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

 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 Structure of the Presentation

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

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 A Glance at MNA Energy Supply and Demand 4

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

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

RENEWAB LE Energy in MNA 7

8 Two Decades Ago, Low Share of Renewable Energy in the Energy Mix Consumption and share of renewable Energy in TFEC ( ) Annual renewable energy sources growth in CAGR 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

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

In 2010: Largest renewable energy consumption registered by Israel, Iran, Morocco, Iraq Source: WB Data catalog SE4All Indicators, SEGEN Analysis 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

ENERGY EFFICIENCY in MNA 11

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

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 13

GAS DEVELOPME NT 14 in MNA

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. 15

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 ME NA EU Domestic Gas Prices, Source: GFFR

17 Our Approach and Guiding Principles for FY14-16 Engagement

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- (energy access issue) 18

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; 19

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

Yemen; Djibouti; Regional; Egypt Saudi Arabia; Iraq Morocco; Lebanon 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 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 Pricing, Subsidies and Sector Reforms Governance and Enhanced Service Delivery Energy Efficiency Energy Access and Sustainability FY14-16 MNA Energy Program at a Glance 21 FY1 3 FY1 4to FY1 6

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 22 IBRDIDAGRANTS US $ million2, IBRDIDAGRANTS US $ million

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 23

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 24

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

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

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