كولومبيا- مشروع الخدمات البيئية بنهر أمويا,Colombia - Proyecto de servicios medioambientales del río Amoyá,Colombia - Amoya River Environmental Services Project (Colombie - Projet de services environnementaux pour la rivière Amoya)

Updated Project Information Document (PID) Report No: AB66 Project Name COLOMBIA-COLOMBIA - Amoya River Environmental Services Region Latin America and Caribbean Region Sector Renewable energy (80%); Water supply (20%) Theme Climate change (P); Biodiversity (S); Water resource management (S) Project P078220 Borrower(s) GENERADORA UNION Implementing Agency(ies) GENERADORA UNION HIDROGER Address: Calle 7D No. 43 A - 99, oficina 208 Medellfn, Colombia Contact Person: Gabriel Jaime Ortega Tel: (57) (4) 3124084 Fax: (57) (4) 3121711 Email: gjortega@emp.net.co ISAGEN S.A. Address: Carrera 43 A No. 11 A 80 Medellfn, Colombia Contact Person: Fernando Rico Tel: Fax: Email: CEMEX Address: Contact Person: Edgar Ramirez and Juan Carlos Bermudez Tel: (571)-603 9176 and (571)6039226 Fax: Email: edramirez@cemex.com.co and juancarlos.bermudez@cemex.com.co * All figures below appear in EUROS Environment Category B (Partial Assessment) Date PID Prepared May 27, 2003 Auth Appr/Negs Date July 22, 2003 Bank Approval Date October 22, 2003 1. Country and Sector Background Increased reliance on thermal-based generation capacity. After severe droughts, in the 1 990s (i.e. 1992, 1997), that caused power shortages with associated forced rationing, the system has encouraged the development of more thermal generation capacity, specifically with the intention of increasing the share of firm capacity and enhancing the system's reliability of supply. The increase in thermal share has also been the indirect result of the withdrawal of the public sector in large investments and the reluctance of private generators to enter the hydro electric generation and associated environmental and social requirements. While this responds to the need for flexibility and robustness of the system, the increase in thermal share contributes to the gradual increase of GHG emissions by the sector and the release of local criteria pollutants (such as NOx and, SOx particulates and volatile hydrocarbons, which have been linked to health impacts on exposed populations). Hydropotential, while large is not being expanded. Colombia has extensively used hydro as a  2 2 ~~~~~~~~~~~~~PID clean source of energy that represents about two thirds of installed capacity, aided by a generous water regime and the orography of the country. Hydro capacity consists of a few large facilities, accounting for most of the hydro supply and a few smaller units with negligible contribution. The large facilities typically require sizable capital investment, which in the current fiscal climate is difficult to secure. Also, several of the existing facilities have been linked to significant environmental and social impacts. As a result, despite the hydro potential, newer additions to the power mix have been thermal. Negligible contribution of other renewables in the energy mix. Studies undertaken by the Govemment (ACC, 2001) and third parties have indicated a significant potential of renewable energy in the country, including solar and wind. However, until very recently, renewable energy had not figured in the plans or official prospects for the power sector. While the situation has changed with the construction of the Jepirachi project (Wind energy), and others being proposed, the contribution of renewables to the power mix remains negligible. Many obstacles remain for these options to play an important role in the country, including lack of knowledge and practical experience, poor competitiveness for some applications, limited institutional interest and lack of awareness. Limited security of supply in the power sector. While the country is largely integrated through the SIN, regional security of supply varies a lot. This is caused by the limited redundance in the national transmission lines, and the existence of large tracks of outdated transmission systems. The limited redundance makes regional supply, especially in areas affected by guerrilla attacks, vulnerable to collapse. Impact of climate change on the endowment base for generation capacity. Colombia has recently, has completed its first communication to the UNFCCC, including an assessment of the anticipated impacts of climate change and its vulnerabilities to these impacts. The communication concludes, in the context of expected changes with potential impact for the energy sector, that a significant fraction of the territory will be affected by variations in the hydrological system and rainfall pattems. In particular, there is a likelihood of an increase in the rate of decertification in high mountain ecosystems (source of many of the head waters of the largest rivers of the nation). The process will be caused by reductions in rainfall pattems, higher rates of evapo-transpiration and the consequent drying of these ecosystems. The impact over the overall hydro generation capacity has yet to be estimated but is likely to result in a reduction in the net flow of some rivers fed by headwaters located in the Andes, in particular over the Westem range of the Andes. The character of the Paramo ecosystem (high mountain range, typically over 3500 meters altitude) is also likely to be affected and the communication forecasts a 75-85% in the reduction of the area of Paramo. This change is of grave significance because of the role the Paramo plays in water regulation and storage in the Andes. 2.1 Government Strategy National Development Plan (NDP) The National Development Plan of Colombia developed under the previous administration, proposes two strategies for the development of the national energy infrastructure: a) attract  3 PID foreign direct investment and increase pnvate participation, and b) strengthen the institutional structure for the planning, control and design of sectorial regulatory frameworks. In particular, the PND emphasizes the importance of promoting sustainable development and intemalizing key environmental and social variables into the design and implementation of sector public policies. As part of the national environmental policy, the NDP promotes two priority programs: 1) "Clean Production" to promote the diffusion of new cleaner technologies and 2) "Green Markets" to enhance participation in markets that promote sustainable development (e.g. market based instruments, carbon market). National Energy Plan (NEP) The National Energy Plan, is being updated. For the particular case of the electricity sector, the draft NEP calls for: * Reconcile energy policies with national environmental priorities * Strengthen scientific research and development activities in the energy field * Apply incentives to attract private investment * Diversify sources of energy production * Promote the export of electricity * Reduce transmission restrictions and losses * Improve the mechanisms and actions of the wholesale electricity market * Restructure institutional and financial structure of distribution companies * Expand coverage to rural and isolated areas 2. Objectives The development objective of the Rio Amoya Environmental Services Project (Amoya Project, or AP) is to contribute to the reduction of greenhouse gas (GHG) emissions from the power sector in Colombia through the promotion of a 80 MW run-of-river generation facility. The project is expected to displace an estimated 2.53 million metric tons of carbon dioxide equivalent (mtCO2e) over an initial period of 7 years, an estimated 5.43 mt C02e over 14 years, and 7.87 mtCO2e until 2025. It will also support an environmental program for the protection of the Paramo de Las Hermosas and a social program that will contribute to improvements in the welfare of the local community in the municipality of Chaparral. 3. Rationale for Bank's Involvement Carbon Finance is a new product of the World Bank to demonstrate how market-based emissions transactions can mitigate global climate change and pioneer emission reduction purchase transactions. The Bank's involvement helps to ensure quality of the first carbon projects, while providing necessary project due diligence and other fiduciary responsibilities. The value-added of Bank support also includes the availability of in-house environmental economics and natural resources management expertise, ability to mobilize global experts with long experience in the field, technical support for project preparation, supervision capacity, and development of linkages with other sources of expertise and funding. Finally, the Bank brings to the proposed project the ability to serve as a catalyst for promoting environmental services throughout Latin America as well as knowledge of climate change mitigation programs both  4 PID regionally and worldwide. Finally, Bank involvement links together the experience and lessons of its sector work (NSS), institutional development (support to the OCC) and the project. All this work comes together in the AP. 4. Description The project supports 3 activities (components): A. Renewable Energy Production: A run of the run-of-river power plant, with a nominal capacity of 80 MW and an anticipated generation of 568 GWh/year will be supported. The power plant will be connected to the grid through an 18km transmission line. The plant is expected to be in operation by the end of 2005. Support will be provided through the purchase of CERs. B. Environmental Program. The program aims at promoting conservation of the Paramo ecosystem in the area of the project, therefore maintaining its ability to regulate the water cycle in the surrounding area (the Paramo replenishes the rivers and acts as a climate regulating system) and thus would contribute to maintaining the long-term water supply to the region and the power plant. These conservation activities will also contribute to the maintenance of the highly bio-diverse habitat, characteristic of the Paramo Las Hermosas. Specifically, the program includes activities that support the long term sustainability of the Paramo's ecosystem, and divert potential anthropogenic interventions induced by global warming (potential occupation of buffer zones induced by warmer temperatures). This program will be managed locally (see Annex V for a detailed description of the program) and includes the following activities: 1. Characterization and conservation plan for the Paramo's soil cover. 2. Water cycle study for the Paramo. 3. Program for environmental education and awareness on the role and services of the Paramo. 4. Program for the Conservation of the Endangered Megafauna of the highlands, with emphasis in Spectacled bear (Tremarctos ornatus) and Mountain Tapir (Tapirus pinchaque) and Monitoring and conservation program for small vertebrates and plants. 5. Characterization and recovery study for restoration of the natural ictio-fauna in the Amoya River. 6. Support program for small scale organic agro-industry and eco-tourism in the area. C. Social Program. This program includes specific activities in health, education, green employment generation and other social services, and has been designed as an output of an extensive and thorough consultation and participation program with the local community (Municipality of Chaparral), including public audiences and innovative workshops (see Annex ). The program will be launched at the beginning of construction and will be in place for a at least a period of 2 years. In particular, the creation of green employment (e.g. reforestation, organic and conservation agriculture, water sanitation) will be contribute with the improving the environmental management of the area. The funding for the implementation activities contemplated in both programs, the Environmnental and Social, are expected to be partly financed with 20% of the carbon revenues (10% for each  5 PID program) and a matching financial contribution from Conservation Intemational for the environmental program. TIMETABLE Activity Year 2003 2004 2005 ist 2n Ist 2d 5 2nd senester semester sernster sernester senester semester Run ofthe River Environmental Program (design) Feasibility Study (Done) EnvSronmental assessrnent Social assesslent Access roads and camndp i C ( M) .90 Equip ment supply biddin rcs l__ 1 1 l _ 11 Equ5pnient n anufacturing installation _ Civil work __ starting of RA oper-ations - |1 1 Social consult _Sm Project Costs (in E$million) Renewable Energy Productton: Indicative Cost (US$M) 97.00 Environment Program: Indicative Cost (US$M) .90 Social Program: Indicative Cost (US$M) .25 5. Financing Source (Total ( US$m)) BORROWER ($97.00) Total Project Cost: $97.00 6. Implementation The project's promoter is GENERADORA UNION SA ESP. HIDROGER SA ESP, a company set up by Generadora Union and other shareholders (ISAGEN and others) will own, and also be responsible for the construction, operation and commercilihzation of the energy and carbon finance revenues of the project. Location of the Project The Project will be situated in the municipality of Chaparral (Tolima province), Colombia, in the lower range of the Amoya River Basin. Chaparral is located at 262 Km from Bogota, and this region is contained within the Paramo ecosystem of Las Hermosas, that constitutes a significant reservoir of biodiversity and water in the Country.  6 PID ._W_~~~~~~~~~~~~~~~L I EA, RRQ El~~~~~~~~~~l 1 A Xe I4EflJ