Somin MukherjiSenior Financial Analyst

ADFD/WB Project Preparation and Appraisal Workshop Abu Dhabi, April 2010

Electrification for Rural Yemen

Rural Energy Access Project (REAP)

Key Characteristics - Yemen

Country of 22.4 million people with a high population growth rate of about 3%

Yemen is among the poorest countries in the Middle East Region with per capita income of less than US$870

The GDP is US$ 22.5 billion and the economy grew at an average of about 4.1 % per annum during 1997-07

Oil exports have been the main source of Government revenue but reserves will decrease significantly without new discoveries

Other key sectors of economic activity include Agriculture, Industry, Manufacturing and Services

Source: The World Bank

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Power Sector Key Indicators

PEC - Commercial Report 2005 MW GWh

Installed Generation Capacity (interconnected)Fuel: HFO + Diesel

774 4.064

Isolated Generation CapacityFuel: HFO + Diesel

276 714

TOTAL 1050 4.778

Rental Generation (since 2007)(interconnected)Fuel: Diesel

210 1.472

PEC Consumers (2005) Consumers (Mio - %) GWh (Sales)

Urban 1.05 - 93.5% 3.202 / 97%

Rural 0.072 - 6.5% 92 / 3%

TOTAL 1.122 3.294 / 100%

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Why Rural Electrification?

Yemen’s population is predominantly rural

Fragmented government investment in rural electrification

Subsidy-dependent national electric utility

Environmentally unfriendly diesel used for isolated generation

Most rural schemes are unsustainable due to lack of institutional mechanisms

Significant disparity between urban and rural electrification

Yemen's Population Division

5,733,00027%

15,267,00073%

Urban Rural

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Urban vs. Rural Electrification

Population With vs. Without Access

12,600,000 60%

8,400,000 40%

Access No Access

Urban vs. Rural Electrification Rate

1,932,000 23%

6,468,000 77%

Urban Rural

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A Familiar Institutional Challenge

Power sector dominated by state owned Public Electricity Corporation (PEC), undergoing gradual, difficult reform

Rural electrification until recently attached to PEC

Project decisions influenced by political pressure and social compulsions

Tariffs well below cost of service; collection performance unsatisfactory, RE is a drag on PEC’s financial recovery

Result: only 1 in 5 rural households have electricity today – that too of a poor service quality.

Order of the day: Implement adopted National RE Strategy - Rationalize investment planning, Demonstrate a model that can rapidly increase coverage, Apply least cost service options

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Yemen´s RE Approach

Yemen´s Electricity Law of 2008 defining the pillars of the Power Sector Reform adopted by Parliament (March 2009)

Comprehensive grid and off-grid Rural Electrification Strategy adopted by the Government (July 2008)

Development of enabling Institutional framework underway (Creation of an independent Public Authority for Rural Electrification - April 2009)

Parallel Subsidy Reform Program being prepared

Strong donor interest catalyzed; AFD, USTDA, CIM, IsDB, and World Bank

Shift from PEC ad hoc project approach to developing scaled, regulated rural electric service providers

Actively engage communities in program ownership of rural electric service providers.

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RE Implementation Strategy

The RE program will electrify about 540,000 households and is expected to increase access in targeted rural areas from 20% to 37%

Phase-1 (Rural Energy Access Project - REAP) will provide access to about 195,000 households (175.000 new consumers, 20.000 SHS), at a cost of app. US$120 million funded by IDA, AFD, IsDB, USTDA and CIM

Significant additional Investments (Phase-2 and Phase-3) required for achieving the program goals ~ US$150 million

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Service Territories and Off-Grid Target Areas

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RE Institutional Framework

Service ProvidersCooperatives, contractors, or renewable energy service providers

Rural Electrification Agencyprogram management, financing

Regulatory Agency

Tariffs, qualityof service,

environmental review

Policy setting Program financing

Project identification, project analysis,technical oversight, standards, & licensing

Project selection,financing, & monitoring

Ministry of Electricity

Government/Donors

Institutional Framework for Rural Electrification

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REA Organizational Structure

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Thank you!