World Bank Engagement in Energy and Extractives in the Middle East and North Africa

Catalyzing energy solutions for change, growth, and sector sustainability

November, 2013

Context and Challenges

Energy Subsidies Trends in Renewable

Energy and Energy Efficiency

MNA Gas Market World Bank’s

Business Lines in the Energy Sector

Portfolio and Pipeline

Structure of the Presentation

GDP Growth below potential (%)

Official foreign exchange reserves dwindling (US$ bn)

FDI declining (in US$ bn)

Fiscal health deteriorating (% of GDP)

MNA Economic Performance (Selected Indicators)

MENA GCC Developing Oil Exporters

Oil Importers-202468

102010 2011 2012e 2013p

Perc

ent

2008 2009 2010 201105

10152025303540

35.229.2

25.7

2.5

Egypt Jordan Morocco Tunisia0

10

20

30

40Dec-10 Dec-11 Dec-12

MENA GCC Developing Oil Exporters

Oil Importers-10

-5

0

5

1015

2010 2011 2012e 2013p

3

EAS ECA LAC MNA OED WLD0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Energy production (kt of oil equivalent)

Electricity Generation (TWh)

Energy use (kg of oil equivalent) per $1,000 GDP, 2011

Electricity Consumption (kWh per Capita), 2011

A Glance at MNA Energy Supply and Demand

4

EAS ECA LAC MNA OED WLD -

50

100

150

200

250

2008 2009 2010 2011 -

500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000

EAS ECA LAC MNA OED

2008 2009 2010 20110.0

2000.0

4000.0

6000.0

8000.0

10000.0

12000.0

EAS ECA LAC MNA OED

TWh

Subsidies by quintile

Government spending on programs

Social Safety Net coverage (poorest quintile)

Poverty Impact of safety-net programs*

Subsidy Reform “Jointly” with Revamped Social Safety Nets are Needed for Greater Economic Inclusions

LAC ECA EAP World MENA0

10

20

30

40

50

60

51 51 4841

16

% b

ottom

qui

ntile

ECA LAC World MENA EAP02468

1012141618

17

11

8

4 3

% d

ecre

ase

in p

over

ty

inci

denc

eMiddle East and North

AfricaComparator sample of developling countries

Egypt0123456789

10

5.7

1.3

8

0.7

0.8

1

Food and fuel subsidies Nonsubsidy SSN

%, G

DP

Poorest quintile Q2 Q3 Q4 Richest quintile0

10

20

30

40

50

60

70Iraq 2007: food ration cardsYemen, Rep., 2005: fuel subsidiesEgypt, Arab Rep., 2009: fuel subsidies

Tota

l sub

sidy

bene

fits,

%

*Non-subsidy

5

6

Potential of Regional Integration, Less Investments to Meet Demand But Not Exploited Potential reduction in power

generation capacity through regional integration among Arab Countries

2010 20200

50000

100000

150000

200000

250000

300000

350000

Peak Demand Installed Capacity in 2010Additional Capacity Needed

MW

Generation Capacity w

/o Regional In

tegration

Generation Capacity w

ith Regional In

tegration0

20

40

60

80

100

120

140

135102

Potential

CAPEX saving

s

Demand in Arab countries will grow 84% by 2020, requiring an additional 135 GW generation capacity

Bottom line: power sector in Arab Countries needs significant investments (US$450 bn) w/o regional integration

7

RENEWABLE Energy in MNA

8

1990 1995 2000 2005 20100.0

10000000.0

20000000.0

30000000.0

40000000.0

50000000.0

60000000.0

70000000.0

0.0

1.0

2.0

3.0

4.0

5.0

4.5

3.4 3.5 3.4 3.2

Traditional biomass consumption (TJ)Modern biomass consumption (TJ)Hydro energy consumption (TJ)Other RERE Consumption (% of TFEC)

RE C

on

sum

pti

on

(%

of

TFE

C)

Marine

Traditional biomass

Modern biomass

Hydro

Geothermal

Waste

Solar

Liquid biofuels

Biogas

Wind

0.0%1.2% 1.9% 2.3%

5.1%6.6%

10.7% 11.1%

16.7%

25.0%

Two Decades Ago, Low Share of Renewable Energy in the Energy MixConsumption and share of renewable Energy in TFEC (1990-2010)

Annual renewable energy sources growth in CAGR

1990-2010

Source: WB Data catalog SE4All Indicators, SEGEN AnalysisNote: CAGR = Compound Annual Growth Rate, TFEC = Total Final Energy ConsumptionData for 16 countries available for the calculation of Share of RE in TFEC. Share calculated using the average value of % share of RE in TFEC in each country and then aggregating

9

Two Decades Ahead, Ambitious RE Targets, Mostly Driven By Net-Oil Exporting Countries

Net Oil-Exporting Countries (NOEC), Net Oil-Importing Countries (NOIC)Source: MENA Renewables Status Report, 2013, by United Arab Emirates, IRENA and REN21

In 2010: Largest renewable energy consumption registered by Israel, Iran, Morocco, Iraq

Source: WB Data catalog SE4All Indicators, SEGEN Analysis

Saudi Arabia

Libya

Malta

Algeria

United Arab Emirates

Tunisia

Yemen, Rep.

Lebanon

Jordan

Syrian Arab Republic

Iraq

Morocco

Iran, Islamic Rep.

Israel

0.0 20000.0 40000.0 60000.0 80000.0 100000.0 120000.0 140000.0 160000.0

0.2

0.4

38.0

460.3

1047.0

1790.9

2187.0

3869.8

5445.2

7013.2

13586.8

18862.4

40293.8

47915.3

Biogas (TJ)Geothermal energy (TJ)Hydro energy (TJ)Liquid biofuels (TJ)Marine energy (TJ)Modern biomass (TJ)Solar energy (TJ)Waste energy (TJ)Wind energy (TJ)Grand Total

Consumption (TJ)

Note: Renewable energy in this slide excludes “Traditional Biomass”. Traditional Biomass is used for renewable energy calculations in Global Tracking Framework. Hence variations in result may occur

11

ENERGYEFFICIENCYin MNA

12

Negative rate of Improvement in Energy Intensity Gains in 1990-2010

1990-2000 2000-2010 1990-2010

-1.1%

0.2%

-0.4%

Percentage in CAGR

Source: WB Data catalog SE4All Indicators, SEGEN AnalysisNote: CAGR = Compound Annual Growth Rate, PPP = Purchase Power parity

13

Most rapid progress on energy intensity among countries that started out with highest energy intensities in 1990 (Iraq, Syria, Jordan, Bahrain)

1.00 3.00 5.00 7.00 9.00 11.00 13.00 15.00 17.00 19.00 21.00 23.00 25.00

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Bahrain

Djibouti

Egypt

Iran

Iraq

Jordan

Malta

Morocco

Oman

Qatar

Saudi Arabia

Syria

Tunisia

UAE

AlgeriaBahrainDjiboutiEgyptIranIraqIsraelJordanKuwaitLebanonLibyaMaltaMoroccoOmanQatarSaudi ArabiaSyriaTunisiaUAEYemen

Energy Intensity, 1990

CA

GR

1990-2

010

Source: WB Data catalog SE4All Indicators, SEGEN AnalysisNote: Bubble size represents the volume of primary energy supply in 2010 CAGR = Compound Annual Growth Rate

14

GAS DEVELOPMENTin MNA

15

Major Share of Gas Reserves… but Rapidly Emerging Gas Shortage

Arab countries hold about 29% of the world’s proven gas reserves. The region has been viewed as a source of gas supply to the world;

In 1990s the gas rich countries of the region focused their efforts on:

► promoting the domestic use of gas through very low prices► developing exports to points in Asia, Europe and North America► export of gas through pipeline to other countries within the

region A rapidly growing electricity demand has triggered an

unforeseen growth in gas use in the power sector; As a result, every Arab country (except Qatar and

Algeria) is short of the gas supply needed to meet its current and projected demand;

Power sector has served as the main vehicle for switching from oil to gas.

16

Gas Pricing is a Major Bottleneck• Low domestic gas prices have been an important

deterrent to exploration and development of gas resources and gas trade within the region

• Low supply (lack of investments)

• Large resources undeveloped

• Excessive and inefficient demand

• Gas shortage

• Use of expensive fuels (HFO, CO…) instead of gas

• Huge loss for some States

• Several producers start to import

0

5

10

15

20

25

30

35

0 5 10 15 20 25 30 35 40 45 50

Industrial prices (US$/mmbtu)

Household prices (US$/mmbtu)MENA region

EU-25

NetherlandsMENA

MENA

EU 25

16

Domestic Gas Prices, 2010-2011Source: GFFR

17

Our Approach and Guiding Principles for FY14-16 Engagement

Intertwined Energy Challenges in MNA Heavy reliance on fossil fuel resources for energy consumption- MNA region

consumes 30 % of its fossil fuel production and exports the rest (climate change vulnerability and renewable energy issues);

Net importing countries under fiscal pressure due to fuel prices volatility while oil exporters face increasing costs of energy subsidies (fiscal issues);

Moving toward energy sector sustainability while managing/reforming high energy subsidies (5.7 % of MNA’s GDP in 2011) during political instability (sector sustainability issue);

Lagging in implementing power sector reforms (governance, accountability, service delivery issues);

Rapidly growing demand leading to under-capacity in some countries (energy efficiency issue);

High pressure on existing infrastructure and high demand for new investments energy sources (security of supply and diversification of energy sources –including regional integration- issues);

Turbulent transition intensified political and investments risks (private capital flow issues);

Lack of access to electricity in Yemen (47%) % Djibouti (50%) as well as rural areas (about 28 million), and about 8 million rely on traditional biomass for their energy needs- (energy access issue)

18

We Believe These Challenges Bring Opportunities

Governments priorities are changing towards higher energy security, energy sector sustainability, and economic benefits:

► More open to gradually tackle the issue of energy subsidies (innovative solutions are needed to carefully manage the “evolving” risks)

► Willingness to exploit energy efficiency opportunities (supply and demand)

► High potential for regional integration (alignment of regional and national interests to maximize the benefits)

► Would consider innovative solutions for technological diversification in energy sources (renewable energy)

► Many countries have close to 100% access to electricity but interest in solutions to modernizing power grids as well as off-grid electricity access is increasing

However, tailoring energy solutions is needed to effectively exploit Bank products and global knowledge;

19

20

A Model with Five Layers of Focus for Tailored Solutions, Higher Impact, and Client Partnership

Sub-regionIDA (Yemen and Djibouti)

Mashreq and Egypt

Maghreb Gulf States (GCC)

Energy subsidies Climate change Regional

integration Energy Access

Security of supply System performance

and expansion Diversification of

energy sources Sector reforms

(governance, accountability, service delivery)

Energy efficiency Renewable Energy

Models to nurture private investments (PPP, IPPs)

Innovative risk mitigation measures

Regulatory measures Cross-sectoral

IssuesPrivate Investments

Sector Issues

Tailored Solutions for

each country or group of

countries

Exploring similar

experiences (within WBG,

global networks,

etc.)

Solutions components (e.g. loan, PRG, P4R, TA, etc.)

Leveraging relevant Global

knowledge and Global Partners

Several steps to develop solutions,

including stakeholders

consultations

DELIVERY FEEDBACK

1

234

5

21

Yemen; Djibouti; Regional; EgyptSaudi Arabia; IraqMorocco; Lebanon

Yemen; Djibouti; Regional; EgyptSaudi Arabia; IraqMorocco; LebanonWest Bank and Gaza

Saudi Arabia; Bahrain; Tunisia; West Bank and Gaza; Egypt; Djibouti; Morocco; UAE; Oman; Qatar

Egypt; MoroccoIraq; LebanonWest Bank and Gaza; Regional; Qatar; Bahrain

Yemen; Egypt; Saudi Arabia; MoroccoWest Bank and Gaza; BahrainQatar

Saudi Arabia; Bahrain; Tunisia; West Bank and Gaza; Egypt

Egypt; MoroccoIraq; LebanonWest Bank and Gaza; Regional

Yemen; Egypt; Saudi Arabia; MoroccoWest Bank and Gaza

Pricing, Subsidies and

Sector Reforms

Governance and Enhanced

Service Delivery

Energy Efficiency

Energy Access and

Sustainability

FY14-16 MNA Energy Program at a Glance

FY13

FY14to

FY16

World Bank MENA Energy Portfolio (Current and Pipeline)

Portfolio dominated mainly by projects in Egypt and Morocco

Supervision: 18 Projects – US $ 2,847 billion (FY13)

Pipeline: 9 Projects – US $ 616 million

22

IBRD IDA GRANTS

US $ million 2,560 263 23

IBRD IDA GRANTS

US $ million 580 20 16

Regional Integration FY09-FY13

Mostly focused on assessments for potential electricity and gas trade within MNA and beyond such as the following key studies:

► Exploring the potential for electricity trade and interconnection between Yemen and GCC;

► Potential of energy integration in Mashreq and neighboring countries;

► Advancing the Integration of Mashreq Power Grids with Turkey, and Europe (at final stage); and

► Regional Gas Trade Projects in Arab Countries

23

24

In Summary …

For the energy sector in MNA:► an efficient, reliable, and low-cost energy sector is critical for equitable economic development;

► sound operational and financial performance is essential;

► improved capacity and governance are needed for better sector performance and ability to sectoral challenges;

► over time, strong need to reduce the fiscal burden of energy subsidies and to adopt pricing policies which foster investments and growth

THANK YOU

Catalyzing energy solutions for change, growth, and sustainability

26

Ranking of Renewable Energy Consumption

Saudi Arabia

Yemen

Jordan

Libya

Iraq

Iran

Israel

0.0 20000.0 40000.0 60000.0 80000.0 100000.0 120000.0

188.0

1047.0

2187.0

3557.6

5569.2

7013.2

7126.0

8037.0

13586.8

36093.1

40655.8

42364.6

47915.3

110198.5

Biogas (TJ) Geothermal energy (TJ) Hydro energy (TJ)Liquid biofuels (TJ) Marine energy (TJ) Modern biomass (TJ)Solar energy (TJ) Traditional biomass (TJ) Waste energy (TJ)

Source: IEA 2012a and WB Data catalog SE4All Indicators, SEGEN Analysis

Leading Countries

27

Share of Renewable Energy Source, 2010 (w/o traditional biomass)

Modern biomass (44%)

Hydro energy (36%)

Liquid biofuels (9%)

Wind energy (4%)

Solar energy (3%)

Modern biomass (44%)Hydro energy (36%)Liquid biofuels (9%)Wind energy (4%)Solar energy (3%)Biogas (2%)Geothermal energy (2%)Waste energy (1%)Marine energy (0.01%)