1. business and industrial
2. energy
3. electricity

Document o f
The World Bank
FOR OFFICIAL USE ONLY
Report No: 29993
PROJECT APPRAISAL DOCUMENT
ON
A PROPOSED LOAN
INTHE AMOUNT OF EURO 66 MILLION (USD 84.3 MILLION EQUIVALENT)
TO
HIDROELECTRICA S.A.
WITH THE GUARANTEE OF ROMANIA
IN SUPPORT OF THE FIRST PHASE OF THE US$l,OOO MILLION
ENERGY COMMUNITY OF SOUTH EAST EUROPE (APL) PROGRAM
DECEMBER 23,2004
Infrastructure and Energy Sector Unit
Europe and Central Asia Region
This document has restricted distribution and may be used by recipients only in the performance o f their
official duties. Its contents may not otherwise be disclosed without W o r l d Bank authorization.
CURRENCY EQUIVALENTS
(Exchange Rate Effective December 15,2004)
Currency Unit
ROL29,OOO
=
=
Romanian L e u (ROL)
US$1
FISCAL YEAR
January 1
-
December 3 1
ABBREVIATIONS AND ACRONYMS
ANRE
APL
EBRD
EC
ECSEE
EIB
EMP
ETSO
EU
KfW
MEC
OP
OPCOM
SEE
Transelectrica
TSO
UCTE
USAID
National Energy Regulatory Authority (Romania)
Adaptable Program Loan
European Bank for Reconstruction and Development
European Commission
Energy Community o f South East Europe
European Investment Bank
Environmental Management Plan
European Transmission System Operators’ Association
European Union
Bank for Reconstruction (Germany)
Ministry o f Economy and Commerce (Government o f Romania)
Operational Policy
Romanian Electricity Market Operator
South East Europe
Romanian National Transmission Company
Transmission System Operator
Union €or the Coordination o f Transmission of Electricity in Europe
United States Agency for International Development
Vice President:
Country Director for Romania:
Sector Manager:
Task Team Leader:
Shigeo Katsu
Anand Seth
Henk Busz
Kari Nyman
FOR OFFICZAL USE ONLY
EUROPE AND CENTRAL ASIA
Energy Community of South East Europe (APL1)
CONTENTS
A
.
1.
STRATEGIC CONTEXT AND RATIONALE
2.
3.
.
B
.................................................................
Page
1
Country and sector issues....................................................................................................
1
Rationale for Bank involvement .........................................................................................
2
Higher level objectives to which the project contributes ....................................................
PROJECT DESCRIPTION
.................................................................................................
3
4
1.
Lending instrument .............................................................................................................
4
2.
Program objective and Phases .............................................................................................
4
3.
Project development objective and k e y indicators ..............................................................
6
4.
Project components ............................................................................................................. 6
5.
Lessons leamed and reflected in the project design ............................................................
7
6.
Altematives considered and reasons for rejection ..............................................................
8
C. IMPLEMENTATION
..........................................................................................................
8
1.
Partnership arrangements ....................................................................................................
8
2.
Institutional and implementation arrangements ..................................................................
9
3.
Monitoring and evaluation o f outcomes/results ................................................................
11
4.
Sustainability.....................................................................................................................
11
5.
Critical risks and possible controversial aspects ...............................................................
12
6.
Loadcredit conditions and covenants ...............................................................................
13
.................................................................................................
14
D. APPRAISAL SUMMARY
1.
Economic and financial analyses ......................................................................................
14
2.
Technical ...........................................................................................................................
15
3.
Fiduciary ........................................................................................................................... 16
4.
6.
...................16
Environment ......................................................................................................................
17
Safeguard policies .............................................................................................................
17
7.
Policy Exceptions and Readiness ......................................................................................
5.
Social.............................................................................................................
18
This document has a restricted distribution and may b e used by recipients only in
the performance o f their official duties I t s contents may n o t be otherwise disclosed
.
.............................................................
Annex 2: M a j o r Related Projects Financed by t h e B a n k and other Agencies ...........
Annex 3: Results Framework and Monitoring ........................................................................
Annex 4: Detailed Project Description......................................................................................
Annex 5: Project Costs ...............................................................................................................
Annex 6: Implementation Arrangements .................................................................................
Annex 7: Financial Management and Disbursement Arrangements .....................................
Annex 8: Procurement Arrangement ........................................................................................
Annex 9: Economic and Financial Analysis .............................................................................
Annex 10: Safeguard Policy Issues ............................................................................................
Annex 11: Project Preparation and Supervision .....................................................................
Annex 12: Documents in the Project File .................................................................................
Annex 13: Statement o f Loans and Credits ..............................................................................
Annex 14: Country at a Glance .................................................................................................
Annex 1: Country. Sector and Program Background
M a p IBRI) 33688
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27
28
30
31
32
33
38
41
46
48
50
51
53
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and sector issues
The improvement o f the performance of the energy sector i s crucial to improve and sustain
economic development in South East Europe (SEE). Power supply situation i s projected to
tighten significantly during the next few years and threatens to constrain economic activity and
affect the quality o f life ifnot addressed with determined regional action. Apart from Turkey,
investment over the past 10-15 years has been limited, with the average age o f capacity n o w in
excess o f thirty years. Significant capacity additions ( o f the order o f 12,000-15,000 MW) and
plant rehabilitations ( o f the order o f 8,000-9,000 MW) will be required during the next ten years,
along with matching transmission and distribution system investments if demand i s to be met and
severe power shortages and supply interruptions are to be avoided *.
The SEE countries have acknowledged that solutions to these regional issues based o n isolated
national markets are neither capable nor desirable as a means to attempt to close investment gaps
and emerging demand and supply imbalances. Building upon their experience to cooperate in
the power sector, in recognition of potential gains from increased trade, and as part o f a wider
movement to strengthen regional cooperation, the governments o f SEE countries and the
European Commission (EC) signed the “the Athens Memorandum” - the Memorandum o f
Understanding o n the Regional Energy Market in South East Europe and its Integration into the
European U n i o n Internal Energy Market - o n December 8,2003 in Athens, Greece, whereby
they formally expressed their commitment to what i s currently called the Energy Community of
South East Europe (ECSEE) ’.
ECSEE’s current membership is as follows:
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ECSEE’s State Parties are Albania, Bosnia and Herzegovina, Bulgaria, Croatia,
Macedonia, Romania, Serbia and Montenegro, and Turkey;
The United Nations Interim Administration in Kosovo, pursuant to the United
Nations Security Council Resolution 1244, i s an Adhering Party;
The State Parties and the Adhering Party together are ECSEE’s Regional Members
(also referred to as the Contracting Parties);
EU Member States Austria, Greece, Hungary, Italy, and Slovenia are participants.
Any other EU Member States can also request to become participants; and
Neighboring non-EU Member States can request to participate as observers.
Currently, Moldova i s participating as an observer.
Negotiations are underway to convert the Athens Memorandum into a legally binding ECSEE
Treaty (Section C.2) between the European Commission (on behalf o f the European Union) and
the Contracting Parties. This project appraisal document reflects the December 3,2004 version
o f the ECSEE Treaty.
1
Review of power demand and supply in South East Europe, Working Paper No. 17, World Bank,
October 2003 and separate Bank staff estimates for Turkey.
Until June 2004 this initiative was known as the South East Europe Regional Energy Market.
2
1
2. Rationale for Bank involvement
The Bank i s participating in regional efforts to promote cooperation and integration in South East
Europe and inter alia supports the Stability Pact. A strategy paper was prepared by the Bank in
2000, which looked at the first decade o f transition from a regional perspective and mapped a
way forward for a more strategic regional approach. The Bank i s an active participant and
promoter o f the Athens process, at the invitation o f the European Commission. The Bank has
supported individual countries o f South East Europe in their efforts to rehabilitate and restructure
their power sectors through policy dialogue, technical assistance and financing since the early
1990s (in some cases even earlier). This deep country knowledge and participation in the
development o f ECSEE in the Athens process including regional trade strategy work puts the
Bank in a strong position to provide regional lending, policy advice and technical assistance to
further support the Athens process for ECSEE - the proposed APL program i s a key component
of the Bank’s support for the Stability Pact and the working partnership with the European
Commission.
In March 2004, the Bank published a strategy paper for energy trade in South East Europe ‘. The
framework paper outlines the Bank’s vision for regional energy market development and defines
its role in supporting the evolution o f regional energy trade. The framework elaborates the
Bank’s role in supporting policy reform and institutional development, and lending for power
generation, transmission, distribution:
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Promote a phased approach to market opening, starting with trading based on bilateral
contracts and third party network access, and moving to a more sophisticated model after
the institutional framework i s sufficiently developed;
Apply regional benchmarking in policy support work with individual countries and as a
trigger for investment financing;
Develop a special regional instrument - the proposed ECSEE APL - and finance priority
investments t o support development o f the regional market;
Analytical work to assess the economics o f increasing the use o f gas in the SEE countries
and costs o f compliance with EU environmental standards; and
Complete a regional power Generation Investment Study, financed by the EC.
Within this regional strategy, the Bank customizes the focus o f its policy support towards most
critical aspects for the development o f an institutional framework for power market liberalization
in each country:
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Albania: tariff reform, improvement o f payments discipline, and strengthening o f the
social safety net;
The Road to Stability and Prosperity in South Eastem Europe - A Regional Strategy Study,
3
World Bank, March 2000.
World Bank Framework for Development of Regional Energy Trade in South East Europe, EMT
4
Discussion Paper No. 12, March 2004.
2
Bosnia and Herzegovina: payments discipline, industry restructuring, regulatory
strengthening, and strengthening o f the social safety net;
Croatia: industry restructuring;
Kosovo: sector strategy;
Macedonia: payments discipline and energy strategy;
Montenegro: improvement o f payments discipline, industry restructuring and regulatory
development;
Romania: power market development;
Serbia: energy legislation, regulatory strengthening, power industry restructuring; and
Turkey: power market development.
In addition, the Bank will work with selected countries o n institutional reform in the gas sector,
and development o f gas distribution concessions. A regional investment facility for gas, similar
to the proposed ECSEE APL, will also be considered.
3. H i g h e r level objectives to which the project contributes
ECSEE is an integral element o f the Regional Members’ and the European Commission’s efforts
for all states in South East Europe to have access to stable and continuous energy supply which
they regard as essential for economic development and social stability. The creation o f an area
without internal frontiers for energy contributes to economic and social progress and a high level
of employment as well as balanced and sustainable development. These higher level objectives
are expressed in the ECSEE Treaty.
All SEE countries have the prospect o f EU membership. Bulgaria and Romania expect to j o i n
in 2007, and also Croatia and Turkey are candidate countries. The countries o f Western Balkans
the other Regional Members o f ECSEE - are potential candidates to accession (European
Council in Copenhagen in December 2002). “The Thessaloniki Agenda for the Western
Balkans: moving towards European Integration”, which was endorsed by the European Council
in Thessaloniki in June 2003, encourages the region to adopt a legally binding energy market
agreement. Accordingly, the Member Countries and the Commission are resolved to establish
integrated energy markets in electricity and gas based o n a common solidarity and consistent
with the rules applicable within the European Union.
-
The Stability Pact has made regional energy cooperation one o f its core objectives in its efforts t o
strengthen regional cooperation and to foster the conditions for peace, stability and economic
growth in the South East Europe. The Stability Pact has characterized ECSEE as a unique
political chance for the SEE region, to consolidate reconciliation and provide a power driver
towards a more comprehensive economic and political integration into the European Union.
The Bank supports regional efforts to promote cooperation and integration in South East Europe.
ECSEE i s one of the most prominent o f current regional programs. The proposed APL facility i s
a k e y component o f the Bank’s support for the Stability Pact and the working partnership with
the European Commission.
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B. PROJECT DESCRIPTION
1. Lending instrument
ECSEE is a regional program and i t i s proposed that the Bank investment support be provided
using the adaptable program lending (APL) instrument, horizontally o n a regional basis to
support ECSEE’s Regional Members (up to eight countries and Kosovo) and vertically (each
Regional Member can in principle receive support from more than one APL installment over the
APL program period). The APL instrument, by visibly committing substantial resources and
complementing activities supported by other donors, would help ensure the availability o f
adequate resources to fund priority investments for a functioning electricity market. The APL
instrument would enable the Bank to provide support in a flexible manner - when individual
countries have met the policy triggers (country criteria under the Athens process) and when
individual projects are ready to receive Bank support. All ECSEE Regional Members might not
actually borrow under the APL program. However, countries would k n o w up-front that they can
rely o n the Bank to support them in achieving the goals o f the ECSEE if they meet specific
eligibility criteria and if they need Bank support. The proposed size o f the APL lending facility
is U S $ l ,000 million, o f which EUR 66 m i l l i o n (US$84.3 m i l l i o n equivalent) would be approved
to Romania under the proposed APLl. The ECSEE APL i s detailed in Annex 1 (Section 1).
2. Program objective and Phases
The k e y objectives of the Energy Community o f South East Europe (ECSEE) are:
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Create a stable regulatory and market framework capable o f attracting investment to the
region in gas networks and power system so that all states in the region have access to the
stable and continuous energy supply that i s essential for economic development and
social stability;
Establish integrated regional markets in South East Europe, closely linked t o the internal
energy market o f the European Union, and fully complying with the rules applicable
within the European Union;
Enhance the energy security o f supply o f South East Europe and the European U n i o n by
providing incentives to connect the Balkans to Caspian and N o r t h African gas reserves;
and
Improve the environmental situation in relation to energy in the region.
The Member States are committing themselves under ECSEE inter alia to:
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Implement the E C Directives 2003/54 (electricity) and 2003/55 (gas) o f the European
Parliament and o f the Council, June 26,2003, in full but with a delayed schedule for
market liberalization compared to the schedule applicable to EU Member States; and
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Progressively align their environmental standards to a high common level, including that
a l l generating plants starting to operate after the entry into force o f the forthcoming
ECSEE Treaty comply with E C standards.
All Regional Members are also expected to accede to the Kyoto Protocol within one year
o f the Treaty’s effectiveness.
The Bank supports ECSEE in a number o f ways, through active participation in ECSEE’s
implementation organization (described in Section C.2); analytical work including the M a r c h
2004 framework paper, the ongoing generation investment study and the gasification study; and
country-level p o l i c y dialogue and project work. The proposed regional investment and technical
assistance support under the ECSEE APL is an integral element o f this comprehensive program
o f support. ECSEE APL phasing and triggers are discussed in Annex 1 (Section 1) and
summarized below. They are directly linked to ECSEE and utilize both the horizontal and
vertical features o f the APL instrument in a regional context:
A country becomes eligible once it has met ECSEE’s basic entry conditions as they were
defined in the Athens Memorandum - the ECSEE APL requirements are that an electricity
sector regulator and a transmission system operator have been established and are
operational. I t is currently expected that all Regional Members would meet this condition by
mid-2006 at the latest. The beneficiary country o f APL1, Romania, already meets these
initial conditions and i s eligible for Bank support under the ECSEE APL program;
A country remains eligible for Bank support under the ECSEE APL program as long as the
country signs and ratifies the ECSEE Treaty and meets i t s key obligations under the Treaty:
(a)
(b)
(c)
(d)
signs the ECSEE Treaty;
ratifies the Treaty;
establishes distributions system operators; and
opens its electricity market to non-household customers.
For a countryhorrower to be or remain eligible for Bank support under the APL program the
Bank also needs to be satisfied that the countryhorrower has the ability to effectively
participate in the regional market. With this trigger, the Bank would reserve the right to
defer or withhold ECSEE APL support in cases where a country might have complied with
the letter o f its ECSEE Treaty commitments but not have implemented or launched credible
programs o f other critical measures that are needed for market participation such as, for
example, reasonable tariffs, adequate bill collection, and systems for electricity market and
power system operations.
The Commission expects the ECSEE Treaty to be signed in mid-2005. The signing o f the
Treaty is proposed to be applied as a trigger under the ECSEE APL program from January 1,
2006, and its ratification from January 1,2007.
The current version o f the ECSEE Treaty calls for the establishment o f distribution system
operators by January 1,2007, and for the opening o f the electricity market to all non-household
5
customers by January 1, 200S5. I t i s possible that in the course o f the final negotiations o f the
ECSEE Treaty, these ambitious deadlines are adjusted - the Athens Memorandum contained
even more aggressive targets which have since been reviewed and adjusted. The target dates
that will be applied as triggers under the ECSEE APL program will be those incorporated in the
final version o f the Treaty including derogations and subsequent modifications agreed by the
European Commission and ECSEE Regional Members.
A l o n g with the triggers, projects will have to meet standard Bank requirements (including
safeguards) and will have to fit into the country programs (net o f possible regional IDA).
3. Project development objective and key indicators
The objective o f ECSEE APL is the development o f a functioning regional electricity market in
South East Europe and its integration into the intemal electricity market o f the European Union,
through the implementation o f priority investments supporting electricity market and power
system operations in electricity generation, transmission and distribution and technical assistance
for institutional/systems development and project preparation and implementation.
The ECSEE APL program would be considered successful if the countries in the region achieve
their commitments under the Athens process and are able to: (a) develop a functioning
electricity market including the agreed market liberalization targets; and (b) integrate i t into the
intemal electricity market of the European U n i o n in accordance with the ECSEE Treaty. T o
accomplish this, the countries will have to continue ongoing restructuring and reform measures,
build up their institutions and improve their power systems including interconnections so that
regional trade can increase. The ECSEE APLl would establish the ECSEE APL facility and
provide investment support and technical assistance to Hidroelectrica in Romania. Related
technical assistance support to the electricity regulator ANRE, market operator O P C O M and
transmission system operator Transelectrica is already being provided by the Bank under the
ongoing Electricity Market Project. The key performance indicators that will be used to assess
the fulfillment o f the ECSEE APL program and ECSEE APLl projects in terms o f results and
outcomes are presented in Annex 3.
4. Project components
Eligible E C S E E APL project components. The Bank’s March 2004 framework paper
concluded that significant investments in power generation, transmission and distribution and
technical assistance are required for a well-functioning power market. Priority investments and
technical assistance would be financed under the ECSEE APL program so that the ECSEE
Regional Members can effectively participate in the regional electricity market:
5
This level o f market opening i s a highly ambitious target - the EU Member Countries themselves
were required to reach this target only by July 2004 - and may w e l l s t i l l be adjusted before the Treaty i s
finalized.
In the EU Member States, all customers including households are t o be eligible to choose their
supplier by July 2007. In ECSEE, this deadline i s currently set for January 2015 -beyond the ECSEE
APL program.
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Investments to ensure that ECSEE Regional Member meet the integration requirements
o f U C T E - the U n i o n for the Coordination o f Transmission o f Electricity in Europe;
Investments to upgrade the capabilities of transmission system operators (TSOs) o f
ECSEE Regional Members so that they can implement policy decisions to assure regional
security o f supply. Examples o f such investments include: (a) upgrading load dispatch
and real-time system stability and control capabilities; (b) upgrading
infiastructure/systems for electricity market administration; and (c) removing critical
bottlenecks in transmission networks and sub-stations;
Investment to restore operational capacity/flexibility o f critical generation facilities that
provide ancillary services to TSOs, e.g. the proposed A P L 1 investment to rehabilitate
Hidroelectrica’s L o t r u Hydropower Station in Romania;
Investment in retrofits o f critical generation and/or transmission facilities t o assure
environmental compliance;
Metering and/or telecommunications programs designed to enhance revenue realization
and/or coordination and communications capabilities o f distribution utilities so that they
can more effectively participate in the regional power market; and
A wide range o f technical assistance, for institutional/systems development and project
preparation and implementation, to support ECSEE Regional Members in energy market
design and implementation assistance, inter alia to ensure full compliance with the
ECSEE frameworWEU directives and compatibility o f market designs for the supply of
balancing services and/or ancillary services across SEE country frontiers; and
engineering/environmental services for the preparation and implementation o f investment
projects (including but not limited to projects financed by the Bank under the ECSEE
APL) for a functioning electricity market.
APLl investment project i s the rehabilitation o f Hidroelectrica’s L o t r u hydropower station in
Romania. The 5 10 M W hydro power station will be rehabilitated into a reliable source o f
ancillary services for several decades. Details are presented in Annexes 4-6.
5. Lessons learned and reflected in the project design
In terms o f actual examples, the best k n o w n regional power market i s the Nordic power market,
known by the name o f its operator NordPool. I t operates in Finland, Norway and Sweden and
part o f Denmark. Portugal and Spain have recently launched a joint market, and regional power
markets are also under development in Southern Africa, South-East Asia and Central America,
and they are under discussion in Eastem and Western Africa. A k e y lesson learned from other
markets elsewhere, including NordPool, and from the association o f European Transmission
System Operators (ETSO) is that the progressive integration o f energy markets in SEE and the
adoptiodimplementation of common security o f supply policies require close attention to be paid
to the design and operation o f subsidiary electricity markets (e.g. balancing and ancillary
services) which are best administered by Transmission System Operators (TSOs). ECSEE’s
implementation organization includes the SEE Transmission System Operators Task Force,
which interacts with ETSO and U C T E to ensure smooth integration and coordination. The role
of the ECSEE Task Force o f TSOs is critical in all phases o f ECSEE’s development and
operation.
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Political commitment and adequate financial support are key ingredients o f successful reform
programs. ECSEE’s development i s premised o n the political commitment o f the SEE countries
as expressed in the Athens Memorandum and the forthcoming ECSEE Treaty, and it i s backed
by an exceptionally strong donor involvement. The APL program has been directly linked t o
ECSEE, with n o additional conditionality. Investment component included in APL1 i s and
components to be supported under subsequent APL installments will be o f proven design and
streamlined approaches emphasizing turnkey contracting will be employed in their
implementation.
6. Alternatives considered and reasons for rejection
The Bank supports the countries o f South East Europe in their efforts to rehabilitate and
restructure their power sectors through regular single-country operations. This approach will
continue and i t was also considered for ECSEE but was rejected, in favor o f a regional approach
to support in a visible and coordinated manner this ambitious regional program. The APL
instrument gives the Bank the flexibility to match i t s JBRD and IDA commitments to the pace of
its clients. The use o f a regular investment loan instrument would have required the Bank t o
commit the full US$1.O billion APL amount upfront and would similarly have required the
borrowers to assume these debt obligations well ahead o f being able to actually utilize the funds.
All SEE countries would know up-front that they can rely o n the Bank to support them in
achieving the goals of the ECSEE when they meet specific eligibility criteria and when they need
Bank support. Regional approach, and the regular monitoring and regional benchmarking that
will take place in the ECSEE process, will provide higher publicity and awareness, peer support,
and also peer pressurehncentives for countries to improve performance so as to avoid falling
behind other ECSEE members. The use o f the APL instrument also enable to launch the ECSEE
APL facility t o support ECSEE ahead of the ratification of the ECSEE Treaty and apply market
liberalization targets as triggers in future APL installments as such targets are agreed, including
derogations and subsequent modifications that may be agreed between the European
Commission and ECSEE Regional Members.
C. IMPLEMENTATION
1. Partnership arrangements
First and foremost, ECSEE is a partnership among the SEE countries. They have acknowledged
that solutions to pressing regional issues based o n isolated national markets are neither capable
nor desirable as a means to attempt to close investment gaps and emerging demand and supply
imbalances. Second, ECSEE i s a partnership between the SEE countries and the European
Union. The European Commission signed the Athens Memorandum as a participant and will
also be a signatory to the ECSEE Treaty. Neighboring Austria, Italy and Greece signed the
Memorandum as “political participants to the Athens process” and Hungary and Slovenia (which
signed as observer^^^) have since joined the EU and become political participants. Finally,
ECSEE i s a partnership between the SEE countries and the donors including the Bank.
Financial institutions and bilateral donors include the European Bank for Reconstruction and
Development (EBRD), the European Investment Bank (ED), the German Development Bank
8
(KfW), the U n i t e d States Agency for International Development (USAID), the Canadian Agency
for International Development (CIDA), and France, Greece, Italy, and Switzerland.
The region and the European Commission are currently negotiating to formalize their partnership
into a legally binding international Energy Community o f South East Europe Treaty (ECSEE
Treaty). The Council o f the European U n i o n authorized the Commission in June 2004 to open
such negotiations, o n behalf o f the European Union. The negotiations started in July 2004.
ECSEE’s Ministerial Council concluded o n December 13,2004 that there i s broad agreement o n
the substance o f the Treaty and directed their negotiators to conclude remaining details as soon
as possible. The current time-table calls for the signing o f the Treaty in mid-2005 and
ratification i s expected by mid-2006. The Treaty i s proposed to become effective when the
European U n i o n and a majority o f the Regional Members have ratified it. This schedule i s
reflected in the proposed vertical triggers o f the ECSEE APL, with 6-month contingency
provisions: signing by end-2005 and ratification by end-2006 (Section B.2). U p o n accession to
the EU, Regional Members (signatories o f the Treaty) will automatically cease t o be Regional
Members and become participants. A s members o f the European Union, participants are
required to meet more demanding electricity market liberalization targets than those set for
ECSEE and they will remain eligible to borrow under the ECSEE APL facility.
2. Institutional and implementation arrangements
A comprehensive coordination and implementation mechanism has been established for the
development o f ECSEE. The mechanism covers and brings together political and administrative
leadership, regulators, transmission system operators and other utilities, the European
Commission, international financial institutions and bilateral donors:
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ECSEE’s Ministerial Council takes place annually with the participation o f the
Ministers o f Energy o f the countries and the Commissioner for Energy and Transport of
the European Commission. The Council takes strategic decisions and gives guidance t o
ECSEE and, where necessary, formally reviews the conclusions o f other ECSEE
bodiedmeetings including the Forum. Once the ECSEE Treaty i s in effect, the Council
will report annually o n ECSEE’s activities to the European Parliament and to the
Parliaments o f ECSEE’s Regional Members;
ECSEE’s Permanent High Level Group i s composed o f representatives o f the Ministers
of Energy o f the countries and the European Commission. The group meets, when
necessary, on the initiative o f the Commission and the Presidency in Office, in order to
prepare the Ministerial Council and to ensure the follow-up o f i t s decisions;
T w o Task Forces have been established for ECSEE preparatory work and day-to-day
coordination and cooperation: (1) the SEE Energy Regulators Task Force, which works
closely with the Council o f European Energy Regulators (CEER); and (b) the SEE
Transmission System Operators Task Force, which interacts with the European
Transmission System Operators (ETSO) and the U n i o n for the Coordination o f
Transmission o f Electricity in Europe (UCTE);
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ECSEE F o r u m meets at least twice yearly. I t comprises o f representatives o f the
governments, regulators and transmission system operators o f the countries, CEER,
ETSO, UCTE, producing companies, consumers, the European Commission, the Stability
Pact, and donors including the Bank;
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Several donors support ECSEE (Section C.1). Donors are members o f the ECSEE Forum
and usually the donor agencies also meet separately in connection with the Forum
meetings. The Stability Pact assigned the role o f coordinating the donors to the
European Commission in 2001. The Commission retains the overall co-ordination, setting
politicalhechnical goals and organizing donors. The Commission i s funding an Athens
Process secretariat, based in Athens, to support the process, inter alia, benchmarking and
monitoring; and
The Ministerial Council, the Permanent High Level Group and the Forum are already
operational and they would be recognized in the ECSEE Treaty. In addition, two new
bodies, a Regulatory Board and a Regulatory Secretariat, would be set up under the
Treaty:
(a) The Regulatory Board would monitor the implementation o f all statutory, technical
and regulatory rules and would report directly to the Council. The Regulatory Board,
would be composed of one representative o f the energy regulators o f the Regional
Members. The European Commission would represent the European Union, assisted by
one regulator o f each Participant; and
(b) The Regulatory Secretariat would monitor ECSEE’s development, in particular the
functioning of the energy market and the promotion o f common security o f supply
policies. The Secretariat would assist the Council, the High Level Group, the Forum and
the Regulatory Board.
Romania/Hidroelectrica. The Lotru project will be implemented by Hidroelectrica. It i s one
o f the successor companies of Romania’s national power company Renel, which was
restructured and unbundled in 1998-2000 into Hidroelectrica (hydro power generator),
Termoelectrica (thermal generation), Nuclearelectrica (nuclear power), Transelectrica
(transmission and system operations) and Electrica (electricity distribution and supply).
Hidroelectrica owns and operates 345 hydro power plants and 5 pumping stations with a total
capacity o f 6,288 MW, accounting for about % o f Romania’s power supply and most o f the
ancillary services to Transelectrica, the system operator.
In accordance with the Romanian government’s energy strategy (the Road Map, July 2003),
following the unbundling, the Government has launched an ambitious program for the
substantial privatization o f the power sector. The first two o f the country eight electricity
distribution companies have been privatized (transaction being finalized with Bank support using
the partial risk guarantee instrument) and the other six are to be privatized by 2006. Three major
thermal power companies have been created from within Termoelectrica and are to be privatized
in 2005. These privatizations are supported by the Bank under the Programmatic Adjustment
10
Loan (PAL) program. The PAL program also includes the preparation o f a strategy for private
sector participation in hydro generation, including review o f options for private sector
participation in the implementation o f some o f the projects o f Hidroelectrica and the
privatization o f selected plants o f Hidroelectrica. Romania’s power sector i s discussed further in
Annex 1 (Section 2).
3. Monitoring and evaluation o f outcomes/results
At the regional level, the ECSEE APL program will continue to be included (as its concept w o r k
has already been included) in the established mechanism for ECSEE coordination - Ministerial
Council, Permanent High-level Group, Task Forces, and the Forum (Section C.2). The project
will benefit f r o m this elaborate, active and well-functioning mechanism for coordination,
monitoring and evaluation. The new Regulatory Secretariat will provide an institutional
mechanism for the regular monitoring of the countries’ performance against agreed benchmarks.
At the country level, investment projects will be included in national programs which will be
monitored by the ECSEE coordination mechanism. The Bank will continue t o participate in the
Athens process including the Forum and will also directly supervise the individual country
projects.
4. Sustainability
The current situation and the key dimensions o f the short- and long-term vision for a sustainable
electricity market can be briefly outlined as follows:
0
0
0
ECSEE Participants: The main utilities in the region are already engaged in power trading,
which provides the basis for further development. The next steps will be bilateral contracts
involving unbundled utilities and large customers; followed by expanding trade as electricity
markets in each country are further opened and additional customers become eligible and
start exercising the freedom to choose their electricity supplier;
Market Sophistication: Some o f the countries including Romania are already developing
day-ahead markets (operated by market operators) and real-time balancing mechanisms
(operated by system operators). Over time such markets and mechanisms will become
increasingly standard; and further sophistication will be developed, including intra-day and
real-time balancing markets and financial instruments (possibly starting with a contract
exchange);
Competition: Current utility-to-utility contracts and other exchanges are typically
cooperative and competition i s not their key objective. A s industry unbundling deepens and
in line with market opening across the region, contracting and trading will become
increasingly competitive. However, transmission system operators will continue to
coordinate o n a cooperative basis, as members of ETSO and in the framework o f the UCTE;
6
The first Programmatic Adjustment Loan (PALI) was approved o n September 16,2004. P A L 2
and PAL3 are expected to follow by end-2005 and end-2006, respectively.
11
0
Integration o f ECSEE into the European Union Internal Energy Market: Croatia and a
part o f Bosnia and Herzegovina had already been interconnected and their power systems
operated synchronously and as a part o f the main European power system administered by
UCTE. The rest o f South East Europe (except Turkey) was synchronously interconnected
o n October 10,2004, following the completion o f rehabilitation in Croatia and Bosnia of
facilities required for the synchronous interconnection o f the whole region with the main
European power system. Additional transmission l i n k s to the EU countries will be
developed. They include a second connection between Romania and Hungary (with EBRD
financing for implementation), and second connections between Serbia and Hungary and
Croatia and Hungary, and a connection between Croatia and Italy/Slovenia (the last three
interconnections are candidates for financing under the ECSEE APL). Through integration
the region will secure access to a major trading partner and an important import source to
meet possible electricity shortfalls and emergency support. This highlights the
electricity/economy dimension in ECSEE’s integration into the European U n i o n internal
energy market.
5. Critical risks and possible controversial aspects
ECSEE has been developed and is being implemented through a comprehensive coordination
and implementation mechanism (explained in Section C.2). It has gone through extensive
discussion and debate. The Bank’s work in the ECSEE context, published in the recent
framework paper (footnote 4), has highlighted risks and contributed to risk mitigation measures.
Risks are being minimized by adopting a gradual approach to market opening and voluntary
approach to trading. Though market i s being opened, meaning an increasing number o f
electricity consumers will become eligible to choose their electricity supplier, trading i s not
mandatory but voluntary between willing sellers and willing buyers - customers in individual
countries need not and are not expected to move at the same pace. The pace o f liberalization
may nevertheless trigger controversy. Adjustments can be accommodated in the finalization of
the ECSEE Treaty, including derogations and subsequent modifications in accordance with the
practice o f the European Commission.
Potential controversies can be occasionally expected in the development o f new generation
capacity, where individual countries m a y propose projects that are not necessarily optimal
choices in the regional context, in terms o f size, fuel choice, location or commissioning schedule.
ECSEE implementation mechanism provides a number o f venues to discuss and resolve such
issues, including the Ministerial Council as the final step. The Bank-administered currently
ongoing generation investment study i s expected to help identify the highest priority regional
projects, in part facilitating the resolution o f potential disputes.
Another potential area for controversy, also mainly in the area o f power generation, is the
progressive upgrading and implementation o f environmental legislation in countries that do not
have short-term prospects o f EU accession. The Regional Members are to progressively align
their environmental standards and specifically, new generation plants starting to operate after the
ECSEE Treaty i s in effect have to comply with the relevant E C standards, and the countries are
expected to accede to the Kyoto Protocol. The potential controversy i s not about the desirability
12
of these objectives but their affordability - this i s an area where the region will require assistance
from the international community.
I t must be emphasized that the SEE region faces a fundamental risk o f not being able to meet the
growing demand for electricity. ECSEE i s the regarded as the best possible mitigation measure
for that risk, w h i c h if materialized, would threaten the economic growth prospects and affect the
quality o f life in the region. Through ECSEE - a regional market o f countries with harmonized
and EU-compatible legislation and institutions underpinned by a legally binding international
Treaty - the region will develop an EU-compatible regional market and thereby represent a m u c h
larger and more attractive investment destination to prospective investors. Integration o f ECSEE
into the internal energy market o f the European U n i o n will not only provide the region
opportunities to export energy into the Community, but to also import energy t o help meet
shortfalls, including system emergency situations.
Plant-by-plant costs o f electricity generation vary within countries and across the region. In a
regional market and as market liberalization advances, customers that exercise their freedom to
choose their supplier will naturally seek competitive suppliers. This will put pressure o n higher
cost and less competitive suppliers to improve their performance. But there is also potential for
controversy: (a) some o f the most uncompetitive plants may be forced to close; and (b) some of
the less attractiveheliable customers may end up paying more for their electricity as
generatorshppliers will prefer to sell to more creditworthy clients, possibly located in other
countries. In principle these kinds o f potential controversies are part o f any functioning market.
However, it i s expected that countries will seek to mitigate some o f the impacts in the transition
period by managing the initial power contracting process. The projected tightening electricity
demand and supply situation in the region will also provide more time for the higher cost
generators to improve their performance before competition increases along with new
investment. However, for the same reason, tightening demand/supply outlook, less creditworthy
consumers will find it increasingly difficult to secure power supply. This should provide a
powerful momentum t o improve payment discipline.
All APL investment projects are expected to use proven designs and are not expected to contain
any particular risks or controversial aspects. This i s the case in the APLl project. Under
Romania’s Lotru project, an underground power station will be rehabilitated and restored to its
original capacity.
6. Loan conditions and covenants
As discussed in Section B.2, the ECSEE APL is directly linked to the countries’ commitments
under ECSEE. N o other triggers would be applied (including non-compliance with undertakings
under ongoing national projects as long as they do not directly affect countries’ participation in
ECSEE). Triggers would not be applied to loandcredits already approved. A s an example, a
loan or credit approved as part o f APLl or APL2 would not have conditions (equivalent to dated
covenants) about the country having to meet future triggers (that apply to APL3, or APL4-5) and
a possible failure to meet such future triggers would not jeopardize the implementation of
projects that are under implementation. APL projects would have financial targets for utilities
(Annex 9 presents APL1 targets), financial management covenants (Annex 7 presents APL1
13
F M S arrangements) and undertakings about safeguards, such as the implementation o f
environmental management plans and dam safety inspections (Annex 10 presents APLl
requirements).
Romania already meets the initial ECSEE conditions and the APL1 project complies with Bank
safeguard policies. Going beyond the initial eligibility criteria, Romania has already started the
liberalization o f i t s electricity market and i s expected to continue the opening ahead o f the
ECSEE deadlines. Romania’s current level o f market opening i s 55%. The Romanian
government’s energy strategy (the Road Map) sets July 2007 as the target date for full opening of
the electricity market to all consumers.
D. A P P R A I S A L S U M M A R Y
1. Economic and financial analyses
The benefits o f regional power trade in general and trade benefits in the SEE region specifically
have been studied by Argonne National Laboratories sponsored by U S A I D and the sector w o r k
underpinning the APL program (footnote 4). A preliminary estimate is that if SEE were t o
operate as a regionally integrated system dispatching o n a least cost basis, operating costs could
be reduced by 11-15%. There would be additional cost savings relating t o capital, for example,
through exports from surplus to deficit countries, and sharing o f reserve. In the short term,
savings would be reflected in lower prices where these are currently relatively high, and
increased net revenues for utilities with the potential for increased exports. In the longer term,
integrated operation would lead to lower prices than in a limited trade scenario.
Some benefits from electricity trade are already being realized in the region. The main exporters
in the region are Bosnia and Herzegovina, Bulgaria and Romania. Some o f the countries have
substantial hydro power capacity, while others rely more o n thermal, and t w o have also nuclear
power plants. The M a r c h 2004 framework paper discusses the country-by-county situation.
This mix o f hydrokhermal m i x enhances the prospects for efficiency improvement and cost
savings through regional cooperation. There is also scope for power trade between SEE and its
neighbors, and indeed, one o f ECSEE’s key objectives is that the SEE energy market will be
integrated into the EU internal energy market. F r o m a technical point o f view, this would be
feasible given that power systems in Europe and SEE operate according to common technical
standards established by UCTE, and that SEE will shortly be reintegrated with the European
grid. Significant potential benefits exist given n o n coincidental peak load periods between
Russia and SEE, but synchronizing system operation between the eastern neighbors such as
UkraineRussia and SEE would be a major challenge. A near-term option t o increase trade
would be to develop links through Moldova, to allow power transfer at least initially with
asynchronous system operation, and this is being discussed between Romania and Moldova.
Romania/Hidroelectrica finances. Details in Annex 9. Hidroelectrica i s the lowest cost
generator in the Romanian power system. In accordance with Government policy, the electricity
regulator ANRE kept hydro tariffs at a very l o w level until late 2003. The policy provided for
tariff revenues to Hidroelectrica set to enable i t to cover i t s day-to-day operations, but no selffinancing for investment. In the meantime, ANRE carried out rapid adjustments in the retail
14
tariffs, but assigned the increasing revenues to Tennoelectrica by adjusting its rates for thermal
generation, to bring Termoelectrica to cost recovery level and reduce the Government’s quasifiscal deficit. This strategy was supported by the Bank and the IMF.
In M a r c h 2004, at the request o f the Government, the Bank reviewed Romania’s electricity
tariffs in close operation with ANRE and inter alia recommended that Hidroelectrica’s tariff for
the regulated market be doubled by January 2005, to a s t i l l l o w level o f about U S cents 2/kWh.
The Bank and ANRE agreed in principle that such tariff action i s necessary for Hidroelectrica to:
(a) meet its financial obligations; (b) start generating internal funds for investments (including
completion o f projects initiated years ago which had stalled due to lack o f funds); and (c) be
properly integrated into the liberalizing electricity market - where the level o f market opening
was raised 55% in November 2004 and is set to reach 100% in July 2007. ANRE implemented
this tariff adjustment in two stages through its June and December 2004 tariff orders, and
Hidroelectrica’s average tariff revenue will be about U S cents 2.2/kWh f r o m January 2005.
With these adjustments, Hidroelectrica reached a sound and generally satisfactory financial
position, and the functioning o f the electricity market was greatly facilitated. This strategy i s
also supported by the IMF.
Inadequate bill collection had been a major financial issue in the power sector. With support
from the Bank (under P S A L and PSAL2) and the IMF (under its Stand-By Arrangements), the
Government and the distribution utility Electrica have progressively and ultimately successfully
addressed this issue. For the whole o f 2003, Electrica achieved a bill collection rate o f 99%.
Similar accomplishment has been achieved in the gas sector, where the t w o distribution utilities
reached a bill collection rate o f 100% for 2003. Highly satisfactory collection rates have been
maintained in 2004, and with the distribution privatization n o w underway (Annex 1, Section 2),
high collection rates are expected to be maintained also in the future.
2. Technical
The transmission system in the SEE region meets the minimum requirements for a regional
market, now that the rehabilitation projects in Croatia and Bosnia and Herzegovina (the latter
under the Bank’s Power I11Project) have been completed facilitating the synchronous
interconnection o f the whole region with the main European power system o n October 10,2004.
Additional interconnections, within the region and with the European Union, will be required to
accommodate the projected increasing power flows. The APL program w i l l support some of
these additional projects, and other donors participating in the Athens process will support others
- active donor coordination i s aimed at ensuring that highest priority projects will get funded.
The countries and their utilities, even with the help o f the donors, will not by themselves be able
to fund all necessary generation investments required to meet the growing demand for electricity
in the region. Private investment will have to be mobilized and that is one o f ECSEE’s
fundamental goals - the creation o f a hnctioning regional market, with a stable regulatory and
market framework capable o f attracting private investment.
15
3. Fiduciary
The Bank’s standard fiduciary requirements apply also to the projects and utilities supported
under the ECSEE APL program. Lending under the ECSEE APL program will be through IBRD
loans and IDA credits to individual countries. The Bank will review the financial management
systems of the executing agencies and audit reports will be required to be submitted.
Procurement will b e in accordance with the Bank Guidelines for Procurement and Bank
Guidelines for he Use o f Consulting Services will apply. I t is possible that, within applicable
guidelines, the Bank m a y agree that borrowers’ F M S and/or procurement systems be utilized,
taking into account experience from other projects where such approaches are piloted. The
proposed APLl loan to Romania does not feature such use o f country systems. Standard
fiduciary and procurement arrangements will be applied (Annexes 7-8 present A P L l
arrangements).
4. Social
ECSEE’s overall social impact i s positive. The common objective o f the parties adhering t o the
Athens Memorandum o f Understanding is to stimulate economic growth and investment in South
East Europe by improving the availability, efficiency and reliability o f network energy sources at
reasonable cost. The draft ECSEE Treaty states that the Regional Members and the Commission
are determined to achieve economic and social progress and a high level o f employment as w e l l
as balanced and sustainable development through the creation o f an area without internal
frontiers for energy. All SEE countries have the prospect o f EU membership and the European
Commission had made participation in ECSEE a de-facto accession condition. The Stability
Pact has characterized ECSEE as a unique political chance for the SEE region, t o consolidate
reconciliation and provide a power driver towards a more comprehensive economic and political
integration into the European Union. The overall social impact o f improving power supply;
mitigating environmental impacts o f the power sector; supporting growth, investment and
employment; and facilitating EU accession i s positive.
All countries in the SEE region are implementing reforms in their energy and power sectors,
which inter alia involve tariff adjustments towards full cost recovery and financial discipline
including bill collection. This raises the issue o f social protection, to ensure that low-income
households have access to electricity. ECSEE does not contain additional financial targets or
conditions, but reinforces these ongoing national efforts. The Treaty calls for the provision o f
electricity to all citizens at a reasonable price level that nevertheless allows for adequate cost
recovery and reinvestment.
Romania. The Lotru project does not involve social issues. No land acquisition or resettlement
is required. Access t o reliable electricity is a key driver o f economic growth and a direct means
of reducing poverty by improving the productivity o f households and enhancing the delivery o f
social services. Romania has virtually universal electricity service coverage and the tariff system
includes a functioning mechanism to support low-income households. The challenge is to
maintain and improve the quality o f this extensive service. The Government has concluded that
along with its ongoing ambitious privatization program, active participation in ECSEE i s
essential to maintain such service.
16
5. Environment
ECSEE’s overall environmental impact is positive. ECSEE accelerates the introduction o f EUcompatible environmental legislation and standards in the SEE region. T w o specific
requirements are particularly noteworthy: (a) new generation plants starting to operate after the
ECSEE Treaty is in effect have to comply with the relevant E C standards; and (b) a l l Regional
Members are expected to accede to the Kyoto Protocol within one year o f the Treaty’s
effectiveness.
This i s an area where the region will require assistance from the intemational community. The
APL program is one potential source o f such assistance, for example for the rehabilitation and
upgrading o f power generation facilities to improve their operational and environmental
performance. N e w generation projects will not be financed under the APL program, but the
World Bank Group will consider such projects separately, in parallel with the APL program. For
Turkey, a project for environmental upgrading o f Afsin-Elbistan Power Plant is included in the
FY05 lending program.
Romania/Lotru. Lotru i s an existing hydro power development on the Lotru river. I t was built
in the 1960s/early 1970s and commissioned in 1972-75. The source o f water for the hydro plant
i s the Vidra reservoir. The condition and continued safety o f the Vidra dam i s under continuous
monitoring and regular maintenance and the dam is in good condition. At the same time, after
three decades o f demanding heavy-duty operation as the k e y provider o f ancillary services, the
hydro plant’s electro-mechanical equipment i s overdue for extensive rehabilitation. The
rehabilitation of the L o t r u station will have only minor environmental impacts. The station i s
located about 140 meters underground. The main impact is the disposal o f equipment replaced
under the project. An Environmental Management Plan (EMP) has been prepared, public
consultations have been held. It has been cleared by the Bank and submitted to the Infoshop.
6. Safeguard policies
Safeguard Policies Triggered by the Project
Environmental Assessment (OP/BP/GP 4.0 1)
Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Cultural Property (OPN 11.03, being revised as OP 4.1 1)
Involuntary Resettlement (OP/BP 4.12)
Indigenous Peoples (OD 4.20, being revised as OP 4.10)
Forests (OP/BP 4.36)
Safety o f Dams (OP/BP 4.37)
Projects in Disputed Areas (OP/BP/GP 7.60)
Projects o n International Waterways (OP/BP/GP 7.50)
Yes
[XI
[I
[I
[I
[XI
[I
[I
[XI
[I
[XI
No
[I
[XI
[XI
[XI
[I
[XI
[XI
[I
[XI
[I
The classification o f the APL program i s FI. APLl was rated F I when the project elements had
not yet been identified. RomanidLotru is a B-category project. Most o f the country-level
investment projects are expected to be B-category projects. However, individual country-level
17
investment projects included in the later installments o f the APL program m a y contain
components that would be rated into the A-category or C-category.
The proposed financing o f the rehabilitation o f the Lotru hydro project triggers OP 4.37 o n D a m
Safety. Romania’s and Hidroelectrica’s dam safety laws, regulation and arrangements, in
general and as applied to the Vidra dam, and Hidroelectrica’s undertakings regarding Vidra dam
during the implementation o f the project, are satisfactory with respect to OP 4.37 (see also
Annex 10, Section 1). The Lotru project also triggers OP 7.50 o n Projects in International
Waterways. Since the Lotru hydro plant is located on the Lotru river, which flows into the Olt
River, which in turn flows into Danube, an international waterway in Europe, OP 7.50 applies,
even ifthe Olt River and its tributary Lotru River flow within Romania. An exemption f r o m the
notification requirement under OP 7.50 has been granted: the Lotru project does not involve
works and activities that would exceed the original scheme, change i t s nature, or alter and
expand its scope and extent to make i t appear a new or different scheme, and will therefore not
adversely affect the quality or quantity o f water flows to the other riparians (see also Annex 10,
Section 1).
7. Policy Exceptions and Readiness
N o policy exceptions are sought. The project is ready for financing.
18
Annex 1: Country, Sector and Program Background
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
1. ECSEEAPL
The proposed Approach for Adaptable Program Lending (APL)for ECSEE. The key policy and
institutional elements for an APL program have been defined and established. The Energy Community
of South East Europe (ECSEE) i s a regional program, with strong country commitment and with wellestablished coordination mechanisms at the highest political level, at the level o f regulators and
transmission companies in the region, as well as among donors supporting the program, plus a the ECSEE
Forum which brings them all together with other stakeholders.
ECSEE i s a regional program and i t i s proposed that the Bank investment support be provided using the
APL instrument, horizontally o n a regional basis (to support up t o eight countries and Kosovo) and
vertically (each country can in principle receive support from more than one APL installment over the
APL program period). An APL would enable the Bank to provide regional financial support to a regional
program, yet financing could be tailored to the needs o f individual countries to help them meet their
commitments to ECSEE.
APLl presents the ECSEE program and the first two individual country projects that the Bank would
finance. APLl w o u l d be presented t o the Board - the Board approves a l l first-phase APLs under regular
procedures. The approval o f subsequent APL phases i s delegated to the President and exercised by the
Regional Vice Presidents under the oversight o f the Managing Director. Subsequent country projects
(following the approval o f the APL program when APLl i s approved) would be processed each at i t s own
pace and when ready, each PAD would be submitted for approval by ECA’s Vice President. Each PAD
would be circulated to the Board for information after Management approves the follow-on operation in
principle. Management approval becomes effective 10 working days thereafter, unless at least three
Executive Directors request a regular Board discussion during the 10-day time period. Each
country/project could proceed at i t s own pace and not be held back by the Bank needing to combine
several projects for the purpose o f processing or approval.
APLs typically have 3-5 phases. In the case o f the proposed ECSEE APL, APL1 would cover the first
two projects approved together with the APL program, APL2 phase would cover other country projects
approved within FY05 (assuming APL1 i s approved by mid F Y 0 5 - if not, then APLl alone could cover
FY05), APL3 phase would cover country projects approved in FY06, and APL4-5 phase projects
approved in FY07-08 - this phasing provides for a four-year program (FY05-FY08). Each APL
installment would have an implementation period up to five years. The implementation o f some o f the
projects in APL5 could continue until FYO13.
APL Triggers. T w o sets o f triggers would apply under the APL. Policy triggers would determine the
eligibility of an individual country to receive Bank assistance under the APL program. Project triggers
would determine when an individual investment i s eligible to receive Bank funds.
Policy Triggers
A fundamental eligibility criterion for a country to qualify for Bank support i s the signing o f the Athens
Memorandum - all prospective clients signed the Memorandum on December 8,2003 and thereby they
all meet this requirement (the Athens Memorandum i s the base document o f the ECSEE).
19
Horizontally under the regional APL, a country becomes eligible to borrow once it has met ECSEE’s
basic entry conditions as they were defined in the Athens Memorandum - the ECSEE APL requirements
are that an electricity sector regulator and a transmission system operator have been established and are
operational. It i s currently expected that all Regional Members would meet this condition by mid-2006
at the latest. The beneficiary country o f APL1, Romania, already meets this condition and i s eligible for
Bank support under the ECSEE APL program.
Vertically, a country remains eligible for Bank support under the ECSEE APL program as long as the
country signs and ratifies the ECSEE Treaty and meets its key obligations under the Treaty:
0
0
0
0
signs the ECSEE Treaty;
ratifies the Treaty;
establishes distributions system operators; and
opens i t s electricity market to non-household customers.
For a countryhorrower to be or remain eligible for Bank support under the APL program the Bank also
needs to be satisfied that the countryhorrower has the ability to effectively participate in the regional
market. With this trigger, the Bank would reserve the right to defer or withhold ECSEE APL support in
cases where a country might have complied with the letter o f i t s ECSEE Treaty commitments but not
have implemented or launched credible programs of other critical measures that are needed for market
participation such as, for example, reasonable tariffs, adequate bill collection, and systems for electricity
market and power system operations.
The Commission expects the ECSEE Treaty to be signed in mid-2005. The signing o f the Treaty i s
proposed to be applied as a trigger under the ECSEE APL program from January 1,2006, and its
ratification from January 1,2007.
The current version o f the ECSEE Treaty calls for the establishment o f distribution system operators by
January 1, 2007, and for the opening o f the electricity market to all non-household customers by January
1, 2008 7 , It i s possible that in the course o f the final negotiations o f the ECSEE Treaty, these ambitious
deadlines are adjusted - the Athens Memorandum contained even more aggressive targets which have
since been reviewed and adjusted. The target dates that will be applied as triggers under the ECSEE APL
program will be those incorporated in the final version o f the Treaty including derogations and
subsequent modifications agreed by the European Commission and ECSEE Regional Members.
Triggers will not be applied to loansfcredits already approved. As an example, a loan or credit approved
as part o f APL 1 or APL2 will not have conditions (equivalent to dated covenants) about the country
having to meet future triggers (that apply to APL3, or APL4-5) and a possible failure to meet such future
triggers will not jeopardize the implementation o f projects that are under implementation.
7
This level o f market opening i s a highly ambitious target - the EU Member Countries themselves
were required to reach this target only by July 2004 - and may well s t i l l be adjusted before the Treaty i s
finalized. In the EU Member States, all customers including households are to be eligible to choose their
supplier by July 2007. In ECSEE, this deadline i s currently set for January 2015 -beyond the ECSEE
APL program.
20
CAS Framework
Bank assistance to the individual projects will be committed through loans and credits t o individual
countries within the Country Assistance Strategies:
(a)
By signing the Athens Memorandum, countries have signaled their commitment to the
regional market. This does not automatically mean that each country would be interested in
borrowing from the BanWIDA - as o f September 2004, Bulgaria and Croatia have n o t shown
strong interest;
(b)
There might be cases where the country program cannot accommodate additional projects.
IDA countries are expected to be able to get additional IDA resources for their participation in a
regional program’. Apart from such possible additional allocations due to the regional nature of
the APL program, all IBRD loans and IDA credits will have to be considered in the C A S
frameworks and limits o f the country programs.
Compliance by the recipient country/utility o f i t s commitments under ongoing Bank operations in the
powedenergy sector will not be an additional trigger. The use o f the APL program as an additional
leverage to address issues under ongoing operations will be limited to areas where non-compliance affects
the utility’s ability to participate in the regional electricity market, for two reasons: (a) t o retain strong
regional approach and focus o n ECSEE; and (b) to keep the implementation o f the APL program
manageable. -- This approach i s in line with the IDA pilot program for regional projects (footnote 8) ,
which calls for flexibility even when a country i s in arrears to the Bank, if its participation i s crucial t o the
success o f a regional project.
Components for Bank Financing. The Bank has prepared a strategy for Bank support for regional
energy trade under an ongoing E S W activity. The E S W highlights that significant investments are
required in power generation, transmission and distribution for a well-functioning power market. At the
outset, the Bank would be prepared t o consider a broad range o f investments for support under the APL
program.
(a) Power Generation. Major new generation projects are not proposed for B a n k financing under this
APL program: (a) Regional prioritization o f possible projects i s not yet available. I t will b e established
under a recently launched study (one o f the Bank’s contributions to ECSEE i s the administration of this
study, at the request o f the European Commission); and (b) Bank Group participation in such large
projects i s better dealt with on a case-by-case basis due to their large financing needs. However, the
Bank would be prepared to consider plant rehabilitations in cases where the priority and costeffectiveness o f the renovations can be readily established. Such projects offer one o f the best
approaches to provide ancillary services to power system operators (ancillary services include all services
other than the production o f energy provided by generators necessary for the operation o f the power
system, such as frequency support, reactive power, and spinning reserve), by restoring capacity and
improving plant availability and load-following capability (ability to follow dispatch instructions from
system operators). This i s in line with the Athens Memorandum, which highlights the inclusion of plant
rehabilitations among regional investment priorities.
~
IDA has introduced an I D A 1 3 Pilot Envelope for regional projects o f up to $450 m i l l i o n per
annum during FY04-05. Individual country allocations will normally cover 1/3 o f the project cost
attributable to an individual country wherever feasible. In recognition o f the significant positive
extemalities o f regional projects, the remaining 2/3 o f the credit amount will be f r o m the IDA pool and
will maximize the flexibility within IDA.
8
21
@) Power Transmission and System Operations. The region requires additional interconnections
including links to UCTE. These main projects have been studied and prioritized by U S A I D as part of
ECSEE preparations’. Albania-Montenegro, Serbia-Hungary, Croatia-Hungary, Macedonia-Albania,
Hungary-Romania and Bulgaria-Greece are among the highest priority links. Interconnection o f Turkey
(expected to be developed in 2005-06) and the Kosovo-Albania interconnection (being studied under
Bank financing) were beyond the scope o f the USAID study, but both are clearly also high priority items.
Other high priority transmission investments will also include transmission line and substation
reinforcements within individual countries - a link between two countries or between the region and
U C T E will be useful only i f power can be moved across countries with reliability.
Transmission system operators in the region are typically also responsible for system operations. This i s
an area where several countries will need to upgrade their facilities and install new load dispatch and
communication systems. A study carried out for U S A I D recommended the following projects for
submission to international financing and commercial credit institutions: Croatia, Macedonia, and Serbia
and Montenegro. T h e EBRD and EIB are currently considering financing the project in Serbia, but
Croatia, Macedonia and Montenegro are yet to confirm financiers.
(c) Power Distribution. Power distribution projects are typically local undertakings and Bank Group
support would continue to be provided mainly under individual country projects, for example, distribution
reinforcement projects to modernize aging systems and reduce system losses. However, the Bank would
support metering and/or telecommunications programs, which are designed to quickly enhance revenue
realization and/or coordination and communications capabilities o f distribution utilities so that they can
more effectively participate in the regional power market.
(d) Technical Assistance. Along with investments, APL projects can finance a wide range o f technical
assistance:
Institutional Development - establishing and/or strengthening the regulators, transmission
companies/system operatordmarket operators, and distribution system operators t o implement
the required rules, codes and regulations, power exchanges and settlement systems, etc.; and
(b) Project Preparation and Implementation - engineering and environmental services to (1) prepare
projects for financing by the Bank under alter APL installment and/or by other financiers and (2)
help implement projects.
(a)
EnvironmentalConsiderations. The Bank’s standard environmental requirements would apply to
projects supported under the APL program. An environmental management plan acceptable to the Bank
would be finalized and disclosed in the country and submitted to the InfoShop prior to project appraisal of
category B projects. M o r e comprehensive environmental impacts assessments would be required for
category A projects, if any. M o s t projects to be financed under the program are expected to be category
B projects, but some generation renovation projects might receive category A ratings. The APL
instrument i s well suited to dealing with the uncertainties and delays that environmental management
Under the USAID-funded South East Europe Cooperative Initiative (SECI), a Project Group o n
“Development o f Interconnection o f Electric Power Systems o f SECI Countries for Better Integration to
the European System” comprising transmission system operators in the region was established. The SECI
Project Group undertook a “Regional Electricity Transmission Planning and Interconnection Study”
which modeled the potential impact o f twelve new transmission links under various hypothetical inter
(between SEE and Westem and Central Europe) regional (not intra - this study assumed that countries in
SEE are individually balanced) power flows.
9
22
plans, assessments and consultations often cause in Bank projects. Unlike a regular multi-component
investment project, which gets delayed i f any o f i t s components get delayed, under the APL program,
other APL projects can proceed and only the one APL project that i s delayed i s affected. Therefore, i t
does not appear necessary to “automatically” exclude all generation projects f r o m further consideration
but it i s important to identify potential projects early and then launch preparatory w o r k including
environmental assessmentdmanagement plans t o avoid delays o n that account later.
The Envisioned U S $ 1.0 Billion ECSEE APL Lending Program
Finance Perspective. The proposed US$1 billion size o f the ECSEE APL facility may appear to be very
large, and it would be a significant commitment. However, the financial requirements o f power
development in the region are very large, and the Bank’s US$ 1.O billion has t o be seen in this
perspective. The SEE region faces a fundamental r i s k o f not being able to meet the growing demand for
electricity. Significant capacity additions (of the order o f 12,000-15,000 MW) and plant rehabilitations
( o f the order o f 8,000-9,000 MW) will be required during the next ten years, along with matching
transmission and distribution system investments if demand i s to be met and severe power shortages and
supply interruptions are to be avoided. Financing requirements are o f the order o f some US$30-40 b i l l i o n
and these are conservative estimates. The bulk o f such financing, particularly in power generation, can
not be raised in the public sector alone, without significant private sector participation. Through ECSEE
- a regional market o f countries with harmonized and EU-compatible legislation and institutions
underpinned by a legally binding international Treaty - the region will develop a EU-compatible regional
market and thereby represent a much larger and more attractive investment destination to prospective
investors. Integration of ECSEE into the internal market o f the European U n i o n will not only provide the
region opportunities to export energy into the Community, but to also import energy to help meet
shortfalls, including system emergency situations.
ECSEE APL Country Programs. The overall APL program requires an investment by the Bank of
about US$l,OOO million, based on current estimates and subject to further review and change. A tentative
breakdown i s gwen below:
Bank Financing under the ECSEE APL Program (US$ million)
APLl
FY05
ALBANIA
BOSNIA AND HERZEGOVINA
BULGARIA
CROATIA
KOSOVO
MACEDONIA
ROMANIA
SERBIA AND MONTENEGRO
TURKEY
Unallocated
TOTAL
APL2
APL3
APL4
APLS
FY05
FY06
FY07
FY08
24
84
84
36
5
25
20
80
124
23
100
40
206
30
30
TOTAL
54
66
40
165
20
5
25
335
70
345
100
246
340
1,000
126
50
125
The above APL financing plan includes a proposed unallocated portion o f US$lOO m i l l i o n (about lo%,
in principle available any time when needed in the FY05-08 period), which could b e used to fund projects
in Bulgaria and Croatia (which have not expressed strong interest in the APL facility) and/or provide
higher volumes t o others, or if not needed, would simply not be committed.
Approach to Co-financing. In view o f the large financing requirements and the limited number o f
projects that each donor can appraise and supervise, the approach in donor coordination for the financing
o f ECSEE’s priority investments i s that to the extent feasible, instead o f co-financing individual projects,
donors discuss the financing o f priority investments and then take charge o f their respective projects: cofinancing i s being done at the ECSEE program level, donors coordinate at the program level and each
takes care o f specific projects.
2. Romania Country and Sector Background
Romania’s Energy and InfrastructureChallenge. Economic stagnation for most o f the 1990s meant
less demand on Romania’s energy and infrastructure sectors, which also l e d to inadequate investments
and insufficient maintenance and rehabilitation o f aging facilities and networks. Now that Romania’s
economic growth has reached 4-5% per annum, pressure on energy and infrastructure services i s
increasing. This i s far more than a sectoral issue. Adequate supply o f energy and availability o f
infrastructure are essential prerequisites for achieving sustainable economic growth. Without economic
growth momentum, i t will be difficult for Romania to both implement i t s social programs/poverty
alleviation agenda and improve and maintain necessary fiscal discipline for sustainable development.
Romania’s desire t o j o i n the European U n i o n adds to the country’s energy and infrastructure challenges
the need t o comply with various EU directives and other minimum standards. Improvements in
Romania’s energy and infiastructure services are also needed to improve the quality o f l i f e o f individuals
- including helping Romania improve maternal health, reduce child mortality, contain diseases, and
improve primary education.
Inthe power sector, as economic growth i s accelerating, demand for electricity has picked up and i s
projected to increase. As a result, pressure o n electricity facilities and services i s increasing, at a time
when available capacity from existing facilities i s declining. Raising the necessary investment resources
to rehabilitate aging plants and transmission and distribution networks - the estimated US$10 billion
needed in the 2005-2015 period - i s a tremendous challenge given the constraints in the public sector and
current global environment for private energy investments. The Government o f Romania has concluded
in its energy strategy 10 that private sector participation i s essential in meeting the investment
requirements in the energy sector. In the power sector, the private sector i s projected to help raise almost
h a l f - US$4.5 billion of the U S 1 0 billion investment needs. Reforms t o address power sector issues
were launched in the late 1990s, and substantial progress has been achieved, enabling the Govemment to
realistically attempt to attract such large private investments.
Power Sector Reforms. An electricity l a w was enacted in 1998 and the electricity and heat regulatory
authority ANRE (Autoritatea Nationala de Reglementare in domeniul Energiei) was established in 1999.
Sector entities have gone through several reorganization and restructuring measures. At the start o f the
reform process, power generation, transmission and distribution and system operations were carried out
by the Romanian Electricity Authority RENEL (Regia Autonoma de Electricitate) which had been
established in 1990. RENEL was corporatized (converted into a joint stock company) in 1998 into the
National Power Company CONEL (Compania Nationala de Electricitate) and a separate j o i n t stock
lo
“The
Road M a p for the Energy Field” was approved and published in July 2003.
24
company Nuclearelectrica which was created for " E L ' S nuclear assets. Power generation and
distribution were carried out by CONEL's subsidiaries Hidroelectrica (hydro power), Termoelectrica
(thermal power a n d heat) and Electrica (distribution and supply), all joint stock companies. CONEL was
directly in charge o f transmission and system operations as well as the commercial relationships among
i t s subsidiaries (the start o f an electricity market). The restructuring process continued in 2000: (a)
Hidroelectrica, Termoelectrica and Electrica became independent companies reporting to the Ministry of
Industry and Resources (MIR); (b) the process to establish eight regional power distribution and supply
companies (discoms) was launched by the national distributor (Electrica); (c) a national power grid
company Transelectrica (Compania Nationala de Transport a1 Energiei Electrice) was established for
CONEL's power transmission and system operations functions and a subsidiary company OPCOM
(Operator Comercial) was established for CONEL's commercial functions and t o become the electricity
market operator.
Through a series o f tariff adjustments by ANRE, overall tariff revenue has been brought up to cover the
cost o f supply and cross-subsidies have been largely eliminated. In parallel, Romania has started the
liberalization o f its electricity market, along the lines o f EU directives, which require member countries to
allow a gradually increasing share o f electricity to be contracted between suppliers (generators and
traders) and eligible customers -- electricity users qualified to purchase power directly f r o m the wholesale
market. The concept o f an eligible customer i s well-known from the EU electricity directive, but
Romania has added an additional criteria requiring the payment o f bills, reflecting chronic issues in bill
collection in the past. Some fundamental issues remain to be resolved before a well-functioning
electricity market can emerge and before the sector can operate within the larger regional and European
networks. This i s largely because o f the structure o f the generation sector -- not having a sufficient
number o f commercially-oriented generators and generation unbundlingbased o n fuel used (hydro,
nuclear and thermal) -- and the related regulatory and commercial framework. A sufficient number of
buyers n o w exist as Electrica's eight discoms have become fully functional along with an increasing
number o f eligible customers (currently about 2,000).
The Government's Road M a p spells out i t s strategy and implementation plans for further power sector
reforms. The Government intends t o increase the number o f commercially-oriented suppliers through
further generation restructuring and by attracting private investors. Restructuring o f Termoelectrica into
four new subsidiaries (Bucuresti, Craiova, Rovinari and Turceni) along the lines o f i t s existing subsidiary
Deva (which was established under an ongoing Bank operation), with a few generation plants staying
with Termoelectrica, was done in 2003. Craiova, Rovinari and Turceni were separated from
Termoelectrica into independent companies from April 2004, and are to be privatized (under PAL2).
Significant changes in the regulation o f hydro generation are being carried out, ahead o f the partial
privatization o f Hidroelectrica envisioned in the Road Map. ANRE i s also starting preparations to put in
place a fully functional supplier(s) o f last resort by the time o f full market liberalization. Four o f
Electrica's eight discoms are expected to be privatized by mid-2005, and the other four are also to be
privatized under PAL2.
Along with above industry structure, the Road M a p also spells out the proposed new wholesale electricity
market. The Electricity Market Project (EMP) supports the development o f the kmd o f well-functioning
wholesale electricity market envisioned in the Road Map, with assistance to the Government, ANRE,
OPCOM and Transelectrica. ANRE has already launched the electricity market liberalization, and i s
putting in place under the EMP a comprehensive set o f regulations for a new trading regime - a wholesale
electricity market to be operated by O P C O M for the increasingly private generating companies and
discoms, as well as other electricity suppliers and an increasing number o f eligible consumers. The
success o f Romania's power reforms in key areas (including privatizations, investments, efficiency
improvements and competitiveness) will be greatly influenced by ANRE's, OPCOM's and Transelectrica's
ability to develop, regulate and operate a competitive electricity market. Such a liberalized electricity
25
market will also facilitate Romania's accession to the EU - the Road M a p i s focused o n the remaining
steps Romania needs to take in order to meet the EU directives in the energy sector and the development
o f a well-functioning electricity market i s one o f i t s key elements.
The Romanian system currently has a synchronous interconnection with some o f i t s neighbors including
Albania, Bulgaria, Greece, and Serbia in the so-called UCTE second synchronous zone. On M a y 8,2003
Transelectrica became a member o f U C T E (the Union for the Co-ordination o f Transmission of
Electricity), an association o f transmission system operators providing a reliable market base by efficient
and secure electric "power highways'' in Europe. O n October 10,2004, the UCTE second synchronous
zone was connected to the main UCTE. This opened the way for Romania (and the rest o f South East
Europe) to j o i n one of the largest electric synchronously interconnected power systems worldwide. Full
integration o f the Romanian power system into EU's intemal electncity market and into the continental
Europe interconnected power system i s one o f the Govemment's priorities in its power reforms and
Romania i s one o f the most active members in ECSEE's development.
26
Annex 2: Major Related Projects Financed by the Bank and other Agencies
EUROPE AND CENTRAL ASIA: Energy Community of South East Europe (APL1)
The following i s a selective listing o f related projects and highlights o f those that are directly supporting
ECSEE’s development.
The World Bank has ongoing projects in the electricity sector in most ECSEE countries, and technical
assistance in Kosovo. These projects support various aspects o f power sector reform and restructuring,
including financial aspects, and inter alia help build the foundation for the development o f a regional
electricity market and participation by the respective countries/utilities. The Third Power Reconstruction
Project in Bosnia and Herzegovina i s instrumental for the resynchronization o f the so-called second
UCTE zone (Eastern part o f Bosnia, plus Albania, Bulgaria, Macedonia, Romania, Serbia and
Montenegro) with the Western part o f Bosnia and Croatia, and the main UCTE Western Europe power
system.
The European Union supports power sector reform and restructuring under its technical assistance
operations in the region. Through its Phare program, in a large project co-financed with EIB and EBRD;
it i s also providing investment support to Transelectrica in Romania.
EBRD has ongoing power sector projects in Albania, Bosnia and Herzegovina, Bulgaria, Macedonia,
Romania and Serbia and Montenegro, including private sector power generation in Bulgaria. EBRD has
j u s t approved a project that will implement the second interconnection between Hungary and Romania,
This interconnector will be one o f the means for the integration o f ECSEE into the internal market o f the
European Union.
EIB has ongoing power sector projects in Bosnia and Herzegovina, Bulgaria, Macedonia, Romania and
Serbia and Montenegro, often in co-financing arrangements with EBRD a n d o r the Bank.
K f W has ongoing power projects in Albania, Bosnia and Herzegovina, Kosovo, Serbia and Montenegro,
and Turkey.
Technical Assistance. Several Bank projects also provide technical assistance. M o s t noteworthy in this
context are the ongoing projects in Romania and Turkey, which support the development o f electricity
markets. CIDA o f Canada i s providing regional technical assistance (the SEETEC project) for the
development o f regional electricity market in South East Europe. USAID i s providing technical
assistance o n legal and regulatory aspects o f power reforms and restructuring, including institutionbuilding support to the regulator agencies, throughout South East Europe, as w e l l as regional studies on
power trade and required communication facilities for the development o f ECSEE. Annex 5 o f the
Bank’s March 2004 framework paper (footnote 4) contains a comprehensive listing o f technical
assistance in the ECSEE context. The Italian Government m a y provide technical assistance for ECSEE
preparatory work to ECSEE Regional Members. The Spanish Government has provided support through
a trust fund to help the Bank review ECSEE investment projects.
All o f these agencies/countries except Spain are members o f the ECSEE Forum.
27
Annex 3: Results Framework and Monitoring
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
Results Framework
PDO
Outcome Indicators
The ECSEE APLl would (1)
establish the ECSEE A P L facility
for the implementation o f priority
investments in electricity generation,
transmission and distribution and
technical assistance for
institutionaUsysterm development
and project preparation and
implementation for the development
o f a functioning regional electricity
market in South East Europe and its
integration into the intemal
electricity market o f the European
Union; and (2) provide priority
investment support for Romania.
(1) Electricity markets in South-East
Europe are liberalized in accordance
with the ECSEE Treaty (including
derogations and subsequent
modifications, if any) and a regional
electricity market i s functioning;
An increasing number o f electricity
consumers are free to choose their
electricity supplier.
(2) A P L l project i s completed in
Romania and i t s electricity market
and power system operates with the
help o f ancillary services from
Romania's Lotru project.
Romania operates in the regional
power market in accordance with the
ECSEE Treaty.
Intermediate Results
One per Component
Results Indicators for Each
Comnonent
Use o f Outcome Information
Use o f Results Monitoring
Component One:
Component One:
Component One:
Romania/Hidroelectrica - main
rehabilitation contract for the Lotru
Hydro project i s awarded. Sept
Lotru rehabilitation i s completed,
ancillary services are available. lst
unit March 2007, 2"d unit June 2008,
3rdunit Sept 2009.
Romania's TSO, Transelectrica, uses
the ancillary services made available
by Hidroelectrica from i t s Lotru
station, increasingly unit b y unit and
operates with an increasingly
regional approach in power system
operations. Romania's market
operator OPCOM operates a
functioning electricity market, with
an increasingly regional approach.
2005.
28
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Annex 4: Detailed Project Description
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
RomaniaLotru project (EUR 66 million in APL financing):
L o t r u i s an existing hydro power development on the L o t r u River. Lotru i s the most important provider
of ancillary services for the operation o f Romania’s power system. I t was built in the 1960dearly
1970s and commissioned in 1972-75. The capacity o f the Lotru power station i s 510 MW (from three
Pelton turbines o f 170 MW each). The source o f water for the hydro plant i s the V i d r a reservoir, which
was created as part o f the L o t r u development. I t i s a multi-year reservoir, an ideal facility for Lotru’s
special operational role in the power system. The reservoir includes the Vidra dam, a large rockfill dam
with a height o f 121 meters and crest length o f 350 meters. The elevation o f the reservoir i s about 1,300
meters, and the power station i s at about 500 meters, giving the project a maximum gross head o f 809
meters. In order t o maximize the head - and thereby the power output - the power station i s located about
140 meters underground.
The condition and continued safety o f the Vidra dam i s under continuous monitoring and regular
maintenance and the dam i s in good condition (also see Annex 10, Section 1). At the same time, after
three decades o f demanding heavy-duty operation as the key provider o f ancillary services, the hydro
plant’s electro-mechanical equipment i s overdue for extensive rehabilitation. Due t o financial constraints,
Romania has only been able to replace the Pelton runners, under Swiss aid financing in the late 1990s,
and defective switchyard electrical equipment. Under the proposed project, all other m a i n equipment in
the underground power station and the switchyard will be replaced. The project will restore the L o t r u
plant into a reliable source of ancillary services. Effective capacity will be restored to the current nominal
capacity o f 510 MW. The total cost estimate i s about EUR 85 million o f which about EUR 63 m i l l i o n i s
proposed to be funded under the Romania component o f APLl .
Hidroelectrica’s Institutional Development. Going beyond the needs o f the L o t r u project,
Hidroelectrica will establish under the ECSEE APLl project a twinning arrangement with a power utility
with significant hydro generation and experience in operating in an electricity market under EU
liberalization approach. The scope o f such twinning arrangement would include: (a) contracting bilateral contracts, risk management using day-ahead markets and optiodcapacity contracts etc., (b)
investment planning and prioritization; (c) financial planning and project finance; (d) project
management; (e) human resource development, etc. The twinning arrangement will b e financed under a
EUR 3 m i l l i o n technical assistance component for Hidroelectrica’s institutional development.
Under the Programmatic Adjustment Loan (PAL) program (footnote 6), the Government will carry out an
assessment o f privatization options for Hidroelectrica, including i t s sale as a whole or in parts. Partial
(minority) listing o f Hidroelectrica’s shares might be an option, and/or some of Hidroelectrica’s existing
plants and/or some unfinished projects might be offered for sale, as the next step in the Government’s
efforts to attract private sector investment, management skills and competition into the power sector
(Annex 1, section 2 presents Romania’s power sector strategy). This assessment could be financed under
the technical assistance component of the project. However, Hidroelectrica i s not required to use the
proceeds o f the Bank loan for this assessment.
”
Ancillary services (such as frequency support, reactive power, and spinning reserve) are required
for the safe and reliable operation o f power systems.
30
Annex 5: Project Costs
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
Romaniahotru project:
Local
EUR
million
Project Cost By Component andor Activity
Foreign
EUR
million
Total
EUR
million
Lotru Rehabilitation
14.8
58.7
73.5
Technical Assistance
0.6
3.0
3.6
Total Project Costs'
15.4
0.3
2.1
17.8
61.7
1.9
1.8
65.3
4.4
0.4
77.1
2.2
3.9
83.2
4.4
0.4
Total Financing Required
17.8
70.1
87.9
Total Baseline Cost
Physical Contingencies
Price Contingencies
Interest during construction
Front-end Fee
'Identifiable taxes and duties are EUR 16.4 million, and the total project cost, net o f taxes, i s
EUR 72.5 million. Therefore, the share o f project cost net o f taxes i s 79.5%.
31
Annex 6: Implementation Arrangements
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
RomaniaLotru project:
The Lotru project will be implemented by Hidroelectrica. I t i s one o f the successor companies o f
Romania’s national power company Renel, which was restructured and unbundled in 1998-2000 into
Hidroelectrica (hydro power generator), Termoelectrica (thermal generation), Nuclearelectrica (nuclear
power), Transelectrica (transmission and system operations) and Electrica (electricity distribution and
supply). I t owns and operates 345 hydro power plants and 5 pumping stations with a total capacity o f
6,288 MW, accounting for about !4 o f Romania’s power supply and most o f the ancillary services to
Transelectrica, the system operator.
Hidroelectrica has experience in all aspects o f hydropower development and operations. I t utilizes
Romania’s Institute of Hydroelectric Studies and Design for specialized support o n a regular basis,
including the preparation o f the Lotru project. The rehabilitation o f the Lotru station will be implemented
through one large turnkey supply and install contract. The work will be staggered so that for most o f the
time during implementation, only one o f the three 170 MW units will be out o f operation. Prospective
contractors will be prequalified. Two-stage bidding will be used, so that a l l potential technical issues can
be addressed prior to inviting the price bids. As this will be Hidroelectrica’s f i r s t Bank-financed project,
Hidroelectrica will engage consultants with experience in Bank-financed procurement to assist with the
prequalification and tendering. The process to select the consultants i s currently underway.
Hidroelectrica has prepared and will implement an Environmental Management Plan for the project.
Hidroelectrica will also continue to carry out annual inspections o f the Vidra dam. Supplementing these
dam safety inspections, Hidroelectrica has an emergency preparedness plan (EPP) for the area
downstream o f the Vidra dam. Hidroelectrica i s developing a sophisticated communication (warning)
systems for Vidra, and once completed (target i s March ZOOS), the Vidra EPP will b e updated to
incorporate the new warning system. These aspects o f the project are covered under the Bank‘s safeguard
policies, as presented in Annex 10.
Hidroelectrica will monitor and evaluate on an ongoing basis the carrying out o f the project and the
achievement o f the objectives, and will submit t o the Bank, at the end o f each calendar quarter, quarterly
progress reports. Hidroelectnca will also prepare and furnish to the Bank, by December 3 1,2006, a midterm review report integrating the results o f the monitoring and evaluation activities. Hidroelectrica will
review the mid-term report with the Bank, by M a r c h 3 1,2007, and will take all measures required t o
ensure the efficient completion o f the Project, based o n the conclusions and recommendations o f the midterm review.
32
Annex 7: FinancialManagement and Disbursement Arrangements
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
Romania/Lotru Project:
1. Summary
Country Issues
The first Country Financial Accountability Assessment (CFAA) for Romania was finalized in December
2003 and concluded that the overall fiduciary risk associated with the public financial management and
financial accountability arrangements o f the Romanian government administration i s considered to be
moderate, with the systems for accounting, financial reporting and internal control representing the areas
with the higher risks and budgeting, cash management and external audit and Parliamentary oversight
representing the lower risks.
The implications o f the CFAA for the project are addressed by the following actions:
0
0
0
0
0
A detailed review o f the systems was performed for the implementing entity;
The implementing entity has a distinct project-specific accounting ledger;
Project accounting staff has been nominated for the implementing entity;
The format o f the FMRs and financial reports agreed with the implementing entity; and
Hidroelectrica entity as well as the Project financial statements audited by an independent auditor
annually.
Strengths and Weaknesses
The significant strengths that provide a basis o f reliance on the project financial management system
include: (i)
the experience o f Hidroelectrica and i t s financial staff in implementing Bank-financed
projects and satisfying Bank financial management requirements, as some o f Hidroelectrica’s staff have
worked on the previous Power Sector Project that was implemented by the previous National Electricity
Company and o n the Electricity Market Project, implemented by Transelectrica; and (ii)
the simple
funds’ flow.
There are no significant wealaesses o f the project financial management system.
-
Implementing Entity Hidroelectrica
Hidroelectrica was established in August 2000 as commercial legal entity, by Government decision,
following the restructuring o f the National Electricity Company. The existing project implementation
team established within Hidroelectrica would be responsible for the financial management aspects of the
Project.
The Loan Agreement will be signed between the World Bank (IBRD) and Hidroelectrica with the
Government o f Romania guarantee issued by the MPF under a Guarantee Agreement.
33
Funds Flow
Project funds will flow in respect o f each o f the sources o f project financing as follows:
(i) The B a n k loan, by direct payments or via the Special Account, which will be replenished o n
transactional methods using Statements o f Expenditure; and
(ii) Govemment counterpart contribution, via dedicated Treasury project accounts.
A Special Account will be opened at a commercial bank and on terms and conditions acceptable t o the
Bank. Foreign currency amounts will be exchanged as needed in local currency (ROL), t o cover eligible
expenditures payments in local currency to suppliers, from the Special Account into a local currency
transfer account that will be opened at a commercial bank and on terms and conditions acceptable to the
Bank.
Government counterpart contribution payments will be made from a separate Treasury project account,
being a sub-account o f Hidroelectrica’s main budgetary account, and which will be used specifically for
the counterpart contributions to the project. These contributions will be received monthly in accordance
with normal budget procedures.
Stafflnng
The project implementation team includes a project director, a finance team comprising the project
finance Manager, project disbursement officer and project accounting officer and a number o f technical
and procurement specialists. The project finance manager has good experience o f implementing Bankfinanced projects and has demonstrated that it i s fully capable o f fulfilling the financial management
needs of the project, as shown during the previous years worked o n the Bank-financed Power Sector
Project that was implemented by the previous National Electricity Company, and the Electricity Market
Project.
Accounting Policies and Procedures
The project’s accounting books and records at the various agencies will be maintained o n an accrual basis
and denominated in Romanian L e i (ROL) with the exception o f the books and records in respect o f the
Special Account which will be maintained in the currency o f the IBRD Loan.
Hidroelectrica has in place appropriate accounting regulations and internal controls including
authorization and segregation o f duties documented in the internal control procedures and regulations.
2. Audit Arrangements
Internal Audit
Hidroelectrica has recently established i t s internal audit department. I t i s anticipated that the internal
audit department will review the project’s financial management arrangements. The internal audit
department will include in the annual work program the Project, as part o f Hidroelectrica’s overall
activities. However, the internal audit department has, so far, relatively limited experience, being recently
established.
34
External Audit
As o f the date o f this report, the Borrower i s in compliance with i t s audit covenants o f the Bank-financed
projects.
Hidroelectrica has been audited in accordance with I S A since i t s incorporation in 2000 by independent
extemal auditors. The auditors issued a qualified-exception opinion o n Hidroelectrica’s financial
statements for 2002 and 2003, due to issues relating to inventory and to the application o f I A S 3 6 and
aspects pertaining to fixed assets. The auditors issued a disclaimer o f opinion on Hidroelectrica’s
financial statements for 2000 and 2001 due to matters related to I A S 29, public patrimony, inventory,
accounts payable, fixed assets, going concem and financial position o f the company.
The Project will be audited annually both by an audit firm and on terms o f reference acceptable to the
Bank. The terms o f reference for the audit have been agreed and were attached to the minutes o f
negotiations. The audit scope will include the project’s books and records as maintained by the
implementing entity, all withdrawal applications, and the Special Account. The audited project financial
statements together with the auditor’s opinion thereon will be provided to the Bank within six months of
the end o f the reporting period, being the fiscal year.
Hidroelectrica’s financial statements will be audited annually, both by an audit firm and on terms of
reference acceptable to the Bank. The terms o f reference for the audit have been agreed and were
attached to the minutes o f negotiations.
In addition, the Romanian Court o f Accounts (CoA), the country’s supreme audit institution, will
continue to perform ad hoc extemal audits o f the implementing entities, including o f this project.
The most recent audit report prepared by the CoA, dated July 2004, covering FY 2001 - 2003 for
Hidroelectrica has been reviewed. The points raised by the C o A have been satisfactorily addressed by
Hidroelectrica and the CoA confirmed that Hidroelectica has discharged i t s obligations in respect of the
execution and reporting of the budget.
3. Disbursement Arrangements
The Loan proceeds would be disbursed over a five-year period (May 2005 to June 2010). The project
completion date would be December 3 1,2009 and the loan closing date would be June 30,2010, when
full disbursement o f the Loan is anticipated. Hidroelectrica would maintain all required supporting
documentation for at least one year beyond the year in which the last withdrawal f r o m the Loan Account
has taken place and make it available for review by the Bank staff and independent auditors upon request.
35
Allocation o f loan proceeds i s shown in the Table below:
Allocation of Loan Proceeds
Expenditure Category
1. Goods (including installation)
Amount in EUR
million
59.30
Lotru Rehabilitation
2. TA: Consulting Services
3.00
3. Unallocated Amount
3.70
4. Premia for Interest Rate Caps and Interest
Rate Collars
0.00
Total Project Costs with Bank Financing
Interest during construction
Front-end fee
66.00
0.00
0.00
Total
66.00
Financing Percentage
100% o f foreign expenditures, and
100% o f local expenditures (ex-factory
cost), and 80% for other items procured
locally
85% incurred by foreign consultants
and 75% incurred by local consultants
Use o f Statements o f Expenditure (SOEs):
Bank funds will be disbursed under the Bank’s standard procedures including SOEs and direct payments.
Supporting documentation for SOEs, including completion reports and certificates, will be retained by the
Borrower and made available to the Bank during project supervision. Disbursements for expenditures
above the SOE threshold o f EUR 100,000 (EUR 20,000 for individual consultants) will be made against
presentation of full documentation relating t o those expenditures. There i s n o plan t o move t o periodic
disbursements.
Special Account:
Hidroelectrica will open and manage a Special Account specifically for this project, in a commercial bank
acceptable to the Bank, including appropriate protection against set-off, seizure and attachment.
Withdrawal applications for the replenishments o f the S A will be sent to the Bank monthly, or when
about 33% o f the initial deposit in the SA has been utilized, whichever comes first. The S A will be kept
in the loan currency, for which the Borrower has already expressed i t s preference for Euro. Authorized
allocation for S A would be EUR 6.6 million, initial allocation would be EUR 4 million, increased t o
EUR 6.6 million after withdrawal applications and special commitments reach EUR 12 million.
4. Reporting and Monitoring
Project management-oriented Financial Monitoring Reports (FMRs) will be used for project monitoring
and supervision. The project implementing team in Hidroelectrica will produce the project’s FMRs every
calendar quarter and the reports will be submitted to the Bank within 45 days after the calendar quarterend. The formats o f the FMRs and financial reports have been agreed and were attached to the minutes of
negotiations.
36
5. Information Systems
Hidroelectrica has a modern accounting software system in place implemented by a Romanian software
firm w h i c h also provides system maintenance. A project-specific accounting ledger has been created
within Hidroelectrica’s accounting software system t o record distinctly the operations o f the project, using
the existing chart o f accounts.
6. Action Plan (Agreed with Borrower)
None required.
7. Supervision Plan
During project implementation, the Bank will supervise the project’s financial management arrangements
in t w o m a i n ways: (i)
review the project’s quarterly financial monitoring reports (FMRs) as w e l l as the
project’s annual audited financial statements and auditor’s management letter; and (ii)
during the Bank’s
supervision missions, review the project’s financial management and disbursement arrangements
(including a review o f a sample of withdrawal applications and movements on the Special Account) to
ensure compliance with the Bank‘s financial management requirements.
37
Annex 8: Procurement Arrangements
EUROPE AND CENTRAL ASIA: Energy Community of South East Europe (APL1)
RomanialLotru project:
A. General
Procurement for the proposed project would be carried out in accordance with the World Bank's
"Guidelines: Procurement Under IBRD Loans and IDA Credits" dated M a y 2004; and "Guidelines:
Selection and Employment o f Consultants by W o r l d Bank Borrowers" dated M a y 2004, and the
provisions stipulated in the Legal Agreement. The various items under different expenditure categories
are described in general below. For each contract to be financed by the Loadcredit, the different
procurement methods or consultant selection methods, the need for pre-qualification, estimated costs,
prior review requirements, and time frame are agreed between the Borrower and the B a n k in the
Procurement Plan. The Procurement Plan will be updated at least annually or as required t o reflect the
actual project implementation needs and improvements in institutional capacity.
Procurement o f Goods: Goods procured under this project would include a large (up to US$SO
million) Supply and Installation contract for rehabilitation o f Lotru HPP. I t i s envisioned that procurement
will be conducted in two stages with prequalification o f bidders.
Selection o f Consultants:
The Borrower will select and hire consultants to provide technical, procurement and construction
supervision assistance. Consultants have been engaged through advance procurement before the L o a n i s
approved and signed and costs will be reimbursed retroactively.
The Borrower will also select and hire consultants to provide institution building support under a
twinning arrangement with a power utility with significant hydro generation and experience in operating
in an electricity market under EU market liberalization approach. The scope o f such twinning
arrangement would include: (a) contracting - bilateral contracts, risk management using day-ahead
markets and optiodcapacity contracts etc., (b) investment planning and prioritization; (c) financial
planning and project finance; (d) project management; (e) human resource development, etc.. Consultants
will be engaged through the standard procedure for the selection o f f i r m s .
B. Assessment o f the agency's capacity to implement procurement
Procurement activities will be carried out by Hidroelectrica, the Borrower.
The key issues and risks concerning procurement for implementation o f the project have been identified
and include lack o f experience with the Bank-financed projects and lack o f personnel experienced in
international procurement. The corrective measures which have been agreed are training o f the personnel
of the Borrower (a training session was provided during preparation mission) and hiring o f experienced
international and local consultants.
The overall project risk for procurement i s average, subject to satisfactory implementing the above
corrective measures.
38
C. Procurement Plan
The Borrower, at appraisal, developed a procurement plan for project implementation which provides the
basis for the procurement methods. This plan has been agreed between the Borrower and the Project
Team on November 8,2004 and i s summarized in Section E - i t consists o f one large supply and
installation contract, plus consulting services for Hidroelectrica’s institutional development and project
implementation (procurement support). The Procurement Plan will be updated in agreement with the
Project Team annually or as required to reflect the actual project implementation needs and improvements
in institutional capacity.
D. Frequency o f Procurement Supervision
In addition to the prior review supervision to be carried out fi-om Bank offices, the capacity assessment of
the Implementing Agency has recommended 6-month frequency for supervision missions to visit the field
to carry out post review o f procurement actions.
E. Details of the Procurement Arrangements Involving International Competition
r
1. Goods, Works, and Non Consulting Services
(a) L i s t o f contract packages to be procured following ICB and direct contracting:
12
Contract
(Description)
Procurement
Method
Domestic
Preference
(yedno)
6
7
8
Review
by Bank
(Prior / Post)
Expected
Bid-
Comments
Prior
S&I
Contract for
rehabilitatio
n o f Lotru
HPP
I
(b) I C B contracts and a l l direct contracting will be subject to prior review by the Bank.
39
I
2. Consulting Services
(a) L i s t o f consulting assignments with short-list o f international firms.
1
2
1
2
3
4
5
6
Ref. No.
Description o f
Assignment
Selection
Method
Review
b y Bank
(Prior / Post)
Expected
Proposals
Submission
Date
Comments
Technical/
procurement
Twinning
Arrangement
for Institution
Building
Individual
Cons.
Firm
prior
prior
Oct 04
(actual)
June 05
(b) Consultancy services estimated to cost above US$50,000 per contract and single source selection of
consultants will b e subject to prior review by the Bank.
(c) Short lists composed entirely o f national consultants: Short lists o f consultants for services estimated
to cost less than US$lOO,OOO equivalent per contract may be composed entirely o f national consultants in
accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.
40
Annex 9: Economic and Financial Analysis
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
Romania/Hidroelectrica:
Regulatory Environment
Hidroelectrica i s the lowest-cost generator in the Romanian power system. The key to Hidroelectrica’s
finances (including much-improved profitability from 2005) i s in the regulatory (tariff and market)
framework and the Romanian Government’s electricity pricing strategy for hydro, which i s implemented
by the electricity regulator ANRE, as part o f the Government’s overall strategy for electricity tariff reform
and electricity market liberalization.
Electricity Market. Through a series o f tariff adjustments by ANRE (discussed below), overall tariff
revenue in the power sector has been brought up to cover the cost o f supply and cross-subsidies have been
largely eliminated. In parallel, Romania has started the liberalization o f its electricity market, along the
lines o f EU directives, which require member countries to allow a gradually increasing share o f electricity
to be contracted between suppliers (generators and traders) and eligible customers -- electricity users
qualified to purchase power directly from the wholesale market. Liberalization was launched in 2000,
and the share o f liberalized market has been raised rapidly. F r o m November 2004, market opening
reached 55% when all consumers (about 2,000) with an annual consumption o f 1 GWh or higher became
eligible to choose their supplier. Full 100% opening i s set for July 1,2007, in accordance with the
Government’s Road M a p and Directive 2003/54/EC.
Hidroelectrica accounts for about ‘/4 o f Romania’s power supply and most o f the ancillary services to
Transelectrica, the system operator. Being the lowest-cost generator, Hidroelectrica i s one o f the main
beneficiaries o f market liberalization. However, in accordance with Government Decision No.
1524/2002, ANRE was required to fully regulate Hidroelectrica’s operations beyond i t s bilateral contracts
already in place from 2003 until the 100% liberalization o f the electricity market in July 2007. T h i s
transitional strategy for hydro was reviewed in 2004, resulting in Government Decision No. 1336 in
August 2004, under which hydro liberalization was restarted and i s n o w being implemented in line with
the overall market liberalization.
Hidroelectrica’s market comprises o f four main segments: (a) “eligible customers” in domestic market
supplied at market prices under bilateral contracts and through OPCOM’s Power Exchange (a day-ahead
market); (b) distribution utilities that supply electricity t o regulated customers at prices regulated by
ANRE; (c) Transelectrica as the purchaser o f ancillary services at prices regulated by ANRE; and (d)
export customers at negotiated prices. Because o f progressive market deregulation Hidroelectrica’s sales
mix has changed rapidly to i t s advantage: f?om FY2001 to FY2004, its sales at regulated tariffs have
decreased from 75% o f i t s output t o about 40%, with a corresponding increase i s sales to eligible
customers and exports. Further reduction in sales t o the regulated market will take place from January
2005, when the market i s opened to 55% o f consumption.
Electricity Tariffs. Since 1999, ANRE has implemented a series o f tariff adjustments, usually 2-3 per
annum (and once, in September 2001-April 2002, monthly). In 2003, ANRE had three adjustments
(January, April and September), but then decided to adopt a 6-month cycle for tariff reviews.
Accordingly, it made two adjustments this year, in January and July 2004, and the latest adjustment i s to
become effective on January 1,2005. In accordance with Government policy, ANRE kept hydro tariffs at
a very l o w level, o f about U S cent OS/kWh equivalent, until late 2003. The policy provided for tariff
41
revenues t o Hidroelectrica set t o enable to i t cover i t s day-to-day operations, but n o financing for
investment. In the meantime, ANRE carried out rapid adjustments in the retail tariffs, and in the rates for
thermal generation t o bring the major thermal generator, Termoelectrica, to cost recovery level.
Due to the very high inflation in Romania and depreciation o f the Romanian L e u against the U S $ until
2001, ANRE’St a r i f f adjustments in the 1999-2001 period, though significant in local currency terms, still
resulted in a reduction in the average retail price o f electricity in US$ terms. With the moderating
inflation, since 2001 through 2004, retail tariff adjustments in U S $ have been o f the order o f 20-30%, and
the resulting 2003 tariff would have been sufficient for the power sector to reach cost recovery level, had
a drought not occurred. Largely t o compensate Hidroelectrica for the significant losses incurred in 2003
due to the drought, ANRE doubled Hidroelectrica’s tariff to about U S cent l k W h equivalent in
September 2003, with a corresponding adjustment in retail rates. With these adjustments, the power
sector was projected to cover i t s costs in 2004.
In March 2004, at the request o f the Government, the Bank reviewed Romania’s electricity tariffs in close
operation with ANRE. The March 2004 review made a number o f recommendations to the Government
and ANRE regarding policy and tariffs, respectively. Among the recommendations was the doubling of
Hidroelectrica’s tariffs by January 2005, to a s t i l l l o w level o f about U S cents 2/kWh. Such tariff action
has been effected by ANRE. I t was necessary for Hidroelectrica to:
0
meet its financial obligations (including payment o f arrears incurred due t o the drought in 2003,
by the end o f the agreed three-year period);
0
0
start generating funds for investments (rehabilitation o f i t s aging plants and completion o f
projects initiated years ago which had stalled due to lack o f funds); and
be properly integrated into the liberalizing electricity market - where the level o f market opening
i s set to reach 55% in January 2005.
Hidroelectrica has reached a sound and generally satisfactory financial position.
Hidroelectrica’s Operations
Hidroelectrica’s Past Financial Performance. Hidroelectrica’s financial performance has been
analyzed from FY200 1, the year in which i t commenced i t s operations as an independent company. A
summary o f i t s financial performance for the period FY2001-03 and latest estimates for FY2004 are
provided in Table 1 below. Highlights can be summarized as follows:
0
0
Profitability. In spite o f large proportion o f sales to regulated customers at tariffs w e l l below its
average cost o f supply, Hidroelectrica eamed a profit in FY2001 and 2002. In FY2003
Hidroelectrica suffered a financial loss o f US$ 112 million due to a severe drought and resulting
shortfall in generation. In add incurred a loss, i t s collections from regulated customers also
dropped. However, because of exceptionally l o w level o f debt for such a highly capitalized
company (debt equity ratio o f O.Ol), i t did not default t o its lenders;
Billing and Collection. Hidroelectrica’s collection efficiency currently at an average o f 80% i s
less than satisfactory and well below the overall performance in the power sector12. I t s bill
’*
Inadequate bill collection had been a major financial issue in the power sector since 1990s. With strong
support f r o m the Bank (under PSAL and PSAL2) and the IMF (under its Stand-By Arrangements), the Government
and the distribution utility Electrica have progressively and ultimately successfully addressed this issue. For the
whole of 2003, Electrica achieved a bill collection rate o f 99%. Similar accomplishment has been achieved in the
gas sector, where the two distribution utilities reached a bill collection rate o f 100% for 2003. These highly
42
collection f r o m export and eligible customers i s near hundred percent. However, i t gets paid by
the distribution companies (all s t i l l Electrica subsidiaries) serving regulated customers through a
centrally-administered procedure o f distributingElectrica’s cash collections according t o the
suppliers’ operating needs. This system works against Hidroelectrica due t o its low operating
costs and appears to favor thermal generators particularly Termoelectrica. In response/as a result,
Hidroelectrica has been unable to service some o f i t s obligations. With the expected gradual
discontinuation o f this centrally-administered system in line with distribution privatization from
FY 2005, Hidroelectrica’s collection efficiency i s expected to improve; and
0
Accounts Payables. Liabilities o f U S $ 118 million, incurred on account o f power purchased in
the spot market from Termoelectrica t o meet i t s supply obligations, will be set o f f against f i t u r e
profits over three years FY2004-06 -- part o f the resources to be generated fi-om the t a r i f f increase
in FY 2004 and the increase expected in FY 2005 will go towards paying off the short term debt
and bills outstanding to Termoelectrica over the next three years. Reduction in intemal resources
will create a financing gap in Hidroelectrica’s investment program in the medium term
Hidroelectrica’s Projected Financial Performance. Hidroelectrica’s financial performance has been
analyzed through FY2012. A summary o f i t s projected financial performance for the period FY2005-12
i s provided in Table 1 below. Highlights can be summarized as follows:
0
0
0
Profitability. Hidroelectrica’s tariffs for regulated customers will be adjusted significantly in
January 2005 and further by 2007 so as to reach the level o f prices in the electricity market and
avoid a tariff shock when the market i s fully deregulated in 2007. Even under conservative
assumptions o f market prices remaining constant in real terms, Hidroelectrica’s revenue will be
adequate t o cover i t s costs and provide an average profit margin o f more than 20% in the FY0512 period. Given the projected tightening supply situation in the region, Hidroelectrica’s
profitability may tum out to be higher than projected. Hidroelectrica will also benefit as a
competitive supplier o f ancillary services in Romania and in the region. A 50% dividend payout
ratio has been assumed from FY2007 after Hidroelectrica has fully recovered its losses and paid
i t s obligations incurred during the drought o f FY 2003. However, the past asset revaluations
would result in a l o w return o n net worth, expected t o be about 2% over the projection period;
Capital Structure. Due to the l o w level o f debt and asset revaluations, Hidroelectrica’s debt
equity ratio i s only 0.02. At the end o f FY2003, revaluation reserves were US$ 3.4 b i l l i o n out of
i t s net worth o f US$5.5 billion. Despite a projected investment program o f over US$3 billion in
the next eight years, i t s debt equity ratio i s expected t o go up to only 0.16 in FY 2012; and
Internal Resource Generation and Investment Program. F r o m 2005 t o 2012, Hidroelectrica
plans to invest about US$3.3 billion: US$1,265 million in rehabilitation o f i t s existing hydro
projects including L o t r u to be financed through the proposed loan, US$802 m i l l i o n o n completion
o f ongoing and other partially completed projects, and US$1,260 million o n n e w capacity
addition. Allowed to recover depreciation on i t s revalued assets, Hidroelectrica’s intemal
resource generation will be substantial and adequate to support this program. Because o f the l o w
debt equity ratio and strong self-financing, Hidroelectrica’s debt service coverage will remain
high and Hidroelectrica should be able to also access commercial sources t o help finance a part of
i t s investment program.
satisfactory rates have been maintained in 2004, and with the distribution privatization now underway (Annex 1,
Section 2), high collection rates are expected to be maintained also in the future. This i s an important positive
factor for the future financial performance o f Hidroelectrica.
43
Targets and Commitments under the Project. Basic financial targets, designed t o safeguard
Hidroelectrica’s financial position and operations, including its ability to provide ancillary services to
Transelectrica for the reliable and efficient operations o f the Romania and regional power system, have
been agreed: Hidroelectrica will maintain a debt equity ratio o f not less than 1.5 and a current ratio o f not
less than 1.2. I t was also agreed that Hidroelectrica and the Govemment would finalize during 2005 a
concession agreement for Hidroelectrica’s public domain assets - as was done for Transelectrica’s public
domain assets under the Electricity Market Project in 2004. The concession agreement will inter alia
formalize Hidroelectrica’s continued use o f such assets in i t s operations and facilitate the treatment o f
related fees to the Government and Hidroelectrica’s operations and maintenance costs by ANRE.
Mitigation of Hydrological Risk. Hidroelectrica’s financial risks (in addition to bill collection) arise due
to possible hydro failure and exchange and interest rate variations. The last t w o are easier t o manage
since Hidroelectrica has adequate foreign exchange earning from its exports, and due to i t s l o w level o f
debt it will be able to cover interest rate variations even under adverse circumstances. However,
mitigation o f hydro failure risk requires careful consideration:
e
0
e
In the absence o f availability o f hedging products in the market, Hidroelectrica could mitigate this
r i s k through contracting long term bilateral and export sales only for primary energy (firm energy
capability o f available hydropower plants). As the electricity market develops and Hidroelectrica
gains experience and skills, Hidroelectrica could use more sophisticated techniques o f risk
assessment and mitigation;
The appraisal team recommended t o Hidroelectrica and ANRE that in the formulation o f the
Portfolio Contract for Hidroelectrica for sale to the distribution companies for their sales t o the
regulated customers, i t would be prudent to restrict the amount of energy that Hidroelectrica
would sell through Portfolio Contracts and other bilaterally negotiated contracts to a level
equivalent to primary energy o f available hydropower plants. This implies that Option Contracts
between Hidroelectrica and thermal producers should be used to back-stop the Portfolio Contracts
and also the bilaterally negotiated contracts. The balance (secondary energy) would be sold
through OPCOM’s Power Exchange; and
Hidroelectrica confirmed that i t intends t o negotiate option contract(s) with thermal generator(s)
to back-up i t s power sales contracts. Hidroelectrica will also establish a twinning arrangement
with a power utility with significant hydro generation and experience in operating in an electricity
market under EU liberalization approach. The scope o f such twinning arrangement would
include: (a) contracting - bilateral contracts, risk management using day-ahead markets and
optiodcapacity contracts etc., (b) investment planning and prioritization; (c) financial planning
and project finance; (d) project management; (e) human resource development, etc. The
twinning arrangement will be financed under the technical assistance component for
Hidroelectrica’s institutional development.
44
45
Annex 10: Safeguard Policy Issues
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
The classification of the APL program and AE’L1 i s FI. Most o f the country-level investment projects are
expected to be B-category projects. RomanidLotru i s a B-category project. However, individual
country-level investment projects included in the later installments o f the APL program may contain
components that would be rated as belonging to the A-category or C-category.
Romania/Lotru project:
The rehabilitation o f the Lotru station will have only minor environmental impacts and n o social impacts.
There are n o issues. The station i s located about 140 meters underground. The main impact i s the
disposal o f equipment replaced under the project. An Environmental Management Plan (EMP) has been
prepared and public consultations have been held. I t has been cleared by the Bank and submitted to the
Infoshop. Hidroelectrica will implement the E M P and provide in the quarterly progress reports the
results o f the monitoring programs included in the EMP.
The L o t r u hydro project triggers OP 4.37 on D a m Safety:
Romania’s and Hidroelectrica’s dam safety laws, regulation and arrangements, in general and as applied
to the Vidra dam, and Hidroelectrica’s undertalungs regarding Vidra dam during the implementation of
the project, are satisfactory with respect to the Bank’s safeguard policy on the Safety o f Dams.
Romanian L a w on the Safety o f Dams requires statutory safety assessments to be carried out once in
every seven years, or more frequently if required by Romania’s National Commission for D a m Safety
(CONSIB). CONSIB i s independent from Hidroelectrica; therefore the provisions comply with the
requirements o f OP 4.37. A statutory assessment o f the Vidra dam was carried out in 2002. The safety of
the dam was found satisfactory. A number o f recommendations were made for continued safety, to be
implemented in 2002-2005. Hidroelectrica i s implementing the recommendations, as part o f i t s corporate
commitment to ensure the continued safety o f all o f i t s dams. Hidroelectrica has i t s own Committee on
D a m Safety, which reviews annually Hidroelectrica’s ongoing dam safety monitoring programs and
reports and submits an annual report to CONSIB. Although there are n o concerns and n o problems are
envisioned based on Hidroelectrica’s track record in general l3and with Vidra dam specifically, at the
Bank’s request Hidroelectrica agreed to: (a) submit annually to the Bank: (i)
reports o f statutory and i t s
own inspections o f the Vidra dam; and (ii)
reports on the implementation o f their recommendations; and
(b) discuss the reports with the Bank and undertake additional measures suggested by the Bank in
consultation with CONSIB.
All Hidroelectrica dams including Vidra have emergency preparedness plans (EPPs), based o n the 1995
law on disaster protection, 1996 law on civil protection, the 1999 Water Act, and 2001 law o n dam safety,
The current EPP for Vidra dam i s from 2003. I t was reviewed and found satisfactory. A copy has been
placed in the project file. Hidroelectrica has an ongoing program to develop sophisticated communication
(warning) systems, launched in 2002 in the potentially most critical dams and to be completed in 2006.
l3
As part o f the preparation o f the Hazard Risk Mitigation and Emergency Preparedness Project
(approved in M a y 2004), the Bank carried out a dam safety assessment. On that basis, a number o f unsafe
dams were selected for rehabilitation under that project, all from the priority l i s t o f Romania’s National
Commission for Dam Safety (CONSIB). None o f the unsafe dams are administered by Hidroelectrica.
46
Vidra project i s underway for completion in March 2005. Once completed, the Vidra EPP will be
updated to incorporate the new warning system. A t the Bank’s request, Hidroelectrica agreed to submit in
2005 the updated EPP, in draft for Bank review and in final form for Bank records, and inform the Bank
about consultations with and by local authorities about the update. In addition, Hidroelectrica will keep
the Bank informed o f future updates o f the EPP for Vidra.
The proposed financing o f the rehabilitation o f the Lotru hydro project triggers OP 7.50 on
Projects in International Waterways:
The project i s on the Lotru River, which flows into Olt River, which in turn flows into Danube on the
border of Romania and Bulgaria before reaching the Black Sea. An exemption from the notification
requirement under OP 7.50 has been granted: the Lotru project does not involve works and activities that
would exceed the original scheme, change its nature, or alter and expand its scope and extent to make it
appear a new or different scheme. Consequently, i t falls within the exception set forth in paragraph 7 (a)
o f OP7.50 as: (a) it will not adversely affect the quality or quantity o f water flows to the other riparians;
and (b) i t will not be adversely affected by other riparians’ water use.
Romania i s a signatory of the Convention on Co-operation for the Protection and Sustainable Use o f the
River Danube (short title: Danube River Protection Convention - DRPC). The Convention i s aimed at
achieving sustainable and equitable water management in the Danube basin. An Intemational
Commission for the Protection o f the Danube River (ICPDR) was established under the Convention. The
Romanian Government, Hidroelectrica and the Bank’s project team discussed the relevant provisions of
this Convention and agreed that since the Lotru does not have any adverse transboundary impacts, n o
notification to the ICPDR i s required under the Convention. The team also reviewed Romania’s bilateral
agreements on transboundary waterways with Ukraine and the former Yugoslavia and a proposed
agreement with Moldova and confirmed that the provisions o f those agreements do not require
notification about the Lotru project because there i s no transboundary impact. This review was facilitated
by Bank’s work for the Hazard Risk Mitigation and Emergency Preparedness Project (footnote 13).
47
Annex 11: Project Preparation and Supervision
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
PCN review
Initial PID to PIC
Initial I S D S to PIC
Appr aisa1
Negotiations
BoardRVP approval
Planned date o f effectiveness
Planned date o f mid-term review
Planned closing date
Planned
January 2004
February 204
February 2004
September 2004
November 2004
December 2004
M a y 2005
March 2007
June 30,2010
Actual
January 23,2004
March 9,2004
March 8, 2004
October 2004
November 11, 2004
Key institutions responsible for preparation o f the project:
0
0
0
ECSEE - The governments of South East Europe and the European Commission
RomanidLotm project - Hidroelectrica and its consultants including the Institute o f
Hydroelectric Studies and Design
RomanidElectricity market and regulatory framework - ANRE, OPCOM and
Transelectrica, and their consultants
Bank funds expended to date on project preparation:
1. Bank resources: $425,000
2. Trust funds: $37,500
3. Total: $387,500
Estimated Approval and Supervision costs o f APLl :
1. Remaining costs to approval: $25,000
2. Estimated annual supervision cost: $80,000
48
Bank staff and consultants who worked on the ECSEE APL program and the APL1
RomanidLotru project included:
Name
Kari Nyman *
Irina Kichigina
Rozena Serrano
Doina Visa
Doncho Barbalov
Nicholay Chistyakov
Bogdan Constantinescu
Istvan Dobozi *
Stjepan Gabric
Mohinder Gulati *
David Kennedy *
Iftikhar Khalil *
Ranjit Lamech *
George Moldoveanu
Dejan Ostojic
Gurhan Ozdora
Alessandro Palmieri
Jonathan Pavluk
Stan Peabody
Leonid Vanian
Daniel Aizic
Bernard Baratz
Ramon Lopez-Rivera
Ludmilla Butenko
Amarquaye Armar
Patricio Marquez
Title
Lead Specialist - ECSEE Team Leader, Romania, Croatia
Sr. Counsel
Program Assistant
Operations Officer - Romania
Operations Officer - Bulgaria
Sr. Finance Officer
Sr. Financial Management Specialist
Lead Energy Economist - Bulgaria
Projects Officer - Croatia
Sr. Financial Analyst - Serbia and Montenegro, Kosovo
Sr. Energy Economist - Regional Strategy, Macedonia
Lead Energy Spec. - Albania, Bosnia and Herzegovina
Sector Leader - Turkey
Team Assistant - Romania
Sr. Energy Spec. - Regional Generation Investment
Sr. Operations Officer - Turkey
Lead Dam Specialist
Sr. Counsel
Lead Social Scientist
Sr. Procurement Specialist
Consultant - Financial Analyst
Consultant - Environmental Specialist
Consultant - Engineering, Hydropower
Peer Reviewers:
Sr. Resource Management Officer
Lead Energy Specialist
Lead Health Specialist
Unit
ECSIE
LEGEC
ECSIE
ECSIE
ECSIE
LOAGl
ECSPS
ECSIE
ECSIE
ECSIE
ECSIE
ECSIE
IEF
ECCRO
ECSIE
ECSPF
ESDQC
LEGEC
ECSSD
ECSPS
--
EASEG
ECSIE
SFRRM
EWDEN
ECSHD
* ECSEE AF'L program team members and task leaders for ECSEE APL country
projects as listed above
49
Annex 12: Documents in the Project File
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
1.
ECSEE:
ECSEE Treaty, draft, version IV.5, December 3,2004
Athens Memorandum, December 8,2003
Athens Memorandum, November 15,2002
ECSEE information at http://www.seerecon,ora/infrastructure/sectors/enerPy/index.html
2.
Romania/Lotru project:
Hidroelectrica, annual reports, 2001,2002,2003
Lotru Project Feasibility Study, four volumes, Institute o f Hydroelectric Studies and Design,
August 2004
L o i n Project, Environmental Synthesis, Institute o f Hydroelectric Studies and Design, August
2004
Environmental Impact Assessment, Institute o f Power Studies and Consultancy, June 2004
Vidra Dam, Institute o f Hydroelectric Studies and Design, September 2004
D a m Safety Report, Daniel Gunaratnam, prepared for the Romania Hazard Risk Mitigation and
Emergency Preparedness Project, July 2003
Hidroelectrica information at: http://www.hidroelectrica.rokidrohomeengl.asp
ANRE information at: http:Nwww .anre .ro
50
Annex 13: Statement o f Loans and Credits
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
Active Projects
ProjectID
FY
Purpose
PO66065
2002
PO43882
PO44176
2000
1999
PO58284
1999
PO81406
PO68062
PO67367
2003
2003
2003
A G POLLUTION
CONTROL (GEF)
AGR SUPPORT SERVS
BIODIV CONSV
MGMT (GEF)
CULTURAL
HERITAGE
ELEC MARKET
ENERGY EFF (GEF)
FOREST DEVT
PO34213
PO75 163
PO78971
1998
2004
2005
PO43881
PO86949
2004
2005
PO56337
PO87807
2000
2005
PO08791
PO3925 1
PO69679
PO39250
PO57960
PO73967
PO56891
PO68808
PO08783
PO83620
2005
1999
2003
1997
2002
2003
200 1
2002
2001
2005
GEN'L CADASTRE
HAZ MITIG
HEALTH SEC REF 2
(APL #2) (CRL)
IRRIG REHAB
MAKIS AGRIC SUF'PT
SERVS (CRL)
MINE CLOSURE
MINE CLOSURE, ENV
& SOCIO-ECO REG
(CRL)
PAL
PIBL
PPIBL
ROADS 2
RURAL DEV (APL #1)
RURAL EDUC
RURAL FIN (APL #1)
SDF 2 (AF'L #2)
SOC SECT DEV (SSD)
TRANSPORT
RESTRUCTURING
Orig.
Frm.
Rev'd
3.64
1.75
0.04
1.04
11.00
0.89
0.89
0.89
5.00
87.95
8.28
24.22
-7.87
6.23
25.50
150.00
80.00
13.90
149.90
86.72
13.90
0.90
80.00
50.00
79.80
53.47
3.10
44.50
120.00
19.57
120.00
19.57
IBRD
IDA
11.OO
Cancel.
Undisb.
5.15
2.38
0.68
5.50
3.64
1.75
SF
5.00
82.00
10.00
25.00
150.00
25.00
18.60
150.00
40.00
60.00
80.00
20.00
50.00
225.00
1.10
20.65
*PO89568 Banat & Dobrogea Electricy
Distribution Companies
Partial Risk Guarantee
GEF
76.7
51
1.10
152.06
3.43
17.77
14.76
34.57
56.39
64.67
9.38
42.52
225.00
4.53
-0.83
14.76
10.07
4.80
44.47
-10.62
37.64
1273.03
150.49
82.00
4.63
25.50
150.00
80.00
80.00
50.00
5.57
0.89
-6.33
0.38
7.11
44.50
120.00
150.00
25.00
18.60
150.00
40.00
60.00
80.00
20.00
50.00
225.00
1491.60
ROMANIA
STATEMENT OF IFC’s
Held and DisbursedPortfolio
In Millions o f U S Dollars
Held
F Y Approval
Company
1999
Ambro
2003
Arctic
2002
aanc post
2003104
Loan
Banca Romaneasoa
2001
ICME
Quasi
Partic
Loan
Equity
Quasi
Partio
3 07
0
0
0
3.07
0
0
12.79
0
0
0
12.79
0
0
0
0
0
10
0
0
0
10
0
0
Banca Comerciala
2001
Equity
Disbursed
0
0
111
0
0
0
111
0
3 29
0
0
0
3.29
0
0
0
10.55
0
0
0
10 55
0
0
0
1.51
0
0
0.65
1.51
0
0
0.65
M F I M F B Romania
10
0
0
0
5
0
0
0
2004
RZB Romania
40
0
0
0
40
0
0
0
1997
Rambox
0 23
0
0
0
0.23
0
0
0
2003
Ro-Fin
5.02
0
0
0
1.01
0
0
0
2004
Romanian-Amer
3
0
0
0
3
0
0
0
2 22
0
0
0
2.22
0
0
0
25 57
0
0
0
3.84
0
0
0
11725
111
10
065
86 51
111
10
0.65
1998
3/4/2002
19-34/01
2004
Krupp Compa
..
Romlease
Transilvaniabank
T o t a l Portfolio.
A p p r o v a l s Pending Commitment
Loan
2005Banvil Romania
2004Mindbank
2003Ro-Fin Mortgage
Total Pending Commitment:
Equity
Quasi
Partic
15
0
0
7
0
0
0
0
0
1
0
22
0
1
0
0
I
52
Annex 14: Country at a Glance
EUROPE AND CENTRAL ASIA: Energy Community o f South East Europe (APL1)
Europe &
Central
Romania
Asia
POVERTY and SOCIAL
2003
Population, mid-year (millions)
GNI per capita (Atlas method, US$)
GNI (Atlas method, US$ billions)
Lowermiddleincome
21.7
2,260
49.2
473
2,570
1,217
2,655
1,480
3,934
-0.6
0.1
0.0
0.2
0.9
1.2
25
56
70
20
63
69
31
58
2
99
100
98
91
3
103
104
102
50
69
32
11
81
10
112
113
111
1993
2002
2003
GDP (US$ billions)
Gross domestic investmenffGDP
Exports of goods and servicesiGDP
Gross domestic savingsiGDP
Gross national savingsiGDP
26.4
28.9
23.0
24.0
24.2
45.7
23.1
35.4
17.3
19.7
57.0
24.6
36.3
16.8
18.2
Current account balanceiGDP
Interest paymentsiGDP
Total debffGDP
Total debt serviceiexports
Present value of debffGDP
Present value of debffexports
15.2
-4.5
0.5
16.2
6.3
-3.3
1.2
34.3
19.0
33.2
91.3
-5.8
1.4
39.8
17.5
1983-93
1993-03
2002
2003
2003-07
-3.1
-3.3
0.7
1.2
4.3
7.2
4.9
5.2
5.0
5.0
1983
1993
2002
2003
..
..
..
..
22.6
42.1
28.7
35.3
13.1
38.1
48.8
13.0
37.9
31.5
49.1
..
..
..
63.7
12.3
28.0
76.0
6.6
41.2
70.8
12.4
44.1
1983-93
1993-03
2002
2003
1.4
-4.3
-1.5
0.9
-3.9
7.2
3.0
4.6
1.5
5.6
5.2
3.2
-0.3
0.3
11.9
3.0
2.1
7.3
12.1
7.3
4.6
9.2
34.4
Development diamond*
Life expectancy
Average annual growth, 1997-03
Population (“A)
Labor force (“A)
GNI
per
capita
Most recent estimate (latest year available, 1997-03)
Poverty (% of population below national poverty line)
Urban population (“A of total population)
Life expectancy at birth (years)
Infant mortality (per 1,000 live births)
Child malnutrition (% of children under 5)
Access to an improved water source (% of population)
Illiteracy (“A ofpopulation age 15+)
Gross primary enrollment (“A of school-age population)
Male
Female
Gross
primary
enrollment
__
-
Access to improved water source
Romania
Lower-middle-income group
KEY ECONOMIC RATIOS and LONG-TERM TRENDS
1983
(average annual growfhj
GDP
GDP oer caDita
STRUCTURE of the ECONOMY
(% of GDP)
Agriculture
Industry
Manufacturing
Services
Private consumption
General government consumption
Imports of goods and services
(average annual growih)
Agriculture
Industry
Manufacturing
Services
Private consumption
General government consumption
Gross domestic investment
Imports of goods and sewices
..
-~
.
I
Economic ratios’
Trade
-Romania
~~
Lower-middle-income group
___
Growth of investment and GDP (%)
30 15
0
02
01
00
.I5
03
.30 1
-GDI
~~~~
~~~
~
Growth of expo& and imports (%)
45 -
30
15
0
-15
-
I
+GDP
-~__
I
Romania
PRICES and GOVERNMENT FINANCE
Domestic prices
('33 change)
Consumer prices
Implicit GDP deflator
1983
(US$ millions)
Total exports (fob)
Textiles
Metals
Manufactures
Total imports (cif)
Food
Fuel and energy
Capital goods
2002
-0.4
1983
256.1
227.4
22.5
24.2
15.3
19.2
33.2
4.3
-0.4
29.6
0.6
-2.6
29.9
1.3
-2.2
1993
2002
2003
4,892
959
574
2,856
6,522
964
1,872
1,432
13,876
1,782
1,181
9,851
17,862
1,174
2,272
5,111
17,618
2,282
1,482
12,534
23,983
1,737
2,615
7,017
79
70
114
79
71
111
Export price index (1995=100)
Import price index (1995=100)
Terms of trade (1995=100)
BALANCE of PAYMENTS
2003
1983
1993
2002
2003
12,239
10,369
1,870
5,691
6,934
-1,243
16,223
18,825
-2,602
20,646
25,113
-4,467
-710
0
-145
214
-459
1,536
-705
1,861
Current account balance
1,160
-1,174
-1,525
-3,311
Financing items (net)
Changes in net reserves
-1,538
378
1,120
54
3,327
-1,802
4,445
-1,134
956
760.0
7.306
33,055.5
9.364
33,200.1
1983
1993
2002
2003
9,129
1,742
0
4,282
403
0
15,680
2,173
0
22,686
2,296
0
1,875
220
363
19
3,163
196
3,673
214
0
317
-123
0
99
743
167
94
0
16
1,967
0
259
143
2,060
1,144
21
120
189
0
189
19
169
340
335
120
214
76
139
222
131
145
-14
69
-82
(US$ millions)
Exports of goods and services
Imports of goods and services
Resource balance
Net income
Net current transfers
Memo:
Reserves including gold (US$ millions)
Conversion rate (DEC, /oca//US$)
EXTERNAL DEBT and RESOURCE FLOWS
(US$ millions)
Total debt outstanding and disbursed
IBRD
IDA
Total debt service
IBRD
IDA
Composition of net resource flows
Official grants
Official creditors
Private creditors
Foreign direct investment
Portfolio equity
World Bank program
Commitments
Disbursements
Principal repayments
Net flows
Interest payments
Net transfers
i
Inflation (%)
200
Government finance
(% of GDP, indudes current grants)
Current revenue
Current budget balance
Overall surplus/deficit
TRADE
1993
0
0
0
362
102
259
118
141
0
0
Development twnomics
54
98
1
99
00
01
-GDPdeflator
02
03
-0-CPI
1 Export and import levels (US$ mill.)
j
30'000
I
1
1
T
20 000
10 000
I
O
97
98
99
00
01
02
w Imports
Exports
O3
Current account balance to GDP (%)
Composition of 2003 debt (US$ mill.)
G 2,771
A 2,296
0
0
0
F. 13,667
4 - IBRD
3 - IDA
; IMF
-
-
D Other multilateral
E - Bilateral
F .Private
G - Short-term
I