Options for Setting and Adjusting Revenue Requirements and Improving Tariff Structure... Tender

Procurement Summary

Country : Congo

Summary : Options for Setting and Adjusting Revenue Requirements and Improving Tariff Structure of the Electricity Sector

Deadline : 04 Jan 2024

Other Information

Notice Type : Tender

TOT Ref.No.: 93687818

Document Ref. No. : 0002005807

Financier : World Bank (WB)

Purchaser Ownership : Public

Tender Value : Refer Document

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Tender Details

Tenders are invited for Options for Setting and Adjusting Revenue Requirements and Improving Tariff Structure of the Electricity Sector in Republic of Congo.

BACKGOUND: The Republic of Congo has significant energy resources, mainly hydroelectric, oil, and gas. The hydroelectric potential is estimated at 27, 000 MW, of which only 1 percent is currently exploited. Of the installed capacity of 749 MW, 640 MW are available during high water periods compared to 598 MW during low water periods; if the largest turbine is stopped (170 MW), this available power is reduced to 428 MW, while the peak demand was 446 MW in 2018, indicating stress between supply and demand. Meanwhile, the demand continues to grow rapidly and steadily, between 10 and 20 percent per year in recent years.

Despite national energy resources, access to electricity remains low with a national electricity access rate of only 31 percent. In urban areas, where 64 percent of the 5.9 million Congolese live, mainly in Brazzaville and Pointe Noire, the electrification rate is 50 percent while only 13 percent of the rural population has access to electricity. The commercial performance of the public company E2C, established in 2018 as an asset company but also temporarily taking over operations of the former national electricity company SNE in all segments of the electricity supply chain, has been poor. The total network losses are between 40 and 45 percent, about 44 percent of E2C's customers are billed on a flat rate or receive electricity for free, and the current bill recovery rate is 73 percent without significant recent improvement. Furthermore, current tariffs do not cover the cost of service provision, which, combined with operational inefficiencies of the national public service, further widens the gap.

Electricity tariffs have been unchanged since 1994 and now need to be adjusted, on the one hand, to contribute to the recovery and financial viability of E2C and other operators, and on the other hand, to be adapted to the households' ability to pay, even the most disadvantaged. As part of the implementation of the reform activities in the electric power sector, the PEEDU financed a study on electricity demand and pricing in the Republic of Congo, conducted by ARTELIA Ville & Transport - PPA Energy, from June 2014 to July 2015. The overall objective of this study was to determine tariffs that ensure the financial balance of the sector and its development while improving the living conditions of the population.

In addition to this study, in 2020, the International Brain Consulting Firm (Cabinet IBC) was selected for a mission to propose tariff grids applicable to users of the electricity sector.



2. OVERALL OBJECTIVE



In light of the above, the World Bank Group (WBG) as part of its Programmatic Advisory Support and Analytics (PASA) program for the energy sector of the Republic of Congo (RoC), has proposed technical assistance to the GoRC/ARSEL, to strengthen its tariff setting capacity and ultimately raise the financial viability of the electricity sector.



With funding from the Energy Sector Management Assistance Program (ESMAP), the WBG, will prepare: (i) a cost of service study (CoS), to analyze options and develop a recommended methodology for calculating the annual revenue requirement (ARR) for the power utilities that would allow them to efficiently operate; (ii) identify a financial model for the electricity sector; which will provide a framework to anchor financial planning at the utility level; and (iii) recommend improvements to the existing tariff structure for electricity service provided by E2C to its customers.

The WBG is seeking to hire a consulting firm (the Consultant) to help carry out the needed analyses. The exact scope of work is defined thereafter.



3. SCOPE OF WORK



TASK 1: Analysis of options and development of recommended approach for the determination of ARRs for services subject to economic regulation in all segments of the electricity supply chain and procedures and formulae for periodic adjustment. This task will be performed for the generation, transmission and distribution/retail segments; it will assess the respective ARR for efficient service delivery of E2C in a “base year”, as well as the procedures to periodically adjust them according to changes in the respective cost drivers. Determination of ARR will take into consideration development plans in each segment in the next 10 years.

The Consultant will develop methods, procedures and formulae for the determination and periodic adjustment of the revenues that E2C should be entitled to collect for efficient operations in generation, transmission, and distribution and retail segments. The ARR and adjustments thereof shall cover:

- Operating costs (OPEx) to efficiently run the company (system operation, operation and maintenance of generation plants, transmission and distribution networks, retail commercial activities, corporate functions, etc.);

- Investments costs (CAPEx) for the rehabilitation, renovation, upgrading and expansion of electricity transmission and distribution and commercial infrastructure needed to provide electricity services meeting applicable quality standards;

- Costs of energy purchases and transmission and ancillary services incurred to efficiently provide electricity services (sales plus allowed losses).



TASK 2. Financial model for the electricity sector. Based on the results of Task 1, the Consultant will provide a financial model for the sector, which will allow for a sound financial planning reflecting: (i) the identified ARRs; (ii) indebtedness capacity and financing instruments/options; and (iii) financial ratios typical for the industry for E2C. The financial model will be designed to allow the capturing of alternative scenarios of investment, demand, number of connections, KPI indicators, generation costs, transmission, and distribution (T&D) costs, commitments under power purchase agreements (PPAs) or other contracts and variables. Thus, the model will enable the periodic adjustment of each of the components of the AAR to address changes in the main cost drivers and ensure cost recovery. The model shall include the possibility to parametrize different scenarios of managerial, technical and commercial efficiency, as well as the tariff revision period and the implementation of the tariff changes over a specific period of time. The model shall include the following modules and allow for the projection of:

ü Demand;

ü KPI Indicators;

ü Number of new connections;

ü Capital expenditure;

ü Operating and Maintenance Expenditure;

ü Revenues;

ü Long term Debt;

ü Balance Sheet;

ü Profit & Loss;

ü Cash Flow.

The model will also include a separate and user-friendly module of initial conditions and hypothesis organized by nature of information. The model should be developed in Excel and be handed over with a user manual.



TASK 3: Analysis of options and development of recommendations to improve the existing tariff structure and its periodical adjustments. Based on results of cost of service and annual revenue requirements assessment, policy advice and specific recommendations will be given to ARSEL to improve allocation of components of ARRs among categories of consumers and charges within each category. Therefore, the Consultant will review the existing tariff structure and propose amendments to improve it, provide consumers with right signals on total costs of efficient service provision, and promote rational electricity consumption. Options to be analyzed comprise, among others: (i) binomial time of use (TOU) tariffs with separate energy and demand charges; (ii) tariff differentiation per voltage level; (iii) seasonal tariffs. The identified options shall take into account economic efficiency, financial viability and social objectives. In particular, they should allow for socially sensitive rates that include cross-subsidy towards economically weak consumer categories, and cost-reflective rates for consumers with ability to pay, identified based on consumption histograms. The recommendations should incorporate provisions for allocating fixed and variable costs incurred for service delivery in each segment of the electricity supply chain (generation, transmission and distribution) across tariff categories. Finally, the Consultant will develop formulae for the quarterly adjustment of the various rates that form part of the tariff structure.



TASK 4: Analysis of options and development of a recommended strategy for the transition period. The Consultant will identify a strategy (“glide path”) to move progressively from current situation to the “steady state” condition, in which a fully cost-recovery tariff structure is enforced. This includes a roadmap that ARSEL may implement to reduce overtime government compensation to sector operators and advice for the next quinquennial tariff reset.

The duration of the transition period and the progressive adjustments to converge to the “steady state” condition will be determined considering political and social acceptability. Thus, the strategy will define formulae for adjusting the different rates under the tariff structure with adequate progression; the time schedule for effective application of the revised tariff regime and modalities for communication.





4. IMPLEMENTATION ARRANGEMENTS FOR THE ASSIGNMENT



Organization and Management. The proposed assignment is a World Bank-executed activity. As such, in performing the tasks above, the Consultant shall comply with the World Bank-s policies and rules concerning the work of consultants, as well as standards and requirements indicated in the contract. The Consultant shall work in close coordination with the key national stakeholders, namely Ministry of Energy and Hydraulics (MEH

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