PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.:70906 (The report # is automatically generated by IDU and should not be changed) Project Name Kiribati Grid Connected Solar PV Project Region Region East Asia and Pacific Region Country Kiribati Sector Sustainable Development Lending Instrument Grant Project ID P121878 {If Add. Fin.} Parent Project ID Borrower(s) Grant – Republic of Kiribati Implementing Agency Public Utilities Board Environmental Screening [ ]A [ ]B [ X]C [ ]FI [ ]TBD (to be determined) Category Date PID Prepared 07/05/12 Estimated Date of Appraisal 08/15/12 Completion Estimated Date of Approval 08/31/12 Concept Review Decision Following the review of the concept, the decision was taken to proceed with the preparation of the operation. Introduction and Context Country context: Kiribati is one of the most remote and geographically dispersed countries in the world. The country is composed of 33 islands spread over 3.5 million square kilometers – an area larger than India. The estimated population of Kiribati about 110,000 who live on 20 coral atolls and a single volcanic island, with a total land area of less than 800 square kilometers. The capital, South Tarawa, is about 4,000 kilometers from Australia, Hawaii, and New Zealand. Although at the margins of the global economy, Kiribati’s economic geography means that it is heavily reliant on external factors, with economic performance being highly volatile. In the last ten years, GDP growth has averaged around 1.1% per annum, but has ranged from -5% to 6%. Kiribati’s growth prospects are constrained by its geographic isolation, its narrow export base, and impediments to private sector activity. Comparative advantages are limited because of permanent cost wedges associated with Kiribati’s small size and remoteness from markets. Systemic volatility is exacerbated by Kiribati’s exposure to natural hazard risks, particularly drought and the loss of groundwater. The country is highly reliant on imports – equivalent to over 50% of GDP. With exports of only about 3% of GDP, Kiribati faces a significant structural trade gap. Main sources of external income are investment earnings from the Revenue Equalization Reserve Fund (RERF) established in the 1950s to invest royalties from now depleted phosphate reserves, workers’ remittances, and the sale of fishing licenses to operate in its Exclusive Economic Zone. These external income sources are equivalent to about half of GDP or 1 about a third of GNI. In addition, foreign aid has also amounted to about 20-25% of GDP in recent years. Sectoral and Institutional Context: The proposed Kiribati Grid Connected Solar PV Project responds to a systemic issue in the electricity sector with significant economy- wide implications for Kiribati; whose economy is marked by an overarching near-total dependency on one energy source, oil. About half of the imported oil (Automotive Diesel Oil or ADO), is used for electricity generation for the main electricity grid system on Tarawa atoll, and operated by the Public Utilities Board (PUB). The Tarawa grid system is supplied by two diesel generating stations with a combined installed capacity of 5.45 MW. The maximum demand is about 4.5 MW with the minimum about 2.0 MW. The electricity grid system’s operational performance coupled with the high cost of diesel generation adds up to the high cost of service for electricity to households and businesses, even with administered fuel prices. PUB’s generation cost is estimated to be about AUc 52/kWh, at a delivered fuel cost of AUc 35/kWh ($1.27/liter). PUB invoices AUc 44/kWh and collects AUc 40/kWh. The Government confronted by poor financial performance of the electricity sector, has so far “managed� the situation by a combination of substantial direct budget subsidy transfers to the sector as well as significant amounts of indirect and non-transparent subsidies in the form of loan guarantees (contingent liabilities) implicit in intra-Public Enterprise transactions of the PUB. The resultant impact is high and unsustainable fiscal deficits. Restoring fiscal sustainability of the national budget within the medium-term is a top national priority. Key policy responses to achieve this goal broadly include reforming the loss making public enterprises (PEs) – the PUB ranking among the largest - and making them accountable for efficient performance; reducing direct and indirect subsidies to PEs; setting tariffs to reflect cost-of-service associated with good performance. Quite possibly the most important implementation action for this policy agenda is lowering the ADO dependence in the electricity grid system, by implementing lower cost alternatives. However, financing and capacity limitations have so far led to limited planning effort in this regard. Relationship to CAS: The Board Bank’s Country Assistance for Kiribati reflects the Government’s development priorities, and is consistent with the unifying themes of World Bank Group engagement in the Pacific islands. The World Bank’s engagement with Kiribati is focused on: • Building resilience against external shocks, with a particular focus in Kiribati on climate change adaptation; and • Mitigating economic isolation by encouraging regional and global integration. As well as strengthening resilience against climate change, the Bank will also be helping to reduce Kiribati’s vulnerability to external economic shocks, such as the food and fuel price spikes. The proposed 500kW grid-connected solar photo-voltaic generator for 2 South Tarawa (expected to be financed by GEF with support from Australia) will help diversify electricity generation and reduce reliance on diesel, imports of which are currently equivalent to 15% of GDP. Proposed Development Objective(s) The project objective is to contribute to reducing Kiribati's dependence on imported petroleum for power generation in order to improve energy security and to reduce the GHG emissions from diesel fuel use for grid electricity supply in Kiribati. The specific objective of the proposed MSP is to serve as a catalyst for the substitution of the diesel based electricity generation for the South Tarawa grid by grid-connected solar PV supply of electricity The key results for the project will be reduced diesel fuel use and GHG emissions, savings on diesel costs, and local capacity in grid connected renewable energy and a technically feasible medium terms grid connected renewable energy expansion plan to act as a catalyst for further investment. Preliminary Description The proposed project involves a 500 kWp (kilowatt peak capacity) of grid connected solar PV without storage, to kick- start a staged implementation strategy over the medium-term. The solar PV array will be installed and managed at a number of technically suitable locations with associated inverters to enable grid in-feed at each location. Taking into account capacity constraints in Kiribati the project proposes to include a 3-year operation and maintenance and capacity building program. The project will also include a medium term plan for staged renewable energy expansion that takes into account technical, engineering, economic, environmental and market conditions. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Piloting the Use of Borrower Systems to Address Environmental X and Social Issues in the Bank-Supported Projects (OP/BP 4.00) Environmental Assessment (OP/BP 4.01) X Natural Habitats (OP/BP 4.04) X Pest Management (OP 4.09) X Physical Cultural Resources (OP/BP 4.11) X Involuntary Resettlement (OP/BP 4.12) X Indigenous Peoples ( OP/BP 4.10) X Forests (OP/BP 4.36) X Safety of Dams (OP/BP 4.37) X Projects in Disputed Areas (OP/BP 7.60)* No Projects on International Waterways (OP/BP 7.50) No * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 3 Tentative financing Source: ($m.) Borrower/Recipient (in kind) $.05 IBRD IDA Others (specify) GEF 1.00 AusAID through PRIF 2.92 Total 3.97 Contact point World Bank Contact: Kamleshwar Khelawan Title: Senior Energy Specialist Tel: +61 2 9235 6573 Email: kkhelawan@workldbank.org Borrower/Client/Recipient Contact: Mr. Atanteora Beiatau Title: Permanent Secretary Tel: +686 21806 Email: atanteorab@yahoo.com Implementing Agencies Contact: Kevin Rouatu Title: Chief Executive Tel: +686 26056 Email: kevinrouatuki@gmail.com For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop 4