Report No. PID11315

Project Name Yugoslavia, FED. REP. OF-Emergency (@) Stabilization of Electricity Supply of

Region and Central Asia Region

Sector Power (100%) Public Disclosure Authorized Project ID YFPE77473

Borrower(s) GOVERNMENT OF FR OF YUGOSLAVIA

Implementing Agency Address ELECTRIC POWER COMPANY OF MONTENEGRO (EPCG) Address: Niksic, Montenegro, FR Yugoslavia Contact Person: Nikola Jablan Tel: (+381-83) 214-250 Fax: (+381-83) 214-250 Email: [email protected] Public Disclosure Authorized Environment Category C

Date PID Prepared August 8, 2002

Auth Appr/Negs Date June 21, 2002

Bank Approval Date August 15, 2002

1. Country and Sector Background The power sector is one of the largest sectors of the Yugoslav economy, consisting of coal production, electricity production, and transmission and distribution of electricity. The power system in Montenegro was developed as a part of integrated power grid of former SFR Yugoslavia Public Disclosure Authorized which was a full member of the UCTE (formerly UCPTE) Western European power system interconnection. However, during the last ten years, the power sector in Montenegro was to a considerable extent de-capitalized and the price of electricity only recently started to increase towards a sustainable level.Despite large imports of electricity (about 30% of total demand), the situation in the power sector in Montenegro is extremely difficult due to a shortage of electricity supply, which caused rolling blackouts for more than six hours a day during the last winter. The main reasons for this shortage is a continuing drought which reduced the production from hydropower plants (accounting for 76 percent of the total installed capacity) and a growing demand which reached 4.1 TWh in 2001 (a 6.9 percent increase compared to 2000).The Government has already undertaken a major effort with the help of donor resources to prevent a wide spread energy crisis, which would endanger basic electricity service provided to industry and commerce, households, schools and hospitals. The Public Disclosure Authorized accumulated problems in the power sector will require time and significant resources to resolve. However, the most important ingredient for a sustainable solution will be the steady support from the Government for the reforms in the sector needed to increase prices, restructure the power industry and improve its financial viability.

2. Objectives The objective of the proposed LIC (Learning and Innovation Credit) is to test whether and to what degree electric power distribution consumers will improve payment discipline and participate in a loss reduction program in response to an introduction of remote metering, automated billing and demand side management (DSM) in pilot areas. Additional objective is to improve the financial management in the Electric Power Company of Montenegro (EPCG) through introduction of a modern management information system (MIS) in EPCG.More specifically, the project would:n Support automation of metering and billing system in selected distribution areas in , Niksic, and Bijelo Polje;n support upgrade of a computer-based financial management system as a part of the corporate MIS of EPCG; andn support the project implementation through a provision of consulting services for design, procurement and installation of distribution pilots and MIS.

3. Rationale for Bank's Involvement Through the proposed emergency project, the Bank would provide funding for introducing and testing an innovative technology which has a potential to help reduce distribution losses and improve financial condition of EPCG, which is essential for a stable supply of electricity in Montenegro. Furthermore, the Bank's experience in other countries would facilitate the learning about prospects for replication and scaling up of pilot projects through a systematic monitoring and evaluation of project results.The Bank brings to the energy sector in Montenegro its unique experience in identifying, selecting and implementing priority investments for improving basic energy and infrastructure service in post-conflict countries. The Bank will also help to mobilize and target other donor resources for emergency repair and rehabilitation of power infrastructure and to coordinate donor's activities in this sector.

4. Description The proposed credit will have two main components:Power Distribution Pilots: Under this component funding will be provided for the supply and installation of equipment and provision of consulting services needed to automate metering and billing in selected distribution areas in Podgorica, Niksic, Herceg Novi and Bijelo Polje and refurbish power distribution and supply facilities.Financial Management System: Under this component funding will be provided for the supply and installation of a computer-based financial management system as a part of the corporate MIS in EPCG. This component will also include technical assistance to EPCG in design, procurement and implementation of MIS.

5. Financing Total ( US$m) BORROWER $2.00 IBRD IDA $5.00 Total Project Cost $7.00

6. Implementation The project will be implemented over a 3-year period. The Ministry of Economy of the Republic of Montenegro and EPCG are main counterparts for the project. The overall coordination of the project would rest with the Project Management Unit (PMU), which has been established in EPCG. The PMU will be headed by a Project Manager, who will have overall

- 2- responsibility for the project. The PMU will be assisted by international consultants funded under the credit. The consulting team will include technical specialists, procurement and contract management specialists. The PMU Project Manager will ensure that all project objectives and monitorable targets as specified in the Project Implementation Plan (PIP) are on track and achieved. The PMU will be responsible for the day to day operations of the project, procurement and financial management, including reporting to the Government and to the Bank.

7. Sustainability The learning under this project will take place through a structured pilot which will define baseline performance indicators and target values in each test area, monitor DSM impacts and costs, evaluate the response of consumers' groups to specific measures, and adjust the program to achieve aimed performance. The pilot will be considered ready for replication and larger scale implementation if the collection rate among target consumers improves and if distribution losses in participating distribution branches are significantly reduced. It is expected that the pilot project will help identify organizational changes needed in distribution companies to improve their financial management and provide better quality and lower cost service to the consumers.

8. Lessons learned from past operations in the country/sector Similar demand side management programs have shown promising results in the city of Skopje and Struga, FYR Macedonia, based on the review prepared in 1998. The best economic results were achieved with usage-shifting programs, such as time-of-day rates for thermal storage heating and load control of end-user equipment including water heaters and space heaters. In Hungary, recently privatized power distribution company EDASZ reported significant improvements in its financial performance and operating efficiency after an introduction of demand side control measures, such as ripple control of household boilers.

9. Program of Targeted Intervention (PTI) N

10. Environment Aspects (including any public consultation) Issues : In accordance with OP/BP/GP 4.01 (Environmental assessment), the project has been rated Environmental category C. The reason for this rating is that the physical component of this project is modernization of the existing distribution facilities through introduction of a modern computer-based systems for metering and financial management, and there will be no construction of new facilities. The main environmental issues are: disposal of used equipment and materials; noise (during construction) and public safety. These issues will have to be addressed in both the design and operation phases of the project.

11. Contact Point:

Project Team Leader Dejan R. Ostojic The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: (202) 473-3507 Fax: (202) 614-1582

-3- 12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop

Note: This is information on an evolving project. Certain components may not be necessarily included in the final project.

This PID was processed by the InfoShop during the week ending August 16, 2002.

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