Distribution Efficiency Improvement and Utility Strengthening Project

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The Dominican Republic (DR) has experienced sustained economic growth and notable poverty reduction records. Poverty impacts from the COVID-19 crisis were deftly managed thanks to robust fiscal and monetary policy responses, although persisting inflation presents risks for the vulnerable population. Meanwhile, the DR is highly vulnerable to climate change, with exposure to multiple natural hazards. The GoDR has committed to reducing GHG emissions by 27 percent by 2030 in its 2020 National Determined Contributions (NDC). The National Development Strategy (NDS) 2030 outlined specific actions that the GoDR would undertake to mitigate the impacts of climate change on the Dominican society and economy. The GoDR further issued the National Energy Plan (NEP) 2022-2036 to expand the electricity supply in an environmentally and financially sustainable manner, to promote rational use of energy, and to guide the climate-informed investments in the sector. The electricity sector has been a critical engine for sustained economic growth in the DR, but important challenges remain despite the many reforms the sector has undergone. The most important challenges include: (i) weak governance framework, (ii) high levels of losses due to theft and insufficient metering infrastructure, (iii) high cost of electricity generation and high vulnerability to external shocks (natural disasters and commodity prices), and (iv) persisting poor financial sustainability of the sector. The Electricity Pact (Pacto Electrico) signed in February 2021 aims to address these fundamental challenges. The Electricity Pact was developed as a comprehensive reform program with a clear roadmap to address the systemic weaknesses and binding constraints in the sector by the end of 2026. It was developed through an inclusive and encompassing stakeholder engagement process, which provided an innovative approach to building broad-based consensus for implementing complex and socially sensitive reforms.The Unified Council for the Distribution Companies (Consejo Unificado de las Empresas Distribuidoras, CUED) has been given, through a Presidential decree, the mandate to improve governance and address the poor financial situation in the distribution companies. CUED issued the national Integrated Loss Reduction Plan for the EDEs for the period 2022-2028. The Plan identified a financing need of approximately US$1.88 billion to improve the commercial management of the EDEs and address the high technical and non-technical losses. For the implementation of the Plan, the GoDR has requested a loan from the International Bank for Reconstruction and Development (IBRD) in the amount of US$225 million to support improvements in governance and operational efficiency of the three EDEs and implementation of loss reduction measures, including the establishment of new smart metering infrastructure and related investments in all three distribution companies, which provides the basis for the proposed Project.The proposed Project is fully aligned with the objectives of the World Bank Group’s Country Partnership Framework (CPF) for the Dominican Republic FY22-26. The Project objectives, which focuses on increasing efficiency, financial self-sufficiency, and environmental sustainability of the energy sector in the DR, support two of the CPF objectives under the first High Level Outcome: ‘Improved access to quality public service delivery’. It contributes to Objective 1.1: Improved fiscal space and public spending efficiency by supporting measures that will improve the electricity sector’s financial viability, whilst the poor sector performance has required a significant fiscal support crowding out spaces for other social spending; and to Objective 1.2. Enhanced efficiency in electricity by improving the performance of the energy distribution companies, with the goal to achieve greater efficiency and reliability of the electricity sector.The Project will be implemented through the following components.Component 1: Improving governance of the distribution companies. This Component will support the implementation of the reforms laid out in the CUED resolution, which is aimed at improving the governance of the three distribution companies for better performance and results. The Component will also finance software systems to improve the EDEs’ commercial management efficiency through the implementation of: (i) a commercial management system (CMS), and (ii) a Metering Data Management (MDM) system for management of industrial and residential customers.Component 2: Support to the implementation of the Integrated Loss Reduction Plan. This component supports smart meter and line installation works in selected distribution circuits to reduce technical and non-technical losses, while the social management activities will support training to users on efficient and rational use of electricity, thereby lowering consumption. In addition, installation of modern smart meters will lead to better efficiency in managing and reporting on interruptions in electricity supply, making the services more resilient to disruptions to business continuity in cases of extreme weather events, including heat waves.Component 3: Capacity building, administration, monitoring, a nd evaluation. This Component will finance the costs related to the administration of the Project, as well as equipment to support the supervision of program implementation, training, and operating expenses. It will also include, but not be limited to: (i) Just-in-time TA to the key sector entities, e.g., EDEs, CUED, MEM, and SIE; (ii) financial audits of all Project components; and (iii) environmental and social (E&S) risk management and monitoring, and reporting on the implementation of E&S instruments.