VOLUME II: 9 1 COUNTRY Vol. 2 PROFILES PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION I TA B L E O F C 0 N T E N T S VOLUME 11* ALBANIA 1 ARMENIA 4 AZERBAIJAN 8 BELARUS 11 BOSNIA AND HERZEGOVINA 13 BULGARIA 1 7 CROATIA 20 CYPRUS 22 CZECH REPUBLIC 23 ESTONIA 26 GEORGIA 28 HUNGARY 32 REPUBLIC OF KAZAKHSTAN 36 LATVIA 40 LITHUANIA 43 FORMER YUGOSLAV REPUBLIC OF MACEDONIA 47 MOLDOVA 50 POLAND 54 ROMANIA 58 RUSSIA 63 SLOVAKIA 68 SLOVENIA 74 TAJIKISTAN 81 TURKEY 83 TURKMENISTAN 88 UKRAINE 90 'Energy Sector Activities of the World Bank in Europe and Central As a Region s pub ished in two vol- umes This document (Vo ume 11) contains .nd vidual country prof es A separate document (Volume i) contains the overall profile nc6uding a descript on of the World Bank s object ve and strategy in the energy sector the work program, and the organization and staff of the Energy Department VOLUME II: COUNTRY PROFILES A L B A N I A COUNTRY INFORMATION Albania has a largely rural economy with agri- By the end of 1996, the domestically-financed culture generating 56 percent of output, and fiscal deficit had reached over 1 0 percent of industry and construction 21 percent. After an GDP, basically undoing all the progress made output decline of nearly 33 percent between on the fiscal side since transition. With the col- 1990 and 1991, recovery has been due to lapse of the pyramid schemes in late 1996 the government's commitment to a strong pro- and early 1997, the crisis changed in nature. gram of macroeconomic stabilization and The Government in Tirana ost control of large structural reform. With assistance from the parts of the country, widespread looting international community, Albania achieved a occurred, a large number of weapons were substantial progress in macroeconomic stabi- sto en and general insecurity started to prevail lization, with major cuts in the government which severely disrupted economic and social budget deficit and a corresponding decline in activities. In April 1997, following a request inflation. On the structural side, wide-ranging made by the authorities in reforms were implemented which dismantled Albania, a multi-national ALBANIA - BASIC INDICATORS many of the controls of the previous regime, force led by Italy was Population mid-1993 (millions) 3.4 including early privatization of virtually all deployed on the ground 1993 1994 1995 1996 small enterprises and agricultural land, the and helped improve the (estim) GNP per capita 3 33 405 623 789 abolition of almost all price controls, the e uni- security situation in the (US$) 7 fication and floating of the exchange rate, and country, while OSCE was Annual GDP 9.6 9.4 8.9 8.2 sweeping liberalization of the trade and pay- mandated to provide assis- Growth (%) ments regime which removed practically all tance in restoring political GDP Inflation (%) 85 22.5 7.8 12.7 restrictions in these areas. The supply stability and consolidating Total 66.3 43.7 29.3 29.6 response of these economic reforms - largely democracy in Albania. Debt/GDPmp (%) private-sector driven - was impressive, and Albania achieved growth rates which were THE BANK GROUP'S STRATEGY among the highest in Europe, in range of 8 to An initial assessment of the situation in 9 percent per annum during the period 1993- Albania has been completed by the World 96. Nonetheless, the country remains by far Bank, the European Commission, and the the poorest in Europe. EBRD, in consultation with the IMF. Establishment of a credible and effective gov- While the achievements on the macroeconom- ernment with full authority over the country ic policy and structural fronts were impressive, and restoration of public security are consid- institutional development remained weak in ered main prerequisites for post-crisis financial Albania. Progress was especially lacking in assistance. The recovery program includes, the area of governance, as reflected in the first of all, institutional strengthening, including generally weak judicial implementation capac- at the local level, as well as development of ity and inefficient public administration. The independent judiciary system and judicial financial sector remained largely unreformed, implementation capacity. In the area of eco- with the formal banking sector dominated by nomic and social policies, it is necessary to insolvent state banks, and domestic financial achieve medium-term sustainability of bud- intermediation undertaken mostly in the infor- getary and external accounts, control inflation, mal financial sector. These institutional and prevent illegal financial activities as well as structural weaknesses contributed in no small strengthen the functioning of the formal finan- part to the crisis which erupted in early 1997. cial system. The important objectives of the VOLUME 11: COUNTRY PROFILES ALBAN.A Ch ENERGY recovery program are: alleviation of poverty, the commissioning of the Komani hydropower addressing shortages, improvement of health station. Coal production increased to over 0.5 and educational sectors, resumption of privati- million toe, but natural gas production fell to so;: S : urces :jX :: : zation and private economic activities, reduc- about 0.2 million toe as a result of a gas field GsEner Resources 70 bcf tion of unemployment, establishment of land fire. After 1 989, the sharp contraction of the Gas Reserves 24mlns70bcf market and ensuring continuation of agricul- economy combined with the effects of insuffi- 0 Oal ResertSvCes t2:4 mm ;ta;ns: tural production. The program also is address- cient preavious maintenance and outdated lEA0 Pr:$00 imaryVi:Xt000:D: Energy0i ing issues of poor infrastructure and its man- equipment led to a virtual collapse of energy Conu mption T agement and financing, production in Albania. Production of oil, coal 0 S;S0:j00SonSUmption 0 0001.'19 CMXTOEV:00 and natural gas fell by 53 %, 91 % and 78% Electr 000007 000002 SiS VENERGY POLICIES AND ISSUES respectively between 1989 and 1994. Electricity cosumption per: Albania's energy resources comprise: oil, nat- Fuelwood production estimates for this period :0captl;;a00f;eX (1995) 635 kWh/yr00 ural gas, coal, wood and other biomass, peat are uncertain, with a reduction in officially and hydropower. Remaining proven recover- allowed supply thought to have been largely Installed Power Generation able oil reserves are estimated at 27 million offset by increased illegal cutting. Capacit00i0000;0y00X;0f;j0;:0j 779f: MW tons. There are also limited remaining recov- Hydropower was the only source of supply erable natural gas reserves estimated at 1.63 that was maintained at a satisfactory level billion cubic meters. Production of most of the after 1989, but it too was at risk because of remaining oil and gas will require enhanced insufficient maintenance and variable rainfall. recovery methods. Minable coal reserves in seams thicker than 0.4 meters are 350 million Prior to 1993, Albania was a net exporter of tons, but they are not economic, The standing energy. By 1994 net imports reached 13 % of stock of wood in the forest estate is about 80 total consumption, mainly because of greatly million cubic meters; there is much wood and increased imports of diesel oil and to a lesser BANK'S TEAM other biomass available for fuel use outside the extent gasoline and kerosene. ARNTRAUD HARTMANN, forest estate, but estimates of the annual sus- COUNTRY DIRECTOR (H12-021, X80523) tainable supply vary widely. Peat resources BANK GROUP'S STRATEGY REGARDING THE are estimated at 158 million tons, virtually all ENERGY SECTOR HENK Busz, of which are located in a single deposit near Immediate priorities are to repair damages SECTOR LEADER Maliq. Use of peat as a household fuel was incurred during the early part of 1997 and to (H5-055, x32300) investigated but found not to be feasible continue work on the Power Transmission and RICHARD HAMILTON, because of high ash content and marginal eco- Distribution Project. The institutional features SR. ENERGY ECONOMIST nomics. While Albania's hydropower poten- of the project will need to be amended to (H5-107, x32344) tial has not been precisely established, it is adjust to the post-crisis circumstances. The thought to be more than three times as large as overall objectives are: rehabilitation and ENAR WENNERSTROM, the amount already developed, which pro- strengthening of existing energy capacity, SR. FINANCIAL ANALYST duces 4,000-5,000 GWh in a normal hydro- reduction in "non-technical" power system loss- (H5-103, x32741) logical year. Albania's energy resources have es and improvement in bill collectior, institu- been sufficient to supply the country's needs tional strengthening, sector restructuring and and enable it until recently to be a net energy privatization. exporter. From 1982 to 1989, domestically produced crude oil and fuelwood were the main sources of supply at about 1 .2 million toe each per year. Hydropower generation increased by 1986 to about 1 million toe with 2 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA RECION ENERGY PROJECTS UNDER IMPL,EMENTATION Project Development Objectives Effective IDA Credit/ Project Closing Task Date Revised Cost US$ Date Manager Amount min US$ mln Power Loss The main objectives are to: (il reduce non-technical 06.39.95 5.0 8.731 12.31.97 R. Hamilton Reduction electricity losses (mainly due to theft of electricity) thereby (LN No. reducing uneconomic use of electricity and increasing 26770) electricity revenue; and (ii) support institutional reform and strengthening in the power subsector. The project would indirectly reduce technical electricity losses by relieving pressure on overloaded transmission and distribution facilities. Power The project objectives are to: (i) improve the overall 03.25.96 29.50 116.6 06.30.01 R. Hamilton Transmission standard, reliability and efficiency of electric power supply and Distribution and enhance the efficiency of electricity interchanges with (LN No. 28260) neighboring countries; (ii) reduce unbilled electricity consumption; (iii) establish a regulatory framework; (iv) begin the process of privatizing the power sector in an efficient and non-disruptive way; (v) ensure the financial viability and institutional strength of KESH and the distribution enterprises of Elbasan, Shkoder and Vlore; and jvi) encourage energy conservation and efficiency in electric appliances and buildings. ENERGY PROJECTS UNDER PREPARATION Project Project Description FY Proposed Status Project Amount ($m) Manager Third Power 2000 Initial stages R. Hamilton (AL-PE-431 77) of preparation. VOIUME II: COUNTRY PROFILES 3 COUNTRY INFORMATION BANK STRATEGY AND OBJECTIVES. Armenia has made huge strides in reforming The Bank's strategy for the next three years its economy and in establishing a suitable pol- builds on the progress achieved since the lim- icy framework. The stabilization program, sus- ited CAS (presented to the Board in February tained since Spring 1994, has brought down 1995). Because of resource constraints (both the budget deficit to 8.4 percent of GDP in lending and budgetary), the strategy focuses 1996, a sixth of the 1993 figure. Annual on being selective in Bank interventions, hence inflation has fallen to under 6 percent in reducing Bank activities in certain sectors - 1 996aethe lowest in the FSU. And after years agriculture, housing - which, while impor- of collapse, GDP grew by 5.4 percent in tent, are riot considered key bottlenecks. The 1994, by nearly 7 percent in 1995, and by strategy builds heavily on the findings of our 5.8 percent in 1996. However, poverty recent poverty assessment, and focuses remains severe - particularly in urban areas, IBRD/IDA resources on support for overall eco- where 30% of households were classified as nomic reforms, and on investments in basic poor or very poor in 1995. At US$20 per infrastructire and key social services. The month, real wages are only a third of their strategy reflects the Government's priorities, 1992 levels. Moreover, the economic crisis which match the Bank's own views. and the collapse of public finances have trans- lated into a dramatic deterioration of quality of The objectives of the Bank's country assistance basic social services, a drop in school enroll- strategy are to: ment, and curtailed access to health and edu- * Foster the rapid development of the private cation by the poor. sector by promoting further structural reforms, strengthening the financicil system The country faces the dual task of consolidat- and the regulatory framework, and allevi- ing the advances of the first phase of reforms ating key infrastructure bottlenecks in ener- - macroeconomic stability, open and compet- gy, transport and water. itive markets, improved financial discipline * Support social sustainability and the allevi- and an emerging private sectoraswhile moving ation of poverty through the strengthening ahead on the difficult task of completing the of the social safety net, and through transition and building the supporting institu- improvements in the quality of and access tions needed for a vibrant market economy. to basic health and education services. The Government's program has three over- The proposed strategy envisages a mix of lend- arching objectives: (a) to consolidate macro- ing, guarantees and non-lending services to economic stability and maintain creditworthi- achieve the above two objectives. Based on AXMENIA- BASICINDICAtO ness; (b) to accelerate the prospects for sustained GDP growth and on growth and development expectation of a gradual easing of regional Population mi& 1993 (milions) 3J 5of the private sector and tensions, Armenia has been deemed credit- 1estim) lay the basis for sustained worthy for modest amounts of IBRD lending GNP per capita 560.0 620.0 730.0 830.0 growth; and (c) to ensure over the CAS period. (US$) c the social sustainability of Annual GDP -15.0 5.4 6.9 5.8 the reform process and KEY SECTOR ISSUES AND POLICIES :Growth (%) X t f 0t ::it X ;0;0000400000;; 0: preserve Armenia's stock With an energy import dependence of about CPI (% growth 3731.9 5273.4 176.7 14.7 of highly-skilled human 90% of prirnary energy consumption, and the rate) Total 30.2 : 30.7 32.9 38.7 capital. unreliability and high costs of energy transport Debt/GDPmp (%) through neighboring republics Following the 4 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION collapse of the Soviet Union, the Government large investment needs in the sector, the of Armenia has placed a high priority on Government's strategy is to deepen energy AREMENA ENERGY improving the security of energy supply and sector reforms started during 1995/96 by SECTOR INDICATORS. the efficiency of its consumption. The key sec- building on the interrelated achievements of tor issues affecting the achievement of these improved quality of supply and improved pay- Energy Resources objectives are: (i) a collapse in economic (pay- ment discipline. Over the next three years, the Oil Reserves (million tons)- ing) demand, particularly from industrial and Government intends to: (i' strengthen the regu- other commercial consumers which historically latory capacity of the Energy Commission; (ii) consumed about 75% of Armenia's power introduce lAS-based accounting for sector Energy Consumption generation; (ii) a collapse in Armenia's power enterprises (by April 1998); (iii( implement a export markets; (iii) a need to moderate Financial Rehabilitation Plan for the power sec- increases in electricity tariffs to mitigate the tor to restructure the stock of receivables and Power Generating Capacity adverse social impact on the population which poyables and prevent the growth of new now consumes 50-55% of electricity supply arrears; (iv) implement a sector privatization (about 30% of urban households are classified strategy with assistance from international as poor and spend less than US$50 per month financial advisers. on their basic needs of which a typical energy bill is about US$10-1 5); (iv) the growing level The Government's commitment to sector of external debt and arrears for gas and reforms is demonstrated by: (i) the adoption of nuclear fuel imports (estimated to be US$80 on Energy Law in June 1997 which consoli- million as of April 1, 1997) resulting mainly dates the separation of power generation, from non-technical losses and non-payment; (v) transmission and distribjtion facilities, estab- the lack of financing needed to arrest and lishes an independent Energy Commission reverse the deteriorating condition of energy responsible for issuing licenses and setting infrastructure (about US$1.7 billion is needed market rules and regulated tariffs, and sepa- over the next 1 5 years in the power sector rates the policy-making and ownership role of alone); (vi) inadequate management capacity, the state; (ii) increase in electricity tariffs - incentives and tools to commercialize sector since 1994, average retail electricity tariffs enterprises (including insufficient metering, have been increosed from 1.4 US cents/kWh accounting and auditing systems); (vii) restrict- to 4.2 cents/kWh at present, covering direct ed energy import options - the bulk of operating costs and an allowance for com- imports have to come through Georgia mercial losses and debt service; (iii) raising because of the trade embargo by Azerbaijan gas tariffs - in a first step towards restoring and Turkey; (viii) the assessment by the G-7 reliable gas supply to households, gas prices that nuclear power plants of the VVER-440 were recently set at US$100/thousand cubic type (as in Armenia) are intrinsically unsafe meters for households and US$78/tcm for and should be retired as soon as possible, and large consumers (based on a border price of Armenia's agreement to retire its nuclear plant US$65/tcm); (iv) improving tariff collections no later than end-2004; and (ix) the untested from less-than 50% in 1995 to an average legal and regulatory environment for private 63% in 1 996, and 70%, in the second quarter investment in the power sector. of 1997; (v) consolidating the 57-60 electrici- ty distribution companies created after the Government's Sector Strategy: Recognizing unbundling of the vertically-integrated power that foreign private investment will be the main utility into a single company for Yerevan and source of significant financing to meet the 10 regional distribution companies; (vi) com- VOLUME II: COUNTRY PROFILES 5 pleting the separation of generation enterpris- es from transmission; and (vii) adopting a financial rehabilitation plan and privatization decree. THE BANK STRATEGY FOR THE ENERGY SECTOR The proposed lending program envisages two investment operations focused on alleviating priority infrastructure bottlenecks and improv- ing the environment for the private sector. The Electricity Transmission and Distribution Project BANK'S TEAM (FY98) seeks to reduce technical losses in the JUDY O'CONNOR, power system, through the rehabilitation of dis- COUNTRY DIRECTOR tribution networks, and upgrading of metering, (H12-1 13, X38513) dispatch and communication capabilities. This project also supports actions to strengthen JONATHAN WEALERS, financial discipline in the power sector and to TEAM LEADER (H5-243, X32468) build capacity in sectoral institutions. A follow- up Power and Gas Restructuring Project includ- DAVID CRAIG, ing a partial risk guarantee component for pri- SECTOR LEADER vatization of power facilities and lending for (H5-077, x33560) gas sector rehabilitation is envisaged for FY99. SALMAN ZAHEER, ENERGY ECONOMIST (H5-249, x39477) JANN MASTERSON, OPERATIONS ANALYST (H5-1 10, X35005) SUREKHA JADDOO, ADMINISTRATIVE ASSISTANT (H5-236, x32363) 6 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION ENERGY PROJECTS UNDER IMF'LEMENTATION Project Development Objectives Board Loan/Credit Closing Date Task Approval Amount ($m) Manager Date Power The project seeks to: (i) arrest and reverse the deterioration 12.08.94 14.5 J. Masterson Maintenance of three thermal generation units and three hydro power Project generation units, and improve their availability (reduce (C2666-AM) unscheduled down-time); and (ii) strengthen the electricity load management and dispatch capability of the national dispatch center and arrest further deterioration of the electricity distribution system. Project components are: (a) maintenance of two existing 200-MW thermal units at the Hrazdan power plant, one 150-MW thermal unit at the Yerevan power plant, two units at Gyumush hydropower plant and one unit at Kanaker hydropower plant, both on the Sevan-Hrazdan hydropower cascade; (b) strengthening and maintenance of the electricity dispatch communications and distribution systems; and (c) technical assistance for project implementation and upgrading the electricity dispatch system. ENERGY PROJECTS UNDER F'REPARATION Project Description Proposed FY Project Manager Amount Power and Gas Investments include rehabilitation of power and gas 30.0 1999 J. Walters Restructuring infrastructure in support of establishing efficient markets and (AM-PE-54885) facilitate privatization (transmission and distribution, dispatch, metering, financial and accounting systems). The project includes also technical assistance for market reforms and privatization of the electricity and gas industries. Electricity The project will include the following components: (i) System 51.7 1998 S. Zaheer Transmission and Metering between generation, transmission and distribution Distribution companies (to support new commercial arrangements) and within lAM-PE-8276) the distribution companies (to permit internal control of electricity and revenue flows); (ii) Transmission System Rehabilitation: This component will rehabilitate and upgrade five (out of 14) 220 kV transmission substations (Ekhegnadzor, Zovuni, Marash, Shaumian-2, and Vanadzor-2); (iii) Distribution System Rehabilitation: This component will rehabilitate a part of the electricity distribution networks in the capital Yerevan, Lori, Shirak, Taush, Gegharkunik and Aragarsotn; (iv) Working capital for natural gas procurement to help maintain reliable electricity supply while commercial arrangements under the new structure of the power sector are consolidated and commercial losses are reduced (supported by the project); and (v)Technical Services (and related equipment) to help commercialize project beneficiaries (in accordance with the Energy Law) and to facilitate project implementation and supervision. VOLUME II: COUNTRY PROFILES 7 COUNTRY INFORMATION The undeclared war in Nagorno-Karabagh the deep water portion of Guneshli which are with ethnic Armenians has generated a huge located offshore Azerbaijan in the Caspian population of refugees and displaced persons. Sea. Numerous agreements (Shakh Deniz, Currently, nearly 20 percent of the national ter- Karabagh, Lenkoran-Talysh, Dan Ulduzu, ritory remains under occupation, and about Ashrofi, Apsheron, Oguz, Nakhchevan struc- 900,000 people (out of its population of 7.5 tures) have since been concluded with interna- million) are refugees or internally displaced tional oil consortiums, which are expected to persons (IDPsJ. From August 1991 till June lead to investment and production on a sched- 1993, there were four changes of govern- ule about two to three years behind the AIOC ment. President Heidar Aliyev, who was con- contract. firmed in his position by an election held in October 1 993, has faced periodic threats to Azerbaijan's medium-term prospects for eco- his government, including two coup attempts. nomic and social development are pctentially However, the situation has stabilized signifi- very promising. While full development of the cantly during the last three years and the oil resources offshore of Azerbaijan will active expanding presence of the foreign oil require acceptance by the riparian stcites of a companies is a good indicator in this regard. framework for development rights to Caspian By the end of 1 995, measured GDP stood at oil and major new export pipelines will have only about 34 percent of its 1988 value. All to be built through neighboring countries to sectors of the economy were hard hit. Between transport oil from Azerbaijan to international 1989-1 994 agricultural and industrial output markets, the potential economic effect of the have declined by 30 and 60 percent respec- oil development now in prospect is enormous. tively. The cut-off of transport links to Current projections suggest that expcirt earn- Azerbaijan's traditional markets in September ings from the oil expansion program could rise 1994 (due to fighting in Chechnya and inter- rapidly to equal total 1995 merchandise nal conflict in Georgia) compounded the dete- exports by the turn of the millennium, and lead rioration of external trade and intensified out- to a doubling of GDP thereafter. Iotal oil put contraction. reserves are estimated at 4.0 billion barrels, and production could peak at 700,000 bpd in Oil and gas production 2010 in the AIOC contract area alone. Other Population id-1993 (milions) 7.4has gone down from 1 3.8 projects recently agreed could eventually push 1993 1994 1995 1996 mmt in 1987 to 9.3 mmt production well beyond 1.0 million bpd. (esbim) in 1995 due to problems GNP per capita 730 480 of infrastructure, poor pro- THE BANK GROUP'S ACTIVITIES Annual GDP -23.1 -15.7 13.3 X5.6 duction practices, and The following projects have been approved: Growth (%) depletion of old oil fields. Petroleum TA Project ($20.8 million equiva- GDP Inflation (%) 714.5 1330.5 608.7 20.3 In September 1994, lent), Greater Baku Water Supply Project Total 10.3 SOCAR (Azerbaijan's ($61.0 million equivalent), Institution Building Debt/GDPmp (%) state oil company) signed Technical Assistance Project ($1 8.0 million a thirty year Production equivalent), Rehabilitation Credit ($65.0 mil- Sharing Agreement (PSA) with a consortium of lion equivalent), Gas System Rehabilitation international oil companies (Azerbaijan Project ($20.2 million equivalent), Farm International Operating Company - AIOC) Privatization Project ($14.7 million equiva- to develop the oil fields of Chirag, Azeri, and lent), and recently signed Structural Adjustment 8 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION Credit. A Pilot Reconstruction Project is under same token, due to the quite active involve- ARA -.- ENERGY preparation to assist the Government in rehabil- ment of the private sector, particularly in ASZECT IN EATRG itoting the war-torn regions of the country. upstream activities, the presence of the Bank in Among these, below is a brief description of the oil and gas projects ha.; been limited except Energy Resources two energy sector projects under supervision: the two projects under supervision (see below). Oil Reserves (mln tons) However, the areas where there is limited or ENERGY SECTOR POLICIES AND ISSUES no private sector interest such as the "gas Gas Reserves (BCF) Export Pipeline: It was announced in 1995 chain" have also been recognized by the 30,000 that the "Early Oil" from the Azerbaijan Government and are in need of rehabilitation. 300 International Operating Company (AIOC) The Gas System Rehabilitation Project which is Project would pass tkrough two routes, name- under gupervision is an appropriate start in Primary Enery Consumption I ~~~~~~ ~ ~~~~~~~~~~~~(MTOE) '15.44 ly Georgia and Russia. AIOC is now consid- this regard. ering options for the "Main Export Pipeline" Installed Power Generating and is considering Georgia, Russia, and Turkey alternatives. Many factors including environmental concerns of oil shipment through the Bosphorus and security concerns in Chechnya affect this highly delicate issue. Azerbaijan's development is closely related to the timing of the start of the oil flow. BANK's TEAM Caspian Sector Boundaries: The applicable ISHRAT HUSAIN, legal regime for the Caspian Sea is not entire- COUNTRY DIRECTOR ly clear because the four successor states (H3-161, X81415) namely: Azerbaijan, Kazakstan, Russia, and Turkmenistan of the Former Soviet Union (FSU) PEGGY WILSON, have not agreed on its international bound- (H5-045, x82336) aries. This issue directly affects rights over off- shore oil in the Caspian. PETER THOMSON, Gas Sector Issues: The Government's decision SECTOR LEADER in April 1996 to stop imports from (H5-093, X34261) Turkmenistan due to for balance of payments PATRICIA HACKMAN problems has resulted in a cut-off of gas to CONSULTANT large parts of the country which has led to a (H5-020, x80457) more expensive or environmentally damaging fuels, such as electricity and fuel wood. The PETER POLLAK, Government realizes that increase in gas sup- PRINCIPAL ENERGY ply and improvement in gas distribution are SPECIALIST priorities and is looking for ways to do so. MASKAT IDENOV, BANK'S STRATEGY FOR THE ENERGY CONSULTANT SECTOR (H5-210, X39396) The Bank's activities in the energy sector have been constrained by the limited IDA funds and other obligations of the Government where obtaining financing is more difficult. With the VOLUME II: COUNTRY PROFILES 9 ENERGY PROJECTS UNDER IMPLEMENTATION Project Development Objectives Board Revised Closing Task Aprovall Amount Date Manager Date Petroleum TA As the Bank's first operation in the country, the Project is providing 0420.95 20.8 11.30.99 Peter Pollak Proiect technical assistance to the State Oil Company of Azerbaijan Republic IC27080) (SOCAR) in the following areas: (i) rehabilitation of the producing section of tha Guneshli field; lii) rghobildtition of othAr old fiAlCdg (iii) legal sfudies on the status of the Caspian Sea; (ivI gas processing facilities; (vl management information systems; and (vi) training Gas System This project will support reforms in the organization of the gas sector 09.19. 96 20.2 06.30.01 Peggy Wilson Rehabilitation and help to initiate badly needed rehabilitation of the dilapidated gas Project transmission and distribution system and foster the transition of the gas (C29230) parastatal into a modern and efficient gas utility through four main components: (a) metering; (b) cathodic protection rehabilitation; (c) analytical equipment; (d) corporatization support. ENERGY PROJECTS UNDER PREPARATION Project Development Objectives Proposed FY Task Amount Manager Pilot The proposed project would include, among others (water supply, 21.6 1998 Peter Pollak Reconstruction agriculture, landmine clearing, etc.) the following component: (AZ-PE-35770) repair of electric power supply in Fizuli, Agadam, Terter, Geranboy, Gazakh and Nakhichevan. Reconstruction To be defined after a peace is achieved in the Nagorno-Karabakh conflict. 72.0 2000 Peter Pollak (AZ-PE-496 1 9) 10 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION COUNTRY INFORMATION Before the breakup of the Soviet Union, and medium enterprises and 1 1 percent of Belarus enjoyed a trade surplus, a budget sur- small enterprises have been privatized. plus, and one of the highest standards of living in the Soviet block. With the breakup, demand In May 1997 Belarus signed the agreement for Belarussian exports dropped sharply, and with Russia on the creaticn of the Federal State. GDP declined by nearly 50 percent since It is still unclear what economic agreements will 1 989. The government responded to these support the major political document. economic problems with policies intended to prevent a decline in real wages and employ- THE BANK'S GROUP BELARus-4 WS 1WAO7 ment, but this only exacerbated the problems. STRATEGY Population:mid-1993 (miflions) 10.2: Partly as a result of the expansionary policies The Bank's overall objec- 1993 1994 1995 1996 undertaken to maintain output and incomes, tive in Belarus is to suz- (estim) inflation averaged about 2,000 percent a port the country's efforts (USGP P , 2,170 year in 1993 and 1994, and dropped to 244 to move to a market econ- Annual GDP -10.7 -12.6 -10.1 -5.0 percent in 1995. omy and restore growrh Growth (%) by promoting the develoo- GDP Inflation (%) 1097.1 1967.0 646.5 70.0 To help control inflation, since 1993, the gov- ment of an efficient, corn- Total 702.1 94.3 15.7 6.8 ernment has maintained the budgetary fiscal petitive private sector and Debt/GDPmp (%) deficit at 2-4 percent of GDP. It has done so by supporting the provi- through the elimination of budgetary subsidies sion of physical and social infrastructure. The and modernization of a value added tax and Bank has provided support to Belarus in the a progressive personal income tax. In July form of lending, technical assistance, and aid 1994 all national wholesale and retail trade coordination initiatives. margins were abolished and prices of food products were liberalized by December 1994. The Bank has extended lhree loans to Belarus: Prices of rents and public utilities were In5titution-Building Project, Rehabilitation Loan, increased in June 1 995 to recover about 60 and Forestry Development Project. The Bank percent of the costs of providing services. Also has also undertoken several technical assis- in 1995, the government reinforced its bud- tance and other institution building activities. getary policies with tighter monetary controls. The Bank will continue to assist the govern- Subsequently, average inflation declined from ment's reform efforts, concentrating on the 30-40 percent per month in early 1 995 to 3-5 areas of social protection, private enterprise percent per month from May 1 995 onwards. development, urban water supply, agriculture and energy. In September 1995, the government agreed on a stabilization program with the IMF. ENERGY SECTOR POLICIES AND ISSUES However, implementation of structural reforms Belarus remains highly dependent on imported - including measures to liberalize domestic energy and has made little progress toward prices and trade, promote competition through diversifying its exports and entering new mar- the entry of foreign companies and demonop- kets. Also, inadequate cDst recovery from ener- olization, improve corporate governance, gy consumers together with foreign exchange accelerate the privatization of state enterprises shortages have contributed to the sharp and housing, and begin the privatization of increase in arrears on payments for gas land - has slowed. Only 6 percent of large imports to Russia since mid-i 995. In early VOLUME II: COUNTRY PROFILES 11 half of the gas which it imported. As a result, it accumulated arrears with Russia amounting to US$600 million. The official external debt, including penalties on arrears, now exceeds US$2.0 billion. However, a major debt can- cellation agreement with Russia in early 1 996, when implemented, would reduce the total debt by about half. 12 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION .. ... .. .. .. .. .. .. .. .. .................................. ..... o..x COUNTRY INFORMATION The conclusion of the Dayton-Paris Peace well as the critical areas of landmine clearing, Agreement in December 1 995 ended Europe's employment creation, and credit lines for small most destructive war of the last fifty years. An businesses and entrepreneurs. Non-lending estimated 250,000 people were killed, more services were supported including policy dia- than 200,000 wounded, and 13,000 perma- logue, technical advice and aid coordination. nently disabled of a pre-war population of 4.3 Damage assessments in fourteen economic million. Under the Agreement, Bosnia and sectors, prepared by the World Bank, the EU, Herzegovina is an internationally recognized and EBRD, in conjunction with Bosnian author- country consisting of two entities: the Bosnia- ities, have become sector strategies that serve Croat Federation (Federation of Bosnia and as the "blue-print" for the donor-supported HerzegovinaJ and Republica Srpska. There is reconstruction program in these sectors. The a State Government responsible for foreign Bank also prepared the first post-war economic affairs, customs and foreign trade policies, studies: two Country Economic Memoranda, a monetary management, and inter-entity mat- Private Sector Assessment and an ongoing ters on communication and transport. All other Public Expenditure Review. responsibilities, including defense, energy, social services and social welfare, have been The objective of the FY98- SNIA AND ERZEGOVIN bAii T devolved to the Federation and the Republica 99 CAS period is to help Populaton mid-1993 (millions) 4.0 Srpska separately. the Country move from 1993 1994 1995 1996 reconstruction to sustain- (estim) The war shattered the economy, destroyed able recovery and GNP per capita - - 501 much of the country's infrastructure and brought growth. Sustainable pcli- (AuS$) Annual GDP 33 50 productive activity almost to a standstill. The cies are needed to Growth (%) country's pre-war GDP of about US$9 billion achieve high economic CPI (% growth- has shrunk to about US$2 billion, and its per- growth and, eventually, YR95-100) capita GDP declined from about US$1,900 to creditworthiness. In sho-t, Federation - 780 -40 8 about US$500. As of October 1, 1996 GDP they are essential to pre- Republica - 1061 204 -9 per capita had recovered to US$815. About pare the country for the Srpska 65% of the 900,000 workers employed in time when donor assis- Total - 143 167 116 1991 are currently unemployed. Wages and tance is gradually scaled salaries are low and many people still receive back. The strategy is some form of humanitarian assistance. designed to support the overall objective of sustainability in three thematic areas: (iJ THE WORLD BANK ASSISTANCE STRATEGY strengthen the institutions of macroeconomic In 1996 the Bank provided an across-the management, in particular, sound fiscal man- board support program in which highly front- agement; (ii) make the transition to a market loaded IDA resources were used as "seed cap- economy, with focus on enterprise and bank- ital" to attract donor resources in support of ing privatization; and iiii) deepen the sustain- emergency reconstruction projects in a wide ability of reconstruction. range of sectors. Sixteen projects were sup- ported by grants and credits totaling $358 mil- Further policy-enhancing investment or adjust- lion; they helped begin critical reconstruction ment operations are envisaged to support insti- and recovery in agriculture, health, education, tution-building at the Stcite and Entity level, as housing, water, transport, heating, power, as well as key reforms in the areas of public VOLLIME II: COUNTRY PROFILES 13 finance, privatization and trade liberalization. mantled beyond repair. There is an acute Future Bank operations will support reconstruc- lack of critical materials such as fuel, tires tion in the following sectors: energy and trans- and sIDare parts. The number of people port network infrastructure, education, agricul- employed has decreased from 26,000 to ture and others essential to economic recovery. about 7,000. Present production costs Limited IDA resources will continue to make appear to be at or above the world market partnerships with other donors essential. level of coal prices adjusted for quality. Mobilizing co-funding for future operations, * District Heating. In 1991, BH had a dis- and coordinating strategies - e.g., eventual trict heating system in most major towns exit from those sectors where other donors are and cities with a population in excess of more fully engaged or have greater compara- about 25,000 inhabitants. The systems tive advantage - will be important elements were generally run by municipally-owned of their partnership. district heating enterprises. Cogenerated heat was provided only by the combined ENERGY SECTOR POLICIES AND ISSUES heat and power plants in Tuzla and Kakanj * Electric Power. In 1990, BH generated as well as by local industries. The remain- 1 3,090 Gwh of electricity at plants locat- ing heat was generated by local heat-only ed on its territory. Electricity consumption boilers. Currently, the DH system in major was 11, 1 81 Gwh. The system comprised cities such as Sarajevo, Banja Luka, Bihac 1 3 hydropower planl5 with a total capaci- and Mo5tor are only partly operational. In ty of 2,034 MW and 12 thermal power Sarajevo, the system has been clamaged plants with a total capacity of 1,957 MW. due to shelling and freezing of the pipes in As of January 1, 1996, 58% of total gen- the network. Building intervals in residen- erating capacity in the Federation area tial dwellings (pipes, radiators and valves) (comparable data are not available for the have incurred substantial damage, also Republica Srpska) was reported to have due to the corrosion associated with non- been damaged. Part of the remaining usage, lack of fuel, rusting and freezing. capacity is out of operation due to * Natural Gas. The gas system in BH was destroyed transmission lines or lack of developed starting in 1975 under the coal. About 60% of the transmission net- Bank's Sarajevo Air Pollution Control work and control system is seriously dam- Project. Russian gas is supplied via aged, including transmission facilities and Hungary and the Federal Republic of interconnection lines to neighboring coun- Yugoslavia. As of 1992, the gas supply tries and the UCPTE. The distribution net- network consisted of 182 km of transmis- work is largely destroyed. sion mains and offtake pipes. o Coal. In the 1980's, the coal mines in BH Consumption peaked in 1990 with 610 produced approximately 18 million tons million cubic meters, constituting 8% of the annually, of which 10 million tons were total energy consumption in BH. At the brown coal and 8 million tons were lignite, beginning of the war, use of gas upstream Production was concentrated in areas near reduced supply coming into Sarajevo to Tuzla and Zenica in both open pit and such an extent that gas use for industry and underground mines. Coal production much of the district heating system became dropped to 1.5 million tons in 1994, less impossible. Gas assumed major impor- than 10% of the pre-war level. Much of the tance and many improvised connections mobile mining equipment has been dis- and appliances were made following the 14 PROFILE OF ENERCY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION destruction of heating and power systems. As of late 1 995, the total number of house- hold connections in Sarajevo was estimat- ed at around 89,000, and gas consump- tion constituted 70% of all energy con- sumption. THE BANK'S STRATEGY REGARDING THE ENERGY SECTOR The proposed strategy for the sector would CHRISTIAAN POORTMAN, include restoration of services to acceptable COUNTRY DIRECTOR levels; reconfiguration of electrical power net- (H4-023, x3301 1) work to optimize the system; sector restructur- ing (including closing uneconomic mining HENK Busz, capacity and privatizing services) and intro- ENERGY SECTOR LEADER duction of the regulatory framework that would facilitate attracting potential investors; RICHARD HAMILTON, and improvement of the financial situation. SR.ENERGY ECONOMIST Energy Projects under Implementation (H5-107, x32344) WEIGONG CAO, CONSULTANT (H5-213, X32691) MARIE-THERES SCHURRER, CONSULTANT (SARAJEVO RM) AHMET GOKCE, PROCUREMENT SPECIALIST (SARAJEVO RM) HEINZ HENDRIKS, SR.MINING ENGINEER (F 8K- 194, x82887) KISHORE NADKARNI, SR.FINANCIAL ANALYST (H5-023, x32698) VOLUME II: COUNTRY PROFILES 15 ENERGY PROJECTS UNDER IMPLEMENTATION Project Development Objectives Approval Amount - Closing Task Date IDA Credi-t Date Manager Emergency The project's objectives are to: (i) restore electricity service to 07.30.96 35.6 12.31.98 W. Cao Electric Power acceptable levels in major cities and for vital industries throughout BH. Reconstruction Initial reconstruction would target mainly critical power plants (including Project hydro plants and thermal cogeneration and power-only plantsj, principal (C29030j substations and major transmission lines; (ii) increase coal production in the most efficient mines to supply the fuel necessary for the thermol power plants; liii) reconfigure the electric power network, taking into account BH's need for significant independence from Belgrade and security of electricity supply; (iv) enhance the electricity enterprises' institutional capacity and improve their finances; and (v) support power and coal sector restructuring. In addition, the project would establish a procurement monitoring and audit unit for all Bank/IDA financed, cofinanced or administered projects. Emergency The project's objectives are to: (i) restore district heating service in 05.20.96 20.0 03.31.98 M.-T. Schurrer District Heating Sarajevo as soon as possible by reconstructing both the district heat Reconstruction supply system as well as building internal heating installations, and by (T24034) doing project preparatory work for the same in Banja Luka; (ii) mitigate the risk associated with a single source of gas supply by ensuring that the oil-firing capability of the Sarajevo district heating system is fully operational. This would enable BH to potentially reduce its gas consumption through fuel switching by Toplane-Sarajevo (from gas to fuel oil), which would enhance the country's strategically important security of energy supply; (iii) strengthen Toplone-Sarajevo's institutional capacity and (iv) initiate network improvements. The project would also enhance energy efficiency and energy conservation and reduce environmental pollution by enabling disconnection of about 34,000 flats from self-made gas connections in Sarajevo. ENERGY PROJECTS UNDER PREPARATION Project Project Description Proposed Status Project Amount ($m) Manager Emergency Gas The project will finance (i) reconstruction of the transmission pipeline as well as 15.0 (IDA). M.-T. Schurrer System the distribution system in Sarajevo, including conversion of tens of thousands of Reconstruction self-made connections into industry standard connections; (j) institutional (BA-PE-44391 j strengthening; and (iii) improvement of sector finance. Second Electric The project will finance rehabilitation of hydro and thermal power stations and 25.0 jIDA). Preappraisal R. Hamilton Power transmission and distribution networks. has been Reconstruction completed. (BA-PE-45483} 16 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION :UPi1 I A R I A COUNTRY INFORMATION The transitional recession in Bulgaria was the value of the Lev as the public sold Leva to deeper and longer than that of most other tran- buy hard currency. This situation continued to sitional economies. Bulgaria's external trade spiral downwards until January 1 997 when the flows and output suffered a severe downturn. ruling Socialist Government was forced from Output declined for five years, and growth did power by strikes and protests. New elections not resume until 1994. The 30% cumulative were held in April 1 997 and a market-oriented decline in output was followed by a rapid government came to power and in July 1 997 increase in unemployment which reached near- put into place a currency board. The currency ly 20 percent, one of the highest levels in board has greatly helped Eastern Europe. External events-the Gulf War, to stabilize the country U S the disintegration of the Council for Mutual with inflation falling Economic Assistance (CMEA), and embargoes sharply and the Lev stable 1opu3ation mi19939 (mllions) 8.9 9 on neighboring countries and important trad- against the German markc. (estim) ing partners-accounted for some of the output However, the Government GNP per capita 1,110 1,163 1,340 1,190 decline. Political instability, uneven implemen- must deal rapidly with (US$) tation of reforms, and 'stop-go' cycles in macro- some of the underlying Annual GODP -1.5 1.8 2.6 -7.5 economic policies also contributed significantly structural problems or the Growth (%) to the severe downturn and slow recovery. achievements of the cLr- Total 180.1 213.3 96.5 184.4 rency board could be put Debt/GDPmp (%) Bulgaria's initial reform program in 1991 was into question. bold and ambitious, including comprehensive price, trade and foreign exchange liberaliza- BANK'S STRATEGY tion, restitution of land and urban property, ini- The Bank's primary cbiective in Bulgaria tiation of privatization, and demonopolization remains largely unchanged: to facilitate the of segments of the large enterprise sector. country's transition to a market economy in Strong stabilization policies were initially suc- order to achieve long-term growth in a sus- cessful in containing budget deficits and infla- tainable, non-inflationary environment. The tion. And the newly liberalized environment for Bank's assistance is focLsed on five areas: private business fostered an unprecedented m facilitating the transition to a market econ- entry of new private firms, primarily in services omy and the expansion of private sector and trade. Periods of tight macroeconomic activity through structural reforms; primar- policies have been followed by a rapid loos- ily enterprise reform (especially privatiza- ening of policies, leading to high and variable tion) and banking reform; inflation. Erratic macroeconomic policies have a supporting macroeconomic stabilization to also led to dramatic exchange rate deprecia- lower inflation further and sustain a viable tions. Both high inflation and large exchange balance-of-payment oosition; rate movements have undermined credibility in m establishing financially viable and effective economic management. This situation deterio- social sector policies and institutions, rated sharply in 1996. The public began to including a social scifety net; lose confidence in the Bulgarian banking sys- a rebuilding and rehabilitating Bulgaria's tem which had remained state owned and was infrastructure and improving the environ- financing the losses of the state owned enter- ment; and prises. This loss of confidence resulted in large a improving the effectiveness of the Bank's withdrawals of deposits and a sharp decline in operations through improvements in public VOLlJME II: COUNTRY PROFILES 17 BUL GArA ENERGY administration and project preparation the continued operation of some urits of the and identification. Kozloduy nuclear facility poses risks and it is unclear whether construction of a new nuclear ENERGY ISSUES AND POLICIES facility fits into a cost investment plan, external Energy Resources The Bulgarian economy is charactarized by a financial support for much needed improve- Oil Reserves (mn tons) high degree of energy intensity combined with ments to Bulgaria's energy sector was not Neg. a lack of energy resources. For example, the forthcoming. Coal bil tRes eligveste) World Bank Atlas shows that the country has 2.5 bil tons (lignifte)f had an energy intensity ratio of one dollar of The new market-oriented Government is GDP used per kilogram of oil equivalent used. preparing a new strategy which will involve a Energy consumption per This compares with $4.4 per kilogram in larger role for the private sector but is not yet capita 2 , 0: 438 k goe$0 France or $3.5 in the UK. This relatively high complete. PowerGenerationCapa3bili,000 energy intensity is due to the fact that: 1) 13000 ,00: MW0 Bulgaria's economic strategy until 1990 cen- ENERGY SECTOR STRATEGY tered on energy intensive industries; 2) the In the energy sector, the Bank has three main technology used in Bulgarian industry is gen- objectives. First, support the rehabilitation of erally less energy efficient than technology Bulgaria's energy sector, especially the elec- used in the West; 3) there are high losses in tricity and district heating subsectors, to certain energy subsectors, such as, district improve efficiency and lower costs. Second, heating; and 4) households use energy inef- assistance financing priority investments in fectively due to poor insulation and weather- electricity generation to enable the phasing out ization of housing. The economy is also char- of old nuclear facilities. Third, encourage the acterized by a lack of energy resources with Government to increase and depoliticize ener- the only significant resource being a large gy prices, especially electricity prices, so that BANK'S TEAM high sulfur lignite deposit which is used to gen- these prices are aligned with economic costs. KENNETH LAY, erate electricity. To offset the country's lack of This would help to reduce energy consumption COUNTRY DIRECTOR resources, Bulgaria constructed a large and allow the National Electric Company (H8-093, x33000) nuclear complex with six reactors at Kozloduy (NEK) to fund its needed rehabilitation and DAVID CRAIG, on the Danube. This nuclear plant produces safety investments and the district heating com- ENERGY SECTOR LEADER about 45% of the country's electricity, but its panies to cover costs. Fourth, privatize the (H5-041, x32589) older reactors are considered unsafe by many commercially attractive parts of the sector. experts. Further support is planned for the heciting sub- JAMES MOOSE, sector ancl in power. First, a District Heating PRINCIPAL ENERGY The previous Government developed a com- Study has been prepared for the financial and (H5-07E , x33563) prehensive strategy for energy development. physical rehabilitation of a part of this sector The strategy proposed rehabilitation of exist- and it identifies the key issues to be addressed ing facilities, further price increases and ener- under the proposed Loan. If an appropriate gy conservation measures, as well as substan- strategy can be agreed, a District Heating tial new investments. The investment costs of Loan is planned for FY99 to address structural this program totaled about US$2 billion. problems in the heating service sector. Finally, However, the program involved the operation an Adaptable Lending Loan is plannecl to reha- of all units of the Kozloduy nuclear facility until bilitate and privatize certain existing electricity the end of their operational lives and possibly power stations. This operation is currently investment in an unfinished nuclear facility, scheduled for FY99-FY2000. which was started almost a decade earlier. As 18 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION ENERGY PROJECTS UNDER IMF'LEMENTATION Project Development Objectives Effective Revised Closing Task Date Amount Date Manager Energy Project The objectives of the project are to: (a) improve the operating 08.11.93 93.00 12.30.99 J. Moose (LN No. 35630) efficiency and reliability of the power system; (b) reduce the need for electricity imports or other high cost electricity sources to meet peak demand; (c) realign electricity tariffs to rationalize the consumption of electricity, reduce pollution associated with electricity production and mobilize resources for NEK; (d) improve voltage and frequency control; (e) enhance the operational and organizational efficiency of NEK; (f) improve and depoliticize the electricity tariff setting mechanisrns; end (g) improve the safety of the Belmeken and Chaira dams. District Heating This component is a pilot operation designed to provide essentiol 12.00 06.30.02 J. Moose Pilot (Amendment information on consumption of district heat. This information will be to Water used to: al design comprehensive system rehabilitation project; Companies b) improve system operations; and cl assist consumer decision-rmaking Restructuring by providing them with information on the quantity of heat they use. Project) (LN No. 37390) ENERGY PROJECTS UNDER PREPARATION Project Project Description Proposed Status Project Amount ($m) Manager District Heating The project will assist with the rehabilitation of the Sofia and 100.0 Project preparation J. Moose (BG-PE-8314) Pernik District heating systems and add cogeneration capacity is under way. to these systems. Restructuring/ The project will support the restructuring and privatization of the 100.0 Project preparation J. Moose Adaptable NEK - probably through one or more guarantees of PPAs. is under way. Lending (BG-PE-0832 1) VOLIJME II: COUNTRY PROFILES 19 - -- COUNTRY INFORMATION THE BANK GROUP'S STRATEGY Croatia is the second richest of the former The Bank will remain cautious in moving Republics of Yugoslavia, with a GDP of about ahead with an assistance program, carefully US$19 billion in 1996. The structure of output monitoring the regional situation, which is still is similar to that of a Western economy, with a cause for concern. However, the GOC manufacturing accounting for only 30 percent has made progress over the last year to main- of GDP', agriculture for 10 percent, and ser- tain and further its standing with the interna- vices for 60 percent. Exports and imports of tional community, as well as advance its diffi- goods and services total the equivalent of 90 cult economic reform program. In the percent of GDP, making Croatia one of the absence of a major deterioration in the most open economies in Central Europe. An region's geopolitical situation, the time estimated 70 percent of trade is with Western appears to be right for major international and economies. bilateral efforts to assist Croatia. \;9 sector in transforming increasing participation of the private sector, 0$Population nmid-1996 midlSlons 2.08Q :::.::t available savings into are at the core of a fast growth scenario for 1993 1994 1995 1996 long term investment Slovenia. (estimt GDP/capita (US$) 6,650 7,180 8,230 9,160 finance. Despite consider- Annual GDP able progress achieved in THE BANK GROUP'S STRATE GY IN Growth (%) 1.7 5.1 3.7 2.8 restructuring State-owned SLOVENIA Growthn tota (%) 13.3 3.0 5.7 2.2 banks, as part of the pro- 4. Since 1993, the Bank's program in Slovenia privt.(%) 15.6 3.9 5.6 3.0 gram supported by the has been very modest, with limited project sup- inflation based on EFSAL, delays in privatiza- port. The Slovenion Government recluested a CPI Growth (%) 32.3 19.8 12.6 9.7 tion of banks and limited stronger involvement of the Bank which was Ratio of Total entry of foreign banks agreed in 1996. Cooperation will (a) focus on Debt/GDP (% 14.8 15.8 16.0 21.8 have resulted in low areas where the Bank has a comparative competition in the sector: advantage and the country sees its priorities 74 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION but has difficulties attracting impartial advice m EU Accession and eventual membership and funding; (b) work on the basis of a part- calls for actions to cornply with EU Acquis nership between Bank staff and Slovene Communoutaire (AC). Significant legal experts, and (c) maximize complementarity and regulatory reforms and liberalization between Bank Group activities and other inter- are needed in the energy sector. In addi- national and bilateral donors. Based on the tion, investments to meet with the condi- Government's requests, the Bank's assistance tions under the EU Acqis Communautaire program would focus on six key priorities, four are estimated at a minimum to amount to of which are of direct relevance in the ener- US$ 400 million to meet EU requirements. gy/environment sectors: (a) supporting the Generally speaking, investment require- state asset management and privatization pro- ments to modernize the sector and meet gram; (b) supporting the development of the environmental standards, as well as securi- private sector, (c) creating conditions to attract ty standards of energy storage (oil and domestic and foreign private investments in gas), as well storage for nuclear waste, infrastructure, and (d) supporting the integra- and to introduce econDmic energy efficien- tion of the Slovene economy in the European cy measures, could cost US$ 100 million Union. per year (almost 1% of GDP) during the next 15 years. SLOVENIA'S ENERGY SECTOR - POLICIES . Environmental: Major issues of air pollu- AND ISSUES tion (electricity, district heat, household * General: Slovenia has a sound Energy heating with coal); water pollution (coal Strategy and Policy statement which was mines, refinery); disposal of solid waste approved in 1995.[check]. A draft New (from coal mines, thermal power plants) Energy Law (NEL) is being prepared to and nuclear waste; subsidence from coal replace the existing energy law of 1 981. mining and oil/gas exploitation. The most recent version of the draft NEL is o Coal: Government considers this a priority dated June 1 997 and focuses on the net- resource as it is indigenous. The under- work fuels (gas, electricity and district heat). ground (!) Velenje lignite mine in the north Even the latest version is not yet determined produces about 4 million tons per year on a clear regulatory approach but offers (tpy) of lignite (10 kJ/kg), which is con- alternatives and options for approaching sumed to over 95% in the Sostanj mine- regulation. While the draft NEL is a move mouth power plant. Mines at Trbovlie and in the right direction, it does not provide Hrastnik in the center of the country pro- for critical elements of effective regulation, duce sub-bitouminous coal (17 kJ/kg) at institutional autonomy, transparency and about 1 million tpy. The environmental operational accountability. A particular problems of coal ccmbustion are recog- problem is the lack of clear procedures nized: the Government intends to increas- and mechanisms for determination of trans- ingly limit coal to power generation where fer prices between generators, producers, pollution control can be centralized. The or importers, transmission company and state aid and subsidies flowing in the sec- distributors. FIAS/ESMAP support for tor directly and indirectly have been signif- infrastructure regulation is addressing icant, and although declining, are little some of these issues and the work needs transparent. They are being justified on to be continued. social grounds, but social issues of over- employment in the sector should be VOLUME I: COUNTRY PROFILES 75 addressed directly. A closure program is owned by Petrol (55%) and the state underway to cut highly uneconomic capac- (45%), needs technology upgrade to meet ities of sub-bituminous coal in the center environmental standards for operations 00: Total Primary 0Energy imported:d ;0 and in the south. High quality, low-sulfur and for products, but the economic feasi- Xj:02(%:::of 0total primfaryX 0000000:00000 t00hard coal is imported at the rate of about bility is doubtful. At present it is protected :-:00 energyf supplQy) 0(TPES) 5 00 000000000 350,000 tons by a tax regime which is in contradiction to enrg 000:A: < 57% * Gas: The domestic gas market is relying to the EU regulations. OECD/IEA and EU Energy Resources almost 100% on imports, which are well Acquis Communautaire require build-up of Gas Reserves diversified: from Algeria, via Italy, as well storage to a level of 90 days of annual (proven) 300,000 toe as from Russia via Austria. Geoplin average consumption. Oil Reserves 185,000 toe Company is in charge of gas imports and o Electricity: Electricity is supplied by a Lignite Reserves transmission, selling to local distribution desegregated structure at rate of about 1 2 650 million t companies. The transmission network (920 to 14 thousand GWh/year. Generation of w 2ich recovermble:io km) was built in the mid-1970s was takes place in eight generation companies Sub-Bitumin Coal Reserves designed for 1.3 million m3 and needs with an installed capacity of 2,080 MW, not available expansion and upgrading. Gas storage is including hydro (36%), nuclear (15%, of which recoverable: limited leaving little flexibility in trade. excludes Croatian owned capacity) and 57 million t Geoplin is a monopoly in trade and trans- thermal (49%), the latter partly lignite, part- Consumption per capita mission but third party access (TPA) is con- ly coal- and partly oil/gas fired. Energy 2.60 toe/capita sidered by the Government. The market is Transmission is assured by Electro :00Electy l§ricensity 5375 kWh/capita;t00 strongly influenced by subsidized coal Slovenija (ELES), which is also in charge of ~Energy Intensity (TPES/GDP) 0.30 prices and Government decisions on fuel long term planning, system optimization, (0.19 in OECD) choices of state owned customers. Due to trade, and relations with the West Power Generation Capability economic contraction in the early 1990s European Grid UCPTE. Five recgional dis- 2,395 MWe and preference for coal in power produc- tributors assure direct links with customers. 3of which belongingto Croatia tion, gas consumption has fallen to slightly The Government's strategy recognizes the DH Capacity at Substafions less than 0.6 million tons of oil equivalent system's short-comings and, therefore, 1992 MWtapcitSa;Susttios; ; (toe) in the mid-1 990s. In order to allow for intends to (a) improve the efficiency of sound resource allocation, energy pricing power generation, transmission, and distri- across the entire energy sector needs ratio- bution, (b) stimulate energy efficiency in nalization. use, (c) introduce more realistic electricity * Oil: Almost 100% dependence on imports prices (although they are higher than in of crude (and some high quality products). most other CEE countries), and re-evaluate Crude comes via the Croation-owned the tariff system, (d) stimulate the use of Adria Pipeline originating in the port of Krk renewable energy resources, ancd (e) liber- Island, or via the Druzhba Pipeline from alize the markets for primary energy and Russia through Austria. The market electric power in compliance with the EU (presently about 2 million tpy) is dominat- and the European Energy Charter. ed by three companies (Petrol Trgovina, Investments would help to modernize gen- lstrabenz and Nafta Lendava) in charge of eration capacity, transmission grid and dis- production, trade, refining and distribu- tribution systems, increase generation from tion. Little competition between the two new or refurbished independeni, private main distributors (Petrol and Istrabenz) in power producers, and enhance the mutual different parts of the country. The only support between Slovene and neighboring domestic refinery, Nafta Lendava, jointly power grids. The most important issues as 76 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION underlined by the EU Commission relate to expected benefits. Slovenia, in recognition regulation, power pricing and transparen- of its tourist potential cnd its natural beau- cy of transfer prices, as well as need for ty, is the only country in the CEE with such market liberalization. explicit endorsement cf RER development, BANK'S TEAM: * Nuclear: The Krsko Nuclear Power Plant which is in line with EU philosophies. ROGER GRAWE, (NPP) with a capacity of 632 MW is locat- * District Heat: District hEating (DH), general- COUNTRY DIRECTOR ed near the Sava River in south Slovenia ly a municipal responsibility in Slovenia, is (H1 2-OYY, X34252) near the Croatian border. It is jointly mostly undertaken by utilities who supply HENK Busz, owned (50/50) with Croatia. Construction heat to households and industry. Ljubljana SECTOR LEADER started in 1 974 and commercial operation and Velenje obtain their heat from com- (H5-055, X32686) in 1983. The NPP uses a two-loop bined heat and power plants (CHPs) where- Westinghouse pressurized water reactor as five other cities obtain it from industrial CHRISTIAN DUVIGNEAU, (PWR) with one steam turbine and two CHPs. In all other places with DH supply ENERGY PROGRAM LEADER steam generators. Operational records there are heat-only-boilers (HOBs). With AND PRINCIPAL OPERATIONS and nuclear safety compare well with best less than 2000 MWt capacity, about 9000 (H5-077, X32696) plants in IEA Member Countries. Further TJ heat production and a distribution net- improvements were introduced in a pro- work of about 440 km, the DH sector is rel- HELMUT SCHREIBER, gram of Regulatory Compliance started in atively small when cornpared to other CEE ENVIRONMENTAL PROGRAM 1994 and completed in 1996. Long-term countries as it only covers about 1 5% to LEADER AND SENIOR availability is affected by the reduced life 20% of housing stock (mostly large apart- ENIRNENA OFFICE) of the steam generators requiring replace- ment blocks). CHP development in Slovenia ment soon, and by insufficient nuclear has a significant polential but is under- BERNI BARATZ, waste storage capacity. Additional storage mined by the low prices for electricity and SENIOR ENVIRONMENTALIST capacity is needed before year 2000. The gas (and relatively h gh prices for coal). (H3-133, x32333) Government's long-term aim is to shut This makes it hard fcr CHPs to compete. ALBERTO CRUZAT, down the plant at the end of its design life- IEA estimated that on ihe basis of the 1995 SENIOR time. Given the high dependence on the electricity tariffs, the additional CHP poten- TELECOMMUNICATIONS plant at this time, alternative conventional tial was 104 MWe whereas with a 15% SPECIALIST capacity would have to be developed, as electricity tariff increase the potential could (F4K- 1 88-X82675) no NPP is being envisaged. be 264 MWe. The Government intends to * Renewables: Energy Strategy of the continue to develop DH systems and CHPs. SENtOR ENERGY ECONOMIST Government recognizes the dependence (H5-251, X32147) on imports and the environmental damage BANK'S STRATEGY WITH REGARD TO THE from coal and lignite. It therefore pursues ENERGY SECTOR IN SLOVENIA MARC HEITNER, renewable energy resource (RER) develop- 5. The energy sector sti I suffers from overly SENIOR ENERGY SPECIALIST ment, as "the most important source of pri- centralized state control (rather than being (H 10-033, x85836) mary energy for Slovenia and a national developed based on indespendent regulation), MANGESH HOSKOTE, reserve'. It intends to develop hydro does not yet benefit sufFiciently from private POWER SECTOR power, biomass, geothermal, and solar know-how and capital as private participation SPECIALIST/ESMAP energy, as well as use of waste heat, with is still very limited, suffers from relatively low (F2K-146, 31347) the long term objective to substantially prices in the network fuels, price distortions and GORDON HUGHES, increase the share of RERs within primary uncertainties, which make potential private SENIOR ENVIRONMENTAL energy use. RERs should be promoted on investors loath to come in. These shortcomings, ECONOMIST strategic grounds and the funds allocated among others have been pointed out by the EU (S3-075, x33584) to the sector should be balanced with the Commission as well. In these areas the Bank VOLUME 11: COUNTRY PROFILES 77 BANK'S TEAM, CONTINUED: can help from the Region, from ESMAP and 7. The Bank should be ready to support the HANS ROLAND LINDGREN, INDUSTRIAL ENVIRONMENTALIST through FIAS with technical support and above lending operations proposed recently (H3-103 x32565) focused advice, as well as with related lending by MOE. There may also be opportunities for PETER KALAS, operations. In addition, one of the priorities privatization in the context of the proposed ENERGY AND ENVIRONMENTAL under EU Accession Measures (point (d) GCI Project and the FIAS/IENPD work. Apart SPECIALIST above) is to address the shortcomings on the from the ongoing FIAS/IENPD work, no ener- (H3-155; X 85647) environmental side. The energy sector is to a gy sector work is scheduled at this time. The NAUSHAD KHAN, large extent responsible for the still significant next mission should explore with the SENIOR PROCUREMENT air pollution in a country which wants to pro- Government the possibilities for non-lending SPECIALIST, mote tourism with priority. Slovenia and the support to the energy/environment sector, (H3-1 14, X32699) Bank have therefore agreed that Bank cooper- notably with respect to (il sector regulation, (ii) PIOTR KRZYZANOWSKI, ation should focus on helping the country to sector rationalization, (iii) energy pricing and SENIOR ENVIRONMENTAL meet environmental standards equivalent to (iv) air pollution. Experience from other coun- SPECIALIST the EU and consistent with International tries (e.g. the Poland experience) could be valu- (H3-105, x 33638) Protocols and Treaties, such as the second sul- able in this context. The independent and neu- DUANE KEXEL, fur protocol. tral position of the Bank with emphasis on ratio- ENERGY ECONOMICS nal economic criteria, could help resolve some CONSULTANT 6. In line with above mentioned priorities, a of the divisive political issues in the sector. ANKE MEYER, major focus of Bank activities has been and ENERGY SPECIALIST continues to be energy and the environment, (F2K-174, X 39962) with a successfully completed energy efficien- NJERI MUHOHO, cy credit line of 1988 (to former Yugoslavia), FINANCIAL ANALYST and a credit line of 1996 for coal-to-clean fuel (H5-201, X32158) conversion for households and small boiler ARTURO ROA, owners (Environment Project). During July ENERGY CONSULTANT 1 997, the Ministry of the Environment and the Ecofund indicated to the Bank their interest to FRANK SADER, develop a similar credit line with a focus on FIAS (R 2-009, x33921) greenhouse gas reduction and energy efficien- cy. This would allow also to address some of SVETOSLAV TINTCHEV, the issues related to EU Accession directly or TELECOMMUNICATIONS SPECIALIST (F4K-174,X37560) indirectly. They have also agreed to carry out a substantial study on green house gas emis- BJOERN WELLENIUS, sions in the context of the Global Carbon PRINCIPAL TELECOMMUNICATIONS Initiative (GC), and have suggested to pre- SPECIALIST (F4K-250, x 82663) pare a GCI Project (e.g. refurbishment of a combined heat and power plant or conversion JULIUS WILBERG, of a heat plant to CHP, including, if possible, SENIOR FINANCIAL ANALYST r e r (H5-079, x37151) renewable energy resources). FIAS and IENPD have provided cross-sectoral advice on legal, R. PETER WRIGHT, regulatory and institutional changes for private TELECOMMUNICATIONS and public infrastructure in support of state SPECIALIST (F4K-232, x81764) sector restructuring, focusing on BOT schemes, concession systems and guarantee schemes to allow non-recourse financing. 78 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION ENERGY SECTOR PROJECTS AND ESW UNDER IMPLEMENTATION Project Development Objectives Effe(tive Revised Closing Undisb Total Disb Task Date Amount Date Begin FY97 Manager FY ($m) ($m) Yugoslavia The project objectives were: (a) promote energy efficiency 88/01/04 US$88.00 94/06/30 .00 88.00 Richard Energy in industry, primarily in Slovenia, through subloans for Hamilton Conservation energy conservation and substitution; (b) support the extended and Substitution development of technical capabilities for energy audit work. from: Project (LN No. The project was later amended to include two additional 92/12/31 2790-YU) objectives: (c) promote environmental conservation and improvement (amendment of 90/06/12); (d) restore Completed infrastructure damaged by flooding which occurred in 96/01/30 November 1990 ( amendment of 91/05/20). Environment Air Pollution Component: The objective is to reduce DM 34.6 01/06/30 Helmut Project ambient concentrations of particulate matter (PM10) and Schreiber (LN No ...) S02 along with health damage associated to air pollution. This is to be achieved by providing loans to households and small boiler house operators to convert to cleaner fuels from polluting fuels. Geographical Information System Component: The objective is to collect, organize and manage information for development and land-use planning, particularly in areas of Slovenia that experience rapid development. ESW: FIAS Cross-sectoral advice on legal regulatory and institutional Autumn 1997 Frank Sader/ ESMAP changes for private participation in infrastructure. Support of Mangesh Hoskote state sector regulation, restructuring, focusing on BOT schemes, concession systems and guarantees. Special focus on the legal and regulatory framework of the energy sector. ESW: Training Workshop on Private Participation in Infrastructure 10/1997 Mangesh Hoskote FIAS ESMAP ENERGY PROJECTS AND ESW UNDER PREPARATION Project Project Description FY Proposed Status Project Amount ($m) Manager Energy and Credit line building on the experience of the Environment 99 40.0 Interest in such project Helmut Environment Project, but with a stronger focus on energy efficiency and had been expressed Schreiber/ Project (Credit use of Renewable Energy Resources (it might be used for in July 1997 by Ministry Christian. line) water or waste water as well). of Environment and Duvigneau Energy The objective of this project would be to convert a heat only 2000 70.0 Interest in such project Helmut Efficiency and boiler in one of the Slovenian Cities to Combined Heat and had been expressed in Schreiber/ Greenhouse Gas Power Operation (CHP) possibly using biomass. This could July 1997 by Ministry Christian. Reduction Project be a demonstration project for similar operations to follow of Environment and Duvigneau within the country. Ekofund. VOLUME II: COUNTRY PROFILES 79 ENERGY PROJECTS AND ESW UNDER PREPARATION (CONTINUED) Project Projec Desritio FY Pooe ttProject Am000 000 Pound t000 ($m)X X 0-00m Manager ESW: EU-Accession Cross-sectoral advice on legal regulatory and institutional 98 0.15 continuation of FIAS/ Frank Sader/ Support changes for private participation in infrastructure. Support of ESMAP work Mangesh state sector regulation, restructuring, focusing on BOT schemes, Hoskote concession systems and guarantees. Special focus on the legal and regulatory framework of the energy and telecommunications sectors. EU-Accession Strengthening Institutional Capacities & Skills in the areas of 99 continuation of FIAS/ Mangesh Support Competitive Bidding for Private Infra structure Projects. ESMAP work Hoskote Special focus on energy and telecommunications sectors. EU-Accession Subsector Pricing and Tariff Studies 98 0.10 to be discussed Christian Support with MoE Duvigneau EU-Accession Sector Restructuring and Privatization Study 98 0.15 to be discussed Christian Support with MoE Duvigneau EU-Accession Strengthening of Administrative Capacities to assure Support compliance with environmental laws. 99 0.15 to be discussed Helmut with MoE Schreiber/ Christian Duvigneau Global Carbon Initiative (Greenhouse Gas Reduction 98 0.15 Agreed with MoEN Helmut Potential) Study Schreiber/ Christian Duvigneau Needs Assessment / CAS Policy Note 98 to be agreed with Government 80 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION COUNTRY INFORMATION Tajikistan stands out among the FSU countries 1992 and 1993 caused major damage to because of its narrow economic base, reliance infrastructure and productive assets and, there- on agriculture, and widespread poverty. fore, additional disruption of economic activi- Since the break-up of the FSU, the country has ty. These events contributed to the emigration suffered political instability, civil war, a severe of an estimated 500,000 non-Tajiks, who com- macroeconomic crisis, a large debt overhang, prised a significant share of the skilled labor and a deterioration of institutional capacity. force. Taiikistan's recent economic perfor- Income has fallen by 60 percent in the past mance reflects the impact of these events. four years and foreign exchange reserves are Production fell by an estirnated 60 percent dur- virtually nil. Before independence, aluminum ing the period 1991-95 with agriculture and production and cotton fiber accounted for 50 industry affected the most. Most industrial percent of GDP. Independence was declared firms are currently opercting at less than one- in September 1991 - amid the collapse of third of their capacity, and agricultural pro- the Soviet Union - and was almost immedi- duction - which accounted in 1991 for about ately followed by an outburst of political and one-third of GDP and ibout 50 percent of ethnic strife. Although elections were held employment - is only about 30 percent of its shortly after independence and again in 1991 level. These outptjt 1 992, long-festering political and ethnic rival- declines are among the Pplto i-93(ilos . ries erupted into a civil war that lasted from largest experienced by 1993 1994 1995 1996 mid 1992 through early 1993. Gradually, FSU economics during (estim) however, the Government, with continuing mil- this period. The financial GNP per capita 330 itary support from Russia, has been able to sector also deteriorated (US$) reestablish its control over most of the country. rapidly - largely Grnntuhal( -11.1 -21.4 -13.0 -7.0 With a cease fire in place since September because of the poor per- Inflation (CPI, % 1994, a new constitution was adopted by ref- formance of state-owned change) 7,344.0 1.1 2,223.0 183 erendum in late 1 994 and presidential elec- enterprises - with rio Total Debt/ tions were held with Imamali Rahmanov elect- prospect for most loais GDP (%) _ 115.8 142.6 112.3 ed as head of state. In February 1 995, elec- being repaid. tions for a new parliament (Mailes Oli) were held. Nonetheless, sporadic fighting contin- THE BANK GROUP'S STRATEGY ues particularly in the Eastern and The situation in Taiikistzrn confronts the Bank Southeastern part of the country and along the Group with difficult cloices. On the one border with Afghanistan. hand, the depth of the present economic crisis combined with the widespread poverty, recon- The economic and human cost of the transition struction needs, and the favorable dialogue from the Soviet era has been very high for with Government argue for aggressive Bank Tajikistan. In addition to the disintegration of Group involvement. Carefully crafted involve- trade and payments relations within the FSU, ment developed in active collaboration with the civil war resulted in the death of about other donors, could -- in the near term - 50,000 people, the displacement of 850,000, yield significant improvements in both eco- and extensive damage to the country's infra- nomic performance and enhanced implemen- structure - especially in the southern and east- tation capacity. On the other hand, the coun- ern parts of the country which historically is the try's continuing political uncertainty, uneven poorest area. Further, severe flooding in record of implementation of policy reform, VOLUME Il: COUNTRY PROFILES 81 weak institutional capacity, and our limited knowledge all contribute to a very risky envi- ronment and argue for gradual engagement- On balance, the obvious need and the strong desire of Government to work with the Bank and the Fund are compelling. The Bank's FY96-98 program allows considerable flexibil- ity in responding to the pace of political stabi- lization and economic reform as a means of minimizing risks. 82 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION COUNTRY INFORMATION Over the course of the 1 990s, Turkey's political Economic policy developments have mirrored environment has become increasingly difficult. closely the political situation. Thus, the sharp With a succession of weak coalition adjustments achieved in the fiscal and external Governments, short-term considerations have payments positions following the currency cri- tended to divert attention away from the imple- sis of 1994 were largely reversed in 1996. mentation of policies with a longer-term focus. The fiscal deficit doubled to eight percent of The troubled security situation in southeastern GDP, due largely to the ballooning deficit of Turkey also complicates domestic politics and the social security system (two percent of foreign relations, and places heavy financicl GDP). The external current account deficit also demands on the government. Due to the wide- doubled to over two percent of GDP, and was ranging liberalization of the economy in the financed mainly by short-term capital inflows 1 980s, economic growth has been quite drawn by high interest rates. Turkey's external robust, with per capita income growth averag- debt rose to US$80 billion, 43 percent of ing about two percent annually in recent years. GDP, including over US$20 billion in short- This income growth performance is lower than term debt. Despite the financial imbalances in other middle-income countries. Moreover, and political uncertainty, real GDP grew by the volatility and high inflation characteristic of seven percent in 1 996 for the second succes- Turkey's economic growth have increased the sive year, encouraged by Turkey's accession to inequality of income distribution. Turkey's a customs union with the European Union (EU), social Jevelopmenf incicafors (e.g., innft mor- and rnpidly exponding business opportunities tality and female literacy) are also behind those in the Former Soviet Union (FSU) countries. of comparable economies. The Government's Inflation also moderated to 80 percent in financial difficulties in recent years have 1996, down from 89 percent in 1995. squeezed social outlays, while capacity con- straints have also limited their effectiveness. Developments in 1997 continue to be mixed. The RP-DYP Government announced an ambi- Against this backdrop, general elections held tious fiscal program for 1997, with a bal- in December 1]??5 failed to yield a §ingle anced budget turgeted mainly the strength of majority party in Parliament. The minority cen- large increases in privatization receipts. ter-right coalition (ANAP-DYP) Government that However, by the time cf its resignation in mid- finally emerged in March 1996 fell within three 1 997, the budget was badly off-track, and months. It was succeeded in June 1996 by an headed for a deficit oi more than 10 percent Islamist-centrist coalition (RP-DYPI with a small of GDP for the year as a whole. Privatization majority. The RP-DYP Government came under had stalled, while expenditures were running increasing pressure from secular elements due well in excess of planned outlays due to pen- to the perceived threat of growing Islamist sion fund deficits and generous increases in activism to Turkey's secularist traditions, and it public sector wages and salaries, and agricul- resigned in June 1997. The new Government tural subsidies. is a three-way coalition, involving centrist and socialist parties (ANAP-DSP-DTP). It does not The new Government has installed a highly have a maijrity in Parliament and relies on sup- experienced economic team and given imme- port from another socialist party (CHP) outside diate priority to preventing any further deterio- the Government. The next scheduled elections ration in the fiscal situation, and to dampening are in late 2000. turbulence in the financial markets. A number VCLUME II: COUNTRY PROFILES 83 of early actions have been taken, notably Bank's ability to provide comprehensive sup- much-delayed increases in the petroleum con- port in Turkey's increasingly uncertain political sumption tax and a range of public sector and policy environment. By the end of the prices, the adoption of a new protocol restrict- 1 997 fiscal year (July 1, 1996 - June 30, ing Treasury access to central bank finance, 1 9971, Bank commitments to Turkey exceeded and increases in interest rates on agricultural US$12 billion for 128 operations. loans. Despite these and other planned meo- sures, the budget deficit in 1 997 will likely Learning from experience, the Government exceed 8 percent of GDP. Inflation has also and the Bank have adopted a new assistance been accelerating in recent months, reaching strategy for FY98-00 that places particular 99 percent by the end of 1997. emphasis on developing a program that is Developments in the external sector were more more robust with respect to political and poli- favorable in 1997, largely due to a strength- cy uncertainties, and an strengthening institu- ening of export performance which is also tional frameworks, which would reduce the helping to maintain overall GDP growth likelihood of policy reversals and improve momentum at an annual rate of 6 percent. implementation. Other key elements of the Official foreign currency reserves rose to new assistance strategy are to; about US$ 19 billion at the end of 1997 from * increase significantly the share of adminis- US$ 16.5 billion at the end of 1996. trative resources for activities aimed direct- ly at social development and poverty alle- A stronger policy effort will be required in viation; shift the focus of investment activi- 1998. In addition to the problem of inflation, ties to poorer regions; and catalyze private bunching of external bond and domestic pub- involvement in previously state-run activi- lic debt repayments has created a spike in ties especially through guarantees; public debt service obligations in 1998. The * increase support for economic manage- Governmet, needs to ntroduce a broad-kased ment through technical and advisory ser- program of stabilization and structural reform, vices, with an emphasis on improving beginning with a 1998 budget that provides Government's capacity to design and for a substantial cut in the fiscal deficit and implement reforms; and provide a firm reduction in inflation. To be credible, the pro- basis for participatory approaches to gram would need to include politically-difficult poverty alleviation and social develop- reforms such as social security and agricultur- ment; and al subsidies. e sustain recent improvements in project port- folio performance through a Government- THE BANK'S GROUP STRATEGY Bank Portfolio Improvement Program to Turkey joined the Bank in March 1947 and resolve critical implementation bottlenecks; has been one of the Bank's most important increase frequency of fPortfolio clients. Over time, however, Bank lending to Performance Reviews; and delegate Turkey has declined, from an average of responsibility for them to the Resident US$800 million in the 1980s to an estimated Mission in Turkey. US$250 million for FY93-97. To some extent, this reflects Turkey's increased access to inter- ENERGY POLICIES AND ISSUES national capital markets and reduced depen- Turkey's most important domestic source of dence on official aid agencies, including the energy is hydroelectricity, which accounts for Bank. It also reflects the constraints on the 40% of total electric power generation and 84 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION 3% of primary energy supply. The exploitable hydro, 60% thermal, mainly based on local hydropower potential is estimated at 3 1,000 coal/lignite) and an extensive transmission MW, of which 10,500 MW has been devel- and distribution network which provides oped and another 3,200 MW is under con- access to electricity for almost 100% of the struction or planned to be developed by population. Electricity consumption has been 2000. Abundant deposits of low quality lig- growing at an annual average of 10% over nite also exist, estimated at 6.4 billion tons, the last decade and the power system is capa- most of which are of low calorific value and ble of meeting its peak power demand of BANK'S TEAM: high sulfur content. These deposits account for 13,000 MW. The demand for electricity is COUNTRY DIRECTOR 36% of power generation and 16% of prima- forecast to grow at an annual average of 8% (H4-175, x84219) ry energy. There are also limited quantities of over the next 15 years, as a consequence of low-quality, high-sulfur hard coal and of oil economic growth and the low levels of per PETER THOMSON, and gas. Proven hydrocarbon reserves consist capita electricity consumption (1300 kWh in SECTOR LEADER of 250 million barrels of oil and 0.5 billion Turkey compared to, for e.g., 3459 Kwh in RAGHUVEER SHARMA, cubic feet of natural gas. Domestic production Poland). This will require annual investments of PRINCIPAL FINANCIAL of hydrocarbon accounted for 10% of their US$3 billion, comprising on average, US$1.9 ANALYST domestic demand in 1994. This proportion is billion for generation, US$400 million for (H5-076, X32302) not expected to increase substantially because transmission system extension and reinforce- AKIN ODUOLOWU, of the limited prospects for Turkey's geology. ment, and US$700 million for distribution sys- PRINCIPAL ENERGY A greater utilization of domestic lignite and tem strengthening. SPECIALIST cool is severely constrained by environmental (H5-099, x32292) considerations. The balance of domestic ener- Recognizing these problems, the Government gy demand is met, and is likely to be met in the of Turkey (GOT) is tcking a two-pronged future, by fuel imports, especially crude oil and approach to sector development, one aimed at petroleum products (35 million tons in 1995 revamping the policy and concomitant which together constitutes 33% of primary legal/regulatory framework to attract a much energy supply); as well as natural gas (8 bil- larger level of private sector investments; and lion cubic meters-bcm- in 1996). Energy the other aimed at privatizing existing power imports cost approximately 2% of GDP in infrastructure. The Government's strategy for 1996. Approximately 5.5 bcm of natural gas the development of the power sector is as fol- is currently imported from the Russian lows: (a) public sector thermal generation Federation on the basis of a long-term take-or- plants will be separated and privatized on a pay contract; and 2.4 bcm from Algeria Transfer-Of-Operating-Rights (TOOR) basis; (b) through the liquefied natural gas (LNG) termi- distribution facilities and services serving nal at Thrace. With regard to crude oil, Turkey urban areas will be transferred to the private had depended on a major source of supply sector also on a TOOR basis in order to from Iraq through the Iraq-Turkey crude oil strengthen and expand the distribution net- pipeline. Following the suspension of pipeline works; (c) the national transmission grid and operations in 1990 under a United Nations load dispatching facilities, which will remain resolution regarding the embargo on Iraq, in the public sector, will be separated (from Turkey has had to pursue alternative sources generation) providing equal access to all gen- for reliable crude supply. erators; and the transrnission system will be strengthened and expanded; (d) new invest- Turkey presently has an installed power gener- ments for the sector, paiticularly for generation ation capacity of about 21,000 MW (40% capacity expansion, w 11 mainly be mobilized VOLUME 11: COUNTRY PROFILES 85 from the private sector, through Build-Operate- The objectives of the Baku-Ceyhan Oil Pipeline Transfer (BOT); Build-Own-Operate (BOO) Technical Assistance are to: (a) identify and and other independent power producer (IPP) evaluate technically viable and environmental- mechanisms; and (e) a transparent regulatory ly sustainable pipeline routes for the export of framework will be set up to regulate the vari- up to 45 mt per annum of crude oil from Baku ous entities; and competition will be intro- in Azerbaijan to the international markets duced wherever possible (e.g. generation). through Ceyhan in Turkey, under various throughput assumptions; (b) conduct optimiza- The Turkish authorities have already begun the tion studies of the routes so identified to arrive implementation of the sector development strat- at the most robust pipeline route and configu- egy. Ten thermal power plants, with a total ration which merits further and more detailed instailed capacity of 4253 MW have been technical, financial and economic evaluations; awarded to private sector consortia on a and (c) recommend a realistic commercial TOOR basis; and four additional thermal structure for constructing and operating the plants (total capacity 3580 MW) and all the selected pipeline. The study is expected to be major existing hydro power stations (9000 completed by the end of the first quarter of MW) are proposed to be transferred to private 1 998. sector. Furthermore, twenty-five distribution areas which are also to be transferred to the The Bank is currently preparing a project, the private sector on a TOOR basis (150 bids proposed National Transmission Grid Project have been received for the 25 distribution whose objectives are to: (a) ensure adequate areas), and winning investors for seven of transmission system capacity to meet 8% p.a. these distribution areas have been announced. electricity demand growth; and (b( facilitate private sector participation in the sector. BANK'S STRATEGY FOR THE ENERGY Consultants have been appointed to assist SECTOR TEAS, the borrower, in the preparation of the The current Bank's portfolio includes two project. The project is expected to be present- loans, one in the power subsector, the TEK ed to the Board by the end of June 1 998. Restructuring Loan for US$300 million, and one in the oil and gas sector, the Baku-Ceyhan Oil Pipeline Technical Assistance Study Loan for US$5 million. The objectives of the TEK Restructuring Loan are to support: (a) the cor- porate restructuring and privatization of TEAS and TEDAS in the context of the Government's SEE Privatization Program; and (b) the imple- mentation of an agreed medium-term least costly investment program for the power sub- sector in both the public and private sectors during the period 1991-1996. The project is at an advance stage of implementation. The only items remaining to be procured under the loon are distribution SCADA systems for four regions in Turkey. 86 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION ENERGY PROJECTS UNDER IMPLEMENTATION Project Development Objectives Effective Revised Ciosing Undisb Total Disb Task Date Amount Date Begin FY97 Manager FY ($m) ($m) TEK Restructuring The project objectives are to support: (a) the cooperate 04.27.92 300.0 12.31.97 140.1 40.0 R. Sharma Project (LN No. restructuring and privatization of TEAS and TEDAS in the 3345) context of the Government's SEE Privatization Program; and (b) the implementation of an agreed medium-term least costly investment program for the power subsector in both the public and private sectors during the period of 1991-1 996. Baku-Ceyhan The following are the project objectives: (a) identify 3.20.97 5.0 06.30.98 5.0 0.5A. Oduolowu Oil Pipeline and evaluate technically viable and environmentally Engineering sustainable pipeline routes for the export of up to 45 mt Technical per annum of crude oil from Baku in Azerbaijan to the Assistance international markets through Ceyhan in Turkey, under Project (LN. various throughput assumptions; (b) conduct optimization No. 40891 studies of the routes so identified to arrive at the most robust pipeline route and configuration which merits further and more detailed technical, financial and economic evaluations; and (c) recommend a realistic commercial structure for constructing and operating the selected pipeline. ENERGY PROJECT UNDER PREPARATION Project Project Description Proposed Status Project A.mount Manager National The National Transmission Grid Project would consist US$200.0 Early stages R. Sharma Transmission of: (a) financing a time slice of the transmission system of preparation. Grid investment for the Turkish Electricity Generation & (TR-PE-48852) Transmission Corporation (TEAS); and (b) technical assistance to facilitate private sector investments in the power sector, including (i) separating TEAS's transmission grid and load dispatch facilities into a separate company (GRIDCO); (ii) developing and implementing a transmission policy; and (iii) institutional development of GRIDCO. VOLUME II: COUNTRY PROFILES 87 ECONOMIC CONDITIONS ENERGY SECTOR ISSUES With the breakup of the Former Soviet Union Gas Payments Arrears: All of the approxi- (FSU), Turkmenistan's economy was hit hard mately $1.2 billion gas payments arrears from by the loss of access to European gas markets Turkmenistan's main customers at the end of through Russian gas pipelines, and large and 1995 were successfully rescheduled, and pay- persistent arrears owed to it by its major FSU ments are reportedly on schedule for these. gas customers (Georgia, Armenia, Ukraine, Negotiations are underway to reschedule or Azerbaijan). Over 1993-95, real GDP fell by collect some $340 million in new 1996 over 30 percent, gas production declined by arrears. With each of its major FSU gas export three-fifths, and real minimum monthly wages customers expected to return to growth in by an estimated 80 percent. With proven gas 1997 and with gradual growth acceleration reserves of about 2.9 trillion cubic meters (tcm) expected thereafter, export volumes and pay- and production capacity in excess of 60 bil- ment rates for these customers should gradual- BANK'S TEAM: lion cubic meters (bcm) per year, Turkmenistan ly improve. KIYOSHI KODERA, has the potential to be a significant player in COUNTRY DIRECTOR the international gas markets. Turkmenrozgas: Turkmenistan has recently (H3-001, x39649) entered into a joint venture with GazProm, PETER THOMSON, In the medium-term, Turkmenistan's growth called "Turkmenrozgas", which is expected to SECTOR LEADER prospects rest on growth in demand for natur- strengthen its ability to collect and to re-enter (H5-093, x34261) al gas exports, and the recovery and develop- the European gas market through swaps with ment of production potential in oil. There are, GazProm. PETER POLLAK, at present, no prospective capacity constraints PRINCIPAL ENERGY on gas production: in the short-run, and within Gas Export Pipeline: A natural gas pipeline (H5-08P X81065) fairly wide limits, Turkmenistan can expand the from Turkmenistan through Iran to Turkey, and output of gas, which accounts for approxi- eventually to Europe has been a hot political SHIGERU KUBOTA, mately 50 percent of GDP, with the turn of a issue for the past 3-4 years. If materialized, the SR. ENERGY SPECIALIST valve. The binding constraints in the near-to- pipeline could carry as much as 30 bcm a (F 8K-228, X32806) medium-term output growth and export earn- year. Unocal, on the other hand, is interested HELEN SYMS, ings are thus the willingness and the capacity in constructing a gas pipeline from CONSULTANT of Turkmenistan's main customers to pay in Turkmenistan through Afghanistan to Pakistan (H5-245, x87886) cash and the physical transport capacity to and possibly on to India. Progress on both pro- move gas to export markets. jects, however, is constrained by the political uncertainties in the region. ROLE OF THE BANK GROUP Three projects have been prepared over the BANK STRATEGY IN THE ENERGY SECTOR past five years, namely: Institution Building Bank's involvement in the energy sector in Technical Assistance Loan (IBTA) in the amount Turkmenistan has been very limited except for of $25.0 million; Urban Transport Loan in the the "Energy Sector Review" which was com- amount of $34.2 million, Water Supply and pleted in 1 993. Since then, only recently has Sanitation Loan in the amount of $30.3 mil- the Government expressed an interest in lion. A Health Project is expected to be pre- Bank's presence in terms of technical assis- sented to the Board in FY98. tance in the gas sector. The response to this request was reflected in the Country Assistance Strategy (CAS) in 1997 in the form of an ESMAP TA study. 88 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION The ESMAP Natural Gas Investment Strategy Study: Description: This study is expected to start in September 1997 and is planned to assist the Government in developing an economical- based, strategic policy for the natural gas sec- tor, focusing on the country's sector reform and the identification of economically high priority projects. Within the context of Turkmenistan's overall energy situation, the study should pur- sue the following objectives: (i) establish the required sector policy for the gas sector devel- opment; (ii) determine the required institutional reform; (iii) identify economically high priority investments and financial options. VOLUME 11: COUNTRY PROFILES 89 COUNTRY INFORMATION Ukraine is the second largest Europeon coun- most domestic prices were freed, all quantita- try in land mass and the fourth largest in pop- tive restrictions on imports were lifted, and all ulation. It has a well-educated, highly skilled export quotas were eliminated. labor force. Agriculture accounts for 20 per- cent of GDP. A good mineral resource base THE BANK GROUP STRATEGY (coal and iron), diversified industries (46 per- The World Bank's strategy in Ukraine calls for cent of GDP), and a well-developed infrastruc- a graduated expansion of the lending pro- ture provide a firm base for future growth. gram in line with the intensity of the reform effort. This approach will allow the Bank to Basic economic structures require a major respond promptly in support of broader and overhaul for Ukraine to become international- deeper reforms while avoiding burdening ly competitive. Production is too energy inten- Ukraine with debt that would not contribute to sive, and the economy relies on imports of oil economic recovery and improved creditwor- products and natural gas from Russia and thiness. The Bank will continue to provide Turkmenistan for about half its energy needs. Ukraine with a high level of non-lending ser- Close to one million people are employed in vices and engage the Government and civil the world's highest-cost coal industry. society in an intensive policy dialogue under all scenarios. Between 1 990 and 1 993 agricultural produc- tion fell 20 percent, industry contracted 45 If the stabilization program remains on track, percent, and construction declined 54 per- as evidenced by continued IMF support to cent. Open unemployment remained limited, Ukraine, the Bank will provide a base case of but disguised unemployment (in the form of non-adjustment lending, not exceeding forced leave and part-time work) became US$580 million. Strong reforms in the areas widespread, affecting 3-5 million workers. of ownership change and liberalization are Real wages dropped 63 percent between needed to move to a high case of adjustment 1990 and 1993. and project lending, ranging from US$1,400 to US$3,100. The situation started improving following the mid-1994 elections. Efforts were made to con- Decisive action in liberalization, privatization, trol public finances - the budget deficit was and land reform would trigger the high case. cut to less than 5 percent In addition to the base program, Ukraine of GDP in 1995. would hove access to an ownership and liber- Populatio mid-199 (millios) 51551Monetary policy was tight- alization program of more than US,$800 mil- 1993 1994 1995 1996 ened - the quarterly lion. The ownership and liberalization pro- (estim) growth rate of broad gram includes two adjustment loans, the GNP per capita 2,210 1,913 1,632 1,180 money was reduced from Enterprise Development Adjustment Loan (UAn) GDP 93 percent in the fourth (EDAL) and the Agriculture Sector Adjustment Growth (%P -14.2 -23.5 -11.8 -8.5 quarter of 1993 to 8 per- Loan (AGSECAL), two projects in support of GDP Inflation cent in the fourth quarter export development and the extension of agri- (%) 3333.6 961.3 398.5 74.5 of 1995. Mass and small- culture services, and a guarantee for the Total Debt/ scale privatization started. import of agriculture inputs. Once it achieves GDPmp 3.2 31.5 23.2 17.2 Actions were taken to lib- the high case Ukraine would also have access eralize the economy - to an expanded program providing an addi- 90 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION tional US$1700 million, provided additional reduced or no gas and electricity supplies). UKRAINE ENERGY SECTOR systemic and project reforms are put in place. However, the bulk of the improvement in over- INDICATORS Thus, fast deep reforms would allow lending of all collection performance during 1 996-97 up to US$3100 million. The expanded pro- materialized through barter schemes, and the Energy Resources gram would include three adjustment loans in share of cash collections remained low (less Oil Reserves (million tons) support of public, financial and cool sector than 30%). The fear of unemployment and 190 reforms totaling US$900 million. These loans political pressure prevented the cut-off of sup- Coal Reserves (million tons) would be complemented by projects support- plies to the largest enterprises. 52,000 ing the development of the wholesale electrici- Gas Reserves (bcm) ty market, the development of financial institu- The best way to ensure thcit prices move in tan- 1,400 tions, the restructuring of the coal industry, and dem with costs and bills c et paid in time is to Energy Consumption (1995, mtoe) the rehabilitation of thermal power plants. A demonopolize and privatize the coal, gas, oil, 156.64 significant part of the Bank's non-lending ser- and electricity industries, and create competi- Energy Consumption per capita vices is geared to dealing with implementation tive energy markets. Ukraine's progress to (1995, kgoe) 3,000 issues. date is summarized below: Power Generation Capability ENERGY SECTOR ISSUES AND POLICIES Coal: Prices and trade have been liberalized, (installed) 53,000 MW Although Ukraine's energy intensity was and the viable part of the coal industry has already high in international comparison in been corporatized. In mid-1996, the 1990, energy consumption decreased less Government adopted a program of closing than GDP over last six years. Despite large more than 1 00 loss-making mines over a peri- coal and significant gas and oil reserves, half od of 4-5 years (production has already been of the primary energy consumption hcs to be stopped in 24 mines). The program includes a covered from abroad: in 1996, Ukraine number of measures to m tigate the social cost imported 71 billion cubic meters of natural of restructuring. The funding of these mea- gas, 15 million tons of crude oil and oil prod- sures, however, has been inadequate to date. ucts, and 11 million tons of coal, at a total cost of about US$8 billion jrepresenting 42% of Gas: The Government has eliminated state Ukraine's total import bill). guaranteed imports, and licensed a number of private gas importers/suopliers. Gas prices, In order to reduce the energy intensity of the however, are still determined by the economy, domestic prices need to reflect the Government, and customers cannot choose true cost of energy, production subsidies among gas suppliers. F:urthermore, the gas should be phased out, and energy bills should transportation system is operated by the be paid in full. In addition, energy suppliers largest domestic gas producer, Ukrgazprom, should be exposed to competitive pressures to and access to the system for other (potential) reduce costs and improve service quality. producers is heavily constrained. During 1995, the Government achieved sig- nificant progress in the area of energy prices, Oil: Oil products prices have been liberalized, however, this led to a rapid build-up of and the Government has decided to open oil accounts receivable. Following a number of exploration, production, refining and market- Government decrees stipulating that non-pay- ing to foreign investors. However, the lack of ing enterprises should be cut-off, the payment a satisfactory legislative basis and stable reg- collection ratio reached 80% by the end of ulatory regime hampers the ability of the sub- 1996 (several thousand enterprises received sector to attract badly needed investments. VOLUME II: COUNTRY PROFILES 91 Although work was carried out on a new are also under preparation. Finally, subject to Petroleum Law (with Bank/USAID assistance) in agreement on further reforms in the gas sub- 1994, the draft law has not been adopted yet. sector, the Bank has expressed its wAvillingness to finance the rehabilitation of the gas trans- BANK'S TEAM: Power: The reform process is the most mission and distribution system. PAUL SIEGELBAUM, advanced in this sub-sector. The previous COUNTRY DIRECTOR eight vertically integrated monopolies have (H2-025, x80752) been broken up into generation, transmission and distribution companies. A competitive LASZLO LOVEI, LEAD ENERGY SPECIALIST electricity market and a transparent, (H5-091, x32772)) autonomous regulatory regime has been established with assistance from the Bank and PENTTI ARO, DISTRICT several other donors. The privatization of gen- HEATING AND POWER eration and distribution companies was sched- (H5-207E X87 136) uled to start in early 1998. Nuclear Safety: The G-7 and Ukraine signed JEFFREY BALKIND, a Memorandum of Understanding (MOU) on SR. ECONOMIST the closure of the Chernobyl Nuclear Power (H5-021, X891 16) Plant on December 20, 1995. In the MOU, JUkraine agreed to close the remaining two ISTVAN DECOOZI, units of the Chernobyl plant by the year 2000, (H5-25 1, x32147) and the G-7 agreed to assist with the mobi- lization of resources to finance closure costs, CAROLYN GOCHENOUR, additional nuclear safety measures, and the PROGRAM TEAM LEADER completion of two new nuclear reactors (Rovno (H5-105, x39681) 4 and Khmelnitsky 2) in the framework of a HEINZ HENDRIKS, least cost investment program. SR. MINING ENGINEER (F 8K-1 94, x82887) BANK'S STRATEGY IN THE ENERGY SECTOR The Bank's technical assistance and lending JOHN STRONGMAN, operations have so far been focused on the MINING ADVISER (F 8K-I62, X35530) power and coal industries since these demon- strated the most commitment to reform. VLADISLAV VUCETIC, Lending commitments in these two sub-sectors POWER ENGINEER total US$746 million (83% of this amount was (H5-247, x33977) approved by the Board in the last quarter of SALMAN ZAHEER, 1 996), and three additional loans with a total ENERGY ECONOMIST value of about US$600 million are under (H5-249, x39477) preparation. Project implementation has been slow due to the inexperience of Ukraine with the Bank's procurement and disbursement pro- cedures, and delays in compliance with essen- tial legal covenants. Three additional projects aimed at rehabilitation district heating net- works and energy savings in public buildings 92 PROFILE OF ENERCY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION ENERGY PROJECTS UNDER IMPLEMENTATION Project Development Objectives Effective Revised Closing Task Date Amount Date AManager ($m) Hydropower The main development objectives are: (a) to improve the efficiency, 04.11.95 114.00 12.31.00 V. Vucetic Rehabilitation safety, and environmental performance of the hydropower plants; and System (b) to increase hydropower generation capacity; (c) improve the Control Project quality of electricity supply by upgrading load and frequency (LN No. 38650) control which would also improve the safety of nuclear plants; and (d) reduce fuel costs by facilitating the economic dispatch of thermal generating units. Coal SECAL The main development objectives are: (a) to support balance of 12.27.96 300.00 12.31.97 J. Strongman (LN No. 41180) payment and budget financing needs in 1996-1997, including port of the fiscal costs of restructuring the coal sector; (b). to transform the coal sector into a self sustained sector; (c). to improve the productivity of the coal sector. Electricity The main objectives are to: {i) support the development of 01.31.97 317.00 1 2.31.99 I. Dobozi Market competitive electricity market; (ii) improve recording and billing cf Development electricity flows at key wholesale market delivery points; (iii) improve (LN No. 40980, the financial position of companies; and (iv) ensure that electricity 40981) demand is met at market clearing prices. (Loan was suspended on July 29, 1997.) Coal Pilot The central objective is to mitigate the social and environmental 08.28.96 15.81 12.31.99 J. Balkind Project consequences that arise from mine closures, as part of an overall (LN No. 40160) Government restructuring program for the sector. The project seeks to: (i) test ways to implement mine closures safely, with due regard to technical, environmental, economic, financial and social aspects; (ii) ensure that mine workers are afforded opportunities to either transfer to other jobs in the sector or exit the industry with reasonable compensation and a choice of assistance for seeking other employment; (iii) transfer social assets to municipal management and support their rationalization, while helping to ensure that the most vulnerable groups are adequately protected in terms of access to services; and (ivj through monitoling and feedback, gain experience from the Pilot Project for subsequent operations. Task ID Task -Manager Ukraine Gas Stratgy UA-SR-51524 Laszlo Lovetf Technical Assistance UA-LL-55489 -stvan Dobozi Coordination in l ower Sector VOLUME II: COUNTRY PROFILES 93 ENERGY PROJECTS UNDER PREPARATION Project Project Description Proposed Status Project Amnount Manager Krivoy Rog The project includes rehabilitation of several units in a 170.00 Project preparation has been 1. Dobozi Power major coal-fired thermal power plant to extend service life, on hold since the suspension Rehabilitation increase efficiency and to reduce environmental impact. of Electricity Market Project. (UA-PE-9 109) Gas Distribution The project will (aj support conservation of gas use by 100.00 Project preparation L. Lovei Rehabilitation upgrading and increasing the use of customer metering; is under way. (UA-PE-97 18) (b) reduce gas distribution operating costs through the rehabilitation of gas distribution systems; and (c) support the commercialization of gas distribution companies. Kiev District The project will (a) rehabilitate and introduce technologies 200.0 Appraisal has been C. Gochenour Heating and materials to the heating system in Kiev and lb) support completed. Improvement the commercialization and strengthening of project district Project heating companies. (UA-PE-448321 Kiev Public The project would (a) support public initiative in improving 30.0 Project preparation C. Gochenour Buildings Energy energy efficiency in schools, hospitals, kindergartens, and is under way. Efficiency Project public administration buildings and (b) support the government's (UA-PE-55739) policies to establish sustainable mechanisms for implementing and maintaining energy conservation programs. Sevastopol Heat The project would support la) the introduction of a 30.0 Project preparation C. Gochenour Supply decentralized heating service in Sevastopol and is under way. Improvement (b) development of a new heating enterprise. Project (UA-PE- 55738) Dniester The project will include (a) completion of three units of the 260.00 Project 1. Dobozi Hydropower Dniester Hydropower Pump Storage project; has been Pump Storage (b) strengthening of the transmission system (including switch reserved. (UA-PE-40565) yard construction/improvement); and (c) address further priority upgrades of the dispatch control and communications systems needed to improve control of system frequency, system voltages, power interchange and dispatch. Coal Mining The objective of the project is to support the development of 100.00 Project preparation H. Hendriks Improvement viable coal mining companies by (a) improving the working is under way. (UA-PE-40561) conditions and motivation of staff; (b) reducing environmental impact of mining and improving the living conditions in coal mining areas; (c) reducing unemployment in municipalities by coal mining restructuring; and (d) improving the management of viable mines. The project will include mine safety and health improvement, environmental improvements, social mitigation and technical assistance and training. 94 PROFILE OF ENERGY SECTOR ACTIVITIES OF THE WORLD BANK IN EUROPE AND CENTRAL ASIA REGION