Project Name(ID): GH-Energy Dev & Access SIL (FY08) (P074191)IDA Project Amount: $91.91 million
IDA Amount left to be disbursed as of end October: $75.70 million Trust Fund Project Amount: $50 million Trust Fund Amount left to be disbursed as of end October: $39.20 million
Board Approval Date: 26-Jul-2007,
Closing Date: 30-Nov-2012
Sector: Power (86%); Renewable energy (7%); Central government
administration (7%)
Project development objective(s):
Improve the operational efficiency of the electricity distribution system and increase the population's access to electricity. The Global
Environmental objective of the project is to support Ghana's transition to a low carbon economy through the reduction of Green House Gas
emissions.
Progress toward achieving development objective(s):
Physical works to reinforce the existing grid have begun. Progress with the off-grid solar Photovoltaic (PV) component has been slower and some modifications may be needed to adjust to the impact of falling prices and rapid improvements in LED technology. Reductions in CO2 emissions
attributable to the project will take longer to materialize.
Energy Sector Issues
1.5 Power supply shortage is seriously affecting economic activity in the country. Due to rapid increase in demand - that has been sustained by low prices - and low water inflows to the Akosombo and Kpong hydropower reservoir, Ghana is suffering from a serious electricity supply deficit, which threatens its achievement of economic growth targets. In early 2007
hydropower output had reduced by 25 to 30 percent.
1.6 The financial condition of the power companies Volta River Authority (VRA) and Electricity Company of Ghana (ECG) is fragile. The financial problems stem from below cost tariffs that do not reflect the increased
generating cost resulting from a doubling of oil prices and increased share of oil fired generation in the generation mix.
1.7 Distribution losses are high and power supply is frequently disrupted. Inadequate investment and preventive maintenance have led to
deterioration in electricity distribution infrastructure resulting in poor quality of electricity supply and operational inefficiencies. Losses in the distribution network are 26 percent.
1.8 There are large disparities in electricity service provision between urban and rural areas. In 2004, Ghana's electrification rate reached 54
percent, significantly higher than the average of 21 percent of Sub-Saharan Africa. However, in the rural areas, only 17 percent of the population has access.
Sector Reform Strategy
1.9 Increasing Generation Capacity through Regional Integration: Regional energy integration has added a new dimension to the sector’s
development. Ghana is one of the key players in the regional push towards energy trade. The Parliament of Ghana ratified the ECOWAS Energy Protocol - the umbrella law for all energy integration projects in West Africa - in
June 2004 to pave the way for the financial closure for the West African Gas Pipeline (WAGP) and the West African Power Pool (WAPP). Both regional projects are critical to enhance energy security in Ghana. The WAGP would enable Ghana, together with Benin and Togo, to gain access to natural gas resources in Nigeria, and the WAPP would facilitate Ghana’s access
to, and sharing of the region’s rich hydro and natural gas
resources.
1.10 Restoring the Financial Viability of the Power Companies.
1.11 Improving the Performance of the Power Companies. If the Government
is to reduce supply deficits and expand access of electricity, it needs
also to upgrade and expand the transmission and distribution networks and
remove operational inefficiencies. To do this requires significant and
sustained investments and strong management.

1.12 Scaling-up Energy Access to reduce Urban-Rural Imbalance. Since the
late nineties, Ghana has spearheaded innovative programs to extend energy
access to rural areas. The Ministry of Energy instituted a National
Electrification Scheme (NES) in 1989 as the principal instrument to
achieve its policy of extending the reach of electricity to all parts of
the country over a 30-year period. The first phase of the NES electrified
all district capitals and towns/villages on-route to the district capital
under the National Electrification Project. The second phase of the NES,
the Self-Help Electrification Program, started in 2001. These programs
have electrified more than 3,000 communities and increased access from 28
percent of the population in 1989 to 54 percent in 2004.
1.13 The Government is now initiating the third phase of its
electrification program. Under this phase, it will develop investment
appraisal and funding mechanisms that increase the transparency of the
program, promote private sector innovation, and ensure that the program
does not impose an uncompensated financial liability on the distribution
companies. Instead of relying entirely on ECG to extend the grid to new
areas, it is planning to modernize its rural electrification policy to
allow both grid-based electrification and off-grid alternatives to coexist
and complement each other. In addition, the Government wants to promote
renewable energy alternatives in areas that are outside the reach of the
national grid through innovative credit facility mechanisms that both
lower the upfront cash cost of solar lighting equipment for consumers and
improve the business environment for small energy entrepreneurs.
2. Objectives
2.1 The project’s development objective is to improve the
reliability of electricity supply and increase people’s access to
electricity.
2.2 The global environmental objective of the project is to support
transition to a low-carbon economy through the reduction of greenhouse
gas emissions (GHG) in line with the United Nations Framework Convention
on Climate Change and its Kyoto Protocol, to which Ghana is a Party (GEF
OP 5 and 6). Moreover, the efficiency enhancing measures in the
transmission and distribution sector are likely to generate additional GHG
reductions for which carbon finance may be claimed. The project will be
instrumental in containing carbon dioxide (CO2) emissions by improving
energy efficiency of the electricity distribution system through
application of new business practices and technology.
2.3 Progress towards achieving these objectives will be measured by the
following indicators: Improvement in ECG technical and commercial
performance. Increase in household electrification rate. Tons of CO2
emissions avoided, calculated over the estimated lifetime of renewable
energy equipment installed under the project. 3. Rationale for Bank
Involvement
3.1 IDA has supported Ghana’s power sector with nine lending
operations over four decades, helping to finance virtually all the major
sector investments since Ghana’s independence. IDA helped finance
the Akosombo and Kpong dams and power plants, rehabilitate the
transmission systems, increase thermal generating capacity, and extend the
national grid to northern Ghana. IDA funding allowed the Electricity
Company of Ghana (ECG) to improve its distribution networks in urban
centers and provide electricity to small urban centers, district capitals
and rural areas through a systematic electrification program. Furthermore,
together with IFC and MIGA, IDA is supporting the development of a
regional power market in West Africa.

3.2 The long history of partnership in the energy sector places the Bank
in a unique position to assist Ghana in tackling its energy challenges.
Bank involvement will: (a) enable substantial financing support; (b)
provide knowledge and experience with respect to electrification
initiatives and distribution system management; (c) strategically
complement regional activities in the energy sector, including the WAGP
and the WAPP; and (d) leverage financing from other development partners
and contemporary public-private financing instruments hitherto not
commonly used in Africa such as “carbon credit” financing of
loss reduction and efficiency improvements and GEF financing for
renewable energy.
4. Description
4.1 The project has four components: (a) sector and institutional
development; (b) transmission improvement; (c) distribution improvement;
and (d) access expansion.
Component A. Sector and Institutional Development
4.2 This component comprises: (a) a corporate strengthening program for
ECG; (b) regulatory capacity strengthening; (c) sector policy and strategy
development; (d) upgrading staff skills in
MOE, VRA, and ECG; and (e) studies and consulting services.
Component B. Transmission Improvement
4.3 This component has two parts: (a) Transmission system enhancement; and
(b) technical assistance.
Component C. Distribution Improvement
4.4 The component comprises a Distribution Upgrading Component and a
Commercial Systems Upgrading Component.
Component D. Access Expansion
4.5 This component has five sub-components: (a) Capacity building; (b)
Increasing market penetration in peri-urban and rural areas where grids
already exist; (c) Grid extensions; (d) Minigrids supplied from
mini-hydro, renewable energy, and biomass generation; (e) and Solar PV
systems.
5. Financing
IDA 90.00
Global Environment Facility (GEF) 5.50
Borrower/Recipient 12.60
African Development Bank 30.00
Free-standing Cofinancing Trust Fund 50.00
Global Partnership on Output-based Aid 6.00
Borrowing Country’s Financial Intermediaries 9.00
SWITZERLAND: Swiss Agency for Dev. & Coop. (SDC) 12.00
Total 215.10
6. Implementation
6.1 Overall Project Responsibility. MOE will be in charge of coordinating
the overall project, including monitoring and evaluating project progress
and achievement of its development objectives, reporting, and ensuring
that environmental and social management plans are implemented as
required.
6.2 Project Implementation Teams. Each of the participating institutions -
VRA, ECG, and MOE - will have a dedicated Project Implementation Teams.
7. Sustainability
7.1 Sustainability. The IDA grant will finance the capital cost of
transmission and distribution investments in urban and rural areas. The
sustainability of this infrastructure will depend on the
quality of the operations and maintenance as well as systems for
financing their costs.

7.2 The main elements for ensuring the sustainability of the ECG and VRA
components will be (a) increasing net revenue per unit of electricity
sales (through cost-reflective tariffs, selective
load-shedding and/or fiscal support); and (b) reducing the per customer
unit cost of supply.
7.3 In the rural areas, the increased connection volume will reduce the
cost per consumer and enhance sustainability. To this end, the project
will promote the use of low cost technologies such as the installation of
ready-boards rather than complete house wiring. This system provides
instant access to electricity without costly house wiring. A study has
concluded that connection costs can be reduced by 30-40 percent through
competitive bidding procedures and low-cost technologies. The project will
carry out design studies to define the appropriate technologies for
different areas depending on the level and type of customer demand.
7.4 Replicability: The project supports the development and initial
implementation of a commercially-oriented framework for scaling-up
electricity access. It also supports emerging business models that engage
the private sector in providing electricity services. Once these models
demonstrate success, they can be replicated nationwide in Ghana and in
other sub-Sahara African countries.
8. Lessons Learned from Past Operations in the Country/Sector
8.1 Distribution: Global experience in distribution suggests that
continuation of investments to the sector during the reform transition
period, particularly when such investments assist loss reduction and
contribute to ending the culture of non-payment. Improvements in the
sector’s business processes and attributes are important for
private sector participation. Investments are also important for the
provision of stable services to maintain political and public support for
the longer-term reform process. Experience also indicates that annual
customer satisfaction surveys are a useful tool for monitoring results and
keeping stakeholders engaged. A competent, domestic civil society
organization is generally best placed to carry out such periodic customer
surveys and to provide external monitoring feedback. The project has
incorporated these lessons through providing the necessary financial
support for ECG and incorporated annual customer satisfaction surveys in
the ECG’s institutional development component.

8.2 Electricity Access: An ESMAP report highlights the main lessons from
successful rural electrification programs in the developing world. These
are: (a) setting up an effective
implementing agency dedicated to rural electrification; (b) placing a
strong emphasis on cost recovery; (c) keeping prices high enough to make
rural distribution companies financially
sustainable; (d) ensuring that subsidies encourage rather than discourage
the development of the distribution business; (e) setting up selection
criteria for rural electrification schemes; (f) reducing initial
connection charges or spreading them over a period of several years; (g)
reducing construction and operating costs; and (h) allowing both
grid-based rural electrification and off-grid alternatives to coexist and
complement each other. The project has incorporated all of the above
lessons in the development of the third generation access expansion
framework for Ghana.

8.3 Renewable Energy: The project has reviewed and incorporated
experience and lessons learned from past GEF PV projects in Ghana and
elsewhere. The fee-for-service model to deliver SHS in Ghana under the
UNDP/GEF was not financially sustainable for the service providers,
because the monthly charges were too low to cover the operating and
maintenance costs of the SHS. A lesson learned from a recent DANIDA
supported solar project was that rural banks should participate in the
program design from the very beginning. The project has incorporated this
lesson by involving the rural banks at the preparation stage. The project
has also incorporated the lessons learned from a successful Sri Lanka
Energy Service Delivery program, which used IDA refinancing to provide
long-term financing and credit to renewable energy projects. The project
design also incorporated lessons learned from the China Renewable Energy
Development Program, where small-scale SHS systems are the dominant solar
products for the “dealer credit sales model”, given the low
ability to pay in rural areas.
9. Safeguard Policies (including public consultation)
9.1 The project is a pilot for the Bank’s “use of country
safeguard systems”. A multidisciplinary team from the World Bank
and African Development Bank conducted a two-stage review of the Ghanaian
social and environmental safeguard systems. The first stage was to
determine which of the safeguards are equivalent to the Bank’s and
AfDB’s, in terms of meeting the operational principles of the
Bank’s policies as outlined in OP 4.00 Piloting the Use of Borrower
Systems to Address Environmental and Social Safeguards Issues in
Bank-supported Projects. In the second stage, the Bank/AfDB team assessed
the acceptability of the Ghanaian systems that were found to be
equivalent, by reviewing experience with implementation in both
Bank-supported and non-Bank-supported projects. The conclusions for the
operational policies that would otherwise have been triggered by the
project are summarized below.
· Environmental Assessment under Ghanaian law, regulations, and
procedures is equivalent and acceptable, provided the gap-filling
measures listed at the end of this section are carried out . The credit
agreement for the project will contain covenants to address minor gaps in
equivalence in the interim. OP/BP/GP 4.01 is therefore not triggered for
the project; the Ghanaian system will be used instead in accordance with
OP 4.00. Subprojects will be screened and environmental studies will be
ordered, prepared, reviewed and disclosed according to Ghana EPA’s
regulations and VRA, ECG and MOE procedures. Ghanaian law and practice
on land acquisition, resettlement and compensation were found not to be
equivalent to Bank policy for several reasons, chief among which are
limitations on eligibility for compensation for persons that do not hold a
proprietary interest in the land being acquired. OP/BP 4.12 is therefore
triggered for the project, and the borrower has * By supporting the
proposed project, the Bank does not intend to prejudice the final
determination of the parties’ claims on the disputed areas prepared
an RPF which was approved by the Bank and publicly disclosed in-country
and in the InfoShop on February 20, 2007. RAPs will be prepared by
implementing agencies in accordance with the RPF and reviewed by the Bank
prior to activities that include acquisition of land or other assets,
restriction of access to customary assets, or other negative impacts on
livelihood. While VRA has an enviable record of dam safety, there is
nothing in Ghanaian statutes or regulations equivalent to Bank policy.
OP/BP 4.37 is therefore triggered for the project, in case any mini-hydro
subproject is of sufficient size to necessitate the dam safety procedures.
Double click here for link to Ghana Energy Access Development Project
Appraisal Document
Kennedy Fosu
Knowledge Space
World Bank Ghana Office
Tel 233 21 214 142
http://www.worldbank.org/afr/gh/