Report No. PID5879 Project Name Argentina - Renewable Energy in (+) Rural Market Project Region Latin America and Caribbean Region Sector Energy Project ID ARGE45048 Borrower Republic of Argentina Implementation Agency Secretary of Energy (SE) Paseo Col6n 171, Piso 8 Buenos Aires, Argentina Lic. Monica Servant Head of the Promotion Department Phone/fax: (541) 349 8008 Date this PID prepared July 27, 1998 Planned Negotiations August 1998 Planned Board presentation October 1998 Country and Sector Background: Project Objectives: The main objectives of the proposed loan are to: (a) provide rural areas with reliable electric supply in a sustainable manner, using renewable sources where feasible; (b) support the consolidation of the power sector reform strategy of the Government of Argentina (GOA), (c) support the Government strategy to expand private sector participation in the provision of electricity in rural areas; and (d) promote environmentally sound energy resource development in Argentina. Global GEF objectives are to: (a) remove market barriers to application, implementation, and dissemination of renewable energy sources; and (b) reduce global warming through reducing GHG emissions that would be produced by thermal generation using hydrocarbons. Project Description: The project will consist of: (a) installation and operation in 10 provinces, by private concessionaires of: (i) solar home systems in about 108,000 rural dispersed households; (ii) small decentralized power supply units, range 3 kW to 10 kW each, based on renewable energy systems (RES - photovoltaic, small wind turbines, and mini hydro plants) and diesel units to provide electricity to about 5,900 households living in agglomerated village; and (iii) about 2,900 RES to provide electricity to provincial public institutions (schools, medical centers, police stations); (b) installation of pilot wind home systems in two (2) communities; and (c) a capacity building program consisting of: (i) technical assistance to facilitate: (i) the implementation of the program; (ii) the consolidation of the power sector reform in the country; (iii) the development of the technical and institutional capabilities required for broader adoption of RES; and (iv) a training program to strengthen the capability of the SE and the provincial regulatory agencies. Project Financing: On a preliminary basis, it is estimated that the total cost of the project will be about US$187 million, of which US$46 million would be financed by IBRD, US$14 million would be financed by a GEF grant, and the balance (US$127 million) by customers, concessionaires, and the provincial governments through the electrical funds. Project Sustainability: Sustainability of the proposed project would be assured through enabling the strengthening of the provincial regulatory functions and institutions, and appropriate incentives and returns for the concessionaires. Due to the manner by which the financing of individual systems is structured (a mix of GEF grant for incremental costs, GOA lifetime tariffs/connection fee assistance, and consumer payments), full cost recovery is assured from those customers who sign up for services during the project life. In other words, the sustainability of systems installed with project support is assured for the 15 years concession contract period. Beyond the project life, it is expected that new customers could be signed up, even in the absence of the GEF grant, because expansion of the customer base during the project life and achievement of economies of scale would have reduced operational costs by at least the amount of the initial GEF assistance. Project sustainability will be supported through agreed monitoring and implementation actions. A mid-term Review will be scheduled by December 2000 to allow the opportunity for mid-course corrections if necessary. The Bank will also monitor Project Implementation on the basis of quarterly progress reports from the SE, by accounting auditors, and through Bank supervision missions. Project Implementation: The SE will provide the policy framework for rural energy development and overall guidance to the project. A Project Coordination Unit will be set up the SE responsible for general project coordination. An administrative Unit (AU) located within the SE would be responsible for record keeping, reporting functions, and processing disbursement requests for Bank loan and GEF grant. UNDP would assist the SE in handling the hiring of consultants. The GOA will transfer the Bank loan and GEF grant to the provincial governments as a grant. The provincial government, through a project implementation unit, will be in charge of the local coordination and project supervision and monitoring. The provincial regulatory agencies will supervise concession contract compliance. The project will be implemented by existing or new concessionaires. Existing concessionaires will purchase equipment following the Bank's procurement guidelines. New concessions, that would be selected through international competitive bidding, will purchase equipment following its own procurement rules. It is expected that new and existing concessionaires will finance the cost of equipment and its installation using own resources, i.e. before claiming any eligible customer subsidy from the provincial government. The two pilot concessions for the dispersed rural areas of Jujuy and Salta, which were a condition for the Bank to launch a preparation mission, have been in place since November 1996. These concessions, which also supply power to the concentrated market (urban area), have already initiated the installation of RES to public agencies located in the rural dispersed areas. Consultants, financed by the French GEF, are already carrying out market studies in four provinces. Environmental Aspects: The project would reduce environmental impacts by shifting supply from conventional (diesel) fuel sources to non-polluting energy sources. The renewable energy technologies most likely to be used in the project are solar PV, wind turbine, and mini-hydro power units. The project also supports the GEF Climate Change Operational Program "Promoting -2 - the adoption of renewable energy by removing barriers and reducing implementation costs". These are environmentally clean and are not expected to pose significant environmental or resettlement problems. This project is classified as "B". The concessionaire during the installation and operation of the equipment will have to prove compliance of on-going operations with existing national regulations, to qualify for Bank and GEF funds disbursements. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending August 14, 1998. - 3 - Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. -4-