Western Balkan Investment Framework (WBIF) Project Grant Application Form Submission date: 10/02/2011 Contribution Request nr WB5-HR-ENE-01 WBIF decision sought Approved Under review 1 Non-approval Proposal of the Project Financiers group: Proposal endorsed by the Project Financiers’ Group for submission to the Steering Committee on 23/06/2011 Grant Contribution from WBIF: from EC Budget: 1,000,000 Euros WBIF Screening (cf. Screening list in Annex 2) Eligible for assessment. Budget to be reviewed. Assessor: EBRD WBIF Assessment Recommended for submission to the Steering Committee. (cf. Assessment list in Annex 3) To be filled by the submitter LNG RV - Conceptual Solution, Feasibility Study and EIA/SIA + Conceptual Design Title of the Operation: Beneficiary(ies)/ Country(ies) (Interested) Lead IFI Eligible Sector 1 2 EBRD Energy Gas Sub-sector DAC Sector Plinacro Ltd/Croatia 2 XXXXX DAC code XXXXX Location The LNG RV will be situated in Omišalj on the island of Krk, Republic of Croatia. The location is exceptionally favourable having in mind the shape of the Adriatic Sea deep into the European mainland, so this new potential of supply source is next to the markets (Austria, Slovenia, Hungary, Slovakia, Check Republic, Serbia, Bosnia and Herzegovina, Montenegro…) Borrower / Beneficiary(ies): (contact points for both) Plinacro Ltd, Zagreb, represented by: Mr Jerko Jelić - Balta, President of the Board Savska cesta 88a 10000 Zagreb, Croatia Phone +385 (1) 6301 777 Fax:+ 385 (1) 6301 787 Croatia - Ministry of Economy, Labour and Entrepreneurship of the subject to the finalisation of the approval procedures of the corresponding institutions www.oecd.org/dac/stats/data 1/9 Western Balkan Investment Framework (WBIF) Republic of Croatia, represented by: Ms Nataša Vujec, [email protected] Project description : (description of the required investment(s) and the present situation, including problems to overcome) The geographic position of the Republic of Croatia enables an access to CEGH Baumgarten and from there an access to the markets of the Central and the Western Europe (Austria, Slovenia, Hungary, Slovakia, Check Republic) as well as Western Balkan countries (Serbia, Bosnia and Herzegovina, Montenegro..). Potential key users in the countries in the region, that is, the demand of their markets have defined the design of the terminal: minimum capacity: LNG RV – 0,5 – 1 bcm/y. maximum capacity: onshore terminal – 4 bcm/y. The combination of LNG alternatives such as LNG RV / FSRU (floating storing and regasification LNG unit) and FSU (floating storage unit) provides development of the „migration concept“ and enables the Republic of Croatia to increase the diversification of natural gas supply sources. LNG RV technology: LNG RV, e.g. Exmar technology developed for “Excelerate Energy” LNG regasification on board Discharge of the high pressure gas directly into the consumer grid system, through a dedicated mooring arrangement and subsea high pressure pipeline possibility of Ship to ship transfer RFSU technology: Regasification Floating Storage Vessels Main difference when compared to LNGRV – RFSU is permanently docked and receives LNG from other standard LNG vessels via STS (Ship to ship transfer) technology; this method normally requires good sea conditions Main characteristics of RFSU: LNG regasification on a floating unit Based on conversion of the existing LNG vessel it is sometimes called LNG floating terminal. FSRU needs to be permanently docked offshore and exports gas to shore through a sub sea pipeline Onshore medium-size terminal: - the proposed model illustrates a long-term possibility (Business case) for relatively low risk of investing in the terminal of a 4 bcm capacity, considering the market potential: - Croatia itself offers a key market for LNG from 0.5-1 bcm - other target markets are Slovenia, Austria, Hungary and Romania - opportunity to reach competitive LNG prices by other natural gas sources and the CEGH Baumgarten → LNG project is interesting to both LNG shippers and LNG suppliers - development of the “migration concept” for LNG → from FSRU via FSU to medium-size LNG terminal The „migration“ concept: Drawing up the business plan (together with the selected partner → lack of financial and expert capacities in Plinacro. – needs to comprise all future phases of the project) which consists of: 1ST PHASE: - LNG RV - LNG RV 2ND PHASE: - FSU – storing LNG on a vessel - onshore regasification – a segment of the future LNG terminal 2/9 Western Balkan Investment Framework (WBIF) 3RD PHASE: - construction of LNG vessel onshore in compliance with the required capacity This project is considered by European Commission (Donors Meeting) and the Energy Community as a priority project of regional significance. This can also be demonstrated by its compliance with the criteria established by the European Union for Trans-European Networks for Energy Outcome / Results to be achieved for the investment: (specify the foreseen results, indicate 1. the economic 2. the social 3. the environmental benefits produced by the investment as well as the estimated number of direct beneficiaries) Description of the Grant use: (precise what is concretely financed and the expected outcomes) The connection for LNGRV is a new supply route of natural gas into the Republic of Croatia. It can be used as: - safety supply direction in crises - security of gas and required conditions in the gas system at peak consumption - wide options of an additional transit of natural gas through the Republic of Croatia, with the development and use of underground gas storage facility (facilities) - access possibility to the spot market The connection would provide the potential users with the following benefits: - guaranteed availability of connection capacity - possibility to conclude long-term contracts at stable long-term tariffs - access to growing Croatian gas market - simple access to gas markets of Italy, Slovenia, Hungary and other countries in the region through the transmission – transit system of Plinacro - management model which will be developed with the interested users, initially based on the existing “multi-shipper” models used in Europe - Increase of the scope and intensity of the use of natural gas as the cleanest fossil fuel - Increase of efficiency of the existing gas TSO and its upgrade by transit use The advantages of this project are multiple: - Diversification of Supply - Security of Supply - Limited environmental impact - Limited upfront investment cost - Flexible solution - Quick time to market This grant will be used to develop a Conceptual Solution, feasibility & EIA / SIA study, and Conceptual Design which once approved by the IFI, will be used in consideration of financing the line. The conceptual design will include technological – technical and physical bases. The feasibility study will include all necessary sections, particularly: 1. Technical and geotechnical assessment, study of land acquisition, and other spatial factors, 2. Identification of main technical components and the associated costs 3. Development of economic and financial analysis (including the market demand forecast) 4. Development of the social and environmental risk assessments and associated mitigation strategies + Conceptual Design will include all necessary sections. Strategic justification: (specify which strategy and/or investment plans The Energy Strategy of the Republic of Croatia (Official Gazette 130/09) defines that the main objectives for natural gas sector are to secure regular supply on the domestic energy market, increase the security of supply and to 3/9 Western Balkan Investment Framework (WBIF) both at national and regional level include the proposed project) Can you describe how the project is in line with - EU pre-accession strategy - National strategy -Other donors strategy? be included in the regional energy market. These objectives are in accordance with the commitments that Republic of Croatia has to fulfil in the process of adhesion to the European Union. The European Union has proposed a five-point European Union Energy Security and Solidarity Action Plan. Among them more effective support is needed for projects to build the required infrastructure and more attention needs to be paid to external energy relations with other countries, all of which has been included in the Croatian Energy Strategy. The Croatian Energy Strategy includes among its goals securing new supply directions for oil and natural gas by participating in international projects, further development of gas transportation and distribution networks and being included in the regional energy market, as well as the construction of the LNG, construction of the associated transit gas pipeline and it connection to the transmission system of the Republic of Croatia (Official Gazette 130/09, art. 8.3.2.2). Within the regional initiatives and market goals, the Government shall actively operate in order to integrate the energy infrastructure of Croatia into the energy infrastructures of immediate and wider international surrounding. Croatia is a Contracting Party of Energy Community Treaty, which defines a creation of a single market without internal frontiers for Network Energy as the principal goal. The creation of a single market is crucial for security of supply, as only diversified energy supply routes can assure the security of supply. To accomplish this goal it is envisaged the creation of Energy Community Gas Ring that would connect the gas systems of the Energy Community members. The new Regulation (EU) No 994/2010 of the European Parliament and of the Council of 20 October 2010 concerning measures to safeguard security of gas supply and repealing Council Directive 2004/67/EC stress the importance of investments in new gas infrastructure where new cross-border interconnections are needed or existing ones needed to be extended. This project is in line with the Plan of Development of the Gas Transmission System of the Republic of Croatia 2010-2014. It is fitted into the concept of the gas system Baltic – Adriatic and the NETS project. Additional comments on the project: (duration, constraints, partners/site availability, assumptions and risks appraisal etc..) The planned duration of the FS is 12 months; it will be undertaken by appropriately qualified experts to the satisfaction of the Croatian authority, Plinacro and the interested IFI(s).The bearer of the entire project is the Croatian company PLINACRO Ltd., and a potential partner is the Belgian company EXMAR – a pioneer in LNGRV technology. EXMAR made the „Joint study for natural gas import with an LNG regasification vessel“ which deals with technical, commercial and organisational aspect of the design for LNGRV connection. However, all other options of partnership are opened as well based on the results of the studies we are applying for as well as research and negotiation activities of Plinacro To determine bathymetric and geologic conditions at locations the data from the hydrographic-geological-magnetometric survey for gas pipelines OmišaljCasal Borsetti and Kukuljanovo-Omišalj have been used. The connection would be owned and operated by Plinacro. The development of the project started with Exmar, however, for its completion other options are open as well. The estimate of interest for the capacity booking at the connection and the capacity booking would be performed by the so called “open season” procedure. The joint company will contract the long-term use of the connection and the transmission/transit/storage 4/9 Western Balkan Investment Framework (WBIF) capacities with potential LNG suppliers (OMV, EON, MOL, Prirodni plin…) Grant request justification: (Why a grant contribution is needed for the Project completion?) The construction of the gas transmission system in the Republic of Croatia has been financed solely from the transport tariff. By 2012 Plinacro will invest in this construction around EUR 600 million; out of which EUR 280 million from the EIB loan and the rest are Plinacro´s own funds (current revenues). Due to the current economic situation in the country and having in mind the reached financial obligations, the financing of CS, FS, EIA and SIA + CD of this strategic regional project will need to be provided from other funds. Conformity with the eligibility checklist: summary The project is in conformity with the checklist. (cf. list in Annex 1) Title of the Operation: Type of Contribution 3 (type of grants) Conceptual Solution and Feasibility Study + Conceptual Design – LNG RV WBIF grant for CS, FS, EIA and SIA + CD EUR equivalent In Project Currency Curr. 101 M 101 M EUR Total Investment Financing Plan (Annex 4) To be adapted case by case Finance Institution Total (€ M) EC Contribution IPA 1 WBJF EBRD EIB CEB … Beneficiary Contribution Total Financing (€) Costs 100 101 100% Activities Project preparation 3 Remarks (grants/loans) Grant for CS, FS, EIA and SIA -0,9 + CD- 0,1 this fiche 1 0,9 – CS, FS, EIA,SIA 0,1 - CD The grant financing to a specific investment project (“Grant operation”) may take the form of: 1) Technical assistance: financing technical assistance including preparatory work for eligible investment projects such as impact assessments, feasibility studies, detailed design, project supervision and targeted capacity building and implementation support. 2) Investment grants: direct grants for specific project components, as well as incentive schemes based on performance of implementing institutions. 3) Incentive payments to financial intermediaries. 4) Interest rates subsidies: provision of a lump-sum amount to ensure that the loan finance needed for the investment project can be made available at reduced interest rates. 5) Insurance premia: funding of insurance premia necessary to implement the investment projects. 6) 5/9 Western Balkan Investment Framework (WBIF) Total Grant requested Investment … 100 Total activities € 1M (0,9 + 0,1 for CD) 101 100% Total Loan requested Eligible Finance Institution Consortium Lead Finance Institution EBRD Other Eligible FI (EFI) member of the consortium To be determined Project Chronology Contact person Phone Josip Vuković +385 1 6000310 email [email protected] Contact person Phone email Assessment mission WBIF steering committee approval date of signature of the loans foreseen with the beneficiary start of project end of project 6/9 Western Balkan Investment Framework (WBIF) Annex 1: Eligibility checklist Yes 1 Operations covered by the WBIF benefit one or more of the following beneficiaries: Albania, Bosnia and Herzegovina, Croatia, former Yugoslav Republic of Macedonia, Montenegro, Serbia and Kosovo under UNSCR 1244. Y 2 Fall within one of the eligible sector: Environment: water supply, waste water treatment, sewage systems, solid waste and hazardous waste management, emission control etc.; Energy: renewable energy, interconnection systems, transmission, co-generation, hydro, and gas pipelines, etc.; Energy efficiency and savings; Transport: railways and inland waterways including river ports, roads, seaports, airports, border facilities, inter modal terminals and urban transport; Social: schools and education centres, hospitals and health centres, social housing, reclusion centres and other public buildings; SME, private and financial sector support Y The project is not supported by or eligible for the Regional Development Component of IPA Y 3 project benefit public or private entities or entities with mixed public-private capital responsible for the provision, management, construction and negotiation of public utilities and services Y 4 All elements included under the activities covered by a WBIF grant for the investment projects are in principle eligible for grant financing Y 5 The project is submitted by the Beneficiary, either via the NIPACs5 or via the partner IFIs Y 6 The project is consistent with the EU Pre-Accession Strategy and relevant sector policies and national investment plans Y 7 Grant requests explicitly mention any complementarities or coherence with projects supported or planned for support under the IPA National Programmes (for implementation by the EC Delegations or by the Beneficiaries authorities) and/or other donors activities Y 8 The borrower/beneficiary intend to use the leverage of a loan through the Joint Lending Facility for this project Y 9 Grant operation is be consistent with the policies, rules and procedures of each source of funds (Commission, EIB, EBRD, CEB and EWBJF) Y 2bis 4 4 When calculating the eligible costs of a project that may benefit from grant financing or co-financing, the rules and procedures of the Commission, the partner IFIs and the EWBJF will apply. Eligibility of IFI Grant financing should be confirmed with co-financiers. According to the IPA Regulation the following expenditures are not eligible: a) taxes, including value added taxes (in principle); b) customs and import duties, or any other charges; c) purchase, rent or leasing of land and existing buildings; d) fines, financial penalties and expenses of litigation; e) operating costs (can be allowed on a case-by-case basis); f) second hand equipment; g) bank charges, cost of guarantees and similar charges; h) conversion costs, charges and exchange losses associated with any of the component specific euro accounts, as well as purely financial expenses; and i) contributions in kind. In addition, any leasing costs or depreciation costs are not eligible. In the case of revenue-generating projects, meaning a project involving an investment in infrastructure, which is subject to charges borne directly by users, the eligible cost is calculated according to a funding gap method deducting the value of the net revenue over a specific time from the value of the investment cost. 5 NIPAC = National IPA Coordinator. The NIPAC is responsible for coordination of programming and monitoring the implementation of IPA in the Beneficiaries of the Western Balkans and Turkey. As IPA represent the biggest source of external aid and is linked to the progress and development needed in the EU accession process, and in line with the local ownership over donor funds and donor coordination as foreseen in the Paris declaration, the involvement of the NIPAC is of utmost importance for the effectiveness of the JGF and the WBIF. 7/9 No Western Balkan Investment Framework (WBIF) Annex 2: Screening (to be filled by the DG Elarg) How can you ensure that beneficiaries NIPACs (National IPA Coordinators) have been adequately involved and are supportive of project? How the project is consistent with national (sector) strategies, national and regional investment plans and with the IPA priorities and the project potential for IPA support (not allocated via the JGF) or other donor funding? How the project is consistent with EU policies (pre-accession agenda, sector priorities, competition rules etc.) drawing from and involving the EC Delegations, line DGs and ELARG geographical teams? Assess eligibility of projects for support from the JGF and the appropriate mix of funding sources Conclusion 8/9 Western Balkan Investment Framework (WBIF) Annex 3: Assessment (to be filled by the lead IFI)6 Rationale for use of grant funds The Financing Plane Regional / Cross Border Impact Conformity with socioenvironmental standards Economic and Financial justification Capacity of Beneficiary institution Proposal Contribution: from EC Budget XXX € 100 % XXX € % from other Funds Type of Intervention : … grant Annex 4: Indicative Financial Plan Envisaged (€) (to be filled by the lead IFI) 6 - As per ToR the Lead IFI has checked the following aspects: Technical aspects, environmental and social standards, procurement, financial and economic profitability, credit risk, legal aspects. Consistency with IFIs’ policies and procedures Analysis and estimation of TA/grants needs Financial structuring/identification of lending under the Joint Lending Facility (only IFIs) Identification of lead IFI and possible mutual reliance Link with project borrowers and promoters on technical and financial aspects Exchange of information among Finance Institutions (e.g. pricing, conditionality) 9/9