National Power Grid Strengthening Project
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Report and Recommendation of the President to the Board of Directors Project Number: 49370-002 October 2018 Proposed Loan and Administration of Technical Assistance Grant Turkmenistan: National Power Grid Strengthening Project Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Public Communications Policy 2011 after excluding information that is subject to exceptions to disclosure set forth in the policy. CURRENCY EQUIVALENTS (as of 15 October 2018) Currency unit – Turkmen manat/s (TMT) TMT1.00 = $0.285714 $1.00 = TMT3.50 ABBREVIATIONS ADB – Asian Development Bank CAPS – Central Asia Power System EMP – environmental management plan LIBOR – London interbank offered rate MOE – Ministry of Energy PAM – project administration manual PIU – project implementation unit PMU – project management unit TA – technical assistance TUTAP – Turkmenistan–Uzbekistan–Tajikistan–Afghanistan–Pakistan WEIGHTS AND MEASURES bcm – billion cubic meters km – kilometer kV – kilovolt MW – megawatt TWh – terawatt-hour NOTE In this report, "$" refers to United States dollars. Vice-President Wencai Zhang, Operations 1 Director General Werner Liepach, Central and West Asia Department (CWRD) Director Ashok Bhargava, Energy Division, CWRD Team leader Sohail Hasnie, Principal Energy Specialist, CWRD Team members Aileen Aguilar, Operations Analyst, CWRD Michael Beauchamp, Senior Social Development Specialist (Safeguards), CWRD Christina Pak, Senior Counsel, Office of the General Counsel Olga Dyakova, Treasury Specialist, Treasury Department Kazuto Muraguchi, Finance Specialist (Energy), CWRD Diep Pham, Senior Financial Management Specialist, CWRD Atsumasa Sakai, Energy Specialist, CWRD Catherine Santiago, Senior Procurement Specialist, Procurement, Portfolio and Financial Management Department Duncan Lang, Environment Specialist, CWRD Encarnacion Webb, Associate Project Analyst, CWRD Peer reviewer Dae Kyeong Kim, Senior Energy Specialist (Smart Grids), Sustainable Development and Climate Change Department In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area. CONTENTS Page PROJECT AT A GLANCE MAP I. THE PROPOSAL 1 II. THE PROJECT 1 A. Rationale 1 B. Impacts and Outcome 4 C. Outputs 4 D. Summary Cost Estimates and Financing Plan 5 E. Implementation Arrangements 6 III. ATTACHED TECHNICAL ASSISTANCE 8 IV. DUE DILIGENCE 8 A. Technical 8 B. Economic and Financial 8 C. Governance 9 D. Poverty, Social, and Gender 9 E. Safeguards 10 F. Summary of Risk Assessment and Risk Management Plan 10 V. ASSURANCES AND CONDITIONS 11 VI. RECOMMENDATION 11 APPENDIXES 1. Design and Monitoring Framework 12 2. List of Linked Documents 14 Project Classification Information Status: Complete PROJECT AT A GLANCE 1. Basic Data Project Number: 49370-002 Project Name National Power Grid Strengthening Department CWRD/CWEN Project /Division Country Turkmenistan Executing Agency Ministry of Energy of Borrower Turkmenistan Turkmenistan 2. Sector Subsector(s) ADB Financing ($ million) Energy Electricity transmission and distribution 500.00 Total 500.00 3. Strategic Agenda Subcomponents Climate Change Information Inclusive economic growth Pillar 1: Economic opportunities, CO2 reduction (tons per annum) 890,000 (IEG) including jobs, created and expanded Climate Change impact on the Medium Environmentally sustainable Global and regional transboundary Project growth (ESG) environmental concerns Natural resources conservation ADB Financing Regional integration (RCI) Pillar 1: Cross-border infrastructure Mitigation ($ million) 3.40 4. Drivers of Change Components Gender Equity and Mainstreaming Governance and capacity Institutional development No gender elements (NGE) development (GCD) Organizational development Private sector development Public sector goods and services (PSD) essential for private sector development 5. Poverty and SDG Targeting Location Impact Geographic Targeting No Nation-wide High Household Targeting No SDG Targeting Yes SDG Goals SDG7 6. Risk Categorization: Complex . 7. Safeguard Categorization Environment: B Involuntary Resettlement: C Indigenous Peoples: C . 8. Financing Modality and Sources Amount ($ million) ADB 500.00 Sovereign Project (Regular Loan): Ordinary capital resources 500.00 Cofinancing 0.00 None 0.00 Counterpart 175.00 Government 175.00 Total 675.00 Currency of ADB Financing: USD Source: Asian Development Bank This document must only be generated in eOps. 16102018112500749002 Generated Date: 16-Oct-2018 15:43:51 PM o 'E o 'E TURKMENISTAN NATIONAL POWER GRID STRENGTHENING PROJECT S Proposed Substation Existing 110 kV Transmission Line Existing 220 kV Transmission Line Existing 500 kV Transmission Line Planned 220 kV Transmission Line o 'N o 'N Dashoguz Planned 500 kV Transmission Line S DES Dovlet Elektrik Stansiyasy (State Power Plant) New Dashoguz DES YEM Yylyk Elektrik Merkezi (Heat Electric Station) DASHOGUZ kV kilovolt MW megawatt New Dashoguz S Awaza DES Turkmenbashy YEM BALKAN LEBAP Balkanabat DES New Balkan Balkanabat S AKHAL Serdar East S New Serdar West S Gyzylarbat S Turkmenabat Gurtly S Derweze DES Abadan DES Ahal DES o o 'N AASHGABATSHGABAT 'N Mary Anew Ashgabat DES Mary DES TUTAP 5 kV initial 3 MW up to , MW National Capital Velayat Capital Velayat Boundary International Boundary MARY Velayat Administrative Division Akin to a Region TUTAP Turkmenistan–Uzbekistan–Tajikistan–Afghanistan–Pakistan Boundaries are not necessarily authoritative. 183594 17TKM ABV 183594 17TKM This map was produced by the cartography unit of the Asian Development Bank. 0 20 40 60 80 100 The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the Asian Development Bank, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries, Kilometers colors, denominations, or information. o 'E o 'E I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed loan to Turkmenistan for the National Power Grid Strengthening Project. The report also describes the proposed administration of technical assistance (TA) to be provided by the Japan Fund for Poverty Reduction for Improving Energy Efficiency and Capacity, and if the Board approves the proposed loan, I, acting under the authority delegated to me by the Board, approve the administration of the TA. II. THE PROJECT 2. The project will (i) build about 1,100 kilometers (km) of new 110-kilovolt (kV), 220 kV, and 500 kV transmission lines; (ii) construct four new substations; and (iii) expand three existing substations. The project will cover four of the five regions of Turkmenistan, and will help establish an interconnected national transmission grid to improve reliability and energy efficiency of the network. Hydrocarbon-rich Turkmenistan has been an exporter of baseload power to its neighbors, notably Afghanistan. The reinforced transmission network is an essential prerequisite for improving power supply reliability for domestic consumers and current and expanded future electricity exports. A. Rationale 3. Turkmenistan is a sparsely populated country with a total population of about 5.7 million, the lowest among Central Asian countries.1 Its economy is built around its vast hydrocarbon resources: Turkmenistan is the 12th largest natural gas producer in the world, and the 10th biggest oil producer in Asia and the Pacific.2 The country’s economy expanded at an annual rate of 12.3% during 1998–2016.3 Hydrocarbon-related products consistently averaged close to 90% of annual exports from 2001 to 2015. As the Turkmen economy is highly vulnerable to global oil and gas prices, economic growth slowed from over 10% in 2013–2014 to about 6.5% in 2017 because of a sharp contraction in oil and gas export revenues. 4. Turkmenistan has the world’s fourth largest share of natural gas reserves, at 9.4% of the global total or 17.5 trillion cubic meters, after the Russian Federation, Iran, and Qatar.4 Annual production of natural gas averaged about 60 billion cubic meters (bcm) during 2005–2016. The country is an exporter of gas, primarily to the People’s Republic of China, totaling about 45 bcm per year, half of what it used to export in the early 1990s, to its neighbor countries.5 Turkmenistan has more than 5.4 gigawatts of installed power generation capacity, nearly all of which comes from natural gas-fired power plants. The country clearly has sufficient gas resources to be a major exporter of gas and electricity. 5. Turkmenistan was a key part of the Central Asia Power System (CAPS) created under the auspices of the Soviet Union in the 1970s.6 Turkmenistan’s power system was developed at that time with a strong export orientation because of its rich hydrocarbon resources and its proximity to large populations in surrounding countries and regions, such as Afghanistan, Iran, Uzbekistan, 1 ADB. 2018. Basic Statistics 2018. Manila. 2 ADB. 2017. Country Partnership Strategy: Turkmenistan, 2017–2021. Manila. 3 International Monetary Fund. World Economic Outlook Database, October 2016. (accessed 20 April 2018). 4 BP. 2017. BP Energy Outlook: 2017 edition. https://www.bp.com/content/dam/bp/pdf/energy-economics/energy- outlook-2017/bp-energy-outlook-2017.pdf.