Ukraine - Coal Bed Methane Project

Report No. PID8615 Project Name Ukraine-Coal Bed Methane Project Region Europe and Central Asia Sector Mining Project ID UAGE9105 Borrower(s) Ukraine Implementing Agency Alternative Fuel Center Environment Category B Date This PID Prepared January 12, 1999 Projected Appraisal January 2001 Projected Board Date July 2001 Background. Ukraine is a signatory of the UN Framework Convention on Climate Change. To reduce emissions of global heating gases, coalbed methane recovery and utilization as well as improvements in district heating are the most attractive options for Ukraine, based on a previous broad study of carbon emissions in the energy sector. A subsequent feasibility study of a coalbed methane recovery and utilization project concluded that such project would be eligible for a GEF grant contribution. An according project proposal was submitted to and accepted by the GEF Secretariat in February 1998. The proposal envisaged that part of the project would be integrated into a larger World Bank-supported project for improving the operations of viable Ukrainian coal mines. As difficulties were encountered in preparing the latter project and its realization became doubtful, the Government of Ukraine requested that only those portions of the original project proposal be maintained that do not require works inside an operating mine. The present Project Information Document is based on the accordingly reduced project scope. Project Objective. The project objective is to promote the commercial recovery and utilization of coalbed methane gas through a demonstration of its technical and economic feasibility. Project Description. The project consists of the drilling of six gas production holes from the surface of a viable operating mine, the testing and treatment of these holes and their eventual connection to an existing gas pipeline as well as to a newly to be installed Diesel-type power generating plant. Project Financing. Total project costs are estimated at about US$ 8 million, of which 40% would be financed by the proposed GEF grant. Suitable financing is being sought for 60% of the project cost. Project preparation will be suspended if financing of 60% of the project costs cannot be secured by March 31, 2000, from sources and in a manner compatible with the World Bank's requirements regarding financial management and procurement. Continued donor grant funding is being sought for technical assistance and training. Project Implementation. The project would be implemented over a period of about three years. The Alternative Fuel Center (AFC) would be responsible for  oversight and coordination of project implementation. A new private coalbed methane (CBM) company would be responsible for carrying out the physical works and operating the gas production facilities. AFC would sign agreements with the CBM company acceptable to the World Bank. The executing entities would be subject to financial management, accounting and auditing arrangements acceptable to the World Bank. Monitoring and evaluation of project implementation would be carried out by AFC with assistance from international experts. Project Sustainability. Based on the testing of the gas production wells, only those gas treatment and utilization facilities will be implemented which would allow the recovery of their operating costs from contractual gas or electricity sales. Information gained from the project would be made available to other potential investors. Lessons learned from past operations in the country/sector. The project would only be implemented if a satisfactory legal and institutional framework and an efficient financial management system can be put in place to safeguard the integrity and transparency of transactions. Poverty Category. Although the project is not a poverty focused operation, it would help alleviating poverty in areas affected by coal mining restructuring through creation of new employment and diversification of the local economy. Environmental Aspects. The project is rated category B. The project, if successful, would open the way to significant regional and global air quality improvement. The drilling and gas production activities under the project would be carried out in accordance with an acceptable environmental management plan. Program Objective Category. The project's Program Objective Category is being determined as Environment. Contact Points: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Task Manager Heinz Hendriks Sr. Mining Specialist Industry and Mining Unit The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-2887 Fax: (202) 522-0396 Note: This is information on an envolving project. Certain components may not be necessarily included in the final project. - 2 -  Processed by the InfoShop week ending January 14, 2000. - 3 -  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. -4-