The proposed project aims to quantify Djibouti's geothermal resources for large-scale power generation through exploratory drilling. It will be implemented through three service contracts to conduct drilling and testing, with the goal of either proving the resource viable for an IPP power plant or identifying why it is not viable. The project objectives are to shift drilling risks and costs to public funding, potentially enabling geothermal electricity exports and new export revenues for Djibouti if the resource proves financially viable. It will be implemented through components for exploratory drilling, technical assistance, and program management, and aims to reduce GHG emissions by 600,000 tons of CO2 per year if successful.

1. PROJECT INFORMATION DOCUMENT (PID)
CONCEPT STAGE
Report No.: AB6767
Project Name Geothermal Exploratory Drilling Project
Region Middle East and North Africa
Country Republic of Djibouti
Sector 50% Other renewable: 50% Thermal Power
Lending Instrument SIL
Project ID P127143
{If Add. Fin.} Parent Project ID
Borrower(s) Republic of Djibouti
Implementing Agency Electricité de Djibouti
Environmental Screening
Category
[ ]A [X]B [ ]C [ ]FI [ ]TBD (to be determined)
Date PID Prepared October 27, 2011
Estimated Date of Appraisal
Completion
January 25, 2012
Estimated Date of Board
Approval
March 15, 2012
Concept Review Decision Following the review of the concept, the decision was
taken to proceed with the preparation of the operation.
I. Introduction and Context
Country Context
1. With aspirations of positioning itself as a maritime and international business hub for
East Africa, Djibouti a country of 864,000 (2009) people, is strategically located on the 20 mile
strait of Bab-el-Mandeb between the Red Sea and the Gulf of Aden. Its rent based economy with
a GDP of USD1.05 billion is dependent on providing military bases for the United States and
France as well as providing services as an international transshipment port, refueling center and
regional transit port. In 2004, the Djibouti Free Zone was created to allow the import, storage,
transformation and re-exportation of goods without being subject to protective tariffs or non-
tariff barriers. Currently, 85% of Djibouti’s container terminal imports and exports serve its
landlocked neighbor Ethiopia.
2. With an unemployment rate estimated between 50% and 60%, two thirds of the
population lives in Djibouti City. The other third consists mainly of shanty-dwellers relying on
the informal sector, rural farmers and nomadic shepherds. Forty-two percent of Djibouti’s
population is determined to be below the poverty line.
3. Djibouti has little industry and is therefore heavily dependent on foreign assistance to
help support its balance of payments and to finance development projects. With less than 1,000
km2
of arable land (0.04% of 23,200 km2
) and an average annual rainfall of 5.1 inches, most
food must be imported. Natural resources in the form of mineral deposits are minimal other than
low profit yielding salt. However, Djibouti’s land mass encompasses the Afar Triangle of the

2. East African Rift where the sea feeds the movement of three tectonic plates to form a promising
geothermal energy resource.
Sectoral and Institutional Context
4. Djibouti is entirely dependent on imports to meet its electricity needs. Until this year, the
country relied solely on heavy fuel oil (HFO) to supply electricity but over the last few months, it
began importing electricity surplus from Ethiopia during the dry season. Electricity is provided
by the state-owned national power company, Electricité de Djibouti (EDD), which supplies
power mainly to the capital. The hourly load data shows system demand ranging between a low
of 15 MW in the winter to a high of 63 MW in the summer in 2009.
5. Electricity access remains unaffordable for most people in Djibouti. Estimates indicate
only about half of the population has access to electricity. Most villages, outside of Djibouti are
not connected to the grid. EDD’s 2008 social (i.e. life line) tariff price was USD 0.283/kWh. The
tariff price for shops and government buildings was USD 0.397/kWh while industry and military
bases were charged USD 0.424/kWh. EDD’s generation cost is approximately USD 0.25/kWh
with marginal power reliability and quality. According to the small and medium-sized
enterprises (SMEs) surveyed for a February 2008 study commissioned by the World Bank, the
lack of reliable, secure and low-cost energy supply was cited by more than half of interviewees
as the single most severe constraint to doing business in Djibouti.
6. The interconnector now provides low cost supply of energy when available, limited by
hydrological conditions and excess energy available in Ethiopia. In 2011, the new 230 kVA
transmission interconnect between Addis Ababa, Ethiopia and Djibouti City was completed.
Under the terms of the Power Purchase Agreement (PPA), between 180 and 300 GWh will be
sold to Djibouti annually which represents 22.35 to 37.24 MW of continuous generation (no PPA
energy sales during Ethiopia’s dry season peak hours). Ethiopia’s wet season, during which its
hydro-based generation is in excess of its demand, correlates with Djibouti’s high demand
summer months. Correspondingly, Djibouti’s low demand winter months correlate with
Ethiopia’s dry season when it must depend on thermal generation to meet its daily peaks. The
supply from Ethiopia is not considered to be ‘firm’, meaning that it is a source of energy (kWh)
when available but not necessarily available throughout the day for 24 hours. The interconnector
however helps reduce Djibouti’s reliance on imported fuel products, thus lowering the cost of
electricity supply. This is significant for Djibouti, where the state’s budget is often being used to
avoid escalating electricity prices. The European Union intends to further strengthen the
interconnection with Ethiopia.
7. EDD’s generation capacity consists of 18 diesel generating units operating on HFO in
Boulaos and Marabout, two centrally located power plants. While total installed capacity is of
119 MW, the capacity is aging. One 15 MW generator is less than 5 years old (2007), fourteen
generators (78 MW) are between 5 and 15 years old and the remaining capacity is 20 years and
older. EDD is currently considering developing a 150 MW oil fired power plant to replace its
aging capacity. This option however raises concerns as the country is heavily indebted and
engagement of public funds can only be made for investments that are proven to be sustainable
over time. The construction of a new oil-fired plant was not identified as the least cost option by

3. the Energy Master Plan (Parsons Brinckerhoff 2009), which was commissioned by the World
Bank to help the country define the optimal investment program for the development of its
electric generation, transmission and distribution system for the next 25 years. With soaring
petroleum prices, oil-fired plants are costly options for oil dependant countries such as Djibouti.
Moreover, the typical size of an economic oil-fired steam plant is too large for Djibouti’s system
and the cost of oil-fired electricity would be much too high to be exported to Ethiopia, even
during dry season.
8. Djibouti’s Geothermal potential has been demonstrate through exploration and
research. Further studies, drilling and exploration are required in order to determine if this
resource is suitable for large-scale power generation. In the event that Djibouti’s geothermal
resource can be exploited for large scale power generation, investment in a new oil-fired plant
would be questionable when compared to a more modest investment in upgrading main
capacities installed in the existing power plants, so that they can perform intermediate and
peaking operations while geothermal provides base load. Due to the continuous steam flow
produced from geothermal wells, geothermal power is a base load application indeed. By virtue
of the inverse relationship between Ethiopia’s and Djibouti’s peak demand seasons and the
introduction of the transmission interconnection, Djibouti is not limited to developing its
geothermal reserves to only serve its continuous base load of approximately 20MW. In fact, the
terms of the PPA contemplate the possibility of future energy sales from Djibouti to Ethiopia.
The proposed project could enable Djibouti to produce electricity at an attractive tariff for
potential exports towards Ethiopia, therefore potentially creating a new and significant source of
export revenues for the country.
Project History
9. Djibouti’s Lac Assal geothermal resource was first drilled in 1975 (Assal Wells 1 & 2)
resulting in confirmation of a high temperature saline fluid and consequently, the belief that it
could be used for power generation. In 1987, a second exploratory program drilled Assal wells 3
through 6 which once again confirmed a high potential geothermal resource but fell short of
quantifiably testing the resource to prove its power generation potential. In 1989, IDA funds
were approved for a Geothermal Development Project (Credit 2055-DJI) which included
installation of 11 MW of generation, a desalination plant and a transmission line. In November
1991, the mainly Afar-supported Front for the Restoration of Unity and Democracy (FRUD)
began fighting the Issa-dominated government. Sporadic attacks continued in 1997 and 2000. On
May 12, 2001, President Ismail Omar Guelleh presided over the signing of the final peace accord
officially ending the decade-long civil war. Credit 2055-DJI was however canceled due to long
delays in both its activation and implementation in the context of the civil unrest.
10. The African Rift Geothermal Facility (ARGeo) program (aimed at developing geothermal
resources in the East African regions) in line with the Icelandic Government and the Icelandic
companies Reykjavik Energy Invest (REI) and ISOR re-initiated the geothermal development
program with the aim to finally validate an exploitable geothermal resource. After in-depth
feasibility studies, in 2010, a REI-led Independent Power Producer (IPP) proposed a USD
0.13/kWh tariff based on performing additional exploratory drilling and then developing,
engineering, procuring and constructing (EPC) a 50 MW geothermal power plant. The proposal

4. was rejected based on price, before the IPP went bankrupt due to the global financial crisis. A
subsequent study revealed that approximately 35% of the proposed price was attributable to a
US$30 million IPP equity tranche used for exploratory drilling which was accrued at a 25%
return on equity (ROE) for 5 years prior to plant operation (i.e. the payback period). In other
words, removing exploratory drilling risks could potentially bring the tariff down to USD
0.08/kWh, a tariff that would enable Djibouti to sell geothermal electricity surplus through the
interconnector. This is all the more important that a 50 MW geothermal power plant would
indeed lead the country to have unused capacities in the winter period of Djibouti, which is the
peak demand season in Ethiopia.
II. Proposed Development Objective(s)
11. The project development objective is to quantify the applicability of geothermal
resources for large-scale power generation by shifting the risk and cost of exploratory drilling
and resource testing to the public sector through the use of donor grants and soft loans.
12. If proven viable, the proposed project will recommend an IPP international tender to
develop and EPC a geothermal power plant based on the exploratory test results. By removing
the geothermal exploration risk and cost from the IPP’s scope of supply, the remaining EPC and
plant operations scope which is traditionally taken by the IPP should result in significant
international interest and a significantly lower tariff. This, in turn, could enable Djibouti to
export electricity surplus through the interconnector, thereby creating a new and significant
source of export revenues.
Key Results
13. This project is designed to use drilling techniques and certified test protocol to either
quantify the Lac Assal geothermal resource as financially viable for large-scale power generation
or to specifically identify why the resource is not viable. Project success must therefore be
measured through the following indicators:
Development of an exploratory drilling program that fully incorporates
the latest drilling techniques as well as available knowledge of the Lac
Assal geology and previous drilling program results to best target drilling
locations that are agreed upon through consensus of expert geologists in
the geothermal field.
Development of geothermal well test protocol that when performed to a
certified standard, will provide the necessary information to allow an IPP
to prepare a properly quantified geothermal power plant cost estimate
and tariff proposal.

5. Obtain test results from each exploratory well which are certified by a
qualified geothermal testing company to have been obtained pursuant to
the predefined testing protocol.
Recommend whether to either move or not move forward with a
competitive international tender for an IPP geothermal power plant. The
recommendation will be based on Completion Report that includes; i)
certified test data (including raw field data) for each exploratory well; ii) a
consensus through consultation with geothermal IPP developers
concerning whether or not the exploratory well test results represent a
financially viable resource for power generation; and, iii) a
recommendation to either move or not move forward with a competitive
international tender for an IPP geothermal power plant.
Reduce GHG emissions by around 600,000 tons of CO2 per year in case of
successful drilling and subsequent power plant construction and
operation.
III. Preliminary Description
14. The project aims to confirm the viability of geothermal resources for large-scale power
generation by taking on the risks and costs associated with exploratory drilling, thereby reducing
tariffs that IPPs would offer to build, own and operate the subsequent geothermal plant. It is
being structured using three primary service contracts with the scope of work outlined as
follows:
Contract 1 – Program Consultant (PC): The PC can be either an independent consultant
or the employee of a consulting firm; however, the intention of this contract is for one
qualified individual to fill the PC role in order to support the project management unit
gain stakeholder trust and provide continuity through the duration of the project. Primary
responsibilities will include: i) the preparation and management of the Drilling
Consultants tendering process pursuant to World Bank procurement rules; ii) providing
PMU capacity as contract negotiator and executive project manager as needed; iii) the
facilitation of effective communication, decision making and when necessary, dispute
administration and resolution; and iv) interfacing with expert geothermal consultants for
review and comment of the well targeting analysis.
Contract 2 – Drilling Consultant (DC): The DC will need to be qualified as a reputable
geothermal exploration company with sound financial capacity and experience. The DC’s
primary responsibilities will include: i) complete design of the exploratory drilling
program and well test protocol; ii) preparation and management of the Drilling Service
Company’s tendering process; iii) on site management of the drilling program; iv) on site
well testing and certification of test result compliance with the test protocol; v) analysis
of test results to confirm (or not) viability of geothermal resource as a fuel for large-scale

6. power generation; and vi) compilation of test results for inclusion in an IPP tender
document.
Contract 3 – Drilling Service Company (DSC): The DCS will need to be qualified as a
reputable geothermal drilling company with sufficient financial capacity and experience,
preferably in the region. The DCS will be responsible for the performance of field based
operations and drilling activities pursuant to the requirements of the approved drilling
program. The DCS will operate under the technical management of the DC but will be
contracted directly by the PMU.
15. Project design and implementation will be carried out in line with the components
outlined below:
Component 1: Exploratory Drilling - This component will finance the recruitment of a
DSC to undertake the field based operations and drilling activities pursuant to the
requirements of the approved drilling program.
Component 2: Technical Assistance - This component will provide funding for technical
assistance needed for the design and management of the drilling program and well testing
protocol, preparation of tender documents for the DSC and its subsequent management
when hired, certification of test results and accompanying analysis needed to confirm
geothermal resources, expert geothermal geologist reviews of the well targeting analysis,
and the recruitment of a PC to assist the local Project Management Unit (PMU) with the
tendering process, contract negotiation, etc.
Component 3: Program Management Unit - This component will support the PMU and
fiduciary management of the project.
IV. Safeguard Policies that might apply
Safeguard Policies Triggered by the Project Yes No TBD
Environmental Assessment (OP/BP 4.01) X
Natural Habitats (OP/BP 4.04) X
Pest Management (OP 4.09) X
Physical Cultural Resources (OP/BP 4.11) X
Involuntary Resettlement (OP/BP 4.12) X
Indigenous Peoples ( OP/BP 4.10) X
Forests (OP/BP 4.36) X
Safety of Dams (OP/BP 4.37) X
Projects in Disputed Areas (OP/BP 7.60)*
X
Projects on International Waterways (OP/BP 7.50) X
V. Tentative financing
{Same as in AUS}
Source: ($m.)
*
By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the
disputed areas

7. Borrower/Recipient 0.00
IBRD
IDA
Others (specify)
GEF (Requested by Djibouti Govt. To be confirmed by GEF)
OFID
0.00
6.00
6.64
7.00
Total 19.64
VI. Contact point
World Bank
Contact: Ilhem Salamon
Title: Sr. Energy Economist
Tel: (202) 473-0076
Email: Isalamon@worldbank.org
Borrower/Client/Recipient
Contact: H.E. M. Ilyas Moussa Dawaleh
Title: Minister of Economy and Finance
Fax: (253) 35 65 01
Email: N/A
Implementing Agencies
Contact: Djama A. Guelleh
Title: Director of EDD
Tel: (253) 35 53 68
Email: Direction@edd.dj
VII. For more information contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
Web: http://www.worldbank.org/infoshop