Translated Document

AFRICAN DEVELOPMENT BANK GROUP

PROJECT : INGA SITE DEVELOPMENT AND ELECTRICITY

ACCESS SUPPORT PROJECT (PASEL) COUNTRY : MULTINATIONAL

PROJECT APPRAISAL REPORT

ONEC DEPARTMENT October 2013

TABLE OF CONTENTS

Currency Equivalents, Acronyms and Abbreviations, Grant Information, Executive Summary, Results-based Logical Framework, Implementation Schedule....................................................i –vi

1 STRATEGIC THRUSTS AND RATIONALE ................................................................................. 1

1.1 PROJECT LINKAGES WITH COUNTRY STRATEGY AND OBJECTIVES ........................................... 1 1.2 RATIONALE FOR THE BANK’S INVOLVEMENT ........................................................................... 1 1.3 AID COORDINATION ................................................................................................................... 3

2 PROJECT DESCRIPTION ................................................................................................................ 3

2.1 PROJECT DESCRIPTION AND COMPONENTS ............................................................................... 3 2.2 TECHNICAL SOLUTIONS ADOPTED AND THE ALTERNATIVES EXPLORED ................................. 4 2.3 PROJECT TYPE ............................................................................................................................ 4 2.4 PROJECT COST STRUCTURE AND FINANCING MECHANISMS ..................................................... 4 2.5 PROJECT TARGET AREA AND BENEFICIARIES ............................................................................ 6 2.6 PARTICIPATORY APPROACH....................................................................................................... 7 2.7 BANK GROUP EXPERIENCE AND LESSONS REFLECTED IN PROJECT DESIGN ............................ 7 2.8 KEY PERFORMANCE INDICATORS .............................................................................................. 7

3 PROJECT FEASIBILITY ................................................................................................................. 8

3.1  PROJECT MEASURES AND ANTICIPATED DEVELOPMENT RESULTS ............................................... 8 3.2 ENVIRONMENTAL AND SOCIAL IMPACTS ................................................................................... 9

4 PROJECT IMPLEMENTATION .................................................................................................... 11

4.1 IMPLEMENTATION ARRANGEMENTS ........................................................................................... 11 4.2 Project Monitoring…………………………………………………………………… 14 4.3 Governance……………………………………………………………………….. 15 4.4 Sustainability……………………………………………………………………… . 15 4.5 Risk Management……………………………………………………………………. 15 4.6 Knowledge Development………………………………………………………….. 16 5. LEGAL FRAMEWORK…………………………………………………………………. 16 5.1 Legal Instrument…………………………………………………………………… 16 5.2 Conditions Associated with the Bank’s Intervention…………………………….. 16 5.3 Compliance with Bank Policies……………………………………………………. 17 6 RECOMMENDATION………………………………………………………………….. 17

TABLES Tables Title Page

Table 2.1 Project Components and Costs 3 Table 2.2 Project Alternatives and Reasons for Rejection 4 Table 2.3 Estimated Cost by Component 5 Table 2.4 Project Financing Plan by Financing Source 5 Table 2.5 Cost Estimate by Component and by Financing Source 6 Table 2.6 Cost Estimate by Financing Source and by Expenditure Category 6 Table 2.7a Disbursements Schedule by Expenditure Category 6

Table 2.7 b Disbursements Schedule by Component 6

Table 4.1 Project Implementation Milestones 14

i

Currency Equivalents, July 2013

UA 1 1.50396 USD UA 1 1.17322 EUR UA 1 1376.11 CDF

Fiscal Year

1st January to 31st December

Weights, Units and Measures T Tonne = 1.000 kg kW kiloWatt = 1000 Watt

GW GigaWatt = 1,000,000 kW or 1.000 MW kWh GigaWatt-hour = 1.000 Wh GWh GigaWatt-hour = 1.000 Wh MVA Megavolt Ampere = 1.000 kVA or 1,000,000 VA TOE Ton of oil equivalent MW Megawatt = 1,000,000 W or 1.000 Kw kV kilovolt = 1.000 Volts MWh Megawatt/hour = 1.000 kWh

kVA Kilovolt ampere = 1.000 VA tCO2 Tonne CO2 = 1.000 kg of carbon dioxide

Acronyms and Abbreviations

ADB ADEPI ADF AFD AICD CATE CDF CDP CGI3 DBSA EDIRA EIB EITI EU FSF RDCGov’t GPRSP HDI ICB MRHE NELSAP NIS PEPUR PMEDE RBCSP SNEL UA UA million UNDP WB

African Development Bank Inga Site Development and Promotion Authority African Development Fund French Development Agency African Infrastructure Country Diagnostic Energy Technical Support Unit/ Ministry of Water Resources and Electricity Franc of the Democratic Republic of Congo Project Coordination Department (Directorate within SNEL) Inga 3 Management Unit Development Bank of South Africa Study on Inga Site Development and Associated Electrical Interconnections European Investment Bank Extractive Industries Transparency Initiative European Union Fragile States Facility DRC Government Growth and Poverty Reduction Strategy Paper Human Development Index International competitive bidding DRC Ministry of Water Resources and Electricity Project for Consolidating the Interconnection of the Electric Grids of Nile Equatorial Lakes Countries National Institute of Statistics Rural and Semi-Urban Electrification Project Project for the Rehabilitation and Consolidation of the Inga Hydro-Electricity Power Stations and the KinshaPower Distribution Grid Results-based Country Strategy Paper DRC National Electricity Corporation Unit of Account Million units of account United Nations Development Programme World Bank

ii

PROJECT INFORMATION SHEET

CLIENT INFORMATION

Donee Democratic Republic of Congo Executing Agency Ministry of Water Resources and Electricity

FINANCING PLAN

SOURCES: Amount UA million INSTRUMENT

ADF (RO) 23.64 Project grant ADF (PBA) 15.76 Project grant FSF1 5 Project grant FSF3 3.5 Project grant approved in May 2013 NEPAD/IPPF 1.33 Project preparation grant, approved in

August 2013 World Bank 54.72 Project grant DBSA/AFD 6.65 Project grant DRC Government 1.63 Contribution to the project; TOTAL PROJECT COST 112.23

FINANCIAL INFORMATION ON THE GRANTS Grant currency Unit of Account Type of interest rate Not applicable Base rate (floating) Not applicable Contractual margin Not applicable Funding margin Not applicable Administrative costs Not applicable Commitment Charge Not applicable Maturity Not applicable Grace period Not applicable

DURATION AND MILESTONES

Concept Note approval July 2013 Project approval November 2013 Effectiveness December 2013 Last Disbursement December 2019 Completion 30 June 2019 Last repayment NA

iii

PROJECT SUMMARY 1. General Overview of Project: The Inga Site Development and Electricity Access

Support Project will finalise the preparation of the Inga 3 Project and implement actions enhancing electricity access for the Central and Southern Africa regions. The Inga 3 Project entails implementing Grand Inga Phase A by developing a generating capacity of 4800 MW on the Inga site and building power transmission lines that supply electricity to the DRC and South Africa. Hence, this project is a continuation of the Bank’s previous support that led to the identification of an innovative approach which ensures the full realisation of Inga’s hydro-electricity potential and promotes continental integration. This project is expected to facilitate the development of institutions and skills making it possible to improve the structuring of Inga 3 in order to select an investor-entrepreneur under a public-private partnership. Improved access to electricity is also expected in the semi-urban areas of Kinshasa and other provinces of the DRC, as well as in Southern Africa. Implementation of the support project is expected to cover a period of over five years for a total cost of UA 112.23 million.

2. Needs Assessment: The feasibility study led to the definition of an optimal

development plan for the Inga site. Executing the first priority phase (Inga 3) within the shortest time possible will create ideal conditions for developing the site's full potential. Current demand for electricity, mostly from South Africa, is huge and fairly steady. This project is timely because it facilitates the implementation of Inga 3 whose investment costs will otherwise be difficult to mobilize in the current context of the DRC, a country lacking the appropriate skills to structure a complex project.

3. Bank's Value Added: The Bank assists the DRC in its energy sector development.

Specifically, it financed the Inga site development study which revealed the feasibility of Inga 3. Hence, the Bank’s intervention to conduct additional studies defining the reference project will generate real time gains in the overall project schedule. Furthermore, this project will enable the bank to strengthen its role as the leader and major stakeholder in the energy sector in general and Inga site development in particular, while contributing to the transition to green growth and sustainable development in the DRC and other beneficiary countries like South Africa.

4. Knowledge Management: The project is one of the innovative schemes aimed at supporting

large-scale clean energy production initiatives and that have a transformative effect on the economies of beneficiary regional member countries. The experiences to be acquired in the area of complex project management and structuring under public-private partnerships will help to speed up implementation of the Bank’s green growth strategy. Such experiences will create opportunities for replication in subsequent Inga site development phases and in other similar African projects. Hence, the project is consistent with the Bank’s strategic vision of developing Africa’s energy sector by promoting universal access to modern energy based on low-carbon growth.

iv

RESULTS-BASED LOGICAL FRAMEWORK MULTINATIONAL – INGA SITE DEVELOPMENT AND ELECTRICITY ACCESS SUPPORT PROJECT (PASEL)

Project Goal: Contribute to the optimal development of the Inga Site and improvement of electricity access in the DRC and other countries of Central and Southern Africa

RESULTS CHAIN

PERFORMANCE INDICATORS MEANS OF

VERIFICATION RISKS AND

MITIGATION: Indicators Baseline Situation 

(Year 2012) 

Target (Year 2017)

IMPA

CT

Contribute to the improvement of electricity sector management 

Number of new private investors Electricity access rate

-

9%

02 

39.6%

Reports:

Ministry in charge of Energy SNEL - National Institute of Statistics - Bank's Supervision missions and status reports on results implementation

Risks 1. Political risk stemming from

the fragility of the peace process and the country’s political instability which could be an obstacle to project implementation;

2. Implementation risk resulting from the fact that the CGI3 is a newly-established structure and thus has no experience in monitoring and implementing such a complex project;

3. Initial high fiduciary risk because the CGI3 which will implement the project is not yet operational and its capacity to ensure sound financial project management cannot be determined at this stage;

OU

TC

OM

ES

• Increase in the volume of electricity sector investments

• DRC capacity built for the development of the

Inga site • Inga 3 reference project defined • Selection of a private partner for the

implementation of Inga 3 • Improvement of electricity access in the

Kimbanseke area

Amount of investments in USD million

Executing Agency operational

Project document available

Concession contract signed

Number of additional households connected (including for women and girls)

-- 0 0  0 0

10,000

1 1 3

25,000 (at least 12,500)

v

OU

TPU

TS

Component 1: Inga development support  1.1 Several advisers are placed at the disposal of

ADEPI; 1.2 Various additional studies on the Inga project

are conducted; Component 2: Support to electricity access development 2.1 A 100 MVA transformer is installed at the

Kimbanseke station; 2.2 Studies on the development of electricity access Component 3: Project management 3.1 Periodic project implementation reports are

produced 3.2 Annual audit reports of the project and the CGI3

are prepared 3.3 A procedures manual for the CGI3 and the

project are prepared 1.1. 3.4. Half-yearly financial monitoring reports of

the project and CGI3 are forwarded

1.1. Number of advisers placed at the disposal of ADEPI;

1.2. Reports prepared 1.3. Gender Action Plan

prepared 4.1 Additional power

available 4.2 Reports available 3.1 Number of progress

reports 3.2. Number of audit

reports approved by the Bank

3.3. Procedures manual

available 3.4 Financial monitoring

reports

0 0 0 0 0 0 0 0 0

07

2 1

60 MVA

10

10 05

01 10

Reports:

Ministry in charge of Energy SNEL - National Institute of Statistics - Bank's Supervision missions and status reports on results implementation

4. Co-financing execution risk. Respective Mitigative Measures 1. Government efforts to restore State

authority on the entire national territory with the support of development partners;

2. The quality of management that will be set up, support by first-rate consultants, and studies by the Bank and other stake holders will provide the CGI3 with the skills needed for the smooth implementation of this project.

3. In addition to operationalization of the CGI3, the Bank will require proof of the establishment of a financial management mechanism deemed satisfactory for project implementation;

4. The willingness to cooperate

shown by all technical and financial partners as well as the communications efforts made to date.

CT

IVIT

IES

BY

CO

MPO

NE

NT

1. Component 1: Inga development support - (i) contribute to the functioning of ADEPI by providing financial and material resources; (ii) provide technical assistance to the Government by making various advisers available; (iii) conduct technical studies;

2. Component 2: Electricity access development support – Contribute to the conduct of various studies on hydro-electricity sites and related electrification areas as well as reinforcement of the Kimbanseke Station;

3. Component 3: Project management – (i) control and supervise works; (ii) train Congolese counterparts in the management of major projects; (iii) organize and/or attend relevant meetings and workshops or go on study trips; (iv) set up a panel of independent experts; (v) prepare a procedures manual; (vi) audit project accounts; (vi) implement and monitor the ESMP.

Resources ADF : UA 39.4 million NEPAD/IPPF: UA 1.33 million FSF (Pillars I and III) UA 8.5 million (including 3.5 million approved in May 2013) WB: UA 54.72 million DBSA UA 6.65 million Government : UA 1.63 million Expenditure Component I: UA 81.03 million Component 2: UA 22.93 million Component 3: UA 8.26 million

vi

PROJECT IMPLEMETATION SCHEDULE ACTIVITIES 2 013 2 014 2 015 2 016 2 017 2 018 2 019

T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 T1 T2 T3 T4 1 GRANT APPROVAL AND EFFECTIVENESS 2 Grant approval 3 Sigature of grant agreements 4 Fulfilment of disbursement conditions 5 PROCUREMENTS 6 Recruitment of various advisers 7 Preparation and approval of TORs 8 Recruitment process 9 Recruitment of consultancies to conduct additional studies to EDIRA

10 Preparation and approval of TORs 11 Recruitment process 12 Preparation of contract for the RSW/EDF Group 13 Preparation and negotiation of contract 14 Signature of contract 15 Recruitment of assistance staff 16 Preparation and approval of TORs 17 Recruitment process 18 Preparation of an additional clause for the Kimbanseke post 19 Preparation and negotiation of contract 20 Signature of contract

21 Recruitment of consultancies to conduct studies on average capacity power stations 22 Preparation and approval of TORs 23 Recruitment process 24 Procurement of goods 25 Preparation and approval of TORs 26 Procurement process 27 EXECUTION OF PROJECT ACTIVITIES 28 Additional studies to EDIRA 29 Studies on average-sized power stations 30 Guidance by the strategic adviser 31 PROJECT SUPERVISION 32 Supervision missions 33 AUDIT OF PROJECT ACCOUNTS 34 Recruitment of the auditor 35 Services of the auditor 36 COMPLETION REPORT 37 Project completion report - Donee 38 Project completion report - ADF/FSF

1

REPORT AND RECOMMENDATION OF MANAGEMENT TO THE BOARD OF DIRECTORS ON THE PROPOSED ADF AND FSF GRANTS TO THE DRC

Management submits the following report and recommendations on the proposed: (i) FSF (Pillar I) grant of UA 5 million to the DRC, and (ii) ADF grant of UA 39.4 million to finance the Inga Site Development and Electricity Access Support Project. 1 STRATEGIC THRUSTS AND RATIONALE 1.1 Project linkages with Country Strategy and Objectives 1.1.1 The objective of Pillar I of the Central Africa Regional Integration Strategy is to promote regional integration, growth and poverty reduction in Central Africa through regional infrastructure development. Similarly, Pillar I of Southern Africa’s integration strategy for 2011-2015 focuses on energy development at the regional level. Hence, the Bank’s operations should, inter alia, help to improve community access to electricity and consolidate private sector growth. The project is fully consistent with this objective. Indeed, the Inga Project has real integrative potential as evident in the power exchange agreement signed between the DRC and South Africa in March 2013, which should lead to the injection of a substantial proportion of Inga 3's future electric power into the interconnected network of the Southern African power pool. Hence, all countries traversed by the power transmission lines could also benefit from the electricity generated from Inga. 1.1.2 GPRSP 2011-2015 is the main reference framework for all development operations in the DRC. The Government’s 2012-2016 Action Plan is its operationalization instrument. The GPRSP is based on the following 4 pillars:(i)Promoting governance and peace; (ii) diversifying the economy, speeding up growth and promoting employment; (iii) improving access to basic social services and developing human capital; and (iv) protecting the environment and combating climate change. The actions scheduled under this project are consistent with the objectives of pillars 2, 3 and 4 of GPRSP 2011-2015. In fact, the ultimate goal of project implementation is to provide the Congolese population and economy with clean, reliable and affordable energy. 1.1.3 Furthermore, the project which seeks to leverage public-private partnership to generate abundant electric power, partly for export, is consistent with Pillar I of the DRC’s CSP 2013-2017: “Development of private investment and regional integration support infrastructure.” The capacity-building actions of DRC entities involved in Inga development place the project under CSP Pillar 2: "Building central government’s capacity to increase public revenue and create an enabling framework for private investment". The project is also in line with the Bank’s energy policy and ten-year strategy which targets green growth through the promotion of less-polluting energy. 1.2 Rationale for the Bank’s Involvement 1.2.1 The planned support targets the objectives of the long-term strategy (2013-2022) and of the Bank’s energy policy. Indeed, it includes the need to increase community access to electricity by increasing supply to one of the "dark areas" on the peripheries of Kinshasa and conducting various electrification studies. The support will help to prepare the development project for the emblematic Inga site so that it can generate low-cost electricity for several African countries. It is in line with the operational priorities of the Bank's long-term strategy in terms of infrastructure, regional integration and private sector development. It targets one of the specific focus areas of the said strategy, namely building the capacity of a fragile State. 1.2.2 At the continental level, Inga is one of NEPAD's flagship projects for which the Bank received an implementation mandate from the NEPAD Heads of State and Government Orientation Committee. Under this mandate, the Bank financed the study on optimal development of the Inga site

2

and associated electric power interconnections (EDIRA) to determine the feasibility of fully developing the hydroelectricity potential of the Inga site in order to address the internal electric power needs of the DRC and supply power to various regions of the African continent. The study helped to define an optimal development plan and a priority project (Inga 3 or Grand Inga Phase A). It also identified a certain number of supplementary actions for preparing the Inga 3 project that will kick off the development of the site. EDIRA results were adopted by the DRC Government and used to prepare the file for selection of a private developer and for negotiation of the Power Exchange Treaty between the DRC and South Africa. The development model designed in successive phases aroused renewed interest in the Inga project among international stakeholders. 1.2.3 At the regional level, the Inga site development project, of which this project is one of the preparatory activities, is integrative. It is, indeed, a highly seminal project, given the role it will play in the electrical system of the African continent. By virtue of its geographical situation, the DRC, where the Inga site is located, is bounded by nine countries and is a member of 3 of the 5 African energy pools: CAPP (Central Africa); EAPP (East Africa); and SAPP (Southern Africa). All these pools include Inga in their development plans. 1.2.4 Operation of the Inga site has become a development priority for the DRC. It has called on various partners, including the Bank Group and other African countries, like South Africa, to ensure full development of the site's hydro-electricity potential. The DRC has asserted the regional and even continental dimension of Inga development to ensure execution of the project. Furthermore, there are ongoing reforms in the electricity sub-sector to: (i) increase the power supply rate; (ii) improve the quality of services rendered to users; (iii) institute competitiveness; and (iv) promote public-private partnership and access to financing. A bill to define the Electricity Code is under consideration in Parliament. The resulting law will essentially enshrine: (i) sector liberalization and private capital access to the electricity market; and (ii) State divestment from the commercial electricity sector. It will also outline a new institutional architecture for the sub-sector that will include the Ministry in charge of electricity, the regulatory authority, the National Energy Services Board and the National Electrification Fund. 1.2.5 The Bank Group provides real value-added to Inga development through this project which is a continuation of the Bank’s previous operations and constitutes support to a fragile State designing a complex project. This value added is recognized by all stakeholders currently interested in Inga Development. Indeed, apart from financing EDIRA, the Bank Group, much to the satisfaction of State authorities, responded favourably to DRC requests for advice from Bank experts and for a strategic adviser, especially during negotiation of the treaty with South Africa and conduct of the selection process for the investor-developer – the private partner who will implement the Inga 3 project with the DRC. These advisory activities constitute capacity-building for a fragile State (DRC) that lacks the skills needed to develop such a complex project. From the financial standpoint, the Bank Group raised resources to continue with its operations. It has already approved two support mechanisms under FSF Pillar III and one under NEPAD/IPPF that will essentially finance the abovementioned advisory services. This project supplements that support and is a continuation of the Bank's assistance and of the mandate entrusted by NEPAD. It is consistent with the Bank’s energy policy because it seeks to implement the most structuring project in the continent's electrical system that focuses on a green energy source. 1.2.6 The leadership role played by the Bank throughout the Inga Site Development Study must be maintained until financing is completed for the Inga 3 priority project for which several partners such as the World Bank, the French Development Fund (AFD) and the Development Bank of South Africa (DBSA) have expressed interest in assisting the DRC.

3

1.3 Aid Coordination 1.3.1 Aid is coordinated through consultative thematic groups comprising the public sector, civil society and Technical and Financial Partners (TFPs). These groups meet regularly to monitor and evaluate reform implementation. TFP coordination in the DRC has improved significantly with efforts made, since 2009, to ensure better harmonization of operations. These efforts led to the establishment, in June 2012, of the Partners Coordination Group (GCP) which includes the Bank. The Bank's Field Office in Kinshasa maintains close ties with the authorities and other TFPs on the main national issues targeted by official development assistance. Apart from joint portfolio reviews with the World Bank, the Bank conducts joint field missions especially with TFPs operating in the same sectors as the AfDB. As concerns energy sector operations in particular, there is efficient coordination of operations co-financed by the Bank through joint supervision missions organized by the Energy Technical Support Unit (CATE) and Project Coordination unit (CDP). The current support operation was prepared in close collaboration with other donors, especially the WB, AFD, EIB and KfW. Joint missions were organized for consultations with the Government. As part of implementation of their respective Inga development technical assistance projects, technical and financial partners will use the same implementation structure. More recently, the Bank initiated a series of discussions with USAID to share views on the Inga Project and activities implemented to date. 1.3.2 This project is part of donors' willingness to run the project with the greatest possible synergy. Preparation and appraisal missions were jointly conducted. This has given rise to the option of parallel co-financing that enables each donor to use its own rules and procedures. 2 PROJECT DESCRIPTION 2.1 Project Description and Components The ultimate goal of the project is to contribute to the full development of the Inga site and improve electricity access especially in the DRC and other countries of Central and Southern Africa. Specifically, this project will help to finalise preparation of the Inga 3 Project which is the first phase of the Grand Inga Project. Hence, it will build the DRC's capacity to prepare and implement the Inga project and its attendant measures relating to electricity access, as provided for in the treaty signed with South Africa. The project is designed as a continuation of the Inga study (EDIRA) whose findings it will supplement by conducting additional studies necessary for Inga 3 project structuring and mobilize more financing, especially from private sources (Component A).It addresses the need to prepare the integration of Inga Project 3 into the DRC's electricity grid and extend its benefits by developing electricity access (Component B). At project completion, the DRC and all beneficiary countries of the Inga Project will have precise tools to define projects for subsequent Inga site development phases and negotiate with investor-developers. The table below presents project components and costs.

Table 2.1: Project Components and Costs (in UA million) No.

Component Name

Estimated Cost Component Description

A Inga development support

81,035

Contribute to the functioning of ADEPI by providing financial and material resources;

Provide technical assistance to the Government through various advisers; Conduct additional technical studies necessary for Inga site development; Prepare the Inga Project “gender” action plan

B

Support to electricity access development

22,933

Contribute to the conduct of various studies on hydro-electricity sites for the construction of micro hydro-electric power stations;

Install a 100 MVA transformer in Kimbanseke to increase access to electricity.

4

C : Project Management 8,262

Control and supervise various services; Train the Congolese party in the management of major projects; Organise and/or attend relevant meetings and workshops or go on study trips; Set up a panel of independent experts; Prepare a procedures manual; Audit project accounts; Implement and monitor the ESMP.

Total project cost 112,229

2.2 Technical Solutions Adopted and the Alternatives Explored The technical solution adopted for Component A entails providing institutional support for preparation of the Inga 3 project instead of entrusting design and implementation to a private developer. This support will be provided through recruitment of international and national experts who will constitute the structure responsible for Inga project promotion and development and provision of the structure with operating resources. The support will also entail financing the technical studies necessary for defining the Inga 3 reference project. Component B essentially entails conducting complete studies on 5 (five) low-capacity hydro-electricity sites, but which can meet the needs of certain areas that will experience very little impact from the Inga 3 project. Conducting these studies will ensure better quality at entry for resulting projects and thus offer an investment opportunity to the private sector. Moreover, provision has been made for reinforcement of the Kimbanseke Station whose ongoing construction works are financed by the Bank under PMEDE. This station is strategic because it is a major receptacle for evacuating the share of energy generated from Inga 3 going to the DRC. Table 2.2 below indicates the alternatives explored and the reasons for their rejection.

Table 2.2: Project Alternatives and Reasons for Rejection Names Description and Characteristics Reasons for Rejection

Government support in its initial option of constructing Inga

Entrust the preparation and construction of Inga through a fast-tracked procedure as a single package with one investor-developer

- Ownership not guaranteed; - Possible obstacles to future developments; - Limited financial and socio-economic benefits for the

DRC; - Loss of full sovereignty over a strategic site.

Develop only the Inga site

Average-sized hydro-electricity sites are not operated

- Solution not optimal given the current configuration of the DRC’s grid which does not make it possible to connect the entire national territory and ensure inclusive development;

- Projects for average-sized hydro-electricity sites will not be ready for financing.

2.3 Project Type 2.3.1 The project is an autonomous operation that comprises technical assistance, optimum Inga site development support and reinforcement of the existing electricity infrastructure. Such assistance specifically concerns building the capacity of the DRC Government to prepare the Inga 3 phase and support measures in terms of electricity access. It goes along the lines of project management assistance. 2.4 Project Cost Structure and Financing Mechanisms 2.4.1 The total project cost, net of taxes and customs duties, is estimated at UA 112.23 million, comprising approximately UA 105.96 million in foreign exchange and UA 6.27 million in local currency. These costs include a 10% provision for technical and physical contingencies and price escalation. Costs by component and by expenditure category are presented in Tables 2.3 (a) and 2.3 (b) below:

5

Table 2.3 (a): Cost by Component in UA thousand

Components In UA thousand - In USD thousand -

- Foreign Currency LC Total Foreign

Currency LC Total

(A) Inga development support 71,600 2,376 73,977 107,684 3,574 111,258 (B) Support to electricity access development 20,970 - 20,970 31,538 - 31,538

(C) Project management. 5,110 2,444 7,554 7,685 3,676 11,361 Total Base Cost 97,680 4,821 102,501 146,907 7,250 154,158 Physical Contingencies 4,133 725 4,857 6,215 1,090 7,305 Price Escalation per year 4,145 726 4,871 6,234 1,092 7,325 Total Cost 105,958 6,272 112,229 159,356 9,432 168,789

Table 2.3.b : Estimated Cost by Expenditure Category

Expenditure Category In UA thousand In USD thousand

Foreign Currency LC Total Foreign

Currency LC Total

goods 2,033 743 2,776 3,058 1,117 4,175 Services 102,156 4,770 106,926 153,639 7,174 160,812 Operation 1,769 758 2,528 2,661 1,140 3,801 Total project cost 105,958 6,271 112,229 159,357 9,432 168,789

2.4.2 Project Financing Mechanisms: The project will be co-financed, in parallel, by various donors: Bank Group (44%), World Bank (49%) and DBSA (6%). The DRC Government will make a national counterpart contribution of 1%. The latter will essentially cover contributions in kind to the operation of the executing agency (provision of premises, staff salaries and a share of the operating and capital expenses). In fact, given the DRC’s economic situation, a waiver was granted on the percentage of counterpart funds required for Bank financing (see Annex C1). For the Bank Group, financial resources will be provided in the form of grants. These resources will come various windows: ADF (country allocation and regional envelope), FSF (pillars I and III) and NEPAD/IPPF. As concerns the FSF, the Bank granted two support amounts in May 2013 under FSF Pillar III (total: UA 3.5 million) to assist with the establishment and support of the structure responsible for Inga development. It also approved the NEPAD/IPPF grant (UA 1.33 million) in August 2013. The financing schedule is presented in Tables 2.4 to 2.7-bis below:

Table 2.4: Financing Plan (in UA thousand)

Financing Source Foreign Currency Local currency Total Percentage

ADF 27,586 11,823 39,409 35% FSF3 3,087 408 3,495 3% FSF1 3,500 1,500 5,000 4% NEPAD/IPPF 1,325 - 1,325 1% Bank Group Sub-Total 35,498 13,731 49,229 44% WB 38,304 16,416 54,721 49% DBSA 4,654 1,995 6,649 6% DRC - 1,631 1,631 1% Total 78,457 32,142 112,229 100%

6

Table 2.5: Project Costs by component and by Financing Source (in UA thousand)

COMPONENTS FINANCING SOURCES

Bank Group WB DBSA DRC TOTALADF FSF3 FSF1 NEPAD-IPPF

A. Inga development support 24,626 2,965 4,545 1,204 33,988 6,649 - 73,977 B. Support to electricity access development 9,999 - - - 10,971 - - 20,970

C. Project management. 1,007 277 - 4,787 - 1,483 7,554 Total Base Cost 35,632 3,242 4,545 1,204 49,746 6,649 1,483 102,502Physical Contingencies 1,889 119 227 60 2,487 - 74 4,857 Price Escalation per year 1,889 134 227 60 2,487 - 74 4,871 Total Cost 39,409 3,495 5,000 1,325 54,721 6,649 1,631 112,229

Table 2.6 – Expenditure Category by Financing Source (UA thousand)

Categories of expenditure

Bank Group WB DBSA DRC TOTALADF FSF3 FSF1 NEPAD/IPPF

Goods 1,663 - - - 1,144 2776 Services 37,122 3,495 5,000 1,325 53,334 6,649 106,925 Operation 624 - - - 273 - 1,631 2,528 Total project cost 39,409 3,495 5,000 1,325 54,721 6,649 1,631 112,229

Table 2.7 a : Disbursement Schedule by Expenditure Category (in UA thousand)

Expenditure category 2014 2015 2016 2017 2018 TOTAL

Goods 555 833 833 278 278 2,776 Services 21 385 32 078 32 078 10 693 10 693 106,926 Operation 506 758 758 253 253 2,528 Total project cost 22 446 33 669 33 669 11 223 11 223 112,229

Table 2.7 b: Disbursement Schedule by Component (in UA thousand)

Components 2014 2015 2016 2017 2018 TOTAL A. Inga development support 16,207 24,310 24,310 8,103 8,103 81,035 B. Support to electricity access development 4,587 6,880 6,880 2,293 2,293 22,933

C. Project management. 1,652 2,478 2,478 826 826 8,262 Total project cost 22,446 33,669 33,669 11,223 11,223 112,229

2.5 Project Target Area and Beneficiaries 2.5.1 This is an institutional support project aimed at preparing, in general, the optimal development of the Inga site and, in particular, the implementation of the Inga 3 project whose main beneficiaries are: the DRC which will receive capacity-building in the management of complex projects through CGI3 and ADEPI, South Africa and Southern African countries traversed by power transmission lines. Indeed, of the expected 4800 MW to be generated from Inga 3, 2300 MW will go to the DRC and 2500 MW to South Africa. These two countries already have power exchange arrangements with Central and Southern African countries. Besides, the power will be transmitted to South Africa through the electric power grids of certain member-countries of the Southern Africa Power Pool (SAPP). 2.5.2 In the short-term, the communities in the semi-urban areas of Kinshasa, comprising essentially over 25.000 households in Kimbanseke, will have greater access to electricity. In the medium term, the project will lead to the establishment of institutions endowed with the appropriate skills for the optimal development of the entire Inga site.

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2.6 Participatory Approach 2.6.1 The participatory approach was adopted throughout all the project study stages at both the institutional and community levels. Indeed, several meetings with the DRC Government, regional economic communities and specialized organisations, especially on river basin management and energy development, facilitated the definition and structuring of this project. This approach was extended to the technical and financial partners involved in the sector in order to develop real synergies. As concerns the "Electricity Access Development Support" component, and the Kimbanseke post in particular, past and current consultations were held with communities as part of PMEDE implementation under the aegis of neighbourhood chiefs and local authorities. These consultations highlighted community concerns especially regarding: (i) in-depth information about the project implementation schedule; and (ii) the need for a highly transparent system for the payment of compensation to persons affected by the Kimbanseke station (under PMEDE). Indeed, the project was presented through public consultations and explained to the communities in order to identify affected persons as well as other possible effects. The regular consultations that ensued led to agreements on compensation arrangements. 2.7 Bank Group Experience and Lessons Reflected in Project Design 2.7.1 The Bank has been involved in electricity sector development in the DRC for almost three decades. It is still present in the sector through several operations such as PMEDE, EDIRA and PEPUR. No completion report has been prepared for any of these three projects. Nevertheless, the lessons learnt from these and other Bank operations in the energy sector informed the design of this project. Indeed, the Bank already participates in, and supports, several projects and operations. The following lessons drawn from the above experiences were factored into the preparation of this project: (i) PMEDE revealed the need for smooth coordination among donors to ensure successful co-financing; (ii) PEPUR highlighted the importance of structuring the executing unit; and (iii) EDIRA revealed an absolute need to build DRC's capacity and the quality at entry of projects through the conduct of appropriate studies. Indeed, several joint and other missions made it possible to specifically allocate activities among co-financiers, define the type of co-financing and the communication model. As regards the executing unit, it was observed that there is currently no structure capable of playing that role for such a complex project. Dialogue helped to define the broad outlines (organisation, positioning, etc.) for the smooth execution of the project. One important aspect of this unit is the inclusion of nationals in order to ensure the transfer of know-how and thus facilitate the preparation of subsequent phases. 2.7.2 The March 2013 review judged the DRC's portfolio performance to be satisfactory with a score of 2.4 compared to 2.25 at the end of 2011. The performance of multinational operations is still unsatisfactory despite some improvements. The specific problems relate to: (i) a significant cost estimate overruns; (ii) delays in establishing adequate financial management systems; (iii) no efficient monitoring and evaluation mechanism; (iv) weak project implementation structures; and (v) inadequate project steering committees. The project addresses these issues by focusing on the quality at entry of activities, through its Inga site development component characterized by its "capacity-building" sub-component and through the entire institutional framework of the executing unit which includes a monitoring and evaluation expert. 2.8 Key Performance Indicators 2.8.1 The key project performance indicators are detailed in the results-based logical framework matrix. They concern progress in the preparation of the Inga 3 Project and the conduct of works and studies on electricity access development. This entails the effective establishment of CGI3, the conduct of various planned studies and reinforcement of the Kimbanseke station.

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2.8.2 With respect to performance indicators, the project executing agency will be responsible for establishing the baseline situation and then monitoring and analysing their progress mainly by comparison with the projections in the logical framework. In MRHE and SNEL, the project’s performance indicators will be included in the periodic progress reports. They will be analysed against the project's target values or any other reference deemed relevant, especially during the Bank’s supervision missions. 3 PROJECT FEASIBILITY 3.1 Project Measures and Anticipated Development Results Each component of this support is designed to address specific identified challenges in order to ensure optimum development of the Inga site in the long term and facilitate access to reliable energy for the DRC population and neighbouring countries in Central and Southern Africa. 3.1.1 Component A: Inga Development Support 3.1.1.1. Observations and Challenges: The DRC faces a major paradox in the electricity sector. Only close to 2.5% of its enormous potential, estimated at 100.000 MW, is being utilized. The Inga site has a potential of 40.000 MW of which 1.775 MW is currently utilized through the development of Inga 1 and Inga 2. The real available capacity of these two power stations is approximately 40%. Less than 10% of households have access to electricity, representing one of the lowest rates in Sub-Saharan Africa which has an average of approximately 30%. Optimum development of the Inga site seems to be the ideal solution for addressing the energy challenges faced by both the DRC and the sub-region. EDIRA presents a development plan for the Inga site the implementation of which is complex and requires proven technical, economic, legal and financial skills. This need is all the more acute because the project will be implemented under a public-private partnership. The observation is that the country lacks the capacity to implement a project as complex as Inga 3. Consequently, executing such a project is a major challenge. 3.1.1.2. Measures and Expected Results: The measures scheduled under this component include: (i) providing a strategic (legal, technical and financial) adviser to the DRC Government to assist in reviewing the private developer selection process and advise on the establishment of a project company as well as the negotiation and finalization of the concession contract that will result in the development of Grand Inga phase A; (ii) conducting studies and providing the services necessary for the complete definition of the Inga 3 project; and (iii) establishing the structures responsible for Inga site development. These measures will ultimately contribute to the efficient development of the Inga site and leave a substantial development impact on the DRC and the sub-region. Electricity from Inga could be of interest to the DRC’s neighbours for which transmission costs will be reduced (Angola, Zambia) and countries which generate power essentially from coal (Namibia, Botswana). Consequently, it is possible that part of the electricity exported to South Africa will be re-exported to these countries. Furthermore, by establishing a permanent institution responsible for Inga development, this component targets one of the special interest areas of the Bank’s strategy, which is capacity-building for a fragile State. Such capacity-building will contribute to good governance within the sector which remains one of the current stumbling blocks to the DRC's economic and social development. 3.1.2 Component B: Electricity Access Development Support

3.1.2.1. Observations and Challenges: The lack of reliable electricity supply in the DRC is one of the main constraints blocking the country’s business and socio-economic development. In fact, the study on investment challenges in the DRC conducted by the Bank in 2012 identified energy infrastructure deficit as one of the major factors. Regardless of its scale, the Inga 3 Project alone

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cannot guarantee the harmonious development of electricity access in the DRC. This situation partly stems from the setup of the electricity transmission and distribution network which cannot currently transmit all the energy from Inga to major energy consumption areas like Kinshasa. Besides, further development of the hydro-electricity potential outside of Inga is hampered by lack of studies or other tools that facilitate investment decision-making. As a support measure and in an effort to ensure equity, actions have to be implemented to develop other potential such as lower-capacity hydro-electricity sites. Such an approach facilitates inclusive low-carbon growth. 3.1.2.2. Measures and Expected Results: This component essentially entails conducting a complete study on at least five future hydro-electricity sites (technical and economic feasibility, environmental and social impact studies) and identifying sites to be rehabilitated in order to boost available capacity. Through these measures, the Bank will contribute to the implementation of selected projects. Indeed, the skills acquired by Congolese nationals under Component A should facilitate the implementation of these projects. Hence, a larger proportion of the DRC’s hydro-electricity potential will be developed thereby increasing the share of clean energy in the DRC’s energy mix. Meanwhile, raising the output of the Kimbanseke transformer station from 40 to 100 MVA will facilitate evacuation of the share of energy generated from the Inga 3 project for domestic consumption in the DRC and increase semi-urban electrification initiated under PMEDE through the extension of electrification to the “dark areas” of Kinshasa by connecting 25.000 households to the power grid. 3.1.3 Component C: Project Management 3.1.3.1. Observations and Challenges: Capacity-building in complex project management is a major challenge, given the fragile state of the DRC resulting from instability in recent years and the scale of Inga site development projects. The specific goal of measures taken under this component is to ensure the efficient and effective management of the resources allocated under this support operation. 3.1.3.2. Measures and Expected Results: By enabling the production of regular audit and financial monitoring reports and by financing the operation of management structures, this component seeks to ensure the effective and efficient management of the support project. These measures will provide DRC nationals with the necessary means to manage complex projects and thus ensure the viability of the overall Inga site development project, starting with the Inga 3 priority project. 3.2 Environmental and Social Impacts 3.2.1 Environment 3.2.1.1 The project was classified under category 2, based on the scope of works (installation of a transformer on an existing site) and the negative environmental and social impacts identified. The project's impact is rather positive because it will: (i) put an end to all thermal electricity generation, mainly for auto-consumption, currently practised in the Kimbanseke region; and (ii) ease the pressure on forests. The same applies to the future Inga 3 project to generate hydroelectricity described as green energy.

3.2.1.2 Project implementation will not cause any major environmental and social impacts, apart from the Kimbanseke Station whose social effects have already been addressed under the ESMP of PMEDE. However, an environmental and social audit will be conducted to: (i) ensure that any challenges resulting from implementation of the ESMP, IRP and any other measures adopted under PMEDE are well identified and eliminated; and (ii) ensure that PASEL implementation is not affected by possible challenges resulting from PMEDE. A strategic environmental and social study will be conducted during project implementation, considering the scope of studies to be financed under PASEL.

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3.2.2 Climate Change: The main risk in the project area relates to floods. The platform of the Kimbanseke station will be designed taking this risk into account. Considering its specific activities, the project will have no direct impact on climate change in terms of CO2 emissions. Based on subsequent projects such as the Inga 3 power station or smaller hydro-electric power stations, this project can be ranked among climate change mitigation projects. As a matter of fact, it entails generating electricity without CO2 emissions. The same applies to the reinforcement of the Kimbanseke Station which will essentially entail substituting hydro-electric power for the thermal-generated power generally used to address power supply shortages. 3.2.3 Gender:

The project's impact on gender will be perceptible mainly in the component on improved electricity access in the semi-urban areas of Kimbanseke. The connection of 25.000 households, including at least 12.500 women and girls, to the power grid will help to: (i) improve livelihoods and quality of social services for children and women in particular; (ii) reduce the time spent on gathering energy resources, especially for women who can use the extra time for productive activities; (iii) consolidate existing activities carried out by women, especially food processing and the development of new income-generating activities; and (iv) promote women’s integration into the economic and social development of the country. From a more general perspective, thanks to a study conducted under the project, a "gender" action plan will be prepared, under the Inga 3 reference project, defining specific gender promotion and women's empowerment actions, in particular through capacity-building. This plan will present the required activities, timeline, beneficiaries and budget. A gender expert will be recruited during the implementation phase to monitor the effective implementation of this plan. 3.2.4 Social: 3.2.4.1 The project will have positive social impacts. Indeed, its direct impact on the DRC economy will be a huge inflow of investment and private partners as well as national capacity-building in the development of complex projects. Hence, in the semi-urban area of Kimbanseke, access to low-cost electricity is expected to lead to: (i) development of the industrial fabric; (ii) creation of income-generating activities especially for women and youth; and (iii) the use of modern household appliances. In the medium term, the project will help to boost the DRC's electricity production capacity by developing the Inga hydro-electricity site and several low-capacity sites. This additional output will facilitate the electrification of rural and semi-urban areas and provide access to electricity for hitherto marginalized social classes, thereby reducing the isolation of several regions. In the mining sector in particular, news of Inga site development has given rise to major employment-generating projects in the Southern African region driven by the competitiveness gains to be reaped from low-cost energy. 3.2.4.2 The imminent implementation of major projects could have negative social impacts, especially during the construction phases: (i) increased road traffic should be expected, together with the attendant temporary nuisances like traffic noise and dust; and (ii) inaccessibility of certain sites and roads. 3.2.5 Involuntary Resettlement 3.2.5.1 Project implementation will not lead to any resettlement of the population. EDIRA findings show that the same will apply to the Inga 3 project which will affect only approximately 180 households that will lose farms and arable land. No affected persons will be displaced or resettled on the Inga site. Along the transmission line (3300 km), 84 homes will potentially be affected and an estimated 49 hectares of arable land will be lost. For the entire Inga 3 project, the budget estimate for

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implementing the ESMP and resettlement action plan will not exceed 0.3% of total construction costs. For the Kimbanseke station, land acquisition and compensations were financed by the World Bank which monitored their execution under PMEDE. 4 PROJECT IMPLEMENTATION 4.1 Implementation Arrangements 4.1.1 Project implementation will be entrusted to the Inga 3 Management Unit (CGI3) which shall retain full responsibility, especially from the fiduciary standpoint. The CGI3 was established by Ministerial Order No. CAB/MIN/RHE/033 of 23 July 2013 and it is the executing agency for Inga site projects. It coordinates and supervises all development activities for this site and, in priority, the construction of the Inga 3 hydro-electric power station and associated infrastructure, pending the effective establishment of the Inga Site Development and Promotion Authority (ADEPI) which it prefigures. Hence, pending the creation of ADEPI, the DRC Government considers CGI3 as the preferred counterpart of all stakeholders involved in Inga development. In particular, all technical and financial partners interested in the Inga 3 project have agreed to retain the CGI3 as the executing organ for their various assistance projects. The CGI3 will transfer its responsibilities to ADEPI, once the latter has been established, evaluated and deemed operational by the Bank, to carry out its mission. 4.1.2 The CGI3 already has two international consultants recruited as technical advisers to the MRHE. The core staff will comprise technical, legal, economic and financial experts. The appointment procedure for the coordinator and main experts is underway. Pending the recruitment of its entire staff, the CGI3 has relied on an agreement with SNEL to secure the services of a financial expert, a procurements expert and an environmentalist who all used to work on projects financed by the Bank and who consequently know its rules and procedures. The CGI3 will recruit a monitoring and evaluation expert to monitor project activities. A study on CGI3 structuring is currently being finalized. Its terms of reference are presented in Annex C.2. 4.1.3 From the institutional standpoint and given the scope of the project, the CGI3 works with three other structures namely the Inter-ministerial Committee for the Construction of the Inga 3 Hydro-Electric Power Station in Bas-Congo Province (CODESI), the Committee for Facilitation of Inga Site Development Projects (CFI) and CDP/SNEL. The institutional organisation plan is presented in Annex B3. These structures and the various relations between them are presented as follows:

‐ CODESI, set up by Prime Ministerial Decree No. 13/019 of 6 June 2013, is under the direct authority of the Prime Minister. As the steering organ, it: (i) formalizes the general vision of Inga site development and the principles on which such development should be based, consistent with the legitimate interests of the DRC, especially from the strategic, economic and regional standpoints; (ii) determines the development schedule for the Inga 3 power station and related facilities; (iii) coordinates mobilisation of the resources needed for project implementation; and (iv) ensures the establishment of Inga site development and promotion structures. The CGI3 carries out the secretarial duties of CODESI.

‐ The CFI, set up by Ministerial Order No. CAB/MIN/RHE/032 of 23 July 2013, is under

the authority of the Minister in charge of electricity. It facilitates liaison between the Government, especially member-ministries of CODESI, and CGI3. The CFI is a structure composed of experts from CODESI member-ministries. It is tasked with facilitating and supervising all Inga site development activities (starting with the construction of the Inga 3 hydro-electric power station and related facilities). The CGI3 performs the secretarial duties of the CFI.

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‐ The CDP/SNEL is a specialized structure of SNEL responsible for equipment and rural electrification. It currently manages the PMEDE project. The CGI3 will involve the latter in the management of the “Kimbanseke Station” component. Hence, the technical documents and rider will be prepared by CDP/SNEL which will validate the works. The CGI3 will authorize the payment of services subject to certain controls, in accordance with the administrative and financial management manual.

4.1.4 Procurement Arrangements: 4.1.4.1. Procurement will be conducted in a context of continued and increased Bank support for preparation of the Inga 3 project. The project's schedule constraints and the need to continue the technical approach and advisory services to the DRC argue for continuation of part of the services to finalize the project's structuring and complete its funding. Thus, strategic advice will be provided by the same firm hired under Bank supervision to support the DRC in choosing a developer and finalizing a commercial agreement with South Africa. A specific note explaining the process and conditions of the recruitment is detailed in annex V. 4.1.4.2. The conduct of further technical studies will be done in direct agreement with the Group of consultancy firms which conducted EDIRA financed by the Bank to the tune of UA 9.51 million. EDIRA's main outcome is the proposal of an innovative solution consisting in developing the Inga Site in successive phases. The purpose is to conduct studies specifying some findings of EDIRA. Additional studies constitute a continuity of activities for better definition of the Inga 3 project. Their costs were estimated on the basis of EDIRA prices, the scope of services to be conducted and discussions between donors (in a joint mission) on past experiences. It is preferable to reappoint the Group, rather than to engage in a new competition, in order to benefit from the same technical approach, experience and knowledge gained as well as the Group's professional responsibility. This approach is proposed in light of the satisfaction given by the results of EDIRA. From a practical standpoint, the terms of reference will be prepared by the Congolese party which will then request from the Group technical and financial proposals that will subsequently be negotiated. To upgrade the capacity of the Kimbanseke station from 40 to 100 MVA, procurement will be conducted by mutual agreement, through an amendment to the construction contract already signed between SNEL and the company in charge of the works and financed by the Bank under PMEDE. Such an arrangement is technically and economically justified. Technically, bidding would raise the issue of interface (limitation of liability) and compatibility. Economically, the cost estimate is reasonable in light of market practices and the preliminary assessment conducted by SNEL's Consulting Engineer. The extra cost of this arrangement is in reasonable proportions if account is taken of the power gain acquired. In the event of bidding, supply of the transformer may require changes in certain goods or works already acquired under the ongoing contract. 41.4.3 All procurements financed by the Bank will be in accordance with the Bank's relevant rules of procedure using its appropriate Standard Bidding Documents. Thus, the procurement of goods will be by International Competitive Bidding (ICB) and consultancy services required for the Project will be procured in accordance with the Fund's rules and procedures for the procurement of goods and works. Procurements through national competitive bidding (NCB) and National Shopping will be done in accordance with national public procurement laws (Law No. 10/10 of 17 April 2010 to define the procurement code), using the country's standard documents on requests for quotations as well as provisions set out in the financing agreements. These procurements are detailed under Annex B. Annex VI provides a clear presentation of the procurement methods. 4.1.4.4. The Ministry of Water Resources and Energy, acting through CGI3, will be responsible for all project activity procurements. A CGI3 capacity review indicates a need for reinforcement with a procurements expert. A draft procurement plan prepared by CGI3 will be submitted to the Bank for

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review and approval prior to negotiations. Details of procurement arrangements under the project are presented in Technical Annex B.5. 4.1.5 Financial Management and Audit Arrangements 4.1.5.1 The review conducted shows that the overall financial management risk of the project was deemed to be high at entry, mainly due to the budding nature of the CGI3 whose financial management arrangements had not yet been established at the time of project appraisal. The mitigative measures proposed in the financial management action plan (Annex B4 and B6) seek to support the CGI3 in the immediate establishment of a financial management mechanism for the project and, in the medium or long term, the provision of management tools necessary for the financial management of ADEPI. The production of an administrative and financial management manual and the diligent implementation of actions retained in the action plan will lessen the residual risk and enable CGI3 to comply with the Bank's minimal requirements on the financial management of projects. 4.1.5.2 In accordance with project implementation terms, financial management will be handled by CGI3. Considering that it prefigures ADEPI – the permanent structure responsible for Inga site development and promotion – the CGI3 which is currently the focus of an organisational study, will be provided with an adequate financial system manned by qualified and seasoned staff and will carry out general, cost and budget accounting with the appropriate software. There are plans to provide CGI3 with technical assistance in the form of consultants specialized in administrative, financial and accounting management and/or accounting. These consultants will be recruited through a competitive process whose terms of reference will be approved beforehand by the Bank. One of their main missions will be to help the Borrower establish an adequate and acceptable financial management system that meets international standards with a view to creating ADEPI pursuant to the recommendations of the study. 4.1.5.3 The project’s financial management will be based on the entire financial management system that will be set up within CGI3 in preparation for ADEPI, especially systems for: (i) budget management; (ii) accounting and reporting; (iii) internal control and external audit; and (iv) cash-flow and fund flow management. Borrower compliance with the agreed arrangements in the financial management action plan will ensure that funds allocated to the project are used for project purposes. Furthermore, recruitment of the external auditor six months after grant effectiveness and all the other measures retained in the financial management action plan constitute other grant conditions. CGI3 will prepare an annual programme of activities that is budgeted, controlled and transmitted to the Bank before the start of each fiscal year. CGI3 accounts will be kept separate from project accounts and CGI3 undertakes to prepare and forward to the Bank, on a regular basis, the financial monitoring reports and annual financial statements within the agreed deadlines and in a format to be determined during the negotiations. CGI3 financial staff should at least include a financial management expert with long-standing experience in the financial management of projects financed by donors (AfDB, WB). 4.1.5.4 CGI3 will implement appropriate and documented internal control procedures such as accounting records, financial transactions, expenditure initiation and justification, and safeguarding of financial data and project assets. Internal control will be conducted by an internal auditor and an audit committee where applicable. A progress report and an interim financial report for the project will be prepared every six months based on a template acceptable to all partners. The financial report (see indicative content) will be transmitted to the Bank within 45 days following completion of the six-month period or any other deadline set in the procedures manual. Furthermore, the project’s annual financial statements will be prepared according to accounting standards. The project will be subject to on-site and off-site financial management supervision.

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4.1.5.5 The separately prepared financial statements of the project and of CGI3 will be audited annually by an external auditor. The project and CGI3 accounts will be audited according the international standards on auditing issued by IFAC. The project audit terms of reference (ToRs) will be prepared to the satisfaction of all donors, taking into account the procedures agreed upon in accordance with the Bank’s ToRs and will be submitted to the Bank for approval without delay. The audit reports of the project and of CGI3, accompanied by letters to the directorates of internal control, will be transmitted to the Bank not later than 6 (six) months after the close of the relevant fiscal year. The first project audit report will cover activities from project commencement to 31 December 2014. Similarly, annual CGI3 accounts prepared in accordance with acceptable accounting standards will be audited. 4.1.6 Disbursement Mechanism and Arrangements 4.1.6.1 Common Mechanism: For financial transactions during project execution, CGI3 will open a special account for ADF resources and another special account for FSF resources. These accounts will be opened in acceptable banks and currencies and audited annually together with the financial statements of the project and CGI3. 4.1.6.2 Specific Arrangements: Although there is a common mechanism, payment requests on the ADF and FSF loans have to be presented in accordance with the applicable procedures outlined in the Bank's disbursements handbook. Considering the planned activities and contracts, disbursements will be made as follows: (i) direct payment method for the payment of contracts related to expenditure on the works, goods and services categories; and (ii) the special account method for routine operating expenditure. Two disbursement letters will be reviewed by both parties during negotiation of the grant agreements, and forwarded to the Borrower as soon as the project is approved by the Bank. Opening of the ADF special account is a condition precedent to first disbursement of the ADF grant. 4.2 Project Monitoring 4.2.1 The main project milestones are presented in Table 4.1 below. The activities will be implemented following the project implementation schedule. A monitoring and evaluation expert will be placed at the disposal of CGI3.

Table 4.1: Major Project Implementation Milestones Duration Milestones Monitoring Activities/Feedback Loop

90 days Approval and effectiveness

Approval of loans General procurement notice Signature and effectiveness of grant agreements AfDB launch mission

120 days Procurement Preparation of the consultancy filesConsultations and award of contractsSignature Consultancy Firms GroupSignature of additional clause for Kimbanseke

1800 days Physical implementation of the project

Execution of contracts Preparation of periodic project progress reports Supervision missions from the BankEnvironmental and social monitoring of the project Mid-term review by the Bank

150 days Project accounts audit Recruitment of the auditor for execution of annual audits Execution of annual audits

90 days Project completion Borrower’s project completion reportPreparation of the Bank’s project completion report

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4.3 Governance The governance risk for this project is low and could materialize during the establishment of CGI3, especially regarding staff selection and the entity’s position within the institutional mechanism responsible for Inga site development. However, this risk is mitigated by the fact that donors are attentive to it. They have already secured an amendment of the ministerial order setting up CGI3 to give the structure a leadership role pending the advent of ADEPI. Furthermore, their opinion will be sought prior to any appointments. As concerns procurements, the risks are minimal because most of the contracts will be awarded under Bank supervision. The Bank will conduct supervision missions and technical and financial audits to ensure conformity between the terms of reference, works done, disbursements made and the loan agreement. Lastly, it is worth noting that the involvement of the highest ranking authorities (the Prime Minister) in the management of the Inga project is a guarantee of good governance. 4.4 Sustainability 4.4.1. Project sustainability depends essentially on the Government’s commitment through the institutional mechanism set up for Inga site development. Besides, to stay within the purview of EDIRA, the Government has developed a vision of optimal and sustainable development of the Inga site. Hence, to promote ownership, there are plans to recruit Congolese nationals who, working with international firms and experts, will acquire the knowledge needed to manage complex projects, thus facilitating the preparation of subsequent phases. Studies on low-capacity hydro-electricity sites constitute an indispensable stage regardless of the mode of development adopted by the DRC, especially given the current emerging trend of implementation through public-private partnerships. With regard to the Kimbanseke station, its strategic role makes it one of the structures targeted by the new maintenance strategy for SNEL’s power transmission network. 4.5 Risk Management 4.5.1 Implementation risk: CGI3 is a newly created entity with no historical precedent for monitoring and implementing a project as complex as Inga 3. This risk is mitigated by the quality of management that will be appointed, assistance from leading consultants, various studies and opinions by the Bank and other donors on the implementation process and CGI3’s capacity to implement the project. These studies determined the technical assistance, technical consultancy or capacity-building needs. 4.5.2 Fiduciary risk: The initial fiduciary risk is deemed high for this project. Actually, CGI3, which will execute the project, is not yet operational. Consequently, its capacity to engage in sound financial management of the project cannot be ascertained at this stage. Furthermore, the complexity of the project is hightened by the need to find a mechanism for joint management of mobilized resources and this constitutes an additional risk for the Bank. Enforcing the grant conditionalities will scale down the residual risk to a moderate and acceptable level. Apart from operationalizing the CGI3, it will be necessary for the Bank to ensure or obtain proof of establishment of a financial management mechanism deemed satisfactory for project implementation. 4.5.3 Co-financing execution risk: This risk does exist although it relates to parallel co-financing. Indeed, as concerns CGI3, the various costs for recruitment of advisers and experts and for the conduct of studies were shared among the co-financiers. Any delay or failure to honour commitments by any of the parties could be detrimental to the smooth running of the project as a whole. This risk is mitigated by the willingness to cooperate shown by all cofinanciers as well as current and future communications efforts. For the Bank, such shortcomings will not affect implementation of most of the activities it finances.

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4.5.4 Political Risk: This risk stems from the fragility of the ongoing peace process and the country’s political instability which could impede the execution of project activities. It will be mitigated through: (i) the current political process, especially the regional and international consultation and mediation process. The dialogue maintained by technical and financial partners to encourage the Government in its efforts to restore State authority all over the national authority equally contributes to risk mitigation. 4.6 Knowledge Development 4.6.1 The project offers the Bank and the DRC Government an opportunity to disseminate new knowledge. For the Bank, it constitutes an example of support to a fragile State in the preparation of a complex project. In assessment terms, it makes it possible to determine the magnitude of skills and financing needs. It is also an experience of collaboration among technical and financial partners. 4.6.2 New knowledge will be acquired mainly during interactions between partners and with beneficiaries. The documentation from these meetings and supervision missions, periodic progress reports as well as various control reports will constitute a basis for knowledge acquisition. 5 LEGAL FRAMEWORK 5.1 Legal Instrument The Bank will use the following financing instruments: a grant of UA 39.4 million on FAD-12 resources and a grant of UA 5 million on FSF (pillar I) resources to the Democratic Republc of Congo to cofinance this project. 5.2 Conditions Associated with the Bank’s Intervention A. Conditions precedent to grant effectiveness: The entry into force of the ADF and FSF Grant Agreement Protocols shall be subject to their signature by the Donee and the ADF. B. Conditions precedent to first disbursement of the grants Apart from entry into force of the grant agreements, the first disbursement of each grant shall be subject to fulfillment of the following specific conditions by the Donee to the complete satisfaction of the ADF and the FSF:

(i) Provide the ADF/FSF with proof of the opening of a special account on behalf of the project in a bank acceptable to the Fund which will receive ADF grant resources (paragraph 4.1.6.2);

(ii) Provide the ADF/FSF with proof of recruitment of the entire key staff of the project

implementation unit (CGI3) comprising essentially a coordinator, an assistant coordinator, an accountant, as well as experts in procurements, administrative and fiduciary management, environment, monitoring and evaluation whose qualifications and professional experience will be approved beforehand by the ADF/FSF.

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C. Other conditions: Furthermore, the Donee shall:

(i) Provide proof of establishment of a satisfactory accounting and financial management mechanism within the project implementation unit, not later than six months following the first disbursement, with, in particular: (a) the recruitment of its accounting staff and internal auditor; (b) establishment of its IT system for financial management and financial information; and (c) preparation of outlines for project progress reports and six-monthly financial reports acceptable to the Bank (paragraph 4.1.5.2).

(ii) Provide proof of contribution of counterpart resources, not later than 12 (twelve)

months after first disbursement (paragraph 2.4.2); (iii) For the Kimbanseke station, provide an updated version of the Environmental and

Social Management Plan (ESMP), not later than 3 (three) months after signature of the additional clause to the construction contract signed between SNEL and the contractor (paragraph 3.2.1.2).

D. Commitments: The DRC undertakes to honour the following commitments, to the satisfaction of the ADF/FSF:

(i) Provide the ADF/FSF with any document that is reasonably necessary for monitoring project implementation;

(ii) Prepare procedures manuals on implementation as well as administrative and financial

management of the project (paragraph 4.1.5.1); (iii) Implement the project and ESMP as revised and have them implemented by its

contractors in accordance with national laws, recommendations, prescriptions and recommendations contained in the ESMP and with the applicable rules and procedures of the ADF/FSF (paragraph 3.2.1.2); and

(iv) Provide the ADF/FSF with quarterly reports on implementation of the ESMP as

revised, including, where applicable, any shortcomings and corrective actions initiated or to be initiated.

5.3 Compliance with Bank Policies The Inga development and electricity access support project is in compliance with the applicable rules of the Bank. 6 RECOMMENDATION Management recommends: (i) that the Boards of Directors of the Bank and the Fund should approve the FSF (Pillar I) grant proposal of UA 5 million for the Democratic Republic of Congo; and (ii) that the ADF Board of Directors should approve the ADF grant proposal of UA 39.4 million to finance the Inga Development and Electricity Access Support Project, in accordance with the terms and conditions set out in this report.

DRC’s CComparati

ive Socio-ecconomic Inndicators

AppPpendix I Page 1/1

Annex II Page 1/3

Status of the Bank Group’s Active Portfolio in the DRC, as of 3 September 2013

Project Title

Financing source

Approval date

Date of signature

Effective date

Closing date

Approved amount

Total disbursed

% disbursed

% sector

AGRICULTURAL SECTOR 49,46 2,56 5,2% 11,99%

1 RURAL INFRASTRUCTURE DEVELOPMENT SUPPORT PROJECT

ADF grant 10.11.2011 20.01.2012 20.01.2012 31.12.2017 49,46 2,56 5,2%

TRANSPORT AND ICT SECTOR 142,15 18,16 12,8% 34,45%

2 PRIORITY PROJECT – AIR SAFETYADF grant 27.09.2010 02.11.2010 02.11.2010 31.12.2015 88,60 18,04 20,4%

3 BATSHAM ROAD REHABILITATION PROJECTADF grant 13.06.2012 07.08.2012 07.08.2012 31.12.2017 53,55 0,12 0,2%

WATER AND SANITATION SECTOR 70,00 40,36 57,7% 16,96%

4 DWSS PROJECT IN SEMI-URBAN AREASADF grant 06.06.2007 09.08.2007 04.04.2008 31.12.2013 70,00 40,36 57,7%

PRIVATE SECTOR 0,63 0,60 95,2% 0,15%

5 ADVANS BANK (CONGO) ADB loan 04.02.2008 24.11.2008 09.04.2009 31.05.2013 0,63 0,60 95,2%

ENERGY SECTOR 105,39 14,35 13,6% 25,54%

6 INGA-PMEDE HYDRO-ELECTRICITY REHABILITATION PROJECT

ADF grant 18.12.2007 10.04.2008 10.04.2008 31.12.2014 35,70 13,83 38,7%

7 RURAL/SEMI-URBAN ELECTRIFICATION PROJECT FSF 15.12.2010 10.03.2011 10.03.2011 31.12.2015 60,00 0,11 0,2%

RURAL/SEMI-URBAN ELECTRIFICATION PROJECT

ADF grant 15.12.2010 10.03.2011 10.03.2011 31.05.2015 9,69 0,41 4,2%

SOCIAL SECTOR 15,00 10,15 67,7% 3,64%

8 POST-CONFLICT SOCIO-ECONOMIC REINTEGRATION SUPPORT

ADF grant 24.07.2007 09.08.2007 09.08.2007 30.06.2013 15,00 10,15 67,7%

MULTISECTOR SECTOR 30,00 4,54 15,1% 7,27%

Annex II Page 2/3

9 SUPPORT PROJECT FOR PUBLIC FINANCE MODERNISATION

ADF grant 25.04.2012 29.05.2012 29.05.2012 31.12.2015 10,00 0,67 6,70%

10 MOBILISATION OF HUMAN RESOURCES IN PUBLIC ADMINISTRATION

ADF grant 21.01.2011 04.05.2011 05.05.2011 31.12.2015 20,00 3,87 19,35%

National operations 412,63 90,72 21,99% FSF III WINDOW 7,13 1,36 19,1%

1 NATIONAL STATISTICAL DEVELOPMENT STRATEGY 19.04.2011 24.08.2011 24.08.2011 30.11.2013 0,26 0,14 53,85%

2 INSTITUTIONAL CAPACITY-BUILDING FOR THE MINISTRY OF EDUCATION 11.07.2011 24.08.2011 24.08.2011 30.11.2013 0,28 0,20 71,43%

3 SUPPORT TO THE UNIT EXECUTING FSF PROJECTS 01.03.2011 30.09.2013 0,15 0,12 80,00%

4 MACRO-ECONOMIC MANAGEMENT SUPPORT 24.11.2010 31.12.2012 0,59 0,46 77,97%

5 INSTITUTIONAL CAPACITY-BUILDING (Public Finance) 26.03.2010 31.12.2012 0,48 0,18 37,50%

6 INSTITUTIONAL CAPACITY-BUILDING (Diaspora) 26.03.2010 30.09.2013 0,34 0,26 76,47%

7 CREATION OF THE INGA SITE AGENCY 17.04.2013 31.05.2013 31.05.2013 30.06.2015 1,99 0,00 0,00%

8 INGA3 DEVELOPMENT PROJECT – INGA/PATCD 13.05.2013 31.05.2013 31.05.2013 30.06.2015 1,50 0,00 0,00%

9 CAPACITY-BUILDING IN STEERING REFORMS 18.07.2013 31.12.2014 1,54 0,00 0,00% CBFF 25,11 8,42 33,5% 1 PHASING OUT SLASH AND BURNING FARMING 04.11.2009 20.11.2009 20.11.2009 31.12.2013 0,29 0,28 96,35%

2 MANAGEMENT, SUSTAINABLE OPERATION AND INNOVATION 11.11.2009 20.11.2009 27.11.2009 31.12.2013 0,96 0,89 92,71%

3 QUANTIFIYING CARBON STOCK 13.11.2009 29.01.2010 08.02.2010 30.06.2013 1,08 0,81 75,00%

4 SANKURU FAIR TRADE CARBON INITIATIVE 07.04.2010 14.02.2011 10.03.2011 01.05.2015 1,15 1,04 90,43%

5 CONSERVATION INTERNATIONALE FOUNDATION 09.06.2010 26.07.2001 10.11.2011 28.02.2014 1,18 0,15 12,71%

6 ECOMAKALA 12.07.2011 31.08.2011 31.08.2011 31.03.2014 2,18 0,42 19,27%

7 REDD AGROFORESTERY SUD KWAMOUTH 12.07.2011 31.08.2011 31.08.2011 31.03.2014 2,17 0,39 17,97%

8 REDD PROJECT OF ISANGI 19.05.2011 08.06.2011 17.08.2011 31.03.2014 2,00 0,39 19,50%

Annex II Page 3/3

9 CIVIL SOCIETY AND GOVERNANCE CAPACITY BUILDING 13.07.2011 31.08.2011 15.10.2011 31.03.2014 2,79 0,29 10,39%

10 LUKI REDD PROJECT 22.07.2011 31.08.2011 31.08.2011 31.03.2014 2,01 0,00 0,00%

11 MAMBASA REDD PROJECT 27.04.2011 08.06.2011 17.08.2011 31.03.2014 2,58 0,93 36,05%

12 INTEGRATED DEVELOPMENT OF THE JAFRO PLANT 06.12.2011 29.02.2012 29.02.2012 31.12.2015 0,11 0,06 54,55%

13 VAMPEEN VALORIASATION OF AFRICAN MEDICINE 16.11.2011 09.12.2011 30.12.2011 31.12.2014 1,37 0,96 70,07%

14 AGROFORESTRY DEVELOPMENT SUPPORT 02.04.2012 12.06.2012 30.08.2012 28.02.2015 5,24 1,81 34,54%

Forestry Investment Fund (PIF) 0,52 0,19 36,5%

1 FORESTRY INVESTMENT PLAN PIF 19.06.2012 06.10.2012 06.10.2012 31.12.2013 0,52 0,19 36,54%

MULTINATIONAL 58,46 16,92 28,9%

1 STUDY ON A BRIDGE LINKING KINSHASA (DRC) TO BRAZZAVILLE (CONGO

ADF grant 03.12.2008 13.05.2009 13.05.2009 30.06.2014 3,59 1,64 45,68%

2 STUDY ON THE OUSSO-BANGUI-NDJAMÉNA ROAD AND RIVER TRANSPORT

ADF grant 01.12.2010 29.04.2011 29.04.2011 31.12.2014 0,44 0,00 0,00%

3 LAKE TANGANYIKA DEV’T PROG. (RDC)ADF loan 17.11.2004 01.02.2005 24.11.2006 31.12.2013 6,79 4,76 70,10%

ADF grant 17.11.2004 01.02.2005 01.02.2005 31.12.2013 4,96 3,15 63,51%

4 NELSAP INTERCONNECTION PROJECT - DRCADF grant 27.11.2008 28.05.2010 28.05.2010 31.12.2014 27,62 0,38 1,38%

5 INGA AND RELATED INTERCONNECTION STUDY

ADF grant 30.04.2008 07.08.2008 07.08.2008 31.10.2013 9,51 6,99 73,50%

6 INTERCONNECTION OF THE BOALI ELECTRICAL NETWORKS

ADF grant 19.09.2012 20.02.2013 20.02.2013 31.12.2017 5,55 0,00 0,00%

GRAND TOTAL 503,33 117,42 23,33%

Annex III Page 1/1

Development Partner Operations in the Electricity Sub-Sector at end-June 2013 in DRC

DONORS

PROGRAMME OR PROJECT AMOUNT

World Bank ‐ Project for the Rehabilitation and Strengthening of the Inga Hydro- Power Stations and Kinshasa (PMEDE)

‐ Southern African Power Market Project (SAPMP)

USD 937,000,000

German Cooperation (KfW)

‐ - Southern African Power Market Project (SAPMP) (G27 Group of Inga II)

‐ Kamanyola Station Project within the framework of the Ruzizi III

Financing under preparation

European Investment Bank

‐ Southern African Power Market Project (SAPMP)

‐ Southern African Power Market Project (SAPMP) (PMEDE)

EUR 110,000,000

Belgian Technical Cooperation

‐ Rehabilitation of the Tshopo power station and the Kinsangani distribution network EUR 13,500,000

Chinese Cooperation

‐ Construction of the Zongo II hydro-electricity power station (150 MW) 360.000.000 €

Dutch Cooperation

‐ Project for Consolidating the Interconnection of the Electric Grids of Nile Equatorial Lakes Countries

10.000.000

Indian Cooperation

‐ Construction of the hydro-electric power stations of Kakobola (9 MW) and Katende (64 MW)

EUR 210,000,000

Annex IV Page 1/1

Project Description

Components Cost (UA million)

7 Description of activities

A) (A) Inga development support

8 81.03

9 Technical and institutional support to the DRC Gov’t (through CGI3/ADEPI) • Operation of ADEPI • Appointment of a strategic adviser for CGI3/ADEPI • Recruitment of international advisers • Recruitment of national counterparts • Implementation of the communication component 10 Technical studies related to the Inga project • Validation of the water intake capacity (bathymetry, speed

profiles, sedimentology, digital model and terms of reference for the physical and sedimentological models)

• Geological reconnaissance (Geological baseline report (GBR) and the reconnaissance terms of reference; supervision of field work; interpretation of results)

• Tariff benchmarking and characterization of demand • Updating of line projects and load curve • FD studies, BDs, bidding support, mobilisation of DRC

financing lines • Impact analysis on Inga 1 and 2 as well as attendant

countervailing measures • Environmental and social impact assessment • Updating of the reference project to 4800 MW • Physical model and sedimentation studies • Advisory services to CGI3/ADEPI • Study on a second interconnection line • Support to SPV, Joint facilities • Support to SPV, Inga-Kolwezi line

(B) Support to electricity access development

22.93

Studies on the development of electricity access (micro and mini hydro-electric power stations • Complete studies on 5 out of 10 sites o Technical and economic studies o Environmental and social impact assessments • Site rehabilitation studies • Increased capacity for the 225/20 kv Kimbanseke Post • Increase from 40 to 100 MVA

(C) Project management 8.26

• Control and supervision of various services • Training activities • Operation of the PIU (organisation/attendance of meeting, workshops, study trips; allowances) • Panel of independent experts • Procedures manual • Audit of project accounts

B) TOTAL 112.23

Annex V Page 1/3

Recruitment of Strategic Adviser

AFRICANDEVELOPMENTBANK BANQUEAFRICAINEDEDEVELOPPEMENT

Date: 22 October 2013 Ref: GECL.2/IOM/ITS2013/10/02

LEGAL NOTE CLARIFYING THE CONSULTANT’S COMPETITIVE SELECTION AND RECRUITMENT PROCESS AS WELL AS ARRANGEMENTS FOR CONTINUATION OF

SERVICE PROVISION UNDER THE INGA PROJECT

________________________________________________________________________ This note sheds light on the validity of the recruitment process of the Counsel (the "Consultant") by the Government of the Democratic Republic of Congo ("DRC Gov't"), the nature of the contract and financing of its services by the Bank Group. In this respect, it is important to emphasize the special nature of the procedure followed which combines the provisions of paragraphs 4.2 and 4.5 (Types of Contracts and Important Provisions) of the Rules and Procedures for the Use of Consultants.

I. Validity of the Selection Procedure and Continuation of Services

A. A competitive process supervised by the Bank in the interest of transparency With regard to the recruitment of a law firm, the selection procedure (the "Selection Procedure") was conducted in accordance with the procedures regularly followed by the Bank's legal department during the selection of legal counsel in all types of Bank-financed projects. For this type of services, the procedure is similar to that followed by all multilateral development institutions. More specifically, the selection was made from five of the most renowned international firms not only in project financing but also in the energy sectors. Although conducted by the DRC Govt., each stage was subject to the Bank's input and validation, namely the short-listing of firms, preparation of RFPs and the launch of calls for competition, reception and evaluation of proposals, discussion on the content of the bids, ranking of bids, notification of selection and negotiation of the selected firm's contract of engagement.

Annex V Page 2/3

It should be recalled that at the launch of the Consultant's Selection Procedure, neither the Bank nor the DRC Govt. had the resources to fund the required services. Therefore, there was no reason to require that the Selection Procedure comply with the Bank's rules and procedures for the use of consultants. However, in anticipation of a possible financing of the Consultant's fees by the Bank and other development finance institutions such as the World Bank, the DRC Govt. as a precaution requested the Bank to monitor, supervise and validate the Selection procedure to ascertain compliance with the standards followed by international financial institutions for the selection of law firms for such services.

B. Continuation of services consistent with the terms of reference of the Consultant's mission.

With regard to continuation of the Consultant's services, the terms of reference of the Consultant's mission (the "Mission") extend beyond the developer’s selection phase. The Consultant was actually recruited by the DRC Govt. for the entire Inga project, as evidenced by Annex 1 of the contract signed by the parties (the "Contract"). In addition to the services relating to the developer's selection phase, the Mission covers in particular (i) the preparation, negotiation and finalization of the concession agreement, all agreements to which the DRC Govt. would be party and all related agreements, (ii) the issuance of legal opinions, (iii) legal audit of the selected developer, (iv) establishment of the project company, (v) ascertainment of compliance with conditions precedent to the signing of the abovementioned agreements and (vi) finalization and organization of signature of these agreements.

II. Nature of the Consultant's Contract

The Consultant's contract is both (i) a Time-based Contract, as described in paragraph 4.2 of the Rules and Procedures for the Use of Consultants and (ii) an Indefinite Delivery Contract (Price Agreement), as described in paragraph 4.5 of the aforementioned rules and procedure. Paragraph 4.2 of the Rules and Procedures for the Use of Consultants pertains to "Time-based Contracts". This type of contract is appropriate when it is difficult to define the scope and the length of services, either because the services are related to activities by others for which the completion period may vary, or because the input of the consultants required to attain the objectives of the assignment is difficult to assess. This type of contract is widely used for complex studies, supervision of construction, advisory services, and most training assignments. Payments are based on agreed hourly, daily, weekly, or monthly rates for staff (who are normally named in the contract) and on reimbursable items using actual expenses and/or agreed unit prices. The rates for staff include salary, social costs, overhead, fee (or allowances), and, where appropriate, special allowances. This type of contract normally has a ceiling amount which includes a contingency allowance for unforeseen work and duration, and provision for price adjustments, where appropriate. A time-based contract needs to be closely monitored and administered by the client to ensure that the assignment is progressing satisfactorily and that payments claimed by the consultants are appropriate.

Annex V Page 3/3

Paragraph 4.5 Rules and Procedures for the Use of Consultants pertains to "Indefinite Delivery Contract (Price Agreement)". These contracts are used when Borrowers need to have “on call” specialized services to provide advice on a particular activity, the extent and timing of which cannot be defined in advance. These are commonly used to retain “advisers” for implementation of complex projects (for example, dam panel), adjudicators for dispute resolution panels, institutional reforms, procurement advice, technical troubleshooting, and so forth, normally for a period of a year or more. In such cases, the Borrower and the firm agree on the unit rates to be paid for the experts, and payments are made on the basis of the time actually used.

III. Financing of Services by the Bank

In view of the foregoing, we consider that the Bank may reasonably finance the Consultant's fees. If need be, certain provisions of the Agreement could be revised to ensure compliance with paragraphs 4.2 and 4.5 of the Rules and Procedures for the Use of Consultants, taking particular account of the following :

(i) Unit cost or hourly rate (ii) Evaluation of the Consultant's services; (iii) Duration of the Services; (iv) Services implementation schedule; (v) Compliance with the ceiling amount;

In conclusion and on the basis of the foregoing, it can be confirmed that:

(i) The Selection Procedure was validly conducted based on technical efficiency, transparency and competitiveness considerations;

(ii) The continuation of service provision by the Consultant complies with the terms of reference of its Mission, which covers the entire Inga project and is not limited to the developer’s selection;

(iii) The procedure followed combines the provisions of paragraphs 4.2 and 4.5 of the Rules and Procedures for the Use of Consultants;

(iv) The contract should be read in light of paragraphs 4.2 and 4.5 of the Rules and Procedures for the Use of Consultants and, if necessary, revised to ensure its effectiveness and compliance with the aforementioned provisions.

Souley Amadou Division Manager, GECL 2

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nnex VI Page 1/1

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