World Bank Engagement in Energy and Extractives in the Middle East and North Africa

1. World Bank Engagement in Energy and Extractives in the Middle East and North Africa Catalyzing energy solutions for change, growth, and sector sustainability November, 2013

2. Structure of the Presentation • Context and Challenges • Energy Subsidies • Trends in Renewable Energy and Energy Efficiency • MNA Gas Market • World Bank’s Business Lines in the Energy Sector • Portfolio and Pipeline

3. MNA Economic Performance (Selected Indicators) GDP Growth below potential (%) Official foreign exchange reserves dwindling (US$ bn) FDI declining (in US$ bn) Fiscal health deteriorating (% of GDP)

4. A Glance at MNA Energy Supply and Demand Energy production (kt of oil equivalent) Electricity Generation (TWh) Energy use (kg of oil equivalent) per $1,000 GDP, 2011 Electricity Consumption (kWh per Capita), 2011

5. Subsidy Reform “Jointly” with Revamped Social Safety Nets are Needed for Greater Economic Inclusions Subsidies by quintile Government spending on programs Social Safety Net coverage (poorest quintile) Poverty Impact of safety-net programs* *Non-subsidy

6. Potential of Regional Integration, Less Investments to Meet Demand But Not Exploited Demand in Arab countries will grow 84% by 2020, requiring an additional 135 GW generation capacity Potential reduction in power generation capacity through regional integration among Arab Countries Potential CAPEX savings Bottom line: power sector in Arab Countries needs significant investments (US$450 bn) w/o regional integration

7. Renewable Energy in MNA

8. Two Decades Ago, Low Share of Renewable Energy in the Energy Mix Consumption and share of renewable Energy in TFEC (1990-2010) Annual renewable energy sources growth in CAGR 1990-2010 Source: WB Data catalog SE4All Indicators, SEGEN Analysis Note: CAGR = Compound Annual Growth Rate, TFEC = Total Final Energy Consumption Data for 16 countries available for the calculation of Share of RE in TFEC. Share calculated using the average value of % share of RE in TFEC in each country and then aggregating

9. Two Decades Ahead, Ambitious RE Targets, Mostly Driven By Net-Oil Exporting Countries Net Oil-Exporting Countries (NOEC), Net Oil-Importing Countries (NOIC) Source: MENA Renewables Status Report, 2013, by United Arab Emirates, IRENA and REN21

10. In 2010: Largest renewable energy consumption registered by Israel, Iran, Morocco, Iraq Note: Renewable energy in this slide excludes “Traditional Biomass”. Traditional Biomass is used for renewable energy calculations in Global Tracking Framework. Hence variations in result may occur Source: WB Data catalog SE4All Indicators, SEGEN Analysis

11. Energy EFFICIENCY in MNA

12. Negative rate of Improvement in Energy Intensity Gains in 1990-2010 Source: WB Data catalog SE4All Indicators, SEGEN Analysis Note: CAGR = Compound Annual Growth Rate, PPP = Purchase Power parity

13. Most rapid progress on energy intensity among countries that started out with highest energy intensities in 1990 (Iraq, Syria, Jordan, Bahrain) Source: WB Data catalog SE4All Indicators, SEGEN Analysis Note: Bubble size represents the volume of primary energy supply in 2010 CAGR = Compound Annual Growth Rate

14. Gas Development in MNA

15. Major Share of Gas Reserves… but Rapidly Emerging Gas Shortage • Arab countries hold about 29% of the world’s proven gas reserves. The region has been viewed as a source of gas supply to the world; • In 1990s the gas rich countries of the region focused their efforts on: • promoting the domestic use of gas through very low prices • developing exports to points in Asia, Europe and North America • export of gas through pipeline to other countries within the region • A rapidly growing electricity demand has triggered an unforeseen growth in gas use in the power sector; • As a result, every Arab country (except Qatar and Algeria) is short of the gas supply needed to meet its current and projected demand; • Power sector has served as the main vehicle for switching from oil to gas.

16. Gas Pricing is a Major Bottleneck • Low domestic gas prices have been an important deterrent to exploration and development of gas resources and gas trade within the region • Low supply (lack of investments) • Large resources undeveloped • Excessive and inefficient demand • Gas shortage • Use of expensive fuels (HFO, CO…) instead of gas • Huge loss for some States • Several producers start to import EU 25 MENA MENA Domestic Gas Prices, 2010-2011 Source: GFFR 16

17. Our Approach and Guiding Principles for FY14-16 Engagement

18. Intertwined Energy Challenges in MNA • Heavy reliance on fossil fuel resources for energy consumption- MNA region consumes 30 % of its fossil fuel production and exports the rest (climate change vulnerability and renewable energy issues); • Net importing countries under fiscal pressure due to fuel prices volatility while oil exporters face increasing costs of energy subsidies (fiscal issues); • Moving toward energy sector sustainability while managing/reforming high energy subsidies (5.7 % of MNA’s GDP in 2011) during political instability (sector sustainability issue); • Lagging in implementing power sector reforms (governance, accountability, service delivery issues); • Rapidly growing demand leading to under-capacity in some countries (energy efficiency issue); • High pressure on existing infrastructure and high demand for new investments energy sources (security of supply and diversification of energy sources –including regional integration- issues); • Turbulent transition intensified political and investments risks (private capital flow issues); • Lack of access to electricity in Yemen (47%) % Djibouti (50%) as well as rural areas (about 28 million), and about 8 million rely on traditional biomass for their energy needs- (energyaccess issue)

19. We Believe These Challenges Bring Opportunities • Governments priorities are changing towards higher energy security, energy sector sustainability, and economic benefits: • More open to gradually tackle the issue of energy subsidies (innovative solutions are needed to carefully manage the “evolving” risks) • Willingness to exploit energy efficiency opportunities (supply and demand) • High potential for regional integration (alignment of regional and national interests to maximize the benefits) • Would consider innovative solutions for technological diversification in energy sources (renewable energy) • Many countries have close to 100% access to electricity but interest in solutions to modernizing power grids as well as off-grid electricity access is increasing • However, tailoring energy solutions is needed to effectively exploit Bank products and global knowledge;

20. A Model with Five Layers of Focus for Tailored Solutions, Higher Impact, and Client Partnership Sub-region 1 IDA (Yemen and Djibouti) FEEDBACK DELIVERY • Gulf States (GCC) • Maghreb • Mashreq and Egypt • Energy subsidies • Climate change • Regional integration • Energy Access • Models to nurture private investments (PPP, IPPs) • Innovative risk mitigation measures • Regulatory measures • Security of supply • System performance and expansion • Diversification of energy sources • Sector reforms (governance, accountability, service delivery) • Energy efficiency Renewable Energy • Sector Issues • 2 • 4 • Cross-sectoral Issues • 3 • Private Investments Tailored Solutions for each country or group of countries • Solutions components (e.g. loan, PRG, P4R, TA, etc.) • Leveraging relevant Global knowledge and Global Partners • Exploring similar experiences • (within WBG, global networks, etc.) Several steps to develop solutions, including stakeholders consultations 5

21. FY14-16 MNA Energy Program at a Glance • Yemen; Djibouti; Regional; Egypt • Saudi Arabia; Iraq • Morocco; Lebanon • Saudi Arabia; Bahrain; Tunisia; West Bank and Gaza; Egypt • Egypt; Morocco • Iraq; Lebanon • West Bank and Gaza; Regional • Yemen; Egypt; Saudi Arabia; Morocco • West Bank and Gaza FY13 • Yemen; Djibouti; Regional; Egypt • Saudi Arabia; Iraq • Morocco; Lebanon • West Bank and Gaza • Saudi Arabia; Bahrain; Tunisia; West Bank and Gaza; Egypt; Djibouti; Morocco; UAE; Oman; Qatar • Egypt; Morocco • Iraq; Lebanon • West Bank and Gaza; Regional; Qatar; Bahrain • Yemen; Egypt; Saudi Arabia; Morocco • West Bank and Gaza; Bahrain • Qatar FY14to FY16

22. World Bank MENA Energy Portfolio (Current and Pipeline) • Portfolio dominated mainly by projects in Egypt and Morocco • Supervision: 18 Projects – US $ 2,847 billion (FY13) • Pipeline: 9 Projects – US $ 616 million

23. Regional Integration FY09-FY13 • Mostly focused on assessments for potential electricity and gas trade within MNA and beyond such as the following key studies: • Exploring the potential for electricity trade and interconnection between Yemen and GCC; • Potential of energy integration in Mashreq and neighboring countries; • Advancing the Integration of Mashreq Power Grids with Turkey, and Europe (at final stage); and • Regional Gas Trade Projects in Arab Countries

24. In Summary … • For the energy sector in MNA: • an efficient, reliable, and low-cost energy sector is critical for equitable economic development; • sound operational and financial performance is essential; • improved capacity and governance are needed for better sector performance and ability to sectoral challenges; • over time, strong need to reduce the fiscal burden of energy subsidies and to adopt pricing policies which foster investments and growth

25. THANK YOU Catalyzing energy solutions for change, growth, and sustainability

26. Ranking of Renewable Energy Consumption Leading Countries Source: IEA 2012a and WB Data catalog SE4All Indicators, SEGEN Analysis

27. Share of Renewable Energy Source, 2010 (w/o traditional biomass)