75590 June 2012 PPIAF Assistance in the Republic of Belarus The government of the Republic of Belarus (Belarus) requested support from PPIAF in 2005 to assess potential reforms in the energy sector to liberalize the sector, improve sector performance, and increase domestic power. In August 2010 the Ministry of Energy announced a new energy strategy for the 2011 – 2020 period, that lays out a $45.9 billion plan to upgrade the Belarusian energy system, incorporating several aspects of the recommendations provided in the PPIAF report. Technical Assistance for the Reform of Belarus’s Energy Sector The government of Belarus adopted a National Program for Energy Efficiency for 2006–2010 that targeted a reduction in dependence on the importation of energy as a prime energy policy goal, and set a target of 25% of the total production of heat and electricity to be provided by local fuel and non-traditional and renewable energy sources by 2012. These were ambitious targets considering the poor performance of the public sector-dominated energy sector in Belarus up to that point. Belarus’ Ministry of Energy was the state administration body responsible for defining and implementing the country’s energy policies . The Ministry of Economy, fulfilling the role of a regulatory body, formulated tariff policy and was accountable for energy pricing on the basis of calculations by the Ministry of Energy. Electricity and heat prices for the population were uniform throughout the country, and established by the Ministry of Economy. The country’s energy sector was almost entirely owned by the public sector. Approximately 98% of power generation capacity was owned and operated by Belenergo, the state-owned power utility, and the remainder was produced by decentralized generation plants owned by various other state-owned enterprises. In addition, Belenergo owned 50% of the heat supply capacity, with the remaining district heating systems owned and operated by municipalities. PPIAF support was requested in 2005 to assist the government of Belarus to begin the process of liberalizing the energy sector in Belarus through a review of the legal and regulatory framework in order to encourage private sector participation in energy generation. The PPIAF activity had several components, beginning with a report that provided a diagnosis of the energy sector in Belarus, followed by an assessment of the current legal, institutional, and regulatory framework for small-scale decentralized energy generation (DG). The report also analyzed the main technological options available for DG in Belarus based on international experience in renewable energy- based DG promotion. The report provided several recommendations on possible reforms of the legal, regulatory, and institutional framework for DG promotion in Belarus and proposed a general strategy and an action plan for their implementation. These recommendations focused, in the short term, on the design of fair and cost reflective transmission and distribution rates for DG agents and transparent procedures for connection of DG to transmission and distribution networks. In the longer term, the report discussed options for the gradual unbundling of the electricity industry, the separation of the regulatory function from other state roles, and the development and demonstration of public-private partnership models in small- scale power generation. PPIAF also supported the drafting of outline business plans for two potential power projects in Belarus: 1) the Minsk Vodakanal sludge treatment facility, biogas production, and combined heat and power plant; and 2) a wood-fired combined heat and power plant near Prozhany. The purpose of these business plans was to provide preliminary prefeasibility analysis on the proposed projects and to outline a road map of further measures to be taken in order for the projects to be eventually realized. Both of these projects were in line with the government’s decision to reduce dependence on the importation of energy through the creation of an affordable supply of domestic energy. Along with the outline business plan, a project idea note was also drafted for the Minsk Vodakanal sludge project, focused specifically on establishing a standard procedure for designing projects to meet carbon credit requirements. In addition, a standard Power Purchase Agreement for DG was drafted under the PPIAF activity. This was designed to support government policy on DG promotion, by creating a transparent standard contract to 1 formalize and regulate the relationship between the public electricity purchaser (i.e., the off-taker) and small-scale generators. Finally, PPIAF provided training and capacity building to 40 officials in the Ministry of Energy, Ministry of Economy and Environment, and Committee on Energy Efficiency to enhance their understanding and knowledge on issues relating to development of small-scale energy projects with private participation. Based on the outline business plan for the Prozhany wood-fired combined heat and power plant, the project was not deemed suitable for private participation. Thus, in December 2009 the Ministry of Energy began operation of a mini 3.7 MW combined heat and power plant at Prozhany. The plant runs on wood chips and peat and provides Prozhany with heat and the Prozhany region with electric energy. It is estimated that the plant will provide around $750,000 in energy savings per year. Following the outline business plan, it was advised to undertake detailed feasibility of the Minsk Vodakanal sludge treatment facility with the possibility of developing the project with private participation. In 2009 Sida provided funding for the preparation of a detailed feasibility study for the construction of a biogas production and combined heat and power plant at Minsk. Following the results of the Sida study, the City of Minsk decided against launching the project as a PPP, and in November 2011 signed a turnkey design and build contract for the construction of a €28 million sludge digestion and biogas generation plant. The plant will digest sludge created by the nearby waste water treatment plant, and the biogas produced will be converted into energy in three combined heat and power plants with an electrical output of 1.4 MW each (total of 4.2 MW). In August 2010 the Ministry of Energy announced a new energy strategy for the 2011 –2020 period, “Strategy of the development of power potential in the Republic of Belarus, � which was formally approved by Council of Ministers’ Resolution No 1180. The 2011–2020 strategy lays out a $45.9 billion plan to upgrade the Belarusian energy system, incorporating several aspects of the recommendations provided in the PPIAF-funded report. Of the $45.9 billion total funding requirement included within the strategy, $16.9 billion was allocated to help improve energy-saving measures and a wider use of small-scale local fuels. The ambitious program will be financed by the government and through public-private partnerships, as recommended by the PPIAF-funded study. In order to attract direct investments and utilize the potential (financial, manufacturing, intellectual) of foreign investors, the strategy calls for Belarus to liberalize its electricity market, set up joint ventures, and create foreign companies inside the country in order to help increase and encourage private investment in electricity projects. Also recommended in the PPIAF-funded report, the energy strategy seeks to strengthen the regulatory framework for large- and small-scale power generation, create a wholesale electricity market, and support a program to implement small power plants including small hydro, bio-fuel combined heat and power, and small gas engine plants (less than 2 MW). For example, the strategy envisages the restoration of 10 existing plants and the construction of 35 new micro and small hydro power stations, as well as the construction of 39 biogas stations. Results of PPIAF’s Support for Belarus’s Energy Sector Category Outputs Enabling environment reform  Belarus – Advisory Services on Strategy for Private Plans/strategies prepared Participation in Decentralized Energy Supply, December 2006 2 Project cycle-related assistance  Outline business plans for the Minsk Vodakanal sludge treatment facility and the Prozhany wood-fired combined heat and power plant, 2006 Transaction support  Project idea note on the Minsk Vodakanal sludge treatment facility, 2006  Standard Power Purchase Agreement for private participation in decentralized energy supply in Belarus, 2006 Capacity and awareness building  Training workshops on issues relating to development of small- Workshops/seminars scale energy projects with private participation, 2006–2007 Category Outcomes Enabling environment reform  Belarus – Advisory Services on Strategy for Private Participation in Decentralized Energy Supply adopted. The Strategy of the development of power potential in the Republic of Belarus for 2011–2020 was adopted through Council of Ministers’ Resolution No 1180 in August 2010 and incorporated several aspects of the recommendations provided in the Plans/strategies adopted PPIAF-funded report. These include: 1) supporting the implementation of small-scale hydro, bio-fuel combined heat and power, and small gas engine plants; 2) liberalizing the electricity market through the promotion of public-private partnerships; 3) strengthening the regulatory framework for large and small-scale power generation; and 4) creating a wholesale electricity market in the country. Capacity and awareness building  Technical capacity of government officials enhanced following Technical capacity enhanced training on issues relating to development of small-scale energy projects with private participation, 2006–2007 3