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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized ’ Report No: 5 1477-Kz PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN Public Disclosure Authorized IN THE AMOUNT OF US$198.5 MILLION TO THE KAZAKHSTAN ELECTRICITY GRID OPERATING COMPANY WITH THE GUARANTEE OF THE REPUBLIC OF KAZAKHSTAN Public Disclosure Authorized FOR AN ALMA ELECTRICITY TRANSMISSION PROJECT November 17,2009 Sustainable Development Department Central Asia Country Unit Europe and Central Asia Region Public Disclosure Authorized 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. CURRENCY EQUIVALENTS (Exchange Rate Effective October 29, 2009) Currency Unit = Kazakh Tenge (KZT), 1 KZT = 100 tyin KZT 1.0 = US$0.0066 US$l.O = KZT 150.71 FISCAL YEAR January 1 - December 3 1 ABBREVIATIONS AND ACRONYMS ARNM Agency for Regulation of Natural Monopolies kV Kilovolt (1,000 Volts) CAPS Central Asian Power System kWh Kilowatt Hour (1,000 Watt Hours);; DA Designated Account LA Loan Agreement DBK Development Bank of Kazakhstan LAP Land Acquisition Plan DP Development Plan LAPF Land Acquisition Policy Framework EA Environmental Assessment MES Regional Branch of KEGOC EBRD European Bank for Reconstruction and Development MHPP Moinak Hydroelectric Power Plant EIRR Economic Internal Rate of Return MVA Megavolt Ampere (1,000 KVA) EMP Environmental Management Plan MWh Megawatt Hour (1,000 kWh) ESO Energy Supply Organization NGO Non-Governmental Organization FIRR Financial Internal Rate of Return NPV Net Present Value FM Financial Management N/S North-South FY Fiscal Year OHTL Overhead Transmission Line GOK Government of Kazakhstan OSY Outdoor Switchyard GWh Gigawatt Hour (1,000,000 kWh); PIP Project Implementation Plan HPP Hydroelectric Power Plant PMD Project Management Department HV High Voltage PP Procurement Plan IBRD International Bank for Reconstruction and Development REK Regional Electricity Distribution Company ICB International Competitive Bidding ROK Republic of Kazakhstan IFR Interim Financial Report SOE Statement of Expenditures KEGOC Kazakhstan Electricity Grid Operating Company ss Substation KOREM Kazakhstan Operator of Spot Electricity Market TWh Terawatt hour (1,000,000,000 kWh) KZT Kazakh Tenge VAT Value Added Tax Vice President: Philippe Le Houerou Country Director: Motoo Konishi Sector Manager: Ranjit Lamech Task Team Leader: Imtiaz Hizkil FOR OFFICIAL USE ONLY KAZAKHSTAN Alma Electricity Transmission Project CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE ................................................................. -1 1. Country and sector issues ....................................................................................................... 1 2 . Rationale for Bank involvement ............................................................................................. 6 3 . Higher level objectives to which the project contributes ....................................................... 6 B. PROJECT DESCRIPTION.................................................................................................. 7 1. Lending instrument ................................................................................................................ -7 2 . Project development objective and key indicators ................................................................. 7 3 . Project components ................................................................................................................. 8 4 . Lessons learned and reflected in the project design ............................................................... 8 5 . Alternatives considered and reasons for rejection ................................................................. -9 C . IMPLEMENTATION ......................................................................................................... 10 1. Institutional and implementation arrangements ................................................................... 10 2 . Monitoring and evaluation of outcomes/results ................................................................... 11 3 . Sustainability ........................................................................................................................ 11 4 . Critical risks and possible controversial aspects ................................................................. -12 5 . Loan conditions.. and covenants ............................................................................................. 13 D. APPRAISAL SUMMARY .................................................................................................. 14 1. Economic and financial analyses .......................................................................................... 14 2 . Technical .............................................................................................................................. 18 3 . Fiduciary ............................................................................................................................... 18 4 . Social .................................................................................................................................... 20 5. Environment ......................................................................................................................... 21 6 . Policy Exceptions and Readiness ......................................................................................... 23 Annex 1: Country and Sector Background............................................................................... 24 Annex 2: Major Related Projects Financed by the Bank and/or Other Agencies ................. 29 Annex 3: Results Framework and Monitoring ......................................................................... 30 This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its contents may not be otherwise disclosed without World Bank authorization . Annex 4: Detailed Project Description ...................................................................................... 32 Annex 5: Project Costs ................................................................................................................ 36 Annex 6: Implementation Arrangements.................................................................................. 37 Annex 7: Financial Management and Disbursement Arrangements ..................................... 42 Annex 8: Procurement Arrangements....................................................................................... 49 Annex 9: Economic and Financial Analysis .............................................................................. 54 Annex 10: Safeguard Policy Issues ............................................................................................. 65 Annex 11: Project Preparation and Supervision ...................................................................... 67 Annex 12: Documents in the Project File .................................................................................. 69 Annex 13: Statement of Loans and Credits............................................................................... 70 Annex 14: Country at a Glance .................................................................................................. 71 Annex 15: Map............................................................................................................................. 73 MAP IBRD 37357 KAZAKHSTAN ALMA ELECTRICITY TRANSMISSION PROJECT PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSSD Date: November 17, 2009 Team Leader: Imtiaz Hizkil Country Director: Motoo Konishi Sectors: Power (1 00 YO) Sector Director: Peter D. Thomson Themes: Infrastructure services for private sector Sector Manager: Ranjit Lamech development (P) Project ID: P116919 Environmental screening category: Partial assessment Lending Instrument: Specific Investment Loan Safeguard screening category: Limited impact (B) [XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Source Local Foreign Total BORROWER 24.90 0.00 24.90 INTERNATIONAL BANK FOR 0.00 198.50 198.50 RECONSTRUCTION AND DEVELOPMENT Total: 24.90 198.50 223.40 Borrower: Kazakhstan Electricity Grid Operating Company (KEGOC) 37 Beibitshilik, Astana 010000, Republic of Kazakhstan Tel: +7 (7172) 97 01 59 Fax: +7 (7172) 97 04 55 E-mail: [email protected] Guarantor: Republic of Kazakhstan Responsible Agency: KEGOC JSC "Y. "II*.I"."\YUUR I I I ""WU., _- , 2013 I 2014 I Cumulative I 1.0 I 19 ] 81 I 143 I 198.5 I Project implementationperiod: Start: March 1,201 0 End: October 3 1, 20 14 Expected effectiveness date: February 15,201 0 Expected closing date: April 30, 201 5 Does the project depart from the CAS in content or other significant respects? ReJ PAD [ ]Yes [XINO A.3 Does the project require any exceptions from Bank policies? ReJ PAD D. 7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ ]No Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [XIYes []No Ref. PAD C.5 Does the project meet the regional criteria for readiness for implementation? Ref. PAD [XIYes [ ]No D. 7 Project development objective (Ref. PAD B.2, Technical Annex 3) The objective is to improve the reliability and quality of electricity supply to consumers in the Almaty region in an environmentally