Second Rwanda Energy Sector Development Policy Operation

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The Energy Sector Development Policy Operation (DPO) is the second in a programmatic series of three DPOs. The Government’s reform program aims at balancing the triple objectives of achieving ambitious expansion targets for electricity generation and access while containing fiscal transfers to the sector and enhancing the affordability of electricity service for consumers. In line with the Government’s program, the PDO of the proposed operation is to enable fiscally sustainable expansion of electricity services in Rwanda. The operation is built around two pillars: (a) containing fiscal impact of the electricity sector; and (b) improving operational efficiency, affordability, and accountability of electricity service. The credit amount (SDR 89.6 million) under the first operation of the series was disbursed at the end of December 2017. This DPO series supports a Government reform program that proactively addresses the fiscal risks related to achieving universal access to affordable, sustainable, and reliable electricity by 2024. The main rationale for the series is to avoid a projected escalation of fiscal transfers, driven by (i) Rwanda’s already‐high cost of electricity service delivery, which are among the highest in the region (around US0.28 dollars per kilowatt hour (kWh) in FY2017-18); (ii) ambitions for rapid electrification and system expansion during NST1 (2017‐2024), largely financed by public investments; (iii) generation investment planning inconsistent with least‐cost planning principles; (iv) procurement processes for public‐private partnerships (PPP) inconsistent with competitive procedures; and (v) the limited scope for tariff increases as electricity is already barely affordable for much of the population.