Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: 54315 Project Name BBMB Hydro Power Rehab Project Region South Asia Sector Renewable Energy/Power (100%) Project ID P105152 Borrower(s) N/A Implementing Agency Bhakra Beas Management Board Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared April 23, 2010 Date of Appraisal Authorization Estimated Date for Appraisal: May 7, 2010 Date of Board Approval Estimated Date for ERPA Signing: May 31, 2010 1. Country and Sector Background The Government of India (GoI) has identified the power sector as being vital for sustained and inclusive economic growth and has taken decisive steps to improve the legal and policy frameworks. The landmark 2003 Electricity Act seeks to improve the efficiency and accountability of the sector, building upon the establishment of autonomous electricity regulatory commissions at the Centre and in many of the states since 1998. The 2005 National Electricity Policy (NEP), 2006 National Tariff Policy (NTP), 2006 Rural Electrification Policy and 2007 Integrated Energy Policy (IEP) are intended to facilitate the goals established in the Act by detailing policy on specific issues. The NEP sets ambitious targets for providing universal access to reliable and good quality power by 2012, while also highlighting the need to mitigate power shortages as well as achieving financial viability of the electricity sector. The 2005 National Water Policy calls for the planning, development and management of India’s water resources to be governed from the national perspective, and assigns hydropower third place in the priority of use of water resources, after drinking water and irrigation. While the above policy actions have helped, the power sector still faces significant challenges: (i) low levels of connectivity, overall 35 percent 1 (44 percent in rural areas) of the households in India are still without access to electricity; (ii) high coping costs of industry, with 60 percent of Indian firms relying on captive or back-up generation; (iii) limited grid supply infrastructure; limited capacity for inter- regional electricity trade; and under-maintained state distribution systems that cannot meet demand; (iv) power shortages likely to continue with slower than needed additions of new capacity and about 25 percent of existing generation capacity in need of rehabilitation; (v) weak utility governance in most states resulting in high system losses; (vi) unpredictable fuel supply and costs, particularly for gas; and (vii) contribution to 50 percent of India’s carbon emissions, with reliance on indigenous coal based generation continuing and supply shortages leading to use of small inefficient and polluting back-up generators. During FY2009, the country faced a peak power shortage of 12.0 percent and an energy deficit of 11.0 percent 2 . The cost of un-served energy is consequently high, placing an inordinate burden on households and industries. The Economic Survey of 2006 estimated the 1 Source: NSS Report No. 527, Household Consumer Expenditure in India, 2006-07 2 Source: Monthly Review of Power Sector (March, 2009), Central Electricity Authority. Page 2 annual cost to the economy from power sector inefficiencies to be about US$ 75 billion, or 7 percent of GDP. Efficient, safe and sust ainable development of India’s hydropower potential (approximately 150,000 MW) is one of the critical options to address the energy/peak shortages and limit the carbon intensity of the power sector. Given the profile 3 of the daily load curve in India, the ability of hydropower plants to respond quickly to demand fluctuations makes them the ideal electricity source to cope with demand peaks and help stabilize system frequency. In addition, hydropower can help India address energy security concerns linked to a growing dependence on imported fossil fuels, and implement a lower carbon growth path for the sector. Scaled-up development of hydropower, including rehabilitation and capacity augmentation of existing assets, would obviate the need for expensive and polluting back-up generation which industries and households maintain for covering peak power shortages and reduce dependence on coal-fired power stations (the fuel of choice given India’s abundant coal reserves). Though there has been a government initiative to encourage various utilities in the country to undertake renovation, modernization and upration (RM&U) activities, these activities still face a number of barriers such as lack of technology and service providers, financial constraints including higher cost of implementation and long outage period acting as a constraint for taking the plant off-grid in a power deficit scenario resulting in a lower interest and significantly lower pace of implementation compared to the targets as seen from the data from the last two five year plans (IX and X Plans). In addition, in the past the majority of activities undertaken by hydropower utilities for their old assets were related to life extension and restoration only, indicating the low implementation rate of RM&U activities in the country. 2. Objectives The development objective of the Project is to improve the reliability, efficiency and safety of the operation of Bhakra Beas Management Board’s (BBMB) hydraulic structures and generation equipment to meet the increasing demand for power in the Northern Electricity Grid of India through existing clean renewable energy resources The global environment objective of this Project is to reduce the emissions of GHG gases by using market-based mechanisms sanctioned under the Kyoto Protocol to support clean energy projects in India. This will be achieved through: (i) the generation of renewable energy which will displace thermal power units, and (ii) the improvement of energy efficiency through the rehabilitation and replacement of existing outdated and inefficient equipment. 3. Rationale for Bank Involvement The mission of the Bank’s Carbon Finance Business (CFB) is to “catalyze markets for climate change mitigation and sustainable development” which is consistent with the country assistance strategy for India and with the energy access and poverty alleviation focus of the Millennium Development Goals. The Bank’s main added value will be to demonstrate the catalytic effect of carbon finance for the rehabilitation of other old hydro plants in the country. 4. Description 3 characterized by pronounced daily surges (“peaks”) due to the large number of households whose demand for power is concentrated in a few morning and evening hours Page 3 The projects (power and irrigation assets) under administration of BBMB were built between 1955 and 1978 and include - Bhakra Dam on the river Sutlej with Power Stations on the Left and Right banks (1325 MW); an irrigation channel with two Canal based Power Stations at Ganguwal & Kotla (155 MW); the Pong Dam on river Beas with a Power Station (396 MW); a diversion dam at Pandoh on river Beas (Up stream of Pong Dam) to divert its water to the river Sutlej through a water conductor system, a balancing reservoir and the Dehar Power Station (990 MW) at the tail. The proposed project is a carbon finance operation to support the renovation, modernization and uprating (RM&U) activity 4 at Left Bank Power House of the Bhakra Dam on River Sutlej. The RM&U work will not result in any alteration of water flows and includes the following activities: · Replacement of existing generation equipments (turbine runner, generator, generator transformer and allied systems) with energy efficient ones; · Providing state-of-the-art control, instrumentation and protection system for better monitoring and efficient operations. The above RM&U work, implementation of which will help augment the existing capacity by 90 MW, is in advanced stages of implementation and expected to be completed by mid 2012. The project activity, on full completion, is expected to result in annual emission reduction of around 157,621 tons of Carbon dioxide (CO 2 ) equivalent. In the first 10 years, the project activity is expected to result in emission reduction of around 1.58 million tons of Carbon dioxide (CO 2 ) equivalent. 5. Financing Total investment required for the project is around Rs. 4880 million (US$107 million). This will be met through contributions from the partner states. SOURCE AMOUNT ($Million) Contribution from Partner States 107 Total Capital Costs 107 6. Implementation The project sponsor as well as implementing entity is Bhakra Beas Management Board (BBMB). Presently, the administrative control of BBMB is with the Ministry of Power, Government of India. The BBMB came into existence in 1976 when the Bhakra and Beas projects were brought together under common administration 5 . The functions of BBMB are as under: · Administration, Operation & Maintenance of the Hydro-electric Projects (HEPs); · To regulate the supply of water from the HEPs to the States of Punjab, Haryana and Rajasthan; · To regulate the supply of power generated from the HEPs; 4 RM&U activity at Ganguwal and Kotla Power Houses have been excluded from the proposed operation as the same were started before the CDM eligibility cut-off date 5 On reorganisation of the erstwhile state of Punjab on November 1 st , 1966, Bhakra Management Board (BMB) was constituted under section 79 of the Punjab Reorganisation Act, 1966 for the administration, maintenance and operation of Bhakra Nangal Project on October 1 st , 1967. Construction of Beas Projects, a joint venture of States of Punjab, Haryana and Rajasthan was entrusted to Beas Construction Board according to Punjab Reorganisation Act. The Beas Project Works, on completion, were transferred by Government of India from Beas Construction Board (BCB) to Bhakra Management Board as per Section 80 of the Punjab Reorganisation Act, 1966 and the Bhakra Management Board was renamed as Bhakra Beas Management Board (BBMB) on May 15 th , 1976. Page 4 · Providing & performing engineering and related technical consultancy services in fields of HEPs and irrigation projects. The cost and benefits of water and power from BBMB hydropower stations are shared by all the Partner States of BBMB as per the provisions of The Punjab Reorganisation Act, 1966 . The Carbon Fund(s), administered by the World Bank Carbon Finance Unit, will purchase CERs from the proposed Project. For this purpose, subject to satisfactory completion of World Bank’s due diligence, the Carbon Fund(s) will sign an Emission Reduction Purchase Agreement with the IBRD, which acts as the Trustee for these funds, which will permit disbursement against verified and certified ERs generated by the Project. A Letter of Intent (LoI) in this regard has been signed between IBRD and BBMB. 7. Sustainability As noted above, India is currently short of power to meet normal demand and particularly to meet peak demand and with demand growing, these shortfalls in supply are forecast to continue for the foreseeable future. The Project will provide a small amount of additional clean renewable energy to the Northern Grid to help alleviate these shortfalls. The project will also help build experience in India of diversifying potential financing options for clean energy projects such as hydropower rehabilitation. With revenues coming from carbon finance, the Project is deemed financially feasible and is expected to be sustainable over its lifetime. 8. Lessons Learned from Past Operations in the Country/Sector This project draws from previous World Bank operational experiences and analytic and advisory work in hydropower. The project applies a UNFCC approved consolidated baseline and monitoring methodology for grid connected electricity generation from renewable sources. 9. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP 4.01) [X] [ ] Natural Habitats ( OP / BP 4.04) [ ] [X] Pest Management ( OP 4.09 ) [ ] [X] Physical Cultural Resources (OP/BP 4.11) [ ] [X] Involuntary Resettlement ( OP / BP 4.12) [ ] [X] Indigenous Peoples ( OP / BP 4.10) [ ] [X] Forests ( OP / BP 4.36) [ ] [X] Safety of Dams ( OP / BP 4.37) [X] [ ] Projects in Disputed Areas ( OP / BP 7.60) * [ ] [X] Projects on International Waterways ( OP / BP 7.50) [ ] [X] Piloting the Use of Borrower Systems to Address Environmental and Social Safeguard Issues in Bank-Supported Projects ( OP / BP 4.00) [ ] [X] * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 5 The project triggers the World Bank’s Environmental Assessment Policy (OP/BP 4.01) and was designated a Category B. Consultation was held with various stakeholders during Project Design Document (PDD) formulation. 10. List of Factual Technical Documents · Project Design Document (PDD) · Integrated Safeguards Data Sheet (ISDS) · Environmental Audit Report · Letter of Intent between International Bank for Reconstruction and Development and Bhakra Beas Management Board, India. 11. Contact point Mr. Rohit Mittal Task Team Leader The World Bank 70, Lodi Estate New Delhi 110003 Telephone (91-11) 417-7849 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop