Page 1 32317 Project Information Document (PID) Country Name Philippines Project Name Nasulo Geothermal Power Project Region East Asia Sector Energy Project P089576 Borrower Not applicable Implementation Agency PNOC-Energy Development Corporation Environment Category B Date PID Prepared April 27, 2005 Projected Appraisal Date June 2005 Projected Board Date N/A 1. Country and Sector Background The primary energy mix of the Philippines is characterized by a heavy dependence on largely imported fossil fuels that accounted for some 52 % of the total energy supply in 2002. This is projected to increase to 62% in 2013. Coal-fired plants remain the dominant type of power generation in the country, accounting for 27% of total power generation, while oil-based power generation accounted for some 14% of the total in 2003. With the projected high increase in electricity demand in the coming decade, greenhouse gas (GHG) emissions from the power sector is expected to increase from 14 million tons of carbon dioxide equivalent (tCO2e) in 1996 to about 60 million tCO2e in 2010 and 133 million tCO2e in 2020. 2. Objectives The overarching objective of the proposed Project is to help mitigate global climate change by facilitating the use of market-based mechanisms sanctioned under the Kyoto Protocol through support to clean energy projects in the Philippines. The Project will assist the Philippines in stimulating and accelerating the commercialization of renewable energy applications and markets at the grid-connected level in order to reduce greenhouse gas (GHG) and other emissions, while responding to increasing energy demand and the need for energy diversification. Specifically, the proposed 20 MW geothermal energy project will obviate the need for equivalent capacity of fossil fuel-based generation to meet the projected power shortfall in the Visayas region, thus mitigating greenhouse gas emissions. 3. Rationale for involvement of the Bank’s Carbon Fund Business The Carbon Fund Business (CFB) of the World Bank , that would purchase the Project’s emission reductions (ERs), was created to mitigate climate change through market-based ER purchase transactions, even as it opens up a significant new source of financing for projects in developing countries. This Project is fully consistent with the World Bank’s Country Assistance Strategy (CAS) that includes improving rural infrastructure services for economic growth, strengthening private sector participation and enhancing environmentally sustainable rural development. The Project will contribute towards the government’s goal of expanding the use of renewable energy to reduce the country’s heavy reliance on imported fossil fuels, and has been endorsed by the Page 2 government for carbon financing. 4. Description The Project is located in Negros Island that is part of the Visayas regional grid. Overall, the region suffers from a deficit in electricity supply that is currently met by barge-mounted diesel plants. Using an indigenous and renewable energy resource, the proposed 20 MW project will obviate the need for equivalent capacity of fossil fuel-based generation to meet the projected power shortfall in the Visayas, thus mitigating GHG emissions. The proposed project will “optimize” steam utilization at the Nasuji area within the existing Palinpinon-2 steamfield in Southern Negros by tapping excess steam to generate an additional 20 MW. The project comprises: a) : (1) development of a 20 MW geothermal field, including the drilling of 1 production well (already completed) and the construction of the corresponding fluid collection and reinjection system (FCRS); (2) the construction, installation and commissioning of a 20 MW Geothermal Power Plant with gas abatement facility; and (3) the construction of a switching station at Nasulo to interconnect with Transco’s 138 kV transmission lines. The power plant is scheduled to commence operation in late 2007. Upon its full-year commercial operation starting in 2008, the plant is expected to generate about 150 GWh of power and mitigate about 123,000 tons of CO2 annually. 5. Financing The total cost of the Project is estimated to be US$35.5 million, of which US$24.8 million will be financed by a loan (already approved) from the Development Bank of the Philippines (DBP) and the balance by PNOC-EDC via internal cash generation. The CFB has proposed to purchase partial or entire certified emission reductions (CERs) assets to be created by the geothermal power project. The exact amount of CERs eligible for purchase will be subject to a Baseline Study that has been commissioned by CFB and to independent verification of energy output each year after plant commissioning. The purchase amount and price will be defined in an Emission Reduction Purchase Agreement (ERPA) to be reached through negotiation between the World Bank and the project Sponsor, the Philippines National Oil Corporation- Energy Development Corporation (PNOC-EDC), a government owned and controlled corporation. 6. Implementation Project sponsors PNOC-EDC will own and operate the geothermal power plant. PNOC-EDC is a government- owned and controlled corporation with assets of about 92.9 billion pesos (US$1.7 billion @ US$1=PhP53) and a net income of 825 million pesos (US$ 15.6 million) as of December 31, 2002. Stockholder’s equity was reported at 19.6 billion pesos (US$ 370 million) for the same period. PNOC-EDC, has been in geothermal energy development for over 28 years. It operates steamfields accounting for about 60% of the country’s installed geothermal capacity that is currently the second largest in the world . The Government: Page 3 The role of the Government in the implementation of the project is indirect and limited to two areas: (i) implementation of the Kyoto Protocol and setting the rules and mechanisms allowing both public and private entities to produce and sell ER, in accordance with mechanisms established by the Kyoto Protocol and related negotiations; and (ii) regulatory and oversight responsibilities of the power sector and environmental agencies. 7. Sustainability Sustainability of the Project after plant commissioning is likely because: a) there exists a well- established institutional and legal framework in the power sector, b) local authorities are highly supportive of the Project and desire to develop a pipeline of similar projects in order to achieve local and global emission reductions, and c) geothermal power production is a mature technology of which there is considerable local experience, the Philippines now being No.2 in the world in installed geothermal power capacity. 8. Lessons learned from past operations in the country/sector Although the proposed project, when realized, is only the second of the CFB portfolio to be implemented in the Philippines, its preparation has benefited from the experience and consultations with parallel CF projects that are being developed or implemented in Latin America, ECA and the wider Asia region. 9. Program of targeted intervention (PTI) no or yes? Not applicable 10. Environment Aspects (including any public consultation). The project is only an enhancement of the existing Palinpinon II geothermal production field. As such it will not entail activities associated with full blown geothermal power development such as cutting of new roads, clearing of forested area for temporary facilities, and drilling of several exploratory wells. An Environmental Category “B” has been assigned. One Safeguard Policy, EA (OP/BP 4.01) is triggered due to the civil work activities allied with the preparation of the power plant site and Fluid Collection and Re-injection System (FCRS) and the handling of additional geothermal air emissions and geothermal brine generation. In the preparation and review of the EA, particular attention shall be given to outstanding issues, if any, associated with the existing geothermal projects that can potentially be linked to the proposed Project, such as the overall or cumulative H2S emission and the social development programs in the Pal I and Pal II projects. 11. Contact Point: Task Manager Selina Shum The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone: 202-473-0611 Page 4 For information on project related documents contact: The Infoshop The World Bank 1818 H. Street, N.W. Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: htty://www.worldbank.org/infoshop _______________________ Note: This is information on an evolving project. Certain components may not necessarily be included in the final project.