Ukraine - Kiev Public Buildings Energy Efficiency Project

Report No. PID6735 Project Name Ukraine-Kiev Public Buildings Energy (+) Efficiency Project Region Europe and Central Asia Sector Energy Project ID UAPA55739 Borrower Republic of Ukraine Implementing Agencies State Committee for Energy Conservation 1, Gonty St., Kiev, 252112, Ukraine Contact Person: Mr. G. Babyiev, Deputy Chairman Telephone No.: (044) 446 81 83 Facsimile No.: (044) 442 52 71 Date This PID Prepared April 14, 1998 Projected Appraisal Date June 1998 Projected Board Date December 1998 Sector Background 1. District heating (DH) systems provide the majority of heat and hot water supply in Ukraine's urban areas as well as steam for industry. These systems utilize primarily gas and some mazut, which during the period of the Soviet regime were provided primarily from Russia at very low prices and at virtually unlimited supply. As the cost of these fuels have increased over the past four years while incomes have not kept pace, this has created a situation where the DH service has become difficult to afford and service levels have had to be reduced. In addition, many of the DH systems are in excess of 40 years old and have not been subject to the normal process of upgrading and modernization which takes place in Western systems. 2. In Kiev, a significant number of public buildings, especially schools and hospitals, are connected to DH. These buildings generally consume far more energy for heating and hot water than public buildings in Western Europe. This is primarily due to the low quality of construction materials, often poor insulation, types of windows, and absence of measurement and control equipment for the heating substations in buildings. The "Energy Saving Program for Buildings" elaborated by the Ukrainian institute, KievZNIIEP, estimates the energy savings potential as high as about 459. There is therefore an urgent need to improve the energy efficiency of key public buildings in order to reduce demand for DH and improve the quality and reliability of heating and hot water services. Objectives 3. Against this background, the main objective of the proposed project would be to improve the energy efficiency of priority public buildings and reduce heat demand and thus the need for expansion of heat production capacity in Kiev.  Description 4. The proposed project might consist of the following components: (a) Kiev public buildings energy efficiency improvement program, including improvements to insulation, regulation and control systems, and windows, and installation of control valves and a two-pipe system for radiators; (b) institutional support program, including training, equipment and technical services to support project implementation and promote public awareness for the need for energy conservation. 5. It is estimated that the amount of the loan would be about US$ 40 million. It is recommended that the loan finance about 809 of total project cost (net), as the project agencies have limited capability to contribute to the capital cost of the project. Donor support is being sought for implementation support and for promoting public awareness. Implementation 6. Implementation of the project would be the responsibility of Kiev Municipality and the Ministries of Health and Education. Given the number of project agencies involved, project coordination responsibilities have been assigned to the State Committee for Energy Conservation. Performance indicators for each project objective will be defined during project appraisal. Supervision requirements will be identified during project appraisal. Sustainability 7. The institutional and financial sustainability of the project would be analyzed and supported through: capacity building of project agencies to evaluate technical options and prioritize investments based on economic considerations, and other measures to be identified for inclusion under the institutional support program for project agencies. Lessons Learned from Past Operations in the Country/Sector 8. The proposed project would represent the first energy efficiency investment loan to Ukraine. The Bank's experience in implementing similar energy efficiency projects is somewhat limited to two projects in Russia and Lithuania focused mainly on residential buildings, currently ongoing. The Lithuania project also included a small ($2.2 million) component to support energy efficiency measures in schools in Vilnius and Kaunas. The Kaunas component has been implemented in three schools and has resulted in considerably increased comfort levels, with energy savings currently being monitored. This effort has confirmed that energy savings through investments directed at larger buildings under single ownership can be achieved more quickly and easily than through investments in residential buildings under multiple ownership. 9. The Russia project has highlighted that utility companies typically do not read meters, as billing has been based on norms with bills prepared by municipal house maintenance organizations. Installation of meters must - 2 -  therefore be accompanied by support for utilities to change their billing and meter reading practices in order for energy savings to be realized by the end- user. Furthermore, this project showed that clear steps for monitoring energy savings need to be developed prior to project implementation. These lessons are being considered during the preparation period of the proposed project and will be discussed in more detail during appraisal. Poverty Category 10. Not applicable. Environmental Aspects 11. Implementation of the project is anticipated to have positive environmental benefits through reduced atmospheric emissions in Kiev and reduced consumption of natural gas and mazut in district heating plants for the same service levels. A preliminary estimate for gas savings for the project is in the order of 48 million m3 annually, and for mazut savings in the order of 9,000 tons annually. These fuel savings would result in reductions of S02 by 230 tons, NOx by 330 tons, and C02 by 85,400 tons annually. The project has been placed in environmental screening category "B," under which an environmental review and mitigation plan would be prepared. Program Objective Category 12. The project is classified under the category of EN/GX - environmentally sustainable development/other energy (100%). Contact Point: Carolyn Gochenour, ECSEG The World Bank 1818 H Street, N.W. Washington, D.C. 20433 (202) 473-9681 (tel) (202) 477-8518 (fax) Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending: August 14, 1998 -3 -  Annex The energy efficiency retrofit components would focus on improving energy efficiency; environmental issues are principally restricted to the selection of materials for insulation and the disposal of waste, possibly asbestos. The heat production plants currently support the use of natural gas. During installation of energy efficiency measures, asbestos may be found in old thermal insulations in which case the local regulations or EU standards for asbestos removal shall be followed. In the new installations, only thermal insulation materials having a zero ozone depletion factor will be used. An environmental review would be prepared for the Kiev energy efficiency improvement program and it would include preparation of an environmental mitigation plan. The energy efficiency component would focus directly on the improvement in the use of energy. The potential impacts from the project would be generally positive; potential adverse impacts would be highly localized and could be effectively addressed through an environmental mitigation plan. - 4 -