The World Bank Belarus Biomass District Heating Project (P146194) REPORT NO.: RES30665 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF BELARUS BIOMASS DISTRICT HEATING PROJECT APPROVED ON MARCH 31, 2014 TO THE REPUBLIC OF BELARUS ENERGY & EXTRACTIVES EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E Muller Country Director: Satu Kristiina J. Kähkönen Senior Global Practice Director: Riccardo Puliti Practice Manager/Manager: Sameer Shukla Task Team Leader: Feng Liu The World Bank Belarus Biomass District Heating Project (P146194) ABBREVIATIONS AND ACRONYMS The World Bank Belarus Biomass District Heating Project (P146194) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P146194 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 31-Mar-2014 31-Dec-2019 Organizations Borrower Responsible Agency Belinvestenergosberezhenie (PMU),Energy Efficiency The Republic of Belarus Department, State Standardization Committee Project Development Objective (PDO) Original PDO The Project Development Objective is to scale up the efficient use of renewable biomass in heat and electricity generation in selected towns of Belarus. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-83510 31-Mar-2014 08-Apr-2014 31-Jul-2014 31-Dec-2019 90.00 54.21 35.80 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Belarus Biomass District Heating Project (P146194) Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Progress towards Achieving Development Objectives 1. The project is progressing well towards achieving its development objective by the loan closing date. The project includes investments in replacing gas-fired boilers with biomass-fired boilers in 13 sites, of which 9 sites are fully completed and in commercial operation. In addition to the fuel switching, all sites cover improvements in energy efficiency by investing in modernization of heat transmission and distribution systems. All remaining 4 contracts have been signed, are under implementation, and expected to be completed by the beginning of the 2018 heating season. 2. Current disbursements are about US$51 million, 57% of the loan amount. Total commitments under the project are about US$63.5 million, about 70% of the loan amount, and the amount of loan savings is about US$26.3 million. The reasons for the relatively large savings are as follows. (a) There has been good competition between local and international bidders for all contracts, with 8 - 9 bidders competing for each site. Out of the 13 supply and installation contracts, 10 are with Belarusian and 3 with consortiums of international (European) and Belarusian companies; (b) The economy of Belarus during the tendering phase was in a downturn and the local companies were eagerly competing for the few projects which had guaranteed international financing; and (c) The Belarusian Ruble (BYR) devalued against the US Dollar (USD) from USD1/BYR9,000 when the project final cost estimate was prepared (October 2013) to USD1/BYR15,000 in the beginning of 2015, when tendering and signing of the first contracts were completed. By the beginning of 2016 the exchange rate was USD1/BYR20,000. The BYR devaluation reduced remarkably the local costs in US Dollar terms. The World Bank Belarus Biomass District Heating Project (P146194) 3. In order to utilize the loan savings and increase the development impact of the project, a Level 2 restructuring is proposed so as to properly reflect changes in the implementation results due to the increased number of biomass district heating installations. Other reasons for the restructuring include corrections of two intermediate results indicators due to (i) improved understanding of the market conditions for adopting energy content-based pricing for wood biomass; and (ii) changed policy environment for removing heat tariff subsidies. These are discussed in more details in the section below. 4. The Bank team has conducted technical, economic and safeguards due diligence reviews of the seven new sites proposed to be financed by the loan savings and given no objection to proceeding to the preparation of detailed technical designs for these new sites. 5. The project is in compliance with the key financial management requirements, including quarterly reporting and audit requirements. The project does not have any overdue audits. 6. To achieve the PDO over the remaining two years of project implementation, the following actions are needed: (i) completion of the remaining four sites out of the original 13 sites; (ii) completion of national approval procedures for the seven new sites ; (iii) initiating further analytical support on development of a biomass fuel market and fuel quality standards; (iv) continuing the work on social accountability issues and consumer access to information; and (v) conducting close operational monitoring of completed sites. II. DESCRIPTION OF PROPOSED CHANGES B. Utilizing Loan Saving to Finance Additional Sites and Update of Results Indicators 1. The loan savings of US$ 26.3 million will finance biomass district heating investments in seven additional sites with similar installations for the original 13 sites. These include replacing old and inefficient gas-fired boilers with modern biomass-fired boilers for heat generation and improving the energy efficiency of heat transmission and distribution and in some cases purchasing modern gas-fired peak load boilers. The seven additional sites are: Baranovichi (new site), Kobrin, Buda-Koshelevo, Novogrudok, Schuchin, Vorontsy, and Borovliany. 2. The PDO indicators will remain same, but their target values will be adjusted to reflect the extended scope. The annual energy generation in three of the original sites has been over estimated in feasibility studies, these will be updated and correct values will be included in the results framework. Based on the site-specific indicators the new target values have been defined for the following PDO indicators: (i) Lifetime energy savings, (ii) Heat and electricity generated from renewable biomass, (iii) Projected lifetime reduction of CO2 emissions. 3. Changes in the Intermediate Results Indicators will include the following: (a) Intermediate indicators for the additional sites will be added to the results framework and the target values for the indicators (i) Lifetime energy savings, (ii) Heat and electricity generated from renewable biomass, and (iii) Projected lifetime reduction of CO2 emissions, (iv) Generation capacity of renewable energy (biomass) constructed, and (v) Direct project beneficiaries will be updated taking into account the additional sites and corrections of the overestimated target values at some of the original sites described above; (b) The indicator, Number of Forestry Enterprises Adopting Energy-content-based Wood Biomass Pricing, will be removed. Under the project a study was carried out analyzing international experience in energy-content based biomass pricing and options and barriers for applying similar pricing principles in Belarus. After the study was The World Bank Belarus Biomass District Heating Project (P146194) completed and its results widely discussed with all counterparts of biomass supply chain, it became clear that substantial changes of the current practice would take longer time than the project implementation period. The Bank will continue supporting further analysis on energy-content based pricing method in Belarus, so that the new method may be used in the future. (c) The target value for the indicator “Average Cost-recovery Rate for Residential District Heating” will be reduced because of recent changes in the Government’s tariff policy framework, including extended timeframe for increasing the residential heat tariffs towards full operating cost recovery. Based on the current Government plan, which reflects a desire to minimize potential social impact, it would take several years beyond 2018 for the residential heat tariffs to reach operating cost recovery levels. 4. At this time the project, including investments in the 7 new sites, is expected to be completed at the closing date of December 31, 2019. It is expected that tendering for the first additional sites will start in March – April 2018, and for the rest of sites before end-July 2018. If all tendering procedures go well without unexpected delays, all additional contracts should be signed by October 2018, which would enable the contracts’ completion by the current loan closing date, December 31, 2019. Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. III. SUMMARY OF CHANGES Changed Not Changed Change in Results Framework ✔ Change in Implementing Agency ✔ Change in DDO Status ✔ Change in Project's Development Objectives ✔ Change in Components and Cost ✔ Change in Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Overall Risk Rating ✔ Change in Safeguard Policies Triggered ✔ Change of EA category ✔ The World Bank Belarus Biomass District Heating Project (P146194) Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ Change in Implementation Schedule ✔ Other Change(s) ✔ Change in Economic and Financial Analysis ✔ Change in Technical Analysis ✔ Change in Social Analysis ✔ Change in Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators PDO_IND_TABLE Projected lifetime energy savings Unit of Measure: Megawatt hour(MWh) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 339834.00 1357469.00 Revised Date 16-May-2014 20-Oct-2017 31-Dec-2019 Heat and electricity generated from renewable biomass associated with investments financed under the project Unit of Measure: Megawatt hour(MWh) Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 1699632.00 16239907.00 Revised Date 16-May-2014 20-Oct-2017 31-Dec-2019 Projected lifetime reduction in CO2 emissions due to investments financed under the project Unit of Measure: Metric ton Indicator Type: Custom Baseline Actual (Current) End Target Action The World Bank Belarus Biomass District Heating Project (P146194) Value 0.00 1154620.00 4465178.00 Revised Date 16-May-2014 27-Jun-2017 31-Dec-2019 Intermediate Indicators IO_IND_TABLE Generation Capacity of Renewable Energy (other than hydropower) constructed Unit of Measure: Megawatt Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 51.60 106.00 No Change Date 16-May-2014 20-Oct-2017 31-Dec-2019 Generation Capacity of Renewable Energy constructed - Other Unit of Measure: Megawatt Indicator Type: Custom Breakdown Baseline Actual (Current) End Target Action Value 0.00 51.60 184.00 Revised Date 16-May-2014 20-Oct-2017 31-Dec-2019 Direct project beneficiaries Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 22354.00 141020.00 Revised Date 16-May-2014 20-Oct-2017 31-Dec-2019 Female beneficiaries Unit of Measure: Percentage Indicator Type: Custom Supplement Baseline Actual (Current) End Target Action Value 0.00 47.00 50.00 No Change Number of forestry enterprises adopting energy-content-based wood biomass pricing The World Bank Belarus Biomass District Heating Project (P146194) Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 25.00 Marked for Deletion Date 16-May-2014 20-Oct-2017 31-Dec-2019 Strengthened social protection measures adopted Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No Yes Yes No Change Date 16-May-2013 20-Oct-2017 31-Dec-2019 Average cost-recovery rate for residential district heating Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 15.00 17.00 35.00 Revised Date 16-May-2014 20-Oct-2017 31-Dec-2019 Consumer access to information Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 3.00 3.00 No Change Date 16-May-2014 20-Oct-2017 31-Dec-2019 Site specific designs completed Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 13.00 20.00 Revised Date 16-May-2014 20-Oct-2017 31-Dec-2019 S&I contracts competitively awarded Unit of Measure: Number Indicator Type: Custom The World Bank Belarus Biomass District Heating Project (P146194) Baseline Actual (Current) End Target Action Value 0.00 13.00 20.00 Revised Date 16-May-2014 20-Oct-2017 31-Dec-2019 Construction progress Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 56.00 100.00 No Change Date 16-May-2014 20-Oct-2017 31-Dec-2019 Construction progress Kadino Unit of Measure: Percentage Indicator Type: Custom Breakdown Baseline Actual (Current) End Target Action Value 0.00 100.00 100.00 No Change Date 16-May-2014 20-Oct-2017 31-Dec-2019 Construction progress Zarechie Unit of Measure: Percentage Indicator Type: Custom Breakdown Baseline Actual (Current) End Target Action Value 0.00 100.00 100.00 No Change Date 16-May-2014 20-Oct-2017 31-Dec-2019 Contruction progress Zyabrovka Unit of Measure: Percentage Indicator Type: Custom Breakdown Baseline Actual (Current) End Target Action Value 0.00 100.00 100.00 No Change Date 16-May-2014 20-Oct-2017 31-Dec-2019 Construction progress Bereza The World Bank Belarus Biomass District Heating Project (P146194) Unit of Measure: Percentage Indicator Type: Custom Breakdown Baseline Actual (Current) End Target Action Value 0.00 100.00 100.00 No Change Date 15-Aug-2014 20-Oct-2017 31-Dec-2019 Contruction progress Kalinkovichi Unit of Measure: Percentage Indicator Type: Custom Breakdown Baseline Actual (Current) End Target Action Value 0.00 80.00 100.00 No Change Date 16-May-2014 20-Oct-2017 31-Dec-2019 Construction progress Baranovichi Unit of Measure: Percentage Indicator Type: Custom Breakdown Baseline Actual (Current) End Target Action Value 0.00 55.00 100.00 No Change Date 16-May-2014 20-Oct-2017 31-Dec-2019 Contruction Progress Volkovysk Unit of Measure: Percentage Indicator Type: Custom Breakdown Baseline Actual (Current) End Target Action Value 0.00 70.00 100.00 No Change Date 16-May-2014 20-Oct-2017 31-Dec-2019 Construction progress Ivanovo Unit of Measure: Percentage Indicator Type: Custom Breakdown Baseline Actual (Current) End Target Action Value 0.00 100.00 100.00 No Change The World Bank Belarus Biomass District Heating Project (P146194) Date 16-May-2014 20-Oct-2017 31-Dec-2019 Construction progress Baranovichi (new) Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 100.00 New Date 31-Dec-2017 31-Dec-2017 31-Dec-2019 Construction progress Kobrin Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 100.00 New Date 31-Dec-2017 31-Dec-2017 31-Dec-2019 Construction progress Buda-Koshelevo Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 100.00 New Date 31-Dec-2017 31-Dec-2017 31-Dec-2019 Construction progress Novogrudok Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 100.00 New Date 31-Dec-2017 31-Dec-2017 31-Dec-2019 Construction progress Schuchin Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 100.00 New Date 31-Dec-2017 31-Dec-2017 31-Dec-2019 The World Bank Belarus Biomass District Heating Project (P146194) Construction progress Vorontsy Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 100.00 New Date 31-Dec-2017 31-Dec-2017 31-Dec-2019 Construction progress Borovliany Unit of Measure: Percentage Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 100.00 New Date 31-Dec-2017 31-Dec-2017 31-Dec-2019 Note to Task Teams: End of system generated content, document is editable from here.