Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY Report No: RES22644 Public Disclosure Authorized Public Disclosure Authorized RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF TRANSMISSION GRID STRENGTHENING PROJECT LOAN BOARD APPROVAL: MAY 13, 2014 TO THE GEORGIA July 20, 2016 Public Disclosure Authorized ENERGY AND EXTRACTIVES GLOBAL PRACTICE EUROPE AND CENTRAL ASIA REGION
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. 2
ABBREVIATIONS AND ACRONYMS ABTL EIRR EMS OPGW PDO SESA SCADA TGSP Akhaltsikhe Batumi Transmission Line Economic Internal Rate of Return Energy Management System Optical Ground Wire Project Development Objective Strategic Environmental and Social Assessment Supervisory Control and Data Acquisition Transmission Grid Strengthening Project Regional Vice President: Country Director: Senior Global Practice Director: Practice Manager/Manager: Task Team Leader: 3 Cyril Muller Mercy Tembon Anita Marangoly George Ranjit Lamech Joseph Melitauri
GEORGIA Transmission Grid Strengthening Project (P147348) CONTENTS A. SUMMARY 5 B. PROJECT STATUS 5 C. PROPOSED CHANGES 5 D. APPRAISAL SUMMARY 11 ANNEX 1: RESULTS FRAMEWORK AND MONITORING 13 4
A. SUMMARY The proposed Level-II project restructuring is to utilize project savings for the IBRD Loan (Loan No. 8377-GE) for the Georgia Transmission Grid Strengthening Project, (P147348) for financing rehabilitation and upgrade of an existing 220 kv overhead high voltage transmission lines connecting high voltage substations Menji, Tskaltubo, Kutaisi, and Zestaphoni, rehabilitation and upgrade of the same substations, and upgrade the existing Supervisory Control and Data Acquisition and Energy Management System (SCADA/EMS). The Project, in the amount of US$60 million, was approved on May 13, 2014. It is financed through an IBRD Loan (Loan No. 8377-GE). The Project Development Objectives (PDO) are to provide reliable power transmission to the southwestern part of the grid, upgrade electricity exchange systems, and provide economically efficient, environmentally and socially sustainable electricity sector planning. The Project consists of four components; component 1: Transmission System Strengthening which finances construction of a high voltage transmission line from Akhaltsikhe to Batumi (ABT), component 2: Wholesale Power Exchange Platform; which finances the design, supply and installation of a power exchange platform, component 3: Preparation of Electricity Sector Strategic Environmental and Social Assessment, and component 4: project management and preparation of transmission systems studies. Georgia s Ministry of Finance requested reconstruction of the transmission lines connecting high voltage substations Menji, Tskaltubo Kutaisi and Zestaphoni and upgrade of the SCADA/EMS in letters dated December 25, 2015 and July 6, 2016. The request for financing is recorded in the aide-memoire dated June 10, 2016 of the implementation support mission carried out between March 7, 2016 - March 11, 2016 and May 24, 2016 - May 25, 2016. B. PROJECT STATUS The overall implementation of the project is on track. The IBRD Loan is 24 percent disbursed. Judged by implementation progress the project will achieve its stated objectives, current progress to achieving PDO is satisfactory and overall implementation progress is moderately satisfactory. Moderately satisfactory overall implementation progress is caused by slow implementation of the Component 3; Electricity Sector Strategic Environmental and Social Assessment. Financial management performance of the project is rated Satisfactory. There are no overdue audits. All other project activities, i.e., civil work contracts and institutional strengthening activities, are on track and are expected to be completed by the original closing date of March 31, 2019. The status of each component is described below: Component 1: (US$52.35 million) Transmission System Strengthening. This component finances design and supply of the ABT line and supervision services. The contract for the design and supply of the transmission line has been signed on April 27, 2015. The 5
preparation of the design for the line is nightly percent complete. Delivery of the conductors for the transmission line is complete. Contract for the supervision services and management of the contract was signed on April 23, 2015. Implementation of this component is on track. Component 2: (US$6.00 million) Wholesale Power Exchange Platform. This component finances design, supply and installation of a power exchange platform. Selection of the consultant to prepare technical specifications for the supply and installation of the Platform is on track. Component 3: (US$1.00 million) Preparation of Electricity Sector Strategic Environmental and Social Assessment (SESA). Implementation of this component is off track. Proposals for the preparation of SESA has been received from the shortlisted consultants, however the selection of the consultant has not been completed. The delay with implementation has been flagged to the government in the recent aide-memoire dated June 10, 2016. Component 4: (US$0.50 million) project management and preparation of transmission systems studies. The implementation of this component is on track. Selection of the consultant for preparation of the feasibility study for the new transmission line has started. C. PROPOSED CHANGES The proposed Level-II restructuring will accommodate the following changes: (i) Provision of goods and equipment for reconstruction the total 102 km of the three 220 kv transmission lines; Sataphlia line connecting high voltage substations Tskaltubo and Kutaisi, Ajameti line connecting substations Kutaisi and Zestaphoni, and Kolkhida line connecting substations Menji and Kutaisi. The goods and equipment include towers, foundations, conductors, Optical Ground Wire (OPGW), fittings, steel structures and protections equipment, and spare parts for the substations Menji, Tskaltubo, Kutaisi and Zestaphoni; (ii) Provision of the software for upgrading of the existing SCADA/EMS; and (iii) Revision of the Results Framework to accommodate the above change and the final targets of several project indicators. RATIONALE Reconstruction of the Menji-Kutaisi, Tskaltubo-Kutaisi and Kutaisi-Zestaphoni overhead high voltage transmission lines will further strengthen the southwestern part of the grid through providing stability of the overall transmission grid as the proposed lines serve as a backup to the 500 kv backbone of the transmission grid. The reconstruction which entails rehabilitation and upgrade of the lines is included in the 10 year network development plan which was approved by the Ministry of Energy on December 31, 2015. Expansion of the scope of the original project to include reconstruction (rehabilitation and upgrade) of the Menji-Kutaisi, Tskaltubo-Kutaisi, and Kutaisi-Zestaphoni lines and 6
substations Menji, Tskaltubo, Kutaisi, and Zestaphoni has been possible due to project savings. The rehabilitation and upgrade of these lines will ensure the stability of the western part of the transmission grid in case of failure of 500 kv Imereti line and avoid overloading of the southwestern part including project financed ABT line. The Component 1, Transmission System Strengthening will be modified to include provision of goods and equipment for rehabilitation and upgrade of the three overhead high voltage transmission lines; Kolkhida - connecting Menji and Kutaisi substations, Sataphlia connecting substations Tskaltubo and Kutaisi and Ajameti connecting substations Kutaisi and Zestaphoni, and rehabilitation and upgrade of the Menji, Tskaltubo, Kutaisi and Zestaphoni substations. The existing SCADA/EMS was financed by the Bank support through Electricity Market Support Project in more than 10 year ago. Board approved the project in in May 2001 and project was closed in 2010. The SCADA/EMS system reached end of its expected lifespan and requires upgrade to respond to the needs of the future regional power exchange. The component 2, will be modified to include financing of the software to upgrade of the SCADA/EMS. RESULTS/INDICATORS The results framework is suggested to be modified to reflect the addition of rehabilitated high voltage transmission lines and update of SCADA/EMS. Hundred and two kilometers will be added to the target value of the core indicator transmission lines constructed or rehabilitated under the project. The end target for the indicator will be increased from 142 km to 244 km. An additional core indicator, transmission lines rehabilitated, will be added. The end target for this indicator will be sent at 102 km. Four intermediary results indicators will be added as follows: (i) rehabilitation of Menji Kutaisi 220 kv line, (ii) upgrade of Tskaltubo Kutaisi 220 kv line to double circuit, (iii) upgrade of Kutaisi Zestaphoni 220kV line, and (iv) upgrade of SCADA/EMS. A revised table is attached in the annex. 7
DATA SHEET Georgia Transmission Grid Strengthening Project (P147348) EUROPE AND CENTRAL ASIA Energy & Extractives Report No: RES22664 Basic Information Project ID: P147348 Lending Instrument: Investment Project Financing Regional Vice President: Cyril E Muller Original EA Category: Full Assessment (A) Country Director: Mercy Miyang Tembon Current EA Category: Full Assessment (A) Senior Global Practice Director: Practice Manager/Manager: Team Leader(s): Anita Marangoly George Original Approval Date: 13-May-2014 Ranjit J. Lamech Current Closing Date: 31-Mar-2019 Joseph Melitauri Borrower: Responsible Agency: Ministry of Finance Ministry of Energy, Georgian State Electrosystem Restructuring Type Form Type: Full Restructuring Paper Decision Authority: CD Decision Restructuring Level: Level 2 Financing ( as of 18-Jul-2016 ) Key Dates Project Ln/Cr/TF Status Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date P147348 IBRD-83770 Effective 13-May-2014 03-Sep-2014 29-Dec-2014 31-Mar-2019 31-Mar-2019 Disbursements (in Millions) Project Ln/Cr/TF Status Currency Original Revised Cancelle d Disburse d Undisbur sed % Disburse d P147348 IBRD-83770 Effective USD 60.00 60.00 0.00 15.85 44.15 26 8
Policy Waivers Does the project depart from the CAS/CPF in content or in other significant respects? 9 Yes [ ] No [ X ] Does the project require any policy waiver(s)? Yes [ ] No [ X ] A. Summary of Proposed Changes The proposed Level-II project restructuring is to utilize project savings for the IBRD Loan (Loan No. 8377-GE) for the Georgia Transmission Grid Strengthening Project (TGSP, P147348) for financing reconstruction (rehabilitation and upgrade) of an existing 220 kv high voltage overhead transmission lines connecting high voltage substations Menji-Kutaisi, Tskaltubo-Kutaisi, and Kutaisi-Zestaphoni, rehabilitation of the same substations, and upgrade of the existing SCADA/EMS. Change in Implementing Agency Yes [ ] No [ X ] Change in Project's Development Objectives Yes [ ] No [ X ] Change in Results Framework Yes [ X ] No [ ] Change in Safeguard Policies Triggered Yes [ ] No [ X ] Change of EA category Yes [ ] No [ X ] Other Changes to Safeguards Yes [ ] No [ X ] Change in Legal Covenants Yes [ ] No [ X ] Change in Loan Closing Date(s) Yes [ ] No [ X ] Cancellations Proposed Yes [ ] No [ X ] Change to Financing Plan Yes [ ] No [ X ] Change in Disbursement Arrangements Yes [ ] No [ X ] Reallocation between Disbursement Categories Yes [ ] No [ X ] Change in Disbursement Estimates Yes [ X ] No [ ] Change to Components and Cost Yes [ X ] No [ ] Change in Institutional Arrangements Yes [ ] No [ X ] Change in Financial Management Yes [ ] No [ X ] Change in Procurement Yes [ ] No [ X ] Change in Implementation Schedule Yes [ ] No [ X ] Other Change(s) Yes [ ] No [ X ] Appraisal Summary Change in Economic and Financial Analysis Yes [ X ] No [ ] Appraisal Summary Change in Technical Analysis Yes [ ] No [ X ] Appraisal Summary Change in Social Analysis Yes [ X ] No [ ] Appraisal Summary Change in Environmental Analysis Yes [ X ] No [ ] Appraisal Summary Change in Risk Assessment Yes [ ] No [ X ] B. Project Status The overall implementation of the project is on track. The IBRD Loan is 24 percent disbursed. Judged by implementation progress the project will achieve its stated objectives, current progress to achieving PDO is
satisfactory and overall implementation progress is moderately satisfactory. Moderately satisfactory overall implementation progress is caused by slow implementation of the Component 3; Electricity Sector Strategic Environmental and Social Assessment. Financial management performance of the project is rated Satisfactory. There are no overdue audits. All other project activities, i.e., civil work contracts and institutional strengthening activities, are on track and are expected to be completed by the original closing date of March 31, 2019. The status of each component is described below: Component 1: (US$52.35 million) Transmission System Strengthening. This component finances design and supply of the ABT line and supervision services. The contract for the design and supply of the transmission line has been signed on April 27, 2015. The preparation of the design for the line is nightly percent complete. Delivery of the conductors for the transmission line is complete. Contract for the supervision services and management of the contract was signed on April 23, 2015. Implementation of this component is on track. Component 2: (US$6.00 million) Wholesale Power Exchange Platform. This component finances design, supply and installation of a power exchange platform. Selection of the consultant to prepare technical specifications for the supply and installation of the Platform is on track. Component 3: (US$1.00 million) Preparation of Electricity Sector Strategic Environmental and Social Assessment (SESA). Implementation of this component is off track. Proposals for the preparation of SESA has been received from the shortlisted consultants, however the selection of the consultant has not been completed. The delay with implementation has been flagged to the government in the recent aide-memoire dated June 10, 2016. Component 4: (US$0.50 million) project management and preparation of transmission systems studies. The implementation of this component is on track. Selection of the consultant for preparation of the feasibility study for the new transmission line has started. C. Proposed Changes Project Development Objectives Original PDO Development Objectives/Results The project development objectives are to provide reliable power transmission to the southwestern part of the grid, upgrade electricity exchange systems, and provide economically efficient, environmentally and socially sustainable electricity sector planning. Change in Project's Development Objectives Change in Results Framework Explanation: The proposed changes will enable financing of goods and equipment for rehabilitation and upgrade of the total 102 km of the three 220 kv transmission lines; Sataphlia line (15km) connecting high voltage substations Tskaltubo and Kutaisi, Ajameti line (21km) connecting substations Kutaisi and Zestaphoni, and Kolkhida line (66km) connecting substations Menji and Kutaisi. The goods and equipment include towers, foundations, conductors, Optical Ground Wire (OPGW) and protections equipment, and spare parts for the substations Menji, Tskaltubo, Kutaisi and Zestaphoni; and upgrading of the existing 10
SCADA/EMS system. Hundred and two kilometers will be added to the target value of the core indicator transmission lines constructed or rehabilitated under the project. The end target for the indicator will be increased from 142 km to 244 km. An additional core indicator, transmission lines rehabilitated, will be added. The end target for this indicator will be sent at 102 km. Four intermediary results indicators will be added as follows: (i) rehabilitation of Menji Kutaisi 220 kv line, (ii) upgrade of Tskaltubo Kutaisi 220 kv line to double circuit, (iii) upgrade of Kutaisi Zestaphoni 220 kv line to triple circuit, and (iv) upgrade of SCADA/EMS. A revised table is attached in the annex. Disbursement Estimates Change in Disbursement Estimates Explanation: Financing The disbursement estimate for the fiscal year 2017 will increase by US$5 Million to reflect payment for the supply of the equipment for rehabilitation of the proposed transmission lines and substations. Fiscal Year Current (USD) Proposed (USD) 2014 0.00 0.00 2015 5,000,000.00 5,000,000.00 2016 10,000,000.00 10,000,000.00 2017 15,000,000.00 20,000,000.00 2018 20,000,000.00 15,000,000.00 2019 10,000,000.00 10,000,000.00 Change to Components and Cost Explanation: Total 60,000,000.00 60,000,000.00 Components The Component 1, Transmission System Strengthening envisaged financing of the construction of a high voltage overhead transmission line from Akhaltsikhe to Batumi through: (i) the supply and installation of a double-circuit, 220 kv transmission line from Akhaltsikhe high voltage direct current converter station with back-to-back configuration and 500/400/220 kv substation (Akhaltsikhe station) to Batumi 220 kv substation; and (ii) the supervision of the supply and installation of the Akhaltsikhe Batumi transmission line. The overall size of the component is US$52.35 million. Initial budget for the contract for supply and installation of the line was US$45.65 million, bidding for the contract resulted in a total contract price of US$36.65 million resulting in US$9 million saving. The saving will be used for financing of the rehabilitation and upgrade of the three lines; Kolkhida line connecting substations Menji and Kutaisi, Sataphlia line connecting substations Tskaltubo and Kutaisi, and Ajameti line connecting substations Kutaisi and Zestaphoni and rehabilitation and upgrade of same four substations; Menji, Tskaltubo, Kutaisi, and Zestaphoni, through provision of good and equipment. The Component 2, Wholesale Power Exchange Platform envisaged financing of the design, supply and installation of a power exchange platform including: (i) the provision of hardware and software for metering, balancing, and trading systems; and (ii) supervision of the supply and installation of said platform through the carrying out of small works and the provision of goods and consultantsâ services. This component will also finance update of the current SCADA/EMS through provision of software. Current Component Proposed Component Current Cost Proposed Action 11
Name Name (US$M) Cost (US$M) Component 1. Transmission System Strengthening Component 2. Wholesale Power Exchange Platform Component 3. Electricity Sector Strategic Environmental and Social Assessment Component 4. Project Management and Transmission Systems Studies 12 52.35 52.35 Revised 6.00 6.00 Revised 1.00 1.00 No Change 0.50 0.50 No Change Total: 59.85 59.85 Appraisal Summary Appraisal Summary Change in Economic and Financial Analysis Explanation: The economic and financial analysis of the project was updated to estimate the flow of economic and financial benefits and costs associated with upgrade of additional transmission lines. The main economic benefit from upgrade of 220 kv Menji-Kutaisi (Kolkhida) 220 kv Tskaltubo-Kutaisi (Sataphlia) and 220kV Kutaisi-Zestaphoni (Ajameti) high voltage transmission lines will be the avoided economic costs due to improved reliability of electricity supply, which were quantified as a reduction of un-served energy due to reduced incidence of outages in the region serviced by those transmission lines. Upgrade of target lines will reduce the amount of load that has to be shed to avoid overload of these lines by 33%-50% in case of loss of 500 kv Imereti line which is a section of the transmission grid backbone transmitting power to the load center in the eastern part of the country. The cost of un-served energy was estimated at $0.33/kWh using back-up diesel generator approach. Upgrade of the 220kV Sataphlia and 220kV Ajameti 1 and 2 lines will also cause a reduction in annual technical losses in the system by 3.50 million kwh or about 1% of average annual electricity flow through those lines, which will help reduce the system costs of meeting the demand. The latter was estimated at 5.7c/kWh, which is equal to the levelized cost of energy supply by a combined cycle gas turbine power plant, which is assumed to be the power plant meeting the peak demand. The main economic costs of upgrading 220kV Kolkhida, 220kV Sataphlia, and 220kV Ajameti lines, will be the investment and incremental operation and maintenance costs. The economic analysis was updated to include the above lines. The updated economic analysis yielded an EIRR of 56.5% and NPV of US$216.0 million (the original analysis yielded an EIRR of 13.4% and NPV of US$3.12 million). Appraisal Summary Change in Social Analysis Explanation: The new activities under the proposed restructuring, including the rehabilitation and upgrade of 220 kv Tskaltubo-Kutaisi (Sataplia) and 220kV Kutaisi-Zestaphoni (Ajameti 1, 2), Menji-Kutaisi (Kolkhida 1) TLs and the Menji, Kutaisi, Tskaltubo and Zestaphoni substations will be carried out within the existing
footprint and right of way, the existing right of way will be used for access roads roads for carrying out rehabilitation works, and therefore no land acquisition or economic of physical displacement is expected. Should there be any need for land acquisition of land the GSE will prepare RAPs as per the projectâ s RPF. The original project's social safeguard performance is satisfactory. No additional measures to address social safeguard performance of the original project are planned under the restructured project. Appraisal Summary Change in Environmental Analysis Explanation: Environmental category of the project remains A. Works required for the rehabilitation and upgrade of Kolkhida, Sataplia, and Ajameti TLs and Menji, Kutaisi, Zestaphoni, and Tskaltubo substations were screened for their potential environmental and social impacts and were classified as environmental category B as those activities do not carry similar risks as the original project. The activities under restructuring will be handled as category B interventions. An Environmental and Social Management Plan (ESMP) of works to be financed after project restructuring was prepared by GSE and disclosed for public feedback. Environmental safeguard performance of the original project is satisfactory. No additional measures to address environmental safeguard performance of the original project are planned under the restructured project. 13
Results Framework Project Name: Team Leader(s) : Product Line: Transmission Grid Strengthening Project (P147348) Joseph Melitauri IBRD/IDA Requesting Unit: Responsible Unit: Country: Georgia Approval FY: 2014 Region: EUROPE AND CENTRAL ASIA Project Development Objectives Original Project Development Objective: Lending Instrument: Project Stage: Restructuring Status: DRAFT ECCU3 Created by: Joseph Melitauri on 08-Feb-2016 GEE03 Modified by: Joseph Melitauri on 16-Jun-2016 Investment Project Financing The project development objectives are to provide reliable power transmission to the southwestern part of the grid, upgrade electricity exchange systems, and provide economically efficient, environmentally and socially sustainable electricity sector planning. Results Core sector indicators are considered: Yes Project Development Objective Indicators Results reporting level: Project Level Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target No Change No Change Total electricity evacuated from the newly developed power generation stations in southwestern Georgia through the grid Total duration of outages in Batumi substation Gigawatt-hour (GWh) Value 0.00 0.00 400.00 Date 31-Dec-2013 30-Dec-2015 31-May-2018 Hours Value 136.00 0.00 0.50 Date 01-Jun-2014 30-Dec-2015 01-Jun-2017 Page 14 of 16
Results Framework New New New No Change No Change Marked for Deletion Marked for Deletion Transmission lines constructed or rehabilitated under the project Transmission lines rehabilitated under the project Transmission lines constructed under the project Power is exchanged (traded) using new exchange platform The results of the least cost planning and strategic environmental assessment have been incorporated into the Government s hydropower development plan Transmission lines constructed or rehabilitated under the project Transmission lines constructed under the project Kilometers Value 0.00 0.00 244.00 Date 01-Mar-2016 01-Mar-2016 Kilometers Value 0.00 0.00 102.00 Sub Type Date 01-Mar-2016 01-Mar-2016 Breakdown Kilometers Value 0.00 0.00 142.00 Sub Type Date 01-Mar-2016 01-Mar-2016 01-Jan-2019 Breakdown Yes/No Value No No Yes Date 31-Dec-2013 30-Dec-2015 31-Dec-2018 Yes/No Value No No Yes Date 31-Dec-2013 30-Dec-2015 31-Dec-2018 Kilometers Value 0.00 0.00 142.00 Date 31-Dec-2013 30-Dec-2015 31-Dec-2018 Kilometers Value 0.00 0.00 142.00 Sub Type Date 01-Jun-2014 30-Dec-2015 01-Jun-2017 Breakdown Page 15 of 16
Intermediate Results Indicators Results Framework Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target No Change No Change No Change New New Section from Shuakhevi to Batumi transmission line constructed Strategic Environmental Impact Assessment prepared based on the feedback from all stakeholders Wholesale power exchange systems updated Tskaltubo Kutaisi 220 kv line upgraded to double circuit Kutaisi Zestaphoni 220 kv line upgraded Kilometers Value 0.00 0.00 52.00 Date 31-Dec-2013 30-Dec-2015 01-Jun-2016 Yes/No Value No No Yes Date 31-Dec-2013 30-Dec-2015 31-Dec-2018 Yes/No Value No No Yes Date 31-Dec-2013 30-Dec-2015 31-Dec-2018 Kilometers Value 0.00 0.00 15.00 Date 30-Apr-2016 30-Apr-2016 31-Dec-2018 Kilometers Value 0.00 0.00 21.00 Date 30-Apr-2016 30-Apr-2016 31-Dec-2018 New Menji Kutaisi line rehabilitated Kilometers Value 0.00 0.00 66.00 Date 30-Apr-2016 30-Apr-2016 31-Dec-2018 New SCADA/EMS updated Yes/No Value No No Yes Date 30-Apr-2016 30-Apr-2016 31-Dec-2018 Page 16 of 16