• Reference: P-LS-FA0-001
• Approval date: 04/02/2009
• Start date: 11/11/2010
• Appraisal Date: 26/08/2008
• Status: OngoingOnGo
• Implementing Agency: GOVERNMENT OF LESOTHO MINISTRY OF FINANCE
• Location: Mphaki and Mount Moorosi

The project will consist of:

A)Renewable Energy: This component consists of a) the rehabilitation of the 2MW Mant'onyane mini hydropower station and b) the installation of 350 home solar systems as part of the Mphaki Pilot Project. These components are regarded as important steps in supporting renewable energy production in Lesotho.

B)Distribution Network

(i) Construction of Substations: Substations will be erected in Maseru (33/11kV 2 X10 MVA) and Hlotse (33/11kV 10 MVA). 30 pole mounted substations will be erected at Mphaki comprising 27 of 33/0.4 kV 50 KVA and 3 of 33/0.4 kV 100kVA.

(ii) Construction of 33kV Transmission Lines: This covers the construction of a) 131 km lines linking the existing grid at Quthing with Mphaki as part of the Mphaki Pilot Project and b) 43km lines in the Maseru and Hlotse districts linking the new substations in the respective towns.

(iii) Construction of 12 km of 11 kV lines, 4 km of 11 kV underground cables and 60 km 0.4 kV lines in Maseru.

C)Technical Assistance: Technical assistance will include a feasibility study of 132kV transmission line from Mohaleshoek to Mphaki with a substation at Quthing including stability studies required to evaluate the shortcomings of the existing grid system.

D)Project Supervision and Management: "Consultancy services will be required for a) project supervision and b) project account audit. "Environmental Management Plan will be implemented. The project management consultancy services for Mphaki pilot is already provided by EPA. The Fund will finance the consultancy services for other components.

The main deliverables of the project are to provide electricity access to additional 8000 customers including 5000 in Maseru, 1500 in Hlotse and 1500 in Mphaki. The targets set are realizable due to amendment in the connection policy of LEC. As a result, the consumers are now required to pay only 50 Maloti as down payment, which is quite affordable for consumers in the project areas since the alternatives to electricity such as paraffin are more expensive than electricity, which is used for cooking, lighting and heating in the country.

The aim of the project is to support investment in the electricity supply to enhance electricity access rate and to ensure improved efficiency and therefore assist the country reduce poverty and achieve the Millennium Development Goals. It is agreed across the board that improving the electricity access rate improves the millennium Development Goals relating to health, education and sustainable development. The main outcomes of the project will be the provision of electricity to additional 8,350 customers and reduced inefficiencies in the system. The refurbishment of a mini hydro plant will generate additional 2 MW power to reduce power outages to that extent during peak time.

1.The project is consistent with the goals of the PRGS and CSPs for Lesotho (2008-11) currently under preparation, which are derived from the Vision 2020 of the country. The project falls within the support scheduled for the areas of focus or strategic intervention pillars for the programming periods of the said documents, in particular, support for the energy infrastructure of the country, so as to sustain the private sector-led economic growth, which requires adequate energy infrastructure to underpin development in mining, manufacturing and tourism. Current inadequacy is marked by insufficient electricity generation, transmission and transformation capacity in the country. The project also conforms to the Clean Energy Investment Framework of the Bank.

(ii)Why the Bank Group should intervene

2.The Bank Group should intervene to address the constraints of the electricity sector in the country. As explained in the section VIII, the project will contribute to alleviate the electricity shortages by using renewable energy sources: mini hydro and solar energy. Furthermore, the project will also enhance the electricity access rate. By connecting additional 8,350 customers, it will consolidate the gains of Public Utilities Sector Reform Program (PUSRP).

3.The Bank's intervention is also complementary to the energy conservation program of GOL targeted to save electricity by replacing incandescent bulbs with Compact Fluorescent Lamps. It is also complementary to UNDP program of rolling out of Solar Home System in the country.

4.The project is consistent with the priorities of ADF-11, which focuses on the promotion of poverty reduction through growth driven by investment in three basic operational priorities: infrastructure, governance and regional integration. Broadly speaking, infrastructure is vital to growth, private sector development, improvement of competitiveness and productivity, economic integration, broadening of access to basic services, job creation and development of markets. It contributes directly to the development of the other sectors and the achievement of the main Millennium Development Goals (MDG). Infrastructure investments in the country mainly target the energy sector, with priority given to national electricity infrastructure including production and transmission, distribution networks and cleaner sources of energy with low carbon content, especially renewable energies.

5.The ADF support is critical for funding the above explained project since Lesotho is a small, low income country that lacks the capacity to finance electricity infrastructure projects of scale and has limited potential for raising funds in the capital markets.

1.The project area covers Mphaki, Hlotse, Maseru central and Mantsonyane.

2.The Mphaki area includes a total population of 19,818 and 4636 households. The population density is 4.2. Mphaki is a commercial and administrative center in the area with potential high value customers.

3.The project activities at Mphaki essentially relate to a pilot that has been initiated by the government in association with the Energy Poverty Alliance of the World Economic Forum (The Alliance Partners are Vattenfall, BBC Hydro, Eskom), which have committed resources to provide the project management support to develop an alternative model for electricity distribution in African nations in order to enhance electricity access rate.

4.The pilot envisages a cooperative model for electricity distribution, operation and maintenance of assets by a cooperative society, which has been duly established under relevant act of the Kingdom of Lesotho. This is called Mphaki Electricity Distribution Association (MEDA) legally formed in 2007 with female members in the executive board. The purpose of MEDA is to operate and maintain the electric distribution grid and PV installations within Mphaki and Mount Moorosi areas of the Kingdom of Lesotho. In order for this to be possible, strong emphasis will be placed on training and empowerment of the local entity, including the identification of suitable persons to perform operative duties.

5.The pilot activities cover construction of medium and low voltage distribution network to supply electricity to additional 1500 customers. In addition, supply and installation of 350 solar home systems are also envisaged for households situated far away from the electricity grid. Regarding the roll out of solar home systems, the UNDP pilot procedure will be used: it comprises of a selection criteria requiring a beneficiary to be at least 5 km away from the grid and willing to pay at least 40% of the cost of the project, while the government subsidises 60% of the cost. This has been agreed during the preparation mission.

6.The project at Hlotse will benefit the population of 23,122 as of 1996, which is predicted to increase to 27,859 (2020). The project encompasses the construction of a medium voltage network to supply additional 1500 customers including domestic and small business besides improving the quality of supply to existing customers, which have been facing a low quality supply problem.

7.The works at Maseru Central also involve the construction of medium voltage network to meet the requirement of upcoming bulk customers, namely new parliament house, shopping mall, etc. Overall, 5000 additional customers will be connected to receive electricity from the national grid. The population of Maseru city will benefit from this substation in terms of the improved quality and reliability of supply compared to present situation. The population is forecast to increase to 500,000 (2020) from 137,837 (1996).

8.Moreover, the project supports the government in bringing back on-line 2 MW power generating capacity from renewable energy source which has been dysfunctional from 2006 due to flooding of the plant. The plant will extend support to mitigate the peaking shortages due to storage. The project components are given below:

KANONDA Farai Epiphanius - ONEC2

Finance source	Amount
ADF	UAC 11,000,000
Government	UAC 2,528,626
Co-financier	UAC 1,650,251
Total	UAC 15,178,877