Zambia Energy Sector World Bank Mission
October 31-November 10, 2016
AIDE MÉMOIRE
World Bank Energy Sector Portfolio
Implementation Support Mission
October 31 – November 10, 2016
for
Kafue – Muzuma – Victoria Falls Regional Transmission Line Reinforcement (P124351),
The Lusaka Transmission and Distribution System Rehabilitation (P133184),
The Renewable Energy Resource Mapping Technical Assistance (P145271),
The Electricity Access for Low-income Households in Zambia (P146636 and P159610),
Scaling Solar Guarantee (P157943), and
Scaling-Up Renewable Energy Investment Plan (P160383)
This Aide Mémoire was discussed and agreed upon with the,
Department of Energy – Ministry of Energy, on December 02, 2016
Introduction
1. This Aide Mémoire summarizes the findings of a World Bank energy sector
implementation support mission for the above captioned projects and initiatives.
2. The mission1 wishes to express its thanks to: Mr. Oscar Kalumiana, Director,
Department of Energy (DoE), Ministry of Energy and his team; Mr. Andrew Chipwende, Chief
Executive Officer, Industrial Development Corporation (IDC), Mr. Victor Mundende,
Managing Director, ZESCO Ltd. and the management team; Mr. Geoffrey Musonda, Chief
Executive Officer, Rural Electrification Authority (REA) and his management team;
3. Ms. Langiwe Lungu, Executive Director, Energy Regulation Board (ERB) and the
management team; and Mr Clement Sasa, Manager, Office for the Promotion of Private Power
Investments (OPPPI) for the cordial reception and courtesies rendered. A list of persons met is
provided in Annex 1.
1 The mission comprised: Mirlan Aldayarov (Zambia Program Leader), Joseph Kapika (Co-Program Leader/Senior Energy
Specialist), Reynold Duncan (Lead Energy Specialist); Arnaud Braud (Co-Leader for Scaling Solar/ Energy Specialist),
Anthony Molle (Senior Legal Counsel), Rajesh Advani (Co-Leader for Electricity Access/Senior Infrastructure Specialist);
Kenta Usui (Energy Specialist), Imtiaz Hizkil (Power Engineer), and Sipiwe Chihame (Program Assistant). Inputs for the Aide
Memoire were also provided by Wedex Ilunga (Senior Procurement Specialist), Baison Banda (Financial Management
Consultant), and Mwansa Lukwesa (Environmental Specialist).
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Mission Objectives
4. The main objectives of the mission were to:
Undertake the mid-term review of the Kafue – Muzuma – Victoria Falls Regional
Transmission Line Reinforcement Project (P124351);
Provide implementation support for the on-going projects: (i) Kafue - Muzuma - Victoria
Falls Regional Transmission Line Reinforcement (P124351); (ii) Lusaka Transmission
and Distribution Rehabilitation Project (LTDRP- P133184); Electricity Access for Low-
income Households in Zambia (P146636 and P159610); and Renewable Energy
Resource Mapping Technical Assistance (P145271);
Follow-up on the preparation of the Scaling Solar Guarantee Project (P157943); and
Finalize arrangements for the disbursement of the grant for the Zambia Scaling-Up
Renewable Energy Program (SREP) Investment Plan Project (P160383);
Disclosure
5. It was agreed at the wrap up meeting that the Aide Mémoire would be publicly disclosed.
A. Key Findings and Issues
1. Power Supply Situation. Zambia continues to face a significant electricity deficit
primarily due to lower than expected rainfall over the last two years which has led to the main
reservoirs in the country’s hydro dominated power system only being partially replenished. By
end October 2016, the water level at the Kariba reservoir had fallen to 478.5 meters above sea
level, close to the minimum operating level for electricity generation of 475.5 meters, and lower
than the 478.7 meters recorded at the same time in 2015. In order to manage the deficit, ZESCO
has since July 2015 invoked load-shedding, on a rotational basis that at times lasts more than 8
hours a day. The utility has also entered into contracts for emergency electricity imports from
Southern African Power Pool (SAPP member utilities and also private suppliers. The tariffs for
these emergency imports have generally been higher than the prevailing average for ZESCO
consumers. The fiscal strain that this imposes combined with the overall reduction in productive
activity on account of the power deficit is having an adverse impact on the economy.
2. Sector Reforms. The Government is committed to addressing the power deficit and
recognizes that insufficient investment in generation capacity and lack of diversification of the
energy mix has contributed to the current crisis. In order to place the power sector on a
sustainable path, the Government plans to move tariffs to cost recovery levels over the short to
medium term for all customers, including those in the mining industry that are on long-term
power supply agreements, and engage proactively with the private sector to deliver new
generation capacity and increase on-grid and off-grid access to electricity. In increasing
generation capacity, the Government is cognizant of the effects of climate change and for this
reason intends to diversify the generation mix with non-hydro sources. To this effect the
300MW coal-fired Maamba power plant has recently been commissioned and the World Bank
Group-supported Scaling Solar projects are a priority. The Government is also considering
options to improve both technical and commercial efficiency in the electricity supply industry
and intends to undertake a review of the structure, governance and operations of the sector. The
World Bank stands ready to support the Government with these initiatives, including
complementing the cost of service study that shall be launched by the Energy Regulation Board
by end December 2016 with further technical assistance as is necessary.
3. Scaling Solar Guarantee Project. The Mission was informed that projects under the
WBG Scaling Solar initiative remain a priority for Government. During the Mission joint
discussions with the Department of Energy (DoE), Industrial Development Corporation (IDC)
and ZESCO were held in order to align the next processing steps for all stakeholders and avoid
delaying project implementation. Commercial close of the two projects under Round 1, that
have a total capacity of 75.7MW, was initiated with the signing, in November 2016, of the
related Shareholders Agreements between IDC and the respective developers. It is expected that
following the registration of the project companies, the corresponding Power Purchase
Agreements (PPAs) and Government Support Agreements (GSAs) shall also be signed.
Execution of these agreements shall initiate a 90-day period, within which financial close should
occur. This requires that Bank Board approval for the International Development Agency (IDA)
guarantee is obtained within the period since this is part of the security structure in the PPAs.
The Mission informed DoE, IDC and ZESCO that in order to progress processing of the
guarantee and avoid breaching the 90-day period, ZESCO would need to issue the Request for
Proposals (RfP) for procurement of the Bank that would provide the Letter of Credit (L/C) – a
constituent part of the IDA guarantee structure – by November 23, 2016. The Mission further
informed the parties that if financial close was not reached within the stated period this could
lead to financial penalties. It was agreed that ZESCO would issue the L/C RfP as soon as the
Attorney General completed reviewing, and consented to the related documentation. The
Mission requested that all efforts be made to expedite this process.
4. Performance of ZESCO-implemented projects. Implementation of the projects has
been steadily improving and progress is accelerating.
ZESCO is to be commended for a number of corrective actions taken over the last few
months resulting in substantially expedited implementation of the Kafue -Muzuma -
Victoria Falls Regional Transmission Line Reinforcement Project (KMVFP). These
measures include: (i) closer supervision by the ZESCO project implementation unit
(PIU); (ii) allocation of additional resources by the contractor including the appointment
of a new project manager, increased manpower and equipment; and (iii) ZESCO’s
provision of longer line shutdown periods. The PIU was confident that this momentum
would be sustained through to completion of the project. Rehabilitation and
reinforcement of the Kafue Town - Muzuma portion of the transmission line was
expected to be completed by end-November/early December 2016. Thereafter, the
contractor would commence works on the Muzuma - Livingstone section.
Audit delays that had previously been reported had been resolved and since this was no
longer outstanding, the implementation rating of the project was expected to be
upgraded. However, despite the improved implementation progress, works at the
Muzuma and Kafue Town substations were only expected to be completed by August
2017, i.e. beyond the current closing date of June 30, 2017. Moreover, works at the EIB
- funded Livingstone substation would only be completed by end - December 2017.
Therefore, in order to achieve the project’s development objectives, and align the
implementation schedule with that of EIB, it was agreed that a closing date extension
through end-December 2017 was required. It was further agreed that ZESCO would
initiate the process and that the formal request from the Ministry of Finance (MoF)
should reach the Bank by end-December 2016. Further details on project implementation
progress are reflected in Annex 2.
Implementation progress on the Lusaka Transmission and Distribution
Rehabilitation Project (LTDRP) has also improved with works having commenced on
one Bank financed package and the procurement of another two underway. Further effort
was however required for the rating of the project to be upgraded. The Mission observed
that even if procurement of these three packages, estimated at US$68million value, was
to be completed, disbursements would remain low through June 2017. Furthermore,
procurement of the remaining 4 packages, under Bank financing, that are currently being
prepared is only scheduled to commence around mid-2018. The project may therefore
need to be restructured. An option that could be considered for a potential restructuring
would be to release the currently committed IDA resources that are earmarked to fund
packages scheduled to be procured later, in the amount of approximately US$40 million.
In the meantime, ZESCO would continue with preparation of the engineering designs
and bidding documents, for the remaining while at the same time focusing on
progressing the implementation the first three packages. Thereafter, and provided
implementation progress improved, the option of additional financing to fund the
remaining components could be considered. Further details on project implementation
are reflected in Annex 3.
Implementation of the output-based aid (OBA) grant for the (a) Electricity Access for
Low Income Households in Zambia (P146636 and P159610) is satisfactory, with a
disbursement rate of 82% that aligns with the project closing date of June 30, 2017. The
project has fully implemented the household connections component, and surpassed the
22,000 connections target that had been set by over 11,000 additional connections.
ZESCO has now commenced implementation of the component for connecting 5,000
micro and small enterprises (MSEs). Project details are reflected in Annex 4.
5. Renewable Energy Resource Mapping Technical Assistance. The project activities
are progressing well. The first round of maintenance for the 6 solar measurement stations that
have been installed was carried out in June 2016. Meanwhile, installation of all eight 80m wind
measurement masts was completed in December 2016. Project details are reflected in Annex 5.
6. Proposed New Access project. The Bank has identified about US$38 million of IDA
funding available for allocation and commitment in FY2017, i.e. by end-June 2017. Following
discussions with the Government, it was proposed to allocate the identified resources towards
increasing access in both peri-urban and rural areas. Given the short period to June 2017, it
would be beneficial to determine the extent to which the existing institutional infrastructure for
the roll-out of access programs within both ZESCO and the Rural Electrification Authority
(REA) could support the design and preparation of the proposed project. The proposed project
could also include an off-grid component, taking into account lessons learnt from the recently
closed (June 2015) Bank financed Increased Access to Electricity Services Project, which would
further support the development of private sector participation in off-grid solutions. In
discussions with ZESCO, the Mission noted that in order for an appreciable number of grid
connections to be made, the proposed project would also require investments in network
reinforcement, an element that is not included under the ongoing OBA project that ZESCO was
implementing. A proposed early design concept of the proposed project is reflected in Annex 6.
7. Scaling up Renewable Energy Program (SREP). The application for the US$300,000
grant by the Government for preparation of the Investment Plan under the SREP had been
approved. The requisite legal agreements had been finalized and were submitted to the Ministry
of Finance on December 01, 2016 and are awaiting signature. Once the Investment Plan had
been completed, it would be forwarded to the SREP sub-Committee for approval and
consideration for financing.
8. Multi-Tier Framework for Measuring Access. As agreed with the Government, the
World Bank would support the first Global Energy Access Household Survey for Zambia using
the Multi-tier Access Framework in order to set a baseline to track progress towards the
Sustainable Energy for All (SE4All) goal and Sustainable Development Goal (SDG) number 7
on access to affordable, reliable and sustainable modern energy by 2030. The Request for
Expressions of Interest (REOI) from suitably qualified firms to conduct the survey was issued
in November 2016. Procurement of the firm is scheduled to be finalized by January 2017 and
the survey completed by mid-2017.
B. Agreed Actions and Next Steps
9. The Mission discussed and agreed the Key Actions and next steps with Government and
implementing agency counterparts as detailed below. It was proposed that the next
implementation support mission take place in February 2017.
Agreed Actions and Next Steps
No. Key Agreed Actions Responsible
by
Target Date Status
Scaling Solar Guarantee Project
1 Follow up with AG office to complete review and
release of the L/C RfP
IDC, MoE November 18,
2016
Done
2 ZESCO to issue RfP ZESCO November 23,
2016
Done
3 L/C bids submission deadline ZESCO December 14,
2016
Done
4 World Bank Board guarantee approval date (tentative) World Bank Early
February
2017
Kafue Town-Muzuma-Livingstone Regional
Transmission Project (KTML project
1 PIU to provide revised disbursement estimates ZESCO December 31,
2016
2 ZESCO to initiate a closing date extension request to be
sent to the Bank
ZESCO December 31,
2016
Received
Lusaka Transmission and Distribution Project
1 Zambia counterparts to carry out internal consultations
on potential project restructuring options and
communicate to the Bank
MoE,
ZESCO
January 31,
2017
Proposed New Access Project
1 REA to share Master plan, rolling investment plan and
latest annual report
REA December 09,
2016
Received
2 ZESCO to share completed regional investment plans
for access
ZESCO November 18,
2016
Received
3 Draft TOR for consultants to compile REA and ZESCO
data and outline investment options for proposed project
and share with counterparts
World Bank December 31,
2016
4 Draft TOR for consultants to review investment options,
prepare demand analysis, financial and econ analyses,
and support project implementation plan and share with
counterparts
World Bank December 31,
2016
Annex 1
List of Persons Met During the Mission
Name Title Email Telephone
Department of Energy
Oscar Kalumiana Director [email protected] +260 966
090564
Arnold Simwaba Assistant
Director
[email protected] +260 975
752993
L M Musalila Senior Energy
Officer
[email protected] +260 971
880896
Misheck
Mubuyaeta
Energy Officer [email protected] +260 979
002299
William
Masocha
Energy Officer [email protected] +260 974
871033
Lukonde Kaunda Energy
Economist
[email protected] +260 9799
53948
Office for the Promotion of Private Power Investment
Clement Sasa Manager [email protected] +260 977
871109
Clement Chiwele Chief Engineer [email protected];
+260 979
413853
Chrispin L.
Kahongo
Technical
Assistant –
Zambia Tanzania
Kenya
Interconnector
Project
[email protected] +260 966
765654
Energy Regulation Board
Alfred Mwila Director –
Economic
Regulation
[email protected] +260 977
826525
Yohane Mukabe Director –
Technical
Regulation
[email protected] +260 966
789004
Rodgers
Muyangwa
Manager –
Economic
Regulation,
Electricity
[email protected] +260 966
456382
ZESCO Limited
Webster
Musonda
Director
Transmission
[email protected] +260 977
789915
Mutungwa
Mugala
Director
Distribution and
[email protected] +260 966
767025
Customer
Services
Saidi Chimya Acting Director
Finance
Regina Chabala Senior Manager -
Treasury
[email protected] +260 966
458912
Kennedy
Mwanza
Project Manager
– Transmission
Development
(North)
[email protected] +260 979
762136
Mundia
Simainga
Senior Manager
Consulting
Services
[email protected] +260 977
777168
Kennedy Sichone Project Manager
EALHP
[email protected] +260 977
805412
Daniel Mvula LTDRP [email protected] +260 955
765778
Leonard Mpundu IALHP [email protected] +260 974
404686
Godfrey Mwenda IALHP [email protected] +260 965
791919
John M. Chirwa LTDRP [email protected] +260 977
741424
Wilbroad Chanda LTDRP [email protected] +260 977
795043
Justin Changala IALHP [email protected] +260 966
745014
Taulino Banda LTDRP [email protected] +260 977
420028
Rural Electrification Authority
Geoffrey
Musonda
Chief Executive
Officer
[email protected] +260 977
601630
Patrick Mubanga Director –
Technical
Services
[email protected] +260 211
241301
Jaqueline
Musonda
Director –
Corporate
Service
Annex 2. Status of Implementation
Kafue - Muzuma – Victoria Falls Regional Transmission Line Reinforcement Project
(KMVFP)
Project Context
1. The Project was approved in May 2012 and became effective in December 2012. The
project development objective is to improve the reliability of ZESCO's regional
transmission network infrastructure along Kafue Town – Muzuma - Victoria Falls
corridor. In October 2015, the project closing date was extended from December 31,
2015 to June 30, 2017. The components of the project are:
a. upgrading of the existing 220kV transmission line;
b. reinforcement and construction of transmission substations; and
c. project management, environmental and social mitigation, and training.
2. The scope of the project is to re-insulate and re-conductor the transmission line running
from Kafue Town to Victoria Falls via Muzuma substation in order that it can be
energized from the current 220 kV to 330 kV and by so doing increase transfer capacity.
The first 341 km line is to be reinsulated to 330 kV and strung with twin Bison
conductors per phase. The remaining section of 7 km between Livingstone substation
and Victoria Falls substation is also to be reinsulated and re-conductored, however, it
will be operated at 220 kV. Furthermore, the substations at Kafue Town and Muzuma
will be upgraded and a new 500MVA 330/220 kV substation constructed at Livingstone.
The project will enhance bulk power transfers between Zambia and Namibia specifically
and in among SAPP member utilities in general.
3. The project is co-financed with the European Investment Bank (EIB) that are financing
construction of the green-field Livingstone substation and also the upgrade of Victoria
Falls substation.
4. A Mid-Term Review (MTR) was conducted to identify opportunities to accelerate
project implementation and thereby improve project performance. The MTR is subject
of a separate report.
Key Findings
Upgrade of Existing 220 kV Transmission Line from Kafue Town to Victoria Falls
Substations
5. Project implementation progress has accelerated in recent weeks. The line upgrade
contract was signed on January 8, 2015 and became effective on March 10, 2015. The
procurement of various components by the contractor has progressed satisfactorily.
However, overall works progress was unsatisfactory until October 2016. ZESCO
attributes the delays to technical difficulties encountered and the lack of capacity on the
part of the contractor. Initial delays were due to the mechanical failure of power line post
insulators on the diversion line as well as the 330 kV long rod post insulators. By end of
July 2016, only 60 km (17%) of stringing was completed which increased to 90 km
(26%) by end of September. However, progress during October was significantly higher
as it increased the total stringing to 147 km during the month and the PIU is confident
that this momentum will be sustained. This accelerated implementation was the result of
a number of ZESCO initiatives, including:
a. Closer project supervision by ZESCO, which considers Kafue-Muzuma
transmission line upgrade as a critical step to improve dispatching the domestic
generation and import. To this end, ZESCO accommodated longer shutdowns of
the line to allow the rehabilitation crew to work on the longer stretches of the
line.
b. Adequate resources made available by the contractor. The management of the
contracted company, paying closer attention to the project as ZESCO was
considering termination. The contract has since appointed a new project manager
and made available additional sets of equipment and a crew team.
6. The Mission visited the site of transmission line stringing work on the section of
transmission line between Mazuma and Kafue Town substations. The Mission was
informed by the contractor’s new Project Manager that upgrade works on the entire
section are expected to be completed before the end of December 2016. The upgrade
works on Muzuma – Livingstone - Victoria Falls sections is planned to commence in
January 2017. The plan was to complete the section comprising of 159 km of line length
by April. Acceleration of progress would also be possible due to increased bypass
section by 12 km for which additional wooden poles would be provided by ZESCO. This
would effectively increase the contractor’s output to 50 km of completed line (upgrade)
per month. ZESCO expected this to be achieved although some slippage could occur
due to the onset of the rainy season. The key milestones and a timeline of transmission
upgrade work that has been verified by ZESCO are shown in the table below.
Timeline of Transmission Line Upgrade Work
End of month Kafue Town-
Muzuma
Muzuma-
Livingstone
Total (348km)
June 2016 57 km 0km 57 km (16%)
July 60 km 0km 60 km (17%)
September 90 km 0km 90 km (25%)
October (current) 147 km 0km 147 km (42%)
November 189 km (Completed) 0km 189 km (54%)
April 2017 189 km 152km (Completed) 348 km (100%)
Upgrade of Existing Kafue Town and Muzuma Substations from 220 kV to 330 kV.
7. The two contracts, namely design, supply and installation of transformers and reactors,
and design, supply and installation of switchgear and associated equipment became
effective on February 02, 2015 and December 14, 2015 respectively.
8. Kafue Town Substation. By end October 2016, almost 60% of the civil works had been
completed. Civil works for the 330 kV and 132kV gas insulated switchgear (GIS) control
rooms had been partially completed. The 330 / 132 kV transformer, delivered in August
2016 was awaiting full assembly. Civil works on the cable trenches and outgoing bus
ducts would be completed by December 2016. It was expected that electrical installation
and instrumentation works would commence in January 2017. The mission was
informed that the substation works would be completed by end June 2017. All the
equipment and material ordered have either been delivered or shall be delivered by end
December 2016. However, due to the volume of works still to be completed and the
linkages among the activities a slippage by two to three months was possible.
9. Muzuma Substation. The old equipment had been dismantled and civil works were at
an advanced stage (more than 60% complete). The transformers had been delivered to
site in August 2016 and installation works were expected to commence by December
2016. This would be followed by installation of switchgear. Most of the equipment and
materials had either been delivered or were in the process of being shipped to site. Based
on current progress ZESCO expected completion of the substation works by June 2017.
This however required that necessary shut-downs were obtained from ZESCO system
control which could be difficult due to the fact that the country was experiencing a power
supply deficit and Muzuma was the evacuation point for the recently commissioned
Maamba power station. A slippage by two to three months was therefore possible.
10. Livingstone substation and Victoria Falls Substation. The contract for the substation
became effective on February 25, 2015. Procurement had progressed well and the
manufacturing of a wide range of equipment was complete. Construction progress had
however halted since August 2015 following delivery of the transformer and with around
60% of the foundation having been completed. This was due to the suspension of works
by the contractor on March 8, 2016 due to payment delays. Following resolution of the
outstanding payments issue, the contractor was expected to re-mobilize in November
2016. The Mission advised ZESCO that since commissioning of these substations would
take place some months after works at Kafue Town and Muzuma had been completed,
it was important that the contractors on the components that were under Bank financing
remained available to support coordination, testing and commissioning at the
Livingstone and Victoria Falls substations. The EIB project closing date has been
extended and the funding is confirmed to be available through December 2017.
11. Completion of the Kafue Town and Muzuma substations works was only likely to
occur in August 2017, beyond the current project closing date. Furthermore,
completion of Livingstone and Victoria Substations was required for the development
outcome to materialize. Therefore, in order to achieve the project’s originally targeted
objectives and align the implementation schedule with that of EIB, it was agreed that a
closing date extension through end-December 2017 was required. The Mission agreed
that ZESCO would initiate such request that would be sent to the Bank from the Ministry
of Finance (MoF) by end-December 2017.
12. Current result indicators need to be revisited. The mission reviewed the result
indicators with ZESCO. The current PDO indicators are (i) annual power trade between
Zambia and Namibia, and (ii) frequency and duration of unplanned interruptions in the
Kafue Town-Victoria falls corridor. A key issue was the fact that both indicators
required a reasonable period (say one year or two quarters) after the project’s completion
to measure the project’s results (in MWh terms and number of interruptions). The Bank
team would review this matter with the view of reaching a determination prior to the
next mission. In the meantime, ZESCO would provide figures for year 2016. ZESCO
further agreed to collect and share relevant data on the “direct beneficiaries” particularly
focusing on the areas around Muzuma substation along with the rationale that would be
used to select / quantify those beneficiaries.
13. ZESCO and the Bank mission team agreed on the following actions to sustain the project
performance. The key milestones and timeframe have been agreed with the PIU as in the
Table below.
Timeline of the Transmission Line Upgrade work
Fiduciary Aspects
Financial Management
14. The overall financial management performance is considered moderately satisfactory
due to the level of disbursements in comparison to the elapsed project period. The project
is up to date in submitting the IFR and they have already submitted the one for September
2016. As per IFR submitted during the third quarter the disbursements were US$8.821
million bringing the total cumulative disbursements to end of September to US$32.369
million representing 54% of the Credit. The time period that has elapsed since project
effectiveness is 84%
15. Flow of Funds. There have been no issues with regard to the flow of funds and the
project has been consistent in submitting requests for advance through the IFR method.
16. Audited Financial Statements. . The audited financial statements for the year ended 31
December 2016 were submitted after the due date of 30 June 2016. However there were
no issues raised in the management letter that were specific to the Project.
Procurement
17. The Bank held meetings with ZESCO and the engineering and supervision consultant as
part of the Mission. It was noted that all activities had been procured and were in the
contract management phase. Significant progress had been made on the substations
contract, however progress on the transmission line contract was a matter of concern.
The Bank suggested the following measures to improve progress:
a. ZESCO enhances supervision of the consultant and if needed request that the
consultant replace staff in order to enhance capacity
b. The consultant needed to be informed to improve its supervision of the
transmission lines contract and as necessary apply liquidated damages.
c. ZESCO was requested to ensure that the consultant demands a revised work
Milestones Timeline
(end of month)
Completion of Kafue Town-Muzuma transmission line upgrade (189km) November 2016
Completion of Muzuma- Livingstone- VicFalls transmission
upgrade/rehabilitation (159km)
April 2017
Completion of Kafue Town and Muzuma Substations August 2017
Completions of Livingstone and Victoria Falls substations (EIB-funded) December 2017
program from the contractor in which they would demonstrate how they would
make up for the delays incurred.
18. Following the discussions on the above interventions, ZESCO reported that the
contractor’s management had been summoned and informed of the concerns on the
implementation of the contract. Following this action, there has been considerable
improvement in the performance of the transmission lines contract.
19. For this mission the procurement rating was maintained as Satisfactory.
20. Given the project closing date of June 30, 2017, ZESCO should take note that only
activities completed on or by the project closure date will be eligible to be financed from
the credit. Any activities not completed by that date will not be eligible for financing
from the credit. Activities completed by or before the closing date may be invoiced and
paid for from the credit after the closing date within the four months grace period.
Environmental and Social Aspects
21. The Mission visited various sites along the Kafue Town – Muzuma – Victoria Falls
transmission line corridor. All resettlement activities have been finalized. The valuation
of crop fields and fruit trees near Kafue, Mazabuka and Muzuma have been disclosed,
and affected households have accepted the valuation amounts and signed off for them.
Compensation modalities are currently being arranged. During the visit to the new
Livingstone substation, it was observed that the site is was facing difficulties in obtaining
water as all the boreholes that had been sank were dry. As a result, the construction
company had opted to transport water to site using a bowser and thus increasing the
project footprint. ZESCO was advised to consider requesting the contractor to carry out
a further survey of the site with the aim of sinking a borehole that would ease the water
situation.
Annex 3. Status of Implementation
Lusaka Transmission and Distribution Project (LTDRP)
1. The objective of the project is to increase capacity and improve reliability of the
electricity transmission and distribution system in the Lusaka area. The project scope
includes upgrading of the existing 88kV and 132kV transmission networks, constructing
new 132kV transmission lines, constructing/upgrading of various 132/33/11kV
substations, constructing new 33kV lines, replacing/upgrading of 33kV and 11kV cables
and constructing new 11kV switching stations. The LTDRP has the following
components:
Component 1: Rehabilitation of the 132kV and 88kV Transmission Network in
Lusaka area (estimated cost: US$106 million, US$95 million from IDA and US$11
million from ZESCO)
Component 2: Rehabilitation of the 33kV and 11kV Distribution Network in Lusaka
area (estimated cost: US$130 million, US$101 million from EIB and US$29 million
from ZESCO)
Component 3: Technical Assistance and Project Supervision (estimated US$10
million from IDA).
2. The project was approved by the Board of Executive Directors on May 30, 2013 and the
financing agreement was signed on October 3, 2013. The project closing date is February
28, 2019. Overall, the implementation progress has been slow considering that almost 3
years have elapsed since project’s effectiveness with disbursements standing at around
12% for the IDA component. IDA made the first disbursement of US$ 10 million on
May 15, 2014, as required under the financing agreement. A total disbursement of USD
12,020,705.22 had been made by November 30, 2016.
3. The project is co-financed by the European Investment Bank (EIB). The EIB board
approved Euro 78 million in November 2013 and the loan agreement was signed on June
16, 2015. As part of the EIB loan, ZESCO was required to carry out a reactive power
study, last mile study and prepare an implementation plan for the Lusaka network that
also covered environmental issues and a recovered equipment disposal plan.
4. The progress achieved thus far by ZESCO included: a) Selection and mobilization of
the engineering and supervision consultant, b) completion of bidding process and
signing the contract for the Waterworks 132/33/11 kV substation and switching stations
package in September 2016, c) revision of the procurement plan through consolidation
of planned packages, and d) completion of the bid documents for the two bulk packages.
The revised procurement plan was reviewed by the Bank and a no objection was issued
on August 25, 2016. By consolidating the entire project into 7 packages, the project
implementation is expected to be accelerated.
5. The time taken towards contract finalization for Waterworks substation and its signing
by ZESCO after bid opening (January 22, 2016) was found to be over 8 months. The
Mission agreed with ZESCO on the need to avoid such delays on the other packages to
be procured.
6. The contract for the Waterworks 132/33/11 kV substations and switching stations
(Package B2) became effective on October 17, 2016 and advance payment amounting
to US$1,587,097.40 paid to the contractor following submission of the advance payment
guarantee and the performance guarantee. As at November 2016 the contractor had
mobilized and was undertaking preparatory and testing works.
7. Following the effectiveness the ZESCO and the consultant have worked with the
contractor to support initial construction activities, including on compliance to safety
and other requirements and supervision of geotechnical and geospatial studies. The
Mission visited the Waterworks substation and witnessed some of these works.
8. The expected bid opening dates for the remainder of the packages under Bank financing
in the amount of approximately $ 46 million were provided as follows:
a. Package J - July 2018
b. Package R - July 2018
c. Package D - Aug 2019
d. Package O - Feb 2020
9. Given that approximately USD 46 million of financing would remain tied until the end
of 2018, it was suggested that ZESCO consider restructuring the project including the
option of cancelling the portion of the credit earmarked for financing these four
packages. ZESCO agreed to undertake a technical review with the help of the consultant
to ensure that removal of the above stated four packages did not negatively affect the
integrity and operational flexibility of the remaining part of the project (packages). It is
anticipated that the results indicators and figures for the project cost and disbursement
would need to be revised as part of the proposed restructuring. It was agreed that ZESCO
and the Ministry of Energy would initiate the formal request on the proposed
restructuring, and that the Bank would receive this from the Ministry of Finance by the
end of December 2016. Thereafter, the Bank would field a Mission during the first
quarter of 2017 to finalize the parameters for restructuring with Ministry of Finance,
Ministry of Energy and ZESCO.
10. It was agreed that a midterm review (MTR) of the project would be undertaken in early
2017.
Fiduciary Aspects
Financial Management
11. Although the Designated Account (DA) has been active, disbursements are still lagging
behind mainly due to procurement delays. The project is up to date with the submission
of IFRs. Total disbursements to date as reported in the IFR for the quarter ended 30th
September 2016 is US$5.715 million which is only 5% of the total Credit of
US$105,000,000. The expenditure for quarter amounting to US$1,970,828 is highest
since the project became effective in 2014.
12. It should be noted that over 45% of the project period has elapsed but only 5% of the
Credit has been paid out toward goods, works and consulting services.
13. Audited Report: The project submitted its audited financial statements on time and the
management letter did not raise any outstanding issues. The overall FM rating has
remained at Moderate Satisfactory due to the low disbursement rate.
Procurement
14. During the mission the Bank carried out a review of the implementation status. The Bank
noted that though ZESCO had taken measures to consolidate requirements and request
bids for one of the packages, estimated at US$ 36 million, another similar document
required to be urgently prepared and submitted to the Bank if the procurement was to be
brought back on track. Regardless, the Bank noted that notwithstanding any efforts that
would be made it was unlikely that event if the contract was entered into, it would be
completed before project closure date. This makes it unlikely that the ensuing packages
could be implemented and paid for from the credit as activities would unlikely to be
completed before closing date.
15. This is consistent with the suggestion that ZESCO consider restructuring the project.
16. For the package currently under procurement it was agreed that ZESCO should
diligently carry out the remaining steps and complete contract execution within the
remaining period before project closure date. Any lapses would lead to ZESCO having
to meet part of the payments for activities that would not have been completed by project
closure date as
17. For this mission the procurement rating was rated as Moderately Satisfactory.
Environmental and Social Aspects
18. Compensation for resettlement has already been settled in full along the Roma –
Leopards Hill, Roma – Lusaka West and Lusaka West – Waterworks transmission
corridor. Along the Roma – Leopards Hill corridor, ZESCO have undertaken post
relocation monitoring and 70% of the households compensated have since relocated.
The mission was informed that post relocation monitoring was yet to take place along
the Roma – Lusaka West and Lusaka West – Water. Furthermore, the Environmental
and Social Impact Assessment (ESIA) for the greenfield sub-project had been drafted
and would be submitted to the Zambia Environmental Management Agency (ZEMA).
Also, the Terms of Reference (TOR) for the Biodiversity Assessment have also been
drafted and cleared by the Bank. The Biodiversity Assessment shall feed into the ESIA
and support the establishment of a baseline. This will help the evaluation of potential
Annex 4. Status of Implementation
Electricity Access for Low Income Households in Zambia Project (P146636)
1. Background on access projects. Electricity access indicators from the recent household
survey (reference) suggest that urban access in Zambia has improved considerably and
is currently at 67%. Rural access however remains very low at 3.7%. The World Bank
has been supporting improved electricity access in low-income areas using results-based
approaches through the now closed IDA-financed Increased Access to Electricity
Services Project (IAES-P077452) and the output-based aid (OBA) grant for the
Electricity Access for Low Income Households in Zambia Project (P146636). The OBA
grant to ZESCO is financed by the Global Partnership on Output Based Aid (GPOBA)
with funding from the Government of Sweden (Sida). The projects have enabled ZESCO
to connect over 120,000 households over the last eight years. The closed IAES project
achieved a disbursement rate of 97%, and the on-going GPOBA-funded project has a
disbursement rate of 82% (closing date June 30, 2017). The European Union is funding
a connection program for the greater Lusaka area (Estimated at EUR 80 million), which
means that a new Bank-funded access project would exclude Lusaka to avoid overlap.
2. Progress of active OBA access project (P146636). The project has fully implemented
the household connection portion of the project, and surpassed the 22,000 household
connection target and installed over 33,000 connections. ZESCO is now working on
connecting the 5,000 micro and small enterprises (MSEs) targeted under the project. On-
going technical assistance activities will support ZESCO to develop a strategy for
targeting MSEs and assess the impact of electrification on the productivity of MSEs.
ZESCO has opted to exclude Lusaka from the MSE connection program in order for
low-income businesses in other parts of the country to benefit. This may change if the
connection rate does not accelerate by January 2017. ZESCO has set the connection fee
for MSEs connected under the program to ZMK 769 (as opposed to the standard
connection fee of ZMK 2,400).
Annex 5. Status of Implementation
Renewable Energy Resource Mapping Technical Assistance (P145271)
1. Solar: Data collection from the 6 stations that have been installed is ongoing. The first
round of maintenance of the stations took place in June 2016. During the maintenance
visit, each part of the solar measurement station was checked for proper functioning and
parts were replaced as necessary. Local technicians from the Zambia Meteorological
Department (ZMD) also received on-site training on how to undertake maintenance.
During the maintenance, other training sessions were conducted. The first was a 3 day-
training, organized at UNZA with the support of Stellenbosch University. The training
focused mainly on utility-scale solar power plants including concept stage, project
development, Engineering Procurement and Construction (EPC), financials, tariff
computation and Power Purchase Agreement (PPA). It also covered solar mini grids in
rural areas and large roof top solar installations. Another training session was organized
at the Department of Energy (DoE) to discuss the development and operation of solar
power plants and how to read solar and meteorological data. The link to the vendor’s
data management system, where the daily solar data is collected for all 6 stations, was
shared with DoE. The next mission is expected to be in January 2017 to undertake the
second round of maintenance and to continue the training program.
2. Wind: Wind mast installations are progressing. Six towers have been completed and two
towers are yet to be constructed. There have been issues with granting access to Petauke,
which were resolved only recently. The crew is currently on the field to build the mast.
After that, the crew will move to Lusaka II to build the last tower. A lease agreement
has been already signed both for Petauke and Lusaka II. Lusaka II is the new site –
originally the site was Lusaka I but, after discussions with DOE and the difficulty in
getting clearance for that site, it has been decided to move the site to Lusaka II that it is
on private land (rent for Lusaka II was agreed at a rate similar to that for the Choma site
and the contractor would make payments towards this). Construction of the remaining
towers was expected to be completed in November 2016 and commissioning planned to
take place in December 2016 once the instrumentation for each tower had been installed.
3. The Mission informed DoE to begin to consider options on the modalities for
transferring the measurement stations to ZMD once the 2 –year data collection phase,
under Bank financing, had been completed. In addition, the Bank would discuss with
DoE modalities for making the data collected, for both solar and wind, publicly
available.
Annex 6. Proposed New Access Project Conceptual Design
1. Proposed new access project (IDA loan $38 million + possible OBA grant). The
mission noted that there is strong interest from the Government of Zambia and the lead
implementing agencies, ZESCO and REA, to continue investments in increasing access
to electricity services in low-income areas. The Swedish government through Sida may
provide co-financing through an OBA grant administered by GPOBA. The distribution
network is near capacity and hence further investment is needed in network
reinforcement to enable ZESCO to add new connections to the grid. Some technical
assistance is needed to analyze existing investment plans developed by ZESCO and
REA, and to carry out an assessment of likely demand and investment requirements for
a possible access project. The proposed project would use a results-based financing
approach similar to those used under IAES and OBA projects, both of which were
successfully implemented by ZESCO and delivered strong results.
2. Proposed project development objective (PDO) and components. The proposed PDO
is to increase electricity access and improve efficiency and quality of the electricity
distribution system in targeted low-income areas. The project would finance the
following:
Network reinforcement, implemented by REA in rural areas and by ZESCO in peri-
urban areas. These investments will reinforce the existing distribution network, carry
out intensification within existing grids, and improve customer service in a
coordinated manner. The investments would be financed using a results-based
financing approach similar to IAES.
Electricity Access, implemented by ZESCO. This will provide output-based
subsidies for new electricity connections and ready boards with wiring for low-
income households and MSEs, partially subsidizing the cost of the installation of
new connections. It may support the off-grid electrification effort by assisting
certified solar system providers to obtain credit through a credit line.
Technical Assistance and Project Management, implemented jointly by REA,
ZESCO and the Ministry of Energy. This will include technical assistance and
capacity building to support identification of project areas and investments,
implementation supervision, an outreach campaign for consumers, and further
efforts to expand the productive use of electricity by MSEs. It will also include an
options analysis on the viability of implementing an off-grid solar access program
for rural electrification.
3. Availability of energy supply. ZESCO’s ability to supply new connections is currently
constrained by the current energy supply situation. However, there are several on-going
projects that are financing investment in electricity generation and transmission, such as
Maamba, and the generation capacity is expected to increase in the near future. This
coupled with ZESCO’s efforts on demand management (CFL replacement and consumer
awareness on energy efficiency) will enable ZESCO to continue to support new
connections.