ICRR 11807
                                                                                                        Report Number : ICRR11807
                     ICR Review
                     Operations Evaluation Department




1. Project Data:                                                  Date Posted : 06/24/2004
            PROJ ID : P063656                                                         Appraisal                       Actual
       Project Name : Vilnius District Heating                    Project Costs 64.5                         0
                       Project                                           US$M )
                                                                        (US$M)
             Country : Lithuania                           Loan/         US$M ) 17.1
                                                           Loan /Credit (US$M)                               0
           Sector (s): Board: EMT - District                       Cofinancing 47.4                          0
                       heating and energy                                US$M )
                                                                        (US$M)
                       efficiency services (100%)
        L/C Number : L7074
                                                                Board Approval                               02
                                                                           FY )
                                                                          (FY)
Partners involved :                                               Closing Date 06/05/2005

Prepared by :              Reviewed by :                   Group Manager :          Group :
Kavita Mathur              Fernando Manibog                Alain A. Barbu            OEDST
2. Project Objectives and Components
a. Objectives
The objectives of the project were to:
     reduce the cost of district heat supply in Vilnius, with benefits to consumers and to the current account deficit as a result of
     reduced fuel consumption;
     improve the quality of district heating supply, both in terms of reliability and responsiveness to customers needs;
     yield fiscal benefits to the Government by increasing the taxable profits of Vilnius District Heating Company (VDHC) and
     by reducing the number of households which require the heat and hot water subsidies aimed at low income families; and
     support the commercial viability and possible future privatization of the VDHC.

The global environment objective of the project was to reduce the emissions of Greenhouse Gases (GHG) from the Vilnius
District Heating System through a targeted effort to remove the existing barriers to energy conservation.
 b. Components
 The project included the following four components:
(a) building-level substations, including metering and temperature controls, DSM and new inlet pipes replacing group
substations and 4-pipe systems;
(b) Heat-Only Boiler (HOB) equipment replacement;
(c) rehabilitation of (Combined Heat and Power) CHP plant equipment which has reached the end of its economic life (burner
replacement, instrumentation and control system replacement and various ancillary service upgrades); and
(d) institutional support for VDHC.
 c. Comments on Project Cost, Financing and Dates
 The project was approved on July 27, 2001. It was never signed and was withdrawn in March 2003 at the request of
the guarantor.
3. Achievement of Relevant Objectives:
This review is for the Project Completion Note (PCN), as the loan was never signed and an Implementation Completion Report
(ICR) was thus not prepared. The project was never implemented. The Municipality of Vilnius was able to attract private
investment to improve the quality of district heating. A concession agreement was finalized six month after the Board
presentation and the bidder was able to arrange financing to carry out investments.
Although not discussed in the PCN, the region clarified that the project objectives will be met with private financing.The
investments will be undertaken by the private sector. The cost of heat supply has decreased and the quality of supply has
improved. The commercial viability is much better than at the time of appraisal.
4. Significant Outcomes/Impacts:
None.
5. Significant Shortcomings (including non-compliance with safeguard policies):
None.
6. Ratings :               ICR                         OED Review                  Reason for Disagreement /Comments
              Outcome :    Not Rated                   Not Rated
    Institutional Dev .:   Not Rated                   Not Rated
        Sustainability :   Not Rated                   Not Applicable
   Bank Performance :      Not Rated                   Satisfactory
      Borrower Perf .:     Not Rated                   Satisfactory
       Quality of ICR :                                Satisfactory
NOTE:
NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness.
7. Lessons of Broad Applicability:
While a strong regulatory agency is usually needed for concession agreements to succeed, Lithuania's effective
regulatory agency had little role to play in this project, which is based on "regulation by contract".
8. Assessment Recommended?             Yes      No
9. Comments on Quality of ICR:
The quality of the Project Completion Note (PCN) is satisfactory. The PCN is extremely brief - only one page long. It
includes the basic facts such as project objectives and the reason why the project was never signed . However, the
PCN might have explored a little further the adequacy of the project design, the Bank and the Borrower Performance
during appraisal/preparation, and the concession agreement . Also, the PCN could have identified a few lessons .