| Project Detail |
Project Development Objective
PDO Statement
29. The Project Development Objective (PDO) is to increase access to electricity in rural and periurban areas of Lesotho.
PDO-Level Indicators
30. The PDO-level indicators are shown in table 2 (section VI presents the full Results Framework).
Project Components
31. The project will support the GoL’s Energy Policy vision that “Energy shall be universally accessible
and affordable in a sustainable manner, with minimal negative impact on the environment.” While the
centralized grid network has expanded significantly over the last 10 years, almost 60 percent of Basotho
do not have access to electricity and rely mostly on biomass to meet their energy needs. The GoL views
improving access to modern energy services as a vital step in improving the livelihoods and economic
opportunities for its people. Given the largely mountainous terrain and low population density in remote
villages, electrification using grid extensions is financially unviable in many parts of the country. Therefore,
this project consists of financing support for rural mini-grids, which are viewed as a preferred option for
delivering electricity services to off-grid households, community facilities, and small businesses.
32. Within the NSDP, energy has been identified as a critical input in two of the key priority areas for
development in Lesotho. These are (a) Enhancing Inclusive and Sustainable Economic Growth and Private
Sector-Led Job Creation and (b) Building an Enabling Infrastructure. While the NSDP recognizes the recent
efforts made in increasing access to electricity, it notes that this access is concentrated mainly in urban
areas and new connections have not been based on targeted industrial clustering or sector clustering that
would have stimulated further industrialization and quickened production processes. As a part of its growth strategy, the GoL has prioritized energy provision to industrial areas/zones for implementation in
the NSDP. Therefore, this project also consists of financing support for grid extension to industrial and
commercial zones of peri-urban areas in Lesotho.
33. This project will support a comprehensive suite of investments for the expansion of access to
electricity in peri-urban and rural areas by (a) extending the main grid to industrial, commercial, and
residential customers in peri-urban areas and (b) promoting the use of off-grid solutions in rural areas to
maximize the number of households provided with electricity services while enabling basic public services,
fostering local economic development, and supporting pragmatic business models to attract private
investment. A substantial technical assistance component is proposed to support a widespread consumer
education campaign to inform and engage with citizens and to launch a multipronged capacity-building
program to address sector needs.
Component 1: Grid Extension to Peri-Urban Areas of Lesotho (IDA US$30 million equivalent)
34. This component, to be implemented by LEC, will finance the design, procurement of materials,
and construction works required to electrify selected industrial and commercial loads in peri-urban areas
of Lesotho, as well as provide connections to residential customers nearby. This component will create
roughly six new connections economic development zones (which will become the home of approximately
252 companies) along with approximately 1,400 residential customers nearby. Table 2.3 in Annex 2
provides more information on the anticipated activities in these economic development zones.
35. The component will contribute toward construction of medium voltage (MV) and low voltage (LV)
distribution lines (33 kV/11 kV) as well as the upgrading of existing or construction of new substations.
Grid connections to the selected areas will cater to agricultural productive use such as in Butha-Buthe,
industrial loadssuch as in Mokhotlong and Berea, and electrification in the highlands such as Qacha’s Nek,
which all have high potential for economic development.
36. LEC’s core business includes the extension of the network. However, Component 1 will introduce
new approaches to distribution system design and optimization to maximize the resources available and
efficiently implement the project with the expectation of reducing connection costs. Additionally, this
component will support the preparation of technical studies and consultancies as well as project
management expenses such as the financing of external audit, oversight of implementation of the
environmental and safeguards instruments for the investments, and the oversight of the health and safety
aspects during construction.
37. The model envisioned is particularly viable for LEC, as the electrical corridors built under the
project to connect large new customers will also be used by the utility to develop its LV network to
underserved residential customers, accelerating the achievement of LEC’s and the GoL’s electricity access
expansion targets. Site identification will be conducted in consultation with LNDC (and will be aligned with
LNDC’s Strategic Plan 2018–2022), the DoE, and LEC based on the potential for job creation and
maximizing socioeconomic development in the peri-urban and industrial parts of Lesotho. The final
selection of the sites will be confirmed and validated by the geospatial electrification analysis based on a
least-cost approach.
38. This component will fund the connection of residential customers living within 600 m of existing
and proposed distribution transformers in each zone, which according to LEC will range from US$300 to US$1,000 per connection. The number of connections realized will depend on the sites finally selected for
development by the DoE in collaboration with LEC and LNDC.
Component 2: Rural Electrification by Mini-grids (IDA US$10 million equivalent, SREP Loan US$8 million,
SREP Grant US$2 million)
39. This component will support the electrification of areas where electricity supply through minigrids represents the least-cost option from a country perspective, as underpinned by the EMP and
geospatial analysis.
40. Subcomponent 2A: Rehabilitation and Upgrading of LEC Mini-grid at Semonkong (SREP Loan
US$3.5 million, SREP Grant US$2 million). This subcomponent will fund the rehabilitation and upgrading
of Semonkong, a hydro-based mini-grid with diesel as an alternative electricity supply source. Semonkong,
located 113 km from the heart of Maseru, is operated by LEC. However, due to technical challenges and
low hydrology, the hydro turbine is currently inoperable and installed capacity (180 kW of hydro and 500
kW of diesel) at the site does not meet the demand20 of its service area. Therefore, rehabilitation of the
turbine, expansion of generating capacity by adding 1.5 MW of solar PV and 500 kWh of storage, and the
upgrade of the operational mechanisms for the simultaneous production of electricity by multiple supply
sources are required and will be funded by the project. In addition, the expansion of the distribution
network and connections to approximately 100 additional customers, both residential and commercial,
as well as appropriate metering solutions for new and existing customers will also be funded through the
project.
41. This demonstration project will provide a greater understanding of electricity demand in remote
areas and contribute to greater economic activity at the site, a frequently visited tourist hub and the
future home of a large hospital and newly conceived elementary school. LEC will share with the DoE all
costs (capital and operating) as well as detailed consumption data of its customers served at the site.
42. Feasibility and engineering design studies as well as implementation support for LEC (oversight of
implementation of the environmental and safeguards instruments for the investments as well as the
oversight of the health and safety aspects during construction) will be supported under this
subcomponent.
43. Subcomponent 2B: Mini-grid Development under public-private partnership (PPP) Models (IDA
US$10 million, SREP Loan US$4.5 million). This subcomponent will support the electrification of areas
where electricity supply through mini-grids represents the least-cost option from a country perspective,
as underpinned by geospatial analysis. This subcomponent will fund the deployment of several mini-grids
using private sector-led business models and help create state-of-the-art projects using mini-grids that
will (a) test various PPP business models for service delivery; (b) improve availability of mini-grid market
information, thereby attracting private sector participants; (c) offer technical support for due diligence
and project implementation; (d) create customer awareness about different tiers of service offered by
mini-grids; and (e) provide grid connections to approximately 4,800 customers to link them to the minigrids supported under the Project; and (f) provide technical assistance to carry out associated feasibility studies and technical-economic analysis and implementation support activities for addressing technical,
procurement, legal, environmental, social and capacity-building matters.
44. Up to 39 mini-grid sites will be selected in agreement with the DoE based on the high-priority
areas proposed by the GoL (which identified 30 potential mini-grid sites21) and geospatial analysis (which
has identified a long list of potential sites for development). Care will be taken to select sites with
significant potential for economic development and job growth in diverse areas of the country, including
the highlands. The mini-grids will service all households and community (education, health, and
agricultural resource) facilities in the specified service area. Commercial customers and other anchor loads
will be encouraged to connect as well. Based on preliminary analysis, it is expected that roughly 4,800
customers will be connected to mini-grids developed within this subcomponent.
45. The technical focus will be on solar hybrid systems, that is, solar generation with battery22 storage
and diesel backup. Mini-hydro23 may also be considered on a case-by-case basis given Lesotho’s extensive
hydro potential throughout the country. The mini-grids will be built to standards specified by LEWA
(LEWA’s rural service standards or to Lesotho’s grid code standard to allow for integration to the main
grid in the future). Prepaid metering and smart meter systems will be required to mitigate revenue
collection risk and enhance the bankability of the mini-grid subprojects.
46. The subcomponent will be implemented using a market-based approach whereby the private
sector develops mini-grids to deliver electricity services on a build-own-operate basis, with financial
support offered through a single funding window: minimum subsidy tender. Limited private investment
is expected. The DoE will be responsible for providing payments to developers toward capital
expenditures (CAPEX) through a clear and transparent process. For areas that private developers consider
too risky, the DoE is considering fully public-financed approaches, with private sector participation in
constructing and operating the mini-grid. This could be incorporated as a separate tender under this
subcomponent depending on the uptake of the minimum subsidy tender and private sector interest to
enter these areas. The assessment of this approach will be completed during the first year of the project.
47. The sites will be divided into two to three lots to encourage economies of scale in procurement
and efficiency in O&M. By increasing the deal size, this window aims to attract some of the international
private developers to enter the mini-grid market in Lesotho.
48. This subcomponent will be complemented by extensive technical assistance to (a) confirm the
sites through further feasibility studies and techno-economic analysis; (b) promote productive and
efficient use of energy by users; (c) provide technical, legal, and procurement support to effectively design
the bidding documents and supervise the construction of the mini-grid assets; and (d) increase capacity
of local mini-grid developers.
Component 3: Technical Assistance and Implementation Support (SREP Grant US$2.9 million)
49. Given that the market is nascent, the technical assistance component will play a critical role in
upstream and downstream capacity building. More specifically, the fund will be used to finance activities
described in the following paragraphs.
50. Subcomponent 3A: Project Implementation and Coordination Support (SREP Grant US$2.5
million). This subcomponent will strengthen the capacity of the sector stakeholders for coordination,
project management, and implementation. Activities will include (a) the hiring of independent verification
agents (IVAs); (b) hiring of monitoring and evaluation staff,; (c) management of certification program for
companies; (d) establishment of a PIU including dedicated project coordinator and additional fiduciary
and environmental and social support staff; (e) establishment of a geospatial planning platform; (f) hiring
of gender-based expert focusing on women’s employment, consumer education and productive use of
energy, and (g) related capacity-building and training activities for all key staff in the PIU to support
implementation of the project. The capacity building will, among other things, address mitigating and
managing social risks related to the labor influx (sexual exploitation, gender-based violence (GBV), and
human trafficking). To facilitate implementation, this subcomponent will also fund (a) the preparation of
feasibility studies under Components 1 and 2; (b) transaction advisory services to effectively design the
bidding documents for mini-grids; and (c) supervision of the construction of the energy assets. This
subcomponent will finance the services of a fiduciary services firm with a proven track record as an IVA.
The IVA will be tasked with ensuring that companies meet their obligations to customers under all project
components. See annex 2 for further details.
51. Subcomponent 3B: Women’s Employment, Female Entrepreneurship, Consumer Education and
Citizen Engagement, and Productive Uses of Energy (SREP Grant US$0.4 million). The subcomponent will
fund the following activities.
52. The subcomponent will fund the technical assistance work centered on enhancing women’s
employment in the energy sector focused on key stakeholders such as the MEM, the DoE, and LEC. Limited
sex-disaggregated data are available, but global data indicate that women are underrepresented in both
technical and nontechnical roles and that the sector is male dominated. For example, total female
employment at LEC sits at 116 out of a total of 502 employees indicating that female labor force
participation is at around 23 percent. When looking at the data for women employed in technical areas,
female employment drops to around 5 percent, with only 12 engineers out of the total of 212 being female
at LEC. In the MEM, gaps between men and women are smaller with women representing 45 percent of
the workforce (10 out of 22 staff) and 56 percent (22 out of 38 staff) within the DoE. However, many of
the roles are administrative versus technical and the representation of women in engineering roles drops
to 29 percent in the DoE (two females and five males).
53. The subcomponent will also fund the development and execution of a community awareness
campaign, developed to inform people in target areas of the benefits and costs of electricity services, as
well as the payment mechanisms, procedures, and safety practices of the electrification process. The
campaign will also promote the productive and efficient use of energy by all customers. This is particularly
important as Demographic and Health Survey (DHS) data from 2014 indicate a gap between male-headed
households (MHHs) and female-headed households (FHHs) in access to energy services. An estimated 25
percent of all FHHs have access to electricity and an estimated 30 percent of MHHs have access to
electricity in Lesotho in 2014. The program will target both MHHs and FHHs and will also pay particular attention to the poorer community members in rural areas that may be reluctant to take advantage of
the electrification opportunity or face barriers to access information. The activities supported under this
subcomponent will provide recurring opportunities for consumers to interact with service providers to
share their feedback and concerns and strengthen the electrification agenda through tackling issues
around affordability.
54. Finally, the subcomponent will focus on closing gender gaps between women and men related to
enterprises and livelihoods at the community level. The activity focuses on enhancing the productive uses
of electricity to increase the income of women’s enterprises and livelihoods. Key will be mapping out entry
points under the activities under Component 2 with links to enhancing agro-processing, such as grain
milling, various manufacturing/industrial industries, such as carpentry and tailoring, and the service
sector, for example, in catering, bars, and restaurants that use electricity for lighting, sound systems, and
refrigeration, as well as for charging mobile phones.
Component 4: Contingent Emergency Response Component (CERC) (IDA US$0 million)
55. A CERC with zero allocation may be used to partially cover emergency response through
implementation of key activities by the appropriate agencies to respond to the emergency. The CERC
could also be used to channel additional funds should they become available as a result of an eligible
emergency. For the Lesotho energy sector, emergency conditions may arise subsequent to droughts,
flooding, or energy import shortage.
56. The CERC mechanism will be further defined in a CERC Operational Manual attached to the Project
Implementation Manual (PIM), which will include triggers and conditions for the use of funds. This manual
will clearly outline the triggers, eligible expenditures, and procedures for tapping into the CERC. Should
the CERC be triggered, all expenditures will be made in accordance with World Bank Policy and Directive
for Investment Project Financing (IPF) and will be reviewed and accepted by the World Bank before any
disbursement is made. In accordance with paragraphs 11 and 12 of World Bank IPF Policy, this component
would provide immediate, rapidly disbursing support to finance goods (positive list agreed with the
Government), works, and services needed for response, mitigation, and recovery and reconstruction.
Operating costs that are eligible for financing would include the incremental expenses incurred for early
recovery efforts arising from the impact of a major crisis. |
