Independent Evaluation - Home > Search

Implementation Completion Report (ICR) Review - Senegal Energy Sector Recovery Development Policy Financing


  
1. Project Data:   
ICR Review Date Posted:
07/26/2012   
Country:
Senegal
Is this review for a Programmatic Series?
 No
First Project ID:
P105279
Appraisal
Actual
Project Name:
Senegal Energy Sector Recovery Development Policy Financing
Project Costs(US $M)
 80  56.07
L/C Number:
C4467
Loan/Credit (US $M)
 80.0  56.07
Sector Board:
Energy and Mining
Cofinancing (US $M)
   
Cofinanciers:
Board Approval Date
  06/19/2008
 
 
Closing Date
06/30/2010 12/31/2010
Sector(s):
Power (50%), Renewable energy (35%), Oil and gas (15%)
Theme(s):
State enterprise/bank restructuring and privatization (50% - P) Other public sector governance (50% - P)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Fernando Manibog
Robert Mark Lacey Soniya Carvalho IEGPS1

2. Project Objectives and Components:

a. Objectives:

According to the Program Document of May 21, 2008, the objective of this Energy Sector Recovery Development Policy Credit (DPC) to the Republic of Senegal is "to ensure a sustained and sound long-term development of electricity services and supply of petroleum products for Senegal."

b. If this is a single DPL operation (not part of a series), were the project objectives/key associated outcome targets revised during implementation?
No

c. Policy Areas:

The DPC covered three policy areas:
1. Restoring the financial viability and sustainability of the electricity and hydrocarbon sectors
2. Improving the governance of the electricity and hydrocarbon sub-sectors
3. Long-term development of the energy sector

The agreed, major actions under each of these policy areas, and the corresponding results, are discussed in Section 4 below on Efficacy.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates

The DPC was originally appraised fpr SDR 49.1 million (US$80 million equivalent). The IDA funds would be disbursed in two tranches: SDR 34.4 million (US$56.07 million equivalent) on the basis of actions taken by the Government upon effectiveness, and SDR 14.7 million (US$23.93 million) on the basis of second tranche conditions, which were not met. The French Development Agency, Agence Française pour le Développement (AFD), also supported the program in parallel with Euros 30 million (US$38.8 million) of budgetary support. The Government requested, and was granted, a six-month extension beyond the original closing date of June 30, 2010, but eventually decided that several key conditions of the second tranche release were unlikely to be met. Hence, the Government did not request an additional extension. The second tranche amount was canceled on December 28, 2010, and the DPC was closed on December 31, 2010.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:

Objectives: Substantial
The reforms that were of central relevance at DPC appraisal remain highly relevant today, and aligned with the Country Assistance Strategy (CAS) 2007-2010, current at closure, particularly its Pillar I to accelerate growth and wealth creation. To reach the Millenium Development Goals, the Government is aiming to achieve an annual GDP growth of 7 percent, which is about 2 percent higher than the historical average. The energy sector plays a critical role in supporting this goal, and the Bank has focused its energy sector support on achieving the following outcomes: (i) promoting a competitive investment climate; (ii) building and maintaining basic infrastructure for growth; (iii) promoting good governance; and (iv) ensuring the financial viability of sector institutions.

b. Relevance of Design:
Design: Substantial
The DPC’s policy matrix was designed with strong inputs from several stakeholders, including the IMF, AFD and other bilateral donors. The measures yet to be taken, appropriate benchmarks, and program outputs were consistent with the issues and options facing Senegal’s electricity and petroleum products sub-sectors, and with the project's development objectives.


4. Achievement of Objectives (Efficacy) :

1. To ensure a sustained and long term development of electricity services. Modest.

The long term development of electricity services has not been ensured through the activities supported by the DPC. On the contrary, the ICR reports (page 14) that the quality and reliability of electricity services worsened significantly during the DPC implementation period. This is in large part because the utility SENELEC (Société Nationale d’Electricité) is not in a position to assure a reliable or adequate service since it is unable Second, the conditionalities and financing volumes were not well balanced between the two tranches. Relatively straightforward conditions and actions were required for the first tranche release of 70 percent (SDR34.4 million) out of the total SDR49.1 million DPC, while the significantly more difficult tariff and financial reforms (i.e., 11 major conditions) were relegated to the second tranche. financing for its operational deficit, while its operations are undermined by inefficient management, weak planning, lack of timely investments and other shortcomings.

SENELEC’s financial viability, critical to the sustainability of electricity services, has not been achieved. In fact, its financial situation deteriorated in 2010 (ICR Data Sheet, page (iii)). SENELEC did not achieve a minimum debt service coverage ratio of 1.2, nor did it produce revenues equal to its 2009 maximum allowed revenues without budgetary allocation from the Government.

These results stem from the non-compliance with several agreed actions that were critical to improving SENELEC’s financial situation and enhancing its governance:

  • Electricity tariffs were not adjusted to ensure full cost recovery for SENELEC and the financing of its own investments without reliance on budget transfers. The last tariff increase was on July 1, 2009 (ICR Data Sheet, page (iii)). The insufficiency of this adjustment meant that budgetary compensation had to be paid in 2009 and 2010. No tariff increase was planned for 2011, and the Government decided to compensate SENELEC with budgetary transfers amounting to more than 60 billion FCFA (US$119 million equivalent). The Government has been unable to benchmark tariffs with SENELEC’s costs and performance due to customer affordability constraints, the poor quality of service, and SENELEC’s costly generation mix dominated by diesel generators. The tariff methodology, which has a price cap averaged over 5 years, was insufficient to ensure the financial viability of SENELEC. Government transfers to SENELEC suffer considerable delays due to the country’s financial crisis, thereby aggravating the company’s financial situation.
  • Although SENELEC adopted a cost recovery program in March 2008, only FCFA 3 billion (US$5.9 million) of cost savings were achieved since 2008, compared to the FCFA 8 billion (US$15.8 million) expected just for 2008, and FCFA 12 billion (US$23.8 million) in 2009. SENELEC’s costs increased sharply as a result of the rise in international fuel prices. In addition, the company’s inability to service its short term debt led to disruptions in fuel supply in 2009 and 2010 since suppliers were demanding cash payments on delivery.
  • The recapitalization of SENELEC over the period 2007-2009 to restore its financial equilibrium and meet standard financial ratios by end of 2009, was not completed.
  • Similarly, action on the restructuring of SENELEC’s short-term debt into longer maturity debt was still pending at the time of ICR preparation. SENELEC is unable to mobilize financing for its operational deficit, which is exacerbated by its inefficient management, weak planning, lack of timely investments, and other shortcomings.
  • SENELEC’s institutional reforms, centered on unbundling and the introduction of private participation, were not completed. The Government has suspended unbundling to focus on SENELEC's financial and operational recovery. Without this prior unbundling and financial recovery, private investments cannot occur, hence the preparation of a private participation strategy for the electricity sector has also been postponed.
  • Reinforcement of SENELEC’s Internal Audit Department has not been completed. An operational and financial audit was commissioned by the new Minister of Energy in October 2010, just 2 months before the (extended) closing date. The audit was still ongoing when the DPC closed.

Some actions were implemented by the Government and SENELEC, such as: (i) diversifying the energy mix to lower generation costs (e.g., through a new coal-fired power plant and additional hydro capacity); (ii) initiating the unbundling of SENELEC by completing separate accounting for its business lines; (iii) completion of master plans for generation, transmission and distribution; and (iv) implementing measures such as the renewable energy law; (v) programs were developed for energy efficiency and demand side management; and (vi) SENELEC adopted the National Procurement Code and set up internal committees for finance and internal audit, and for investment. However, these actions in isolation from more deep-seated reforms made only a negligible contribution to the attainment of the project’s development objectives.

2. To ensure a sustained and sound long term supply of petroleum products. Modest

A number of actions were taken, but it is unclear to what extent they contributed to the achievement of the development objective:
  • The recapitalization of SAR (Société Africaine de Raffinage, African Refining Company) to restore its financial equilibrium and meet standard financial ratios by the end of 2009 was partially achieved through the sale of 34% of the equity to Saudi Arabian interests. Together with the 20% already owned by an international petroleum company, a majority of SAR’s shares are now in private hands.
  • A diversification strategy away from oil products toward coal, renewable energy, and tapping hydroelectricity in the region was adopted. As a result, two out of three power purchase agreements were signed. The construction of the 25-MW coal plant was delayed.
  • Some initial steps have been taken towards the development of renewable energy through the adoption of a regulatory and incentive framework. Work was still proceeding at project closure on the application decrees for an orientation Law on Renewable Energy that was adopted earlier.

However:
  • No Regulatory Agency for the hydrocarbon subsector (electricity regulation was already in place) was set up as originally intended. Although the Government prepared a draft law to create a Hydrocarbon Regulatory Agency, the new Minister decided to consider instead a single regulatory agency for both electricity and hydrocarbons.
  • Measures expected to improve the internal governance of SAR – notably adherence to the National Procurement Code and better reporting by SAR management to their Board and to the Government – were not carried out on the grounds that since SAR had become a majority privately owned company, it would set up its own procurement and corporate governance systems and norms.

5. Efficiency (not applicable to DPLs):

6. Outcome:


Although the relevance of the DPC's objectives and design was substantial in light of Senegal's current country and sector priorities, there were significant shortcomings in efficacy, which is assessed as modest. The long term development of electricity services has not been ensured through the activities supported by the credit. On the contrary, the quality and reliability of electricity services worsened significantly during the credit's implementation period. No Regulatory Agency for the hydrocarbon subsector was set up as originally intended. Measures expected to improve the internal governance of SAR were not carried out as planned.

a. Outcome Rating: Unsatisfactory

7. Rationale for Risk to Development Outcome Rating:

The DPC operation fell significantly short of improving SENELEC’s financial situation so that it can operate without government support, and thereby lessen its burden on public finances and allow other socially important needs in Senegal to be better addressed. SENELEC’s finances remain precarious due to the continued (and heightened) volatility in world oil prices, the difficulty of diversifying away from a mainly oil-based power system, and the challenges of attracting private investments unless SENELEC’s financial position is strengthened first such that it can pay reliably for privately-generated electricity. Rather than mitigate risks, sector uncertainties were heightened by the postponement of SENELEC’s unbundling and the deferral of the regulatory agency for petroleum products, which were actions agreed under the DPC.

a. Risk to Development Outcome Rating: High

8. Assessment of Bank Performance:

a. Quality at entry:

A large and rigorous body of analytical work on Senegal’s electricity and petroleum product sub-sectors laid the basis for the DPC, and the Bank has had a long experience supporting the country's energy sector. In designing the program, there was strong cooperation between the Bank, the IMF, AFD, and other donors. Through its Letter of Development Policy, the Government expressed strong ownership at least during the design phase.

However, despite past lessons, Quality at Entry had three significant shortcomings. First, although the Ministry of Energy had the responsibility to manage the energy sector reform program, the official implementing agency was the Ministry of Economy and Finance, which also had the critical role of deciding on the magnitude and timing of budgetary transfers to SENELEC. Hence, both the Ministry of Energy and SENELEC had little sense of ownership of the reform program, as the key decisions, including tariff increases, were being made elsewhere. Second, the conditionalities and financing volumes were not well balanced between the two tranches. Relatively straightforward conditions and actions were required for the first tranche release of 70 percent (SDR34.4 million) out of the total SDR49.1 million credit, while the significantly more difficult tariff and financial reforms (i.e., 11 major conditions) were relegated to the second tranche. Third, the operation was overly ambitious and difficult to carry out during a short, two-year implementation period. According to the ICR (page 17), “the program was expecting a too rapid financial recovery in an internationally difficult context and a too ambitious reform path for SENELEC, not having sufficiently taken into account the rigidities in the energy sector in Senegal such as government attitude towards a tariff increase.” There was a large number of major conditions, some of which were added during the internal Bank review processes at the preparation stage.

Quality-at-Entry Rating: Unsatisfactory

b. Quality of supervision:

The Bank supervision team was based in Dakar (with support from headquarters), thus allowing an intense and sustained dialogue with the Government, SENELEC and SAR. This close supervision is reflected in the comprehensiveness of the Bank’s aide-memoires and the frequency of the team’s follow-up. Supervision was carried out every 3 to 4 months. According to the ICR (page 18), “All issues were reviewed during the supervision missions to ensure that the appropriate actions were taken to meet the disbursement conditions of the two tranches (i.e. the Bank was instrumental regarding the tariff increases and tariff compensation from state budget).” Issues and difficulties with compliance were promptly brought to the attention of Bank management and the Government, but the second tranche was not disbursed when the Government concluded (after one extension) that it was unlikely to meet second tranche conditions.

Quality of Supervision Rating: Moderately Satisfactory

Overall Bank Performance Rating: Unsatisfactory

9. Assessment of Borrower Performance:

a. Government Performance:

Although the Government was closely involved during the preparation and implementation of the DPC, its attention and commitment subsequently fluctuated, going from strong to weak toward the latter period of the implementation period, and becoming strong again as the DPC’s closing date approached.
Commitment was weakest with respect to adjusting tariffs, improving the governance of sector entities, and taking expeditious action to resolve implementation and policy issues. The Government was caught between (a) continuing the unsustainable budgetary transfers to the energy sector and (b) having to increase the already high tariffs that would hurt consumers without necessarily enabling the rapid implementation of cost-reducing changes in energy generation mix and fully resolving load shedding and poor service quality. There was insufficient coordination and many lengthy disagreements between the Ministry of Economy and Finance and the Ministry of Energy regarding sector reforms and SENELEC’s recovery. In the end, the Government was not able to meet the conditions for the second tranche release, and the funds were cancelled.

Government Performance Rating: Unsatisfactory

b. Implementing Agency Performance:

As indicated in Section 2(b) above, the official implementing agency was the Ministry of Economy and Finance, which also had the critical role of deciding on the magnitude and timing of budgetary transfers to SENELEC. As a result, both the Ministry of Energy and SENELEC, which had the actual responsibility to manage the energy sector reform program, had little sense of ownership of the reform program, as the key decisions, including tariff increases, were being made elsewhere. The Ministry of Economy and Finance was able to provide SENELEC (with some delay) the budgetary compensations in lieu of adequate tariff increases through 2010 despite a difficult fiscal context, Most of the conditions for the second tranche release were not met, resulting in failure to achieve the PDO and leaving SENELEC in continuing financial crisis. As a key agency of the Government, the Government Performance rating applies to it as well.

Implementing Agency Performance Rating: Unsatisfactory

Overall Borrower Performance Rating: Unsatisfactory

10. M&E Design, Implementation, & Utilization:

a. M&E Design:

The selected indicators were well aligned with the project development objectives, and useful in measuring implementation progress. Good quality baseline data were made available by SENELEC, SAR and the relevant ministries. Design and management of the M&E system was the responsibility of the Bank team with inputs from key Senegalese and international stakeholders.

b. M&E Implementation:

According to the ICR (page 11), the policy matrix and the corresponding sections of the legal agreements were an essential M&E tool for the government and the Bank. The Bank’s monitoring of key program indicators was facilitated by the ready access to all the necessary data from the Ministry of Economy and Finance, the Ministry of Energy and SENELEC. The Washington and Dakar members of the Bank team monitored implementation closely based on the policy matrix and performance indicators.

a. M&E Utilization:

The Government and the Bank based their assessments of what actions remained to be taken on accurate and comprehensive aide-memoires and Implementation Supervision Reports, which benefited from the close monitoring of DPC's progress during supervision.

M&E Quality Rating: Substantial

11. Other Issues:

a. Safeguards:

The Program Document indicates the Environmental Screening Category as "Not Applicable". No safeguards policies were triggered.

b. Fiduciary Compliance:

Not Applicable.

c. Unintended Impacts (positive or negative):

The ICR (page 16) indicated that there were no unintended outcomes or impacts.

d. Other:



12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Unsatisfactory
Unsatisfactory
 
Risk to Development Outcome:
High
High
 
Bank Performance:
Moderately Unsatisfactory
Unsatisfactory
Despite IDA’s long experience and lessons learned in Senegal's energy sector, the operation was prepared with far too many conditions (the ICR indicates that more were added during implementation) that were not well balanced between the two tranches. 
Borrower Performance:
Unsatisfactory
Unsatisfactory
 
Quality of ICR:
 
Satisfactory
 
NOTES:
- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.

13. Lessons:

The following lessons were derived (with adaptation) from the ICR:
  • Rapidly changing circumstances of the sector require an intensive and continuous dialogue with the Government, and close coordination with donors and partners, which could be greatly facilitated by the follow-up of a Bank team based in the country office.
  • Lending instruments need to be chosen and designed wisely. While a DPO can be a useful instrument for pursuing reforms, having just two tranches, a large number of conditions, and a short implementation period, can lead to inflexibility and non-compliance with agreed actions. This can be exacerbated by the back-loading of conditions, with the most difficult ones reserved for the second tranche. A series of DPLs with limited objectives and financing may bring more flexibility and may be more suited to country and sector circumstances than a single complex operation.
  • Some key conditions that are formulated as specific quantitative targets could create an excessive focus on monitoring of financial indicators rather than on the underlying causes for poor financial performance. There may be scope for focusing more on the underlying causes and designing simple and feasible solutions to address them.
  • Supporting investments could precede and may have a facilitating role for the eventual reform program, which could be more modest and focused on the achievement of selected pre-conditions. For instance, an investment operation could help diversify the energy mix to decrease generation costs, which in turn would contribute to achieving the program’s financial sustainability objectives.
  • In light of country and sector circumstances, realism in the pace of reform and the management of expectations are essential, given the frequent pressures to do many things as fast as possible.

14. Assessment Recommended?

No

15. Comments on Quality of ICR:


The ICR is refreshingly candid in its assessment of the DPC's achievements and shortcomings. Its conclusions are well supported by evidence and logical argumentation. It is clear, well written, and in compliance with the ICR preparation guidelines. The lessons are well selected and useful for future Bank DPL operations in the energy sector. Two relatively minor comments are: (i) There are no budgetary or staff-week figures given for supervision in Annex 1, page 20, despite the indications that supervision was intensive, and the list of supervision staff is long; and (ii) Annex 5 does not provide any comment from cofinanciers, at least from AFD which had been closely involved during design and supervision.

a. Quality of ICR Rating: Satisfactory

(ICRR-Rev6DPL-Jun-2011)
© 2012 The World Bank Group, All Rights Reserved. Terms and Conditions