M @E91 Ener#vSeetorMana-dement Assistance Programme Enera Sector Restrctng ogr Volume 5: The Distriet Heating Subsector Report No. 153/93 JOINT UNDP / WORID BANK ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) PURPOSE The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) was launched in 1983 to complement the Energy Assessment Programme, established three years earlier. ESMAP's original purpose was to implement key recommendations of the Energy Assessment reports and ensure that proposed investments in the energy sector represented the most efficient use of scarce domestic and external resources. In 1990, an international Commission addressed ESMAP's role for the 1990s and, noting the vital role of adequate and affordable energy in economic growth, concluded that the Programme should intensify its efforts to assist developing countries to manage their energy sectors more effectively. The Commission also recommended that ESMAP concentrate on making long-term efforts in a smaller number of countries. The Commission's report was endorsed at ESMAP's Novembsr 1990 Annual Meeting and prompted an extensive reorganization and reorientation of the Programme. Today, ESMAP is conducting Energy Assessments, performing preinvestment and prefeasiblity work, and providing institutional and policy advice in selected developing countries. Through these efforts, ESMAP aims to assist governments, donors, and potential investors in identifying, funding, and implementing economically and environmentally sound energy strategies. GOVERIVANCE AND OPERAITONS ESMAP is governed by a Consultative Group (ESMAP CG), composed of representatives of the UNDP and World Bank, the governments and institutions providing financial support, and representatives of the recipients of ESMAP's assistance. The ESMAP CG is chaired by the World Bank's Vice President, Finance and Private Sector Development, and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Programme's strategic agenda, its work program, and other issues. ESMAP is staffed by a cadre of engineers, energy planners and economists from the Industry and Energy Department of the World Bank. The Director of this Department is also the Manager of ESMAP, responsible for adminisg the Programme. FUNDING ESMAP is a cooperative effort supported by the World Bank, UNDP and other United Nations agencies. the European Community, Organization of American States (OAS), Latin American Energy L'ganization (OLADE), and countries including Australia, Belgium, Canada, Denmark, Germay, Finland, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Sweden, Switzerland, the United Kingdom, and the United States. FURTHER INFORMA27ON For fiuther information or copies of completed ESMAP reports, contact: ESMAP c/o Industry and Energy Department The World Bank 1818 H Street N.W. Washington, D.C. 20433 U.S.A. POLAND ENERGY SECTOR RESTRUCTURING PROGRAM volume 5 The Distridt Heating Subsector January 1993 Power Development, Efficiency and Household Fuels Division Industry and Energy Department The World Bank 1818 H Street, N.W. Washington, D.C. 20433 U.S.A. This document has restricted disuibution and may be used by recipients only in the peformance of their official dufies. is contents mnay not otherwise be disclosed wihout UNDP or Vorld Bank authorization. PREFACE This report -the fifth of a five-volume series of studies of restructuring in the Polish energy sector- is based on work completed during 1990. The results of the study were examined in a seminar that included representatives of the district heating enterprises and the Ministry of Industry and Trade as well as the Bank of Poland and Ministry of Finance, Ministry of Privatization, trade unions, Polish experts, consultants, the World Bank and ESMAP. This report provides an opportunity to bring the analysis of the restructuring issues and lessons learned in Poland into a wider perspective, allowing other countries pursuing similar goals to benefit from this work. The variety of situations which exist in district heating in Poland means an ad hoc approach is needed for a proper restructuring of the subsector, an approach tailored to the specific characteristics and circumstances. Technical arrangements, ownership and management vary considerably, making it necessary some degree of decentralization, leaving some of the decisions on restructuring to local bodies. The main emphasis of the restructuring work, therefore, will be to provide model charter and statutes for the future enterprises in the subsector, and to ensure that these are well understood and applied skillfully. The nature of the regulatory arrangements also poses special questions, particularly in view of the need to separate regulation from policy, ownership and management. A careful balance between local and national roles will need to be struck. With the establishment of the Energy Restructuring Group (ERG), these and other restructuring issues will need to be taclded for timely advise and proper policy choices. Work on energy restructuring is the responsibility of the Ministry of Industry and Trade (Mol). Given the complexities of sector restructuring and the importance of the energy sector in the economy, an Assistance Program for Energy Sector Restructuring has been designed to support MoI in this activity. ihis Program relies on four groups (see Annex C in Volume 1 of this report): The ERG, the counterpart group, the coordinating group and ESMAP. The ERG consists of a team of international and Polish experts-that began work in December 1992 in Warsaw and will have a continuous presence there for approximately eighteen months. This Group, funded jointly by the European Community, the USAID and the UK Know-How Fund, will be closely supported by ESMAP. To cany out rehabilitation and restrucuring proposals, a coordinating group in each subsector headed by higher management has been established. To assist Mol and the ERG, a Counterpart Group has also been established, staffed by secondees from the energy industries themselves. This group will assist the ERG in the collection and understanding of data, gaining access to industry executives as appropriate and offering comment on the implementation options. The Counterpart Group will assist the Ministiy of Industry and Trade by identifying important matters for consideration and by ensuring that consequential actions which involve the coordinating groups and other parts of Government are also pursued in a timely manner. EL4P will support the work of the ERG through (a) the I proposed activities to be carried under the ESMAP program, and (b) the active involvement in ERG activities. The Energy Restructuring Group (ERG) should be instrumental in clarifying any doubts and achieving good results in the restructuring process. Most issues will nc 'essarily have to be addressed on a case-by-case basis because of the different local circumstances. However, three interrelated matters will need special attention to strike proper balance: * the expressed intention to encourage privatization of district heating enterprises wherever possible; * the need for substantial new investment to upgrade existing infrastructure; and * the need to steadily reduce and finally eliminate subsidies, achieving levels of cost and prices which enable the new companies to become financially viable and strong. In particular, the ERG should identify any need to improve the way in which additional investment is evaluated in view of the likely significant changes. Several World Bank and ESM4P staff participated in the preparation of this report. Jayme Porto-Carreiro (ESM4P) was the task manager for the study, assisted by a Bank core team consisting of David Craig, Henk Busz (EC3IE) and Christopher Brierly (ESAt4P). Luis E. Guti6rrez (ES4P), current Task Manager for restructuring activities in Poland, was responsible for consolidating and drafting this report. The report benefited considerably from the comments and suggestions of Finn Lauritsen (ERG Energy Saving & Efficiency Specialist). Funding for the work was provided by the United Kingdom's Know-How Fund and by UNDP through bilateral contributions to ESMP. The United States has also provided funding for the follow-up work since 1991. ESMP wishes to express its appreciation to the government of Poland and the many enterprises and organizations in the energy sector for the cooperation and assistance rendered to ESMAP staff and the various consultants during the preparation of the studies. ii CURRENCY EOUIYALENTS Currency Unit- Zloty (ZI) Calendar 1991 US$1 = ZI 10,559 (Average) Weights and Measures Gcal Giga calorie (one million kilo calories) GJ Giga Joule GW Giga Watt (1,000,000 kW) GWh Giga Watt hour (1,00,000) kWh) kcal kilo calorie (4,187 Joule) kW klo Watt kWh kilo Watt hour Mt Million tons Mtce Million tons of coal equivalent Mtoe Million tons of oil equivalent Mtpa Million tons per annum MW Mega Watt (1,000 kW) MWh Mega Watt hour (1,000 kWh) PJ Peta Joule (34,129 tons of oil equivalent) TJ Tera Joule TW Tera Watt (1,000 GW) TWh Tera Watt hour (1,000 GWh) Acronyms BST Bulk Supply Tariff CMBA Council for Mutual Economic Assistance CHP Combined Heat and Power DH District Heating DHE District Heating Enterprise FGD Fire Gas Desulphurisation GDP Gross Domestic Product Gmina Polish Local Government (municipalit) GUS Central Statistical Office HOB Heat Only Boiler HV High Voltage LAS International Accounting Standards IBRD Intemational Bank for Reconstruction and Development Iii IRB Intercommunal Regulatory Bodies ITB Invitation To Bid LVt Low Voltage MV Medium Voltage NERB National Energy Regulatory Body NHAB National Heafing Advisory Board PDM National Load Dispatch Center PGNG Polish Oil and Gas Company PPA Power Purchasing Agreement PSE Joint Stock Polish Grid Company £SENN Polish Grid Company Voivodship Prefecture, Regional Administrative Body of Central Government WEWB Power and Lignite Board WWK Hard Coal Board ZE Zalad Energetyczne (electricity distribution companies) Polish Fiscal Year January 1 to December 31 Iv CONTENTS EXECUTIVE SUMMARY 1................................... Introduction 1................................... Background 1..................... ........................... Restructuring Patterns ..................... 2 Issues of Finance and Regulation ..................... 2 Environmental Issues ......... .. 3 I. THE HEAT SECTOR IN POLAND ............................ 5 Area of Operation ............................ 5 Types of System ............................ 5 Products ............................ 5 Heat Sources .............. 5 Fuels ............................., 6 Transmission and Distribution ............................ 6 Network Heat .............. 7 Heat Losses .............. 7 Investment .............. 7 Heat Tariffs .............. 7 Domestic Tariffs ............................ 7 Industrial and Commercial Tariffs ............. ............... 8 Legislative Framework ............................ 8 II. OBJECTIVES AND EVALUATION CRITERIA ............................ 9 Objectives of Energy Sector Restructuring ............................ 9 Objectives for the Heating Subsector . ............................ 10 Evaluation Criteria ............................ 11 III. STRUCTURAL OPTIONS AND THEIR EVALUATION ....................... 13 Components of Industiy Structure ................................... 13 .3............................. .............I............ 13 Extent of Vertical Integration .................................... 14 Extent of Horizontal Integration .................................. 14 Model DHi ............................ I ................... 14 Model DH2 ................................................ 14 Model DH3 .. ............................................. 14 Model DH4 ...... 14 Category A Enterprises .............. 15 Category B Enterprises .............. 16 v IV. DEVELOPMENT OF RECOMMENDED STRUCTURE ....... ................. 17 The Number of DHEs and the Scope of Activities ........................ 17 Role of the National District Heating Organizations . ...................... 18 Legal Status and Ownership of the DHEs .......... .................... 19 Legal Status and Ownership of Major CHP/HOB Plant ..................... 20 Implications for the Financial Structure of DHEs ......................... 21 Equity and Equity Reserves ....................................... 21 Financing, Investments and Working Capital ......... ................... 22 Revaluation ............................................. 22 Subsidies ............................................. 22 Financial Structures for New Companies ........... .................... 23 Sources of Finance for Companies . .................................. 23 Financial Objectives ........................................... 23 V. REGULATORY FRAMEWORK . ....................................... 25 Regulation of Heating Companies . .................................. 26 Integrated Heating Companies ....................................... 27 Transmission Companies ......................................... 28 Heat Distribution Companies ....................................... 29 VI. OPERATIONAL EFFICIENCY AND INVESTMENT ......................... 31 Operating Procedures and Heat Despatchability .......................... 31 Network Rehabilitation ....... .................................. 32 Improvements on Consumer Premises ............. .................... 33 Bulk Heat Metering ........................................... 33 Transfer of Local Boilers ................ 34 Environmental Impact ................ 34 Pulverized Fuel Boilers ................ 35 Moving Grate Stokers ................ 35 Local Boilers ................ 35 VII. PRICING AND METERING OF HEAT .................................. 37 Heat Purchases ...................................... 39 Bulk Heat Sales ............... ....................... 40 Retail Heat Sales ............... ....................... 40 Transitional Arrangements .........................I............ 41 VII. ISSUES ASSOCIATED WITH RESTRUCTURING .......................... 43 Employment Conditions for Senior Management ......... ................ 43 Financial Management Systems ..................................... 43 IX. IPLEMENTATION PROGRAM ....................................... 45 Sequence of Events ........................................ 45 vi Boxes Box I-1: There are various sources of heat used ........................... 5 Figures Figure IV-1: Recommended Structure of District Heating ...................... 18 Tables Table I-1: Heat ProducWon in Electricity Subsector ......................... 6 Table 11-1: Macroeconomic and Energy Sector Linkages in Restructuring .... ....... 9 Table II-2: Evaluation Criteria for Restructuring ........................... 11 Table rn-i: Functions of District heating Subsector ......................... 13 Table m-2: Summary Evaluation of Models by Category Type ................. 15 Table VI-1: Emissions by the District Heating Subsector (Kte p.a.) ............... 34 vii PokWnd - &wrv Sector Restructuring Page I EXECUTIVE SUMMARY Introduetion 1. Like otheer parts of Poland's energy sector, district heating is a candidate for significant restructuing. As the cental government hands off power and responsibility to lower-level bodies and seeks to promote economic reforms, the reorganization of the supply of heat and hot water to urban consumers and, to a lesser extent, of processed stham to industry raises a number of political, legal and economic issues. Already decentralized, the district heating sector requires a stable framework in which to fill its role, price and deliver its prcducts, invest for the future and address environmental protection concerns. While the subsector cannot easily be filly privatized, the govenmment role in it can be significantly redirected away from a past of subsidized ownership and management to a future of more ortderly financial support and more localized regulation. 2. This report discusses the options and pr-ferred solution for the restructuring of the Polish district heating subsector. Chapter 1 describes the charcteristics of the sector. Chapter 2 outines the objectives for restructuing and the criteria used to evaluate the different options, and Chapter 3 goes on to apply these criteria to different options. Chapter 4 discusses the preferred structural solutions in more detail while in Chapter 5 a regulatory framework is descrbed. Chapter 6 looks at investment prioities and the scope for operational improvement. In Chapter 7 guidelines for pricing and the metering of heat are developed. In Chapter 8 employment and financial issues are addressed. Finally, in Chapter 9, the conclusions are drawn together for an outline progm for restructring the subsector. Background 3. b Poland the district headng subsector is the main supplier of heat and hot water to uban areas and, to a lesser exten, of proces steam to industry. lhe sector is completely decentralized and comprises some 50 district heating enterprises (DHE), which for the most part operate as state enterprises undor the supervision of the voivods. Of the 50 DHEs in 1989, the five largest produced 45 percent of the heat and, with 15 others, accounted fot 80% of all production. Thirty-three of the 50 operate at the voivod level, while 11 supply districts within voivods, and the remaining six are municipal providers. The enterpries, many of them proprietors of several separate systems, can be divided into three categories depending on the scope of their distribution networks. The largest, often connecting several different heat sources along bulk heat transmission mains, may acquire their supplies both from combined heat and power (CHP) plants and heat only boilers (HOBs), some of which are part of the electricity subsector. Medium-size DHEs, each manag its own transmission network, tead to use a single CHP/IOB complex as their source, while the small enterprises rely on a single HOB plant. Although Xie large and medium- size fims fill most of the year-round demand for hot water and of the seasonal, seven-month demand for heat, small local boilers are very numerous. 4. On the larger systems, heat is produced by combined heat and power (CLHP) plant and heat only boilers (HOB) operated by enterpnses within the electicity subsector and sold to the DHEs; the balance of hea is produced in small local HOBs, owned by the DHEs, and in industrial, CHP plant and boilers which have surplus heat for sale. S. In conast to other subsectors, district heating is already substantially decentralized, reflecing the local nate of the district heating networks. Loose supervisory control of the whole subsector is Page 2 Volume 5- District Heatfng exercised by the Ministiy of Physical Planmng and Construction. The Government has already initiated a resuctring program for the energy sector, this has entailed in the district heating subsector removal of subsidies and a consequent rise in heat prices to consumers. The organization of district beating is also affected by recent legislative changes in the area of local government which involve a devolution of power from centrl government, acting through the voivods, to the communes. 6. The inefficiencies and deficiencies in the subsector range from the maintenance liabilities on the many small boilers that supply individual buildings to the network water losses that are sometimes three times as high as those for comparable Westem European systems. Reported heat losses vary from the theoretical heat loss in the transmission and distribution system of 10% up to 450/0, a range that reflects the shortfall in meterig equipment that would enable distributors to identify corroded and poorly insulated mains that leak heat and water. Government subsidies to housing cooperatives mean that even after 1990 prica increases, domestic consumers who pay flat-rate charges for their heat actually cover only 15% of the cost. In 1992 these figures have changed. Consumer charges for heat cover Pround 55% of the supply cost. 7. The district heating subsector is a significant contributor to Poland's environmental problems, especially air pollution. Ihe DHEs use coal as their primary energy source, consuming 24 million tons of coal products -13% of the countly's output- in 1989 and creating 11% of national sulfur dioxide emissions, 10% of particulate fallout and 8% of nitrous oxide emissions. Becmse so many of the sources of that pollution are low-stack, small boilers in urban areas, the subsector has a disprmp,ionate fisipact on local air quality. Restructuring Patterns 8. While no sinele formula for reorganization can accommodate the diversity of Poland's DHEs, the absence of private capital and the predominance of monopoly/monopsony conditions in the market make it clear that public control and even forms of public ownership will have to continue in the subsector for some tume to come. Within those limitations, however, efficiency can be encouraged -especially among the larger finns- by shifting away from ownership pattems that integrae heat production with its transmission and distribution toward the creation of more, smaller enterprises performing those func- tions separately but under the oversight of intercommunal agencies. Such authorties could license joint- stock companies to own the DHEs and, where prvatization is not feasible in the short-term, could encourage management contracts with the prvate sector. 9. For the major entities that own and operate lare CHP/HOB or HOB plants, the best organiaional structure is likely to depend on the size of each DHE's assets and on other local factors. In the many instances where dependence on a single heat or heat-and-power generator reduces the likelihood of financial viability, the stations will probably have to remain under the ownership of a larger entity. As much as possible, however, the generating plants should be held by joint stock or other companies separate from the transmission and distribution enterprses so as to avoid the danger of cross- subsidization. bsues of Finance and Regulation 10. Although the exisfing DHEs are not heavily burdened by long-term commercial debt, their restricted cash flow -at least until heatng prices rise- weakens their potential as future borrowers fiom any source other than government. As they are transformed into joint stock companies, it will be neces- Poland - Eergy Sector Restrcturing Page 3 saly to revalue their assets, incllhding the often inflated status of the separate funds that reflect the state's past contribution to the enterprise, on one hand, and the enterpises' internally generaed reserves on the other. Ii. Ihe DHEs will need to raise funds for major investments in new power generation and/or to extend their tansmission netwotks. New policies to allow accelerated depreciation might ease the way toward financing such projects, but for a period of several years govemment will probably have to be either the guarantor or direct source for DUE borrwing, especially to finance the conversion of heating networks to more efficient variable volume operation, the installation of much-needed controls on heat flow and urgent rehabilitation of leaky rwains. 12. The central government can, however, devolve many of its former responsibilities as regulator of this utility subsector to the new intercommunal bodies foreshadowed in 1990 legislation on local govenmment. While a national advisory agency should as.:ist the new lower-level regulators with data collection, analysis and a pool of skilled specialists, the intercommunal regulators would be the ones to issue licenses, reviewable after ten years, and to oversee operations of DHEs. The regulators would act as price setters for their jurisdictions and as financial auditors and performance monitors. 13. Badly distorted by various subsidies and apattern of cost-plus contacts, heat prices in Poland do not reflect the actual costs of supply. Since competition in the subsector is not likely to provide an effective stimulus for accurate pricing, regulators will need to establish a long-run marginal cost tabulation as the basis for the prices they set in the first few year of restructuing. 14. A good deal of the success of any transition will depend on the effective metering of all stages of heat generation and tmsmission firom bulk sales to retail consumption. All distribution companies should embark on a program of heat meter installation as soon as possible, starting with major customers but moving quicldy as well toward the individual apartment buildings where low prices nave encouraged the use of inferior intemal systems and discouraged their sound maintenance. Environmental lssues 15. While intercommunal regulatory bodies can oversee these improvements in DHE performance, the stimulus for anti-pollution action will continue to come from the Polish Ministry of Environmental Protection and Natural Resources and voivod-level offices, both of which are pressing for significant emission restrictions. The new standards will require DHEs to take significant abatement measures. 16. For the many local boilers a shift to greater use of washed coal can help reduce particulate and sulfur dioxide emissions, but large and small plants alike will either have to change the way they bum fuel or install costly equipment to scrub their exhausts or both. Ihe economics of environmental compliance may work over time to reduce the number of local boilers or, at least, impel them to shift their fuel source from coal to natural gas. I. THE HEAT SECTOR IN POLAND 1.1 In 1989 the 50 enterprises, which comprise the heating subsector, sent out (heat purchased plus heat produced) 313 PJ of heat; of this more than 4S% was produced by the 5 largest enterprises, and 80% by the largest 20. The largest enterprise sent out more than 50 PJ and the smallest less than 1 PJ. Area of Operation 1.2 Most of the enterprises (33) operate at the voivod level, some (11) at the level of districts within voivods, while 6 operate at the municipal level. Types of Systems 1.3 Within its operational area each enterprise may control a number of separate district heating systems of various sizes and types. Broadly there are three categories of enterprise: d Categry A which have a large main distribution network, often with several different heat sources connected by bulk heat transmission mains, though at present each heat source supplies a separate part of the network, which is isolated from other sections by valves. 3 Catqey B enterprises operate a single medium sized main network which is supplied with the majority of its heat by a single CHP/HOB complex. The network is split into sepaate chapters and the heat sources are operated independently. The enterprise will often operate a number of smaller networks and a large number of local boilers supplying individual buildings with little or no network. * Catqoy C enteprises are small with a compact main network supplied from its own HOB plant. In addidon it may operate a number of smaller isolated networks, supplied from enterprise owned HOBs, and numerous local boilers. In all categories, the main network accounts for the majority of the heat supplied, but * Codensing Power Staons with lmited heat isolated networcs, local schemes and local Pwtlon. boilers are very numerous. CHP power stations (1e. cogeneration). * Large HOBs at power stations and on separate sites. * CHP plant a indusoy. * bItsial waste Iheat. Products o Smnal HOBs in networks. o Locl HOBs. 1.4 Ie principal product of the DHEs is hot water for space and domestic Box 1-: There are various sources of heat used water heating for dwellings and industrial and commercial space. Space heating is required for about 7 months of the year and hot water for the whole year. Some enterprises also produce and distribute stean. Page 6 Volume 5- District Heating Heat Sources Table 1-1: Heat Production in Electricity 1.5 Box I-1 presents the various sources of Subsector heat. lhe first five categories are purchased heat while N the last two are own prociuction. It is important to distinguish between true ClP and large HOBs even Condensing ptant 35.9 when they are operated by the same enterprse on the ___e__iCPH pln J same site -although this is often not done so by the Co-generodon fn ClIP/HOEplant, _____ electricity subsector enterprises. The CHP plants offer HOBs in CHP/HOB plants 49.0 a highly efficient method of producing electricity and heat simultaneously. For the subsector as a whole, the SepOrae29.0 contribution of each heat source for 1989 is shown in 237.5 Table I-1. Less: direct sales by plants 47.5 Fuels Heat purchased by DHEs fiom 190.0 electrici(v l__ 1.6 The major fuel source is coal, iffeb, ctive . of the type of production. A few large HOBs are oil Heat purchased by DHEs from industy 30.7 fired and all CHPIHOB plant use fuel oil for starting DHE: o heatptod&cSon_ and flame stabilization at low load levels. Local boilers also use coal products (briquettes, coke and half-coke) - and a limited number bum gas or oil. Local boilers 2.4 Transmission and Distribution !Tital Heat sent out by DHEs 30.7 1.7 Hea sources can often be some distance fiom the distribution pipework (particularly if they are large CHiP plants). Under these circumstances heat is delivred in bulk through tansmission mains, which frequently run above ground. For smaller networks the heat sources are closer to te points of consumption and are connected directly to the distribution system. 1.8 The systems are constant volume, full flow (i.e. the same volume of water is pumper irespective of the heat load). The flow temperature of the major heat sources is adjusted according to weather conditions by the heat dispatcher. 1.9 In many DH systems in Poland water losses are significant. It is necessary to add '"nake-up water" into the system frequently. The water losses from some networks are sometimes more than three times those of comparable networks in Western Europe. 1.10 Water losses are caused by: m Losses at the production plant * Leakages fiom components in the DH netwoik * Leakages from conrosion of the DH network * Leakages at the consumers installation Polad - Energ Sector Restructuring Page 7 * Illegal tapping by consumers * Tapping in connection with renovation of pipes. 1.11 Network analysis shows that the water loss is in the range of 100-150 m3 per TJ of heat production. Figures for networks in Western Europe are in the range of 20 to 50 m3/TJ, approximately 25% of the water losses in Poland. In the Polish DH system the "make-up water" is normally not demineralized. The data received from the "make-up" show a varying level of water quality. Often the water is not completely demineralized and deoxygenated. In some systems the water losses are even higher than the capacity of water treatment system. In these systems it is necessary to replenish with non- treated water to maintain system pressure. At the plants, the return water is .iltered by coarse strainers installed upstream of the pumps (no filtration by fine strainers was observed). This means that small particles, sludge, magnetite etc. are not completely removed from the system and that the total amount will increase gradually. Further, oxygen in the water causes corrosion, which results in more and more magnetite. Network Heat 1.12 Nationally, 93% of the heat sent out by the DHEs is supplied to consumers via networks, with the rest supplied by local boilers feeding individual buildings. This latter source, although small in volume, represents a lage number of small plants which are a major maintenance liability. Heat Losses 1.13 Comparison of heat sales with heat sent out gives a measure of heat losses in distributi,n. lbese range from the theoretical heat loss of 10% to 45% and the wide range of figures suggest that better metering equipment is required so that cost effective system refurbishment can be properly identified Investment 1.14 Major new plant and extensions to networks are currently funded fiom the central govemment through the voivods. The DHEs do not normally have complete control of system extension investment -the voivod can insist that an entetprise connect any new development to its distribution system. Lack of co-ordination between heat load development (largely controlled by the voivod) and investment in heat generating capacity (controlled largely by the central authorities) has led to capacity falling short of actual load in many enterprises. Heat Tariffs 1.15 Each enterprise sets its own tariffs which are based on a cost plus formula. Tariffs are usually revised annually although more recently changes in coal and transport costs have necessitated more firquent revision. Domestic Tariffs 1.16 The DHs have very few supply agreements with individual domestic consumers. Most of their contracts in the domestic sector are with the housing co-operadves who are charged cost plus price Page 8 VolumeS - District Heating by the DHEs. The tenants pay the co-operatives a nationally set flat rate charge for space and water heating related to floor area. The flat rate charges have been much more frequently changed where these have been metered. The shortfall between receipts from tenants and the cost of heat purchased from the DHEs is made up by subsidy payments from the state. 1.17 Despite recent incrases in prices in 1990 domestic consumers were paying only 15% of the cost of the heat they consumed. The state plans to remove this domestic subsidy through a series of incrases in the national tariff. The tariff will also apply to volume rather than area. Industrial and Commercial Tariffs 1.18 These consumers are charged on a one or two part tariff. The one part tariff is an energy chage and in most cases the heat consumed is estimated by the DHE as only a few consumers are metered. 1.19 The two part tariff consists of a fixed capacity component, related to the calculated maximum heat demand and is calcuated to cover the DHEs fixed costs plus profit, and an energy component to cover variable costs. Again meters are rare so that heat consumed has to be estimated. Legislative Framework 120 Under laws passed in 1990 responsibility for meeting communal requirements was passed to the communes (gminas). These locally elected bodies, of which there are more than 2000, are to be responsible for, inter alia, the provision of district heating. The gminas are allowed to establish "strucual units" and intercommunal bodies for the joint performance of certain activities, where such activities cross gmina borders. The activities of the gminas are supervised by the voivod administration and by the local offices of the Ministry of Finance. 1.21 Ownership of property belonging to state enterprises, including the DHEs, can be transferred to the gminas or groups of gmainas, at their request. They can appoint joint stock companies to assume the function presently discharged by the DHEs. It is possible that some gminas will not adopt this solution and instead will prefer to run their own heating system. Given the large number of gminas, a wide range of views is likely to emerge unless regulations or guidelines are issued by central government. II. OBJECTIVES AND EVALUATION CRITERIA Objectives of Energy Sector Restructuring 2.1 The proposed rsuctuinng of the DHEs must be seen in the wider context of the Govrnment's policies to move Poland towards a more market based mechanism. A rapid process of stucal change has been initiated, including price liberalization, wage controls, exchange rate libezalition and the abandonment of output planning and controls. 2.2 The eneWy sector has a crucial role to play is this process. The Government is committed to ensuring energy is produced and sold at efficient price and output levels and allowing restructuring of the constituent enteprises within the sector in pursuit of the goal. 2.3 It is tecognized tuat where markets are likely to fail to reflect fully the cost and benefits of economic activity, then explicit public intervention will be required. In the energy sector this means that environmental costs of buming fossil fuels should be brought within the decision making framework. 2.4 The linkages between the macroeconomic policies and the energy sector are shown in Table II-1. Efficient resource allocaion in the economy at large will be crucially dependent on achieving efficient supplies of energy, with different sources priced to reflect their relative opportunity costs. However, achieving these price levels for energy must be done considering the Government's anti-inflation policy -the migration to 'border prices" for energy must be carefully managed. Table 11-1: Macroeconomic and Energy Sector Linkages in Restructuring Promte an efficient resource allocation in the Achieve an economic and reliable energy supply. economy based on competitive prices and conapetitive behavior. Establish and sustain competitive markets wherever possible. Reduce price distortWons while reducing inflation. Achieve investment and operation efficiency by aligning input prices (particularly fuel and capital goods prices) with border prices. Achieve efficient energy use through fuel pricing based on opportimily costs with full pass through of input price adjustments. Mobilize internal and externalfinancial resources Promote corporate autonomy andfinancial sufficiency. Promote private sector participation and competition. Prevent investment shortages and non-economic investments, Reduce public sector management and ownership. Recognie exernal costa Ensure that environmental and social costs of power production are reflected in economic decisions. ..~~~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~ , 1 Page 10 Volume 5- District Heating 2.5 Efficient production and delivery of energy requires a madket environment in which entiprises respond to price si3nals conceming the relative costs of inputs. However external costs must be reflected in prcing and output decisions through some application of the "polluter pays" principle. 2.6 A fither issue is that allowing complete financial fieedom to enterprises would be incompatible with the protection of consumers from the abuse of natual monopolies, which are a particular featre of the "networks" in the system. Objectives for the Heating Subsector 2.7 The objectives for rstuctuing the district heating subsector must reflect the wider goals discubsed above. It is also important that they should be consistent with proposals for the restructuring of the electricity sector. Ihese two sectors are closely linked: the heat produced in electricity generation would generally not be used without district heating systems, while the DHEs rely on CHP plant, and the lae HOBs located at power station sites, for the bulk of their heat requirements. Thee result is that in the majority of cases there exist single buyer/seller relationships between enteiprises in te two subsectors. 2.8 For both subsectors the aims of rtuctuing are to create a structure, such as to ensure that: * Enteprises are able to establish prces for their inputs Qabor, capital, fuel and bulk heat) and are obliged to set prces for their outputs (hea and electricity) which are efficient in economic terms. * Existing and potential enterprises are able to attract new sources of capital to augment the resources available fiom government. * Consumers are proected from exploitation of the natua monopoly characteristics of networks. * Entepises are able to meet environmental standards imposed by the relevant authorities. * The stucres established are capable of further evolution as the enterprises grow and as the energy sector becomes more commercial. 2.9 In addition, there are a number of objectives that are specific to the district heating subsector * Production and distribution costs should be minimized where heat is cost competitive with alternative sources of space and water heating. * lhe strucues must achieve economies of ccordination between the distrct heating and electricity subsectors. These may arise both in terms of heat despatch (at peak electricity demand incrementl heat production from CHP may have a substantial opportnity cost as compared with heat from HOBs) and in Ums of investrnent. 2.10 For the electricity subsector, where there are relatively few opportnities for altemative fiels, the minimization of costs is also important. The non-storable nature of electricity leads to substal economies fm coordnating generation and from the planning of capacity. 7Tese economies lead to the Poland - Energy Sector Restructuring Page 11 need for a high degree of horizontal co-ordinaion (e.g. merit order of despatch) and vertical coordination (the matching of generating and transmission capacity). 2.11 From the above points it is evident that restructuring the district heating subsector cannot consist merely of establishing a suitable fiamework for the unfettered operation of competitive forces. There are inherent structural sources of market failure, which have lead to the imposition of public control in various forms in market economies where district heating is used. In addition, in Poland some crucial market forces have yet to develop -notably in the area of capital markets. Divestiture of the entire industry fiom public ownership at an eady stage is not a practical proposition since sufficient private capital has not yet been mobilized, while the enforcement of hard budget constrints through bankruptcy would be unduly disruptive to important elements in the subsector without special continuity provisions. 2.12 Indeed, even if the capital makets were operating effectively, at this stage the DHEs would not offer the prospect of a sound retum, given the steps still needed to place the sector on a sound commercia footing. Hence the sale value of DHE assets would be likely to remain below depreciated replacement costs for some time to come. Evaluation Criteria 2.13 Table 11-2 presents the evaluation criteria for the district heating and electricity. Some criteria ae common to both while others are specific. Table -2: Evaluation Criteria for Restructuring Ease of enwing optimum extension of Efectiveness of hard budget PreservatJon of merit |network disciplines order dispatch Effectiveness of mechansm for Ease of establishing efflcient input Ease of minimizing total electricity and heat ooordination and output prices system expansion cost Flexdbility with respect to local Attractiveness of enterprises to Ability to maintain dcrcwnstances lenders adequate reserve margin Ability to attract new entrants Extent of regulation required Environmental Investment capability IIL STRUCTURAL OPTIONS AND THEIR EVALUATION 3.1 in ftis Chapter the functions undertaken within the subsector are reviewed and the extent to which these are vertically and horizonwtally integrated is exmined. Four structural models applicable to the subsector are identified and evaluated. Components of Industry Structure 3.2 As for the electricity sector it is possible to group the specific functions of the DH subsector under the four general headings as shown in Table m-I Table 1-1: Functions of District Heating Subsector ! _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~5 Produdion a purchase offuelfrom a number of sources in compeffffon with other sectors; * planning, operating and maintaining the heat production plant; * sale of heat to transmission and distribution enterprises in parallel with other producers; * for CHP plant, the sale of power to the electricity grid Transmdssion 0 purchase of heatfrom a number of sources; * plannng, operating and maintaining an integrated bulk heat supply system (assuming the regulation and control equipment Is Installed which makes open network operation possible); * sale of heat to a limited number of distributors and large customers; Distibuton 0 purchase of heatfrom the transmission grid and other sources; * planning, operating and maintaining the extensive network/or heat supply; a sale of heat to a large number of consumers. Consumption * purchase of heat from a distributor; * operating and maintaining the consumer sub-station; * operating the hot water distribution network within a building; * operating radiators and associated control equipment. 3.3 Although these four activities can be separate they often overlap. Transmission and distribution may also produce heat from their own HOB plants, which may be embedded witiin the distribution system and operated as pealing plants. Producers may also cany out distibution functions, either by "wheeling" heat through the trnsmission and distribution networks or by supplying them via their own distribution system. 3.4 Ihe most efficient, lowest costs, heaing systems require the coordinaed development, operation and control of all elements of the system. This co-ordination can be achieved through common ownership or through appropriate price mechanisms and contractua arangements. Page 14 Volume 5- Dlstrli Heating 3.5 Before going on to discuss possible models of structure it is useful to describe the existing situation: Extent of Vertical Integration 3.6 At present all the enteprises operate a number of isolated networks for which all the functions are vertically integrated win t the DHE. However, the degree of vertical integraion for the DHE's main network is ptmarily determined by the size of the DHE. With large or medium sized networks the heat productio;- is separaed from transmission, while transmission is often integrAed with distribution. For sualler netwotks the three stages are usually integrted. Extent of Horizontal Integration 3.7 Within their geographical area of operation, DHEs exhibit a high degree of horzontal integration, controlling a number of separate networks. While this can provide some economies of scale (e.g. wodcshops, laboratories) it can disguise network inefficiency and encourage cross-subsidization. 3.8 Four broad strucral models are considered. These are intended to apply at the system level, i.e. they are local in character rather than national. Hoizontal integration of separate systems is discussed in Chapter 4. Model DHI 3.9 This is a fully vertically integrated (production. transmission and distribution witiin a single company). This model is used in West Germany, in Sweden and Finland, and it represents the most common model for the smaller DHEs in Poland. Model DH2 3.10 This has vertical integrauion between production and transmission, but with separate distribution companies. This is relevant if the heat production unit wants to connect more plants (e.g. CHP units) to one common ;urier to obtain better plant utilization. Model DH3 3.11 This has vertical integration between transmission and distribution but with separate production companies. This model is used in the large district heating scheme at Aarlus in Denmak. It is also the model which applies most often to the main networks of the Polish DHEs. Model DH4 3.12 This is the fully disaggregated model. It is used by the lage district heating scheme in the greater Copenhagen area 3.13 Models DH2, DH3 and DH4 presuppose a hydraulically integmted heat transmission system which permits the dispatch of the heat load fiom the lowest cost source. Such open networks at presen exist only in Poznan and Lublin. Investment would be required on other DHE systems to remove the Poland - Energy Sector Restruchuring Page 15 technical consaints to open iwtwodk operation where economically justified and where implementation of one of the disagegated models appears justified. 3.14 The wide diversity of DHEs in Table D-2: Summary Evaluation of Models by Poland does not lend itself to the adoption of a Category Type single structural model and with this in mind te four models have been evaluated on the nine crnteri given in 3.13, for each of the thre categories of entorprise discussed in 2.3. Points on a scale 0, 1 or 2 have been assigned in each case. Although this simple ranking procedure, Model DHI 5 6 10 does not attempt to balance the evaluation criteria Model DH2 10 1) 8 on anything but a scale of equal importance, the separate evaluation for the three categories of Model DH3 10 12 8 plant does allow the relative weights to vary by Model DH4 16 13 cimumstance. lhe sum of the points over the nine ciiteria are shown for each model structure and by caegory in Table m12 (18 points being the maximum,). Category A Enterprises 3.15 For lage systems (i.e. those in Katowice, Warsaw and Krakow) a fully vertically disaggregated structure scores highest. Ihe formatiou of a tsmission company purchasing from a variety of sources and selling to a single distribution company or to several smaller companies has the following advantages over more aggregated structures: * Hard budget disciplines are more effective when production, transmission and distribution are linked commercially, pricing is transparent and no single company is very large. * Separation leads to a desire to minimize te costs of purchasing inputs, tiereby promoting merit order dispatch of heat plant. * The transmission company can be given control of capacity planning and so can minimize the cost of new capacity by inviting competitive bids and by optimizing the use of CHP and heat storage. 3.16 While this model is most appropriate for the large systems it does have some important disadvantages, liked primarily to the problems of implementation: *i Extensive investment would be required for most systems to establish an open, hydraulically integrated transmission network, heat dispatching system and metering facilities. * Disaggregation of large DHEs into separate companies would create additional demands for scarce mangement skills. Page 16 Volume 5- District Heating Category B Enterprises 3.17 Model DH4 has a slightly beter score than for models DH2 and DH3, and could be favored in the long tenn. However it does not appear to be the most appropriate structure initially for the following reasons: * The extent of the transmission network for these enterprises is limited and any transmission company would have a narrow asset base making it difficult to raise capital for refurbishment; * Many medium sized enterprises are dependent on a single producer with little scope for competition in production. 3.18 Accordingly the most favored structure is DH3, which is in fact the commonest stucure at present for this category. The enterprise is sufficiendy large to negotiate efficient prices and to raise capital, and should the system expand in the fiture then tansmission and distuibuuion could be disgpAted. Category C Enterprises 3.19 The more integrated models, DHI and DH2, score bighest for small systems. Given the size of these enterprises more disaggrgated strucues would limit their ability to atract capital and to negoftate efficient input prices. Enterprises opemting small networks are cuntly fitly integrted. Whilst some compettion in production would be desirable, the scope for new entrants is very limited. 320 Selection of the appropriate structur model for and particular enterprise cannot be undertaken without a more detailed assessment which looks at local issues and technical constraints. I1V@ DEVELOPMENT OF RECOMMENDED STRUCTURE 4.1 The broad structal options have been addressed in Chapter 3, but a number of more detailed issues remain to be discussed in this Chapter. Figure IV-I presents the recommended structure of the district heating subsector. The Number of DEEs and the Scope of Activities 4.2 The operational area of a DHE may be either a voivod, a district (several gminas) or a municipality. Most of the larger DHEs have a main networc, often connected to a CHP/HOB plant, and several smaller networks supplied by the DHEs own HOB plant. These considerations raise the issue of the number and size of DHEs in a restrctured industty. 4.3 There are two important reasons for DHEs not to become too small: * Enterprises need to become sufficiently large to capture economies of scale -these may arise in terms of workshop facilities, network repair and maintenmce, fuel procurement and access to expertise. Small networks with sales less than (say) one million Gl/pa may lose economies of scale, although such losses could be partially ofnet by sub-contracting. * Enterprises need to be of sufficient size to be financially viable in a "hard budget" environment. This means having a reasonably diversified market and avoiding heavy dependence on a narrow asset base. .Lag.=inluetawtwak cathouetwoq ::fta as m.g1C~Iz,UI Ir - | -_) c* ~~~~~~~~bw, C_s/I c,au cauoa r'W Jadq.UIUwU~ comgm- a ta =. - compand .Upt*wvb*DKft Abo22,dafDME -A22Wd8ftDM Jd.pI .mtpdla la4bpa-dou acomspauls epo fg_ P1- Recommended Strucure of District Heating Page i8 Volume 5- District Heataing 4.4 Ihere are also important reasons for not allowing DHEs to become to large and for giving each substantial network a cotporate identity: * smaller DHEs are likely to be more responsive to local needs: * there will be less danger of cross-subsidization; * smaller DH13: will be more exposed to hard budget disciplines and will be less likely to become bureaucratic. On balance the arguments appear to favor relatively small DHEs -it does not appear necessazy that a DHE must cover a whole voivod in order to capture economies of scale and to be financially viable. 4.5 The scope of activities for an individual DHE will depend on which of the broad structural models is adopted. However, in addition to responsibilities for their heat networks, most DHEs also own and operate local boilers dedicated to the supply of small groups or single consumers. It is possible that local boilers of this sort could be run more efficiently by those responsible for the management of te buildings they supply. They would be assisted by independent boiler maintenance companies, thus allowing the DHEs to focus their resources on their main business. Role of the National District Heating Organzations 4.6 In the past the similarity of tednical and administative problems facing the DHEs has led to the formation of national bodies serving the whole or a large part of the subsector * the National Board of District Heatng -a smal subscription finded body, to which all DHEs belong, which advises the MGPiB, gives technical assistance to its members and acts as a focal point for intemational relations; * the District Heating Research Organization -a general research and development organition funded primarily by the Warsaw SPEC; * the District Heaing Union -a subscnption funded body, to which 20 small DHEs belong, which carries out specific research projects. It ppeas that the orization of the subsector at national level is too weak, primmily because of lack of resourc. 4.7 A national district heaing assocation could perform a number of important functions for its members: * development and hanonization of tehnical standards; * technical research and dissemination of information; * compilation of staistics fbr the whole subsecto, * provision of a single point of contact for relations with the oentral government; Poand - Energy Sector Restructuring Page 19 0 coordination of intemational relationships. The aswciation could be controlled by a board elected by its members and staffed primarily by people seconded fiom DHEs for a limited number of years. Given the initial shortage of resources it might be necessay for the govemment to inject some funds into the establishment of any such organization. Legal Status and Ownership of the DHEs 4.8 Ihe recent laws on local government tansfer resporsibility for the provision of heat fiom the voivods to the gminas, once this is requested by the gminas concemed. The law does allow the gminas considerable discretion over how these responsibilities should be discharged. From experience in Poland and in other European states with similar systems (notably Belgium) it appears that there are several ownership options for the assets currently held for the stae by the voivods: * retaining the sttus quo; * transferring the assets to individual gminas; * fonning intercommunal bodies to own and operate the DHE assets; * sale (under privatization law) ofthe assets to joint stock companies with the shares hold either by the gminas singly or together with other investors. 4.9 The first option is suitable only for a temporary period until there is a transfer of ownership fiom the eentral government, while the second option will be suitable only where the network lies wholly within the boundary of a single gmina (which is rare). In addition direct ownership carries the risk of cross-subsidization between district heating and other local community activities. Ihe corporte form of the third ownership has considerable advantages over the intercommunal form (fourth option), which suffers fiom similar problems to the second option. 4.10 Although the intercommunal bodies envisaged by the legislation on local govenmuent should not own or operate the DHE assets, they will have formal responsibility for the provision of heating and hot water in the member gminas. This can be done by the intercommunal bodies licensing the joint stock companies to supply the required services and then regulating their activities. 4.11 Assuming that option (d) is carried out, it will be essential to provide the correct financial incentives by the implementation of '¶hard budgets" and the rewards for the effective use of capital resources. This implies: * rflecting the true costs of the capital employed in the value placed on assets; * ensuring the DHEs provide market based retuns to this capital; * subjecting the companies to the nonmal disciplines of the Commercial Code; 0 subject to license conditions, :llowing the owners to determine corporate policy Page 20 Volume S- Disfut IHeatfing The supervisoty boards of the DH companies would be responsible to the shareholders, who would judge performance primarily in tenms of reported financial results. Funding should be secured solely on the companies' asset base and cash flow and without explicit government guarantees. 4.12 'he final aspect to be decided is that of share-ownership. Experience in other countries suggests that, although public sector ownership can attain corporate efficiency, private sector ownership makes the imposition of financial disciplines more certain and reduces th& 4sk of political intervention. 4.13 With limited funds available from private investors only the largest DHEs are likely to be able to attact private shareholders in the initial stages and so the majority are likely to remain in public sector ownership in the short term. However, if the responsible gminas so decided, it would be possible to entrust the running of the district heating system to the private sector under a management contract (as is the case in the UK and France for boiler plant owned by local govemment). Legal Status and Ownership of Major CHP/1OB Plant 4.14 All major CHP/HOB and large HOB plant is owned and operated by enterprises which were formerly part of WEWB. The CHP/H0B stations comprise both cogeneration plant producing heat and power, and heat only boilers. The HOBs are used to meet peak load which cannot be met by CHP plant. Hea is sold to the local DHE and, in some cases, direct to industrial consumers. The plants are typically the primary source of heat on each DHEs main district heating plant. The 16 major HOBs are owned by power sector enterprises and sell heat to local DHEs. 4.13 The bulk of the plant is owned by CHP generating enterprises which each own several CHP/HOB stations and one or more large HOB stations. A few are owned by genemting enterprises whose major assets arm large power stations producing electricity, and a somewhat larger number by distribution enterprises (ZEs). There appear to be four main ownership options for these stations: * remaining within separate enterprises speciaiizing in the operation of this type of plant; * becoming part of generating enterprises whose main role is to produce electricity; * becoming part of the electricity distribution companies; O becoming part of the DHEs. 4.16 As with the district heating subsector itself, no single solution appears to be best for all circumstances. The best solution is likely to depend on the size of the assets and on other local factors. However, it does appear that no company dependent on a single asset, such as a CHP/HOB or HOB station, is likely to be financially viable, and therefore it follows that each station should belong to a larger entity of some sort. 4.17 For those systems where the disaggregated district heating model (DH4) is likely to be appropriate the CHP/HOB and HOB stations should remain separate from the heat transmission and distribution companies -they would be held within separate companies selling their output to heat and power subsectors but not belonging wholly to either of them. Poland - Energy Sector Restructuring Page 21 4.18 For smaller DH systems where retention of a vertically integrated stmcture is indicated, the independent CHP/HOB enterprises should be owned either by the DHE or by a local generating company, depending largely on the relative importance of its heat and power outputs. Vertically integrated DHEs could also acquire CHP/HOB stations from local distribution companies (ZEs), but where a more disaggregated DHE structure persists then the ZEs could hold on to the heating/power plant. 4.19 As regards the legal status of enterprises operating CHP/HOB plant, the atguments run parallel to those for DHEs. Joint stock companies should be formed, and where CHP/HOB plant is transfened to DHEs there should be a separate company formed in order to avoid the dangers of cross subsidization. The options for ultimate share ownership would also be similar to those for the DHEs. Implications for the Financial Structure of DHEs 4.20 Historically, individual enterprises have had little input to the determination of the financial structures under which they operated. With the exception of commercial debt, all key financing decsions were taken by the central government or by the voivod. 4.21 The accounting information which has hitherto been compiled is in a form designed to ensure systematic and accate data collection rather than to facilitate their use as a management tool. However the financial strucure for two DHEs has been analyzed on Westem lines. Even allowing for the fact that asset values are not conecdy reflected in the data certain conclusions can be drawn: 3 The enterprises had sound long term funding and liquidity positions, although this may have been in part due to the method of financing. * There is a substantial variation in profitability caused by the substantial diversity in cost bases, including variations in heat sources, conditions of the network and variations in customer densities. * Despite established procedures for debt recovely, working capital control could be much improved, and the cedit effectively given to customers is to a substantial extent funded by delayed payment to creditors. O Gearing is likely to be negligible, so that operating in a commercial environment they would have substantial unutilized bon-owing capacity. Equity and Equity Reserves 4.22 For state enterprises, the equivalent of capital and reserves are the "capital funds", which are shown as sources of finance in the balance sheet. Formerly, there were a large number of such funds, but since 1989 most state enterprises have reduced the types of fund in the balance sheet to the following: * statutory fund - intended to represent the state's contribution to the enterprise; * enterprise fund - intended to represent the internally generated reserves; * fund for social obligations - to pay for housing and other staff benefits; Page 22 Volume 5- DistrIct Heating * reenrves - reined profits not transferred to any other reserve. Should a joint stock company be created from a statc enterprise, then these finds would be transferred to the new company. Financing, Investments and Working Capital 423 To date, capital expenditure has been financed in three ways: * Major investment, particulaily in CHP, has been largely financed by central govetnment. Asset values were credited to the statutoly fund on completion. * Other late investment in DHEs (such as network extension) were funded by the voivods, with asset values credited to the enterpnse fimd. * More minor cpenditures (refiubishment and repair) were intemally financed, with asset values credited to the enterprise fund. It has rarely been necessaiy to resort to commercial bonowing and so there is little long term debt outstanding. Operational expenditures and workdng capital are also laiely internally funded although some commerci "operational" loans have been taken to cover short term cash deficits. Revaluation 4.24 Penodic asset revaluations have been made in order to maintain asset values in the inflationary environment. Contrary to International Accounting Standards (IAS) practice (which specifies that revaluation surpluses should be credited to a separate revaluation reserve), surpluses on fixed asset and stock revaluations have been added to the existing stattoy and enterprise funds. This has significanly increased the value of these funds. Subsidies 4.25 Ihe cost of district heatng to domestic premises is directy and heavily subsidized. The subsidies are channeled from Govemment to the housing corporations, who are the DHEs' main customers for heat. In addition, the DHEs also receive direct subsidies for small quantities of heat provided diredy to domestic premises. In addition there are a number of indirect subsidies: O income tax holidays granted to enterprises in the past; * DHEs have not paid a "dividend" or other direct tn to the cental govemment or voivod for funds; * revaluations have not kept pace with inflation, so that depreciation costs have been based on undervalued assets PokWnd - Energy Sector Restructuring Page 23 Financial Structures for New Companies 4.26 On the creation of the joint stock company, the varous fimds of the state enterprise would be combined to form the equity capital. This would be split between share capital and reserves in a proportion appropriate to the case. Shar would thus be created for potental sale out of the equity capital. It would be necessary to revalue the assets prior to the fomation of the company. Also, since debt represents a very small fiaction of total capital, the Government has the option of injecting new debt into the enterpdses. Before deciding on this it would be essential to prepare financial projections to demonstrate whether a company could service both debt and equity, as well as fiance a reasonable proportion of its investment from intemal funds. Sources of Finance for Companies 4.27 Secring adequate investment funds wll be one of the grest challenges for the new companies. Without Govenmment guarant, commercial banks may be willing to lend for periods of up to 10 years but at prsent the cash flow of most enterprises in the heating subsector is not strong enough to service signficant debt over a relatively short period compared with the life of the investment. This position should improve as heat prices rise. Measures such as accelerated depreciation allowances (not at present used in Poland) would help with the financing of such projects. Financial Objectives 4.28 The key objectives are those which relate to the profitability of the firms. Ihese include: * adequate margins of revenue over costs at different levels of the business; * adequate retums on capital employed; - an adequate generation of intemal cash flow to permit some self-financed investment. 4.29 While rstuctuing is taking place, over (say) a 4 year period, it woud not be expected that the DHES would necessarily pay dividends. However, if privatizaion is to be pursued, DHEs will need to offer a competitive dividend yield on their equity and to ensure that dividend growth offers full protection against inflation. As a low risk utility investment, the dividend yield would be expected to offer only a small premium on ral free market interest raes (allowing for differences in tax teatment). 4.30 In addition to profitability objectives, the DHEs will need to establish separte fincial targets for the management of working capital, especially for debtor days (average collection period), for debt service cover and for gearing. V. REGULATORY FRAMEWORK 5.1 The district heating subsector in Poland possesses a number of features which make the effdctive operation of market forces unlikely and hence necessitate appropriate regulation of some aspects of commercial activity. Ihese features include: * the natual monopoly characteristics of the heating networks and the monopoly/manopsony relationships which exist between the DHEs and the CHP and HOB stations; * the high costs of heat storage which leads to the economies of transmission and distribution networks; e the external costs imposod on the environment particularly by coal fired CHP and HOB plant. The limited competition envisaged in the restrucuring envisaged implies the preservation of a series of local monopolies so that a degree of regulation would be needed. 52 Given the present and likely future large number of DHEs organized at local level and the specific assignment of responsibility for the subsector to the gminas under Local Govermment legislation, it is likely that decentralized regulation is appropriate. However local regulation does have certain dagers: * potential adoption of local policies at variance with policies at the national level or elsewhere in the subsector, * politization of regulatory policy, leading to uneconomic practices such as cross- subsidization of particular consumers. There will also be a need to pool scarce specialist technical and economic skills required to facilitate rgulaton and to capture the benefits of co-operation between the various local regulatory bodies. Ihis suggests that there will be a need for a complementary, coordinating entity at national level. 5.3 The pnmary rgulatory athoties could be elements of the new intercommunal bodies forshadowed in the Local Govemment legislation of 1990. Each would be delegated regulatory power and responsibility for its area by the gminas which comprise the group. The bodies would have a small number of pemwanent professional staff. 5.4 Omins would be sepaately represented as shareholders of the joint stock heatng companies at these companies' general meetings. Hence gminas could buy and sell shares in the local heating companues. 5.S The intercommunal regulatory bodies would need the support of a national body of expertise to discharge their functions propedy. lhis expertise would be operationalechnical and economic in nature. The cental advisory entity could discharge the following functions: * it would act as the focus for the collection, analysis and dissemination of informaton relating to the perfomance of companies in the subsector. lEis would provide a basis fiom which intercommunal regulators could administer "yardstick competition" by Page 26 Volume 5 - District Heating comparing the performance of the companies under their supervision with those of similar companies in the subsector. 0 It would provide a pool of specialist skills available to local regulators. Ihese centrally based specialists could, for example, prepare and monitor standard forms of license for heating companies and advise on prices, performance criteria and other specific provisions for individual licenses. 3.6 This advisory body would best function as a unit of a regulatory agency responsible for monitoding the national electricity and gas networks, for which it has also been recommended that there should be similar agencies. Such a central body would not have enforcement powers, which would be exercised solely at a local level. It would instead maintain a central role in promulgating the principles of regulation. 5.7 The main instruments of regulation in the subsector would be the licenses issued by the lntercommunal Regulatory Bodies to the joint stock companies operating in the subsector. These would convey the right to undertake specific operations (e.g. transmission, heat production, distribution, customer supply) in a defined area for specified period of time (probably at least ten to fifteen years) subject to conditions. The regulatot's prmary activity would be to establish these conditions and to ensure compliance. Liceme terms would be varied depending on the type of activity. 3.8 The Ministry of Environmental Proection and Naural Resources would have a distinct and separate role to play in the environmental regulaton of the subsector. The Ministry would continue to s environmental standards (notably for emissions) and the rate of fees/penalties at a national level, with the administration of these standards, the collection of fees/penalties and adjustments to reflect particular cnditions delegated to the local level. 3.9 The structure proposed, which separates the gminas' roles as owners and regulators, could best be reinforced by the Intercommunal Regulaory Bodies (IRB) not owning heating company or CHP assets directly, and by ensuring that there is different effective control of the IRB than of the companies. For example, a two thirds majority voting provision in the intercommunal assembly of gminas covered by the IRB, compard to simple majority voting in the shareholders' meetings for heating companies, could provide a check on a dominant gmina applying pressure (as a shareholder) on a heating company to cross- subsidize consumers in its own area Regulation of Heating Companies 3.10 Ihe primary istrument of regulation would be the license required by network operators. Companies producing and selling heating heat to particular customers via specific infiastu (e.g. adjoining factories) would not require a license.. Heat sales to the network by producers with capacity below a predetemined level (e.g. 10 or 20 MW) could also be exempt fron license arwangements. 3.11 IThe license would confer on the network operator the sole rght to operate a heat distibution network within a specific operational area for a defined perod of time -at least ten to fifeen years. In the longer term the license would probably need to be valid for a comparable perod to the average lives of network assets (say twenty five years) in order to avoid unnecessary distortions in investnents. However, given the significant changes anticipated in the subsector within the more immediate fiture, Poland - ergy Sector Restmrcring Page 27 initial liceses could be subject to review after ten years in order to allow for the opportnity for re- licensing to reflect strucual changes in the industry (e.g. merger or disaggregation of networks). Integrated Heating Companies 5.12 Other han the key provisions for the regulation of price levels, the conditions would include: * a requirement to keep separate accounts for heat production, trading, transmission/ distribution and supply -cross subsidies would be prohibited; * a requirement to furnish operational and financial data at periodic intervals and on request; * aln economic supply obligation, requirng the company to purchase/produce and distribute at least cost; prices for exteal sources of heat would be related to the avoided costs of intemal production; the company would be obliged to contract for extenWal supplies if this implied a cost reduction; * an obligation to ensure the security and adequacy of supplies within thfe firmchise ara, by contacting for sufficient production capacity and by providing sufficient distribution capacity, except for customers with abnonnal connecton or supply requirements; * an obligation to draw up and maintun (in consultation with the IRB) a tchnical code goveming connections to, and operation o, the company's network; * aln obligation to prepare and publish (following IRB approval) a code of practice goveming supply relationships with customers; * the prpanton and publication of tariffs which should be non-discrminatory, cost based and should identify the separate cost components; and * a requirement to make a financial contribution to the funding of the IRB and the National Heat Advisory Board. It may alo be appropriate to include a provision requiring IRB approval for maor changes to network or service coverage. 5.13 The IRB is expected to monitor the heating companies' operational and financial performance. The criti which could be established in the license, might include: * number and duration of service interruptions; * supply prssr and temperatures in relation to ambient tempeaes, including maximum retum temperaes to CHP plant; * elapsed time between the reporing of fmlts and visits to premises by staff; O levels of accracy for metering; Page 28 Volume 5- District Heating * adherence to times for regular servicing; * unit costs of purchased heat, produced heat, losses and distribution. 5.14 Since there is likely to be little scope for competitive supplies of heat using common carriage over a single distribution network, the bulk heat cost and distribution elements of the final heating tariffs should be regulated directly. For the case of district heating in Poland, a price based regulatory mechanism is likely to be the most appropriate form for several reasons: a intrusive regulation, with detailed price formulation by the IRB, would run counter to the prevailing market based philosophy of economic management; * the new companies should have the discipline of regulated revenues, rather than a cost plus environment, and * ;for simplicity of opemtion and of administration by the IRB. For major items of capital expenditure, which can be 'lumpy" and unpredictable, rather than allow for these in setfing the price control formula, it may be better to charge for them on a conventional rate of rtum basis. The categories of such expenditure could be specified in the license. 5.15 Because of the separate regulation of bulk heat and network components, the price control formulae in each license should recognize: * The initial costs of different companies will not be comparable because of the wide varion in network characteristics and heat sources. The starting price levels in the formulae would thus be company specific. * The factors affecting heat production and distribution costs are quite different, implying that for integrated companies ere would need to be two distinct components. * In each case, the price control formula would make reference to extemal cost factors to achieve efficiency. For the distribution/supply element, a simple reference to an extemal index of price inflation is likely to suffice, with the inclusion of an '¶X" factor to reflect anticipated real savings in costs over time. The bulk heating element is likely to require separate teatment since the movements in relevant costs (coal, rail trasport etc.) may not be related to general inflation. A weighted average of these factors could be used, but allowing for the uniqueness of some companies' heat supply arrangements may mean that some direct pass through of the companies' own costs has to be permitted in the regulatory formula. Transmission Companies 5.16 The licenses issued to the transmission companies for the large cities will need to differ in several respects because of the nature of the business: Poland- Energy Sector Restructuring Page 29 * As the transmission company should finction in a neutral 'broker role in purchasing bulk heat, it should be limited as to the extent to which it can own boiler capacity; such capacity should be held in a subsidiary with separate accounts; * lTere should be separate accounts for the heat trading business and for the ownership and operation of the tansmission network: separate accounts would be submitted to the local IRB. Other conditions would be similar to those for integrated companies. Operational data would be reported to the IRB for monitoring purposes. The performance criteria would reflect the nature of the business and would place geater reliance on system reliability and less on response to individual customer requests. There would be obligations to maintain secure supplies and to procure heat at least cost, as with the integrated companies. 5.17 As discussed in more detail below, transmission companies should be required to sell bulk heat to all consumers at a single, published Bulk Supply Tariff (BST), which pools the costs of heA production in the area and passes benefits on equally to all consumers in the area The level of the BST should be subject to the same method of price control as that suggested for the integraed companies. Heat Distribution Companies 3.18 Heat distribution companies purchasing bulk heat at a BST from a transmission company in a large zity would, in terms of economic regulation, be veTy similar to integrated companies purchasing heat fiom extemal sources such as CHP enterprises. In both cases the reguatory environment should permit the network operator to own and operate its own production capacity when this was cost effictive (with the BST as the applicable reference point for a distribution company). The licenses of the distribution companies would thus be very similar to those for the integrated companies. The main differences would relate to the technical interfaces between the transmission and distribution networks and the impact of the distribution company on the system capacity requirements. Licenses might require submission of demand forecasts (say up to 10 years ahead) to transmission companies, which would complement the commercial mechanisms of long term contracts. VI. OPERATIONAL EFFICIENCY AND INVESTMENT 6.1 Tbere are a number of issues which relate to the operational efficiency of network operation and the investment requirements of the DHEs. Operating Procedures and Heat Despatchability 6.2 Polish DH networks are designed to operate at constant volume. In some cases the flow is egulated twice a year, namely at the start of the heating season and at the end. Water flow during the summer is approximately 80% of the winter flow. Variations in heat load are met by temperature adjustments of the supply pipe out of the heating plant based on outdoor temperatures. The supply temperature is nonnaily varied between 80 to 130°C. The return temperature is generally between S5 and 70°C. Such a system operats satisfactorily provided tgat the hydraulic characteristics of the network remain constant. 6.3 The present design of the DH system, with one heating plant located on the center of the DH network, is typical for small scale systems. The major advantages of this structure are its simple operation and the fact that it can be operated from one location by simple means. However, this simple system has also some disadvantages: * Lack of supply safety (vulnerable to pipeline breakdown); * Large pipe diameters (hydalic capacity of each pipeline correspond to maximum heat capacity demand in the area through the pipe); * High power consumption for the circulation of DH water. These disadvantages grow with the increase in size of the DH system and, therefore, large DH systems often have a number of different heat production units located throughout the network. Because it is impractical to alter the characteristic when an HOB plant (for example) is brought in line to supplement CHP output, most large networks are operated as separate islands supplied with heat from dedicated CHP and HOB plants. 6.4 The inflexibility of network operation and the consequent need to associate each local network with specific plants, results in sub-optimal use of co-generation facilities by CHP enterprises and hence higher heat purchase costs for DHEs. With the present system for pumping electricity consumption in a system designed and operated at constant flow is significantly higher than for a system based on variable flow. 6.3 Changing from constant flow to variable flow will lead to considerable savings in the main pumps. From DH projects carried from the World Bank in poland, calculations show that a 60% reduction can be obtained, in case the pumps are operated according to the lowest differential pressure giving sufficient heat supply at all substations. It is possible to convert the Polish DH network to variable volume operation, bringing significant benefits to the DHEs: * it would enable CHP enterprises to maximize co-generated electricity production; O it could improve the efficiency of co-generation turbines through the lower mrn water temperatures; Page 32 Volume 5- District Heating a it would reduce DH pumping power requirements (an auxiliaty load) which would release electricity for sale; and * it would reduce heat losses in the distribution network. 6.6 The direct finmcial benefits to the DHEs would be relatively small as compared to those accruing to the operator of the CHP plants. It would, therefore, be necessary to ensure that contacual anagements are such that the DH operator will receive a return sufficient to cover the investment reauired to conveit to variable volume operation. 6.7 Conversion would require considerable investment in new controls throughout the network from consumer sub-stations to DH circulation pumps. Investment could take place in the following steps: * providing sub-stations with control valves to shut off supply when demand is satisfied; * installing valves at sub-stations and other network flow control points to ensure that pressure differentis across control valves remain constant under all flow conditions; installing variable speed drives on DH pumps (where networks are supplied by CHP/HOB plant, it is the latter enterprise which owns the pumps and which would be responsible for the new investment); and * integrate hydraulically the conveited heat islands to form a true heat network able to be supplied from a number of sources. For some systems it may be more appropriate to link separate heat islands with transmission mains as a first step, leaving the islands as constant volume systems. 6.8 In a DH system, based on vaiable flow with a changed supply strategy, the consumer installation can be operated at a lower differential pressure in the network. In other words it is possible to connect more consumers to the system without interrupting the heat supply and the operation of other consumer installations. These changes also make it possible to operate various heat sources in the system at peak hours, when and where needed. These could be situated at strategic points in the network in order to increase the total system capacity. The possibility of choosing different heat sources -load dispatching- means that the total cost of heat production will decrase. Network Rebabilitation 6.9 The district heating networks are in urgent need of rehabilitation related to: ° external corrosion of the heat mains; * high heat losses due to increased water losses and poor mains insulation; * internal make-up water requirements which lead to a level where treament is impractical, leading to intemal corrosion and further reduction in reliability. Poland - Energy Sector Restructuring Page 33 In Poland, heat distribution mains are laid in underground concrete ducts where they are insulated in-situ. This system, which has been superseded in Westem Europe, is expensive to install and requires heavy maintenace expenditure. 6.10 In the West the solution to poor reliability has been to develop a piping system which incorporates an insulating layer bonded to the steel carnier pipe, which is protected by an outer plastic pipe. Such a construction can be buried directly in the ground and is known as a pre-insulated piping system. Ihe reliability of such systems is dependent on the quality of the insulation but service lives in excess of 25 years and with very low failure rates per km can be obtained. The greater reliability and reduction in heat and water losses may justify investmerit in new pre-insulated mains ahead of their replacement time due to failure. 6.11 Ihe poor reliability of the heat mains causes excessiv'e water losses. As the DREs pay for make-up water and its treatment as part of their heat purchase agreements with CHP enterprises, it is in their interest to reduce water losses to a minimum. 6.12 Intral corrosion is caused by inadequate treatment of system and make-up water. Treatment consists of base exchange to reduce hardness, de-aeration and pH correction. Water returned below the contractd quality is treated as not returned and the DHE is charged for the extra make-up water. In general the lage volumes of make-up water required make it impatical to dose with corrosion inhibiting chemicals. Chemical dosing will be practical only when make-up volumes are reduced by cutting down on leakage. This can be achieved by utilizing pre-insulated pipes and replacing fittings with modern (imported) equivalents. Improvements on Consumer Premise 6.13 The heating system downstream of the sub-station, comprising the intemal heat distribution pipework, pumps, heat emitters and controls, is usually the property of the building owner, although it is often maintained by the DHE. Individual control of heat consumption is generally limited to the use of manual radiator valves. Radiator valves, pumps and pipe joints are all sources of leaks which add to te problems of internal cornosion. The life of the heating systems are as low as 5-6 years in some DHEs -whereas the typical life in the West would be at least 15 years. 6.14 Since the DHE does not own the heating system inside the building it has little incentive to invest in improving its operational efficiency. In this situation, instlling heat meters and setting cost reflective heat tariffs is likely to be the best way of persuading building owners and their tenants to improve their heating systems. Bulk Heat Metering 6.13 The metering of heat transactions on Polish networks is vety limited. Only a small proporion of consumers, have heat meters. Thus, although heat transactions and prces are quoted in terms of heat units, the actal quantity of heat delivered is in most circumstances an estimate. 6.16 It would not be cost effective to instll true heat metering in individual domestic premises, particulamiy as the ability of consumers to control their heat consumption is at present very limited. All heat transactions between producers, transmission/distribution companies and large consumers should be metered since accurate accounting is a pre-requisite for improving operational efficiency. The costs of Page 34 Volume 5- District Heating intlng the metenng could be recovered by levying a standing chage to recover costs over the meter's lifetime. Transfer of Local Boilers 6.17 Most DHEs own and operate a number of small, local boilers supplying individual buildings which are not connected to a major network. The majority of local boilers are fired with coal or coal products and their operational and maintenance costs are high compared with either large coal fired plants (HOBs) or small boilers fired with oil or gas, which have higher combustion efficiencies. 6.18 ITe operation and maintenance of local boilers diverts resources from the core activity of the DHEs. In consequence, where possible, many DHEs extend their networks to incorporate local boiler loads. Where this has not happened it appears sensible that ownership and responsibility for maintenance should be tnferred to the relevant housing co-operative or building owner. Environmental Impact 6.19 The discussion focuses on atnospheric pollution as it is in this area that action by the DHEs can hawe most effect -the direu effect of DHE activities on water pollution is considered to be relatively unimpoant. 6.20 Coal is the predominant energy source used for distict heating. The subsector consumes 24 million tones of coal products, equivalent to some 13% of the county's hard coal production of 1989. Only 3% of the fuel used is oil or gas. 6.21 Given the subsector fuel Table VI-I: Emissions by the District Heating Subsector mix and knowledge of the grades of (Kte ps.) coa used, total emissions can be estimated as in Table VI-1. These emissions are of even grater significance that the shates in the total 1Har coal & bqe 404 98 199 would suggest, since many of the LUnites and brique 7 1 2 plants responsible for them are small, I low stak boiler houses located in ICk 4 2 urban areas where emissions have a |m 15) 3 = disproportionate effict on local air l quality. __ 6.22 The Ministry of |Toal 104 201 Environmental Protction and Natural % tl Nado tl% 8x tox Resources has set tagets for air i t___- __ quality imprvment that require the reduction of S2 emissions by 30%/, NOx emissions by 10% and particulates by 50% for the year 2000 relative to 1980. As part of this process, the Environmental Protection Offices of the voivods have revised their emission permits for large plat to provide for the introduction of stricter emission limits for exsting and new plant from 1998 -these limits are applicable to co-generation plant and lage HOBs. Fees and pries are also to be increased to provide a greater incentive for compliance. Poklnd - Energy Sector Restructuring Page 35 6.23 Abatement measures differ by type of plant so that the main plant types are reviewed separtely. Pulverized Fuel Boilers 6.24 Most modem large CIP and HOB plant are fired with pulverized fuel, which in the case of Poland is generally of poor quality -high sulfur, high ash with a low calorific value. Many boilers of this type will have difficulty in meeting the post-1997 emissions limits. Where particulates are a problem then it is possible to improve the efficiency of the electrostatic precipitators. To reduce SO2, various flue gas desulphurisation processes can be used, depending on the individual situation. To reduce NOx, low NOx burners could be fitted. Moving Grate Stokers 6.25 Older, large HOBs are coal fired and have moving grate stokers. Although coal quality is generally better than for pulverized fuel boilers, abatement measures will still be needed. Particulates can again by retrofitting pre-filters upstram of the precipitators, but sulfur removal is likely to be more difficult. Only when the boiler has substantial life left would it be economical to replace the stoker with a fluidized bed combustor while leaving the boiler intact. Local Boilers 6.26 Emissions from the DHEs local boilers also come under the control of voivod Environmental Proction Offices. The major problems associated with these low stack boilers are particulates and SO. Emissions of pariculates can readily be reduced by dust collection equipment and it is anticipated that improved maintenance and upgrading of particulates control equipment could produce a reduction in emissions at a modest cost. Where such equipment is net fitted, the greater use of washed coal is likely to be the most efficient method of reducing both particulates and SO2 emissions. If more significant reductions in emissions ame required then the only economic option for the DHEs would be to convert the boilers to ran on gas or low sulfur fuel oil, or to connect the building supplied by the boiler to the district heat network. VII. PRICING AND METERING OF HEAT 7.1 Ihe diverse and disaggregated structure of the heating subsector has led to a number of specific pricing relationships. However, a number of general observations can be made: * relationships have been generally determined on a cost-plus basis, with the DHEs heat tariffs set to cover only their operating expenses plus a small margin * explicit and implicit subsidies have been pervasive and distort the basic cost-plus structure. The final price of residential heat has been fixed nationally, with housing co- operatives or DHEs receiving subsidies to cover the difference between this and the calculated prices. Consequently there has been little incentive to minimize calculated residental tariffs; * as a result the DHEs have reduced incentives to cut supply costs, thus allowing heat producers to negotiate relatively high prices and offering little incentive for efficiency in heat production; * the prices set by the DHEs have been distorted by the other subsidies affecting the subsector. o the subsidized cost of coal, o the undervaluation of CBP and HOB assets, implying a subsidy on the capital costs of heat production; O the undervaluation of heat transmission and distribution networks and their grant funding, implying the need to make only minimal retums; o the uniform cost plus pricing structures have led to significant cross-subsidies between different types of consumer. 7.2 The pricing structures have had some general features common to most localities: * Prices paid by DHEs for heat typically consist of an energy tariff, although sometimes a two pat tariff is negotiated, involving a variable component (covering the energy cost) and a fixed payment (capacity cost) per MW of load. Purchases are generally metered on a volumetric basis. * DHE tariffs to industrial and commercial customers have generally been esfimated. * DHE "calculated" tariffs for the residential sector have typically involved separate fixed monthly rates per cubic meter of space heated (seven months) and hot water (all year) with occasionally some additional elements. Due to the absence of meters, most consumption is again estimated. Hence, price structures have tended not to reflect the costs of heat supply, which vawy through the year. As most supplies have not been metered, there are few direct price incentives for customers to economize on consunption. Page 38 Volume 5- District Heating 7.3 In general the price systems should: * provide signals for the efficient use of resources by making prices higher at times of day when heat is more valuable and by rewarding those who cut costs; v be non-discriminatory; * provide sufficient revenue to allow companies to be financially viable; and * meet macoobjectives which canot be satisfied by other means. 7.4 As regards efflcient resource allocation, appropriate signals are provided by prices which reflect the costs imposed by an additional marginal sale. There is a matinal cost associated with the heat consumed and a maina cost associaed with extra production, transmission and distribution capacity needed to meet demand when the system is capacity constrained. In a balanced system this latter cost should equate to the short rn costs associated with foregone heat consumption due to system overloading and additional heat losses. The combined energy and capacity impact of a sustained increment in consumption is the long nm marginal cost (LRMC). 7.5 Within a competitive environment, the forces of competiton will ensure companies set prces at these levels. However, the heatng subsector possesses a number of characteristics which necessitate the use of regulatd proxies to competitive mechaisms to achieve margnal cost relatd prce levels. Two broad altematives exist: * to establish the opportunity costs associatd with competing sources to distrct heat and set prices close to these levels; and * to build up LRMC fiom its constituent components. The two approaches would be equivalent if heat sources had been developed optimally over time. This is not the case in Poland; due to historic price distorions, district heating appears to have developed sub- optimally. 7.6 It appears that the most satisfactoiy approach will be to use direct measures of LRMC to regulate district heat price levels for the next few year, until networks have adjusted to a more balanced coverage. Where gas, the main rival, appears to be a viable altemative, the LRMC level would have to be "capped" at the cost of the alternaive source 7.7 Witiin this franework, the prices at each commercial interfice should reflect the marginal costs at that interfice. Thus: * prices at which heat is purchased should reflect the marginal costs of heat production and of additions to capacity; 0 the bulk supply tariff (BST), at which tansmission companies sell heat, should reflect for the system as a whole the marginal costs of heat purchase and production and of transmission capacity; and Poland - Ener &ctor Restnucxring Page 39 0 til tariff to consmmers should rflect the BST plus the margn costs of distribution capacity. Some adjustments may be required wher a clash with finmcial objectives arises. Prces set to marginal costs might be too low to service debt on past investment or may place a socially unaceptable burden on specfic customer categories. In such a case pnccs should, as far as possible, reflect the structure of marginal costs, although their level may need to be adjusWt to meet finacial trgets. Heat Purchases 7.8 The structure and levels of heat purchase pnces should in pnnciple reflect maral energy costs at different times of the year and the capacity costs of replacement HOB plant. 7.9 A key rgulay function for e IRBs would be to ensure that theircompanies operamg heating networks did not abuse their monopoly position. To achieve this, it was recommended at under the tenns of the licose the heating companies would satisfy the IRBs that the pries were indeed cost- refective. In order to assess this, IRBs would need access to extemal reference data on standard heat supply costs in various situations. The derivation of these standard cost reference points is discused in the following paragraphs. 7.10 The appropriate indicators of magin enery costs will vary according to the specific regime of each network operator. At present the DHEs obtain most of their heat from extemal producer; much of the heat produced by the DHEs is used to serve isolated netwotks fiom small boilers. The rmaining production, in smai HOBs, is primarily for peaking and network stabilization. It is recommended, however, that heatng companies acquire more significat HOB capacity and at the same time divest most of the non-network boilers to the consumers concemed. For the main networks, this will lead to greater choice over whether to produce or purchase their HOB heating requirements. CHP/HOB heat, will continue to be the major source for base load. since the economics of distict heaing depend crucially on such supplies being made available at lower cost than peaidng heat from separate HOB units. 7.11 Against this backwound, the simple use of a large HOB unit to act as reference point for estimating appropriate LRMC levels for heat purcbases is potentaly incorec, in that prices for base load energy which reflected HOB costs would encourage te perpuation of existing excess dedicated HOB capacity, in preference to more economic CHP. It will be important for the IRB to identify marginal heat prducing plant feeding the network at differnt times of the year. 7.12 'he widely differnt regimes wilt imply a variety of results -in a minority of cases large dedicated HOB units may be the marginal source of heat at all times. In many other networks, cheaper sources of base-load energy will be already operating at the margin at certain times of the year. Typically these will be CHP/HOB complexe -in such networks, a standard payment rte, based on the marginal costs of CUP production, should be used. Such rates would vary throughout Poland dependmg on coal transport costs and other plant characteristics. 7.13 These standard 'base load" aes would be set at levels designed to encourage efficient CHP operation. The economic purchase obligation placed on heating companies would compel them to contract to purcha n and despatch heat in merit preference to more expensive HOB plant. Over time, this should encourage adjustments towards an optimum mix of base load and HOB plant operations in each network. Page 40 Volume 5- District Heating 7.14 Ihese arangements should be precursors to more direct competitive bidding for heat supplies. This would entail the heaJ company inviting tenders for heating capacity of a particular type. This should certainly be a preferable amagement for the larger networks. However, at the present most networks have domuinnt CHP/HOB suppliers, ceating monopoly/monopsony trading relationships which will be eroded only graualy. Indeed, in many smaller networks, the economies of scale of CHP plant may dictate that such bilateral relationships will continue to be appropriate. Tbus competitive bidding and standard cost based arrangements will need to be administered in parallel. 7.15 It is also important to encourage the efficieut use of heat by the purchasing company. As return water temperatures should be minimized in order to maximize the efficiency of heat production, heat producers could be paid supplements to their energy rates if they received retun water at temperature diffrentials smaller than standard levels -such obligations would be included in the license conditions. Heat producers will need to be equipped with meters at the interfice with the network. Bulk Heat Sales 7.16 Bulk sales by transmission companies should be made on a published bulk supply tariff (BST), which should be differentiated by season to rflect variations in marginal supply costs. As well as Xh costs of heat production, the BST would need to recover the costs of the transmission network. 7.17 The BST would then comprise: * capacity elements relating to the marginal capacity costs of heat production and the rnsmission network -peak energy rate premia may prwvide the simplest and most appropriate pricing signals for these costs; * energy elements relating to the marginal costs of heat production and transmiion losses (differentiated by season); and * fixed charges representing the costs associated with specific capacity to service a particular bulk customer (e.g. transmission spurs) and the customer specific cost of metering and administration, and a contribution to any non-marinal finmcial costs incurred. The latter costs could include capital chages and overheads incurred by the tansmission company in excess of LRMC based costs recovered in capacity charges, but such charges would be closely scrutinized by the regulatory body. 7.18 The existing and likely future LRMC levels for a network should be considered by the IRB when setting the price limit formulae. When there was expected to be increasing excess capacity on a network, as gas supplies replaced district heating, the formulae could include adjustment factors providing for accelerated real reductions in unit prices over the license period. 7.19 Ihe metering arangements necessary to administer the BST would be quite straightforward, in that thermal meters read at monthly intervals would suffice for energy-only tariffs. Retail Heat Sales Poland - Enery Sector Restructuring Page 41 720 For both integrated companies and distibution companies, roil heat tariffs should recover the marginal costs of the distrbution network and consumer supply in addition to heat production and tansmission costs. 7.21 Efficient retail tariffs would reflect distribution costs in a similar way to transmission costs. Marginal capacity costs of the network would appear as a supplemental energy charge in the periods when sustained incremental heat demand on the network was likely to create additional expenditures. The avoidable costs associated with customer service, plus any allocated non-marginal costs which financial constaints dictated needed to be recovered, would normally appear as a fixed monthly charge. 7.22 However, the effectiveness of retail tariffs lies in their ability to signal costs to the consumers concerned. Metering costs typically preclude complex, disaggregated tariffs and instead simpler proxies must be used to convey the required cost signals. For distrct heating this difficulty is compounded by the fict that the final consumers of heat (tenants) are not those with whom the heating company has a commereial relationship (landlords and housing co-operatives). 7.23 Against this background it appears that all distribution companies should embark on a progm of heat meter inallation as soon as possible, commencing with major customers. 7.24 Detailed retail tariff structues would be the msponsibility of the distribution companies. There are some points of general applicability: * tariffs should be published for all consumer types, such that bilaterally negotiated rates above published levels would not be allowed without regulatory approval; * their form would generally involve monthly differentiated energy rates reflecting differential costs over the year regular meter readings would then be taken during the year, * in addition, there would be fixed monthly charges, to recover customer and non- marginal costs. 7.25 Energy tariffs would be common to industrial, commercial and residential users provi. Vi they were supplied from a similar distribution network. Differences in sub-station maintenance costs could be reflected in differences in fixed charges. 7.26 Connection charges to new users should be published separately and should be fixed for standard connections. Tlsitional Arrangements 7.27 At present there are two types of subsidy to the subsector * the direct subsidy of residential tariffs; o the production and distribution cost subsidies associated with the major inputs of coal and capital. Page 42 Volume 5- District Heating Ihese subsidies are presedy being phased out -te removal of the former does not affect the financial position of the heating companies but is likely to result in a reduction in demand as housing co-operatives respond to the increase in their costs. Only when the input subsidies have been fully removed can prices be properly linked to long run marginal costs. lbis adds weight to the argument for maintaining price control over this sector until the subsidies have been fidly phased out. VIIL ISSUES ASSOCIATED WITH RESTRUCTURING 8.1 hIere are certain issues for the internal management of the DHEs: * employment conditions for senior management, including selection, remuneration, performance appraisal, taining and procedures for dismissal; * the system available for financial management of the DHEs. Employment Conditions for Senior Management 8.2 The general manager is selected by the responsible voivod in a competition. However, this competition is normally just between nominated persons, and it is expect that the selected person will come from within the subsector. The general manager is appointed for a fixed term, after which a new competition is held. The general manager appoints his own senior managers, subject to approval by the employees council. Appointments fiom outside the industry are rare, with the most common case being that of accountants. 9.3 The ficial rewards for senior management are not significantly greater than those from lower level jobs. Typically the ratio between the highest and lowest salary in an enterprise is about 3.5 to 1. Although fomal procedures for dismissal exist, there is general reluctace to effect dismissal. Formal job descriptions exist but focus on activities rather than acoountability, targets and responsibility. Perfmance appraisal takes place every two years but very little action is related to this assessment. 8.4 A number ofpossibilities exist to improve the quality ofthe senior management in the DHEs: * clea statements of corporate and departmental objectives, roles and responsibilities; e job descriptions and qualifications should be drawn up for all senior management positions. Selection, through advertisement, should be based on these criteria; 3 individual tgets should be set for managers -measuranent of achievement against objectives should be linked to a more differeniated reward stucture; * contras should contain a balance of incentive and security; and * a taining need analysis should be cared out for a1 jobs within the DiEs and taining then be provided accordingly. Financial Management Systems 8.5 The existing systems for financial management in the DHEs reflect the centrally planned enviroment in which they have hiterto operted. These systems will not be appropriate for management within a commercial environment. 8.6 Te main characteristics of the existing systems are: * there is no business or financial planning activity within the enterprises (this being undertaken by the voivod or the centr government); Page 44 Volume 5- District Heating * annual budgeting is well established; * cash management and shoit-teim financial planning is undeveloped -DHEs have used short term debt or delayed payments to finance cash shortfalls; * arangements for debt recovery from personal and individual customers work well -housing co-operatives pay only when they receive the consumer subsidy and cannot be disconnected for late payment; * accounting practices to not confonn to intemational standards; * accounting systems are generally manual and do not readily produce infomnation that management can use to control the business; and * fimncial reporting is based primanly on formats laid down by the Central Statistical Office -these formats are difficult to interpret and provide no provision for comparison with budget. 8.7 The main requirements for change in order to obtain a regular flow of appropriate financial information are therefore: * the agreement of corporate objectives and the preparation of a business plan, looking a minimum of five years ahead; * annual budgets broken down by depaunent or division, and performance overall monitored on a monthly basis; o more carefiu attention to cash management so that short term debt is minimized; * a change to the new national accounting standards when these are agreed and published; * a clear distdnction to be made between finncial reports for extemal users and reports intended to help management rnm the business. 8.8 Computrized systems will be needed in many DHEs for a range of applications. It will take time to develop these -the high prorities will be the general ledger, accounts receivable, billing/mvoicing and the payll. Lower priorities will be the accounts payable fixed assets and stock. line similarity of business between DHEs suggest that joint specfication and development of systems is likely to be advantageous. 8.9 To comply with the regulatory system, companies will probably need to report sepaely on a number of difibet activities. The accounting systems will need to be developed so as to allow separate allocation of identfiable costs and apportionment of others to heat production, heat purchase and supply, heat distribution and other separate unregulated activities. IX, IMPLEMENTATION PROGRAM 9.1 This Chapter draws together actions needed to be taken for restructurng the Polish DHE subsector. It is not possible to give detailed structures for each location -these should instead be developed at local level. Instead a broad fiamework, withiin which the central Govenmment can ensure local initiatives proceed in a coordinated fashion, is described. Sequence of Events 92 The most important fiist step will be for the Govenmment to agree the proposals for a new institutional structure. If this is done then activity will be required in three key areas: c Legislation will be required to establish the legal fiamework within which the DH subsector would be required to operate. This would establish the National Heating Advisory Board (NHAB), the other national regulatory bodies involved in the energy sector, and the IRBs at the local level; * The gminas would need to establish intercommunal bodies and, within these, IRBs to administer the subsector, * The enterprises within the subsector will need to be restmwtured, by transferring ownership to the gminas, and by forming joint stock companies. 9.3 Restructunng must also take account of other changes anticipated within the energy sector * Initially some Government control over tariffs will remain, while tariffs are re-balanced to reflect the relative costs of supply to different groups and also increased to appropriate levels relative to other sources of energy. Once this transition is complete, the new heating companies will set tariffs on a commercial basis within the regulatory frnamework; * The transition to a market economy will lead to considerable uncertainty in the outlook for demand and hence for the financial prospects of the companies in the short term; * The resources available to manage the restructuring will be limited at both national and local levels. 9.4 These factors suggest that the most appropriate broad sequence of events for the government might be to: * agree and publish a short paper setting out the rstructuring plans for all components of the energy sector, * strengthen the interministerial committee who would drive the restructuring process and control the detailed work; • draft the enabling legislation to establish the NHAB; * prepare and publish model statutes for the intercommunal bodies. These would be circulated to the gminas who would be invited to submit proposals to the govemment for the formation of these bodies; and Page 46 Volume S - District Heating 0 initiate the prepamtory work for structuring the enterprises within die subsector while defening the necessaiy mergers and asset tansfers until responsibilities had passed to the new intercommmnal bodies. 9.5 The reasons for this proposed sequence of events are that, with tariffs likely to be held below Westem European levels for two or three yeaw, there is little chance of immediately establishing financially viable heat companies buying at commercial rates. Hence the restructuing itself should be deferred, but all the regulatory and instiutional changes would be prepared so that once full conversion to the market occurs it can be in a cootdinated fision. In the meantime the most urgent investments could be undertaken in order to improve operational efficiency. Join; UNDP/World Bank ENERGY SECTOR MANAGEMT ASSISTANCE PROGRAMME (ESMAP) LIST OF REPOR1T ON COMETED ACTIVlTIES Region/County A*lvI*/Report 271k Dci. Number SUB-SAHARAN AFRICA (AFR) Africa Regiona Anglophone Africa Household Energy Worshop (English) 07/88 085/88 Region Power Seminar on Reducing Electic Power System Losses in Africa (nglish) 08/88 087/88 Inistitutional Evaluaton of EGL (English) 02/89 098/89 Biomass Mapping Regional Workshops (English - Out of Print) 05/89 - Francophone Household Energy Workshop (French) 08/89 103/89 interafrican Electrical Engineering College: Proposals for Short- and Long-Term Developmet (English) 03/90 112/90 BionAss A t and Mapping (English - Out of Print) 03/90 - Angola Energy t (English and Potuguese) 05/89 470$-ANG Power Rehabilitation and Technical Assistance (English) 10/91 142/91 Benin lnergy At (English and French) 06/85 5222-BEN Botswana Energy Assment (English) 09/84 4998-BT Pump Electrification Prefeasibility Study (English) 01/86 047/86 Review of Electricity Service Connection Policy (English) 07/87 071/87 Tuli Block Farms Electrification Study (English) 07/87 072/87 Household Energy Issues Study (English - Out of Print) 02/88 - Urban Household Energy Strategy Study (English) 05/91 132/91 Burkina Faso Energy Asment (English and French) 01/86 5730-BUR Technical Assistance Program (English) 03/86 052/86 Urban Household Energy Strategy Study (English and French) 06/91 134/91 Burundi Energy A s_ (English) 06/82 3778-BU Petoleum Supply Management (English) 01/84 012/84 Status Report (English and French) 02/84 011/84 Presentation of Energy Projects for the Fourth Five-Year Plan (1983-1987) (English and French) 05/85 036/85 Improved Charcoal Cookstove Strategy (English and French) 09/85 042/85 Peat Utilization Project (English) 11/85 046/85 Energy Assment (English and French) 01/92 9215-BU Cape Verde Energy Assessment (English and Portuguese) 08/84 5073-CV Household Energy Strategy Study (English) 02/90 110/90 Central African Republic Energy Assessement (French) 08/92 9898-CAR Comoros Energy Assement (English and French) 01/88 7104-COM Congo Energy Assessment (English) 01/88 6420-COB Power Development Plan (English and French) 03/90 106/90 C6te d'Ivoire Energy Assessment (English and French) 04/85 5250-IVC Improved Biomass Utilization (English and French) 04/87 069/87 Power System Efficiency Study (Out of Print) 12/87 - Power Sector Efficiency Study (French) 02/92 140/91 Ethiopia Energy Assessment (English) 07/84 4741-ET Power System Efficiency Study (English) 10/85 045/85 - 2- Region/Coun ty Acdwl*/R6epo liJle Date Number Bthiopia Agricultural Residue Bdriquetting PilOt Project (English) 12/86 062/86 Bagasse Study (English) 12/86 063/86 Cooking Efficiency Project (English) 12/87 - Gabon Energy Assassit (English) 07/88 6915-GA The Gambia Energy Assessment (English) 11/83 4743-GM Solar Water Heating Retrofit Project (English) 02185 030/85 Solar Photovoltaic Applications (English) 03/85 032/85 Petroleum Supply Management Assistance (English) 04/85 035/85 Ghana Energy Assesmet (English) 11/86 6234-GH Energy Rationalization in the Industrial Sector (English) 06/88 084/88 Sawmill Residues Utilization Study (English) 11/88 074/87 Guinea Energy Assessment (Out of Print) 11/86 6137-GUI Guinea-Bissau Energy Assessment (English and Portuguese) 08/84 5083-GUB Recommended Technical Assistance Projects (English & Portuguese) 04/85 033/85 Management Options for the Electrc Power and Water Supply Subsectors (English) 02/90 100/90 Power and Water Institutional Restructuring (French) 04/91 118/91 Kenya Energy Assessment (English) 05/82 3800-KE Power System Efficiency Study (English) 03/84 014/84 Status Report (English) 05/84 016/84 Coal Conversion Action Plan (English - Out of Print) 02/87 - Solar Water Heating Study (English) 02/87 066/87 Perd-Urban Woodfuel Development (English) 10/87 076/87 Power Master Plan (English - Out of Print) 11/87 - Lesotho Energy Assessment (English) 01/84 4676-LSO Liberia vnergy Assessment (English) 12/84 5279-LBR Recommended Technical Assistance Projects (English) 06/85 038/85 Power System Efficiency Study (English) 12/87 081/87 Madagascar Energy Assessment (English) 01187 5700-MAG Power System Efficiency Study (English and French) 12/87 075187 Malawi Energy Assessment (1nglish) 08/82 3903-MAL Technical Assistance to Improve the Efficiency of Fuelwood Use in the Tobacco Industry (English) 11/83 009/83 Status Report (English) 01/84 013/84 Mali Energy Assessment (English and French) 11/91 8423-MLI Household Energy Strategy (English and French) 03/92 147/92 Islamic Republic of Mauritania Energy Assessment (English and French) 04/85 5224-MAU Household Energy Strategy Study (English and French) 07/90 123/90 Mauritius Energy Assessment (English) 12/81 3510-MAS Status Report (English) 10/83 008/83 Power System Efficiency Audit (English) 05/87 070/87 Bagasse Power Potential (English) 10/87 077/87 Mozambique Energy Assessment (English) 01/87 6128-MOZ Household Electricity Utilization Study (English) 03/90 113/90 Niger Energy Asssment (French) 05/84 4642-NIR Staus Report (English and French) 02/86 051/86 Improved Stoves Project (English and French) 12/87 080/87 -3 - Reglon/Country Advl*y/Repop Tik Date Number Niger Household Energy Conservation and Substitution (English and French) 01/88 082/88 Nigeria Energy Ament (Eaglish) 08/83 4440-UNI Rwanda Energy Assessment (English) 06/82 3779-RW Energy Assessment (English and French) 07/91 8017-RW Status Report (English and French) 05/84 017/84 Improved Charcoal Cookstove Strategy (English and Frenc:.) 08/86 059/86 Improved Charcoal Production Techniques (English and French) 02/87 065/87 Commercialization of Improved Charcoal Stoves and Carbonization Techniques Mid-Term Progress Report (English and French) 12/91 141/91 SADCC SADCC Regional S ctor: Regional Capacity-Building Program for Energy Surveys and Policy Analysis (English) 11/91 - Sao Tome and Principe Energy A essmnt (English) 10/85 5803-STP Senegal Energy Assessment (English) 07/83 4182-SE Status Report (English and French) 10/84 025/84 Industrial Energy Conservation Study (English) 05/85 037185 Preparatory Assistance for Donor Meeting (English and French) 04/86 056/86 Urban Household Energy Strategy (English) 02/89 096/89 Seychelles Energy Assessment (English) 01/84 4693-SEY Electric Power System Efficiency Study (English) 08/84 021/84 Sierra Leone Energy Assessment (English) 10/87 6597-SL Somalia Energy Assessmt (English) 12/85 5796-SO Sudan Management Assistance to the Ministry of Energy and Mining 05/83 003/83 Energy Assement (English) 07/83 4511-SU Power System Efficiency Study (English) 06/84 018/84 Status Report (English) 11/84 026/84 Wood Energy/Forestry Feasibility (English - Out of Print) 07/87 073/87 Swaziland Energy Assessment (English) 02/87 6262-SW Tanzania Energy Assessment (English) 11/84 4969-TA Peri-Urban Woodfuels Feasibility Study (English) 08/88 086/88 Tobacco Curing Efficiency Study (English) 05/89 102/89 Remote Sensing and Mapping of Woodlands (English) 06/90 - Industrial Energy Efficiency Technical Assistance (English - Out of Print) 08/90 122/90 Togo Energy Assessment (English) 06/85 5221-TO Wood Recovery in the Nangbeto Lake (English and French) 04/86 055/86 Power Efficiency 1mprovement (English and French) 12/87 078/87 Uganda Energy Assesment (English) 07/83 4453-UG Status Report (English) 08/84 020/84 Institutional Review of the Energy Sector (Bnglsh) 01/85 029/85 Energy E-fficiency in Tobacco Curing Industry (English) 02/86 049/86 Puelwood/Forestry Feasibility Study (English) 03/86 053/86 Power System Efficiency Study (English) 12/88 092/88 Energy Efficiency Improvement in the Brick and Tile Industry (English) 02/89 097/89 Tobacco Curing Pilot Project (English - Out of Print) 03/89 UNDP Terminal Report -4 - Region/County Acdvity/Repon 211k Dae Number Zaire Energy Assessment (English) 05/86 5837-ZR Zambia Energy Assessment (English) 01/83 4110-ZA Stus Report (English) 08/85 039185 Energy Sector Institutional Review (English) 11/86 060/86 Zambia Power Subsector Efficiency Study (English) 02/89 093/88 Enegy Strategy Study (Egih) 02/89 094/88 Urban Household Energy Strategy Study (English) 08/90 121/90 Zimbabwe Energy Assessment (English) 06/82 3765-ZIM Power System Efficiency Study (English) 06/83 005/83 Stats Report (English) 08/84 019/84 Power Sector Management Assistance Project (English) 04/85 034/85 Petroleum Management Asaistace (English) 12/89 109/89 Power Sector Management Institution Building (English - Out of Print) 09/89 - Charcoal Utilization Prefeasibility Study (Englih) 06190 119/90 Integred Energy Strategy Evaluation (English) 01192 8768-ZIM EAST ASIA AND PACIIIC (EAP) Asia Regional Pacific Household and Rural Eaergy Seminar (English) 11/90 - China County-Level Rurl Energy A (English) 05/89 101/89 Fuelwood Foresby Preinveetment Study (English) 12/89 105/89 Piji Energy Assment (English) 06/83 4462-FU Indonesia Energy Assessment (English) 11/81 3543-IND Stas Report (English) 09/84 022V84 Power Generation Efficiency Study (English) 02/86 050/86 Energy Efficiency in the Brik, Tile and Lime Indust r inglh) 04/87 067/87 Diesel G ating Plant Efficiency Study (English) 12/88 095/88 Urban Household Eerg Stategy Study (English) 02/90 107/90 Biomass Gasifier Preinvestment Study Vols. I & H (Englith) 12/90 124/90 Malaysia Sbah Power System Efficiency Study (Englih) 03/87 068/87 Gas Utilization Study (English) 09/91 9645-MA Myamar Ener As t Engis) 06/85 5416-BA Papua New Guinea Energy Assesmet (English) 06/82 3882-PNG Status Report (English) 07/83 006/83 Energy Strategy Paper (English - Out of Prnt) - - Institutional Review in the Energy Sector (nlish) 10/84 023/84 Power Tariff Study (English) 10/84 024/84 Solomon Islands Energy A It (Egish) 06/83 4404-SOL Energy A _essmmt (English) 01/92 979/SOL South Pacific Petrolcum Trsport in tho South Pacific (English-ut of Print) 05/86 - Tbailand Ergy A _ (Engis) 09/85 5793-TH Rurd Energy Issu and Options (English - Out of Prit) 09/85 044/85 Acceleatd Disemnation of Improved Stoves and Charcoal KilDs (English - Out of Print) 09/87 079/87 Region/Country Acdvky/Report 21Wk Date Number Thailand Northeast Region Village Forestry and Woodfuels Preinvestmnet Study (English) 02188 083/88 Impact of Lower Oil Prices (English) 08/88 - Coal Development and Utilizaton Study (English) 10/89 - Tonga Energy Assesment (English) 06/85 5498-TON Vanuatu Energy Assessment (English) 06/85 5577-VA Western Samoa 3nergy Assessment (English) 06/85 5497-WSO SOUTH ASIA (SAS) Bangladesh Energy Assessnt (English) 10/82 3873-BD Priority Investment Program 05/83 002/83 Stus Report (English) 04/84 015/84 Power System Efficiency Study (English) 02/85 031/85 Small Scile Uses of Gas Prefeasibility Study (English - (Out of Print) 12/88 - India Opportunities for Commercialization of Nonconventional Enrgy Systems (English) 11/88 091/88 Maharashtra Bagas Energy Efficiency Project (English) 05/91 120/91 Mini-Hydro Development on Irrigation Dams and Canal Drops Vols. I, II and m (English) 07/91 139/91 WindFarm Pre-Investment Study (English) 12/92 150/92 Nepal Energy As t (English) 08/83 4474-NEP Status Report (English) 01/85 028/84 Pakistan Household Energy Asse t (English - Out of Print) 05/88 - t of Photovoltaic Programs, Applications, and Markets (English) 10/89 103/89 Sri Lanka Energy Asssment (English) 05/82 3792-CE Power System Loss Reduction Study (English) 07/83 007/83 Stas Report (English) 01/84 010/84 Industrial Energy Conservation Study (English) 03/86 054/86 EUROPE AND CENTRAL ASIA (ECA) Eastem Europe The Future of Natuwal Gas in Eate Europe (English) 08/92 149/92 Poland Energy Sector Restrucuing Vols. I-V (English) 01/93 153/93 Portugal nergy Assessnt (English) 04/84 4824-PO Turkey Energy Assessment (English) 03/83 3877-TU MIDDLE EA-S AND NORTH AFRICA (MNA) Morocco Ene Ar (English and French) 03/84 4157-MOR Status Report (English and French) 01/86 048/86 Syria Erg A _t nsh) 05/86 5822-SYR Electric Power Efficiency Study (English) 09/88 089/88 Energy Efficiency Improvement in the Cement Sector (English) 04/89 099/89 - 6 - Reglon/Countiy Acdviy/Repoil lks Date Number Syria Energy Efficiency Improvement in the PFertilizer Sector(English) 06/90 115/90 Tunisia Fuel Substitution (English and French) 03/90 - Power Efficiency Study (English and French) 02/92 136/91 Energy Management Strategy in the Residential and Tertiary Sectors (English) 04/92 146/92 Yemen Energy Assessment (English) 12/84 4892-YAR Energy Investment Priorities (English - Out of Print) 02/87 6376-YAR Household Energy Strategy Study Phase I (English) 03(91 126/91 LATIN AMERICA AND THE CARIBBEAN (LAC) LAC Regional Regional Seminar on Electric Power System Loss Reduction in the Caribbean (English) 07/89 - Bolivia Energy Assessment (English) 04/83 4213-BO National Energy Plan (English) 12/87 - National Energy Plan (Spanish) 08/91 131/91 La Paz Private Power Technical Asstance (English) 11/90 111/90 Natural Gas Distribution: Economics and Regulation (English) 03/92 125/92 Prefeasibility Evaluation Rural Electrification and Demand Assessmlent (bglsb and Spanish) 04/91 129/91 Private Power Generation and Transmission (English) 01/92 137/91 Chile Energy Sector Review (English - Out of Print) 08/88 7129-CH Colombia Energy Strategy Paper (Engish) 12/86 - Costa Rica Energy Asssment (English and Spanish) 01/84 4655-CR Recommended Technical Asistane Projects (English) 11/84 027/84 Forest Residues Utilization Study (English and Spanish) 02/90 108/90 Dominican Republic Energy Assement (English) 05/91 8234-DO Ecuador Energy Assessment (Spanish) 12/85 5865-EC Energy Strategy Phase I (Spanish) 07/88 - Energy Strategy (English) 04/91 - Private Minihydropower Development Study (English) 11/92 - Haiti Energy Assessment (English and French) 06/82 3672-HA Status Report (English and French) 08/85 041/85 Household Energy Strategy (English and Frenc) 12/91 143/91 Honduras Energy Assesment (English_) 08/87 6476-HO Petroleum Supply Management (English) 03/91 128/91 Jamaica Energy Assement (English) 04/85 5466-JM Petroleum Procurement, Refining, and Distribution Study (English) 11/86 061/86 Energy Efficiency Building Code Phase I (English-Out of Print) 03/88 - Energy Efficiency Standards and Labels Phase I (English - Out of Print) 03/88 - Management Information System Phase I (English - Out of PRint) 03/88 - Charcoal Production Project (English) 09/88 090/88 FIDCO Sawmill Residues Utilization Study (English) 09/88 088/88 -7 - RegionlCountry Actdily/Repoit 1*th Date Number Jamaica Engy Sector Strategy and Investment Plnning Study (English) 07/92 135/92 Mexico lIproved Charnoal Production Within Porest Management for the State of Veiracuz (English and Spanish) 08/91 138/91 Panama Power System Efficiency Study (English - Out of Print) 06/83 004/83 Paraguay Energy Assessment (English) 10/84 5145-PA Recommended Technical Assistance Projects English- (Out of Print) 09/85 - Status Report (English and Spanish) 09/85 043/85 Peru Energy Assessment (English) 01/84 4677-PE Status Report (English - Out of Print) 08/85 040/85 Proposal for a Stove Dissemination Program in the Siem (English and Spanish) 02/87 064/87 Energy Strategy (Spanish) 12/90 - Saint Lucia Energy Assement (English) 09/84 5111-SLU St. Vincent and the Grdies Energy Assessment (English) 09/84 5103-STV Trinidad and Tobago Energy Assessment (English - Out of Print) 12/85 5930-TR GLOBAL Energy End Use Efficiency: Research and Strategy (English - Out of Print) 11/89 - Guidelines for Utility Customer Management and Metering (English and Spanish) 07/91 - Women and Energy-A Resource Guide -The Intemational Network: Policies and Experience (English) 04/90 - Assessment of Personal Computer Models for Energy Planning in Developing Countries (English) 10/91 - Long-Term Gas Conteats Principles and Applications (English) 12/92 152/92 012993