program[1] has recently been established through the Nile Basin Initiative (NBI) with the objective of sharing benefits from productive use of water, social, environmental and economic investments. The program is part of the Nile Equatorial Lakes Subsidiary Action Program (NELSAP) of the NBI, an initiative which has been supported by the World Bank since its inception in 1997.

Rationale for Bank Involvement. Burundi, Rwanda and Tanzania are preparing the first major Kagera Basin infrastructure project for generating hydroelectricity at the Rusumo Falls site, and generating in turn multi-purpose and public goods benefits. The project also provides for important backbone transmission interconnections between Burundi, Rwanda, and Tanzania, contributing towards the medium and long term goals of interconnecting with the East African Community (EAC) and the Southern African Power Pool (SAPP).

The three countries have jointly[2] requested IDA to support the preparation phase of the project and to mobilize grants and other financing for the implementation of the project. On March 31, 2006 the three countries signed a Joint Project Development Agreement (JPDA) that commits them to a series of milestones, including a target date for financial closure, procedural terms for project management, adopting a development schedule and budget, and exploring all financing options including private sector participation in the project.

The project supports the national development strategies as outlined in the three PRSPs, and is included as a priority in the draft Regional Strategy for Eastern Africa[3]. The recent Clean Energy for Development Investment Framework[4] also promotes a low carbon economy with investments in hydropower schemes that can demonstrate the significant impact of partnerships between the World Bank, government, and the private sector. On the national and district levels, the project will be complementary to and support ongoing and planned development activities.

Four key sectoral analyses were undertaken as part of the identification phase by the World Bank to ensure early due diligence.

1. Proposed objective(s)

The RRFP project development objective is “to enhance economic and social development in the region through productive multi-purpose use of water and energy resources along with investments in sustainable livelihoods in the project area.”

The project, along with other development initiatives, supports the broader Kagera basin development goal, which is to improve livelihoods in the region through sustainable development in the Basin. To this end, benefit sharing mechanisms will be developed to ensure equitable distribution of benefits. Project outcomes at the regional level include an increase in economic activity, private sector development, and investments in social infrastructure and services facilitated by improved access to affordable electricity. Outcomes at the project area level focus on economic development in growth centers along the regional transmission lines by improving access to electricity for Micro, Small and Medium Enterprises (MSMEs) and environmental and social services. Targeted micro-grants, financial intermediation and capacity building are planned to assist public and private entities in improving the productive use of electricity, which translates into improved livelihoods at the household level.

1. Preliminary description

The preparation stage is divided into a pre-feasibility phase to explore different generation options using the available head and water resource, the full feasibility and basic design study phase assessing one preferred option based on a joint decision by the countries, and the independent Environmental Impact Social and Environmental Assessment phase.

The specific nature of project components will be reviewed when the pre-feasibility studies are available by early 2007. It is expected that technical and other issues referred to in all the components would also be reviewed with respect to their appropriateness and project packaging.

The three proposed project components are defined as:

Component 1: Hydroelectric power generation and multi-purpose development

Sub-component 1a: Hydroelectric power generation (est. US$ 110 Million).
This sub-component includes a hydropower facility with envisaged installed capacity of ca. 60 – 80 MW to be shared between the three countries. The pre-feasibility study will assess three alternative options, including at least one run-of-the river option, to optimize the hydropower scheme from technical, economic, social and environmental points of view. One of the selected options will be studied up to full feasibility including basic design. The power station and hydraulic infrastructure would be situated at the Rusumo Falls, where the Kagera River forms the boundary between Tanzania and Rwanda, about 2 km downstream of the river’s confluence with the Ruvubu River. A linkage program could build capacity of local businesses and the labor force, and provide incentives to exploit regionally sourced content in procurement of goods and services.

Sub-component 1b: Multi-purpose/benefit sharing in the project area (est. US$ 15-20 Million).

This sub-component will provide funds for the initial implementation of the social and environmental management programs. This will include watershed management, key catchment restoration, erosion control, programs for prevention and treatment of waterborne diseases, HIV/AIDS prevention in association with dam construction, and stakeholder communication. In addition the project will provide support for targeted local communities and business, e.g. MSME capacity building, micro-finance schemes and social development funds, creating incentives that make the local community shareholders and advocates of the project, fully benefiting from economic opportunities. The implementation mechanism for this sub-component will be determined during the feasibility phase.

Component 2: Power transmission, regional integration of networks and distribution

Sub-component 2a: Regional transmission interconnection (est. US$ 40 Million).

Three transmission lines –from Rusumo to (i) Gitega, Burundi (200 km); (ii) Kigali/Kabarondo, Rwanda (50 km); and (iii) Biharamulo, Tanzania (100 km)– will connect the power station to the national grids of Rwanda and Burundi, and supply electricity to the western mining provinces of Tanzania, which are currently not connected to the country’s national grid. It is expected that in the medium-term these transmission lines will form an integral part of a regional “backbone” grid for power trade with the EAC, around Lake Victoria, and in the long-term with the South African Power Pool. The transmission lines will be designed to support provision of low-cost electrification, as well as ITC systems, in targeted rural growth centers in the transmission corridor.

Sub-component 2b: Multipurpose/benefits sharing in growth centers along the transmission corridors (est. US$ 15-20 Million).

This sub-component will promote the use of electricity in selected rural growth centers[5] of the transmission corridor. Small-scale investments in both the public and private domains (e.g. through capacity building, financial intermediation and micro-grant schemes to support MSMEs) are envisaged to promote economic growth and livelihood improvements in selected growth centers. Implementation arrangements for this sub-component will be explored during project preparation, building on the local knowledge of national utilities and local government implementing mechanisms.

Component 3: Project institutional arrangements (est. US$ 10 Million).

At the project level a joint utility/institutional mechanism will be established for management of power generation and distribution to national utilities. The joint institution will have a formal legal status vested by the three Governments and will maintain effective institutional linkages with the overall Kagera basin management framework of the NBI. The joint utility may also implement some of the key social and environmental management activities, including urgent catchment restoration and protection. The detailed design of the project institution, organizational structure, legal charters, and operational responsibilities will be analyzed and developed during the project preparation period.

At the sub-regional level the four countries in the Kagera Basin (including Uganda) are working towards establishing a Kagera River Basin Management Framework closely linked to the Lake Victoria Basin Commission of the East African Community (EAC) and the Nile Basin Initiative (NBI). This work is ongoing in a parallel NBI/NELSAP project - the Kagera Transboundary and Integrated Water Resources Management Project (Kagera TIWRM). The management framework will assess options for basin management and development based on available water and natural resources and investment opportunities including water allocation to different Basin activities such as the RRFP.

Project preparation arrangements during the feasibility stage. The client countries established a Project Implementation Committee (PIC) in April 2005 to guide and oversee project preparation and implementation. It consists of 6 members, i.e. the heads of utilities and directors of energy ministries from each country. The Project Manager of the NELSAP Kagera TIWRM, NELSAP-Coordination Unit officials and donor partners are observers to the PIC. The PIC is being advised by an Independent Panel of Experts (POE) which is being recruited. An Advisory Technical Committee is set up by the countries to follow up the technical aspects of the feasibility study components. It will include National environmental authorities, institutions in charge of resettlement policies, water resources management institutions and institutions in charge of privatization and promotion of private investments.

1. Safeguard policies that might apply

The following safeguard policies are likely to be triggered; OP 4.01 (Environmental Assessment), OP 4.04 (Natural Habitats), OP 4.12 (Involuntary Resettlement), OP 4.37 (Safety of Dams), and OP 7.50 (International Waterways). The feasibility study teams will seek to integrate work on addressing safeguards issues, and developing mitigation measures, into the feasibility studies to support the optimization component and other technical aspects of the study. An independent ESIA will be undertaken by consultants not linked to the power generation and transmission feasibility studies.

1. Tentative financing

1. Contact point

Contact: Jakob Granit

Title: Sr. Water Resources Management Specialist.

Tel: + 46-8-748-0170

Fax:

Email:

[1] The countries are developing a cooperative basin management mechanism and investment strategy through the NELSAP Integrated Kagera River Basin Management and Development project. This project also seeks to establish an effective Kagera Basin multi-country institution, which will support the RRFP by ensuring an optimized allocation of water rights and a mechanism for benefit sharing.

[2] The Ministry of Finance in each country requested separately IDA support for the project in mid 2005.

[3] World Bank. 2006. Draft Regional Integration and Cooperation in Eastern Africa: Identifying Strategic Opportunities for World Bank Regional Interventions. Washington, DC: World Bank.

[4] An Action Plan adopted by the board of Governors of the World Bank on March 28, 2007

[5] Primarily Muyinga and Karuzi in Burundi; Kibungo and Kabarondo in Rwanda; and Ngara and Biharamulo in Tanzania.