Ene gYU Mining 22 JAN 98 N E W S L E T T E R No. 1/98 Russian Power Reform Portfolio Development Loan-PDL). An Electricity Reform Implementation Unit (ERIU) has been estab- The Government ot Rossia announced their commit- lished to help RAO Unified Energy Systems (UES). the Teoement tootn aggressivereform pnnog ince Decree i- Federal Energy Commission (FEC) and the Govemment ment to an aggressive reform program in a Decree is-ther develop and implement the reform program. In This Issue: sued April 28, 1997. The Government's reform pro- gram focuses on establishing a competitive market T r * ] 1 ~~The regulatory component h-as a significant trainig- Russian Power where feasible (in generation) and improved regula- component. Five regulators have been sent to each of Reform tion of the natural monopoly components of the sector, Reform Th Goen.n ha,apoe eor fspotrg the last three PURC/World Bank International Train- The Government has a proven record of supporting °ing Program (http://ww/w.cba.ofl.edo/eco/porc/) privatization and has established prices at a level whichin co igram FECbaitfandu/ementurc/e Petroleum would enable financial viability. However, many prob- courses in Florida. FEC staff and management have Forecast lems remain: cross-subsidies from industrial custom- been extremely pleased with this program and will ers to households are high but decreasing (the Govern- engage consultants to institute a comparable training .. progr-am for regulators in Russia. The initial focus will and more... ment is on-track to eliminate these cross-subsidies by prgam for staff of the 72 mid-000, cllecionrats ar teriby lo (aeraingbe at the EEC, followed by training o tf fte7 mid-o000c), collection rates are terribly lol (eaveraging Regional Energy Commissions (RECs). The REC staff about.10%.cashcollection among all entities) anpro- must take the course and pass a test to become certi- ductivity is well below industry norms. fled as regulators. The Bank was asked to help support these reforms with To address the problem of cash collecuons and effi- a S40 million Technical Assistance Loan. To help accel- T a tioblem Marketions ablished ciency. a "National Energy Market" was established erate the reforrns, the loan was complemented by a $539 in Auust 97 in which cstomers could directly con- million allocation from an existing line of credit (the Continuoed on page 2 Browvn Bags & Presentations technology to India's particular wind regimes (low ground velocity. high shear during the monsoon pe- CIGRE The President of CIGRE (Conference riod), paucity of extensive wind data and limited con- Internationale des Grands Reseaux Electriques), Dr. siderationofmicro-climaticeffects. Despitetheramp Michel Chamia, will visit Washington on February 5 up in installed capacity, local manufacturing prices had to discuss cooperation between CIGRE and the Bank. not fallen as much as was hoped. Tax-based incen- Following this discussion, Dr. Chamia will give a pre- tives that reward MW installed rather than eoergy sentation of CIGRE at a Brown Bag lunch on Thurs- (kWh) output was partly to blame for inadequate per- Feb. 5 at 12:30 1i H5-160. (its mission, organiza- formance and lack of cost reduction. He discussed day F e s, inef its miss. etc.) SELCO India (there are also SELCO subsidiaries in CionpromedurLes,benor fitsstoo members, etc.). Vietnam and Sri Lanka) which has been successful in Conztact: Leflnacsf- Car-lssonl. selling a domestic solar PV lighting system (2 light Seminar on Small Hydropower Development Rep- point or 4 point systems) to poor people. A handout resentatives of the US Hydro Council will conduct a was provided. seminar on Tuesday Feb. 3 from 1:00-4:00 pm in JI- Contact: Aoil Cabraal 050. Topics to be addressed include: small hydropower case studies; World Bank-private sector collaboration Lennart Carlsson. SASEG. gave a presentation on I'his newsletu zr is a in small hydropower development; and a Question- Technologies for Power System Interconnection on regular publicatioti ot Answer session. Jan. 13. The presentation focused on the technical is- the KM Teamii (or En- Coritact Jutdy Siegel sues that need to be addressed during the planning of ergy & Minlrng in the an interconnection between separate power systems. EMT Family. itisd lis- Dr. Naidu. Director of Winrock International's Renew- Two fundamentally different technologies can be used, tributel in the Banlk able Energy Project Support Office (REPSO) in New AC (Alternating Current) or HVDC (High Voltage Girou) aiorng sector Delhi, on Jan 15, discussed the status, challenges and Direct Current) having different technical and eco- staff about 23t) opportunities of Renewable Energy in India. He es- nomic characteristics. The discussion also touched people). Contributions timated that of the 900 MW of installed wind capacity upon comparisons between energy transmission by gas can be sent to Kyi'an in India just 10 per cent was operating sub optimally. pipeline and electric power transmission. A paper is O'Sullivan (x32722). Problems he discussed were ones of adapting foreign available. Russia, continued... elephants" from the investment program and priori- tract for supply with generation plants. Third party tizing the proposed existing commitments. access of transmission and distribution has been es- * L.O. Recruitment is assisting UPS to recruit staff tablished with wheeling charges regulated by the FEC for key managerial positions. and RECs. A pre-condition of participation in this market is that the customer must become current with * McKinsey & Company first assisted the Govern- their bills, and pay cash two weeks in advance for their ment in defining a vision and roadmap for sector consumption. As a result, UES' cash collections dur- reforms and is about to enter into a contract to assist ing the latter half of 1997 have tripled and prices to UES in corporate restructuring. industrial customers have plummeted to market-clear- . Price Waterhouse has been engaged to audit UES accounts and establish accounting to IAS standards. UES has engaged consultants to assist with corporate * Putnam, Hayes, and Bartlett were engaged initially restructuring. It has been announced that generation to provide general policy advice on the reform will be separated from the transmission and dispatch agenda to the Government. components of UES. Consultants have been engaged * Steptoe and Johnson has been engaged to provide to establish llES into separate and separable profit cen- legal advice to UPS on corporate matters. ters to enable this restructuring. * LeBoeuf, Lamb, Greene & MacRae are currently ne- The Energo program has recently taken an interesting gotiating a contract to provide general legal services. twist. RAO UES, as a controlling shareholder of most Contrbutor: Gary Staggins of the Energos (vertically integrated regional utilities), is engaged in negotiations with a number of foreign power companies to provide management services for selected Energos through a management contract. This Reports received... effort is expected to focus on accounting, with par- ticular attention paid to increasing collections. The ongoing World Bank project Environmental Is- sues in the Power Sector has commissioned a num- The following consultants are involved in the project: ber of studies. The following reports are available. * Arthur Anderson has been responsible for establish- Renewable Energy In India, ERM ing ystes an proedues t impove inanialElasticities of Electricity Demand in India, TERI ing systems and procedures to Improve financila controls. This has enabled UES to reduce its costs, Interfuel Substitution, TERI Welfare Effects of Policy Changzes, ERM particularly theft and corruption. They are also un- Demland SEide Management, ERM dertaking audits of Energos . DnadSd aaeet R Mitigation Options for Power Development, Ghosh, * Bain and Company, Inc. is working with the newly Bosch & Associates formed Independent Financial Operator who is re- Ash Management, Disposal & Utilization Study, WESA sponsible for developing the National Energy Mar- Implementing Market Based Instruments in India, ket. The NEB was established to enable customers Sheekant Gupta to directly contract for power supply with generat- ing plants, with a guaranteed access to the trans- TERI's econometric analysis showed high income elas- mission and distribution network. This effort was ticity for electricity of between 1.5 and 2.0 (at the ag- initiated in August last and currently has five cus- gregate sectoral level and on a per capita basis). Price tomers and four generators participating. This is elasticities vary from -1.23 in agriculture to -0.32 in expected to increase to 25 in the next three months. industry. For the period 85/86 to 93/94 the real price This market also addresses sector liquidity as the of electricity for commercial and agriculture consum- payments are made in cash, in advance. ers has fallen in half of the states. Industrial tariffs increased in all the states during the period. * Hagler Bailly is assisting the dispatch and settle- ments group under one contract and two Energos Reports availablefrom Mudassar Imran orRobin Bates under a separate contract. The focus of the efforts on dispatch is to improve operations to decrease fuel Economic Cost of Electricity in Southern Africa use, with an estimated potential benefit of $1 bil- Mertz and McLennan. The study looks at the avail- lion per year. The Energo support is initially focus- able generation options and fuel costs and provides ing on improving collections. ranges of average electricity costs for each country in * IRIS is providing support to the FEC on principles g and procedures. Report available from Mark Tomlinson or * KPMG and STEAG are assisting UES in an invest- Kyran O'Sullivan ment review with a view to removing "white On the Move government negotiations with Conoco. He worked for Amoco between '83 and '92. holding senior manage- Recenit appolintmne7ts havne bveeii .... ment positions in international negotiations and new business development. Charles rejoined the Bank in Manuel Duissan has joined ECSEG from EMT. '90 and in '92 he transferred to ECA where he had Manuel joired the Bank in '95. From -92 to 95 he responsibility for the Bank's petroleum lending and was responsible for the implementation of the power policy dialogue in Russia. He likes to row. sector reform in Colombia as an advisor to the MoE and Commissioner and first Director of the new Regu- Joshihiko Sumi was recently named Sector Manager latory Commission. Earlier he worked for about 20 in EASEG. He joins the Bank from MITI *here as years in the areas of power pool operation. transmis- Director of International Affairs he was coordinating sion and distribution planning in Latin America with issues such as government support of energy develop- the Bank. IDB and a power utility. He likes snovw skiing. ment projects and regulatory reform of energy indus- tries. He was one of MITI's senior policy coordina- Stephen Howes EASEG, has taken over task man- tors in charge of the UNFCC COP-3 meeting in Kyoto agement of the Indonesia Gas Transmission Project in Dec. 97. Yoshihiko worked in the Bank between and Indonesia West Java Gas Distribution Project in 87 and 91 when he task managed industry projects in Indonesia in addition to his work in preparation of the eastern Europe. He likes to play classical piano. Java Power Distribution Project. Stephen joined the Bank in 1994. He has PhD in economics from the Helen Svms has joined ECSEG as an energy special- London School of Economics. He likes long-distance ist. Prior to the Bank, Helen worked for eight years as running and has run marathons. a project economist and commercial advisor with BP. She worked on the development of a fiscal and legis- Charles McPherson has been appointed Manager, Oil lative environment for oil and gas in Ukraine and was & Gas Unit. EMT. Prior to joining the Bank in '80, he a commercial advisor in a team working on offshore held positions in corporate planning and international oil production sharing contracts in Azerbaijan. Conference reports... Mining Policy in Latin America Gary McMahon attended a meeting in December in Kyoto Protocol on Climate Change. Ottawa, Canada of stakeholders interested in develop- Charles Feinstein was in the Bank team that went to ingandfundingaresearch programatthenternational Kyoto in December last. He reported to the EMT Sec- Development Research Centre focusing on Mining tor Board Policy in Latin America and the role of Canadian min- on what the Protocol says: ing companies. IDRC has pledged $700,000 per an- • Institutes legally binding emission levels on 6 green- num for 3 years and is looking for input and funding house gyases (CO,. CH4, N,O, HFCs, PFCs. SF6 tfrom other paarties. The first project to be funded un- hoImpements differentiated tres, in Cs.0SF6f derthis initiative is a project on "Mining and the Com- Annex I countries. munity", developed by [ENIM in conjunction with re- * Includes carbon sinks (e.g. forestry): searchers in Bolivia, Chile, and Peru. * Accepts. in principle, rights fortrading carhon emis- Contributor: Gary McMkahon sions in Annex I countries: * Institutes unlimited projectjoint implementation (JI) WEC Financing the Global Energy Sector in Annex-I countries (but the starting date for cred- Charles McPherson represented the World Bank in its remain undecided): November at a meeting of the World Energy Council * Creates Clean Development Mechanism" for An- (WEC) in Bangkok to discuss the recently completed nex I and LDC JI countries beginninE in 2000. (The WEC paper Financing the Global Energy Sector; GEF may be named operator of the Fund) The Task Ahead * Commits all countries to cooperate in development & transfer of climate-friendly technologies. WEC estimates that up to USS 30 million will be re- on what the Protocol doesn't say: quired during the 1990 - 2020 period to finance en- * No -harmonized" policies and measures (e.g. mini- ergy projects adequate to meet a projected 70 per cent mum fuel efficiency standards): increase in global energy demand. Annual energy in- * No "borrowing' from future targets to meet current vestments are likely to continue to equate to 3 - 4 per targets: cent of world GDP or 20 - 30 per cent of global invest- * No defined enforcement/sanction mechanisms: ment. There is growing concern that many countries * No new commitments by developing countries (not will not be able to mobilize the private sector finance even "commitment to commit"): necessary if they do not undertake fundamental re- * No voluntary adoption by LDCs of Annex-I obliga- forms. Most of the 2 billion people in the world with tions (Ch: na, India and OPEC were vocal objectors). no access to commercial energy live in these countries. Contributtor: Charles Feinsteini Con tributor: Charles McPherson. The text (f the Protocfol is onz the 'fficial w eb site otthe 3rd Coni- ference of the Par-ties http.//wnrwcop3.org/ An account of the Repor-t is available front Fikerte Solomon conzference is i? tle BTO of Charles Di Let a. W\dileva\Veyoto.doc Petroleum Forecast tion since 1985. Oil demand growth in Asia could fall to less than half this year, and without some sort of Oil prices are expected to weaken in 1998 according production restraint piices are apt to remain low this year. Spreading of the crisis and further economic to Bank analysts. Prices have declined by more than slwdw woudin crsin add torthe essureio 20% since November due to rising OPEC supplies, mild winter weather, and weaker demand stemming prices and oil producers. from financial crisis in Asia. At end-November, OPEC According to the Bank's latest published forecast', in- raised its quotas by 10% for the first half of 1998, and ternational prices for crude oil and coal, and natural Iraq's third round of UN-sponsored oil-for-food ex- gas prices in the US and Europe are projected to fall ports commenced in January of this year. Rising sup- both in the short and longer term, with crude oil fall- plies come at time of weakening demand in Asia. All ing from $ 17.82/bbl in 1997 to $ 14.94/bbl in 2000 and of Asia, including Japan, consume nearly a quarter of to $13.81/bbl by 2010 (constant 1990 dollars). global petroleum output (and produce only 10% of world supply). HoweverAsia-includingJapan-has Contributor: ShoneStreifel accounted for half of the growth in world oil consump- 'Co-modity Markets and IDeveloping Countries, November 1997. Development Economics Vee Presidency World Bank Group's Energy Por-tfolio 1995 1996 1997 Power Oil+Gas Mining Total Power Oil+Gas Mining Total Power Oil+Gas Mining Total IBRD 1803 462 0 2264 2459 30 571 3060 1613 114 300 2027 IDA 439 142 25 605 348 28 121 495 276 22 21 319 IFC 328 208 0 536 311 288 0 599 247 83 0 330 Total 2569 811 25 3405 3118 344 692 4154 2136 219 321 2676 *IFC data for Power includes OilVGas transportation, IFC data for Oil & Gas includes Mining 1998 Status of EMT Pipeline US $millions (number of projects) Concept Regions Identification Review Pre-Appraisal Appraisal Negotiations Approved Total Africa 115 (2) 22 (2) 10 (1) 356 (3) 0.0 200 (1) 703 (9) EastAsia Pacific 0.0 0.0 400 (2) 814(7) 0.0 174.5 (2) 1388.5 (11) Europe & C. Asia 556.9 (5) 105 (2) 25 (1) 270 (3) 70 (2) 810 (2) 1836.9 (15) Latin America & Car. 110(2) 0.0 60 (1) 0.0 35(1) 142.7 (2) 347.7 (7) Middle East & N. Africa 0.0 0.0 0.0 15 (1) 0.0 184 (1) 199 (2) South Asia 0.0 440 (2) 65(1) 350 (3) 0.0 827 (3) 1682 (9) All 781.9 (9) 567 (6) 560 (7) 1805 (17) 105 (3) 2338.2(11) 6157.1 (53) IFC approved the following between 07/01/97 and 12/31/97 Project size Gross IFC commitment Project Name Sector US$ mill. US$ mill. Azerbaijan Atoil Oil refining 26.3 6.56 Honduras Elcosa Swap Power G+T 0.5 0.5 Mexico Merida III Power G+T 250 120 Nepal BhoteKoshi BLINC Power G+T 0 24 Nepal Bhote Koshi/Swap Power G+T 3 3 World Bank approved the following in the fiscal year to 1/20/98 Project size World Bank commitment Project Name US$ mill. US$ mill. I I of the 53 Energy, Mining Bangladesh Priv. sec. infr, dev. 866 235 IDA credit and Telecom (EMT) projects Brazil Gas sec. dev. 2086 130 IBRD loan to be presented to the World Bosnia-Herzegovina Emergency gas rehab. 65 10 IDA credit Bank Board in 1998 were Ethiopia Energy sec. 295 200 IDA credit approved by 20 January India Coal sec. rehab. 1797 530 IBRD loan & 2 IDA credit 1998. By then the Bank had India Power sector 60 60 IBRD loan committed $2.3 billion, in- Indonesia IIDP (Information infrastructure) 34.5 34.5 IBRD loan cluding 6 IBRD loans, 5 IDA Morocco JorfLasfar (guarantee) 1057 184 Guarantee credits and I guarantee. Panama Utility restr. TA 12.7 12.7 IBRD loan This corresponds to 38% of Russian Federation Coal secal II 800 800 IBRD loan the $6.2 billion planned to Vietnam Trans. & Dist. 262 140 IDA credit be committed in FY 1998. Contributor: Monika Hencsey x87566