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Projects and Loans in Europe & Central Asia
>> Summary >> MDB Assistance Proposals >> Europe & Central Asia
Summary
MDB Assistance Proposals - By Region & Country
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20-a. Croatia: IBRD—Municipal Infrastructure,
The issues raised are discussed after the several Croatia loan entries.
PROJECT DATA
WW Water Supply & Sanitation report date: 27 May 1998. Loan No: 4352. Report No: 17075. Municipal water distribution systems.
DESCRIPTION OF PROJECT
The Municipal Environmental Infrastructure Project seeks to a) reduce municipal wastewater pollutant discharges into the environmentally sensitive Kastela and Trogir Bays consistent with Croatian and European Union standards; b) improve the safety, reliability, and delivery of drinking water in the project area; and c) improve the operational and financial performance of the water and wastewater utility, to make it more attractive for private sector participation in the future.
There are three project components. First, the wastewater component will include reconstruction, expansion, and upgrading of the wastewater collection, treatment, and disposal system for the Split, Solin, Kastela, and Trogir municipalities. Second, the water component will cover reconstruction and upgrading of the water-treatment and -delivery systems for the Split, Solin, Kastela, and Trogir municipalities. Third, the institutional strengthening component will provide technical assistance to the project agencies.
20-b. Croatia: IBRD—Gas-Sector Development
PROJECT DATA
Project preparation has been delayed. Environmental assessment category B. US$80 million (IBRD). Consulting services to be determined. Industrija Nafte d.d. Zagreb (INA)—NAFTAPLIN-Gas Division, 10000 Zagreb, Croatia. Tel: (385-1) 645-0000, fax: (385-1) 645-2507. Contact: Mr. Darco Karacic, director.
DESCRIPTION OF PROJECT
The primary objectives of the project are to a) improve gas supplies through enhanced physical and commercial diversification; b) ensure a continued economic source of natural gas and compensate for declining domestic gas production; c) provide fuel as an alternative to coal; d) provide a cleaner and cheaper substitute to fuels currently in use by residential, commercial, and industrial consumers; e) facilitate more consumer choice in fuel supply; f) promote regional international gas trade; and g) facilitate a legal and institutional framework for the gas sector. The project will include construction of a 200-km, 75-barrel gas-transmission pipeline between Zagreb and Slavonsksi Brod.
USAID'S COMMENTS
The gas project has the potential for valuable environmental improvements but also carries risks. Although this is a fairly clean fuel, it poses dangers of explosion at ground level and escaping methane which is an active greenhouse gas. Further, prices for natural gas have risen substantially in the last two years, which might tempt some to cut corners on safety. In regard to the gas pipeline for importing natural gas, it makes sense to determine whether domestic and renewable options—such as biomass and methane, wind and geothermal, or conservation and efficiency investments for better use of gas—have been exhausted. This is especially the case given recently rapidly rising natural gas prices. Energy pipeline construction, impacts from siting, alternative avenues that may reduce CO2 and methane emissions, and risk of explosions and fires should all be addressed. These all lead to USAID's recommendation that category A would be more appropriate. The questions of increasing foreign debt to pay for the gas and the continued issue of gas price volatilityalso go to the economic viability of the project. During the noted delay in project preparation, these and related issues could be addressed.
The treatment of wastewater and drinking water also can result in desirable environmental benefits but poses risks if not done right. For example, treatment should take into account the nature of the pollutants entering the system and the ability to maintain different filtration systems. Different levels of arsenic or other elements allowed to remain in treated drinking water can cause different levels of harm in the consuming population. An environmental assessment should help the public and decision-makers choose the appropriate level of cost and risk for the affected population.
21-a. Russia—Coal and Forestry Sector Guarantee Facility
PROJECT DATA
Sector Private and Financial Sector Development Project ID RUGU60045; RUGU57893. Borrower: Russian Federation. Implementing agency: Federal Center for Project Finance (FCPF). Environmental category FI. Date PID prepared: June 2000. Appraisal: June 2000. Board date: 12 September 2000.
DESCRIPTION OF PROJECT
Coal. Russia is the world's sixth largest producer of coal, having produced 240 million tons in 1999. Years of poor management of the sector in the Soviet period (corruption, antiquated equipment, deteriorating safety conditions, inefficient use of investment funds, geological depletion of some traditionally major basins) together with the general collapse of demand in the early 1990s made apparent the full-blown crisis in the industry by 1993. That was when prices for coal were liberalized and many coal enterprises proved to be highly loss-making. Subsidies from the federal budget to the sector grew to the unsustainable level of more than 1 percent of GDP.
In recognition of the state of crisis in the industry, in 1993 the government embarked upon an intensive restructuring of the coal industry. The objectives of the Russian government's coal sector reform program were stated in its Letter on Coal Sector Policy (28 November 1997). The Second Coal Sector Adjustment Loan (Coal SECAL II; Report No. P-7202-RU) was developed to support this reform program and to deepen the achievements of Coal SECAL I (Loan No. 4058-RU) through a program directed toward four objectives:
- Separation of state management functions and commercial activities in the industry and improvement of sector governance
- Continued reduction and improved management of coal subsidies, aiming at the eventual elimination of coal subsidies
- Development of a strengthened and more targeted social safety net for affected workers, their families, and their communities
- Establishment of a more efficient and sustainable industry and promotion of an accelerated privatization program
Because of delays in implementing the agreed coal sector reform program, attributable in part to the August 1998 economic crisis, Coal SECAL II was restructured in mid-1999 at the request of the government. As a result, the remaining funds under the loan were divided into four "social" disbursements of $50 million each and two "privatization" disbursements of $100 million each. Since the restructuring of the loan, to date, three social tranches and one privatization tranche have been disbursed totaling $250 million. With the recent privatization of KrasnoyarskUgol (March 2000), private and privatized coal companies account for 44 percent of overall 1999 coal production. In addition, initial actions have been taken to prepare for sale of the Federal shares in the remaining coal companies in the government's 1999-2000 privatization program. If these first steps lead to the sale of the federal shares in all cases, an additional 24 percent of the industry (based on 1999 production) will have been privatized.
Forestry. Russia has the largest forest resource of any country. Forests comprise 764 million ha, an area 15 times the size of France. Before 1989, Russia was second only to the United States as an industrial wood producer. Annual wood production averaged more than 300 million m3, accounted for 2 percent of GDP, and employed 2 million people directly and 10 million people indirectly. Since 1990, commercial roundwood production has fallen dramatically to less than 70 million m3 in 1998.
Although the harvesting and processing sectors have been privatized, most enterprises are operating at a loss. Nevertheless, the industry showed some recovery in 1999, following devaluation of the ruble.
The number of industries reported as operating at a loss fell to just over 50 percent in 1999, compared with 68 percent in 1998. Commercial roundwood production increased to 72 million m3. Exports, which had fallen in value to $3 billion in 1998, increased to $3.6 billion. There was also a modest recovery of foreign investment in the pulp and paper industry.
The great majority of exports continue to be in saw-logs; however, they have low value added for the Russian economy, and many industries are operating with obsolete, inefficient, and environmentally damaging harvesting and processing equipment. Furthermore, technical skills (in use of the latest processing technologies) and modern management and business skills need to be upgraded. Russia has a long history of forest management, with well-developed institutions and a tradition of research in both forest management and timber utilization. Russian authorities are committed to improving forest sector management.
A new forest code, issued in 1997, provides the framework for sustainable forestry management, and regulations are under preparation for implementing the code and for introducing an improved legal framework for forest utilization.
The Sustainable Forestry Pilot Project recently approved by the board will address forest management and utilization issues by supporting
- Regulatory reforms, including reforms in leasing and introduction of "evergreen" leasing systems, whereby lease renewal is contingent on sustainable management and operation
- Introduction of mandatory certification and piloting of voluntary certification, so enterprises can document their sustainable management practices
- Training of forest enterprise employees in both modern business practices and use of modern technologies
It will also address technical management issues, including forest regeneration, fire and pest management, and improved forest land-use planning.
Sector issue to be addressed by the Guarantee Facility Project: sustainable forestry. The proposed project is designed to complement and supplement the Sustainable Forestry Pilot Project by supporting only those transactions that are consistent with sustainable forest management practices. (Details of the environmental procedures that will be used to appraise and monitor individual transactions are described below.)
By giving private owners of forest enterprises, as well as regional entities responsible for the allocation of forest resources, the assurance that noncommercial risk guarantees will be available to help them attract private loans, the facility will demonstrate that compliance with sustainable forest management practices is compatible with commercial viability. These guaranteed loans will be used to help modernize and refurbish existing facilities, introduce more efficient operations, restore production in the forest sector, produce higher value-added forest products, increase access to export markets, and improve the human resource base through on-the-job training. Through renewed investment, there would be increased use of modern, environmentally friendly harvesting and processing equipment, thereby reducing environmental damage from harvesting operations. In addition, increased employment would act as a catalyst for other economic activities in towns where forest enterprises are the main employer and help restore their viability as attractive places to live. That would reduce the cost of public sector welfare payments. Finally, by increasing tax revenues from both stumpage fees and enterprise taxation, it would help restore the financial flows to the public sector at both federal and regional levels, thereby providing funding for sustainable forest management and increasing general revenues.
Coal sector restructuring. The Guarantee Facility will complement and reinforce the privatization component of Coal SECAL II by helping private and privatized mines attract the financing they need to increase their working capital and modernize and refurbish their fixed capital stock. In addition, the Guarantee Facility will supplement the mine closure component of the Coal SECAL II by extending support to noncoal sector transactions in coal mining communities, thereby helping create alternative sources of employment.
Objectives. The project's main development objective is to help Russian coal and forestry enterprises finance the fixed and working capital assets they need to restore production, exports, and employment. Specifically, a $200 million Coal and Forestry Sector Guarantee Facility would issue special noncommercial risk guarantees against a discrete list of government interference risks. A market survey indicated that these guarantees would mitigate those government interference risks that are of greatest concern to potential guarantee holders and would help attract substantial amounts of commercially viable private loans to Russian coal and forestry sector enterprises.
Description. Implementing Agency—The Federal Center for Project Finance (FCPF), established by the Russian government, would implement the project as agent of the government of Russia. The FCPF is a 100 percent state-owned enterprise created by the Ministry of Economy in 1995. It was created initially to support World Bank loan projects, but by Government Resolution 951 of 28 July 1997, it was also authorized to act as the government's agent for the Russian portion of the Sea Launch Guarantee Project. It is governed by a supervisory board chaired by the minister of economy and consisting of representatives of the ministries of energy and finance and others.
Pursuant to a government decree that will be issued in conjunction with the project, the FCPF will be authorized, among other things, to a) sell guarantee contracts against a discrete list of noncommercial risks, b) process applications in compliance with operating procedures and eligibility criteria set out in the Operations Manual agreed with the World Bank; and c) monitor, mitigate, and prevent the occurrence of risks that could give rise to claim payment obligations. Day-to-day operations would be handled by an independent, professional group of staff and managers. A steering committee consisting of officials from various ministries and agencies including the Ministry of Finance, Ministry of Economic Development and Trade, Central Bank of Russia, Ministry of Fuel and Energy, Federal Forest Service, and Customs Service would oversee project implementation.
The FCPF would sell guarantee contracts against a discrete list of government performance and political force majeure risks to foreign equipment suppliers, trading companies, and commercial lenders who provide finance for working capital or fixed capital inputs to Russian forestry and coal enterprises.
The FCPF would be authorized to sell guarantee contracts backed by the IBRD for a period of five years from the date of effectiveness. Guarantee contracts could have a maximum tenor of 10 years.
Guarantee contracts will address risk such as the following.
Risk coverage. The terms and conditions of the guarantee contracts sold and administered by the FCPF would be set out in a standard form of guarantee contract and would cover the following risks:
- Inability to convert and transfer currency. Government action that for at least 90 days prevents a payer or the guarantee holder from converting rubles to make a payment amount or from transferring out of Russia the payment amount. However, this coverage would not grant the guarantee holder a right to convert local currency into foreign exchange at a guaranteed future exchange rate or at a favorable rate of exchange. Losses arising from currency depreciation are not covered.
- Expropriation. Government action that for at least 90 days a) deprives a guarantee holder or a contractor under a covered contract of a goods covered by such contract, b) deprives such contractor of its property so that it cannot continue to carry on its business, or c) deprives the guarantee holder or the holder of the relevant credit of funds needed to make credit payments. Seizure of goods or restrictions on import, sale, use of export. Government action that for at least 90 days results in the seizure of goods to be delivered under a Covered Contract, or material new restrictions on the import into, the sale in, the use in or the export from Russia of such goods.
- War or civil disturbance. Politically motivated acts of war or civil disturbance in Russia which cause destruction of goods to be delivered under a Covered Contract or make the contractor unable to carry on its business for 90 days or more.
- Issuance or cancellation of licenses. Government failure to issue or renew licenses necessary licenses as agreed by the parties in advance. This provision would pertain only to those licenses that are explicitly identified and listed in an annex to the guarantee contract.
- Imposition or increase of taxes. Government imposition of new or increased taxes relating to the import into, use in, sale in or export from Russia of a good to be delivered under a covered contract.This provision would not provide coverage against any imposition or increase in taxes, levies or duties of a general nature, including, without limitation, value added tax, sales or consumption tax, stamp duty, or corporate or personal taxes on income.
- Interference in the carriage of goods: Government action that prevents or delays the carriage or storage of goods to be delivered under a Covered Contract. Any risk that is not explicitly listed and defined in the Guarantee Contract is not covered. Equally important, the Guarantee Contract does not grant any special commercial privileges, legal benefits, or tax advantages to the Guarantee Holder or any of its local partners and suppliers. All foreign and local enterprises associated with a guaranteed transaction would be subject to the same legal, tax, and regulatory regime as any other foreign or domestic enterprise doing business in Russia.
USAID'S COMMENTS
This is a "financial intermediary" loan. As such it Is not subject to a process that compares alternatives and takes public comment into account in making the final decision. When the purpose of the loan is to guarantee contracts to increase coal and timber production against certain risks, and when the agency in charge of controlling the environmental impacts of such actions has been recently folded into a more production oriented agency, one may note that it would be useful to compare alternatives in both energy types and forest uses, as well as specific technologies and limits to be applied within the coal and wood products sector.
This need is even stronger in cases when local government institutions on which the MDB relies to ensure environmental soundness are weak or recently weakened as in this case. This large loan should have a full environmental assessment despite the general good intentions and particular features of the project. A proper environmental assessment for this would review the specific standards to be applied, alternatives, and the extent to which the multiple guarantees for forestry and coal projects may undercut competing industries that are less harmful, such as paper and wood recycling, and energy conservation and renewable energy production.
21-b. Russia—Russian Federation Sustainable Forestry Pilot Project
The following project was approved not long before and is closely related to the more recently approved Coal and Forestry Sector Guarantee Facility. Many of the same issues are raised in both.
PROJECT DATA
Loan amount: IBRD—US$60 million. Terms: Grace period=5 years, maturity=17 years. Project ID RUPE53830. Implementing agencies: Federal Forest Service, Moscow Regional Administrations Foundation for Enterprise Restructuring, Moscow. Environment category B. Date this PID approved: 17 September 1999. Date initial PID prepared: 10 May 1998. Projected appraisal date: 26 September 1999. Board approved: early summer 2000.
DESCRIPTION OF PROJECT
The project aims at improving public sector management of the country's forests through policy reform, improving land-use management, protecting and regenerating forested areas, and supporting the development of a more favorable environment for private investment in the sector. Benefits from the project include increased government revenues from improved resource assessment and taxation, rapid forest growth from improved regeneration, conservation of forest ecosystems, and increased employment in local communities as a result of restoration of their economic base.
USAID'S COMMENTS
Five days before the Russian Sustainable Forestry Project was approved, President Putin moved the 200 year old Forest Service, as well as the Russian State Committee on Environmental Protection (the rough equivalent of the EPA), into the Ministry for Natural Resources. Both the Coal and Forestry Guarantee Facility and the Sustainable Forestry Loan explicitly relied on these institutions. At the time the loans were considered, the extent of any diminished capacity to enforce environmental law and good practice was unclear but a matter of serious concern within and outside of Russia. The strength of responsible agencies is essential in ensuring the coal projects and business guaranteed by the above facility will be net improvements, let alone the best choice of how to spend this amount.
With respect to the Guarantee loan, the US succeeded in convincing the Bank to require that the loan include specific preconditions before the financing could be disbursed, including the Bank Management's providing the Board with its findings on the sufficiency of the new final statute in establishing and making operational a Federal institution to review and monitor environmental impacts. Since the loan was premised in part upon the administration and enforcement provided by the previous agencies, however, it may be appropriate to consider special oversight mechanisms or other precautions for the Sustainable Forestry loan and the Guarantee Facility until there is a more evidence as to how well the new management and enforcement authorities are doing, and for a significant period of time beyond the initial point of making the new authority operational.
Over the development of these loans, the Bank and its borrower noted there had been consultation with NGOs on the serious concerns about loans for Russian forestry raised by the reorganization of the Russian forest service and environmental agency. Thus some continuing review might include consultations with a range of interested parties.
This project has several excellent elements and there is no doubt that Russian coal and forest industries could be cleaner, but there are additional questions that the Bank could consider before acting in this context:
For example:
- Is there a similar loan in the works or in place to guarantee long term security for renewable energy and conservation and non-timber uses of forests? Unless there is, these guarantees may draw private capital away from competitive insulation or renewable energy firms, or lower impact forest uses, for example. US law requires the U.S. government to encourage MDBs to promote renewable, nonpolluting energy and other benign technologies to enhance development and the environment, and in the process, to coordinate those efforts with USAID and other development agencies.
- To what extent did the United States' or other countries' agencies with expertise in the environment, forest and coal sectors look at the terms, as anticipated in 22 U.S.C. 262m-2&3? The interagency review group raised some of these concerns but did not have available for its review the statute nor the implementation of it, nor specific environmental requirements to be applied in conjunction with the guarantees nor any assessment of overall alternatives, such as an alternative loan that would cover the full range of energy types and forest uses. Although in one sense, there is a review responsibility that lies with the agencies and their governments, in a larger sense, it would serve the banks better in the long run if they took additional steps to ensure the time, notice, and information necessary for careful consideration by the most expert of the agencies, especially in countries trading in such commodities or affected by their production and use.
USAID is inclined to include in these reports such loans or other actions such as guarantees that will likely have a substantial impact on the environment as a whole (e.g. by guaranteeing long term continuity of taxes and leases for timber harvests and coal production) unless those loan or guarantee projects have each had an EA addressing the basic questions at the programmatic level.
Particular concerns in regard to Russian timber production in the Russian far east where USAID has sustainable forest programs include the potential impact on endangered species such as the Amur or Siberian Tiger which relies on roadless or near-wilderness forests for protection for itself and its prey from poachers. This may be particularly important if some of the smaller loans guaranteed will not be covered by one or more EAs either, although the questions each would address are at different levels of scale.
The project as approved after this note was written required, based on U.S. recommendations, that there be a midterm review of the guarantees and a determination that the new statutes or rules for the newly organized agency be sufficient to carry out the environmental assessment function.
22. Ukraine: EBRD—Khmelnitsky 2 and Rivne 4 (K2R4) Completion
PROJECT DATA
EBRD projected funding: $215 million. Projected total cost: $1.48 billion. Tentative EBRD board date: first vote 7 December 2000, second vote on conditions unscheduled. Stage: approved at first stage, with conditions subject to a second vote. EBRD EA category A. Project I.D.: unknown. Project first Ukraine entered: April 1999. Entry updated: December 2001.
DESCRIPTION OF PROJECT
The objectives of the European Bank for Reconstruction and Development would be to a) increase nuclear safety in Ukraine by facilitating closure of the Chernobyl nuclear power plant and strengthening the Nuclear Regulatory Authority and b) stimulate reform and privatization of the Ukrainian power sector.
Financing of K2R4 would support Ukraine's market-oriented reforms, in particular the privatization and financial strengthening of the electricity sector. In turn, this would advance economic transition. Successful implementation of this project would also provide an internationally acceptable benchmark for safety levels of nuclear power units with VVER 1000-type reactors.
The Least-Cost Electric Power System Development Analysis was completed in May 1998, and EBRD's Project Summary Document in October 1998.
Environmental summary (from the Project Summary Document on EBRD's Web site): The environmental impact assessments were made publicly available in the end of 1998 by the project sponsor. Environmental action plans (EAPs) for the two NPPs are being developed. The EAPs will be covenanted in the project's loan documentation.
The EIAs set out the policy, legal and administrative framework, details of the existing environments, details of the proposed project including arrangements for radiological protection, and the potential environmental impacts associated with the project. They take into account both normal operation and abnormal conditions. Measures are identified to mitigate possible environmental and radiological impacts.
Assessments of the impacts of predicted discharges from both K2 and R4 during normal operation indicate that the annual radiation dose that would be received by the most exposed member of the public would be substantially less than 1 per cent of the regulatory limit set by Ukrainian regulations. These regulations are consistent with those recommended by the International Commission on Radiological Protection (ICRP). The annual radiation dose to the population residing within 30km of the NPPs, taking into account the other operational nuclear reactors at the Khmelnitsky and Rivne sites, and assuming normal operations, would also be well within internationally accepted radiological protection criteria.
The EA also covers transport of fuel, consideration of a worst-case design-basis accident, occupational safety, and emergency planning. Regulatory documentation dealing with radioactive waste management is currently in preparation together with a national policy on radioactive waste management.
Spent fuel will continue to be stored at both sites for significant periods following the initial three-year decay period, which is customary prior to fuel reprocessing. Assuming that current proposals for the capacity of the spent fuel ponds at both sites are realized, no significant environmental or radiological impacts are anticipated. A package of regulatory documents dealing with decommissioning is currently in preparation. Prior to commissioning of the reactors, the operator will need to have undertaken an assessment of the different strategies for decommissioning.
Environmental impacts not related to radiation exposure may arise during completion and operation of the NPPs. The effects of construction impacts would be reduced because of the three-kilometer sanitary protection zone around the NPPs. Such impacts would be of little significance beyond three kilometers from the NPPs.
The operation of both K2 and R4 would result in increased water requirements at both NPP sites. The exact requirements and the extent to which they can be met from surface or artesian sources require further assessment at both sites.
Public consultation: Public consultation was undertaken at two stages during the process of preparing the EIAs. Scoping meetings were held at three locations in Ukraine at the end of 1996. The outcome of these meetings was taken into account when defining the terms of reference for the EIAs. A further meeting, held in Kiev in September 1997, provided information that was taken into account in the preparation of the EIAs. The public was invited to provide comment on the EIAs, which were made publicly available during the third quarter of 1998.
Alternatives: The EIA methodology required comparison to be made between the completion and operation of K2 and R4 and the "no change option." The latter assumed that the operation of two of the units at the Chernobyl NPP site would continue following completion of an upgrading and safety program and that K2 and R4 would not be completed. This comparison has indicated that routine discharges of radioactivity from two units at Chernobyl would significantly exceed those from the operation of K2 and R4. There would also be an increased risk of a catastrophic accident as a result of the continued operation of Chernobyl. This would lead to widespread radioactive contamination. Work is also being undertaken on an initial assessment of the environmental impacts that would be associated with a thermal power sector program in Ukraine, which assumes closure of Chernobyl without the completion of K2 and R4.
USAID'S COMMENTS
Safety and Liability: The remaining Chernobyl reactor was closed in December 2000. Any new nuclear power plant must be accompanied by an accounting and assignment of costs, safety, and liability as well as the practical responsibility for each of the risks. These include fuel enrichment, storage, and transport to and from the plant for the 10,000 years necessary for the reduction of radioactivity, regular radiation leaks, and potential larger leaks caused by cracking of the containment structure. Other risks include naturally increasing brittleness of the building materials, explosion attributable to overheating of the fuel rod, leaks or explosions following severe weather or earthquake and the radiation poisoning of life and land downwind. Earthquakes have struck the area which is also relatively porous and unstable Karst or limestone topography. During the time that fuel or wastes are accessible, the site will need to be guarded to ensure that neither intentional nor negligent entry is permitted. USAID notes that, in part because the design is different, these plants could not be licensed to operate in the United States. USAID requested that liability system be established before approval. The U.S. government position requested that the questions of assignment of liabilities be clarified.
Procedural compliance: EBRD policy, like that of most MDBs, is that nuclear power is generally not supported unless it is to back out (replace) a more dangerous nuclear plant. This backing out is to occur within the same period. The question then becomes whether a splitting of the vote into initial approval conditioned on subsequent compliance with a list of requirements is in fact compliance with the letter or the purpose of the policy.
Economics: One of the EBRD's conditions for its involvement is that the project must be the least-cost option. There is considerable doubt that these are the least cost options if the full costs are internalized and several studies have determined that they are not the least cost alternatives. Fuel and spent-fuel storage are not expected to be found within Ukraine and are not entirely under the control of the Ukraine government. The costs and risks associated with both fuel and spent-fuel transportation and storage are thus hard to assess with accuracy.
Alternative sources: The U.S. Peace Corps is assessing wind energy potential in Ukraine and has made preliminary findings that the potential is substantial. Ukraine also has a substantial coal resource. Ukrainian authorities are said to have identified numerous alternative energy projects that could meet the need for peak load or base load capacity.
Need: Ukraine has nearly twice the generating capacity it needs, although much of that capacity should be renovated or replaced. To the extent that there is a need it may be for quick-starting peak load capacity, such as gas-turbines could provide.
Financial health of the utility sector: Severe difficulty in paying and collecting energy bills exists in the Ukraine. Many utility workers are underpaid and systems are undermaintained. This sheds doubt on the ability of Energoatom (Ukraine's atomic energy commission) to take on the burden of proper maintenance of these plants on top of the nuclear plants they already have. Even with the EBRD loan for the plant, given the tendency toward cost overruns in complex construction projects, the loan may not be sufficient to offset the other financial strains on the system.
July 2000 update: Summary: Negotiations are moving toward EBRD consideration of a potential request from Ukraine for a loan to complete construction of the K2R4 nuclear reactors. The donor community is strongly divided with France in favor and Germany and Sweden opposed. Many options for increasing efficiency and adding renewable and other less risky capacity (particularly peak load capacity) have a much shorter lead-time than nuclear plants. Poland, for example, has recently sought proposals for a large wind farm. More complete Assessment of the alternatives and safeguards is called for in such a situation.
December 2000 update: After this report was circulated for review, the Board took up this loan in mid-December in the first of a two-step process granting approval subject to a long list of conditions attributed in part to the active participation of university experts and NGOs. The board planned to revisit the issues within one year to determine whether the conditions were met. USAID also confirmed continuing financial difficulties faced by the utility sector in Ukraine and by Energoatom, including inability to ensure full maintenance of all power plants. This was due in part to an inability to collect fees due. Reform of this aspect was deemed essential. The U.S. government position included numerous recommendations for utility reform and financial control, aimed in part at ensuring system safety. It also included a request to clarify the process for assigning liability. This was based on a USAID recommendation that a full liability system be ensured. (After that, General Electric was reported to have pulled out of a joint North-South effort under the Korean Peninsula Energy Development Organization after the United States and South Korea refused to assume all potential liability. This demonstrates that allocating potential liability can be a determining issue in nuclear power plant development.)
December 2001 Update: A year after the board first considered this project, the Government of Ukraine asked the EBRD not to consider the project further, so it was removed from the Board's agenda. For this or a similar project to be considered in the future it would require a complete re-negotiation and board approval.
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Last Updated on: March 20, 2002 |
