The World Bank's Strategic Response

Energy is central to sustainable economic, social and environmental development as well as to poverty reduction. The importance of energy to the provision of basic services cannot be undermined. It would be difficult to meet the Millennium Development Goals (MDGs) without significant and sustainable improvement in the quality and quantity of energy services in developing nations.

The World Bank's Strategic Response

In response to the regional challenges in the energy sector and consistent with its overall corporate strategy, the Bank’s primary focus in this sector centers on a few key strategic areas, including: (i) promoting the efficient and sustainable use of energy resources; (ii) assisting with implementing legal and regulatory reforms which separate policy-making, regulation and operations; (iii) assisting with the restructuring of the electricity sector; (iv) helping to improve the overall investment climate; (v) improving energy efficiency and reduction of energy intensity; and (vi) promoting the use of renewable energy resources.

Promote the efficient and sustainable use of energy resources through:  (i) the introduction of appropriate pricing policies in the oil, gas and electricity sectors which provide incentives for increasing efficiency; (ii) price-adjustments in a phased manner that ensures cost recovery and creditworthiness of enterprises in the sector, enabling them to access domestic and foreign capital markets to finance their expansion while protecting vulnerable groups through life line rates and/or well targeted subsidies; and (iii) revenue management.

Under theEnergy and Mining Technical Assistance Loan to Algeria (US$18 million), the MENA energy unit is providing assistance to the Ministry of Energy and Mines to implement the Government's market-oriented reform program in the energy and mining sectors.  The primary objectives of the project are to reform the energy and mining sectors, including setting the stage to improve sector efficiency, introduce market forces, develop untapped resources, address environmental concerns and alleviate the financial burden of the sector on public finances.

Another project, also under supervision, is the Tunisia Energy Efficiency Program/Industrial (US$8.5 million) which aims to achieve a deeper penetration of sustainable commercial energy efficiency investment activities in Tunisia’s industrial sector, by removing barriers and lowering transaction costs. In addition, the project aims to establish energy services companies as the main vehicle to guarantee a sustainable energy efficiency market.

Assist with implementing legal and regulatory reforms which separate policy-making, regulation and operationsemphasizing the need for providing energy at the lowest possible cost while taking into account the need for the sustainable use of natural resources as well as opening up the sector to private sector participation and competition.  Where feasible, this would include the promotion of increased use of natural gas for power generation, development of renewable energy resources; better integration of electricity and water production (desalination) and promotion of regional trade in electricity and natural gas.

For instance, the objectives of the recently completed Electricity Sector and Investment Management Project (US$15 million) in West Bank and Gaza were to restructure the power sector through corporatization and commercialization of the local entities, strengthen local capacity through technical assistance for sector institutions and upgrade and rehabilitate the distribution network.

Assist with the restructuring of the electricity sector,which depending on the country’s situation and the size of the power system, could include the unbundling of the integrated utilities in separate companies for generation, transmission and distribution and the establishment of an independent systems operator.  Even when the privatization is not immediately anticipated, this would increase transparency and enable the introduction of benchmark competition.

Help improve the overall investment climateto enable the private sector to invest in the energy sector and to help improve the management as well as efficiency of supply.  Private sector participation could, apart from sale of assets or shares in existing companies, include various forms of concessions and management contracts, private independent power and water producers, contracting out operation and maintenance, billing, metering, bill collection and other services as well as other forms of public private partnerships.  Participation of local and regional private sector should be encouraged and attention should be given to the development of domestic capital market instruments.

In Jordan, a Partial Risk Guarantee (PRG) was used as an instrument to leverage private sector participation in the country’s electricity sector.  The PRG covers the private lenders from the risk of the government defaulting against the agreements reached.  The US$45 million PRG will contribute towards the financing of the US$330 million Amman East Power Plant Project that aims to develop a 370 MW gas-fired combined-cycle power station in Almanakher.

Improve energy efficiency and reduce energy intensity.Apart from the introduction of appropriate pricing policies and other incentives, this could include: (i) facilitating the introduction of energy efficient equipment; (ii) establishing energy services companies and developing appropriate financing mechanisms; (iii) introducing stricter building codes and load management devices for large domestic consumers, industrial and commercial establishments, and (iv) helping with the reduction of gas flaring.

A Power Access and Diversification project (US$7 million) is underway in Djibouti and the objectives are to: (a) increase the access of underserved populations to electricity services; through priority investments; (b) increase reliability of electricity services through the development of alternative sources of production and targeted technical assistance; and (c) improve efficiency of the electric utility, through technical assistance.

In Egypt, millions of urban and semi-urban residential consumers, including low income households, live near gas transmission infrastructure, yet none are connected to the natural gas network and therefore continue to use more expensive Liquefied Petroleum Gas (LPG) to meet their domestic energy needs.  In response, the MENA energy unit is assisting the Government of Egypt prepare a Gas Connections project that will seek to develop a gas distribution network that will enable households to switch from LPG to natural gas.

Promote the use of renewable energy resources.  Although many of the energy resource poor countries have started to promote renewable energies, such as wind and solar power and large or small scale hydropower, there remains considerable scope for further improvement.  Currently, several projects focusing on increasing alternative energy options are under preparation in several countries.

In Egypt, a Solar-Thermal Hybrid project will seek to develop a solar/fossil fuel hybrid power plant to contribute to global cost reduction of this technology, which is still unproven commercially.  The project includes a US$49.8 million contribution from the GEF.

In Morocco, aSolar-Thermal Power Plant, with an estimated installed capacity of 470 MW and a GEF contribution of US$43.2 million, also aims to develop a solar/fossil fuel hybrid power plant to contribute to global cost reduction of the integrated solar combined cycle technology.

A Wind Promotion Power project in Jordan with an estimated installed capacity of 60 MW and a GEF contribution of US$6.35 million intends to remove barriers to windfarm development such as higher generation cost than conventional energy, lack of a legal and regulatory framework for windfarm development, lack of institutional capacity, and inadequate information on wind resources.

Finance investment operations. The Bank is increasing lending for generation, transmission and distribution in the power sector and construction of oil and gas infrastructure. The scope will vary based on the individual needs of each country.

In Egypt, the US$259.6 million El-Tebbin Power Project is investing in new generation capacity through the construction of a 700MW power plant comprising of two units of 350 MW steam turbines and boilers. The project also provides support to the Government of Egypt to strengthen sector performance by engaging in policy dialogue and supporting measures aimed at improving financial performance, the functions of the regulator and energy efficiency. Input would also be provided to the development of the legal framework for the sector.

In Iraq, a US$40 million project aims to carryout urgent repair works to the Dokan and Derbandikhan dams in order to alleviate current power supply shortfalls. This project aims to also conduct all the preparatory work for subsequent full rehabilitation.