Integrated Safeguards Data Sheet (Initia., Section I - Basic Infonnation Date ISDS Prepared/Updated: 04/18/2003 A. Basic Project Data I.A. I. Project Statistics Country: DOMINICAN REPUBLIC Project ID: P082712 Project: Dominican Republic Power Program Sector Loan Task Team Leader: Jayme Porto Carreiro Authonzed to Appraise Date: Apnl 29, 2003 IBRD Amount ($m): 90 Bank Approval: June 12, 2003 IDA Amount ($m): Managing Unit: LCSFE Lending Instrument: Sectoral Adjustment Loan Status. Lending Sector: Power (80%); General energy sector (20%) Theme: Infrastructure services for private sector development (P); Regulation and competition policy (S) I.A.1. Project Statistics The operation is an Energy Sector Program Loan to the Dorninican Republic in the amount of US$90 million, designed to disburse in one single tranche on loan effectiveness. This fast disbursing, single tranche loan is the first in a proposed program of Bank support of second- generation reforms in the power sector in the Dominican Republic. The proposed loan is being accompanied by a Power Sector Technical Assistance Loan to strengthen sector institutions and assist in the design of further'measures. Protvided that there are demonstrable improvements in sector performance indicators, subsequent fast disbursing loans would be proposed. An investment loan, to strengthen the transmission grid, is also under consideration. I.A.2 Program Objectives The Power Sector Program Loan (PSPL) would support the Government in continuing power sector reforms, in order to: (a) Improve the quality of service, especially by ending the persistent black-outs of recent years; (b) Increase the percentage of the population with access to electricity, with an eventual goal of universal access; (c) Raise the efficiency of sector operations; and Enhance the opportunities for financial sustainability of all operating entities in the sector. 2 I.A.3 Project Description. Sector Background: In the mid-1990s, the Government of the Dominican Republic invited in independent power producers (IPPs); this increased capacity but also prices. In 1998, Government began a major sector restructuring, by splitting two thermal generation and three distribution companies off from CDE, and then auctioning majority control to the private sector, leaving only transmission and hydro-generation in public hands. Later, the Electricity Law of July 2001 created the National Energy Commission (CNE) in charge of policy, the Electricity Superintendence (SIE) in charge of sector regulation, and the Coordinating Body (OC) responsible for dispatch. But in response to the international rise in fuel prices, Government froze tariffs, and took on fiscal obligations that proved unsustainable. In September 2002, Government announced urgent measures to resolve the crisis and to seek a longer-term solution, including: (a) renegotiation of IPPs together with a payment of the outstanding debt to them, (b) eliminationbof the generalized subsidy, whilst maintaining focused subsidies for the poor; (c) payment of Government's electricity bills; and (d) a program to combat fraud and non-payment of bills. Government Strategy and Actions Supported by this Loan. The Government has continued to move decisively on a broad front, with the following prior actions leading to this loan: (a) Financial sustainability. The three main avenues of approach are (i) clearance of arrears between the Government, distributors and generators, (ii) elimination of the generalized subsidy, and an increase in electricity tariffs to reflect fuel costs, and (iii) a program to improve cash recovery by reducing fraud and raising collection rates. (b) Completion of reforms, through (i) transfer of the publicly held 49% share in the privatized companies to an autonomous fund, (ii) agreeing on the terms of reference for a broad institutional, legal and technical assessment of SIE, and (iii) abrogation of Resolution 15 that restricted competition to supply large, non-regulated consumers. (c) Improved service to the poor by (i) agreeing to redesign the ongoing Blackout Reduction Program (PRA) to correct incentives and'make the subsidies transparent, targeted and sustainable, and (ii) articulating clearly a policy on extending service to rural areas. (d) Enhanced environmental management of the sector, by completing a preliminary power sector environment assessment. Benefits The program supported by this loan would provide the following benefits: * First, it would enhance economic growth by rectifying the service problems in the power sector, especially blackouts. In a recent survey, three quarters of firms cited electricity as a factors affecting investment decisions in the country. * Second, improved sector efficiency would tend to lower prices for electricity consumers. * Third, it would address the specific needs of the urban and rural poor by increasing access to affordable electricity service. In the urban areas, the promotion of legal connections to the grid will reduce the loss of life due to electrocution from illegal and unsafe connections. * Fourth, the enforcement of existing contractual obligations and property rights of the international investors in the power sector will give a positive signal 3 about the climate for foreign investment in the DR. Fifth, it would minimize adverse environmental and social impacts of power sector expansion. I.A.4 Project Location: (Geographic location, information about the key environmental and social characteristics of the area and population likely to be affected, and proximity to any protected areas, or critical habitats, or any other culturally or socially sensitive areas.) The project is an adjustment operation that focuses on legal, regulatory and institutional reforms in the Dominican Republic power sector throughout the country. B. Check Environmental Classification: C Comments: Since this project focuses entirely on legal, regulatory and institutional reforms, it will not have direct physical environmental impacts. Nonetheless, the Bank and the Government propose to take a proactive approach to environmental and social issues. Environmental and social planning tools and institutional responsibilities will be revisited and updated as needed. Thus, although not directly applicable to activities under this operation per se, safeguard issues will be dealt with within the reform process covered by the program, since the program presents an opportunity to strengthen the mainstreaming of environmental and social issues in future power sector operations. This program will be supported by the proposed Energy Sector Reform Technical Assistance Loan (Energy TAL), which is being prepared in parallel with the current operation. C. Safeguard Policies Triggered (from PDS) N/A Section II - Key Safeguard Issues and Their Management D. Summary of Key Safeguard Issues. II.D.la. Describe any safeguard issues and impacts associated with the proposed project. Identify and describe steps to be taken to obtain necessary data. Since it focuses on legal, regulatory and institutional reforms in the power sector, and does not finance investments in expansion, this operation has no direct adverse environmental and social impacts. However, as indicated, it offers the opportunity to address regulatory, institutional and methodological issues with the objectives of (i) ensuring the appropriate mainstrearning of environmental and social concerns in expansion planning and operation of power sector projects. The Power Sector Program Loan and the Power Sector TA Loan take a forward-looking, ensuring environmental sustainability, by completing the strategic environmental assessment of the power sector before the second loan, and developing sectoral environmental guidelines and adjusting environment regulations to local conditions prior to the third loan. II.D.lb. Describe any potential cumulative impacts due to application of more than one safeguard policy or due to multiple project components. N/A II.D.2. In light of 1, describe the proposed treatment of alternatives (if required). 4 N/A II.D.3. Describe the arrangement for the borrower to address safeguard issues. Environmental protection in the Dominican Republic has a relatively long history. Perhaps because of concerns raised by the lack of environmental efforts in Haiti environmental legislation in the Dominican Republic was enacted as far back as the early 1960s, when the first comprehensive forest conservation law was passed to protect the nation's watersheds. More recent statutes have been enacted to modernize environmental legislation such as the General Law on the Environment and Natural Resources of 2000. There is also a Cabinet-level Secretariat of the Environment in charge of developing environmental policies. The Electricity Law also established principles and responsibilities for applying environmental nonns in the power sector. CNE (on whose board the Secretary of the Environment holds a seat) is responsible for policy making regarding environmental norms as they apply to the energy sector. The Electricity Superintendence (SE) is charged with enforcing environmental norms, watching over their observance and determining penalties for their infringement when required. Because the two entities are financed by power sector agents, they can count on relatively stable resources in carrying out these functions effectively. II.D.4 Identify key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with emphasis on potentially affected people. Review of power sector proposals by environmental authorities and discussion with potentially affected people is mandated by the General Law on the Environment and Natural Resources of 2000. The Power Sector Technical Assistance Loan will support the environmental unit to be created in the National Energy Comnrussion (CNE). Creation of this environmental unit is a condition for the proposed second Power Program Loan In addition, improving service in poor neighborhoods through the blackout reduction program (PRA) involves local leaders for engaging customers to sign up, as well as community meetings to explain the objectives and benefits of the program Similar measures will apply for the rural electrification program to be supported by the project, E. Safeguards Classification. Category is determined by the highest impact in any policy. Or on the basis of cumulative impacts from multiple safeguards. Whenever an individual safeguard policy is triggered the provisions of that policy apply. S3 -- No safeguard issues are raised by this operation, as it does not finance investments in the power sector. Nonetheless, the operation takes a pro-active approach on environmental and social issues as described in section II.D.la. F. Disclosure Requirements A Preliminary Power Sector Environmental Assessment was prepared as a background paper for discussions within the Bank and with the Government. Date of receipt by Bank 04/07/2003 Date of "in-country" disclosure -- Date of submission to Info Shop-- Date of distributing to Exec Dir -- (for A Category projects) Resettlement Action Plan N/A Indigenous Peoples Development Plan N/A Pest Management Plan N/A Dam Safety Management plan N/A Signed and submitted by Name ate Task Team Leader Jayme Porto Carreir " '$/1/9/ Project Safeguards Specialist Approved by Name Date Regional Safeguards Coordinator Juan David Quinterot/ 4/i k Sector Director Danny Leipziger *'/ e|I/b)