Document of The World Bank Public Disclosure Authorized

Report No. 14978-SLO

STAFF APPRAISAL REPORT

THE REPUBLIC OF Public Disclosure Authorized

ENVIRONNENT PROJECT

May 1, 1996 Public Disclosure Authorized

Energy, Environment and Division Public Disclosure Authorized Central Europe Department Europe and Central Asia Region CURRENCY AND EQUIVALENT UNITS

Currency Unit = Slovene Tolar (SIT)

June Dec. Feb. Aug. Oct. Jan. 1992 1993 1994 1994 1995 1995 1995 1996 US$1.00 81.3 113.2 129.9 130.0 124.0 122.1 115.2 127.2

WEIGHTS AND MEASURES

Metric System

ABBREVIATIONS AND ACRONYMS

APA Component - Air Pollution Abatement Component APAP - Air Pollution Abatement Program DM - Deutsche Marks EFSAL - Enterprise and Financial Sector Adjustment Loan EIA - Environmental Impact Assessment EU - FGD - Flue Gas Desulfurization GIC - Geographical Information Center GIS - Geographical Information System GDP - Gross Domestic Product ICB - International Competitive Bidding FA - Financial Agent IMF - International Monetary Fund IRP - Investment Recovery Project LIB - Limited International Bidding LPG - Liquid Gas KBM - Nova Kreditna Banka Maribor MEPP - Ministry of Environment and Physical Planning PHARE - Poland Assistance for Economic Reconstruction PIP - Project Implementation Plan PIT - Project Implementation Team PM - Particulate Matter (PM,O - particles less than 10 microns in diameter) SIT - Slovenian Tolar SOE - Statements of Expenditure

SO2 - Sulfur Dioxide TA - Technical Assistance TSP - Total Suspended Particles TWh - Terawatthour (1012 Wh) WHO - World Health Organization

SLOVENIA-FISCAL YEAR

January I - December 31 THE REPUBLIC OF SLOVENIA

ENVIRONMENT PROJECT

Table of Contents

Loan and Project Summary ...... iii

I. Introduction 1

II. The Energy Sector and the Environment .. 3 A. The Energy Sector in Slovenia .3 B. The Environment in Slovenia. 3 1. Air Pollution. 4 2. Water Pollution. 6 3. Solid Wastes. 7 4. Administrative and Regulatory Framework. 7

III. The Project ...... 8 A. Introduction ...... 8 B. Air Pollution Abatement Component (World Bank Loan of DM30 million equivalent) ...... 9 1. Background ...... 9 2. Objective ...... 10 3. Description...... 10 C. Geographical Information System Component (World Bank Loan of DM4.6 million equivalent) .. 15 1. Background .15 2. Objectives .15 3. Description .16 D. Project Costs .. 17 E. Project Financing .. 18 F. Environmental Impact .. 18

IV. Project Implementation ...... 19 A. The Borrowers and Beneficiaries .19 1. The APA Component .19 2. The GIS Component ...... 21 B. The World Bank Loans .. 21 C. Management and Implementation .. 21 ii

D. Procurement ...... 22 E. Disbursements ...... 22 F. Auditing ...... 23 G. Monitoring and Reporting ...... 23 H. Status of Project Preparation ...... 24 I. Financial Analysis of the Air Pollution Abatement Program ...... 24

V. Benefits and Risks ...... 26 A. APA Component: Economic Analysis and Benefits ...... 26 B. Benefits of the GIS Component ...... 31 C. Risks ...... 31 1. APA Component ...... 31 2. GIS Component ...... 34

VI. Agreements and Recommendations .34

Annexes

Annex 1-1 List of Documents on File Annex 2-1 Health and Economic Benefits Annex 3-1 Key Assumptions, Fuel Use, Emissions, and Ambient Air Quality, Conversion Rates, and Costs and Benefits of the Project Annex 3-2 Project Implementation Plan Annex 3-3 Monitoring Indicators Annex 4-1 References Annex 4-2 Financial Projections for the Air Pollution Abatement Program

Map Slovenia (IBRD No. 26882)

This report was preparedon the basis of pre-appraisalmissions to Sloveniain March and September1994, and the appraisalmission in February1995. Themissions were led by Mr. HelmutSchreiber (EC2ET; Task Manager). Mission members were Messrs./Mmes.: Hormoz Aghdaey (EC2CO); Wendy Ayres (ENVPE; Consultant); Gordon Hughes (ENVPE); NaushadKhan (EC2DR);Tamas Markus (EC2HU); Paul Teleki (Consultant). The report was issued by the Energy, Environmentand Transport Division (Hans J. Apitz, Division Chief) of the Central Europe Department(Jane Loos, Acting Director).

C:\DATA\WB\SLO-ENV\SAR\SA-1.WPD (iii) THE REPUBLIC OF SLOVENIA ENVIRONMENT PROJECT

LOAN AND PROJECT SUMMARY

Borrowers EnvironmentalFund of Slovenia(EcoFund) for Air PollutionAbatement Component; Republicof Sloveniafor GeographicalInformation System Component.

Guarantor Republicof Slovenia(for Air PollutionAbatement Component only).

Beneficiaries Air PollutionAbatement (APA) Component: Residents of heavily pollutedcities who receiveloans from the EcoFundunder the Air PollutionAbatement Program (APAP) to convert from dirty fuels to cleaner fuels.

GeographicalInformation System (GIS) Co=ponent: Ministry of Environmentand PhysicalPlanning.

Loan Amounts DM 34.6 millionequivalent (DM 30 million for the APA Componentand DM 4.6 million for the GIS Component).

Terms LIBOR-basedSingle Currency Loans in DeutscheMark (DM)repayable over 15 years with 5 years grace period for level repayment of principal at the World Bank's variableinterest rate.

CommitnentFee 0.75 % on undisbursedcredit balances, beginning 60 daysafter signing, less any waiver.

OnlendingTerms [For APA Componentonly]: Interestrate: Two percentagepoints aboveWorld Bank rate. Terms: Households up to 6 years. Boilerhouse operators: up to 10 years.

PovertyCategory Not applicable.

ProjectCost (DM Million): Loal Foreign Total

FinancingPlan APAPComponent GIS Component IBRD: 30.0 4.6 EcoFund: 10.0 - Final Borrowersunder APAP: 10.0 - Government: -- 0.8 50.0 5.4

EconomicRate of Return Air PollutionAbatement Component: Between38-62% GeographicalInformation System Component: Not Applicable

Staff AppraisalReport 14 978-SLO

ProjectED Number 8853

THE REPUBLIC OF SLOVENIA

ENVIRONMENT PROJECT

l. INTRODUCTION

1. Slovenia is a former republic of Yugoslavia which became an independent state in 1991. The country is situated on the south-eastern fringes of the , bordered by in the north, in the west, Hungary in the east, and in the south. Slovenia is one of the smallest countries in Europe; with an area of 20,250 square kilometers it is about half the size of Switzerland. The country has a population of about two million people and a relatively low population density of about 97 persons per square kilometer, similar to and about half that of Great Britain. The capital city, Ljubljana, with a population of about 300,000, is the country's largest city. The second largest city is Maribor, with a population of about 105,000 inhabitants.

2. Economic Environment. With a per capita income of about US$7,000 in 1994, Slovenia is the most prosperous country in the Central and East European region. The Slovene economy is oriented towards services and manufacturing, with the service sector accounting for about 55 percent of total output, and industry accounting for about 30 percent. The economy relies heavily on trade, with exports and imports each averaging over 60 percent of Gross Domestic Product (GDP) in recent years. Trade with the European Union accounts for about 60 % of Slovenia's external trading volume.

3. Slovenia's overall macroeconomic performance in recent years has been quite positive: real GDP grew by 5.5 % and 5.0 % in 1994 and 1995 (estimate), respectively, compared to 1.0 % in 1993. Inflation was 8.6 % per annum in 1995. The recovery in investment and GDP has been accompanied by current account surpluses of about 3 % of GDP in 1994 and 1995. Reserves now comprise more than 4.5 months of imports.

4. Slovenia, as one of the successors of the former Socialist Federal Republic of Yugoslavia, inherited that republic's portfolio of Bank loans of projects located within its boundaries. Of these, only one loan for the Slovene Coast Water Supply and Sanitation Project remains ongoing. Slovenia became a member of the International Monetary Fund (IMF) in December 1992, and a member of the World Bank Group in February 1993, as a successor to membership of the former Yugoslavia. Last year's staff report on Article IV consultations was discussed at the IMF Board on September 1, 1995. Close cooperation has been maintained with IMF staff.

5. The Bank's program of assistance to Slovenia focuses on the core of the Government's structural reform program, i.e. reform of the enterprise and banking sectors and on the 2 environment. The Enterprise and Financial Sector Adjustment Loan (EFSAL), the first and only loan approved since independence, supports the Government's efforts in privatization of socially- owned enterprises, governance reform of State-owned enterprises, bank restructuring and privatization, enhancement of the regulatory framework for banking, labor market adjustment, and strengthening of the social safety net. Overall implementation of the program supported by the EFSAL progressed well, and the second tranche was released in December 1995. In addition, an Investment Recovery Loan is currently under preparation by the Bank and is expected to be negotiated soon.

6. Because of its relatively high per capita income, and growing access to other sources of international finance, the scope for World Bank support is being tailored to a few key areas where the consider the Bank's inputs to be particularly helpful (i.e. banking and environment). A limited Country Assistance Strategy was included in the EFSAL President's Report dated June 22, 1993.

7. In March of 1993 the Slovenian Government requested the Bank to cooperate in preparing the Slovenia - Environment Project and to help fund an Air Pollution Abatement Program in major Slovenian cities as well as a Geographical Information System. The Slovenia - Environment Project is in line with the Bank's assistance strategy to focus on high-priority projects with strong economic returns. Air pollution has been the highest priority area for the Slovenian Government in the field of environmental protection. In addition, the project helps the country to develop and strengthen an institution, the EcoFund, that will be active in dealing with environmental issues in other sectors as well. Moreover, the project serves as a catalyst for activities to improve the country's environment. European agencies such as the European Bank for Reconstruction and Development (EBRD) and the European Union (EU), are currently supporting the improvement of Slovenia's environment to bring the country's environmental performance in line with Western European countries. The EU, the British Know How Fund, the Austrian Government, USAID and other bilateral and international donors have supported the preparation of this project.

8. Documents and detailed information concerning the sector and the project are available in the Project Files (Anne L1). 3

II. THE ENERGY SECTOR AND THE ENVIRONMENT

A. The Energy Sector in Slovenia

9. Around two thirds of Slovenia's fossil fuel requirements are met by imports. Slovenia has about 75 million tons of proven reserves of brown , 243 million tons of and 35 thousand tons of uranium. Oil and gas reserves are negligible. Total consumption was 6.24 million tons oil equivalent (mtoe) in 1988. Until 1992, it dropped by 18% to 5 mtoe, mostly as a result of economic contraction in the wake of the transition to a market economy, which needed to reorient itself after independence. Of 1992 total primary energy consumption (after losses, which account for 40%) 38% went to industry, 38% to households and small enterprises, and 23 % to the transport sector. Enterprises in the power subsector have been reorganized into three separate groups: seven independent power generation enterprises; a holding company (ELES) which owns the transmission grid and the distribution enterprises; and the plant (KRSKO) which is 50% owned by ELES and 50% by Croatia. The enterprises for transmission and distribution of have also been reorganized and the socially-owned shares of these enterprises are being privatized. A draft law on Production, Transmission, and Distribution of Energy is near completion, and is currently being aligned with European Union (EU) legislation. Two studies on the legal, regulatory, and institutional framework of the power sector and on the regulatory framework of the gas subsector are nearly completed.

10. The Government has been implementing its "Strategy for Rational Use and Supply of Energy in Slovenia" which calls for a 7 % real annual increase in power prices for the next few years, with a view of achieving 80 % of average EU prices by 1998 and parity by the year 2000. Power prices were increased twice in 1994 by a total of 25.2 % in nominal terms, and once in April 1995, by 15 % in nominal terms. The Government increased power prices again in August 1995 by 7 % in nominal terms. As a result, Slovene power prices for industry and household are currently at 73 % and 65% of the average EU prices, respectively. (The current power price levels for industry are equal to those in France, the Netherlands, Finland, and Greece and higher than in Sweden. Power prices for households are at the same level as those in Sweden.) Enterprises in the power subsector and transmission and distribution of natural gas have been reorganized, with the intent of eventual privatization. This process has started in the hydropower sector.

B. The Environment in Slovenia

11. Slovenia's extensive areas of natural beauty, its well-preserved towns and cities, and its location have made it a popular destination for tourists. Tourism is expected to grow rapidly over the next decades as western Europeans seek new destinations and as Central and Eastern 4

Europeans enjoy rising incomes. Slovenia has abundant natural resources and a relatively unspoiled environment. About 53 % of its territory is forested, well above the European average of 33 %. The country has one national park, in the Julian Alps, which provides habitat to several endangered species, including the ibex and the capercaillie. There are plans for several more national parks in areas of particular natural beauty or to protect the habitat of endangered species such as the European brown bear.

1. Air Pollution

12. Air pollution in towns and cities is the environmental problem causing the greatest health and economic damage in Slovenia. In Slovenia, households and district heating plants still rely heavily on mostly domestically produced high-sulfur brown coal to provide space heat and hot water. Since few furnaces are equipped with air pollution control devices, the burning of coal leads to high ambient concentrations of particulate matter (PMo,, particles equal to or below 10 microns in diameter) and sulfur dioxide in local air basins during the winter months. The worst affected cities and towns include Maribor, Zagorje, Celje, Trbovlje, Hrastnik, Ljubljana (inlcuding, among others, Domzale and Kamnik), Crna, Kranj, Ptuj, Krsko, Rogaska Slatina and Jesenice.

13. During the heating season -- which lasts from October to April -- peak 24-hour ambient concentrations of PM1O can reach over 250 micrograms per cubic meter, and of sulfur dioxide over 400 micrograms per cubic meter in the most polluted towns'. These levels considerably exceed the World Health Organization (WHO) 24-hour guidelines of 125 micrograms per cubic meter for both PM,O and sulfur dioxide2 . (Slovenia has adopted the WHO standards for its own air quality regulations.) Furthermore, 1-hour concentrations can easily exceed 1,000 micrograms per cubic meter compared with the WHO guideline of 350 micrograms per cubic meter. However, since non-heating season concentrations of PM,O and sulfur dioxide are very low -- 24-hour concentrations average about 12 micrograms per cubic meter for PM,0 and about 25 micrograms per cubic meter for sulfur dioxide -- annual averages are not especially high. Even in the worst polluted cities and towns, annual averages for PM,o range between 20-70 micrograms per cubic meter, and for sulfur dioxide between 30-75 micrograms per cubic meter, compared with the

I Fineparticulate pollution is caused mainlyby the combustionof fossilfuels, and typicallycontains a mixtureof soot, and sulfateand nitrate particles. Fine particles almostcertainly pose a greater threat to health than larger particles, since they are more likely to be toxic and can be breathed deeply into the lungs.

2 Theselevels also exceedEuropean Union standards, which are 250 for PM,0 and between250 and 350 for sulfur dioxide dependingon associatedlevels of PM,o. 5

WHO standards of 50 micrograms per cubic meter for each. Nitrogen dioxide is not yet a problem anywhere in Slovenia. Even in the worst-polluted cities, annual, 24-hour, and 1-hour averages are well below levels thought to damage health, and nowhere exceed the WHO (or European Union) guidelines3 . Levels of nitrogen dioxide are likely to increase, however, as car- ownership increases.

14. Although annual averages are not particularly high, PM1O and sulfur dioxide in the ranges found in Slovenia's most polluted cities and towns almost certainly cause considerable damage to health. According to the best scientific evidence, most health damage from exposure to sulfur dioxide is caused by brief exposures to high ambient concentrations (peak exposures), rather than by long-term exposures to low annual means. For PMIO,both long-term and peak exposures can damage health.

15. Furthermore, recent epidemiological evidence has found associations between excess mortality and exposures to PMIOat annual averages as low as 18 micrograms per cubic meter (Dockery, et. al., 1993). These studies suggest that there may be no safe threshold levels below which health damage does not occur and that the effects are linearily related to ambient concentrations. The associations are strongest for inhalable particles (PM10), fine particles (equal to or below 2.5 microns in diameter), and for sulfate particles4 , and less strong for total suspended particulates or sulfur dioxide.

16. Annex L2 contains estimates of the reductions in mortality and morbidity that could be expected from reducing air pollution in Maribor, one of the initial beneficiaries of the proposed Bank loan, based on dose-response functions developed in North America and Western Europe.

17. Point sources of air pollution. About 86 % of Slovenia's emissions of sulfur dioxioe come from coal-fired power plants and industrial boilers. Slovenia's largest power plant, in Sostanj, was responsible for almost half the country's total sulfur dioxide emissions in 1991. However, emissions from this facility have been declining by 50 % since a flue gas desulfurization unit (FGD) became operational in May 1995.

3 The EuropeanUnion annuallimit value for nitrogendioxide is 200 microgramsper cubic meter. The EU has not adopteda 24-houror hourlystandard. WHOhas not suggestedan annualguideline, but does have guidelines of 150 and 400 microgramsper cubic meter for 24 hours and I hour respectively.

4 Sulfate particlesare formed from sulfur dioxide. Reducingsulfur dioxideconcentrations will also reduce this damagingform of particulatematter. 6

18. Although emissions from the Sostanj thermal power plant are still large, they do not cause significant health damage. Because the tall stacks emit the sulfur dioxide far above the valley floor where most people live and because the power plant supplies heat to households in the nearby towns, air quality near the power plant is actually quite good. Concentrations of sulfur dioxide and especially of PM1 o are better than the national averages in the nearby town of Velenje. The emissions of sulfur dioxide do damage the nearby forests, however, and contribute to long- range acid depositions. A World Bank study estimated this damage to equal about 4 million DM per year. However, reducing emissions from the Sostanj power plant below the 50 % reduction already planned by installing a second FGD would cost about 17.5 million DM per year compared to benefits of about 2 million DM (for more detail see Ayres and Dixon, 1995). Slovenia can achieve significant health benefits, and at the same time reduce its countrywide emissions of sulfur dioxide -- and acid depositions -- by investing instead in the replacement of polluting fuels by gas in households and district heating plants.

19. Two other large power plants, Ljubljana and Trbovlje, together were responsible for 13 % of total sulfur dioxide emissions in 1991. Still both power plants had reduced emissions considerably over 1990 levels primarily by substituting imported low-sulfur coal (sulfur content under 0.4 %) for the indigenous product (sulfur content up to 3 %). Emissions from Ljubljana were 33 % lower in 1991 than 1990 and emissions from Trbovlje were 14 % lower.

2. Water Pollution

20. Nearly all Slovenia's drinking water comes from uncontaminated underground aquifers and requires no treatment. However, in regions with intensive agricultural and livestock operations, there is evidence that nitrates and pesticides sometimes leach into the groundwater. Levels at most sampling points have remained below the European Union standards for drinking water. However, concentrations appear to be increasing and there is concern that some aquifers may become unusable for drinking water if this trend is not reversed. Industrial effluents have also occasionally contaminated drinking water supplies. At present, neither bacteriological nor toxic metal contamination of drinking water pose major problems.

21. In most parts of the country there are abundant reserves of groundwater for the future. However, there is a shortage of groundwater to serve the coastal towns, particularly during the busy summer months. Slovenia is now exploring options to supply drinking water to the coast from distant aquifers or to use surface water sources which must be treated.

22. As in most countries of Central and Eastern Europe, Slovenia disposes much of its domestic and industrial wastewaters directly into surface waters without treatment. As a result, most of the country's rivers contain contaminated stretches downstream of municipal and industrial sources. Slovenia's most polluted river, the Sava, flows through the most heavily 7 populated areas, collecting municipal and industrial wastewater from the country's largest and most industrial cities. The country's cleanest river, the Soca, originates in the Julian Alps and flows through the lightly inhabited mountain region for most of its length.

23. While surface water contamination is not currently a priority in Slovenia, it is likely to become so in the future as water-based recreational activities, such as boating, fishing, and swimming, increase. There is also a concern that contaminated surface waters may seep into underground aquifers making them unfit for drinking water.

3. Solid Wastes

24. Disposal of solid and hazardous wastes will likely become a priority in the future. Landfill capacity is extremely scarce, and local resistance is making it difficult to develop new capacity for the future. Substantial illegal and uncontrolled dumping has taken place in the past. A master plan for collecting and disposing of municipal and hazardous solid wastes is currently being prepared with the assistance of the European Union.

4. Administrative and Regulatory Framework

25. When Slovenia achieved indepedence in 1991, the Ministry of Environment and Physical Planning (MEPP) was a small organization with a staff of only five people. Still, between 1991 and 1993 the Ministry of Environment drafted a comprehensive Environmental Protection Act and gained Parliamentary approval for it in June 1993. The implementation of this Act is placing severe strains on the capacity of the Ministry. The Ministry will therefore need to establish priorities and timetables to efficiently allocate resources for developing and implementing key regulations and other measures.

26. The policy-making team that will be primarily responsible for this work now consists of 16 members. Nonetheless, this team is greatly over-extended and is likely to become more so as it starts to coordinate its work with other Government ministries and as it takes on new responsibilities, especially in the context of the country's objective of joining the European Union within a few years. The Ministry strengthened the permanent staff of the Ministry at a senior level by appointing a secretary-general and managers responsible for financial matters and plans to add staff for organizational matters (covering both the operations of the Ministry and its affiliated bodies such as the Environmental Protection Agency and the Pollution Inspectorate).

27. With an increasing number of projects under its management, including the proposed Slovenia Environment Project, the Ministry recognizes the need to establish a Project Implementation Team. Since the Environmental Fund of Slovenia (EcoFund) will be responsible for identifying, appraising and implementing environmental projects, this Project Implementation 8

Team will reside within the EcoFund and strengthen all of its activities. The staff of the Team will include specialists in project management, procurement and financial management.

28. In the past, many responsibilities in the field of environmental protection were devolved to municipal and district governments or were fragmented between different Ministries and agencies. A single Environmental Protection Agency has been established to coordinate and oversee the detailed implementation of the regulatory framework specified in the Environmental Protection Act. Unfortunately, the merger of the component organizations which make up the Environmental Protection Agency caused severe disruption and demoralization among its staff, partly as a result of a clash of cultures between senior staff trained under the old system and younger but less experienced staff who are better attuned to the new role and responsibilities of the Agency. The Ministry has plans to (a) establish an appropriate organizational structure for the Agency; (b) define responsibilities and modes of operation; (c) develop appropriate links with other Ministries and local governments; and (d) recruit and train additional staff to carry out the Agency's functions.

III. THE PROJECT

A. Introduction

29. The proposed Project would includes two major components: (a) the Air Pollution Abatement Component; and (b) the Geographical Information System Component.

a. Air Pollution Abatement Component. The Air Pollution Abatement Program (APAP) assists households and boilerhouse operators in polluted cities in Slovenia to convert all boilerhouses and households burning polluting fuels or heating systems (coal, wood, other solid fuels, heavy fuel oil; short: polluting fuels) to use cleaner fuels or heating systems (natural gas, district heating, liquid petroleum gas, low sulphur oil, heat pumps, solar energy; short: cleaner fuels). The APAP provides loans to households and boilerhouse operators to cover 80 % of the conversion costs. A pilot phase for the APAP was completed in Maribor, the second largest city in Slovenia, during the autumn of 1995. Based on lessons learnt from this pilot phase, the APAP will become a self-sustaining revolving loan fund (similar to the successful Slovenia housing fund) that will finance similar projects in other polluted cities in Slovenia.

b. GeographicalInformatin Systm CoQmonen. The objectiveof the Geographical Information System Component (GIS) is to collect, organize, and manage information for improved development and land-use planning, particularly in the 9

areas that are experiencing rapid development. It would also motivate municipalities to build local GIS centers as a part of the national GIS infrastructure.

These componentsare described in detail below:

B. Air Pollution Abatement Component (World Bank Loan of DM 30 MUlion equivalent)

1. Background

30. Maribor is Slovenia'ssecond largest city, with a populationof about 105,000people living in about 39,500 households. Although Maribor has both natural gas and district heating distribution systems, over one-third of the households and boilerhouses burn coal or wood to provide space heatingand hot water. An additional20 % of boilerhousesuse high sulfur fuel oil for energy. As a result, concentrationsof particulates and sulfur dioxide are high during the heating season, damaginghealth and the environment.

31. Concern about local levels of air pollution prompted the Maribor City Council to adopt regulations in 1992 designed to achieve the progressive conversion of all heating systems, boilerhousesand householdsburning polluting fuels to uses of cleaner fuels. These regulations set strict standardson smokeemissions from heatingsystems and boilers in heavilypolluted areas of the city, implyingthat householdand large boilerscurrently burning coal, wood, or heavy fuel oil should be converted if they were replaced or significantlymodified.

32. Since then, levels of air pollutionhave fallen but this has largely been the consequenceof a sequenceof warm winters. The rate of conversionsfrom polluting to cleaner fuels has been disappointingwith about 200 householdsa year converting from coal or wood to gas or other cleaner fuels. Hence, the local administrationand the national environmentalauthorities have been exploring options for acceleratingthe transitionto cleaner fuels.

33. A market survey was carried out in North Mariborto investigatethe costs of and possible barriers to fuel conversion. This concluded that the technical and economic potential for conversions5 was very high. The critical barrier to conversionwas the high initial capital cost required, for example, for connectionsto the gas pipeline and for the installation of gas-fired heatingequipment. (Detailsof the surveyresults are shown in Anne 11 TabklA3-1.3). To help

Conversionanalyses often distinguish technical potential from economicpotential. Technicalpotential is a broaderconcept and includes all householdsthat couldreasonably consider converting their spaceheating system to gas firingregardless of the relativecost of doingso. Economicpotential is a subset of technicalpotential and includesonly those which are likelyto convert. 10 users switch to gas, the city provided low-interestloans through a local bank for a period. This program was successful,but the limited funds available meant that the demand for loans greatly exceeded the supply.

34. In 1995 the Ministry of Environmentpromulgated a set of national emissionstandards for smallboilers and heating systemssimilar to those which had been introducedearlier in Maribor. In order to accelerate the rate of conversionsfrom polluting to cleaner fuels, the Ministry has encouraged the EcoFund to introduce a program of conversion loans covering all of the most polluted towns and cities in the country. To assist the EcoFund in their preparations for negotiation,consultants prepared three alternateestimates of the potentialloan volumesto finance conversions of home heating systems to cleaner fuels in the six most polluted Sloveniancities. The three alternate methodswere selectedto recognizethe uncertaintyin the data supportingany singlemethod. Assuming75 % of total loan fundingfrom the World Bank, the alternativeswould require WB loans of DM32.1 million, DM34.9 million and DM41.8 million. Based on these findings, the study concludedthat the Ecofundcould plausibly expect to use a World Bank loan of DM30.0 million to finance conversionin six cities over the next five years.

35. Hence, the Bank's role in this Project has been to help developan institutionalmechanism to assist in financingconversion without relying upon interestrate subsidies. This will enable the program to be extendedto all urban areas sufferingfrom poor air quality. In turn the availability of financefor conversionon reasonableterms will allow the environmentalauthorities to introduce stricterair pollution controls and thus to acceleratethe reductionin high levels of air pollution to which many urban residents are exposed.

2. Objective

36. The objective of the Air Pollution Abatement Component is to reduce ambient concentrationsof PM1o and sulfur dioxide along with the health damageassociated with exposure to air pollution. The Project is designed to achieve this objective by providing loans to householdsand boilerhouseoperators to convert to clearner fuels from pollutingfuels. An initial phase in Maribor to establish the mechanismfor administeringthe loans and to observe the rate of conversion when such loans are made available has been completed. Thus, loans under the Project will be offered for household and boilerhouse conversions in urban areas with unacceptablelevels of air pollution.

3. Description

37. The proposedProject, throughthe Air PollutionAbatement Program (APAP),will provide fuel conversionloans to about 6,500 householdsand about 65 boilerhouse operators during the three years over whichthe Bank loan will be disbursed. These loans will be used to finance the 11 conversion of heating and hot water systems currently using polluting fuels to the use of cleaner fuels. Taking account of the recycling of repayments to fund new loans, it is estimated that the Project will finance the conversion of at least 12,000 households and 120 boilerhouses over a period of 8 years.

38. A pilot for the APAP was undertaken during the autumn of 1995 in order to test the demand for conversion loans and to develop the institutional procedures for the full program. Loans for the conversion of 193 households and 5 boilerhouses, amounting to approximately DM 1.5 million, were approved in a period of 3 months, despite the fact that the pilot occurred at the beginning of the heating season so that many households had already made commitments for the current year. A detailed evaluation of the pilot phase carried out in February 1996 showed that the arrangements for handling loan applications and disbursements are satisfactory, though some minor adjustments have been proposed and agreed. The EcoFund is now making the necessary operational arrangements to extend the APAP to all of the urban areas to be covered by the Project.

39. The Air Pollution Abatement Program will operate as follows:

(a) The Slovene EcoFund has established and will manage the Air Pollution Abatement Program (APAP) drawing upon its own resources and the proceeds of the Bank loan. Eligible cities would include those suffering from serious air pollution as listed below -- Annex J1Aprovides details on ambient air quality for 1990-95 in these towns and cities. The list of eligible towns and cities will be reviewed in the course of a mid-term evaluation of the component 12 months after the Project becomes effective. The following air basins would be included in the APAP: Maribor, Zagorje, Celje, Trbovlje, Hrastnik, Ljubljana (inlcuding, among others, Domzale and Kamnik), Crna, Kranj, Ptuj, Krsko, Rogaska Slatina and Jesenice.

(b) The EcoFund has sub-contracted the loan administration (processing of loan applications for heating conversions, loan disbursement, and the administration of loan repayments) to a commercial bank (financial agent). Nova Kreditna Banka Maribor (NKBM) was selected as the financial agent following a competitive procedure acceptable to the Bank. This financial agent will be paid according to a fixed schedule of fees6 . The EcoFund has preparedan operatingmanual for the selectedbank covering,inter alia, the eligibiity of householdsand boilerhouseoperators for sub-loans under the APAP, terms and conditions of loan repayment, penalties for late payment, and the handling of

6 TheSlovene Housing Fund, which makes loans to householdsacquiring their apartments under the privatization program,provides a successfulmodel for the operationof the APAP. Detailsof the scheduleof fees are given in Annex Table A4.1. 12

defaults. This documentis acceptableto the Bank. The Financial Administration Agreementwith the financial agent coveredthe pilot programalready completedin the autumn of 1995 and has been revised to cover the whole Program. The performance of the financial agent will be assessed during the mid-term review. If this performance is judged to have been unsatisfactory, then a new agent will be selected to handle the remainder of the program on the basis of a competitive procedure acceptable to the Bank. The auditors of the EcoFund will carry out a regular audit of the financial position of the loan fund. The auditors of the financial agent will also carry out a regular audit of the performance of the financial agent in processing loan applications and administering repayments.

(c) Sub-borrowers may borrow up to 80 % of the required conversion costs. Sub-loans will be denominated in DM and loan accounts maintained in DM but all transactions will be in the Slovenian Tolar equivalent of the relevant DM amount at the NKBM buying rate prevailing on the day of the transaction. The sub-borrowers will, thus, carry the foreign exchange risk on World Bank funds. This is normal practice in Slovenia where DM loans for the purchase of cars and durables are a standard feature of bank lending to households.

(d) Sub-loans will initially carry a DM interest rate of R+2 %, where R is the variable, LIBOR-based interest rate charged by the Bank on DM single currency loans, and 2 percentage points is the initial interest margin to cover the fees and other expenses incurred by the EcoFund. For the purposes of the analysis in this paper, the World Bank LIBOR-based interest rate (R) has been taken as 4.75 %. The interest rate paid by sub- borrowers will be adjusted every 6 months so that it reflects the interest rate R charged by the World Bank for the current 6 month period. There are no subsidies implicit in the design or operation of the APAP. With a fixed interest margin of about 2% over its cost of funds, the financial projections for the APAP suggest that the EcoFund would generate a substantial net surplus on income account over the life of the project. However, a larger interest margin is required initially to cover the start-up costs of the APAP, to reduce the period during which there is a deficit on income account, and to provide reserves against unforeseen costs and/or losses. It has been agreed that the interest margin will be reviewed annually and that it will be adjusted downwards to ensure that the net surplus on income account over the life of the APAP does not exceed DM 1 million.

(e) The term of the sub-loans will depend on the nature of the conversion. Sub-loans for boilerhouse conversions will have a term of up to 10 years. Loans to households will have a maximum term of up to 6 years, though sub-borrowers may chose to repay their loans over a shorter period if they wish. The sub-loan conditions have been designed so that monthly payments should not amount to more than 5 % of the after-tax monthly income of a household with two wage-earners -- the typical situation. These terms would be more attractive than those offered by Slovene banks, since Slovene banks currently offer loans for home improvements at a real interest rate of about 14 % (in SIT) for a maximum of 13

three years.

(f) All sub-loans will be insured or guaranteed against default either by an insurance company in the case of household loans or by municipalities (or other guarantors or insurance in accordance with normal banking practice) in the case of boilerhouse loans. Thus, the EcoFund, through the APAP, is taking no credit risk and the default rate on loans is assumed to be zero -- again this follows the practice adopted by the Slovene Housing Fund. The contract with the financial agent specifies the actions to be taken by the agent in respect of delinquent accounts before the sub-loan is declared in default and the insurance or guarantee is invoked. The cost of undertaking these steps ensures that the financial agent has an incentive to bring delinquent accounts up to date as rapidly as possible. Further, it provides an incentive for the agent to collect monthly payments via payroll deduction. This is the standard method of servicing housing and consumer loans in Slovenia and the mechanisms are well established and operates efficiently.

(g) Household sub-borrowers will be responsible for paying the sub-loan insurance fee -- set at 1.84 % of the sub-loan value for loan terms up to 3 years and 2.5 % of the sub-loan value for loan terms of 3-6 years under the present insurance agreement -- to the insurance company through the financial agent when their sub-loan is approved. In addition, they will pay a one-time sub-loan origination fee of DM 75 (about 1.5% of the average sub- loan value) to the financial agent. Boilerhouse operators will pay a onetime sub-loan origination fee of DM 150 to the financial agent. In addition, they will be responsible for the cost of providing a satisfactory guarantee or sub-loan insurance.

(h) Sub-borrowers will pay to the financial agent annual sub-loan administration fees of DM 55 for household conversion sub-loans and DM 115 for boilerhouse conversion sub-loans.

(i) Taking account of sub-loan origination and insurance/guarantee fees the total annualized cost of the fuel conversion sub-loans to households would be equivalent to an interest rate of 7-8 % per year, depending upon the sub-loan term chosen by the sub-borrower.

(j) Based on the results of the market survey in Maribor and cost estimates prepared by consultants it has been assumed that the average sub-loan size over the 4 years of the project will be DM 5,000 for household conversion sub-loans and DM 120,000 for boilerhouse conversion sub-loans. These estimates are averages over the total sub-loan portfolio since conversion costs differ substantially according to the type of fuel currently used, the fuel chosen for the new installation, and the size of the boiler required -- see Annex i1L Tabk 3A14. They allow for a low rate of inflation(2-3 % p.a.) in DM over the period of the project.

(k) The proceeds of the Bank loan in support of the Air Pollution Abatement Program will be 14

drawn down over a period of 4 years to finance 75 % of funds lent under the program. The EcoFund will finance the remaining 25 % of funds lent from its own resources. In preparing the financial analysis it has been assumed that the interest rate charged on the funds provided by the EcoFund will be the same as that charged on the Bank loan. These funds will be repaid in 10 equal installments starting after the lending program ends, i.e. in year 9. As specified in the agreement with the financial agent, any reserves accumulated by the APAP -- whether on capital or income account -- will earn an interest rate equal to the DM LIBOR rate. The EcoFund has also agreed to provide working capital of DM 500,000 to finance the deficit on income account that will arise in the early years of the Program. This float will be repaid as soon as the APAP has established adequate reserves on its income account.

40. The results of surveys and of the pilot in Maribor have shown that households and boilerhouse operators are likely to respond strongly to the APAP loan program. The sub-loan terms have been structured so that the typical household borrower would have to make a down payment of the equivalent of about DM 1,250 and pay about DM 60 per month over a period of 6 years to service an APAP loan which covers 80% of the conversion costs. In the market surveys carried out in Maribor during Project preparation, households were asked the maximum they would be willing to pay for a down payment and per month for the costs of converting to a cleaner fuel. About 60 % of households indicated they would be willing to pay a maximum of DM 1,000 for a down payment and about DM 110 as a monthly payment. The slightly higher down payment is offset by the lower monthly payment over a period of only 6 years, so that it is reasonable to assume that the response to the loans will be at least as high as that indicated by the survey. The experience of the Maribor Gas Company, the Maribor District Heating Company, and a local loan program organized in Celje support this conclusion. Hence, in preparing the economic and financial analysis of the program it has been assumed that at least 50 % of the households eligible to obtain conversion loans will actually do so within a period of 4 years. Since the municipalities eligible for APAP sub-loans have a total population of over 750,000, the EcoFund considers that the demand for sub-loans will exhaust the funds available within a period of 3 years.

41. The EcoFund, working with municipal authorities in the towns and cities covered by the program, will be responsible for developing and carrying out a public information and marketing campaign designed to encourage potential gas or district heating users to convert. This would provide information on the costs of alternative heating systems, the environmental benefits of using cleaner fuels, and the availability of loans to finance heating conversion. The costs of this campaign would be met out of the budget set aside for the APAP's operating expenses and financed initially by the working capital provided by the EcoFund. 15

C. GeographicalInformation System Component(World Bank Loan of DM4.6 Million equivalent)

1. Background

42. In 1991, the decided to establish and develop a national Geographical Information Center (GIC) within the MEPP to manage a Geographical Information System (GIS). The GIS will comprise existing and new databases, containing basic geographic, geological, topographic, economic and land ownership information and other databases-- the key information to be used for future land-use planning in the country. The GIS component of the proposed Project will assist in developing the GIC. The Project will focus primarily on priority areas in the Koper, Maribor and Ljubljana regions, which are the regions in Slovenia undergoing the most rapid development. The Project will also partially support other municipalities, which are in parallel starting to develop geoinformation infrastructure and are in the context of the national geoinformation infrastructure. The GIS will be owned by the Government, and administered by the GIC. The GIC will implement, operate and control the GIS computer network. The GIC will provide fee-based services to all users.

2. Objectives

43. The main objective of the GIS component of the Project is to collect, organize, and manage information for development and land-use planning, particularly in areas of Slovenia that are experiencing rapid development. The project will provide hardware and software, technical assistance, consultant services and training. The project will develop standards for establishing data sets of basic geometry, land cadastre and other necessary data sets. The project will develop the GIC of MEPP as a metadatabase server and standardized procedures of delivering information and data to users. The project will establish procedures of use of these data in the field of land use planning and environment protection. The information organized and managed by the GIC would be used, inter alia, to:

a. support, monitor and enforce the "Environmental Protection Act" passed in June 1994, and the associated environmental impact regulatory policies and procedures;

b. support the current and the pending "Spatial Planning and Construction Building Act" and the associated environmental/construction policies and procedures;

c. facilitate domestic and international investments in Slovenia by making the spatial planning and development approval processes quicker, more transparent, and less arbitrary;

d. increase reliability, acceptance and creditability of land cadastres; 16

e. facilitate the enforcement of regulatory processes and procedures;

f. help develop and enforce a system of taxation or royalty and of the collection or leasing for the use of natural resources and properties.

3. Description

44. The GIS component of the Project includes:

a. The establishment of a central Geographic Information Center (GIC) in Ljubljana. The GIC will establish a computer supported metadatabase system to be able to distribute information on spatial databases to users. The GIC will contain a scalable server (UNIX type), computer hardware and software for data capturing and editing, and network systems to support high speed communications with other regions of Slovenia (ethernet routers and modems).

b. The establishment of a market development group to promote the use of the GIS, to provide training (in the use of GIS), to raise market awarness on exchange of data and to provide assistance to regional administrations, government agencies and departments, and domestic and foreign industrial, commercial and service users.

c. The establishment of formal standards (in line with international standards) on data collection, use and maintenance of data and a quality assurance compliance group to ensure that the information system operates in accordance with international standards for data communication, data processing, etc.

d. The establishment of a local training center, in cooperation with an experienced international geomatics organization, with the authority to grant certifications in GIS that are internationally recognized. The training center will operate in cooperation with local universities. The purpose of the training center is to develop local expertise in the operation of GIS.

45. Project Scope. The MEPP has identified three priority areas and, within those areas, development "islands," which comprise the areas in Slovenia expected to be under the greatest development pressure in the future. During its first phase, the GIS will cover only the development "islands." The priority areas are:

a. Koper area. This coastal area is expected to experience rapid growth over the next decades as the planned highway between Koper and Ljubljana is completed, and as foreign investment flows into the duty-free zones created around the city. The Koper authorities have already established a GIS for the region and have 17

gained experience in the technical, marketing, financial, and data collection areas of GIS. About 60 % of the data for this region has already been collected, processed, and entered into the database. Proceeds from the proposed loan will be used to complete this work and to integrate it into an interactive graphic GIS database system.

b. Maribor and Ljubljana areas, selected because these two cities are the two largest urban and industrial areas in Slovenia.

c. Other municipalities like Novo Mesto, Nova Gorica and Kranj are financing similar projects within the strategy of National Geoinformation Infrastructure (NGII). GIC will support them by partially investing in the communication network and also in hardware and software and databases to speed up the process and to spread the NGII. MEPP funds will be used in these other municipalities.

46. These priority areas comprise about 40 % of the land area in Slovenia. Tie development "islands" cover about 10 % of the priority areas or about 4 % of the territory of S!ovenia. The cost of covering all the priority areas will be much higher, but would not provide significantly higher benefits. It is expected that the municipalities included in the project will invest additional funds to speed up the use of the GIS.

D. Project Costs

47. The total cost of the Environment Project is estimated at about DM 55.4 million, including taxes and duties. No physical or price contingencies have been included for the APA component since this will operate as a line of credit, but inflation has been allowed for, in estimating the average conversion costs and loans for household and boilerhouse conversions as described in paragraph 390). For the GIS compoment, the total project cost of DM 5.4 include physical contingencies (of 3%) and price contingencies (of 10% of the local base cost and 2% of the foreign exchange cost). The foreign exchange component is estimated at about DM 34.6 million, including contingencies, or about 62% of the Project cost. (For detailed cost estimates, see Annex L.) The total Project cost includes the following:

(a) APA Component. The Project cost estimates include approximately 6,500 sub- projects to households of an average size of DM 6,250 each and about 65 sub- projects of boilerhouse operators of an average size of DM 150,000 each. The funds provided by the EcoFund would cover for the costs of labor, material, equipment and small associated civil works for the conversions.

(b) GIS Component. The Project cost estimates include the costs of computer 18

hardware and software for expanding and upgrading the Slovene Geographical Information System, consulting services for collecting and inputting data, training of the MEPP staff in GIS operations, and consultant services, including both international and national consultants to assist the GIS staff of MEPP in information collection, management and decision making. It is estimated that the GIS Component would cost about DM5.4 million of which about DM4.6 million would be covered by the World Bank loan. Funds from the World Bank loan would cover the costs of (i) foreign consulting services required for management of the projects and in the field of standardization, data collection and strategic decision making, (ii) local consulting services required for detailed definition and development of standards and procedures, (iii) data collection, (iv) software and hardware, and (v) training.

E. Project Financing

48. The proposed Bank loans of a total of DM 34.6 million will finance 60 % jf the total cost of APA Component, and about 84% of the total cost of GIS Component. For the APA Component, the beneficiaries would provide 20 % of the conversion cost as owner equity; the EcoFund would contribute 25 % of the debt financing and the World bank loan would be used for 75 % of the debt financing. The MEPP would finance 16% of the GIS Component (see Annex 3.2 for details).

F. EnvironmentalImpact

49. The Project would result in improved air quality in Maribor and other polluted cities and reduced damage to health of their inhabitants. A safety audit has been carried out of the natural gas utilities in Maribor and other towns to ensure that their operational procedures and safety standards are satisfactory. This audit found these were at least as good as, and in some cases more stringent than the standards in West European countries. The natural gas companies will work closely with households and boilerhouse operators to assure that gas appliances are installed and operated safely and that gas leaks or other problems are attended to by professionals rapidly and effectively. With regard to Bank Guidelines, the project has been classified as a Category C Project. 19

IV. PROJECT IMPLEMENTATION

A. The Borrowers and Beneficiaries

1. The APA Component

50. The borrower of the World Bank loan for the APA component would be the Environmental Fund of Slovenia (EcoFund). A Project Implementation Team (PIT), within the EcoFund, would be responsible for administering the APAP.

51. Introduction. The EcoFund was founded on the day of enactment of the Environmental Protection Act (July 2, 1993) and its operation was formally defined under Statutes passed by the Slovenian Government based on article 86 of the above Act on July 25, 1994. These Statutes are the basis for the Fund's existence and outline its objectives, a description of the organization, operations, and financial issues. The Fund is designed as a legally and administratively independent institution. It has been created by and under the direction of the Ministry of Environment and Physical Planning that gives continued policy guidance for the Fund's operations. An Advisory Committee of the Parliament serves to review the Fund's activities.

52. Operationsof the EcoFund. Two main areas of Fund operations are (i) the provision of loans to environmental investments at low interest rates that cover the Fund's operating costs but don't generate profits (basic area of operation); and (ii) activities the Fund carries out on behalf of others that are expected to generate profits (financial intermediation). Basic Fund operations are guided by the environmental priorities of the MEPP. According to the Statutes of the Fund, credits will be concentrated on state and municipal environmental services, and -wfllbe provided directly from the Fund and secured by state and municipal guarantees. Internally the EcoFund is governed by a Board of Directors and a Director under whom there will be three principal areas: Project Preparation, Project Implementation and Finance. Expert consultants in accounting and environment will be utilized in the early stages of the EcoFund before determining if full time assistance is required. Local commercial banking institutions will administer the EcoFund's loans. They will process the borrowers' applications, loan disbursements and repayments.

53. Financial Status of the EcoFund. The EcoFund was capitalized by initial share capital in the amount of SIT 10 million (US$ 86,000, DM 129,000); and the portfolio of loans previously managed by the MEPP. Currently, the EcoFund capital is estimated at SIT 2,032 million (US$ 16.8 million, DM 25.2 million). The following table shows the balance sheet of the EcoFund as of December 31, 1994. 20

Rectified Balance Sheet as at 31 December 1994

Thousand SIT DM | US$

ASSETS 2,515,914 31,183,862.17 20,789,241.44 Cash on hand and in banks 25,566 316,881.50 211,254.33 Government bonds and other securities 84,153 1,043,046.60 695,364.40 Loans to banks 131,601 1,631,147.74 1,087,431.82 Loans to others 2,244,021 27,813,844.81 18,542,563.20 Tangible fixed assets 21,502 266,509.66 177,673.10 Other Assets 9,071 112,431.82 74,954.54

LIABILITIES AND CAPITAL 2,515,914 31,183,862.17 20,789,241.44 Other liabilities 4,980 61,725.33 41,150.22 Long-term provisions 478,960 5,936,539.41 3,957,692.94 Capital 2,031,888 25,184,531.48 16,789,687.65 Current net profit 86 1,065.93 710.62

54. In 1995, additional outstanding receivables from loans in the amount of 1,177 million SIT according to paragraph 4 of article 108 of the Environmental Protection Law were transferred to the Fund. Additional assets of 35 million SIT from special taxes for unlawful land use and 708 million SIT from proceeds under the privatization law were obtained by the Fund. In total, the EcoFund received 1,920 million SIT (around US$ 16 million or DM 23 million) in 1995. On its annual meeting in 1996, the Board of Directors of the Fund will make a decision on the allocation of this money.

55. Presently, all shares are held by the Republic of Slovenia, however, other parties can gain ownership up to 33 % of the capital by buying new shares (the new shares don't come with the right to manage the EcoFund). The EcoFund has received additional substantial commitments (by, fo. example, the Environmental Protection Act) that could increase substantially the capital base of the fund before 1998, according the Board of Directors of the Fund. This money is anticipated to come mainly from proceeds from privatization, retroactive fees on "illegal" construction, concessions for waste management services and the state budget.

56. Beneficiaries. The beneficiaries of the Air Pollution Abatement Component of the Project would be households and boilerhouse operators or operators (among them also institutions like schools, hospitals and companies), who receive loans under the APAP to convert from polluting fuels to cleaner fuels. These households and boilerhouse operators would benefit directly from a reduction in their heating costs, including the time and inconvenience involved in operating coal and wood fired facilities. All residents of polluted cities -- including those not taking loans -- will benefit from improvements in ambient air quality. 21

2. The GIS Component

57. The borrower would be the Republic of Slovenia through Ministry of Environment and Physical Planning (MEPP). Beneficiaries would be the MEPP and the towns and regions involved in the GIS process.

B. The World Bank Loans

58. The Bank loans totaling DM 34.6 million would be made to (i) the EcoFund for the APA Component (DM30 million) with the guarantee of the Republic of Slovenia and to (ii) the Republic of Slovenia, represented by the MEPP for the GIS Component (DM 4.6 million).

59. The World Bank loans will be London Inter-Bank Rate (LIBOR)-based single currency loans denominated in DM with a maturity of 15 years with 5 years grace period for level repayment of principal. The lending rate is reset every six month and consist of a Base Rate and a Total Spread. This is announced by the Bank in January and July each year, and will apply to all debt service (of such a Single Currency Loan) periods commencing in the semester in which it is announced. The Repayment dates for single currency loans are the 15th day of December and June for the APA Component and the 15th day of August and February for the GIC Component.

C. Management and Implementation

60. The Project would be implemented over a five-year period (1996 to 2000). The EcoFund would have overall responsibility for implementing the APA Component. The MEPP through GIC would implement the GIS Component. The EcoFund has established a Project Implementation Team (PIT) which consists of the senior EcoFund staff with substantial experience in Project implementation, including Bank-financed projects. The Director of the EcoFund would be responsible, as Project Director, for the implementation of the APA Component. He would be assisted by three assistant directors of the EcoFund, who would be responsible for supervising the financial agent (para 39 (b)) subcontracted to handle sub-loan administration; procurement; financial matters and general administration. A small PIT in the MEPP would be responsible for the implementation of the GIS Component. During negotiations,the EcoFundand the MEPP have confirmedthat, as conditionsof effectiveness of the World Bank loans, they will strengthentheir respectivePIT and will have appointed staff for the PITs whose qualifications,experience and terms and conditionsof employment are satisfactoryto the Bank.

61. The Project would require about 41 weeks of Bank supervision during the four years of implementation. 22

D. Procurement

62. The procurement arrangements are shown in Table 1.5 of the Project Implementation Plan (PIP)(Anne j2). Procurement will be carried out in accordance with the World Bank Procurement Guidelines dated January 1995, and Consultant Guidelines dated August 1981. A component-by-component summary of the procurement arrangements is given below:

(a) Air Pollution Abatement Component. During the life of the Project, the EcoFund would make approximately 6,500 sub-loans to households and 65 sub-loans to boilerhouse operators from the proceeds of the World Bank loan. The average size of the sub-loans to households would be DM 5,000 each and to boilerhouse operators DM 120,000 each covering labor, material and equipment. The Bank has established that the labor, material and equipment needed for the conversion are available from several sources in Slovenia and that there is sufficient competition among suppliers. The Bank has also established that households normally compare prices from several sources and take into account the quality and performance of equipment. Consequently, the households would be allowed to procure the necessary labor, equipment and material using these practices. Private operators of boilerhouses follow established commercial practices for purchases. These commercial practices involve obtaining quotations from several suppliers and purchasing the equipment on the basis of its price and performance. Public operators of boilerhouses are subject to and would follow the tendering procedure provided for in the Public Procurement Decree of May 1993. The financial agent, that would, together with the EcoFund, verify that the prices obtained both by the households and the boilerhouse operators reflect current market prices.

(b) GeographicalInformation System Component. For the GIS Component, the MEPP would procure computer hardware and software using the following procurementmethods: International Shopping (2 packagesat a totalestimated cost of about DM 300,000);Direct Contractingbecause of upgradingand compatibility (4 packages at a total estimatedcost of about DM 300,000); consultant services includingsix assignments,at an estimated cost of DM 4.7 million; and funds of the MEPP of DM 500.000to support other municipalities.The MEPP, which has nominated a GIS expert to be the componentmanager, would nominate a small PIT, supported by Ministry of Finance and hired consultants, to perform procurement activities for this component.

E. Disbursements

63. The World Bank loan for the proposedProject is expectedto be disbursed over a period 23

of five years (1996 - 2000). This is possible because of the strong implementation capacity of the EcoFund, including the PIT and the financial agent (FA). The Project completion date would be December 31, 2000 and the closing date would be June 30, 2001. A summary of the disbursement plan is included as Table 1.6 of the PIP. A detailed disbursement plan is also included in the PIP (Annex 2).

64. To facilitate timely project implementation, the EcoFund would establish, maintain and operate, under conditions acceptable to the Bank, a Special Account in Deutsche Mark. During the early stage of the project, the initial allocation of the Special Account would be limited to DM 4 million. However, when the aggregate disbursements under the Loan have reached the level of DM 5 million, the initial allocation my be increased up to the authorized allocation of DM 6 million by submitting the relevant application for withdrawal. Replenishment applications should be submitted at least every three months, and must include reconciled bank statements as well as other appropriate supporting documents.

65. Disbursements would be made against Statement of Expenditures (SOEs) for goods and services up to DM 400,000 equivalent per sub-loan for which detailed documents evidencing expenditures will be reviewed and kept by PIT and made available for the required audit as well as to Bank supervision missions.

F. Auditing

66. Separate accounts, maintained by the financial agent on behalf of the EcoFund for the APA component and by the Ministry of Finance for the GIS component, will be used to record all Project expenditures from local and foreign funds. These accounts, including the SOEs as well as the Special Account will be audited each year by independent auditors acceptable to the Bank. The auditors' reports would be received in the Bank within six months of the end of each financial year. In this context, the EcoFund will require the financial agent to carry out an audit of the APAP-related activities. This information will be part of the Annual Audit Report. In addition, the EcoFund will have its accounts audited annually within 6 months after the completionof each fiscal year by a qualifiedauditor acceptable to the Bank and transmit the results of the audit to the Bank. The arrangementsfor accountingand auditinghave been agreed upon during negotiations(details are discussedin the PIP in AnnexL2).

G. Monitoringand Reporting

67. The PIT will establish monitoring procedures in collaboration with the financial agent for the APA Component and a small PIT in the MEPP will do the same for the GIS Component. These monitoring procedures were prepared and tested in the Maribor pilot phase and have been submitted to the Bank as the Operational Manual for review. The PIT will also prepare semi- annual descriptive and financial reports on each Project component including objectives and 24 activities (beginning from the date of Loan Effectiveness). These progress reports will be based on similar semi-annual reports from the financial agent for The APA Component and the MEPP for the GIS Component. Annual reporting will include a three-year-rolling financial forecast with projected income statements, balance sheets and fund-flow statements for the EcoFund operations. A mid-term review of the Project will be carried out by January/February 1998. The PIP shows the detailed plan for Project reporting and annual supervision. Annex 3 3 shows a draft list of Monitoring indicators and forecasts which have been agreed upon during negotiations.

H. Status of Project Preparation

68. The pilot phase of the Air Pollution Abatement Program has been successfully completed and its results used to update the financial projections for the program and the economic analysis of its costs and benefits. The review of the pilot phase confirmed that the potential demand for sub-loans is such that about 6,500 household heating systems and about 65 boilerhouses will be converted during the first 3-4 years of the APAP. A financial agent, satisfactory to the Bank and in good standing with the , has been appointed to ensure sound financial management and the timely flow of funds to and from the beneficiaries. For the GIS Component, decisions on the type of GIS technology to be used and the consultant assignments needed have been made, and procurement documents (especially technical specifications) are under preparation. Implementation responsibilities have been defined and the implementation staff are in place. The PIP includes a detailed description of the project implementation responsibilities.

L. Financial Aspects of the Air Pollution Abatement Program

69. A financial analysis of the APAP has been carried out for an eight-year loan program, for the years 1996-2003. The volume of lending in each year is determined partly by the anticipated demand for sub-loans and partly on the amounts of funds available from repayments once the World Bank loan has been fully disbursed. The World Bank loan (DM 30 million) will supplement the EcoFund's own resources of DM 10 million. Thus, until the Bank loan is fully disbursed, the lending program is financed 75% from the Bank loan and 25% (DM 10 million) from the EcoFund. The analysis further assumes that the APAP is wound up as soon as the loans that it has extended and those that it has received are repaid. The detailed financial projections are shown in Annex 42 Talek A4-2.2.

70. For simplicity, the financial analysis has been carried out on a semi-annual basis by assuming that loan and other disbursements occur at the end of the 6 month period in which they are booked. The analysis shows that except for temporary shortfalls (para 71) the APAP can easily cover operating expenses and other costs with an interest margin of 2 % per annum.

71. The financialanalysis projects capital reserves and accumulatedincome balances for the 25

APAP as if the program were to be operated as a completely independent entity. The analysis indicates that the program will have ample reserves to meet repayment obligations on the World Bank and EcoFund loans. In only two years -- years 4 and 5 -- does the total level of reserves at the end of the year fall below the loan service and repayment obligations for the following year. Since the bulk of sub-loans have a short loan period, annual cash flow from loan repayments is high relative to loan service and repayment obligations. The consequence is that the level of reserves relative to loan service and repayment obligations can easily be maintained by making appropriate adjustments to the volume of new lending in any year. Thus, subject to the provisions in paragraph 72 below, the APAP should increase the liquidity of the EcoFund and will not pose any threat to its financial stability.

72. For the first 2 or 3 years of its operations, the APAP might have an accumulated loss on its pro-forma income account. Under the scenario of stable interest rates analysed in the main financial projections this accumulated loss will never exceed DM 300,000. However, there is a very small risk of a temporary mismatch between borrowing and lending rates if interest rates rise very suddenly because of the timing of the Bank's notification of its LIBOR-based interest rate for the current 6 month period. This takes place 15 days after the beginning of the period based on the LIBOR rate on the first day of the period. Administratively, the financial agent may require up to 15 days to recalculate loan repayments, notify sub-borrowers of the sums payable, and to arrange for the appropriate payroll deduction in the case of household borrowers. Under the worst case scenario this will involve a 1 month delay in adjusting the payments made by sub- borrowers and even this can be avoided by making a provisional adjustment in the lending rate which will be corrected one month later once the true rate for the period has been fixed. Simple experiments with the financial model have indicated that financing of up to DM 0.5 million will provide ample reserves to cover the accumulated deficit on income account and any possible income shortfall arising from a brief mismatch of borrowing and lending rates. The EcoFund has undertaken to make available financing of DM 0.5 million to cover the accumulated loss on income account for the Air Pollution Abatement Program. This amount represents about 2 % of EcoFund's equity and can easily be accommodated.

73. Retroactive rmfancing will be available in an aggregate amount not exceeding the equivalent of DM 3,000,000, for Subloans under the APA-Program before March 7, 1996, but after July 1, 1995. 26

V. BENEFITS AND RISKS

A. APA Component: Economic Analysis and Benefits

74. In the towns and cities average ambient concentrations of particulates and sulfur dioxide during the heating season exceed those during the non-heating season by at least 20 micrograms per cubic meter and the differential exceeds 40 micrograms per cubic meter for the most heavily polluted areas. Hence, if all of the units burning polluting fuels are converted to cleaner fuels, average annual concentrations should decline by at least 10 micrograms per cubic meter and the decline may be as high as 20 micrograms per cubic meter in some areas. This will benefit all of those living in the air basins affected by the emissions of smoke and sulfur dioxide that will be eliminated as a result of the project. The likelihood that they will suffer from occasional or chronic respiratory diseases induced or exacerbated by exposure to particulates and sulfur dioxide will be greatly reduced. Households and boilerhouse operators which convert their heating systems will also benefit from improvements in the efficiency and quality of service of their heating systems as well as from reductions in the time and effort required to operate them.

75. The range of alternative approaches to reducing air pollution in urban centers in Slovenia is limited. Some towns have encouraged or required coal distributors to switch to low sulfur coal for use in households, small boilers and district heating plants -- for example, Trbovlje. This has resulted in a substantial decline in average sulfur dioxide levels, but has had little or no impact on particulate levels, which are the main source of health damage. It might be possible to substitute smokeless solid fuels (based on anthracite) for local coal or wood, but this will involve the development of new distribution or production arrangements since smokeless solid fuels are not currently available in Slovenia. In any case, there is a clear preference for heating systems using cleaner fuels among households and those responsible for small boilers, as they eliminate the dirt and inconvenience associated with handling solid fuels, and are economically and financially attractive.

76. The economic analysis of the Project focuses on its impact in Maribor because the necessary data required to carry out a full assessment of the costs and benefits were only available for this city. However, it is reasonable to conclude that the results of this analysis are representative of the net benefits of the Project over all of the towns and cities covered, as will be explained below. The estimation of the environmental benefits focuses on the contribution of lower pollution to the health of the population of Maribor. Reducing ambient exposure to particulates and sulfur dioxide will lower the incidence of respiratory and other diseases and reduce mortality associated with chronic conditions that are provoked or exacerbated by air pollution. Taking account of these health benefits of reducing pollution implies that the Project has a very high rate of return. 27

77. In addition to the impact of the project on health, the reduction in air polhltion will bring other benefits (not quantified or included in the economic analysis) such as lower costs of maintenance for buildings and equipment, improvements in the attractiveness of the town for both visitors and local residents, and less damage to vulnerable ecosystems including forests. There is ample evidence that people are willing to pay significant sums (relative to their income) in order to enjoy the benefits of greater visibility and cleanliness associated with lower air pollution quite independently of any expected health benefits. Hence, the rates of return reported for the Project are very much a lower bound on the true rates of return taking account of all of the environmental benefits.

78. Using dose-response functions developed in North America and Western Europe and summarized by Bart Ostro in Estimating the Health Benefits of Air Pollutants, health benefits from reducing annual ambient concentrations by 10-20 micrograms per cubic meter should be between 10-20 million DM per year (see Annex 2-.Iablk A2-1. 1). Epidemiological evidence increasingly suggests that health impacts due to exposure to PM,o occur at ambient levels well below current international standards and are approximately linear with exposure levels (see Dockery, et. al., 1993). The evidence is less clear for sulfur dioxide. For the purposes of the Program analysis, we have assumed that no threshold levels exist for either PM1 O or sulfur dioxide. If threshold levels exist for sulfur dioxide, then the health benefits from the Project will be smaller.

79. Even without the health benefits, there will be significant benefits from the conversion to cleaner fuels. The fuel, operating and capital costs of alternative systems are substantially higher for coal and wood than for natural gas, LPG, or district heat (see Annex -1 Tabk 3A14). As a result !ouseholds and boilerhouse operators have been steadily converting their systems from coal ol wood to these fuels whenever major maintenance expenditures or replacement are required (even before the introduction of the air quality regulations), provided that they have access to the networks. Thus, the Project will have the effect of accelerating this conversion process, bringing forward both the economic and the environmental benefits of conversion. The combination of environmental benefits and savings on current running costs are more than sufficient to justify an accelerated program of conversion although this means that many heating systems will be converted before they are due for replacement.

80. The following presents the impact of the Project on different groups in schematic form: 28

Groups Costs Benefits

Maribor Gas Company Network expansion Revenues from gas/heat sales Maribor District Heating Network 0 & M Wholesale gas

Air Pollution Abatement Conversion costs Borrower down payments Administrative costs Loan repayments Households/Boilerhouse Down payments Savings on alternative Loan payments (capital, fuel, 0 & M, time) Fuel charges Consumer surplus Gas heating 0 & M Residents of Maribor Reduced mortality and Cleanliness and amenity * * Thesebenefits are positiveand substantial,but no attempthas beenmade to estimatethem

81. Since different weights have not been attached to costs or benefits accruing to different agents, it is possible to cancel out items which occur on both the cost and the benefit side. As a result, the presentation of costs and benefits is as follows:

Costs Benefits Network expansion Savings on alternative heating Network 0 & M (fuel, 0 & M, time costs) Gas/heat purchases Consumer surplus Conversion costs Reduced mortality and morbidity Administrative costs Cleanliness and amenity benefits Heating system 0 & M

In this schematic presentation, the consumer surplus is the conventional benefit triangle arising because the full cost of providing a standard level of heating by gas or district heat is less than the full cost of the same level of heating provided by an alternative fuel'.

82. For the reasons give above, the detailed economic analysis of the program has been carried out for Maribor. The economic rate of return excluding health benefits on the program will be similar in other urban areas where the program will operate. The magnitude of the health

7 In fact, boilerhousesoperating heavy fuel oil systemshave lower costs than gas systems,so thatin thiscase there is a loss of consumersurplus rather than a benefit. 29

benefits is proportional to (a) the population of the town or city where the conversions occur, and (b) the impact of the program on levels of air pollution in the town or city. Smaller towns -- such as Hrastnik, Trbolvje, and Zagorje -- tend to have worse air pollution that is strongly linked to emissions from residential heating, so the smaller population is partly offset by the larger impact of the program on average levels of exposure. Rough calculations suggest that the health benefits are significant for these smaller towns but that the overall economic rates of return fall in the range 15-25%. On the other hand, the overall economic rate of return for a lending program in Ljubljana (with a population of 350,000) will be substantially higher than that for Maribor. It is not possible to compute a sensible average rate of return for the project since this will depend on the take-up rate for loans in different towns and cities. However, Ljubljana is likely to account for a large share of loans, so that it is reasonable to conclude that the ultimate economic rate of return on the Project will be at least as large as that for Maribor.

83. The anticipated conversion path of the program in Maribor is shown in Annex 31 Tabl A3-1.7. It is estimated that by the year 2000, about 2,600 more households and about 40 more boilerhouses now using coal, wood, or heavy fuel oil will convert to cleaner fuels with the Project than without the Project.

84. The costs and benefits of the Project are shown in Annex 31 Tabk A3-1.8. Two alternative scenarios have been made in estimating the environmental health benefits of the Project. The starting points for each scenario are the estimated reductions in exposure to PM1 O 8 and SO2 that will occur if all residential use of coal, wood and heavy fuel oil were eliminated . The project decline in levels of air pollution for each scenario was then obtained by estimating emissions from the use of different fuels for residential heating given the projected level of conversions and comparing this with the decline in emissions that will occur if the use of the polluting fuels ceased immediately. Version 1 of the estimated health benefits, which represents the best estimate on the available evidence, is based on a scenario in which the annual mean level of PM1O and of sulfur dioxide will fall by 20 micrograms per cubic meter if all use of the polluting fuels is discontinued. Version 2, which provides a lower bound for the plausible impact of the Project, is based on a scenario in which the annual mean level of PM10 and of sulfur dioxide will fall by only 10 micrograms per cubic meter on the same assumption. With either of these assumptions, the Project has a large positive net present value at a discount rate of 12 % (assumed cost of capital in Slovenia). The internal rate of return (IRR) of the Project under Version 1 is estimated to be 69 %, and under Version 2 the IRR is estimated to be 40 %.

85. To be sure, there is considerable uncertainty as to how to value the expected reductions in mortality and morbidity. For the purposes of this analysis, we have used estimates developed

8 Thesereductions were estimatedby examiningthe averagedifference between average levels of pollutionduring the heatingand non-heatingseasons over a numberof years. 30 in the based on the costs of health care, wage rates, and the willingness to pay to reduce the risk of death. Although we have adjusted these values to reflect differing income levels between Slovenia and the United States, these are not likely to represent precisely Slovene valuations. However, since we have selected values from the lower end of the U. S. range, the health benefits in this analysis, after adjustment to Slovenian income levels, are intended to be underestimates of the full environmental benefits of the Project. Annex 21 TablkA2-1.1 shows reductions in numbers of cases of illness and death expected in Maribor due to exposure to air pollution, as well as the estimated economic value of these reductions.

86. Even if the health benefits and the consumer surplus of the Project are excluded, the Air Pollution Abatement component has an internal rate of return of 11 %. A price elasticity for heating services of -0.25 has been used to compute the consumer surplus element of the benefits9 . Since there is considerable uncertainty about the appropriate value of this parameter, the final column in AnTx1 labk A3-1.8 showsthe net benefitsexcluding both the health benefitsand the consumer surplus.

87. In summary, the Project component generates very large environmental benefits because it reduces the damage to human health caused by air pollution. It has extremely high internal rates of return when these benefits are taken into account. If all environmental benefits are excluded, the Project generates acceptable internal rates of return. It is a clear example of a "win-win" Project which produces both economic and environmental gains.

9 This value is at the low end (in absoluteterms) of the range of estimates of the long run response of householdenergy demandto changesin energy prices. Since heatingcosts dominatetotal energy consumptionin Slovenia,it is reasonableto basethe analysison suchestimates. The range of elasticitiesfor householdenergy demandis typically-0.25 to -0.40. 31

B. Benefits of GIS Component

88. The primary benefits of the Project include:

a. Vastly improvedinformation on which to base land-usedecisions. Access to this informationwill lead to more transparent,consistent, and speedydecision-making, with resultantreductions in costs for individuals,firms, and governmentalbodies. The GIS databasewill be the primary database for environmentalimpact analysis and for baseline informationagainst which to judge changes in environmental quality.

b. The establishmentof standardsfor data collection,data use and the maintenaceof databasesas well as a quality assurance compliancegroup to ensure that the GIC infornation system operates in accordancewith internationalstandards.

C. Increased internationaland domestic confidencein land and geographicalrelated informationwhich will likely have a significantimpact on the short and long-term economicdevelopment of Slovenia.

C. Risks

1. APA Component

89. There are four types of risk that arise in the context of the Air Pollution Abatement Component. These are:

a. The take-up rate for conversionloans may be smaller than anticipated,in which case the benefits from reduced air pollution relative to the outcome with no project will be lower than expected while the APAP will have to cover its fixed costs from a lower volume of lending.

b. The averagecost of conversionmay be higher than estimated, in which case the number of loans extended by the APAP from the fixed resources available to it will be lower. In this case, again, the benefitsfrom reduced air pollution will be lower, while the costs incurred to generatethese benefits will be higher. From a financial point of view, there is no additional risk to the APAP under this scenario since it will be able to disburse its loan funds more quickly with the result that there will be a larger financialsurplus when the APAP is wound up. 32

c. The financial position of the APAP might be undermined by defaults on its loans, since a zero default rate has been assumed in estimating an appropriate interest margin between its lending and borrowing rates. This assumption is justified on the basis that all of the Fund's loans will be insured or guaranteed against default, so that the default risk is being absorbed by insurance companies or other guarantors (such as municipalities in the case of boilerhouse conversions). Thus, any significant number of actual defaults could arise from some systemic problem in the financial position of insurance company or other guarantors. The EcoFund has undertaken enquiries to establish that the insurance company offering the guarantees is financially sound, but there is little more that can be done in the framework of the project to eliminate systemic financial risk.

d. The other potential threat to the financial position of the APAP arises from a mismatch in interest rate movements so that its borrowing rate rises while its lending rate does not adjust rapidly enough to preserve its net interest margin. Since the Loan will be a single currency loan linked to LIBOR interest rates for DM deposits, the APAP's borrowing rate will be subject to variations in line with short term money market rates. However, this risk has been almost eliminated by adopting the formula that the interest rate on APAP loans will be the World Bank lending rate plus the agreed interest margin. The only remaining exposure arises because, as discussed in Section IV.I above, the Bank does not notify borrowers of the relevant interest rate on LIBOR-based single currency loans until after the relevant period has begun. At worst, this might mean that sub-loan repayments were not adjusted to an increase in the lending rate until one month after the increased interest rate came into effect. Since LIBOR rates are, by their nature, readily observable, the EcoFund will apply a provisional interest rate based on the Bank's standard formula to avoid any difficulty arising from this notification delay.

90. The market survey carried out in Maribor during the preparation of the project suggests that the projected rates of conversion from coal, wood or heavy fuel oil, to cleaner fuels are conservative. However, as a further measure to reduce any risks arising from delays in conversion, the Government has agreed to enforce stricter emissions regulations, which have been introduced recently. In addition, the municipalities and the EcoFund have agreed to institute public relations campaigns to publicize the individual and environmental benefits of fuel- switching as well as the availability of loans from the APAP. This publicity has been tested in Maribor under the pilot program funded by the EcoFund and will be fine-tuned in the light of experience.

91. Even if the conversions do proceed more slowly than expected, the impact on the 33 economic rate of return will be small. Since the non-environmental costs and benefits are closely linked, the economic rate of return excluding environmental benefits will be only slightly lower. For a 'delays' scenario in which the conversions in Maribor take 6 years rather than 4 years, the economic rate of return will still be 11 %, the same as with the main case examined. The financial projections under this scenario show that the APAP has a smaller but acceptable surplus when it is wound up and that there should be no problem in maintaining adequate reserves.

92. An alternative 'high cost' scenario assumes that average conversion costs are 20% higher than assumed in the main analysis. Since the 'main case' figures were based upon extensive and detailed work on likely conversion costs undertaken by consultants during the preparation of the project, such cost overruns are highly unlikely. Under this scenario the economic rate of return without environmental benefits will still be 11 %.

93. Over the past 20 years LIBOR DM interest rates for 3 and 6 month deposits have varied in a range from 3 % to 12 % with a median annual average rate of about 6 %. The current rate of 3.7 % is, therefore, low by historical standards and must be expected to rise, so that the Bank's lending rate for single currency DM loans will rise with it. The interest rate charged for all APAP loans will be adjusted at semi-annual intervals in accordance with the agreed formula. This means that the worst possible outcome will be a very sharp rise in LIBOR DM rates which is quickly reflected in the World Bank's interest but there is a delay of one month before this higher rate is reflected in the rate charged to existing borrowers. In such circumstances, the average interest rate margin received by the APAP will be temporarily below the standard level of 2% used to compute its lending rate. On the other hand, the APAP will benefit if interest rates fell sharply afterwards as has often been the case. Gradual changes in interest rates, either up or down, will have little impact on its position.

94. To simulate the impact of such turbulence in international financial markets, the financial position of the APAP has been examined for a worst case scenario. This follows the interest movements that occurred in the early 1980s when LIBOR DM interest rates rose from 6.5% in 1979 to 8.6% in 1980 and to 11.8% in 1981 before falling back to 8.7% in 1982 and 5.7% in 1983. It is assumed that the interest rate increases occur in years 3 and 4 of the project when the APAP is most vulnerable because it has been unable to build up reserves. The simulations show that the APAP will be able to cope with such turbulence comfortably by temporarily drawing upon its working capital of DM 0.5 million. 34

2. GIS Component

95. The main risks affecting successful implementation of the GIS Component arise from the lack of the qualified GIS staff; different sets of standards for collection and transfer of GIS data; and lack of legislation and regulation to enforce the desired standards and administrative procedures for GIS. These risks will be mitigated by requiring as a condition of effectiveness of this component, that qualified staff have been hired, and that regulations to enforce desired standards have been adopted.

VI. AGREEMENTS AND RECOMMENDATIONS

96. The following actions are required to assure successful implementation of the Project and attainment of the broader Project objectives.

97. Air Pollution Abatement Component. Prir to negotiations, the EcoFund has fulfilled the following conditions:

(i) Arrangements to establish and make operational the Air Pollution Abatement Program.

(ii) Design, translation and submission of the existing Project Agreement between the EcoFund and the financial agent for the APA Component. The Agreement takes into consideration that the financial agent should take over part of the responsibilities in the area of handling the loans and disbursements.

(iii) Establishment of a Draft Operational Manual for the APA Component. The manual includes eligibility criteria for loans; payroll deductions; loan agreements; administrative procedures including forms and applications; certifications by the Gas Company or the District Heating Company regarding availability of connections; strategies for public relation campaigns, etc.

98. Duxing negotiations, assurances were given that:

(i) The EcoFund will make available, from its own resources, funds for 20 % of the sub-project costs of the APAP program. These funds will carry an interest rate and maturities similar to those on the World Bank sub-loans. 35

(ii) The EcoFund will make available from its own resources funds to cover potential deficits of the APAP which might occur particularly during the early years of APAP implementation but are not expected to exceed DM 0.5 million. This will be about 2% of EcoFund's equity and can easily be accommodated.

(iii) The EcoFund will have its accounts audited annually within 6 months after the completion of each fiscal year by a qualified auditor acceptable to the Bank and transmit the results of the audit to the Bank.

99. Conditions of Effectiveness (APAP Component):

The EcoFund, in close cooperation with the financial agent, will strengthen the Project Implementation Team (PIT), as necessary, with appropriately qualified staff to manage all aspects of the APAP. After two additional staff, graduated from one of the project related fields, will have been appointed for the PIT, this condition will have been met.

100. Conditions of Effectiveness (GIS Component):

The MEPP will set up and strengthen a small PIT to implement the GIS Component. After additional staff, graduated from one of the project related fields, will have been appointed for the PIT, this condition will have been met.

101. Subject to the above, the proposed operation provides a suitable basis for a loan of DM 30.0 million to the EcoFund with the guarantee of the Republic of Slovenia and for a loan of DM 4.6 million to the Republic of Slovenia (MEPP).

April 19, 1996 M:\SCHREIBE\SAR\SAR1\SAR\SA-2.WPD ANNEX 1-1

LIST OF DOCUMENTS ON FILE

Air Pollution Abatement Program - pilot phase - Maribor. Short Report. EcoFund Ljubljana January 1996

Audit Report of Rectified Financial Statements for the Financial Year Ended 31 December 1994 for the EKOLOSKORAZVOJNI SKLAD REPUBLIKE SLOVENUJE, d.d. by KPMG Slovenijad.o.o.. December 1995.

Service Contract between Nova Kreditna Banka Maribor and EcoFund Ljubljana July 1995

Public Tender of the Enviromnental DevelopmentFund for the Republic of Slovenia, joint stock company, Ljubljana, for Granting Loans for Air Pollution Abatement - pilot stage - Maribor Ljubljana September 1995

Geographical Information System - Slovenia Final Report February 12, 1995

Environmental Funding Application for World Bank Support on the Implementation of a Geographic Information Centre for the Republic of Slovenia September 1994

North Maribor Natural Gas Market Penetration Study Prepared for Republic of Slovenia Ministry of EnvironmentalProtection and Physical Planming - Draft Copy May 1994

Economic and Ecological Benefits of Sulfur Reductions in the Sostanj Region of Slovenia February 14, 1994

Development of a Master Plan for Institutional Strengthening for Improved Annex 1-1 2

Environmental Protection within the Republic October 1993

Republic of Slovenia The Environmental Protection Act Ministry of the Environment and Regional Planning June 1993

GIS Organization and Development Plan Slovenia Environmental Project Feasibility Study and Master Plan Volume 3 February 1993

Preliminary Air Quality Report Slovenia Environmental Project Feasibility Study and Master Plan Volume 11 January 8, 1993

Market Study for Six Polluted Municipalities IBE/Power System Consultants February 1996

Operational Manual February 1996

M:\SCHREIBEMSLOV-SAR\SAR_WP6i1SA-XI-I .WPD ANNEX 2-1

HEALTH AND ECONOMIC BENEFITS

Health and economic benefits. Table A2-1.1 gives estimates of how many fewer deaths and cases of respiratory illness will occur per year in Maribor with a decline in ambient concentrations of PM1o and sulfur dioxide, and the economic value of these declines. We have calculated the health benefits using dose-response functions developed in the United States and Western Europe. These dose-response functions have been computed for incremental changes in annual ambient concentrations in PMIo and sulfur dioxide, and are linear. The property of linearity allows us to estimate annual health damage due to changes in annual ambient pollution levels, although most health damage in Maribor (and any city where coal is a primary fuel for space heating) occurs during the winter months. The population affected is 105,400 people, including about 24,000 people below age 14.

To provide a sense of the economic impacts associated with the health damages, we have assigned a monetary value to each category of health damage. Ideally, these would reflect the total cost to the affected individual, which includes both direct costs, such as the costs of seeing a doctor, buying medication, and lost wages, (referred to as the cost of illness), and indirect costs, such as pain, discomfort, and restrictions in non-work activities. The value of the indirect costs is the maximum amount the affected individual (or potentially affected individual) would be willing to pay to prevent or eliminate the health effect, (known as willingness to pay or just WTP).

Here, we have used values derived from studies carried out in the United States and Western Europe. In the United States, studies have shown that individuals are willing to pay about US$3 to reduce the risk of death by one in one million. Aggregated over a large population, this amounts to about US$3 million per death avoided. Here we have arbitrarily used a much more conservative figure of US$1 million as the value of a statistical life. The cost of a respiratory hospital admission is simply the cost of the illness, comprised of US$26,900 for an average of 10 days in the hospital and US$1,270 for lost wages. The values of all other illnesses linked to exposure to PM1 Oand sulfur dioxide are based on this cost of illness approach.

The United States values have been adjusted to reflect differences in per capita income between Slovenia and the United States. The most recent data show per capita income in Slovenia to be US$6,310 and of United States per capita income to be US$23,240. Therefore, in this analysis, Slovenia values are 27.15 percent of United States values.

C:\DATA\WB\SLO-ENV\SAR\SA-X2-.IWPD Table A2-1.1 Health and economic benefits of declines in ambient concentrations of PM10 and S02 in Maribor

Ambient concentrations decline 20 agl mbient concentrations decline 10 ugl Value per value per Nb f * Total NTotal casce casccaseases* Nuwnbfr valu** of cass* value*br (USS) (USS) PM1O S02 (DM 000s) PM1O S02 (DM '000s Mortality 1,000,000 271,500 14 7 8,650 7 4 4,325

Respiratory 28,164 7,647 25 287 13 143 hospital Emergency room 258 70 495 52 248 26 visits Respiratory 58 16 121,210 2,863 60,605 1,432 activity days .

Lower 326 89 765 102 383 51 rcspiratory Asthma 100 27 10,996 448 5,498 224 symptoms Chronhitis 200.000 54,300 130 10,589 65 5,294 bronchitis Respiratory 15 4 385,765 2,357 192,883 1,178 symptoms Respiratory 15 4 9 0 S symptoms, child

Chest discomfort 15 4 21,080 129 10,540 64

Total annual |25475 12,738

- For a population of 104,500, including 24,000 persons under the age of 14.

-* One USS equals 1.5 German narks (DM).

Wahington, D.C.. Mach 1, 1996 ANNEX 3-1

ECONOMIC ANALYSIS

Key Assumptions, Fuel Use, Emissions, and Ambient Air Quality, Conversion Rates, and Costs and Benefits of the Project

This Annex contains the following tables:

Table A3-1.1 Average and maximum ambient concentrations of SO2 and TSP in Slovenia, 1991-93 Table A3-1.2 Heating conversion potential in Maribor Table A3-1.3 Importance of barriers to conversion for households Table A3-1.4 Key assumptions used in calculating the costs and benefits of converting to natural gas or district heating Table A3-1.5 PM1 Oand SO2 emissions in tonnes per Mtoe of fuel Table A3-1.6 Fuel use, emissions, and ambient air quality for Maribor Table A3-1.7 Anticipated conversions to clean fuels in Maribor with and without the project Table A3-1.8 Costs and benefits of the project

Details on the tables follow.

Key assumptions. The economic analysis of the project is based on a comparison of costs and benefits, with and without the project. Table A3-1.4 shows the key assumptions used to calculate the economic benefits of the project, including fuel use and costs, operating and maintenance costs and capital costs. Anticipated conversions of existing facilities with and without the project for four alternative heating systems are shown in table A3-1.7. Table A3-1.4 shows the annualized capital cost of alternative heating systems, assuming an interest rate of 6.5 percent, (column I) to highlight the difference in annualized capital costs between a natural gas or a district heating system and the alternatives'. The annual savings (costs) are shown in column T. The table also shows the consumer surplus produced with the gas or the district heating system -- the amount consumers would be willing to pay in excess of what they actually have to pay for their heat. Finally, the table shows the expenses the gas and district heating companies will incur to meet the increased demand.

Fuel use, emissions, and ambient air quality. Table A3-1.6 shows fuel use, emissions, and ambient air quality for Maribor. For the analysis, we assume that heating season ambient air concentrations of PM,0 and sulfur dioxide fall close to non-heating season averages once dirty fuel fuel users convert to cleaner fuels. In Maribor, concentrations of PM1 o and sulfur dioxide average

l The cost benefit analysis (TableA3-1.8) treats all capital costs as sunk costs, so the savingson capital costs are not includedas part of the benefits of the project. Annex 3-1 2 about 65 micrograms per cubic meter during the heating season, and about 20 during the non- heating season; the annual average is about 40 micrograms per cubic meter. Since there are no other major sources of emissions which could account for the difference between winter and summertime concentrations, we can assume that almost all the difference is due to the use of dirty fuels. Eliminating the use of these fuels for space heating should lower wintertime PM,o and sulfur dioxide concentrations to the levels prevailing during the other months of the year, and therefore should reduce annual averages by at least 20 micrograms per cubic meter (Version 1). We have also shown results for a smaller decline in ambient concentrations of 10 micrograms per cubic meter (Version 2).

Improvements in ambient air quality are proportional to reductions in emissions from the burning of coal, gas-oil, and heavy fuel oil. The improvements shown in Table A3-1.6 are relative to what would occur without the project. For example, in 1998, the annual ambient air concentration of PM1Ois 11 micrograms per cubic meter lower than without the project, assuming the decline in PM,Oconcentrations once the project is fully implemented is 20 micrograms per cubic meter (Version 1).

Conversion rates. Table A3-1.7 shows anticipated conversions in Maribor by fuel type for the Air Pollution Abatement Component with and without the project. For example, with the project, 1,500 more households and 24 more boiler houses now using coal, wood, or heavy fuel oil would convert to clean fuels by the year 1997 with the project than without the project.

Costs and benefits. Table A3-1.8 shows the costs and benefits of the project. These are based on the difference of what would occur with and without the project. With the project, annual gas network expansion costs would be 700,000 DM higher in 1995 than without the project. This is computed as follows: with the project, network expansion costs are 3 million DM, or 1 million per year from 1995-97. Without the project, the network will still expand, but more slowly: without the project network expansion costs are 300,000 DM per year. With the project, network expansion costs are 700,000 DM higher than without the project for 3 years from 1995-97. From 1998-2004 they are 300,000 less, since these costs would have been incurred anyway. The present value of this stream of costs at an interest rate of 12 percent is 707,000 DM. The calculations for all the cost categories are carried out the same way.

Benefits include (i) avoided fuel, and operating and maintenance costs of the old systems, (ii) consumer surplus, and (iii) health benefits. (The savings on running costs per household or boiler house are shown in Table A3-1.4, column H). The benefits represent the difference of what would occur with the project versus without the project.

To truncate the analysis at 20 years, it is necessary to assume that the number of unconverted systems after the final period is identical for both the with project and without project cases. Because we assume that the difference is eliminated in the final year, there is a large negative conversion cost in that year. Since the conversion of heating systems on its own has a positive net present value, this end-of-period adjustment must be less than the present value of the Annex 3-1 3 benefitsthat would arise from a continuingdifference between the number of converted systems under the two cases. Thus, the analysisunderstates the true net benefits of the project.

Health benefits are presented for two assumptions. Under Version 1, ambient concentrations of both PMIo and sulfur dioxide fall by 20 microgramsper cubic meter. Under Version2, ambientconcentrations fall by only 10 microgramsper cubicmeter. Table A3. 1 shows in detail the assumptionsused to calculatethe health benefits.

M:\SCHREIBE\SLOV-SAR\SAR_WP61\SA-X3-I .WPD Table A3-1.1 Average and maximum ambient concentrations of S02 and TSP in Slovenia, 1991-93 (micrograms per cubic meter)

1991 1992 1993

Averages Annual 24hour 1-hour Annual 24-hour 1-hour Heating Non- 24-hour 1-hour average maximu maximum average nw mimum* Annual so heating maximun maximu season Sulfur dioxide (S02)

Maribor 89 447 684 52 236 542 42 70 20 235 425 Zagorije 87 531 1,150 73 333 1,177 61 100 25 424 1,073 Celje 95 551 1,260 60 330 772 58 100 20 414 855 Trbovlje 119 630 1,667 69 391 1,362 76 118 34 455 1,012 Hrmstni 99 820 1.724 65 366 890 55 83 28 421 685 LjublJan 63 378 825 54 256 1,425 44 70 20 344 1,481 Velenje* 20 150 900 20 187 775 20 27 12 195 1,255

TotaI suspended part eilat.(FSP)*** (a,uwal average)

Maribor 82 285 77 235 73 225

* Basedon incompletedat ** Heatingseason is October- March *** About67 percentof TSP is PM10. Thus 82 microgramsper cubic meterof TSP is equivalentto about 55 microgramsof PM10.

Sources: Sulfurdioxide dama from HydrometeorologicalInstitute of Slovenia; TSP data fromManbor, PublicHealth Institute. Wuhiop, D.C., ha. 17, 1996 Annex 3-1 5

Table A3-1.2 Heating conversion potential in Maribor

Boiler houses Households

Curreat fuel Numnber Percent Number Percent

TO GAS Coal or wood 30 54 2,000 49 Fuel oil 25 28 0 0

TO DISTRICT HEAT Coal or wood 10 18 2,100 51

Total 65 100 4,100 100

Washington.D.C., Jan.17, 1996 Annex 3-1 6

Table A3-1.3 Importance of barriers to conversion for households

Percent of respondents rating each number one

Barriers North Southeast

Conversion costs too high 21.2 61.8 Gas is dangerous 9.1 2.1 Future gas prices too uncertain 18.2 11.9 Lack of information 18.2 10.8 Other 33.3 13.4

Total 100 100

Washinglon. D.C., Jan. 17, 1996 Table A3-1.4 Key assumptions used in calculating the costs and benefits of converting to natural gas or district heat > (allmonetary units are DM, interest rate = 6.5%) Expenses for current fuel use

A B C D E F G H I J

Caual costs System Annulfue AnnualO&M Annual for current lifetm conumMon DMperfuel Totalanntl includinglabor runnig costs Annuaized Totalannual Nwiber system (years) (gj) unit fuel cost (DxE) csts' (F+G) capitalcost costs (H+l) CONVERSIONSTOGAS Cod md wood tXXUdIOIdS 2,000 5,284 12 82.4 10.2 840.5 472 1,312 648 1,960 boiles 30 130,810 15 2,538.0 10.2 25,887.6 18,600 44,488 13,912 58,400 Hiv faddl boilers 16 199,790 20 8,132.0 7.8 63,754.9 17.765 81,520 18,132 99,652

CONVERSIONSTO DISTI7CTHEAT Cod md d hseholds 2,100 5,284 12 82.4 10.2 840.5 472 1.312 648 2,960 boile 10 130,810 15 2,538.0 10.2 25,887.6 18,600 44,488 13,912 58,400

Thel asamii nig cost for housebol usingcoal includes 366 DM for time spenthading coal, tendingthe stove,disposing of asbes,etc. 1l.c behmg ason lats 6 moD., so eah bhoseholdspends about 135hours per year tcaling the coalhealing sytern. This timeis valued at on-halfde wage rate, or aboutequivalesy to the valuepeopkc place on tite speing travellingto work.

* Hseholdsi my bofrow 80% of conversioncos. Boilen boow 100%. W, D.C. _ 1. 1 Annex 3-1 8

Table A3-1.5 PM1Oand S02 emissions in tonnes per Mtoe of fuel (I toe = 41.868 GJ) PMIO S02

Coal 62,980 84,000 Gas-oil 1,407 9,700 Heavy fuel oil 938 52,000

Washington.D.C.. Jan 17, 1996 Table A3-1.6 Fuel use, emissions, and ambient air quality for Maribor p

Annual facl usc Annualfuel use Total annruzalannual emissionsemissions ~~~~~~~~Improvernentconcentation duein annrual to the arnbientxproject

TI (thousand gigqjoule) (tonnes) (micrograms per cubic meter) No project Withproject No project With project Version I Version 2

Coal Heavy Coa Heavy PM10 S02 PM10 S02 PMIO S02 PMIO S02 fuel oil fuel oil

1996 439 203 439 203 675 1198 675 1198 0.0 0.0 0.0 0.0 1997 414 195 332 163 636 1134 511 929 3.7 3.4 1.8 1.7 1998 388 187 224 122 597 1071 348 661 7.4 6.9 3.7 3.4 1999 362 179 116 81 556 1006 185 392 11.0 10.2 5.5 5.1 2000 335 171 54 41 516 941 90 216 12.6 12.1 6.3 6.1 2001 307 163 0 0 473 873 8 55 13.8 13.7 6.9 6.8 2002 279 155 0 0 430 804 8 53 12.5 12.5 6.3 6.3 2003 251 146 0 0 388 736 7 51 11.3 11.4 5.6 5.7 2004 223 138 0 0 346 669 7 49 10.0 10.3 5.0 5.2 2005 195 130 0 0 303 601 7 48 8.8 9.2 4.4 4.6 2006 168 122 0 0 262 534 7 46 7.6 8.2 3.8 4.1 2007 140 114 0 0 220 467 6 44 6.3 7.1 3.2 3.5 2008 113 106 0 0 179 400 6 42 5.1 6.0 2.6 3.0 2009 101 98 0 0 161 365 6 40 4.6 5.4 2.3 2.7 2010 91 89 0 0 145 333 6 38 4.1 4.9 2.1 2.5 2011 81 81 0 0 130 301 5 37 3.7 4.4 1.8 2.2 2012 71 73 0 0 114 269 5 35 3.2 3.9 1.6 2.0 2013 61 65 0 0 99 237 5 33 2.8 3.4 1.4 1.7 2014 51 57 0 0 83 205 5 31 2.3 2.9 1.2 1.5 2015 41 49 0 0 68 173 4 30 1.9 2.4 0.9 1.2 2016 31 41 0 0 52 142 4 29 1.4 1.9 0.7 0.9

W_DWm.C.._17,171996i Table A3-1.7 Anticipated conversionsto clean fuels heat in Maribor with and without the project

Number ofu burning coal/Vwood Number heavyfuel oil Number of units burning gs Number of units with district heat

Year No project With project No project Withproject No projecf With project No project Wit/hproject

Households Boilers Households Boilers Boilers Boilers Households Boilers Households Boilers Households Boilers Households Boilers

1996 4,100 40 4,100 40 25 25 0 0 0 0 0 0 0 0 1997 3,0 38 3,100 30 24 20 200 2 800 14 50 1 200 1 199i 3,600 36 2,100 20 23 15 350 2 1,400 25 150 4 600 5 1999 3.340 34 1,100 10 22 10 460 1 1,900 36 300 8 1100 9 2000 3,08O 32 500 5 21 5 570 2 2,000 42 450 10 1600 13 2001 2,J00 30 0 0 20 0 700 3 2,000 50 600 12 2100 15 2002 2,520 2S 0 0 19 0 880 4 2,000 SO 700 14 2100 15 2003 2,240 26 0 0 18 0 1,060 6 2,000 50 800 15 2100 15 2004 1,970 24 0 0 17 0 1,230 9 2,000 50 900 15 2100 15 2005 1,690 22 0 0 16 0 1,410 12 2,000 50 1000 15 2100 15 2006 1,420 20 0 0 15 0 1,580 15 2,000 50 1100 15 2100 15 2007 1,150 18 0 0 14 0 1,750 18 2,000 50 1200 15 2100 15 2006 88O 16 0 0 13 0 1.920 21 2.000 50 1300 15 2100 15 2009 iOO 14 0 0 12 0 1,900 24 2,000 50 1400 15 2100 15 2010 740 12 0 0 11 0 1,910 27 2,000 50 1450 15 2100 15 2011 6il 10 0 0 10 0 1,920 30 2,000 50 1500 15 2100 15 2012 620 a 0 0 9 0 1,930 33 2,000 50 1550 15 2100 15 2013 560 6 0 0 8 0 1,940 36 2,000 50 1600 15 2100 15 2014 500 4 0 0 7 0 1,950 39 2,000 50 1650 15 2100 15 2015 440 2 0 0 6 0 1,960 42 2,000 50 1700 15 2100 IS 2016 380 0 0 0 5 0 1.970 45 2,000 50 1750 15 2100 IS

Wv _opmD.C.. -m. 17. 1"6 Table A3-1.8 Costs and benefits of the project (DM '000s) (contd) X Benefits Net Benefits Avoided Consumer Health benefits TOTAL BENEFITS Includinghealth benefils Excihealth Exclhealth runningcosts surplus benefits benefits& on old consumer systems surplus Version I Version2 Version I Version2 VersionI Version2 1996 0 0 0 0 0 0 (6,600) (6,600) (6,600) (6,600) 1997 1,666 52 3,533 1,766 5,251 3,485 (3,836) (5,603) (7,369) (7,421) 1998 3,332 117 7,066 3,533 10,515 6,982 2,589 (944) (4,477) (4,594) 1999 4,986 178 10,565 5,283 15,729 10,447 8,205 2,922 (2,361) (2,539) 2000 5,891 227 12,199 6,100 18,317 12,218 14,448 8,348 2,249 2,022 2001 6,640 259 13,429 6,714 20,328 13,613 19,423 12,708 5,994 5,735 2002 6,102 229 12,234 6,117 18,564 12,447 18,048 11,931 5,814 5,585 2003 5,564 203 11,039 5,520 16,806 11,286 16,633 11,113 5,593 5,391 2004 5,039 182 9,878 4,939 15,099 10,160 15,243 10,304 5,365 5,183 2005 4,501 161 8,684 4,342 13,345 9,004 13,703 9,361 5,019 4,859 2006 3,976 140 7,523 3,761 11.639 7,878 11,959 8,197 4,436 4,296 2007 3,451 120 6,362 3,181 9,932 6,752 10,514 7,333 4,153 4,033 2008 2,926 99 5,201 2,600 8,226 5,626 8,060 5,460 2,859 2,760 2009 2.651 88 4,679 2,340 7,419 5,079 7,354 5,015 2,675 2,586 2010 2,402 82 4,225 2,113 6,709 4,596 6,272 4,159 2,047 1,965 2011 2,152 75 3,772 1,886 5,999 4,113 5,690 3,804 1,918 1,844 2012 1,903 68 3,318 1,659 5,289 3,630 5,108 3,449 1,790 1,722 2013 1,654 61 2,864 1,432 4,579 3,147 4,525 3,094 1,662 1,601 2014 1,405 54 2,410 1,205 3,869 2,664 3,943 2,738 1,533 1,479 2015 1,156 47 1,956 978 3,158 2,181 3,361 2,383 1,405 1,358 2016 906 40 1,502 751 2,448 1,698 4,389 3,638 2,887 2,847

NPV at 12% 26,740 972 53,446 26,723 81,157 54,435 55,042 28,319 1,596 624 NPV at8% 35,225 1,280 69,816 34,908 106,321 71,413 77,677 42,769 7,861 6,581

IRR 62 38 13 13

Sum 68,303 2,481 132,437 66,219 203,221 137,002 169,029 102,811 36,592 34,111

WV. i.gwo D.C. J. 17 19 _ ANNEX 3-2

PROJECT IMPLEMENTATION PLAN Annex 3-2 2

ANNEX 3-2

PROJECT IMPLEMENTATION PLAN

Table of Contents

Introduction .... 4

I. The Project ...... 4

A. Project Objectives ...... 4 B. Project Description ...... 4

II. Implementation Arrangements ...... S

A. Organization Responsible for APA - Component ...... S B. Financial Agent (FA) for the APA - Component) ...... 7 C. Sub-loan Terms and Condition (APA) - Component ...... 8 D. Implementation of the GIC - Component ...... 8 E. Role of the Bank ...... 10

HI. Project Costs and Financing ...... 12

A. Project Costs ...... 12 B. Detailed Financing Plan ...... 12 C. Procurement Arrangements and Schedule ...... 16 D. Disbursement Arrangements and Schedules ...... 19 E. Audits and Reporting ...... 20

Appendix Figure

Al Organization of project implementation ...... 21

Appendix Tables

Al APA - Component: Air pollution abatement program costs ...... 22 A2 GIS - Component: GIS project costs ...... 23 A3 APA - Component: Air pollution abatement sub-loan schedule ...... 24 A4 GIS - Component: GIS procurement plan and schedule ...... 25 AS Estimated Disbursement Schedule ...... 27 Annex 3-2 3

Attachements

Attachment 1: Draft Terms of Reference - Local Consultants ...... 28 Attachment2: Draft Terms of Reference for Foreign Management (FM) (Foreign Consultants) ...... 30 Attachment3: Draft Terms of Reference of the Training Center (TC) .32 Annex 3-2 4

ANNEX 3-2

REPUBLIC OF SLOVENIA

ENVIRONMENT PROJECT

Project Implementation Plan

Introduction

1. This Project Implementation Plan (PIP) was tentatively agreed upon with the EcoFund and the Ministry of Environment and Physical Planning (MEPP) during appraisal and finalized during negotiations. The PIP is the result of the joint efforts of the staff of the EcoFund, the MEPP and the World Bank.

1. The Project

A. Project Objectives

2. The objectives of the Environment Project are to:

(i) significantly reduce the urban air pollution in Slovenian towns with the highest pollution levels with a view to reducing and eliminating damage to health being sustained by the urban population; and

(ii) assist the MEPP in developing standardized data sets and procedures to strengtheland use planning and environmental management capabilities.

B. Project Description

3. The proposed project has two components:

(i) Air Pollution Abatement (APA) Component. Under this component, the project will provide sub-loans to households and boilerhouse owners/operators in the most polluted areas of Slovenia, to procure the equipment, materials, labor and small works needed to convert heating systems which use polluting fuels (coal, wood, other solid fuels, and heavy fuel oil) to the use of clean fuels (natural gas, LPG, district heating, heat pumps, and solar heating). Annex 3-2 5

(ii) Geographical Information System (GIS) Component. This component will include the development and implementation of the expansion of the Slovenian Geographical Information Center. The project will provide computer hardware and software and technical assistance, including consultant services, and training.

4. The total project cost is about DM 55.4 million, of which DM 34.6 million will be financed through loans from the World Bank to the EcoFund for the Air Pollution Abatement Component (DM 30 million, Guarantee from the Republic of Slovenia) and the Government for the GIC component to be implemented by the MEPP (DM 4.6 million). The project will be implemented over a period of five years by the EcoFund and the MEPP.

II. Implementation Arrangements

A. Organization Responsible for the APA - Component

5. The borrower for the project will be (i) the Slovenian EcoFund (Ekolosko Razvojni Sklad Republike Slovenije) for the Air Pollution Abatement Component (APA Component) and (ii) the MEPP for the GIC component.

6. Air Pollution Abatement Component. The EcoFund has set up a Project Implementation Team (PIT) (see the Chart "Organization of Project Implementation" in Figure I of Annex 3-2) for preparation and implementation of the APA Component. The team consists of the Director of the EcoFund, three Assistant Directors, and a general secretary. The PIT will be assisted by additional consultants when needed. The Director of the EcoFund will be the project director and head of the PIT. He will be responsible for project implementation, including coordination with other agencies involved in implementing the project, for management of the loan funds, and for cooperation with the World Bank. Two additional staff will be hired before August 1996. The PIT will have the following responsibilities:

Implementation:

- Organize information campaigns for informing households and boilerhouse owners/operators about availability of loan funds;

- Supervise processing of appliations for sub-loans and sub-project implementation;

- Monitor project expenditures and costs, and loan repayments;

- Ensure the timely preparation and submission to relevant government institutions and the World Bank of annual audit reports of project expenditures and accounts;

- Prepare a Project Completion Report (PCR) within six months of the completion of the component; Annex 3-2 6

procurement

- Ensure that procurement under the project is being carried out in accordance with the agreed procedures and the World Bank Procurement Guidelines;

- Provide support to the financial agent and the beneficiaries of the APAP in the procurement approval process and monitor procurement activities;

- Prepare periodic procurement status reports for the World Bank.

Finance

Select a financial agent (FA) for the administration of EcoFund loans (this has been done already for a Pilot Program in Maribor);

Prepare and execute a Financial Administration Agreement between EcoFund and the Financial Agent. This also has been done already for a Pilot Program in Maribor. Modifications to expand the agreement to the full APA component have been agreed during negotiations.

Prepare, in close collaboration with the FA, a proforma sub-loan agreement between EcoFund and the beneficiaries, covering conditions of the loans (guarantees, loan repayment, procurement, disbursements, auditing, reporting, etc.), and to monitor and evaluate the implementation of these loan arrangements (this has been done already for a Pilot Program in Maribor);

Participate in the financing of APAP loan beneficiaries (providing loans);

Coordinate project implementation with the FA and monitor and evaluate the loan administration;

Disbursement

Supervise establishment and processing of procurement supporting documents, submitted by the FA, such as contract or purchase orders, transportation documents, invoices and vouchers or statements of expenditures (SOEs);

Supervise the FA, that will make payments to suppliers of goods of the APAP component;

Supervise the FA, that will prepare withdrawal applications for disbursements from the loan; Annex 3-2 7

- Manage the special account including its replenishment;

Supervise the FA, that will maintain project accounts.

B. Financial Agent (FA) for the APA Component

7. While the EcoFund PIT would have the overall responsibility for the implementation of this component, the services of a commercial bank would be engaged as a Financial Agent. In close cooperation with the Bank, Nova Kreditna Banca Maribor (NKBM) was selected as a FA and discharged its responsibilities satisfactorily during the pilot phase of the program that operated from September to November 1995 in Maribor. It has been agreed during negotiations that NKBM will continue to act as the FA for the project. The responsibilities of the FA, who should continue to be in good standing with the Bank of Slovenia, would be as follows:

Prepare an information sheet, including the eligibility criteria for the sub-loans and a sub-loan application form and its distribution to potential beneficiaries, households and boilerhouse owners/operators;

Receive sub-loan applications, reviewing them against the pre-agreed eligibility criteria and approving the sub-loan applications or rejecting them for not meeting the eligibility criteria, such as the applicant's ability to provide 20% of the sub-project cost and his or her ability to repay the loan amount;

- Sign sub-loan agreements; monitor their execution;

- Receive purchase orders, invoices and vouchers from the beneficiaries, review them for accuracy and, with the help of the PIT, for compliance with the procurement procedures, and make payments to suppliers;

- For sub-loans to households, submit to the PIT Statements of Expenditures based on the purchase orders, invoices and vouchers and submit them to the EcoFund for reimbursement;

- For sub-loans to boilerhouse owners/operators, submit to the PIT the Statement of Expenditures based on the contracts or the purchase orders, invoices and vouchers, and submit them to the EcoFund for reimbursement.

- Maintain sub-loan accounts, and payment documents, and make them available, upon request, to the PIT, the World Bank staff and auditors.

- Prepare and submit a quarterly report to the PIT on the number of applications received; number of sub-loans granted; number of sub-loans rejected, reasons for Annex 3-2 8

their rejection; and the status of granted sub-loans.

- Submit annual audits, to be carried out by an auditor accepted to the Bank.

C. Sub-loan Termsand Conditionsfor the APA Component

8. Sub-loans would be made at the following terms and conditions to finance conversions:

(a) For households, the term of the loan will be up to 6 years;

(b) For boilerhouse owners/operators, the term will be up to 10 years.

9. The sub-loan amounts would cover 80 % of the conversion costs. The Bank loan would finance 75 % of the volume of lending (up to DM30 million) and the EcoFund EcoFund would finance 25 %. The PIT has prepared an Operational Manual which includes detailed eligibility criteria for loans, administrative procedures including forms for applications, and the procedure for certification by the natural gas company or the district heating company regarding availability of connections, payroll deductions, loan agreements, etc.

D. Implementationof the GIC component

10. This component would be implemented by the Geographical Information Center in the MEPP. Implementation arrangements are as of March 12, 1996, as follows:

PrQoectDirector (PD) is mag. Dusan Blaganje, State Secretary;

Proiect Manager (PM) is Jurij Retek, Head of GIC;

Project Imnlementation Team (PIT) (core staff) encomprises Jurij Retek, GIC; Majda &u6ek-Kumelj, Planning Office of the Republic of Slovenia, specialist for land use planning and environmental monitoring; Marjan Podobnikar, Geodetic Authority of the Republic of Slovenia, specialist for basic geometry databases; Ales Marinsek, GIC, specialist for metadatabase, hardware, software; Albert Kolar, GIC; specialist for hardware and software and networking; and two additional staff, for procurement and disbursement and for project management. The additional staff will be hired prior to loan effectiveness.

Co£mpne (Local) Managers (CM): Jure Sugtergie, Koper Region; and one additional staff for each the Ljubljana Region and Maribor Region.

11. Responsibilities of the PD would be: Annex 3-2 9

- to monitor the implementation of the project. to assure that the project is achieving the main goals within political and legislative frame. to grant support for the implementation of the project from all levels.

12. Responsibilities of the PM would be:

- to undertake responsibilities of the implementation of the project. - to define the design and implementation plan of the project (with PIT). - to manage PIT and to assist PIT in decision making. - to prepare (together with PIT) exact time schedule and detailed financing plan of the project. - to prepare the selection criteria for the evaluation processes. - to help PIT to evaluate and select offers for local consultants, training and foreign consultants. - to negotiate and prepare contracts. - to prepare procurement status reports. - to monitor expenditures and cost of the project. - to submit payment requests to PIU at the Ministry of Finance. - to ensure timely preparation of reports to the WB and project director. - to prepare a project completion report. - to take necessary steps to mitigate risk of the project implementation.

13. Responsibilities of PIT would be:

- to organize information campaigns and to promote the project. - to undertake responsibilities for the implementation of components of the project. - to define the detailed objectives of the components (with project manager). - to define the detailed design and implementation plans of the components (with local consultants and component managers). - to prepare detailed financial plans within the frames of the project. - to prepare terms of reference for consultant assignments, letters of invitation, shortlists, contract conditions. - to evaluate offers for local consultants, foreign consultants and training. - to evaluate offers for hardware and software purchase. - to prepare terms of reference for component contractors (management and suppliers). - to assist component managers in evaluation of offers for component contractors. - to coordinate and assist priority areas managers in organization of their work. - to verify the financial aspect of the projects in priority areas. - to submit payment requests to the project manager. - to monitor the progress of work on the project components. Annex 3-2 10

- to verify (with assistance of local consultants)the expertness and correctness of decisions on the components. to verify(with assistanceof LC) the correctnessof the work done in priority areas. to ensure timelypreparation of reports on the projectprogress on the components.

14. Procurementand disbursementwould be undertaken with the support of the Ministry of Finance.

E. Role of the Bank

15. The project would require about 7 staff weeks of Bank supervision per year on average during implementation,as reflected in the proposed supervisionplan below: Annex 3-2 11

Timing Staff Weeks Staffing No of No of Trins Field Weeks

CY1996 10 Bank resources (10 weeks) of which: 2 5 - Task Manager (4 weeks) - Environment Specialist (2 weeks) - Financial Analyst (2 week) - Procurement Specialist (2 week)

CY1997 6 Bank resources 6 weeks of which: 2 3 - Task Manager (2 weeks) - Environment Specialist (2 weeks) - Financial Analyst (I weeks) - Procurement Specialist (I week)

CY 1998 6 Bank resources 6 weeks of which: 2 3 - Task Manager (3 weeks) - Environment Specialist (1 week) - Financial Analyst (I week) - Procurement Specialist (1 week)

CY 1999 6 Bank resources 6 weeks of which: 2 3 - Task Manager (2 weeks) - Environment Specialist (2 week) - Financial Analyst (I week) - Procurement Specialist (I week)

CY2000 6 Bank resources 6 weeks of which: 2 3 - Task Manager (3 weeks) - Environment Specialist (I week) - Financial Analyst (I week) - Procurement Specialist (I week)

CY200 1 7 Bank resources 7 weeks of which: 2 3 Completion - Task Manager (2 weeks) Report - Environment Specialist (2 weeks) - Financial Analyst (2 weeks) - Procurement Specialist (I week)

Total 41 12 20

16. An evaluation of the EcoFund's Pilot Program was carried out in February 1996. A mid-term project review would be carried out by January/February 1997. Annex 3-2 12

III. Project Costs and Financing

A. Project Costs

17. The estimated cost by project component is shown in Table 1.3. Detailed yearly project costs are also shown in Table 1.4. Cost tables for both components are shown in Tables Al and A2.

18. Basis of Cost Estimates. Project costs were estimated as follows:

(a) Base Costs. Cost estimates for the APAP are based on the results of the pilot phase of the program and on market surveys carried out to estimate the potential of converting households and district heating plants from coal to gas in Maribor. These studies were financed by the Bank's Dutch Trust Fund for Central and Eastern Europe. The cost estimates for the GIC component are based on previous purchases by the MEPP of GIS computer hardware and software.

(b) Contingency Allowances. Physical contingencies of 3 % or DM 0.2 million have been included in the GIC component. Price contingencies for the GIC component are estimated at DM 0.2 million equivalent to 10% of the local base cost and 2% of the foreign exchange cost. No contingencies are included in the costs of the APA component since this will operate as a line of credit, though an allowance for inflation has been included in estimating the average loan sizes and thus the number of loans that can be financed from the funds made available under the Project.

(c) Foreign Exchange Component. The foreign exchange component is estimated at about DM 34.6 million (DM 30 million for the APA Component and DM4.6 million for the GIC component).

B. Detailed Financing Plan

19. The proposed Bank loans of total DM 34.6 million would finance approximately 62 % of the total project costs. The EcoFund, final borrowers, and the MEPP would finance the balance of the project costs (about DM 20.8 million), including duties and taxes. The Financing Plan is shown in Tables 1.1 and 1.2 below: Annex 3-2 13

Table 1.1 Financing plan by component (DM million)

IBRD EcoFund Final MEPP Total Borrower 1. Air Pollution 30.0 10.0 10.0 -- 50.0 Abatement Program 2. Geographical 4.6 -- -- 0.8 5.4 Information System Total Disbursement 34.6 10.0 10.0 0.8 55.4

Washington,D.C.; March 12, 1996

Table 1.2 Financing plan by financier (DM million) Local Foreign Total EcoFund 10.0 0.0 10.0 Final Borrower 10.0 0.0 10.0 MEPP 0.8 0.0 0.8 IBRD 0.0 34.6 34.6 Total 20.8 34.6 55.4

Washington,D.C.; March 12, 1996 x

Table 1.3 Project costs by component and by expenditure . (SlovenianTolars Million) (DMMillion) Total base Total base ~~~~~~Foreign Project Component Local Foreign Total cost bs Lo(al Foreign Total Tot exchange

1. Air Polution Abatement Program (APAP)

Equipment, materials, labor and small associated works 1,660.00 2,490.00 4,150.00 20.00 30.00 50.00 60

2. Geographical Information System (GIS)

Hardware and Software 9.90 54.90 64.80 0.11 0.61 0.72 83 Consultancies and Training 66.60 356.40 423.00 0.74 3.96 4.70 84 Subtotal 76.49 411.30 487.79 94 0.85 4.57 5.42 94 84

Total Project Cost 1,736.49 2,901.30 4,637.79 - 20.85 34.57 55.42 62

Washington, D.C., April 14, 1996

4A Table 1.4 DetailedCosts (DM Million) 1996 1997 1998 1999 Grand Total Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total

1. Air PollutionAbat.ment Program (APAP)

Equipment,materials, labor and small associatedworks 5.50 8.25 13.75 8.25 12.38 20.63 5.50 8.25 13.75 0.75 1 13 1.88 20.00 30.00 50.00

2. GeographicalInformation System (GIS)

Hardwareand Software 0.11 0.61 0.72 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0 11 0.61 0 72 ConsultanrciesandTraining 0.12 0.13 0.25 0.42 2.11 2.53 0.20 1.72 1.92 0.00 0.00 0.00 0.74 3.96 4 70 Suibtotal 0.23 0.74 0.97 0.42 2.11 2.53 0.20 1.72 1.92 000 0.00 0.00 0.85 4.57 5.42

Tutal ProjectCost 5.73 8.99 14.72 8.67 14.49 23.16 5.70 9.97 15.67 0.75 1.13 1.88 20.85 34.57 55.42

Washington,D.C., April18, 1996 Annex 3-2 16

C. Procurement Arrangements and Schedule

20. Procurement arrangements under the project are summarized in Table 1.5 below:

Table 1.5 Procurement arrangements (DM million)a ICB Other Total 1. APA Component Equipment and materials 50.0 50.0 (30.0)b (30.0)

2. GIC component Computer hardware and 0.7 0.7 softwarec'- (0.6) (0.6)

Consultant Servicesd 4.7 4.7 (4.0) (4.0)

TOTAL 55.4 55.4 (34.6) (34.6)

Notes: Numbersmay not add up due to rounding a/ Figuresin parenthesesare the amountsfinanced by the BankLoans. b/ Other includes:procurement by householdsby local shopping(DM20.0 million); procurementby private boilerhouseowners/operators using establishedcommercial practices (at leastthree price quotations)and by public boilerhouseowners/operators using publicprocurement regulations (DM10 million) C/ IncludesIntemational Shopping (DM300,000), and Direct Contracting(DM300,000). d/ Procurementaccording to BankGuidelines for Use of Consultants(DM4.0 million)

21. APA Component. During project implementation, EcoFund would make approximately 6,500 sub-loans to households and 65 sub-loans to boilerhouse owners/operators. Of the total estimated cost of DM 50 million for the component, the Bank loan will cover DM 30 million or about 60%. 20% of the sub-loans will be funded by the EcoFund, 20% by the beneficiaries. A yearly sub-loan schedule is in Table A3.

22. Households and boilerhouse owners/operators will procure the needed equipment, materials, labor and associated civil works, in accordance with the World Bank Guidelines dated January 1995, as follows:

(a) Households. Individual contracts for heating equipment and materials for households should generally not exceed DM 12,500. The Bank has established that the labor, material and equipment that would be required by households to convert their heating Annex 3-2 17

systems to cleaner fuels are available within Slovenia from several sources to ensure sufficient competition. The Bank has also established that normally households buy prudently by comparing prices obtained from several sources and taking into account the quality and performance of the equipment. Consequently, the households would be allowed to procure the necessary labor, equipment and materials using these practices of several sources.

(b) Boilerhouse owners/operators. A brief assessment of the public and private procurement practices and market in Slovenia of heating equipment for larger boilerhouses has confirmed that there is significant competition in Slovenia for the supply of the heating equipment of all sizes. Both foreign made and locally manufactured heating equipment is easily available through various competitive sources in Slovenia. The private operators of boilerhouses follow established commercial practices for their purchases, which include obtaining several quotations from suppliers and purchasing the equipment on the basis of its price and performance. Consequently, the private operators of boilerhouses would be allowed to use the established commercial practices, subject to their obtaining at least three quotations. The public operators of boilerhouses are subject to the Public Procurement Decree of May 29, 1993. This Decree provides for tendering for contracts estimated to cost the equivalent of DM 6,000 or more for a minimum of three quotations per tender. This practice has been found acceptable for use by the public operators of boilerhouses for their purchases under the project. No sub-loan under this component is expected to exceed DM 250,000.

23. The FA would manage the flow of funds from EcoFund to beneficiaries (households and boilerhouse owners/operators). The FA and the EcoFund would ensure that prices obtained by the beneficiaries following the above-mentioned procurement methods reflect current market prices.

24. GIC component. The Component includes GIS computer hardware and software packages (DM730,000); local consultants (DM1,260,000 aggregate); and five large consultant assignments to be procured internationally (DM3.96 million). These packages would be procured in accordance with the following procurement methods:

(a) Procurement of Goods

(i). International Shopping based on comparison of price quotations obtained from at least three suppliers in two different countries for contracts estimated to cost the equivalent of more than DM30,000 but less than DM250,000 each (aggregate DM 300,000).

(ii). Direct Contracting would be used for four packages (estimated to cost DM300,000). The justification for direct contracting is upgrading of existing GIS software and compatibility with the existing equipment. Annex 3-2 18

(b) Procurement of Consultant Services

The Component includes six assignments at a total cost of up to DM 4.72 million. One of the assignments includes the engagement of the services of local GIS experts (up to DM1,260,000 aggregate). For the remaining assignments, experienced consulting firms would be shortlisted and invited to submit proposals.

25. A list of packages, along with their cost and proposed procurement methods, and an implementation plan and schedule are shown in Table A4.

26. Review of Procurement Documents by the Bank. The Bank would review the procurement documents as follows:

APA-Component

for the first two loans to be made to households: quotations or pro forma invoices; for the first two contracts to be concluded with owners/operators of boilerhouses.

GIS-Component

for the first international shopping contract; for all direct contracts; for all consultancy assignments and training (see para. 24).

27. Procurement of Consultant Services and Training. In the case of consulting services and training, all TORs and selection procedures would apply to all consulting contracts above DM75,000 and for amendments to consulting contracts that raise the contract value to DM75,000 or above for individual consultants. All assignments of a critical nature, as reasonably determined by the Bank, would also be subject to the Bank's prior review. The Bank's standard bidding documents would be used for the recruitment of consultants, with such modifications thereto as the Bank shall have agreed to as necessary for purposes of the project.

28. Since the project does not have an ICB package, no General Procurement Notice would be published. Slovenia has in force a Procurement Decree and a public procurement law is under preparation. A country procurement assessment has not been carried out for Slovenia.

29. Implementation. The EcoFund PIT and the PIT within the MEPP would be responsible for ensuring that procurement under the respective components is being carried out in accordance with the World Bank Procurement Guidelines. The EcoFund PIT includes staff who have experience in procurement in Bank-financed projects. In addition, two members of the EcoFund PIT attended a World Bank-organized implementation seminar which included several presentations on procurement. The seminar was held in Budapest in January 1995. The Ministry of Finance will assist the PIT in the MEPP in procurement and disbursement. These arrangements are regarded fully Annex 3-2 19

satisfactory.

D. Disbursement Arrangements and Schedules

30. Disbursements. The proposed project is expected to be disbursed over a period of five years. The closing date would be June 30, 2001. A summary of the disbursement plan is shown in Table 1.6 below.

Table 1.6 Disbursements by year (DM Million)

IBRD FY 1997 1998 1999 2000 2001 Annual 9.5 11.5 8.1 3.4 2.1 Cumulative 9.5 21.0 29.1 32.5 34.6

31. Under the APA Component, the sub-loans would finance up to 80% of the costs of subprojects. In terms of sub-loans of the EcoFund, World Bank funds would cover over 75% and EcoFund financing 25%.

32. Flow of Funds under the Project. The EcoFund PIT, which includes a financial expert (who has been trained in disbursement procedures), would be responsible for making payments to suppliers of goods and services under the APA Component, for withdrawing funds from the loan, for managing and replenishing the Special Account, and for keeping up-to-date and accurate project accounts. The use of Statement of Expenditures (SOEs) would be allowed for contracts of less than DM 400,000 each. For these contracts, there would be no need of sending supporting documents (i.e., the Contract/Purchase Order, Invoices, Shipment Document, Payment Certificates or Receipts) to the World Bank. Only a Statement of Expenditures, based on the supporting documents, would be sent to the World Bank, along with a Withdrawal Application. The supporting documents would be kept in Slovenia, and would be made available to the Bank staff and auditors upon request for verification and audit. To facilitate timely project implementation, EcoFund would establish, maintain and operate under terms and conditions acceptable to the Bank, a Special Account. The authorized allocation of the Special Account would be initially DM 4 million. However, when the aggregate disbursements under the Loan have reached the level of DM 6 million, the initial allocation may be increased up to the authorized allocation of DM5 million by submitting the relevant Application for Withdrawal. Replenishment applications should be submitted at least every three months, and must include reconciled bank statements as well as other appropriate supporting documents.

33. Under the APA Component, the beneficiaries will submit purchase order, invoices, vouchers and receipts to FA. The FA would verify these documents and prepare Statements of Expenditure Annex 3-2 20 and submit them to the PIT for verification and payment. The FA would have the option of paying the suppliers from its resources and then ask the PIT for reimbursement through the SOEs or ask the PIT to pay the suppliers directly on the basis of the information that would be provided in the SOEs. The FA would ensure that it maintains in its files all the supporting documents, along with a copy of the SOE. The PIT would check the SOE, make payment to the FA or to suppliers directly at FA's request from the Special Account and would use the SOE for preparing and submitting withdrawal applications to the World Bank for disbursements of funds against the SOEs.

34. For the GIS-Component, the MEPP will submit the signed contracts for goods and consultants to the Ministry of Finance. This unit would make payments to suppliers and use the contracts, purchaser orders, invoices, bills, shipping documents, payments receipts, etc., for preparing SOEs for obtaining funds from the Loan Account.

E. Audits and Reporting

35. Project Audits. Project Accounts for both Components, the Special Account, the EcoFund accounts in general, and the APAP records of the financial agent will be audited by an independent auditor, acceptable to the Bank, and in accordance with the "Bank's Guidelines for Financial Reporting and Auditing of Projects Financed by the World Bank" (March 1992). EcoFund will provide to the Bank (within six months of the end of each financial year), an audit report of the Project accounts for the APA component and the Ministry of Finance for the GIC component of such scope and detail as the Bank may reasonably request, including a separate opinion on disbursements against certified statements of expenditures (SOEs). The separate opinion should mention whether the SOEs submitted during the fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawal applications. In addition, the EcoFund will prepare financial forecasts.

36. Furthermore, in its contract with the selected FA, the EcoFund will ensure that the auditors would cover in their audit the APAP-related records and that they would report on their findings as part of their Annual Audit Report.

37. Reporting and Annual Reviews. The PITs will prepare semi-annual descriptive and financial reports on each respective project component, objective and activity (beginning from the date of Loan Effectiveness). The reports will describe: (a) current status; (b) deviations, if any, from the implementation plan; and (c) the reasons for deviations and corrective actions being taken. These reports will be based on the quarterly status reports to be submitted by the FA for the APA Component and by the Ministry of Finance for the GIC component. Bank supervision will be based on the semi-annual progress reports.

38. The EcoFund will regularly review the selected FA's APAP-related performance and will report to the Bank on the same by September 30 (covering the period January to June) and March 31 (covering the period July to December) each year. Annex 3-2 21

Figure A 1: Organization of Project Implementation

WORLD BANK

LOAN

APAF-Component GIS-Component

EcoFund MEPP

Project Project Implementation Implementation Team Team

APA-Component

Financial Agent (Commercial Bank)

Sub-borrowers | Sub-borrowers

(Households) l l eroseOwne oJOp.)

Washington. D C., Jan. 17, 1996 Table Al Component1: Air pollutionabatement program costs > (Slovenian Tolars Million) (DM million) x Subloan Local Foreign Total % of base cost Local Foreign Total % of base cost category

Households 1,189.97 1,784.95 2,974.92 73.75 14.75 22.13 36.88 73.75

Boilerhouse 423.55 635.32 1,058.87 26.25 5.25 7.88 13.13 26.25 owners

TOTAL 1,613.52 2,420.28 4,033.80 20.00 30.00 50.00

Washmgto. D.C.. Jan. 17, 1996 Annex 3-2 23

Table A2 GIS Component: Project Costs SIT Million DM Million Pro-jectFtezlen, (.0(a) Foreign 7()rN, Local Foreign Total oOf Toral RaoeCost

1. GOODS

GIS/ I Uii Scr-er &WS I 51 7 50 9 01 0.02 0 09 0 11 2 03 - Upgradeof UiIx Serser Uttin decelopmentWS (2, Ilnstallanlon . _ _

GIS/2 DOS Computer Hardware 3.26 15.97 19.23 0 04 0 20 0.24 4.42 Applications WS (DOS) (4) - Scanning WS - Graphic WS (DOS)I2) - PlDoIerA4 - Installation

GIS/3 Plotter AO (Upgrade)by original Supplier 0.50 2.82 3.32 0.01 0.04 0.05 0.92

GIS/4 Netmork HW 1.38 6.94 8.32 0.02 0.09 0.11 2.03 Network Router 116lines) Modem Router(16 ines) - Net Manager _ Installation

GIS/5 SystemsSW 1.15 7.66 8.81 001 0.10 0.11 2.03 - Oracle DB -SQLNET Oracle PertormanceMonitor Installation

G)S16Applcatotis SW 1.21 7.90 9.11 0.01 0.10 0.11 2.03 - DOSGraphics SW tUNIX GraphicsSW

TOTAL GOODS 9.01 48.79 57.S0 0.11 0.62 0.73 13.44

11.CONSULTANT SERVICES

GIS;7 Local GIS sysiems managementeXper5s (Year I + 2) 11.22 84.79 96.01 0.17 1.07 1.24 22.84 Project Coordmnator Slatidardizattonand QA Data VertfLcat2ost DBMS Manager

GIS/8 Foreign GIS Systemsnianagemeni 5 17 47.60 52.77 0.06 0.59 0.65 11.97 experts (Year I +2) Projtct Hanager - GIS Specialist

GIS/9 Training by hired foreign expertu(Yr 7) 4.10 43.46 47.56 0.05 0.54 0.59 10.S7 -Instructors 1.77 13.11 14.88 0.02 0.16 0. 8 3.31 Tsips and Accommodation 0.64 4.84 5.4S 0.01 0.06 0.07 1.29 - Site Prep. & Maerials 1759| 23.39 | 24.98 0.021 0.291 0.31 5.711 - Commun-calionCosIs (Inierniet) 0.10 2.12 2.22 0.00 0.03 0.03 0.55

GIS/10 Data Colleccions Koper RegiotI 8.44 50.29 58.74 0.10 0.62 0.72 13.31 - Management 5.02 5.48 10.50 0.06 0.07 0.13 2.35 Dtgtirzing & Editing SW 0 16 2.99 3.15 0.00 0.03 0.03 0.63 - Map ConVers,on 3.26 41.82 45.08 0.04 0.52 0.56 10.33

GIS/I I Maribor Region 17 07 46.38 63.45 0.10 0.57 0.67 12.27 - Management 5 31 13.2S 18.59 0.06 0.16 0.23 4.14 - Digitizing & Eduitig SW 0.177 3.17 | 3.34 0.00 0.04 0.04 0.66 - Map ConVersion 1 .59 29.93 41.53 0.04 0.37 0.41 7.46

GIS/12 Ljubljana Region 12.88 42.06 54.94 0.26 0.57 0.82 15.1S Management 5 02 12.54 17.55 0.06 0.15 0.21 3.91 - Digitizing & Editing SW 0.16 | 2.99 | 3.15 0.001 0.031 0.03 0.63 - Map Conversion 7 70 26.53 34.23 0.20 0.38 0.5S 10.64

TOTAL CONSULTANCIES 58.S8 314.58 373.46 0.74 3.96 4.69 S6.43

GRAND TOTAL * 67.89 363.37 431.26 0.85 4.58 5.42 100.00

(l) Errors in adding due to rounding. Ws.'ng-ngDC M-lt12 'iON Annex 3-2 24

t~~ g28i.

ss~~~ K0t 0

$ t| | 3i0 Annex 3-2 25

Table A4: GIS Procurement Plan and Schedule Paynmeoryear

Darripfhso CofEge moen Doctwnentj Submijuion CO#Uracl Completion 1996 1997 1998 DM) Method Issurd offerslprvps awarded

L GOOI-

LIS/ Unix Smwu& WS 110 DC 02)01/97 02115197 03/01/97 06/01/97 X - UpYad od Unix Serve * Unix D lveopwnlWS (2) - ImaaflaeIn

GM/ DOS C_mpxer Hardwa 240 IS 02A)1/97 02/20/97 03/15/97 06/01197 X

- Appimcom WS (DOS) - Scumin WS - Grapic WS (DOS) (2) UPS Pblans A4

GIS13Par AO (Upgral) 50.0 DC 03101/97 03/15/97 04/01/97 09/01/97 X by orinimil sgipisr

GIS/4 Netwk 110.0 IS 10101/97 10/20/97 11/10/97 03101/98 X NfwxrkRousr (16 lihm) _Rousr (I1 lion) - NnMager - ImuaSlaen

GII/S Sw SW 110.0 DC 04101/97 04/15/97 05/10/97 10101197 X Orneb D .SQLNKFT -Orac paodarar c mambo,

GUM App_a.SW 110.0 DC 06101/97 06/15/97 07/10/97 12/31/97 X

- DOS Grapbl SW - Unix GrOaphi SW

TOTAL GOODS 736.0

Not: DC - Dfx 4acuir IS - Imm,nrAdcl shoplapg

WxuhIqm. D.C.. Ji. 17. 1"6 Annex 3-2 26

Table A4: GIS Procurement Plan and Schedule (contd)

Pavnieni tear

EsumatafPocure Dori.,enins Submission~ Contraet Descriptionof pacLage Coratrlred( , len; Issuea' offers/props nii-99rded D/iJ) method- It. CONSULTANT SERVICES

GIS17Local Iidividual GIS SystemsManagemeist Experts 1.240 SL 09Q25/96 10/15/96 (0/30196 12101/98 x (Year I) System & Network Maiager DBMS Manager ProgramminigMaiager (2) Operaions Manager

GIS/8 Foreign GIS Systems 650 SL 051/ 06115/96 06130196 12/01198 ManagementExperts (Year I & 2 6

Project Manager - GIS Specialist - ProgrammingSpecialist Trips andAccommodation

GIS/9 Training by Hired Foreign 590 SL 10/01/96 11/01/96 11/20/96 12101/97 X Experts (Year 1) - Intructors - Trips and Accommodation Site Prep. & Materials

- CommunicationCoals (Internet)

GIS/10 Data Coliection - Koper 720 SL 05/01197 05/15/97 06/01/97 04/01/98 X

- Management - Diitizing & EditingSW - Map Conversion

GIS/II Maribor Reion 670 SL 07/01/97 07/15/97 08/01197 06/01/9t X - Management - Digitizing & Editing SW - Map Conversion

GIS/12 LWubUanaRegion 130 SL 10/01/97 10/15/97 11101/97 11/01/9e X - Management - Digizinig & Editing SW - Map Convenion

TOTAL CONSULTANCIES 4,700

GRAND TOTAL 5,430

Note: SL - Short List WSslnn. DC.. Mar0 I2. sIas Annex 3-2 27

Table A5: Estimated Disbursement Schedule

World Bank Quarter Ending Disbursemenits Fiscal Year DM Million Equivalent

APA GIS Cumulative Component Component quarterly curnul. quarterly cumul. quart. cumul.

97 September 1996 2.00 2.00 1 0.40 0.40 2.40 2.40 December 1996 1.00 3.00 0.40 0.80 1.40 3.80 March 1997 3.00 6.00 0.40 1.20 3.40 7.20 June 1997 2.00 8.00 0.30 1.50 2.30 9.50

98 September 1997 3.00 11.00 1 0.40 1.90 3.40 12.90 December 1997 1.00 12.00 0.40 2.30 1.40 14.30 March 1998 3.00 15.00| 0.40 2.70 I 3.40 17.70 June 1998 3.00 18.00 1 0.30 3.00 3.30 21.00

99 September 1998 2.00 20.00 0.30 3.30 2.30 23.30 December 1998 1.00 21.00 0.30 3.60 1.30 24.60 March 1999 2.00 23.00 1 0.30 3'90 2.30 26.90 June 1999 2.00 25.00 1 0.20 4.10 2.20 29.10

2000 September 1999 0.50 25.50 0.20 4.30 0.70 29.80 December 1999 0.50 26.00 0.20 4.50 0.70 30.50 March 2000 1.10 27.10 0.10 4.60 1.20 31.70 June 2000 0.80 27.90 0.80 32.50

01 September 2000 0.80 28.70 0.80 33.30 December 2000 0.20 28.90 0.20 33.50 March 2001 1.00 29.90 1.00 34.50 June 2001 0.10 30.00 0.10 34.60

Washington,D.C., Jan. 18, 1996

The Project completion date would be December 31, 2000 and the closing date would be June 30, 2001. Annex 3-2 28

Annex 3-2, Attachement 1:

Draft Terms of Reference - Local Consultants

1. The "Local Consultants" would assist (help) PIT in decisions in the fields of:

- topography - land cadastre - land use planning processes - register of real estate - environment protection - quality assurance - standardization - data collection

2. "Local Consultants" is a team of individual consultants/companies/one company/generally recognized in Slovenia and recognized by PIT to be one of the leading subjects (specialists) in the requested field of expertise.

3. The "Local Consultants" role is to:

- prepare expertises necessary for the implementation of the project. - assist PIT and PM in discussions with foreign consultants. - assist PIT in technical questions hardware/software communications. - assist PIT in decision making in the particular fields of expertise.

- assist PIT to define the processes of the components. - assist PIT to define data (layers) for the implementation of the components.

- assist PIT and component managers in implementing component projects.

- define data flows and data exchange procedures. - define the entities, structure and the objects (object catalogue) of the data layers. - define data acquisition specifications. - define standards for Quality Assurance procedures. - define data maintenance procedures and requests. - control, assist and verify data collecting process.

- help PIT to define the role between GIC of the Republic of Slovenia, local GICes, data owners and data users. - help PIT to define rules for consistent access, use and pricing policy. - assist PIT and local managers in preparation of tender materials for component bidding Annex 3-2 29

process. - identificate education issues. - assist and help in implementation of training procedures. - prepare Slovenian standards on spatial data object catalog and data acquisition process. - prepare internal (MEPP) standards on procedures in the field of land use planning.

C:\DATA\WB\SLO-ENV\SAR\SA-X3-2.WPD April 22. 1996 Anmex 3-2 30

Annex 3-2, Attachement 2:

Draft Terms of Reference for Foreign Management (FM) (Foreign Consultants)

1. Foreign consultants will be used to help PM and PIT in the management of the project, to assist in technical decisions and in database management and in general geoinformatics decisions, to suggest and support decisions in various fields of the project such as topography, land cadastre, land use planning processes, real estate, quality assurance procedures, standardization, data collection.

2. For all tasks, one internationally recognized company will be selected. Individual consultants will be invited to Slovenia occasionally, depending on the dynamics of the project, but in general assignments are expected every 30 days for 5-10 days for 2 consultants.

3. Terms of reference for foreign consultants are to: - help in promotion and explanation of the project. - assist and support PM in overall general management of the project. - assist PM and PIT in preparation bidding documents, terms of reference. - assist PM and PIT in preparation of documentation required by the WB (reports). - assist PM and PIT in financial questions. - assist PIT in technical implementation of the project. - advise and assist PIT in the fields of: - topography - land cadastre - land use planning processes - register of real estate - quality assurance - standardization - data collection. - make to PIT attention and acquaintance of foreign examples. - suggest and assist PIT in making decisions. - suggest transfer of foreign principles and solutions in building Slovenian geoinformation infrastructure. - suggestions on the role of government and private sector. - suggestions of the role of legislation and support in establishing. - suggestions on access policy on databases. - clarifying the questions of financing/fees of a system. - transfer and compliance of technical standards with foreign standards. - establishment of quality assurance procedures.

April 22, 1996 / C:\DATA\WB\SLO-ENV\SAR\SA-X3-2.WPD Annex 3-2 31

Annex 3-2, Attachement 3:

Draft Terms of Reference of the Training Center (TC)

1. The training facilities (the office and appropriate facilities) are only in Ljubljana, but the courses may be organized also elsewhere, using local facilities for the duration of courses. The goal is to spread the knowledge of geoinformation principles, to educate technical staff in the GIC RS and regional centers and to educate subjects of the geoinformation infrastructure in institutional (organizational) questions.

2. In Slovenia we will have only one training center. It will organize training courses for the MEPP staff, the PIT and for the staff in the areas, that are subject of the project (Koper, Ljubljana, Maribor).

3. It will also prepare training courses in other areas (municipalities), where the interest for establishment of local GIS centers is emerging (at the moment the interest is shown in Novo Mesto, Hrastnik, Krsko, Nova Gorica).

4. The training center will prepare materials for courses and organize the implementation of courses using local and foreign experts and using distance learning methods and technology. The training center will identify training objectives and develop courses of various duration covering:

- the concept of geoinformation infrastructure. - institutional building of geoinformation infrastructure. - organizational aspect of setting up local centers. - management of central and local GIC centers. - implementation of local centers. - marketing, pricing policy. - development of market awareness. - access and use of data via telecommunication infrastructure. - standardization of data and procedures. - QA procedures. - data conversion, data maintenance issues.

April 22, 1996 1 C:\DATA\WB\SLO-ENV\SAR\SA-X3-2.WPD ANNEX 3-3

MONITORING INDICATORS

Environmental Indicators

1. Development of air quality in cities where the APA component is carried out

Subloans

1. Households and boilerhouse owner applications 2. Geographical distribution of applications 3. Type of replaced equipment 4. Type of equipment to be financed 5. Duration for loan processing (min/max/average) 6. Loans granted for (i) households and boilerhouse owners/operators

EcoFund Performance

1. Quarterly Disbursements - for APAP and for other activities 2. Loans outstanding 3. Debt-equity ratio 4. Bad debts 5. Provisions for bad debts 6. Disbursement forecasts 7. Financial Forecasts

GIS Component

1. Procurement progress 2. Disbursement progress 3. Utilization of GIS equipment 4. Decentralization of National Geo-Information Infrastructure 5. Development of standards for the National Geo-Information Infrastructure

HSchreiber 8 March 1996 M:\SCHR,EIBE\SILOV-SAR\SAR_WP61\SA-X3-3.WPD ANNEX 4-1

References

Ayres, W. and J. Dixon. 1995. "Economicand EcologicalBenefits of Reducing Emissions of Sulfur Oxides in the SostanjRegion of Slovenia."Environment Dept. Paper 9. World Bank, EnvironmentallySustainable Development, Environment Department, Pollution and EnvironmentalEconomics Division, Washington,D.C.

Dockery, D., C. Pope, X. Xu, J. Spengler,J. Ware, M. Fay, B. Ferris, and F. Speizer. 1993. "An Associationbetween Air Pollution and Mortality in six U.S. Cities." New England Journal of Medicine 329 (24): 1753-9. This article also refers to 18 earlier studies.

Hydrometeorological Institute of Slovenia. 1992. Water Quality in Slovenia, Year 1991. Ljubljana.

Ostro, B. 1994. "Estimatingthe Health Effects of Air Pollutants: A Method with an Applicationto Jakarta." Policy ResearchWorking Paper 1301. World Bank, Policy ResearchDepartment, Public EconomicsDivision, Washington,D.C.

Ostro, B. 1992. "Estimatingthe Health Effects of Air Pollutants: A Method with an Applicationto Jakarta." (niimeo). World Bank, Policy Research Department,Public EcononmicsDivision, Washington,D.C.

Posel, F. 1994. "Air Pollution in the City of Maribor and in Slovenia:Review of Impacts and Results." Paper presented at the BudapestEnvironment Symposium, September.

World Health Organization. 1987. Air Quality Guidelines for Europe. WHO Regional Publications,European Series 23. Regional Office for Europe, Copenhagen.

M:\SCHREIBE\SLOV-SAR\SARWP61\SA-X4-1 WPD ANNEX 4-2

FINANCIAL PROJECTIONS FOR THE AIR POLLUTION ABATEMENT PROGRAM

Financial projections. Table A4-2. 1 gives the key assumptions underlying the financial projections, and Table A4-2.2 shows the financial projections for the multi-city eight year lending program.

Ni \SCHREIBE\SLOV-SAR\SAR_WP61\SA-X4-2.WPD Table A4-2.1 Key assumptions

Interest rate on APAP loans percent per annum 6.75

World Bank commitment fee percent per annum 0.25

World Bank interest rate percent per annum 4.75

EcoFund interest rate percent per annum 4.75

Interest margin on APAP loan percent per annum 2.00

Interest rate on APAP reserves (= DM LIBOR) percent per annum 4.50

Insurance fee for household loans percent of loan amount 2.5

Loan origination fees Individual loans DM 75 Boiler house loans DM 150

Annual administration fees Individual loans DM/year 55 Boiler house loans DM/year 115

Loan repayment periods Individual loans years 6 Boiler house loans years 10 World Bank loan years 10 EcoFund loan years 10

Loan grace periods World Bank loan years 5 Eco-Fund loan years 8

Monthly repayments for a loan of DM 1000 Individual loans DM 16.93 Boiler house loans DM 11.48

APAF staff & operating costs Up to year 4 thousand DM/year 200 Years 5 to 8 thousand DM/year 100 Year 9 onwards thousand DM/year 20

Washington, D.C., March 7. 1996 Table A4-2.2 Financial Projections for Air Polution Abatement Component: Eight-Year Lending Program

Year Unit Av. loan 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 size (DM)

Loan approvals lndividual conversions Number 5,000 2,000 3,000 2,000 1,000 1,000 1,000 1,000 1,000 0 0 0 0 0 0 0 Boiler house conversions Number 120,000 20 30 20 10 10 10 10 10 0 0 0 0 0 0 0

Lending IMnividualconversions DM million 10.00 15.00 10.00 5.00 5.00 5.00 5.00 5.00 0 0 0 0 0 0 0 Boiler house conversions DM miflion 2.40 3.60 2.40 1.20 1.20 1.20 1.20 1.20 0 0 0 0 0 0 0 Total DM million 12.40 18.60 12.40 6.20 6.20 6.20 6.20 6.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Loan Portfolio at end of year Individual conversions Number 2,000 5,000 7,000 8.000 9,000 10,000 9,000 7,000 5,000 4,000 3,000 2,000 1,000 0 0 Boiler house conversions Number 20 50 70 80 90 100 110 120 120 120 100 70 50 40 30

World Bank Loan Disbursements DM million 9.30 13.95 6.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Cumulative disbursements DM million 9.30 23.25 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Undisbursed at year end DM million 30.00 20.70 6.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Loan service DM million 0.11 0.61 1.18 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31 3.31 Balance at year end DM million 9.30 23.25 30.00 28.09 26.10 24.00 21.81 19.51 17.10 14.57 11.93 9.15 6.24 3.19 0.00

Eco-Fund Loan Disbursements DM million 3.10 4.65 2.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Cumulative disbursements DM million 3.10 7.75 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 Undisbursed at year end DM million 10.00 6.90 2.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Repayments of principal DM million 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Balance at year end DM million 3.10 7.75 10.00 10.00 10.00 10.00 10.00 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00

Eco-Fund: Advance to income account Outstanding advance DM million 1.00 1.00 1.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

APAP Reserves Capital reserves DM million 0.39 2.57 3.68 1.78 1.00 1.42 2.61 2.80 6.39 8.51 9.78 9.82 8.49 5.85 2.20 Income account DM million 1.00 0.59 0.52 0.84 0.47 1.13 1.76 2.36 2.92 3.47 3.93 4.30 4.61 4.88 5.13 5.39 Total reserves DM million 0.98 3.09 4.52 2.25 2.12 3.18 4.97 5.72 9.86 12.45 14.08 14.44 13.37 10.98 7.59 Table A4-2.2 FinancialProjections for Air Pollution Abatement Component: Eight-Year Lending Program (contd)

Year Unit 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Loan Balances at year end Individual loans DM million 9.66 22.71 28.70 28.19 26.59 23.85 20.38 17.97 12.41 8.29 4.94 2.40 0.74 0.00 0.00 Boiler house conversions DM million 2.36 5.71 7.62 8.13 8.51 8.74 8.82 8.74 7.30 5.76 4.21 2.92 2.02 1.35 0.80 Total DM million 12.01 28.43 36.32 36.32 35.10 32.59 29.20 26.71 19.71 14.06 9.15 5.33 2.75 1.35 0.80

Operating Income Interest income: loans DM million 0.21 1.10 2.06 2.46 2.44 2.33 2.14 1.92 1.68 1.23 0.86 0.55 0.31 0.16 0.08 Interest income: reserves DM million 0.00 0.04 0.14 0.20 0.10 0.10 0.14 0.22 0.26 0.44 0.56 0.63 0.65 0.60 0.49 Total DM million 0.21 1.14 2.20 2.66 2.54 2.43 2.28 2.15 1.94 1.68 1.42 1.18 0.96 0.76 0.58

Expenditures Additional staff, etc DM million 0.20 0.20 0.20 0.10 0.10 0.10 0.10 0.10 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Defaults DM million 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Commitment fee on Bank loan DM million 0.23 0.16 0.05 0.00 0 00 0.00 0.00 0.00 0).00 0.00 0.00 0.00 0.00 0.00 0.00 Interest on Bank loan DM million 0.11 0.61 1.18 1.40 1.31 1.22 1.11 1.01 0.90 0.78 0.66 0.53 0.40 0.26 0.11 Interest on Eco-Fund loan DM million 0.08 0.25 0.44 0.52 0 48 0.48 0.48 0.48 0.46 0.42 0.37 0.32 0.27 0.23 0.18 Total DM million 0.62 1.21 1.88 2.03 1.89 1.79 1.69 1.58 1.38 1.22 1.05 0.87 0.69 0.51 0.31

Net Operating Income DM million -).41 -0.07 0.32 0.63 0.65 0.64 0.59 (1.56 (1.55 0.46 0.37 0.31 0.27 0.25 0.26

Waslhinglton,DC. March 6. 1996

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IMAGING

Report No: 14978 SLO Type: SAR