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Electrification for Rural Yemen Rural Energy Access Project (REAP) Somin Mukherji Senior Financial Analyst ADFD/WB Project Preparation and Appraisal Workshop Abu Dhabi, April 2010 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 2 Power Sector Key Indicators PEC - Commercial Report 2005 MW GWh Installed Generation Capacity (interconnected) Fuel: HFO + Diesel 774 4.064 Isolated Generation Capacity Fuel: HFO + Diesel 276 714 TOTAL 1050 4.778 Rental Generation (since 2007) (interconnected) Fuel: Diesel 210 1.472 Consumers (Mio - %) GWh (Sales) Urban 1.05 - 93.5% 3.202 / 97% Rural 0.072 - 6.5% 92 / 3% 1.122 3.294 / 100% PEC Consumers (2005) TOTAL 3 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 5,733,000 27% 15,267,000 73% Urban 4 Rural Urban vs. Rural Electrification Population With vs. Without Access 8,400,000 40% 12,600,000 60% Access No Access Urban vs. Rural Electrification Rate 1,932,000 23% 6,468,000 77% Urban 5 Rural 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 6 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. 7 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 8 Service Territories and Off-Grid Target Areas 9 RE Institutional Framework Institutional Framework for Rural Electrification Regulatory Agency Tariffs, quality of service, environmental review Ministry of Electricity Government/ Donors Policy setting Program financing Rural Electrification Agency program management, financing Project identification, project analysis, technical oversight, standards, & licensing Project selection, financing, & monitoring Service Providers Cooperatives, contractors, or renewable energy service providers 10 REA Organizational Structure 11 Thank you!