Download Project Name - World bank documents

PROJECT INFORMATION DOCUMENT (PID)
APPRAISAL STAGE
Project Name
Region
Sector
Project ID
Borrower(s)
Implementing Agency
Environment Category
Date PID Prepared
Date of Appraisal
Authorization
Date of Board Approval
Report No.: AB6383
Zambia Kafue Town - Muzuma - Victoria Falls Regional
Transmission Line Reinforcement Project
AFRICA
Power (100%)
P124351
REPUBLIC OF ZAMBIA
ZESCO Limited
Stand No. 6949
Great East Road
Zambia
Tel: 260-211-362771 Fax: 260-211-222753
[email protected]
[ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined)
March 16, 2011
February 24, 2011
May 26, 2011
1. Country and Sector Background
1.
Zambia is a low-income country of about 12 million inhabitants with a Gross Domestic
Product (GDP) per capita of US$950 (2009). Zambia has made significant socio-economic
progress over the past decade. A relatively stable macroeconomic environment and improved
macroeconomic policies1 since 1996 have resulted in a number of gains, which further increased
following privatization of the mining industry in the 2000’s and a return to fiscal discipline with
low inflation. However, Zambia’s rank in the UN Human Development Index for 2010 is 150
out of 169 countries and real GDP per capita in 2009 was only 64 percent of per capita GDP in
1965. Despite the gains, the sources and benefits of economic growth have been narrowly
focused on capital-intensive industrial (mining and construction) and services sectors, which has
yet to translate into lowering poverty and raising living standards.
2.
The improved fiscal position has afforded the country much-needed latitude to increase
spending on development objectives. The focus of the Government’s strategy is on increasing
domestic revenue mobilization and reprioritizing expenditures, shifting towards capital
investment and social-sector spending to reduce poverty while maintaining a sustainable fiscal
position.
A. Sectoral and Institutional Context
3.
The overall national electrification rate is about 22 percent, with about 40 percent of the
population in urban and peri-urban areas and only 3.1 percent in rural areas having access to
electricity. Electricity is a key input for the industrial and commercial sectors, which account for
nearly 70% of electricity consumption
1
World Bank. "Zambia: Country Economic Memorandum." Policies for Growth and Diversification. 2004. Report
No. 28069-ZM.
4.
Limited investment in energy infrastructure has been a significant obstacle to growth and
to the development of a more dynamic and diversified export sector. The rapid expansion of
mining and other energy-intensive industries over the years absorbed the surplus of electricity
that characterized Zambia’s energy sector through the 1990’s. However, generating capacity
additions are under development to cope with the growing demand (see paragraph 6) based on
the Government’s strategy for the development of the sector over the medium to long-term. The
strategy also focuses on improving the efficiency of sector performance, and further integration
of Zambia’s power system into the Southern African Power Pool (SAPP).
5.
A reliable energy supply is acknowledged as being vital to the growth of the national
economy, and while the Government is committed to continuing to advance reforms in the
energy sector, it also recognizes that the long term sustainable solution lies in the power system’s
further integration in the Southern African Power Pool for more cost-effective electricity
supplies, improved security and reliability of supply in addition to the benefits that participation
in the pool would bring. The Government sees also the potential of Zambia becoming the future
electricity trading hub with the interconnections of the Eastern Central and Southern African
Power Pools, which would enable Zambia to maximize benefits from participation in the
regional power markets around it.
6.
The proposed project to strengthen the high voltage transmission link to Namibia, and to
provide an additional power transmission corridor for power flows between the northern and
southern member countries of the SAPP is in line with the approach to further regional
integration. Zambia is interconnected in the north with DRC through 220 kV transmission lines,
and in the south by 330 kV lines with Zimbabwe within the SAPP high voltage transmission
grid. The National Electricity Dispatch Center of the Zambia power system serves as one of the
area control centers of SAPP that monitors power flows between DRC and the rest of SAPP as
well as assuring integrity and security of the interconnected regional transmission system under
emergency situations.
2. Objectives
7.
The development objective of the project is to improve the reliability of ZESCO’s
regional power trade transmission network infrastructure.
3. Rationale for Bank Involvement
8.
The proposed project will support reinforcement of the existing transmission network,
increasing ZESCO’s power transfer capacity to the southern part of the country, reducing the
high level of technical losses in the network, and bringing additional revenues for ZESCO
through wheeling charges gained from cross-border power trade, and enabling ZESCO to more
actively participate in the short-term energy market. The proposed project is directly linked to
Bank’s Infrastructure Development strategy under the current Zambia Country Assistance
Strategy (CAS) – Accelerating and Sharing Growth through Improved Competitiveness. The
CAS articulates three priority areas in the support to the energy sector: (i) financing new
generation and transmission capacity and demand-side management measures to mitigate the
power crisis; (ii) provision of financing and technical assistance for access expansion to increase
the current low electrification rate; and (iii) provision of investment and technical assistance to
ZESCO to improve efficiency and quality of services.
4. Description
9.
The project will have three components:
(a) Component 1: Upgrading of the existing 220kV transmission line to 330kV. This
component consists of replacing the existing 341 kilometers of 220kV transmission
cable from Kafue-town through Muzuma to Victoria Falls with a new 330 kV
transmission cable on the same towers.
(b) Component 2: Reinforcement and Construction of Substations. Under the this
component, the existing 220 kV transformers and associated switchgear equipment
will be decommissioned and replaced with 330 kV transformers and associated
equipment at the Kafue Town and Muzuma substations, and new 330/220 kV
substation will be constructed at Livingstone. The use of available bays within the
Kafue Town and Muzuma substations for installation of the new transformers and
other equipment, and the deliberate selection of the site for the new Livingstone
substation in an unpopulated area will minimize the environmental and social impacts
of the project and will increase the implementation speed.
(c) Component 3: Project Management, Environmental and Social Mitigation, and
TA. This component will support (i) the financing of the services of the Engineering
and Project Implementation Management consultant; (ii) environmental and social
mitigation activities as detailed in the Project’s Environmental Impact Assessment
and Resettlement Policy Framework (RPF); (iii) technical assistance to ZESCO to
improve its capacity in designing, developing and executing investment projects for
improved service delivery in electricity generation, transmission and distribution; and
(iv) strengthening of the project implementation team for effective project monitoring
and implementation.
5. Financing
Source:
BORROWER/RECIPIENT
International Development Association (IDA)
EC: European Investment Bank
Total
($m.)
20
60
30
110
6. Implementation
10.
ZESCO Limited will be the implementing agency. ZESCO will establish a full time
Project Implementation Unit (PIU) that will be responsible for the implementation of the project.
The PIU will receive full support from the Environmental and Social Affairs Unit (ESAU) of
ZESCO through an Environmental Coordinator for the implementation of the Environmental and
Social mitigation plan.
11.
An engineering consultant will be financed under component 3 of the project to assist
ZESCO in two phases with (i) review of design and preparation of the bidding documents for
components 1 and 2; and (ii) supervision of construction and preparation for operation and
maintenance of the complete investment (the full transmission line and the upgrade of
substations) undertaken in Components 1 and 2.
7. Sustainability
The Government of Zambia is fully committed to supporting this project. The Ministry
of Finance and National Planning (MoFNP) has agreed to provide tax and duty exemptions for
all imported goods and international services under the project. ZESCO’s management has
demonstrated its commitment by its highly responsive and active support for this project.
12.
13. There are two key factors that determine the sustainability of the project’s development
objective:
(a) Timely expansion of least cost generation in Zambia. The current generation
capacity and the proposed generation expansion plan under the PSDMP (largely
through completion of ongoing power station rehabilitation and new hydropower
generation) is considered adequate for meeting the cross-border power trade
commitments and the growing loads in southern Zambia by 2015. The completion of
the 360MW Kariba North Bank extension in calendar year (CY) 14, 120MW ItezhiTezhi hydropower plant in CY15, 40MW Lusiwasi Hydro station and a number of
smaller mini hydro projects would increase ZESCO electricity production by 38% to
15,006 MWh in CY15. The Kafue Gorge Lower (KGL) project which is expected to
become operational by 2017-2018 will provide an additional 600 MW in new
generation capacity. These could support regional power trade and increased
domestic consumption.
(b) Financial viability of ZESCO. ZESCO’s financial performance until a few years
ago was adversely affected by power supply constraints, high distribution losses, low
electricity tariffs and high payroll costs. However, implementation of a series of
major tariff increases in 2009 - 2010 (totaling about 87%) has allowed ZESCO to
significantly improve its financial performance and put the company on the path to
financial sustainability. Finical performance of ZESCO is expected to further improve
in FY11-FY19, mainly due to increase in generation and implementation of new
transmission projects that would enable the company to significantly increase
electricity exports and domestic sales. Increased electricity production, coupled with
significant tariff increases described above, will allow ZESCO to maintain financial
sustainability in the medium to long term and successfully service increased debt
obligations: the Debt Service Coverage Ratio is expected to remain above 1.75 level
in FY11-FY19.
8. Lessons Learned from Past Operations in the Country/Sector
14.
The Bank’s experience with power sector and other infrastructure projects in Zambia
has been incorporated in the design of this project. These include careful assessment of the
financial viability of the utility (ZESCO) and its cash flow projections; effective partnership
arrangements for close coordination among donor partners during both design and
implementation; and commitment of all parties involved to implementation of the safeguards
mitigation plan.
9. Safeguard Policies (including public consultation)
Safeguard Policies Triggered by the Project
Environmental Assessment (OP/BP 4.01)
Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Indigenous Peoples (OP/BP 4.10)
Physical Cultural Resources (OP/BP 4.11)
Involuntary Resettlement (OP/BP 4.12)
Forests (OP/BP 4.36)
Safety of Dams (OP/BP 4.37)
Projects on International Waterways (OP/BP 7.50)
Projects in Disputed Areas (OP/BP 7.60)*
Yes
[ X]
[]
[]
[]
[]
[X ]
[]
[]
[]
[]
No
[]
[ X]
[ X]
[X ]
[X ]
[]
[X ]
[ X]
[X ]
[ X]
10. List of Factual Technical Documents
15.
The following documents are on file for this project:





Feasibility Study for the Kafue Town – Muzuma – Livingstone 220kV Transmission
Line Upgrade Project
Environmental Impact Assessment Report for the Kafue Town – Muzuma – Victoria
Falls 220 kV to 330 kV Line Upgrade Project
Review of Load Forecast Study
ZESCO Limited Financial Statements 931 March 2010)
Resettlement Policy Framework for the Kafue Town – Muzuma – Livingstone 220kV
Transmission Line Upgrade
11. Contact point
Contact:
Title:
Tel:
Fax:
Email:
Bobak Rezaian
Senior Energy Specialist
(202) 473-3290
(202) 473-5123
[email protected]
12. For more information contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
Email: [email protected]
Web: http://www.worldbank.org/infoshop
*
By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the
disputed areas