Energy~ Miniri 12 MAY 98 N E W S L E T T E R No. 4/98 Private Sector Concessions for Renewables In This Issue: Two Bank projects under preparation will test an and $13.5 million from the GEF. The concession innovative concession approach to deliver basic en- approach for SHS dissemination is highly innova- Evaluating ergy services tive and has never been tried elsewhere. Evaluatingerysvis Fiscal Regimes Argentina: Renewable Energy in Rural The GOA has divided the rural electricity market in in Upstream Markets Project each province into two parts: the concentrated or Hydrocarbon grid-connected market and the dispersed or off-grid Contracts The project aims to provide 170,000 households and market. Many of the concentrated markets, which community centers (schools, clinics, police stations) are generally profitable operations, have already and more... in dispersed rural areas far from the grid in up to 16 been sold to the private sector To attract private provinces with basic electricity services through a investment into the dispersed market, the strategy concession system implemented by the private sec- is to create a concession package consisting of sub- tor. Although some centralized minigrid systems sidized and unsubsidized customers for services that, with small hydro, diesel or renewables/diesel hy- in total, provides a reasonable rate of return to the brids will also be installed, the bulk of the project investor's equity. Exclusive rights to serve custom- concerns individual solar home systems (SHS) in ers in the concession area for 15 years, renewable sizes ranging from 50W to 400W. The project has a to 45, would be awarded to the winning bidder who, total investment cost of about $210 million, with in effect, asks for the least overall subsidy. Some of $60 million from an IBRD loan, $78 million in con- the advantages of the concession system over the cessionaire equity, $46.8 million from Government unregulated market approach, whereby small dealers funds, $12 million from customer downpayments continued page 2 From the Thematic Groups... Upcoming... event. Registration is required. Contact Judy PM. Lu x80500 A Downstream Petroleum Issues Workshop will be held in the Johannesburg area on May 20-22. At the next ECA Energy Forum on May 27, at 2:00- Topics to be covered include rationalization of pe- 3:30pm in Room H5049 (ECSEG Team Room) the troleum product specifications, petroleum procure- topic will be energy taxation and other energy- ment guidelines, pricing, transportation safety and macro linkages in the FSU. LPG issues. Representatives from Government, private sector oil and gas, and commercial banks Oil and Gas: A training session on the commodity from the southern Africa region will attend. It is market and hedging instruments, to be presented The Newsletter is a partly an ESMAP funded activity. by the CPM Group on Monday, June 8, 1998. The regular publication of Contact Eric Daffern: x34057. presentation will be tailored towards various pre- the KM Team for En- cious and base metals as well as oil and gas. The ergy & Mining in the "Exploring Sustainable Development: Three Sce- full day session which is sponsored by the Oil and EMT Family. It has narios for the Planet in 2050" developed by the Gas Dept. of IFC has the tentative schedule: operational focus and World Business Council on sustainable Develop- * basic structure/function of commodity markets, is distributed in the ment will be presented and discussed at 9.00 - 12.30 financial aspects of commodity markets, hedg- Bank Group among on Friday, May 22 in the Preston Auditorium. Ged ing strategies, instruments and mechanisms, com- sector staff. Contribu- Davis of Shell will make the Scenarios presentation modity-based lending, monetizing natural re- tions should be sent and Peter Sutherland, Chairman, Overseas Devel- source reserves, and implications for IFC. lo Kyran O'Sullivan opment Council, BP and Golman Sachs will Mod- Contact: Philippe Lietard: Y36677 x32722. erate the Open Discussion. The Professional continuedpage 3 Banker's Association are the third sponsor of the Board Private Sector Concessions continued... The other components are RETs for 900 commu- and service providers compete freely for custom- nity applications, such as schools, health clinics and Approved... ers, are the potential economy of scale due to vol- communal water supply; and 500 productive uses, ume discounts in procurement of equipment, gradual such as micro-irrigation, electric fencing for live- reduction of operating and maintenance costs per stock and pumps for small fish breeding farms. Pho- China Energy Conservation unit installation as the customer base expands, and tovoltaic systems are likely to be the most practical Project, funded both by a GEF the increased possibility of covering a large num- technology for most of these applications. However, grant of US$22 million and a ber of customers in a shorter period of time due to minihydro, windpower systems, small biomass gas- World Bank loan of US$63 million the "obligation to serve" characteristics ifier systems or hybrids (diesel/wind/PV combina- was approved by the Board on of the concession. Because the system cost is paid tions) may also be applied, depending mainly on March 26. The project will sup- for over the extended period of 15 years, a much resources availability in the specific locality and the port the establishment and pilot lower monthly payment by customers results. The type of demand. demonstration of energy manage- operation of the concession in each province will ment companies in China for the be regulated by the existing Provincial Regulatory Of the 90,000 households, about 10,000 very poor first time. GEF support will focus Agency. households will be provided small 30W systems with on the introduction, adaptation, full capital subsidy from existing state programs for and demonstration of new con- Based on detailed market surveys, customers have remote area electrification. The households will, cepts; xvhile the World Bank loan been categorized as follows: extremely poor house- however, pay the recurring costs for parts replace- will provide much of the loan capi- holds and public service centers will be granted full ment and maintenance. The subsidy is equivalent to tal for the energy management capital cost subsidy; the households in effect will the lifeline tariff extended by the utility to poor companies to develop and grow as be paying only a lifeline tariff equivalent to that households in urban areas. The middle segment of commercial businesses. The Euro- enjoyed by the urban poor in the grid-connected households (appropriate for 50W systems) that pean Communities have also pro- areas. The middle market segment who will be us- would incur substantial incremental costs in shift- vided key financial support for pre- ing mainly 50-1OOW systems will be provided GEF ing to SHS from traditional systems will be encour- project pilot activities. The total es- grants (incremental cost financing) to buy down the aged to shift by providing a GEF grant of $110-150 timated project cost is US$150. hardware cost; the grant will be gradually lifted in per unit to reduce system first costs. This buydown Task Manager: Bob Taylor 5 years. The upper market segment of relatively less grant will be phased out gradually such that after poor households whose energy needs require 150W Year 5, GEF grants will no longer be provided. East China (Jiangsu) Transmis- and above systems will pay full cost. Households in the relatively higher income segment sion Project, supported by a (140W and above) will pay full cost. The commu- US$250 million IBRD loan was PriortotheBankproject,twoprovinceshaveimple- nity installations will be financed by existing state approved by the Board on March mented pilot dispersed area concessions along the and federal programs, such as PRODEEM, and 26. It aims to alleviate critical lines of the methodology explained above. Up to partly by the Bank loan. The productive applications bottlenecks in power transmis- 16 provinces will now be included in the Bank will be financed by a combination of BNDES/BNB sion infrastructure in the East project. The project will be appraised in May 1998 funds, concessionaire equity and user equity. No China region, improve efficiency and is hoped to be brought to the Board by July Bank loan funds will be used for this purpose. How- of electricity supply, and increase 1998. Task Manager: Ricardo Klockner. ever, the Project will "jump start" this market by electricity trades on a commer- financing, through GEF grants, some demonstration cial basis by helping to develop a Brazil: Renewable Energy for Rural Elec- installations and feasibility studies to fill up the pipe- reliable high voltage transmission trification Pilot Project line. This mix of regular and subsidized markets is network, phasing out state-man- essential to packaging service areas that will be fi- dated quota power exchanges. The proposed pilot project aims to provide electric- nancially attractive to the private sector. and implementing a commercial ity to dispersed rural areas in the states of Bahia framework for power exchanges and Ceara.. The project is envisioned to be a pre- As in the Argentina project, the concession package and trades. The estimated total cursor to a larger future program that can cover a (or subconcession or permission package in the case project cost is US$888.6. Task million rural households in the ten Northeast states where the concession for the whole state is already Manager: Noureddine Berrah of Brazil (or more if expanded to other regions). owned by others) will be awarded by competition The goal is to demonstrate a commercially sustain- and would provide exclusive rights to all dispersed On April 2,'98, The International able dissemination activity carried out by the pri- area customers in each state. The proposed project Finance Corporation, together vate sector, through a system of incentives that as- covering the two states has an estimated total in- with Banco Brascan, privatized sures fair retums to private participants while mini- vestment cost of between $75-$80 million, of which Companhia Energetica do Ceara mizing government subsidies. $17-20 IBRD loan, $20 from private equity, $14 (COELCE), the state-owned elec- from GOB funds, $5 from customer downpayments tricity distribution company serv- Bank support through lending combined with GEF and $9 from GEF grant for hardware buydown. The ing the state of Ceart in Brazil. grants will permit the mechanisms to first be ex- project is presently at the PCD (project concept docu- It was sold to a consortium plored under manageable conditions but with suffi- ment) stage. Task Manager: Luis Vaca-Soto. formed by Cerj, Endesa. and cient critical mass. The largest RET component of Enersis for US$880 million the program is Solar Home Systems (SHS) for in- Contributor: Ernesto Terrado (R$987 million equivalent). dividual households (90,000 potential households). Thematic Groups continued... cal Communities and the Mining Industry: An Over- The Energy Efficiency TG in collaboration with view of Recent Socio-Economic Developments", re- the LLC is offering a three day seminar on spectively. The former addressed reform of the "Designing Energy Efficiency Investment Pro- mining code and fiscal regime, updating the min- grams" on June 15-17, '98. eral resource information systems, strengthening Contact: Julie Uzuegbu at ext. 32345 public mining institutions, establishing a sound en- vironmental framework, and privatizing state-owned A Village Power Conference will be held in the enterprises. The latter discussed the implications Lewis Preston Auditorium, October 6-8, '98. The of advanced technology on local benefits, a greater event will be co-sponsored by the Bank's Rural En- emphasis on the rights of indigenous peoples and ergy and Renewable Energy TGs and NREL. They local communities, and the rapid globalization of expect to bring together over 250 persons to ex- the mining industry. plore technical, financial, institutional and policy issues related to the effective delivery of modem Tanzania-The Mining CEOs-Government Con- energy services and to hear of lessons learned. ference/Dialogue, Feb 11-12. The dialogue/confer- ence attracted over 348 participants including 170 Past events... foreign representatives and 70 CEOs. Its innova- tive approach was to directly connect the senior Building partnerships for mainstreaming Rural Govt. officials and CEOs of mining and service com- and Renewable Energy. Anil Cabraal met with re- panies. The program focused on: a) presentations gionally based NGOs and bi-laterals in Stockholm by the President, Minister of Mines, and Minister on May 5. This was the third such one day meeting of Finance on current reforms to attract investments to develop and foster working partnerships with oth- for mineral sector development; b) presentations by ers on operationalizing the Bank's strategy. Karl CEOs on exploration projects, fiscal improvements Jechoutek andArun Sanghvi attended earlier meet- and the competitiveness of Tanzania; and c) one- ings in London and Amsterdam. on-one meetings between CEOs and the senior Govt. officials. Participation from the Bank Group in- Alining: Mr. Peter Holman, Senior Mining Con- cluded the AFTP1 and IENIM team assigned to the sultant and Sales Manager for Caterpillar's Corpo- Mineral Sector Development project and represen- rate Mining Group, made a presentation to the Min- tatives from IFC and MIGA illg Thematic Group on April 14, 1998. Also present were representatives of the EXIM Bank, US Dept. of Commerce, IADB and OPIC. Mr. Holman dis- D t*a cussed the technological and strategic developments IlXeports receiveu... underlying the recent work of Caterpillar. The most important organizational change is the move to pro- World Bank Group Assistance for Minerals Sector vide full servicing for their equipment via local sub- Development and Reformin Memeber Countries, sidiaries, who must undertake substantial invest- World Bank Technical Paper No. 405. Contact the ment to fulfill this task. Technological improve- Infoshop ments include a greater reliance on computer based systems directly on the equipment to increase effi- Evaluation of Pacific Island photovoltaic ciency and reduce waste. electricification programs; final report prepared for the World Bank. Contact Robert van der Plas x The Mineral Economics and Management Society 33249 (MEMS) held its Seventh Annual Meeting in Ar- li ngton, Virginia from March 25 to 27. MEMS is a Bidding for Private Concessions; The Use of World non-profit organization for the study and dissemi- Bank Guarantees, RMC Discussion Paper No. 120. nation of information on the mining industry. 120 Contact RMC Infomation Center x 37594 representatives from mining comnpanies, academia, NGOs, international agencies, and government at- WEB - some external web sites with rich (and free) tended the meeting. The conference, whose theme content was "The Economic Globalization of the Mining Industry", consisted of sessions on mine finance, Harvard Electricity Policy Group (HEPG) the role of government, socio-economic implica- http://ksgwww.harvard.edu/hepg/ tions of mining, demand and supply in metals mar- kets, and mining laws and property rights. Papers In Australia, NECA is the controlling authority for were presented by Peter van der Veen and Gary the code and rules governing the Market and McMahon of IENIM on "What Governments can NEMMCO is the administrator of the Market. do to Attract Private Mining Investmenft and "Lo- http://www.electricity.net.au/ FREM - A Model for Evaluating Fiscal Regime of Upstream Hydrocarbon Contracts The fiscal regime in contractual agreements between Contact: Chakib Khelil x38860, Younes Maamar Government and Oil & Gas companies to carry out x32354 or Reda Bousba x37265 exploration/production (upstream) activities is key to attracting their investments. The Oil and Gas The- matic Group (World Bank) has developed a financial Government Thke as. Percentage of Project Revenues model to assist Bank staff to evaluate country specific This plot represents 40 fiscal regimes in Asia, in N. America, and in fiscal regimes - their attractiveness and competitive- sub-Saharan Africa. 39 in Europe and 35 in both ECAAMENA and LAC ness - and to advise governments in this respect. 100 high A diskette containing an excel file FREM.XLS is -high high high available upon request and assistance can be pro- 80 -ave high high vided to run specific country cases. This file con- tains the financial model for calculating (a) rates of ave return for the project, (b) total government take and low -ave -ave (c) NPV of the project cash flow (net of all taxes, 60 low -ave fees etc.) at different discount rates. ave The model makes use of a database of production 40 profiles and development costs that relate to the low physical characteristics of the field. Allowances low have been made to incorporate changes in tax/roy- 20 Low alties rates, depreciation schedules etc. It allows the user to run sensitivity analysis on various fiscal re- gimes to analyze the government's take and the 0 investor's profitability. ECA/ Asia sub- Europe North Latin MENA Saharan America America A secondary use of the model has been to compare Africa the fiscal regimes in various countries and the graph summarizes the results. Some of the organizers of Energy Week.. The papers delivered at Energy, Week If~ have been collected as gj0 Proceedings and are available from Mary T' Ward x80247 i--00-i- -io i i _ W =iXd P E