Date of Submission to Coordination Unit:

A. GENERAL INFORMATION

1. Activity NameEgypt Energy/Social Safety Nets Sector Reforms Technical Assistance Project

2. Requestor Information

Name: Eng. Mohammed HammamTitle: Assistant to the Minister in Charge of International, Regional and Arab Financing institutions and Organizations

Organization and Address: Ministry of Planning and International Cooperation, Arab Republic of Egypt8 Adly Street, Cairo, Egypt

Telephone: +2 (0122) 391-1532Email: mehammam1@yahoo.com; mehammam@hotmail.com

3. Recipient Entity Name: Eng. Mohamed Moussa Omran. Title: First Undersecretary for Research Planning and

Follow up.

Organization and Address: Ministry of Electricity and Energy, Abbasseya-Emtedad Ramsis

Telephone: 22616305-22616523 Email: momran96@yahoo.com-omranson@gmail.com

4. ISA SC RepresentativeName: Junaid Kamal Ahmad Title: Sector Director

Organization and Address: World Bank, 1818 H Street, N.W. Washington DC, 20433, USA

Telephone: + 1 202 458-8470 Email: jahmad@worldbank.org

5. Type of Execution (check the applicable box)√ Type Endorsements Justificationx Country-Execution Attach written endorsement

from designated ISAJoint Country/ISA-Execution Attach written endorsement

from designated ISA(Provide justification for ISA-Execution)

ISA-Execution for Country Attach written endorsement from designated ISA

(Provide justification for ISA-Execution)

ISA-Execution for Parliaments

Attach written endorsements from designated Ministry and ISA

April 19, 2013

6. Geographic FocusIndividual country (name of country): Egypt

Regional or multiple countries (list countries):

7. Amount Requested (USD) Amount Requested for direct Project Activities:(of which Amount Requested for direct ISA-Executed Project Activities):

USD 6,500,000

Amount Requested for ISA Indirect Costs:1 USD 597,200Total Amount Requested: USD 7,097,200

8. Expected Project Start, Closing and Final Disbursement DatesStart Date: September 1, 2013 Closing

Date:June 30, 2016 End Disbursement

Date:October 30, 2016

9. Pillar(s) to which Activity RespondsPillar Primary

(One only)Secondary(All that apply)

Pillar Primary(One only)

Secondary(All that apply)

Investing in Sustainable Growth. This could include such topics as innovation and technology policy, enhancing the business environment (including for small and medium-sized enterprises as well as for local and foreign investment promotion), competition policy, private sector development strategies, access to finance, addressing urban congestion and energy intensity.

X Enhancing Economic Governance. This could include areas such as transparency, anti-corruption and accountability policies, asset recovery, public financial management and oversight, public sector audit and evaluation, integrity, procurement reform, regulatory quality and administrative simplification, investor and consumer protection, access to economic data and information, management of environmental and social impacts, capacity building for local government and decentralization, support for the Open Government Partnership, creation of new and innovative government agencies related to new transitional reforms, reform of public service delivery in the social and infrastructure sectors, and sound banking systems.

X

Inclusive Development and Job Creation. This could include support of policies for integrating lagging regions, skills and labor market policies, increasing youth employability, enhancing female labor force participation, integrating people with disabilities, vocational training, pension reform, improving job conditions and regulations, financial

X Competitiveness and Integration. This could include such topics as logistics, behind-the-border regulatory convergence, trade strategy and negotiations, planning and facilitation of cross-border infrastructure, and promoting and facilitating infrastructure projects, particularly in the areas of urban infrastructure, transport, trade facilitation

1 ISA indirect costs are for grant preparation, administration, management (implementation support/supervision) including staff time, travel, consultant costs, etc.

inclusion, promoting equitable fiscal policies and social safety net reform.

and private sector development.

B. STRATEGIC CONTEXT

10. Country and Sector Issues Country Context

Egypt is undergoing a major political, economic and social transformation, which started with the January 2011 revolution. Socially inclusive economic development, job creation, poverty alleviation, transparency, citizen participation, and governance have come to the forefront of the political and social debate. Experience in other countries suggests that such transformation, fraught with significant risks and uncertainties, may unfold over a relatively long period of time and that external assistance during the transition in support of the transformational reform agenda can yield significant social and economic returns.

Two years after the revolution, Egypt is still suffering from weak economic activity. Growth remains subdued with Real GDP increasing by 2.2 percent in fiscal year 2012, up only marginally from 1.8 percent the year before. Unemployment is on the rise, at 13 percent by end 2012, and social unrest is brewing with frequent strikes and protests. While women have historically suffered higher unemployment rates (unemployed women are currently one quarter of the labor force), the increase in unemployment has mainly affected males whose rate of unemployment currently stands at 9.6 percent, some 5 percentage points higher than the pre-revolution levels. The latest poverty figures relate to 2010/11 where the poverty rate was calculated at 25.2 percent, up from 22 percent in 2008/09. Recent developments are likely to have further increased poverty in Egypt.

The balance of payments position is highly vulnerable. International reserves declined to US$ 13.4 billion in March 2013 (2 months below projected imports of goods and services), representing a loss of more than US$ 30 billion of foreign reserves since the revolution. Large fiscal pressures persist.

Public finances deteriorated sharply in FY12 pushing general government debt to above 80 percent of GDP. The overall budget deficit in FY12 reached 10.8 percent of GDP. The higher deficit originates from lower than expected tax revenues due to weak growth as well as higher spending on salaries, pensions, and fuel subsidies. Meanwhile, investment spending declined. The exchange rate has depreciated by about 10 percent since the central bank introduced foreign auctions in late December 2012 and a black market has emerged in response to central bank foreign exchange rationing and regulation.

The original budget for FY13 envisaged a decline in the deficit to 7.6 percent of GDP mainly on account of reductions in subsidies for different energy products including electricity, LPG, gasoline, diesel fuel, fuel oil, and natural gas, but the budget overrun last year and delays in taking adjustment measures means that the original target is no longer feasible. Fiscal deficit is therefore continuing to increase and may reach 12 percent of the GDP in FY13 absent of strong measures.

The government has been working on containing the economic and fiscal crisis engulfing the country and the deteriorating public services including nationwide power cuts, chronic fuel and water shortages, suffocating traffic and accumulating trash in the streets. More recently, under the pressure of increasing macroeconomic imbalances and the need to seek exceptional balance of payments and budget financing, the government has developed programs to tackle the legacy of huge energy subsidies that have distorted the economy and led to an unsustainable fiscal situation.

Sector Context

Egypt’s total primary energy demand has grown at an average annual rate of 4.6% during the last two decades. This rather

high growth is due to the country’s economic expansion, industrialization, population growth and change in people’s life style. Although all energy forms have been subject to rather high growth, electricity consumption has increased substantially causing serious concerns about the power sector’s fuel requirements and an excessive burden on the government budget.

Oil and Gas Sector

Egypt had a significant level of oil export through the 1980s and 1990s. Total oil production has declined since the country’s 1996 peak of about 935,000 barrels per day (bbl/d) to current levels of about 685,000 bbl/d, while domestic oil consumption has increased steadily absorbing almost all oil production since 2006. Egypt has, as a result, become a net importer of petroleum products. In 1976, the Egyptian General Petroleum Corporation (EGPC) was established as a holding corporation. It owns 12 public sector companies and shares in 58-petroleum companies with foreign partners. Over the last three years, EGPC has faced challenges in addressing Egypt’s oil and gas needs due to increasing subsidies accompanying the growth in market demand. In 2002, EGPC’s total debt stood at half a billion Egyptian Pounds (LE), but has since increased vastly to over LE 100 billion in 2012.

Natural gas has substituted oil both in domestic use and in export of energy. During the 1990s, Egypt made substantial new gas discoveries tripling its proved gas reserves. Gas production tripled from 21 bcm in 2000 to 61.3 bcm in 2010. The rise in gas reserves had led the government to promote the domestic use of gas (representing about 70% of production) and to seek export options in the form of liquefied natural gas (LNG) and piped gas (representing about 30% of production). It successfully created a domestic market for gas with an estimated demand of about 50 bcm/year, built three LNG trains with a capacity of 17 bcm/year, and implemented the Arab Gas Pipeline system with an approximate capacity of 10 bcm/year.

Although domestic gas prices were low, the government offered international oil companies substantially higher prices (currently in the range of $3.7$6 per mmbtu) in order to create the incentives necessary for upstream producers to develop existing reserves and explore for new gas reserves. Presently, the gas sector is experiencing a supply gap of about 10 bcm/year. The government is considering importing gas in the form of LNG which would cost in excess of $10/MMBTU. While the economic cost of insufficient gas supply is well understood, the financial viability of a gas import proposition is questionable as long as gas is sold at the negligible price of $1/MMMBTU to the electricity sector, which accounts for about 60% of total gas demand.

Electricity Sector

The power sector’s financial performance is in very poor condition. Over the years, the government has invested heavily in expansion of the supply capacity. Consequently, generation capacity doubled during from 2000 to 2010 reaching 24,000 MW, but this is still insufficient to meet peak load demand which is growing at 7 to 8% p.a. The investment requirement for this period was about EGP 46.5 billion ($8.4 billion). A small portion ($ 350 million) of the investment was undertaken by the private sector but the bulk of the requirements was funded by the public sector and implemented by Egyptian Electricity Holding Company (EEHC). The Government is the sole owner of EEHC and also the National Renewable Energy Agency (NREA) that is currently implementing a number of wind and solar power projects. Lenders to EEHC are concerned about its financial viability.

Power generation capacity includes 12% hydropower while the remaining 88% is based on subsidized natural gas and fuel oil. Reliance on fuel oil increases with shortage of gas supply. Recognizing the need to reform the sector, in the early 2000s, the Government reorganized and corporatized the power sector into EEHC. Generation, transmission and distribution assets were unbundled resulting in six generation companies, nine distribution companies and the Egyptian Electricity Transmission Company (EETC) - all of which are affiliated and controlled by EEHC. EETC operates the transmission system and is the single buyer and seller of electricity. The Electric Utility and Consumer Protection Regulatory Agency (EgyptERA) began operation in early 2002, but its authority falls short of an independent regulatory agency (it does not have the authority to set tariffs). Private sector investment in generation is limited to three Independent Power Producers (IPPs)

developed in the 1990s. Despite these initial reform steps, the reform process significantly slowed down as it approached the financial, governance, management and operations performance of the power sector and its utilities.

A new electricity law was drafted in 2008 and approved by the Cabinet of Ministers, but was not presented for Parliamentary ratification. The draft law is expected to be presented for approval during 2013/2014 session, after the new Parliament is elected around September/October 2013. The draft electricity law was designed to allow significant changes in the electricity sector market structure, governance and operations and in how the sector is financed and electricity is supplied to consumers, including emphasis on the development of renewable resources and energy efficiency.

Subsidy Reform

Energy subsidy reform is essential for Egypt because it is no longer the plentiful oil and gas producer and is facing an unsustainable fiscal deficit. Since the 2005-2006 fiscal year, the first time in which subsidies for oil and gas products were accounted for in the budget, subsidies increased from LE 40 billion (about US$ 7.2 billion) to LE 66 billion (about US$ 11.8 billion) in the 2009-2010 fiscal year and hiked even further to LE 95.5 billion (about US$ 16 billion) in 2012. Recognizing the budget burden of fuel subsidies, the Government recently developed a program aimed at reforming electricity tariffs and fuel subsidies. This program was designed to be implemented in two phases: first phase has been fully implemented, while phase two is under development and is expected to begin later in 2013. Details of reforms under phase one are outlined in Section 12 below.

Social Safety Nets

Reforming energy subsidies should go hand-in-hand with reforming Egypt’s social safety nets (SSN), whose consolidation is needed for providing better protection to the existing poor and vulnerable families as well as to mitigate adverse impacts of energy subsidy reform. Subsidies reforms pose formidable challenges as the proportional adverse impact of energy subsidy removal is expected to be the greatest for the poor, even though the rich receive the highest share of the subsidy. According to the results of the recent household surveys, energy subsidies represented over 12 percent of household expenditure for the bottom quintile, while the corresponding percentage for the top quintile is less than 9 percent. Studies have shown that female-led households use a higher average percentage of their income for purchasing energy more than male-led households because of their lower income. Therefore, reforming safety nets will have important gender dimensions to consider.

The current social safety net (SSN) programs, including the main cash transfer program called Social Solidarity Pension, have many weaknesses, including fragmentation and poor coordination; low coverage of the poor and vulnerable including consideration of gender dimensions; weak links to promotion of human capital; low poverty impact; and social and economic inefficiency. Beyond economic rationale, there is also political and social pressure for the new government to deliver on the promises of the 2011 revolution. A recent opinion survey shows that Egyptians’ satisfaction with their government efforts to help the poor are among the lowest in the region, while the need for government services is among the highest

11. Alignment with Transition Fund ObjectiveThe objective of the Transition Fund is, “to improve the lives of citizens in transition countries, and to support the transformation currently underway in several countries in the region by providing grants for technical cooperation to strengthen governance and public institutions, and foster sustainable and inclusive economic growth by advancing country-led policy and institutional reforms.” The scope of the proposed project directly responds to this objective by focusing on identifying barriers and setting strategic plans for sector reforms towards a sustainable energy sector, while mitigating the social impact of pricing reforms on vulnerable and poor households. More specifically, the proposed project responds to three of the Transition Fund’s pillars:

(a) Enhancing economic governance by supporting the institutional development and financial viability of the power sector through undertaking a comprehensive analysis and assessment of the current structure of the public sector power utilities (EEHC and affiliated companies) including organizational, governance, financial and accounting management, and performance monitoring and evaluation;

(b) Investing in sustainable growth by developing a comprehensive strategy to reform fuel subsidies including an assessment of the effects of such a strategy on the economy and a communication strategy and plan to engage a variety of stakeholders.

(c) Inclusive development by supporting the reform and strengthening of the SSN systems through improved targeting and consolidation of existing fragmented SSN programs as well as distribution of family smart cards to assess card coverage and access.

12. Alignment with Country’s National StrategyThere is now a strong conviction that the government cannot afford to continue providing energy subsidies at the current level. This in turn converts the electricity and gas sectors into financially unviable businesses based on the prevailing prices of electricity and gas. It is also clear that even if domestic energy prices are appropriately adjusted the public sector’s cash flow would not be sufficient to meet the investment requirements of the gas and electricity sectors. It is further understood that the developments in the power and gas sectors are heavily intertwined since most of gas production is used in the power sector. The Government has already initiated a two-phased program to reform electricity tariffs and fuel subsidies. The implementation of Phase 1 started in November 2012 and involved a broad range of reforms for petroleum products and electricity tariff:

Increase in heavy fuel oil price from LE 1,000 to 2,300 including for the electricity sector Increase in natural gas price for households, keeping the first block (up to 30 cubic meters per month) unchanged

and increasing the price of the second block by about 50 per cent, and 25 to 44 piasters for the electricity sector. Increase in electricity tariffs by 15.6 percent on average, and a budgetary transfer to compensate the electricity

sector for the increase in input costs (heavy fuel oil and natural gas). For households, the first tariff block (up to 50kwh) would remain unchanged, while the price for the second block (50-200kwh per month) would increase by 9.1 percent. The highest block (over 1000kwh) would see a price increase of 39.6 percent. Prices for commercial users would rise 15 percent.

Elimination of the subsidy for Octane 95 gasoline, by bringing its price from LE 2.75 to LE 5.85. New distribution system for LPG cylinders was developed and piloted in a few governorates. An increase of LPG

prices started effective April 2013 – the new retail price for a 12.5 kg cylinder has increased to LE 8 and for a 25 kg cylinder to LE 16.

Phase 2, currently under development, is expected to begin later in 2013 and would tackle gasoline and diesel prices through rationing subsidized gasoline and diesel quantities. This clearly demonstrates the proposed projects alignment with the national strategy.

The government is very keen to prepare a transformative plan that comprises three interrelated tracks: (i) reforming energy subsidies through a coordinated program of price adjustments; (ii) moving away from a subsidized public supply of electricity and gas to a public-private supply that would operate on commercial basis with transparent and targeted subsidy when and where needed; and (iii) putting in place a social protection scheme that would protect the vulnerable groups of the Egyptian population. These tracks of transformation would need to be prepared and implemented in a well-designed, consistent and calculated manner and as such this proposed technical assistance will be supporting.

C. PROJECT DESCRIPTION

13. Project Objective

The proposed project will strengthen the Government of Egypt’s capacity to (i) design a comprehensive fuel subsidy reform strategy, (ii) establish concrete measures for improved financial viability of key energy sector actors and (iii) identify households that would be most vulnerable to the impacts of the fuel subsidy reform.

14. Project Components

The project will mainly finance local and international consultancy services, training, seminars and study tours and will also finance goods that will be limited to IT equipment and software. The proposed technical assistance comprises three components:

a) Component 1: Power Sector Institutional Development and Financial Viability (US$ 2.7 million) : The technical assistance included under this component will support the analysis of reform options to improve the financial viability and management of the electricity utilities in Egypt and their governance structure, developing effective strategies for the fuel pricing to the power generation, and developing action plans for the governance and piloting of energy efficiency schemes. The following subcomponents will be financed under this component:

o Subcomponent 1: Electricity Utilities Financial Management and Governance (US$ 1.25 million). The Power sector’s financial viability would depend, among some other factors, on the price at which electricity is sold, the price at which fuel is bought, and the amount of government subsidy that would be provided to the sector. Aside from these parameters the financial flows throughout the sector and the decision making process will have significant impact on the financial performance of the power sector. A further complexity that should be embedded in the decision making and institutional arrangements is the need to create a balanced financial standing for the public and private suppliers of electricity. This is particularly important for Egypt that has decided to move towards a two-tiered electricity market in which the public and private suppliers would need to sell to the same wholesale market and therefore be able to compete with each other.

Therefore, this subcomponent will include a comprehensive analysis and assessment of the current structure of the public sector power utilities (EEHC and affiliated companies) including organizational, governance, financial and accounting management, and performance monitoring and evaluation. The assessment will propose options for the power utilities to improve their organization and corporate structure, financial management and governance structure. The capacity building and training programs should be designed and detailed by the main consultancy assignment developing the required assessment and action plans. Capacity building and training programs can be initiated in part by the main consultancy assignment as well as by follow up consultancy services.

o Subcomponent 2: Fuel to Power Strategy (US$ 0.75 million). The Ministry of Petroleum is planning to establish a regulatory agency for oil and gas and restructuring the gas market to enable private sector participation in the supply of gas including imports to satisfy increasing local demand. This subcomponent will support the development of a long term strategy to inform the Government in formulating and undertaking reforms related to

efficient, sustainable fuel and gas supply for power generation.

The subcomponent will also support the Government to analyze options to upgrade fuel transmission infrastructure, taking into consideration environmental aspects, to cope with increasing local demand as well as reviewing the electricity sector generation and investment plan in view of fuel allocation and availability and impact of renewable energy and energy efficiency development. The analytical support under this component will inform Government efforts to formulate draft policies required for gas allocation to power generation, and other industrial sectors, as well as gas pricing and contracting mechanisms to both public and private generation.

o Subcomponent 3: Action Plan for the Establishment of an Energy Efficiency Unit at the Ministry of Electricity and Energy (US$ 0.5 million). This subcomponent will support the development of an action plan to establish an energy efficiency unit that could be housed at MOEE2 which would have as its primary objective the implementation of the National Energy Efficiency Action Plan (NEEAP) for the electricity sector. The responsibilities of the proposed unit could include, among others, (a) administering energy efficiency funds allocated to NEEAP, (b) monitoring and evaluating implementation of NEEAP activities, (c) aggregating the electricity sector energy efficiency data at the national level and developing and monitoring sectorial energy efficiency indicators and targets, (d) designing and implementing policies and programs to meet the energy efficiency targets, and (e) developing of organizational plans and long-term capacity building programs for scaling up implementation of EE activities in the electricity sector.

This subcomponent will support engaging local and, as needed, international consultants in support of the establishment of the energy efficiency unit at the Ministry of Electricity and Energy and the preparation its various activities. The subcomponent will also support supply of IT equipment and databases for the operations of the energy efficiency unit.

o Subcomponent 4: Implementation Support to the PMT (US$ 0.2 million). This subcomponent will provide support to the PMT in implementation of the proposed technical assistance. The support will be limited to consultancy services to build the capacity of the PMT in undertaking its responsibilities and for the preparation of the required project annual audit reports.

b) Component 2. Energy Pricing and Fuel Switching Reform Technical Assistance (US$ 1.8 million). The technical assistance included under this component will support development of a comprehensive strategy for fuel subsidy reform in Egypt and an analysis of measures to mitigate impact of reforming fuel subsidy, taking into account the need d to provide protection to the poor and vulnerable. The following subcomponents will be financed under this component:

o Subcomponent 1: Energy Pricing and Fuel Switching Reform Strategy (US$ 1.5 million). This subcomponent will develop a comprehensive strategy to phase out fuel subsidy including assessment of the effects of such strategy on

2 The recommended energy efficiency institutional framework for Egypt consists of specialized energy efficiency units to be created in each of the major consuming sectors with a central energy efficiency unit (CEEU) being the main coordination body to lead and coordinate the nation’s EE agenda. The CEEU will coordinate all energy efficiency activities of the various “energy consuming” ministries/sectors and in particular the energy efficiency units at the line ministries. The CEEU is established as part of the Prime Minister office and a new technical assistance is being mobilized by the EU to support capacity building of the CEEU and implementation of its activities including coordination with energy efficiency in line ministries.

the economy, specifically on GDP, inflation, employment, including any gender considerations, as appropriate as well as sectoral multipliers.

The analytical work under this subcomponent will a simulate the direct and indirect impacts of fuel subsidy removal throughout the economy, through backward and forward linkages in order to identify the most sectors that are expected to be hit hardest as they utilize a relatively high amount of subsidized fuel in their respective production processes, and the appropriate mitigation and compensatory measures would need to be developed . The analytical work will also assess differential impact of fuel subsidy may have across categories of users/vulnerable groups, particular related to gender to ensure the effectiveness of the proposed mitigation measures. The analysis will be translated in a detailed action plans for each relevant stakeholder. This subcomponent will finance consultancy services to undertake the above assessment and to develop a road map and detailed plan for the subsidy reform.

o Subcomponent 2: Development of a Communication Strategy for Fuel Reform (US$ 0.3 million). Government needs to ensure stakeholder and public awareness and engagement with the reform agenda through broad strategic communication that informs and engages all relevant stakeholders including the poor and women. This subcomponent is expected to deliver a communication strategy and plan and communication road-map. The strategic communication component will also offer consolidated internal arrangements for communication of reform. The strategic communication plan will offer insight for timing and sequencing of subsidy removal, and the implementation of compensatory policies. The strategic vision and plan will also offer avenues for decision makers to evaluate both the sequence of policy implementation and its communication.

The strategy will also include providing a strategic assessment of the communication and awareness campaign challenges to inform public opinion about the need for change and the compensating measures that will be undertaken. Given the inter-linkages in the objectives and scope, the communication strategy will be developed in close coordination with the pricing strategy (subcomponent 2.1) and the safety net measures (component 3.0) as to offer a strategic communication and sequencing options (from a political economy perspective).

c) Component 3. Strengthening Social Safety Nets Technical Assistance (US$ 2 million). This component supports strengthening social safety net systems in Egypt through measures aimed at improving targeting and consolidation of existing fragmented SSN programs and development of a database of the poor and vulnerable with attention to gender aspects as appropriate. The proposed activities under this subcomponent include analysis of the distribution of family smart cards to assess card coverage and access, the carrying out of baseline surveys and consolidation of household databases. The Ministry of State for Administrative Development (MSAD) will be the main counterpart and lead of this component.

This component and in particular its sub-component 3 envisage the issuance by the PM’s Office of a decree to establish a new Cash Transfer Program that targets the poor and vulnerable. This decree would assign the responsibility of developing the database for the program to MSAD. The decree would establish a Ministerial Level Committee to oversee the preparation and introduction of the CTP and to develop a vision and strategy for the social protection system over the medium term. The following subcomponents will be financed under this component:

o Subcomponent 1: Support the Establishment of the Database of the Poor and Vulnerable (US$ 1.1 million). One of the main objectives of the proposed project is to support the Government of Egypt to better target the poor and thereby to mitigate the adverse impact of subsidy reform. The activities under this subcomponent will support the development of a database of the poor and vulnerable.

The database of the poor and vulnerable, once established, can additionally be used to identify future avenues for delivery of services by line ministries, as well as being used in a more integrated way for record keeping, enrollment of qualified beneficiaries as well as monitoring implementation and enhancing program efficiency.

o Subcomponent 2: Baseline Survey of Beneficiary Families (US$ 0.4 million). This sub-component’s objective is to undertake the design and collection of a nationally representative baseline survey data to gauge the impact on efficiency in social service delivery and on the beneficiaries of the ongoing and planned reform programs, including the introduction of the smart card system, the planned cash transfer scheme, re-targeting of fuel subsidies, re-targeting of the bread subsidy, social health insurance for the poor and so son. The proposed survey will establish a baseline for monitoring and evaluating the medium-term and long-term impacts of these reform initiatives.

o Subcomponent 3: Establishment of Technical Working Unit to Support SSN Reform (US$ 0.5 million). The main objective of this sub-component is to support GOE in establishing and financing a technical working unit of 3-4 professionals under the auspices of the Office of the Prime Minister. The TWU will support the committee in charge of overseeing the preparation and introduction of the CTP and developing a medium term social protection strategy and vision.

15. Key Indicators Linked to Objectives

The project objective will be measured using the following indicators:

(i) An action plan is prepared to improve the financial viability and governance of EEHC;(ii) A long term strategy for the fuel supply to power generation is prepared;(iii) An action plan is prepared for (1) the establishment of an Energy Efficiency Unit at the Ministry of

Electricity and for (2) implementation of at least two of the energy efficiency projects in NEEAP(iv) A comprehensive energy pricing and fuel switching strategy for Egypt including detailed action plans for

compensatory measures to mitigate the impact of subsidy removal is developed;(v) A communication strategy for fuel subsidy reform including public consultation is prepared;(vi) A database of the poor and vulnerable is developed with [number 3] of households registered in the new

poverty database; and(vii) Direct project beneficiaries (number4), of which female (percentage5)

D. IMPLEMENTATION

3 To be determined by negotiations4 To be determined by negotiations5 To be determined by negotiations

16. Partnership Arrangements (if applicable)

17. Coordination with Country-led Mechanism/Donor Implemented Activities The proposed technical assistance takes into account the work supported by other donors and identifies the required assistance for informing the formulation of policy and implementation plans. It is particularly noted that the EU is funding a series of partnerships with Egypt to strengthen the reform mechanism. A main program is the EU Energy Sector Policy Support Program (EU ESPSP) that aims at improving the policy and regulatory framework in the gas sector, promote energy efficiency, mitigate GHG emissions, and update Egypt’s long term energy strategy. A parallel technical assistance will be provided by the EU to EgyptERA to strengthen its institutional capacity for implementation of the electricity law. The EU in partnership with the KfW is also supporting the preparation of the Egypt Renewable Energy Master Plan. While the EU funded technical assistance activities are focusing on development of energy market policy and regulations, and capacity building of EgyptERA, this technical assistance proposed for financing by the MENA Transition Fund is aimed at transformation of electricity and gas sectors to financial viability while protecting the poor from undesirable impacts of energy subsidy reform.

The proposed technical assistance also builds on the energy program supported by the World Bank in the power and gas sectors, which is contributing to the security and reliability of electricity supply, development of renewable energy, and scaling up natural gas connection to households. The support has furthermore provided technical assistance including studies on energy pricing, generation planning, and energy efficiency. This technical assistance draws upon the range of previous activities, while focusing on formulating implementable action plans to move the energy sector towards long-term sustainability

The proposed project is consistent with the World Bank’s Interim Strategy Note 6 for Egypt and supports its pillars of: (i) improving economic management through control of the fiscal deficit and initiating reforms to enhance transparency in government operations; and (iii) fostering inclusion, which involves ensuring broader access by disadvantaged segments of the population. The proposed project supports mainly the objectives of the first and third pillars by identifying barriers to, and setting strategic plans for, energy sector reforms in order to ensure a sustainable growth of the energy sector and hence the economy, promote an enabling environment for private sector participation in energy sector development, and reduce the fiscal burden of fuel subsidy on the government deficit while mitigating its social impact on vulnerable and poor households.

18. Institutional and Implementation ArrangementsThe proposed technical assistance will be submitted by the Ministry of International Cooperation for financing to the MENA Transition Fund. The Implementing agency of the technical assistance Grant will be the Ministry of Electricity and Energy. The envisaged implementation arrangements for the project are shown in Figure 1

Figure 1: Implementation Arrangements

6 The Egypt Interim Strategy Note is a programmatic document which is to guide World Bank support to Egypt until end of 2013, by when it should be succeeded by a Country Partnership Strategy (CPS), which is to be prepared with the new democratically elected government

Project Steering Committee

Power Sector Institutional Development and Financial Viability

Component Lead: Ministry of ElectricityTechnical Team

Project Management Tam• Project Coordinator• Procurement Officer• Financial Management Officer• Legal Advisor• Subcomponent Leads

Energy Pricing and Fuel Switching Reform

Component Lead: Ministry of PetroleumTechnical Team

Social Safety Nets Strengthening

Component Lead: MSADTechnical Team

A multi-sectoral Project Steering Committee (PSC) has been established to provide strategic direction for the technical assistance and support, coordinate and make resources available for implementation of its components with various line ministries, government authorities and national programs. The PSC will monitor the implementation progress according to semi-annual progress reports prepared by the Project Coordinator, approved by the PSC, and submitted to the World Bank. The PSC will also recommend to the line ministries and government authorities implementation of recommendations and sector strategies that would be developed by the technical assistance.

To ensure timely and efficient project implementation, the Ministry of Electricity and Energy has also appointed a Project Management Team (PMT) headed by a Project Coordinator (PC) who will be the key interlocutor for the Word Bank team and for coordinating the implementation of TA activities with the PSC, line ministries and government authorities. The PMT comprises a legal advisor, the technical leads of the technical assistance subcomponents, Procurement Officer and Financial Officer who will be responsible for handling in accordance of World Bank procedures and guidelines all aspects of the financial and procurement issues related to the technical assistance project.

The PC will coordinate the project implementation with the subcomponent leads appointed for each of the subcomponents. The subcomponent leads will be responsible for the design and preparation of the Terms of Reference of the activities included under their subcomponents, participate with the Procurement Officer in the consultant selection process, facilitate and supervise on a day to day basis the consultant activities, ensure and recommend to the PC approval, and release of payments, of the consultants’ deliverables according to the signed contract as well as of the receipt/inspection and acceptance of goods that could be financed by the technical assistance project.

Prior negotiations the PC will develop a Procurement Plan and an Operational Manual (OM) that should be satisfactory to the World Bank. The OM will describe the project implementation, arrangements for inter-ministerial coordination, organization, roles, responsibilities; and the financial management,, procurement and disbursement arrangements

19. Monitoring and Evaluation of Results

The agreed Results framework and monitoring arrangements are described in Section F (Results Framework and

Monitoring). The gender impact of the proposed technical assistance will also closely be assessed and monitored by ensuring that the terms of reference and outputs of the analytical activities incorporate as necessary gender dimensions. The Project Management Team in coordination with the technical leads of the project subcomponents will be responsible for monitoring the progress against the agreed performance indicators included in the results framework and accordingly report to the World Bank. A semi-annual report on the project implementation will be prepared and submitted by the PMT to the PSC and World Bank as per the formats agreed during the Negotiations. Based on the Bank’s review of the semi-annual reports and outcomes of the supervision missions, measures will be taken by the PSC and PMT to ensure the project’s subcomponents are completed without delay to achieve their planned outcomes. The World Bank will also undertake missions to provide oversight on the overall implementation of the grant.

E. PROJECT BUDGETING AND FINANCING

20. Project Financing (including ISA Direct Costs7)Cost by Component Transition

Fund(USD)

Country Co-Financing

(USD)

Other Co-Financing

(USD)

Total(USD)

1. Component 1: Power Sector Institutional Development and Financial Viability

i. Electricity Utilities Financial Management and Governance

ii. Fuel to Power Strategy

iii. Establishment of an Energy Efficiency Unit at the Ministry of Electricity and Energy

iv. Implementation support to the PMT

2,700,000

1,250,000

750,000

500,000

200,000

2,700,000

1,250,000

750,000

500,000

200,000

Component 2: Energy Pricing and Fuel Switching Reform Technical Assistance

i. Energy Pricing and Fuel Switching Reform Strategy

ii. Development of a Communication strategy for Fuel Reform

1,800,000

1,500,000

300,000

1,800,000

1,500,000

300,000

Component 3: Strengthening Social Safety Nets Technical Assistance

i. Support to establishment of the database of the poor

ii. Baseline Survey on SSN Service Delivery

iii. Establishment of Technical Working Unit to Support SSN Reform

2,000,000

1,100,000

400,000

500,000

2,000,000

1,100,000

400,000

500,000

7 ISA direct costs are those costs related to the ISA’s direct provision of technical assistance within the project.

Total Project Cost 6,500,000 6,500,000

The MENA Transition Fund financing of the proposed project is complemented by in kind financing provided by the Government of Egypt in terms of staff and financing of necessary additional IT systems that could be recommended by the project and which however will not be financed from the Transition Fund. In parallel, the EU is supporting energy sector reform programs through a technical assistance in the amount of more than Euro 6 million.

21. Budget Breakdown of Indirect Costs Requested (USD) Description Amount (USD)

For grant preparation, administration and implementation support:Staff time 365,000Staff travel 155,000Trust Fund Management and Administration Fee 77,200

Total Indirect Costs 597,200

F. Results Framework and Monitoring

.

Project Development Objectives

.

PDO Statement

The proposed project will strengthen the Government of Egypt’s capacity to (i) design a comprehensive fuel subsidy reform strategy, (ii) establish concrete measures for improved financial viability of key energy sector actors and (iii) identify households that would be most vulnerable to the impacts of the fuel subsidy reform..

.

Project Development Objective Indicators

Cumulative Target Values Data Source/ Responsibility for

Indicator Name CoreUnit of Measure

Baseline YR1 YR2 End Target FrequencyMethodology Data Collection

Direct project beneficiaries (number8), of which female (percentage9)

numberNone TBD TBD TBD

Semi-Annually

Progress Reports, Supervision Reports

PMT, and World Bank Team

An action plan to improve the financial viability and governance of EEHC is prepared

Text None NoneDraft action plan is developed.

Action Plan is finalized

Semi-Annually

Progress Reports, Supervision Reports

PMT, and World Bank Team

A long term strategy for the fuel supply to power generation is prepared

Text None NoneDraft fuel supply strategy is developed.

fuel supply strategy is finalized

Semi-Annually

Progress Reports, Supervision Reports

PMT, and World Bank Team

An action plan is prepared for the 1) establishment of an Energy Efficiency Unit at the Ministry of Electricity and 2) for at least two of the energy efficiency projects in NEEAP

Text

EE Unit is not established

EE Unit is Established

Organizational structure and action plan for EE Unit are developed.

Action Plan for Two NEEAP EE projects are prepared d

Semi-Annually

Progress Reports, Supervision Reports

PMT, and World Bank Team

8 To be determined by negotiations9 To be determined by negotiations

A comprehensive energy pricing and fuel switching strategy for Egypt including detailed action plans for compensatory measures to mitigate the impact of subsidy removal is developed

Text None NoneDrafts strategy and action plan are developed

Strategy and action plan are finalized

Semi- Annually

Progress Reports, Supervision Reports

PMT, World Bank Team

A communication strategy for fuel subsidy reform including public consultation is prepared

Text Non None

Draft communication strategy is developed

Communication strategy is finalized

Semi-Annually

Progress Reports, Supervision Reports

PMT, and World Bank Team

database of the poor and vulnerable is developed with [number] of households registered in the new poverty database

Text None None

Consolidation of SSN databases and development of poverty targeting methodology

A database of the poor and vulnerable is developed and [number10] of households are registered

Semi-Annually

Progress Reports and Supervision Reports

PMT, and World Bank Team

.

10 To be determined by negotiations

Intermediate Results Indicators

Cumulative Target Values Data Source/ Responsibility for

Indicator Name CoreUnit of Measure

Baseline YR1 YR2 End Target FrequencyMethodology Data Collection

EEHC Capacity building program in financial and governance is developed and number of training workshops/events for EEHC

TextNot available

Consultant for subcomponent1.1 is retained

Capacity building program is developed.

Four training workshops/events completed

Semi-AnnuallyProgress Reports, Supervision Reports

PMT, and World Bank Team

Ministry of Petroleum and Ministry of Energy established coordinating committee to develop and implement fuel to power

Text

Not formally established.

Committee established and consultant for subcomponent 1.2 is retained

Committee meets bi-monthly to supervise subcomponent 1.2.

Committee meets bi-monthly to supervise and approve outputs of subcomponent 1.2

Semi- AnnuallyProgress Reports, Supervision Reports

PMT, and World Bank Team

Maintain Inter-ministerial Coordination is developed to facilitate and implement fuel subsidy and communication strategies and social safety nets program

Text Established

Continue functioning

Continue functioning.

Inter-Ministerial Coordination oversight implementation of fuel subsidy and communication strategy

Semi-Annually Progress Reports, Supervision Reports

PMT, and World Bank Team

and social safety net programs

Female beneficiaries considered in designing the communication strategy and participating in the communication consultation

textNone None

Communication strategy is developed taking into consideration gender and female issues

Female beneficiaries are participating in the communication strategy consultation

Semi-AnnuallyProgress Reports, Supervision Reports

PMT, and World Bank Team