0(',806,=('352-(&7352326$/ 5(48(67)25*())81',1* Public Disclosure Authorized FINANCING PLAN (US$) AGENCY’S PROJECT ID: 3 GEF PROJECT/COMPONENT GEFSEC PROJECT ID: COUNTRY: REPUBLIC OF MOLDOVA Project 972,920 PROJECT TITLE: RENEWABLE ENERGY FROM PDF A* 25,000 AGRICULTURAL WASTES (REAW) SUB-TOTAL GEF 997,920 GEF AGENCY: WORLD BANK CO-FINANCING** OTHER EXECUTING AGENCY (IES): CONSOLIDATED IBRD/IDA/IFC AGRICULTURAL PROJECTS MANAGEMENT Government 1,434,950 Bilateral DURATION: 3 YEARS NGOs GEF FOCAL AREA: CLIMATE CHANGE Others 219,388 GEF OPERATIONAL PROGRAM: OP # 6 Sub-Total Co-financing: 1,654,338

Public Disclosure Authorized GEF STRATEGIC PRIORITY: CC 4 Total Project Financing: 2,652,258 ESTIMATED STARTING DATE: MAY 2005 FINANCING FOR ASSOCIATED ACTIVITY MPLEMENTING GENCY EE I A F : $146,000 IF ANY: N/A * PDFA approved on 23.03.2004 ** Details provided in the Financing Section

CONTRIBUTION TO KEY INDICATORS OF THE BUSINESS PLAN: The project will contribute to the established target for OP#6 by removing barriers for the use of renewable energy from agricultural wastes in Moldova, and will reduce high implementation costs of such energy technologies due to low-volume of replication. Public Disclosure Authorized RECORD OF ENDORSEMENT ON BEHALF OF THE GOVERNMENT:

Constantin Mihalescu, minister of Ministry of Environmental and Natural Date: 16 February 2005 Recourses of Moldova, GEF National Focal Point

This proposal has been prepared in accordance with GEF policies and procedures and meets the standards of the GEF Project Review Criteria for a Medium-sized Project.

Project Contact Person: Emilia Battaglini, ECA Regional Coordinator Tel. and email: (+1-202) 473-3232, Steve Gorman

Public Disclosure Authorized [email protected] GEF Executive Coordinator, The World Bank Date: April, 19, 2005 7$%/(2)&217(176 PART I PROJECT CONCEPT...... 1 A – SUMMARY...... 1 B - COUNTRY OWNERSHIP ...... 1 COUNTRY ELIGIBILITY ...... 1 COUNTRY DRIVENNESS ...... 2 C – PROGRAM AND POLICY CONFORMITY...... 2 PROGRAM DESIGNATION AND CONFORMITY ...... 2 PROJECT DESIGN ...... 3 Project Rationale ...... 3 Current Situation / Sector Issues ...... 4 Barriers analysis...... 6 Incremental cost assessment ...... 8 Expected Project Outcomes ...... 12 Project Components and Costs...... 15 SUSTAINABILITY ANALYSIS AND RISK ASSESSMENT ...... 21 STAKEHOLDER INVOLVEMENT ...... 24 MONITORING AND EVALUATION PLAN...... 27 D - FINANCING ...... 27 E - INSTITUTIONAL COORDINATION AND SUPPORT ...... 29 CORE COMMITMENTS AND LINKAGES ...... 29 CONSULTATION, COORDINATION AND COLLABORATION BETWEEN IAS, EAS AND GEF SEC ...... 30 IMPLEMENTATION ARRANGEMENTS ...... 33 PART II – RESPONSE TO REVIEWS ...... 34 PART III – ANNEXES ...... 37 ANNEX A: LOGICAL FRAMEWORK MATRIX...... 37 ANNEX B: FINANCIAL MANAGEMENT ARRANGEMENTS...... 41 ANNEX C: PROCUREMENT ...... 43 ANNEX D: BUDGET BRAKEDOWN $USD ...... 45 ANNEX E: SUMMARY OF ASSESSMENTS CARRIED OUT UNDER PDF A ACTIVITIES ...... 46 ANNEX F: ENVIRONMENTAL MANAGEMENT PLAN...... 52 ANNEX G: DISTRIBUTION OF STRAW-PRODUCTIVE CEREALS IN MOLDOVA ...... 57 ANNEX H: REPLICATION UNDER CDCF /SIF...... 62 ANNEX I: COUNTRY ENDORSEMENT LETTER ...... 64 ANNEX J: COUNTRY ENVIRONMENTAL CLEARANCE OF THE PROJECT ...... 65 ANNEX K: CO-FINANCING LETTERS...... 66 ANNEX L: MAP OF MOLDOVA...... 70 PART I PROJECT CONCEPT

A – Summary

The project will provide a foundation for a broad and efficient use of biomass in substitution for imported fossil fuels (coal), acting as a catalyst for the introduction and promotion of the use of primary agricultural wastes (biomass) to fuel energy generation using efficient technologies. This will (i) reduce greenhouse emissions by replacing fossil fuels and simultaneously reduce environmental pollution from unwanted biomass otherwise being burnt in the fields; (ii) improve energy efficiency in heating systems; (iii) introduce renewable energy from local sources substituting carbon neutral biomass for fossil fuels; (iv) recycle ash residues as a fertilizer; (v) generate the possibility for new income streams for rural population, and (vi) provide social and economic community benefits.

Primary and unprocessed agricultural arable crop wastes, especially wheat straw, have been identified as the most suitable, available and unused biomass for thermal energy production in Moldova1, initially for use in small scale systems (50-500KWth). The project will initiate the creation of sustainable biomass based energy generation in Moldova, initially using baled straw as the energy carrier, by addressing the institutional, technological, and informational barriers. The project will install demonstration biomass units based on developments in the technologies, used for biomass based energy systems in neighboring countries, the Ukraine and Romania.

Once these barriers are removed, there is significant identified potential for replication throughout Moldova, as half of its population of approximately 2 million people lives in 1,680 rural villages. The country has minimal coal and gas reserves and hydro-electrical potential, and imports 96% of its energy. The main impediment for further replication is the financial barrier for installation of new heating systems. This barrier will be addressed with assistance of Carbon Finance, where as a replication project is already under preparation with Community Development Carbon Fund (CDCF) managed by the World Bank. Ten communities with a successful track record in development – usually schools, which have no access to natural gas and a good availability of locally sourced straw biomass, have been chosen as candidate sites for biomass fuelled thermal energy systems to replace coal based heating systems. Following successful demonstration it is expected that in the period to 2006-2010, replication will follow in no less than 10% and up to 33% of communities undertaking public building development projects. This equates to between 30 to 100 communities, with an expected outcome of no less than 60 communities, facilitated by the financing incentive of the CDCF. Undoubtedly, the demonstration sites supported by the GEF will not be eligible for and will be monitored not to participate in any carbon financing mechanism, including the CDCF activity. Further replication with support of additional carbon funds is feasible and will become more apparent during implementation of the project. More detailed information on replication potential is provided in Chapter E of the Project Brief.

B - Country Ownership

COUNTRY ELIGIBILITY

Moldova has ratified the United Nations Framework Convention on Climate Change (UNFCCC) on June 9, 1995 and the Kyoto Protocol to UNFCCC on April 22, 2003. Moldova is a developing country and meets all the eligible criteria to receive funding through financial mechanism in accordance with COP’s decisions.

1 World Bank sector study, ‘Potential Use of Renewable Energy (Biomass) in Moldova’, 2002

1 COUNTRY DRIVENNESS

The project will support ongoing efforts of Moldova to reduce and mitigate greenhouse gas emissions. As a developing country and a party to the Frame Work Convention on Climate Change and Kyoto Protocol Moldova has undertaken the commitment to contribute, as far as possible, to the international efforts to moderate the anthropogenic impact on global climate. In this respect, activities in various areas were implemented: preparation of greenhouse inventory, estimation of different sector’s vulnerability to climate change, development of action for abatement and adaptation to climate change, reported the First National Communication under the United Nations Framework Convention on Climate Change in 2000, as well as education, training and awareness building among the population, especially the younger generation.

The necessity of developing the use of renewable energy is reflected in various priorities, strategies, action-plans and analyses including: • The Government Decision On the Use of the Renewable Energy Resources • Interim Economic Growth and Poverty Reduction Strategy • Strategy for Agricultural and Rural Development • National Environmental Action Plan • National Communication on Greenhouse Gas Emissions Abatement • Energy Strategy and Indicative Action Plan to 2010 • The National Program of energy conservation 2003-2010 • The National Strategic Action Program for Environmental Protection 1995-2020, 1995 (NSAPEP) • The Comprehensive Long–Term Program for Environmental Protection and Rational Use of Natural Resources in the Republic of Moldova 1987-2005.

These national priorities, action plans, and programs have set the stage for an implementation program in the upgrade of energy systems, energy conservation and the inclusion of renewable energy into development programs. Specific development of the institutional, legal and regulatory framework within the Heat Sector has resulted in the elaboration of a Heat Strategy, approved by the Government, and a Heat Law. The goal of the act is to establish a legal framework that will increase the efficiency of the supply and use of thermal supply systems, promote effective competition in the heat market and stimulate the usage of renewable energy as effective alternative to imported fuels. The Ministry of Energy has also developed a strategy for the decentralization of heat systems in settlements / towns (including specific economic and technical analyses) which also opens opportunities to install new energy systems on renewable basis for decentralized heating system on local public facilities.

C – Program and Policy Conformity

PROGRAM DESIGNATION AND CONFORMITY

The project falls under the GEF OP6 program and is fully in accordance with its main long term objectives by:

ƒ Overcoming existing barriers to the update of biomass technologies by providing examples of best practice (demonstration units) in the use of biomass fuelled energy systems as a viable alternative to gas, oil and coal and as a sustainable means of addressing the energy supply problems facing rural communities and agro-enterprises. Demonstration systems would be of a size, scale and cost appropriate for wide replication in rural areas. This would be supported by

2 access to information, technical support and a fund to cover the incremental capital cost in installation of biomass-fuelled systems; ƒ Encouraging development of straw bale market and further replication among the agro- enterprises of the biomass production and selling, after the project ends; ƒ Additional public buildings, but those implemented by the project, switching to biomass heating system, in base of the learned lessons and gathered results within the project progress; ƒ Reducing additional implementation costs persistent existence of which are caused by the fact of brand new, untested and totally untrustworthy technology in Moldova: renewable energy from agricultural wastes;

PROJECT DESIGN

PROJECT RATIONALE

The project will provide a foundation for a broader and more efficient use of biomass, especially in rural communities, as a substitute for fossil fuels. The project will act as a catalyst for the introduction and promotion of the use of biomass, principally for heat through the efficient use of primary agricultural wastes.

While not heavily industrialized, the Republic of Moldova is an agricultural country facing, the problem of agricultural wastes, especially the cereal one that are commonly burned on the field. Storage, preservation and use of agricultural wastes are still matters of discussion, analysis and planning, or even projects without any adequate practical solution.

A World Bank sector study, ‘Potential Use of Renewable Energy (Biomass) in Moldova’, financed under the Austrian Global Environment Consultant Trust Fund was completed in September 2002. This study clearly identified primary and unprocessed agricultural wastes, especially wheat straw, as the most available and unused biomass suited for thermal energy production in Moldova. This investigation determined that small-scale systems (500 - 1000KWth) in rural communities were suited for initial introduction into Moldova. Successful uptake of small and medium sized systems will lead to the consequential use of larger district heating systems.

The main barrier to the use of renewable energy (agricultural wastes) is that there is no current possibility for an independent and rational decision maker, in Moldova, to be aware of, to investigate or to source a renewable energy / biomass option as a fuel for an energy requirement. The current availability and information is totally geared toward gas, oil, coal and electricity. The means to overcome this barrier have been reviewed at length, drawing on experiences in countries including the Ukraine, Romania, Caucasus, Balkan Countries and Austria. There exists a common perception in Moldova that agricultural wastes cannot be effectively utilized to produce heat other than in simple domestic stoves. This energy source is therefore not considered as a serious option. The development of demonstration sites, information and a commercial infrastructure for the marketing of efficient technologies are the key constraints in the use of renewable energy. Preliminary energy audits have highlighted that the higher capital cost of biomass technology can be offset by the significantly lower annual fuel cost of biomass, obtained from local sources – agricultural lands surrounding rural villages. However, the technology and fuel cycle and the economic package have to be proven so that biomass fuelled thermal energy systems will become a rational economic decision.

The main objective is to overcome the barriers to the update of biomass technology by providing examples of best practice (demonstration plants) in the use of biomass fuelled energy systems as a viable alternative to fossil fuels and as a sustainable means of addressing the energy supply problems facing rural communities

3 and agro-enterprises. Demonstration systems would be of a size, scale and cost using appropriate technology suited for wide replication in rural areas. Making a logical structuring of the emphasized project objective, it could be ramified:

• To develop mechanisms for the provision of replicable, economically viable, and environmentally friendly source of heat in Moldova; • To replicate the project in no less than 7 and up to 10 communities by replacing the existing coal boilers with the straw fuelled one; • To create a transaction based market for biomass fuel (straw) on the basis of supply contracts for heating systems in rural communities; • Apply appropriate technology systems to service the energy demands of rural communities utilizing available and unused biomasses; • Develop demonstration schemes on a phased basis focusing first on basic amenity in public and social buildings – heating systems; • Develop training, research, information and technology transfer capacities; • Develop the commercial infrastructure to produce, promote, market and sell biomass energy systems.

CURRENT SITUATION / SECTOR ISSUES

The Republic of Moldova is a landlocked, country of 33,840 square km, located in the Southeastern part of Europe. From the North, East and South it borders with Ukraine, in the East with Romania. Maximal elevations range from 1.75m to 429 m. The Republic is divided into 33 administrative regions plus the municipality of Chisinau, the autonomous Gagauz region and the Transdneister territory (a self proclaimed Transnistrian Moldavian Republic).

Moldova has predominantly black soils (chyornozems) covering 75% of the total country area. The level of agricultural land use in Moldova is the highest in Europe, arable land accounting for about half of the total land area. Despite all the difficulties of transition to a market economy and the transformation of agriculture (land privatization, transition from large collective enterprises to private entrepreneurship) grain production has remained a stable and key sector of agriculture, production averaging one million tons per year. Most of the unused straw biomass (70%), or an average of 700,000 tons per year, is burnt in the fields. This unused biomass represents the easiest available and utilizable source of renewable energy in Moldova.

Economy

Agriculture is the mainstay of the Moldovan economy, accounting for about 25 percent of GDP, 40 percent of employment and 65 percent of exports, which includes agro-processing exports2. Poverty is most severe in rural areas, where 54 percent of the population lives and rural poverty accounting for 68 percent of total poverty.

During the first ten years of independence, the GDP and the real income of the population contracted by two thirds and the average pension in terms of purchasing power declined by 75%. Despite efforts made to establish the basic institutions of the market economy, as well as to promote democratic values, strategic objectives defined in 1990 were not achieved, according to which the creation of a market economy and improving the population living standards were the main priorities of state policy. During

2 World Bank Agricultural Strategy for Moldova, ‚Accelerating Recovery and Growth‘

4 the period of 2001-2003 improvements in economic and social indicators were registered: GDP grew by 21.6% in real terms, the monthly average wage by 71.2%, and the average monthly pension by 93%.

Nevertheless, poverty remains a major concern. In 2002 over 40% of the population lived below the absolute poverty threshold. Poverty has generated a range of social problems, including an exodus of 35- 40% of the economically active population abroad. Despite some improvement during the last three years, GDP per capita (US$542 in 2003), continues to be the last but one among the ex-soviet countries, and the last among the countries of Central and South-Eastern Europe.

The Government is promoting strategic involvement within the globalization processes. Having the aspiration to join the European Union, the Strategy stipulates the actions and measures for implementing the Copenhagen criteria, which include building an efficient market economy and the capacity to support competition, to respond to other market economy requirements, and to provide the state capacity to fulfill the relevant legislation and to honor its future obligations as a member of the European Union. In order to ensure the competitiveness of the national economy on the world market, it is planned that the country capitalizes on the positive aspects of globalization, and on the advantages and opportunities offered by its membership of the World Trade Organization and the Pact for Stability in the South-Eastern Europe3.

Energy

Moldova has minimal proven oil and natural gas reserves. A small coal industry produces low-grade bituminous coal. National borders are defined by the two rivers Nistru and Prut, but there is limited hydro-electrical capacity. A total of 96% of primary and electrical energy requirements are imported, natural gas from Russia and electrical power generated in Ukraine (30%), Romania (10%), Transnistria (30%), in addition to own production (30%).

Moldova has some renewable energy resources the exploitation of which requires financial and technical support. Wood refuses as well as agricultural wastes are widespread energy carriers mainly for domestic heating purposes, the collection as well as technical equipment are of low efficiency. Hydropower potential is estimated at 2,100 GWh/yr including that of large, medium and small rivers. However, only 150 to 300 GWh has been generated in the last years. Solar energy could serve as a source of power in the future. There is also undeveloped potential for use of wind-generated power. Forest cover in Moldova, about 9%, is the lowest amongst all European countries.

The majority of the population lives in rural communities, where living conditions are especially difficult in the cold winter months. Traditionally, coal and wood was used as a heating fuel in rural areas. After the collapse of the Soviet Union the price of fuels, including coal, increased dramatically resulting in collapse in coal consumption. Coal supplies to fuel heating systems in public buildings, especially in rural communities, were severely cutback often resulting in the closure of public buildings in the winter period as building and district heating plants stopped operating except in the biggest cities.

Environment

In 1990 carbon dioxide emissions amounted to 28,323Gg, dropping to 12,086Gg in 1994 and to 23% of base year emissions by 1998. Total greenhouse gas emissions, in tons of CO2 equivalent amounted to 33,273Gg in 1990 and 10,621Gg in 1998, or in per capita terms, 7.6 tons in 1990 and 2.5tons in 1998.

The ratio of the main three gases with greenhouse effect (CO2, CH4, N2O) expressed in tCO2e, shows a relative decrease in carbon dioxide and an increase in methane emissions. The main sources of air

3 Economic Growth and Poverty Reduction Strategy Paper, (2004-2006)

5 pollution are heat and power plants (35-40%), residential heating systems, motor transport and industrial activity. There are 9 zones of increased pollution representing the main urban and industrial zones (Chisinau, Bender, Cahul, Ribnita, Soroca, Balt, Edinet, Tiraspol and Rezina) as increases in pollution run in parallel to economic activity and the use of coal, oil and methane. The most widely used energy source in rural areas is coal.

GHG direct emissions prognoses for Moldova 2010 1990 Model I scenarios Model II scenarios Basic Min Max Basic Min Max Population 4.36m 4.34m 4.42m GDP base 1990 % 100 40.3 68.8 GHG emissions Gg 33273 15284 13849 10722 22112 18909 14114 CO2 emissions Gg 28323 11820 10344 8436 18138 15739 11689 CH4 emissions, CO2e Gg 4059 3253 2957 2130 3643 2881 2216 N2O emissions CO2e Gg 891 211 189 156 330 289 210 GHG per capita Ton 7.63 3.52 3.11 2.47 5.00 4.28 3.19 CO2 per capita Ton 6.50 2.72 2.38 1.94 4.10 3.56 2.64

BARRIERS ANALYSIS

The uptake of this new and unproven technology in Moldova will depend upon proving system operation in normal practice and making biomass fuelled systems available as an affordable and competitive energy product. Certainly the use of a bulky biomass is not as appealing as turning on a gas tap. Successful uptake will require the establishment of systems providing reliable and predicable fuel availability and the technical and financial performance of the systems. Whilst there are working examples in the Ukraine and Romania, the task of bridging the credibility gap will be difficult. The choice of the demonstration sites will be a critical decision based upon the mixture of competencies at National, Community, Enterprise and Household levels.

The main barrier to the use of renewable energy (agricultural wastes) is that there is no current possibility for an independent and rational decision maker, in Moldova, to investigate or source a renewable energy / biomass option as a fuel for an energy requirement. Availability and information is totally geared toward gas, oil, coal and electricity. The means to overcome this barrier have been reviewed at length, drawing on experiences in countries including the Ukraine, Romania, Balkan Countries and Austria.

There exists a common perception in Moldova that agricultural wastes cannot be effectively utilized to produce heat. This energy source is therefore not considered as a serious option. The development of demonstration sites, information and commercial infrastructure for the marketing of efficient technologies are the key constraints to the use of renewable energy.

Preliminary energy audits have highlighted the higher capital cost of biomass technology in comparison to gas, the usually preferred option, where available. To mitigate this variance it will be necessary to procure locally produced systems made under license based upon proven (Western European) technology, which reduces capital costs by some 50%. This process is already developing in the Ukraine. The technology and fuel cycle has to be proven in Moldova. The economic package also has to be proven so purchases of biomass based energy systems will be a rational economic decision.

Overcoming barriers: it will be necessary to demonstrate and test both the technology and the logistics. This will prove the ‘Moldova’s Reference Design’ for biomass based heating systems based upon an ‘average rural community’ of about 1,000 households and 1200Ha of surrounding arable land. It will

6 clearly demonstrate the reference capacity of the plants; the modularity of the plant components; the investment requirements; the raw material treatment and logistics; the energy distribution system; the cost and maintenance characteristics. The use of biomass as a fuel is clearly sustainable given the lower annual running costs as compared to (imported) coal, oil and gas. The higher capital costs, though these can be reduced with licensed manufacture, are offset within 4-5 years due to the lower annual costs. Adoption of biomass options will be a function of confidence in the systems and financial instruments to make them affordable. Appropriate leasing and discount mechanisms have already been developed and are operating within the RISP and 2KR agricultural machinery leasing systems.

The straw market is presently undeveloped in Moldova, having mainly a virtual meaning. During the Soviet time, there was no perception of market for straw. The straw was baled and used mainly for internal consumption of the collective agricultural farms (as bedding for livestock and in rare cases for feeding animals). According to statistical data about 30% of the straw (in rare cases 50%) from the field is taken by rural population from villages and used for livestock bedding. The remaining quantities are usually burned on the field.

Due to lack of capacity, institutional weakness and other persistent barriers/issues in the development of Biomass in the Moldova, in generally and cereal straw burning as an alternative source of thermal energy in particular, presumes a future continuation of the current situation in Moldova, this course of events being incorporated in so called “business-as-usual scenario.” The mentioned “business-as-usual scenario” inevitable leads to the compromised-uses of biomass, extremely high GHG emissions in the heating period within rural villages that use coal for thermal heating in parallel with straw burning on the field. This is a causes-effect of the identified problems, which throughout its interdependence generates just one result: impossibility of using cereal straw as a renewable energy for thermal heating in Moldova.

Leaving straw on the field and burning it, despite the existing ecological penalties, which are hardly applied because of inefficient legal mechanism, is dictated by economical reason. Processing the straw after harvesting can increase the direct cost for final product up to 20%. Taking also into consideration that there is no appropriate equipment to process the straw which appears as an agricultural waste, in most of the cases it is burned on the field. The goal of the project is to transfigure the straw from an agricultural waste into a market based product that could generate additional income stream for agro- enterprise. Overcoming of this barrier will clearly open a new direction for agricultural investments in new type of product. It is expected that besides the 10 agro-enterprises participants in the project, additional 10 agro-enterprises will make necessary investments in straw product with their own resources.

The following summarized obstacles to biomass introduction in Moldova: • The absence of a national law and program that activate measures of state support and incentives for biomass development; • Absence of significant financial support from the government, including the absence of a special position in the budget that allows the use of a portion of the funds for biomass development, and also extension of provided means to biomass production; • The proposal on state guarantees for attraction of the investments to biomass production development is not worked out; • Absence of a special state body and large economic subjects responsible for biomass production development; • Poor coordination among regions; • Absence of the biomass demonstration centers and weak technical equipment and promotion; • Clarification problems between manufacturers and consumers regarding rental and lease agreements of biomass technology; • Technological-economic feasibility. Lack of equipment and comparably expensive production;

7 • Local energy users still have no alternatives to state energy monopolies; • Lack of information in all quarters; • Subsidies to fossil fuel, especially natural gas and coal, sending wrong message and incentives to consumers; • No domestic equipment supply industry; • The inability of equipment consumers to pay deters investments for the expansion of biomass use, • The lack of financing mechanisms enabling energy consumers to invest in the use of thermal energy systems fuelled by biomass.

INCREMENTAL COST ASSESSMENT

Baseline Scenario

A World Bank study financed by Austrian Global Environment Consultant Trust Fund in 20024 predicted the possible scenarios for biomass use in near future. Scenario 1 (titled ‘BAU’ (business as usual)) assessed future developments in absence of any specific measures for developing the biomass energy sector. It was assumed in the BAU scenario that biomass would be used approximately to the same extent as it was at that moment. There was forecasted no changes in energy consumption and any significant additional biomass potential, which requires additional investments, would be not be exploited. Recalling that study from 2002 and reporting it to present situation we can conclude that it was correct conclusion on biomass usage in Moldova. It is not expected that any of the redundant district heating schemes will be refurbished on straw burning as an alternative energy resource.

The national strategy on energy sector development has mainly omitted the possibility of using alternative source of energy generated from Biomass potential. Although Moldova has adopted a cluster of normative acts, that determine the biomass development in the country, in present there are no specific mechanism and proper capability to attain this objective.

In accordance with Moldova’s energy strategy for 2000-2010, and Energy Conservation program regarding the heating sector, gas and coal are the main thermal energy source. The communities, which are not included in the national gasification program, most of them the rural communities, cover a significant share of its heating needs through the coal uses, which will cause extremely high GHG emissions during the heating period of the year. Implementing its energy strategy Moldova will ensure to remain in environmental admissible frames of climate change obligations under the Framework Convention on Climate Change and Kyoto Protocol.

In order to attain this objective a range of national projects were implemented including Moldova Social Investment Fund (MSIF5) project that provides funding for community driven investments into any priority areas, including energy related infrastructure in order to reduce energy consumption of public buildings in rural sector and increase social and economic benefits of communities.

During the preparation of the REAW, a number of assessments have been carried out to identify potential demonstration sites amongst those include in the MSIF potential project site, being suitable for the use of straw as a heating source. The social assessment as well as the energy scan analysis produced a list of potential public buildings in regions, where no gas is available. In none of the potential buildings, the energy supply system has yet been refurbished. Due to the technical inefficiency of the boiler conditions

4 World Bank sector study, ‘Potential Use of Renewable Energy (Biomass) in Moldova’, 2002 5 See also: Consultation, Coordination and Collaboration between and among Implementing Agencies, Executing Agencies, and the GEF Secretariat, if appropriate

8 they will eventually have to be replaced. Refurbishments of the thermal energy systems can be included in the community grants under MSIF. Financial support from the MSIF projects however is limited6 and prioritized on necessary investments for energy conservation of the buildings. Still, in order to maintain conservativeness in estimates for REAW, possible investments into upgrading the energy infrastructure with MSIF assistance has been accepted as the baseline scenario for REAW.

Due to the barriers discussed above, no renewable system will be installed even if demand-side energy efficiency measures were or will be done and already mitigate the GHG emissions, the old inefficient coal boiler houses will be kept in use. Thus the baseline includes the prioritized implementation of demand- side energy efficiency measures of the buildings followed by the boiler systems. In the areas selected for the pilot installations, no alternative energy sources exist. Oil is too expensive compared to coal and natural gas is not available in the selected areas. Only once the information, technological, and institutional barriers are removed through REAW Project, the Carbon Revenues from Community Development Carbon Fund obtained under a parallel and separate Project would be used to scale up and replicate the use of biomass systems in rural areas of Moldova amongst the MSIF Communities, excluding all (up to 10) demonstration sites selected for REAW.

Baseline costs include the operation and maintenance of the existing coal boilers including the fuel costs, and the investments necessary for energy conservation of the buildings and retrofitting of the boiler systems over function lifetime of these boilers equal to 10 years.

Annual Costs :7-10 buildings up to Costs for 10 years Annual cost per building Baseline costs US$ 3000kW installed assumption capacity Operation and maintenance of equipment 450 4,500 45,000 7Energy efficiency measures 700,000 Fuel supply 9,093.38 90,933.8 909,338 Total baseline 1,654,338

The demand side management activities address the issue of reducing operation costs, improving housing standards, lowering local emissions of criteria pollutants and the mitigation of greenhouse gases. However, these activities are insufficient to assure sustainable and wider scale solution of the problem. Given a lack of financial provisions for energy efficiency projects for public sector buildings and taking into account the availability of unused straw residues, often field flared, additional measures are needed to obtain desirable results relating to air protection, global warming response and utilization of agricultural bye products – biomass.

GEF Alternative

Reconstruction of coal boiler rooms to biomass boiler-rooms and supply of straw-bales (7-10 sites, up to 3000kWth installed capacity)

6 Maximum project value of $75,000, of which MSIF grant 75%, community contribution is 15% and regional authority 10% 7 The SIF mainly provides community grants for priority infrastructure investments on community level, as determined by the community itself. Rural communities, participants in the MSIF project receive up to US $75,000 for schools and kinder-garden rehabilitation, roads and bridges construction, installation of gas and water supply conducts, etc.

9 The GEF-supported project would provide an integrated approach to local air pollution and greenhouse gas mitigation by replacing coal-fired boilers with boilers using biomass fuel (straw). The straw biomass will be supplied by agro-enterprises from arable lands in the immediate locality to the point of use.

One of results of the GEF Alternative activities, represented by global environmental benefits, would be a minimal production of GHG emissions through the use of carbon neutral fuel and reduction of local air polluting substances. Estimated costs of investment activities related to the GEF Alternative total $2,652,258 including the operation and maintenance costs of each boiler-room. The costs for fuel were calculated according to annual consumption of straw bales, which is approximately 2,760 tons; these costs are estimated at $68,995. The incremental cost matrix is provided in the table below.

GEF is proposed to support the additional required activities, over and above the “business-as-usual” scenario, to fulfill the “business-as-usual” scenario gap related to the annual high rate of GHG emissions, as a result of implementation of the national energy strategy, which will keep in force the thermal coal boilers, which still remains the main means in generating of the thermal energy in rural communities. GEF intervention will contribute to Moldova’s global environmental benefits achievement and will remove the barriers for using of renewable energy as the alternative source of energy in the general framework of the national energy strategy.

Increment:

In total, this project will lead to the reduction of 42,589 tons of CO2 equivalent over the lifetime of 10 years (over the lifetime of the equipment, 20 years, the reduction would be 85,178 tons of CO2 equivalent). This will include 41,089 tons of CO2 from fuel switch and 1,500 tons of CO2 equivalents from reduced field emissions from burnt straw over a ten-year period (or 82,178 of CO2 and 3,000tons of CO2 equivalents over a 20 year period).

The project will also generate domestic benefits, including improvements in local air quality. On an annual basis, approximately 25.4 tons of SO2, 1.9 tons of NOx, and 11.4 tons of dust particulate will be avoided.

The project will also indirectly contribute to further reduction of at least 160,000 tons of CO2 during the same 10 year period under the replication scheme supported by CDCF. It is actually estimated that the replication of the biomass technology would reach even beyond the mentioned CDCF activity, with assistance of other donors and government programs.

10 Incremental Costs Matrix Baseline Alternative Increment (Alternative – Baseline) Global Environmental • Existing • Straw fired boilers consuming • Total environmental benefit is Benefits boilers will 2,760 tons of straw per year 42,589 tons CO2 (assuming a continue to leading to 41,089 tons CO2 project lifetime of 10 years), operate emissions reduction (assuming a including:

• GHG project lifetime of 10 years). • 41,089 tons CO2 emissions emissions • Straw baling removing 2070 tons reduction (assuming a project for coal of straw and avoidance field lifetime of 10 years) burning leading to 1,500 CO2- • Straw baling leading to equivalent emissions reduction 2,760 tons straw being (assuming a project lifetime of 10 supplied as fuel leading to an years) additional 1,500 tons CO2- equivalent emissions reduction (assuming a project lifetime of 10 years) • Addition indirect benefit of further reduction of 160,000 tons of CO2 under CDCF Replication Domestic Benefits • No • Substitution of coal based boilers • Direct reduction of local air domestic with straw fired, using pollution (annually 25.4 SO2, benefits domestic/local energy source – 1.9 t NOx, 11.4 t dust unused straw particulate) • Significant improvement in local • Reduction of 2070tons straw air quality from coal to straw flared in the field substitution • Increase of comfort level in • Improvement in local schools and participating management of agricultural wastes buildings • Improved supply quality of heat to local public buildings Improvement in the local economy Activities Baseline Alternative Costs Incremental Costs Costs PDFA - Preparation of 0 25,000 25,000 Feasibility studies A. Biomass thermal energy 745,000 1,147,500 402,500 heating units • Technical 0 19,500 19,500 documentation and preparatory work • Training/Consultations 0 26,000 26,000 • Demand-side 700,000 712,000 12,000 efficiency support • Incremental costs of 0 345,000 345,000 biomass boilers • O&M of 45,000 45,000 0 Coal/Biomass Boilers B. Biomass production and 909,338 1,118,686 209,348 fuel cycle support • Technical 0 18,000 18,000 documentation and preparatory work

11 • Fuel supply/Storage, 909,3389 956,18610 46,848 handling and (689,000 – estimated cost of 10 distribution of straw8 year straw supply; 219,388 - cofinancing for straw storage and transportation facilities; and 46,848 - GEF contribution to storage and transportation) • Establishment of straw 0 144,500 144,500 biomass fuel supply system (TA and Training) C. Public awareness, 0 164,675 164,675 outreach and dissemination, information barriers removal D. Project Management, 0 196,397 196,397 audit, monitoring and evaluation activities Total $1,654,338 $2,652,258 $997,920

EXPECTED PROJECT OUTCOMES11

a) Direct, out of project replication12 of biomass heating system

There is a strong potential for direct replication of the GEF project. As it was mentioned above, the implemented biomass heating systems within the demonstration sites, won’t influence energy balance of country and won’t increase substantially the share of biomass in total consumption of energy, but will demonstrate the suitableness of such kind of system and will be a real example for other potential users. The replication udder the CDCF/MSIF will be ensured through: • The demonstration sites to be selected from pre-identified MSIF sub-projects; • All MSIF beneficiaries will attend GEF demonstration sites; • All MSIF beneficiaries will participate in project training and dissemination process.

These activities are the main arguments of understanding and acceptance of renewable technologies that could be used when the project will be finished. It is expected that approximately additional 30-100 of

8 Note: The amount of US $909,338 included in the Incremental Cost Matrix shows the expected costs of traditional fuel supply under the Baseline. Up to this amount will be required from beneficiaries to be provided as co-financing in the Project Scenario in the framework of establishment of straw market, towards equipment of collection, storage, and transportation of the biomass. The amount for fuel supply that exceeds what would have been the cost of traditional fuel supply would be provided by the Grant.

9 The amount that would have been spent on traditional fuel supply over 10 year period; conservative estimate as Russian energy imports are expected to move towards European Prices (currently considerably less).

10 It should be noted that main project beneficiaries will incur about 30% less costs on straw supply compared to traditional fuels. This is the essential economics of the project’s replication potential. Co-financiers (2KR Program) will provide cofinancing for straw storage and transportation for the demonstration purposes, to bring the total cofinancing for fuel supply systems component to the amount of the baseline costs, as described in Footnote 8 above. See Annex D for budget breakdown for details.

11 Summaries of the reports and outcome of PDF-A Preparation Grant can be found in Annex F.

12 Details of replication potential are described in Annex H to the Project Brief.

12 CDCF/MSIF beneficiaries will be convinced and will choose biomass heating systems that is equal to at least 60 buildings that could start using the renewable energy after the GEF project will conclude its activity. The experience gained and practical lessons learned at the pilot stage shall be taken into consideration in implementation of the rest 60 communities and would subsequently be disseminated throughout the country.

b) Demonstration of social and economic benefits of renewable energy, including decreased operating costs

The PDF A feasibility analysis has indicated the lower operational cost of heating with a straw fuelled system in comparison with coal. Benefits arise from: supply side efficiency through the replacement of old and inefficient coal boilers (less than 50% efficiency) with batch fired straw boilers (80% efficiency); fuel switch cost savings and security of fuel supply, and; demand side benefits from improvements to buildings and heat distribution systems reducing heat losses and energy demand. Estimates of the prime energy costs are US$2.6/GJ for straw (US$ 30 per ton with energy content of 11.74 GJ/t) and US$4.4/GJ for black coal (US$ 100/t with energy content of 22.56 GJ/t). The significantly lower biomass fuel costs offset the higher capital costs of a biomass system, in simple year-payback terms, over 4-5 seasons.

The average size of straw fired boilers within the selected social buildings is about 300 kWh, with an annual consumption of about 3,240 GJ (276 tons of straw bales at US$30 per ton) over a 2,250 hour heating season with a firing efficiency of 75%. In equivalent terms 4,400 GJ of hard black coal at an efficiency of 55% would be necessary to produce the same output. This would cost about US$18,080 (226 tons at US$80 per ton); while the straw bales fuel cost would be US$8,280 per year, an annual difference of US$9,800.

Fuels are supplied to heat public buildings funded by budgetary provisions of local public authorities. The improved technical and financial performance of heating in public buildings will release financial resources used to purchase imported fuel. These savings will provide budget for improving heat service levels (which can be as little as 50% under a coal regime) and for use in other local services funded through local budget resources. The average savings per community (based on a full heat service from a 300kWth system over 2,250hours) will accrue from increased boiler efficiency and from fuel switching savings from coal to biomass fuels resulting in estimated overall annual savings of an average of $9,800 per community. In total annual projected savings amount to$ 98,000 in the communities with pilot installations.

c) Identification of least expensive „local solutions“ for production of biomass systems

New economic activities will be created dealing with design, specification, procurement, supply and maintenance of agricultural equipment and biomass fuel and heating systems. The likelihood of a manufacturing and assembly operation for renewable energy systems is also likely to develop, in association with manufacturers in Western Europe and bordering countries (Ukraine and Romania).

d) Encouraging development of straw bale market

The project could be conventionally designated as the very first step in a biomass market development in Moldova. Of course the implemented demonstration sites won’t be able to influence the energy balance of the country, but at the regional scale getting down to the specific use (beneficiary) biomass fuelled system will generate benefits for renewable energy in determent of the coal/gas one.

Follow up activities shoved by the project will include:

13 • Each biomass fuelled system will require equipping of agricultural enterprises with baling equipment generating a new economic activity in procurement and supply, parts, maintenance and servicing activities to support the operations of the biomass heating; • Privatised agricultural enterprises: new income and employment opportunities will arise from the biomass fuel supply of 2,760 tons of baled straw per annum, at a supply value of $69,000 (not taking into account other markets for baled biomass).

Proving economic efficiency of the straw bale transaction within the project and keeping in force financial leasing mechanism, even when the project is over, will encourage access of new, additional, non project participants agro-enterprises to straw bale market, by minimizations of risks related to a new upcoming kind of business.

First contracts within the project, that will generate profits from straw bale transactions, raising incomes by $USD 30 per ton of sold baled straw, would clearly demonstrate profitability of such business. It is expected that project will be as a start point for new additional 10 agro-enterprises that will enter in production, storage, and sale of straw bales after the project is over.

e) Improvement in global and local air quality for a total capacity of 3,000 kWh

The project will result in environmental benefits through fuel switching from coal to straw, a carbon neutral fuel; through the supply side technical efficiency of new technology and from fuel in transport represented by the import by road of coal from the Ukraine to Moldova13. Demand side savings in respect of thermal efficiency of the social buildings have been carried out through the Social Investment Fund project preceding the installation of the biomass heating systems. In addition there are marginal emissions abatements if straw is used in biomass boilers, as N2O emissions can be avoided, which results from straw being burnt on fields.

GHG savings from technical efficiency and fuel switching, coal to biomass, based on a planned installed capacity of 3000 kW and an energy use of 24.30 TJ over a heating season of 2,250 hours. In this anticipated scenario the combined fuel switch and efficiency savings will be:

Type of fuel / Tons Emission reductions Emission components Coal 2,260t Straw 2,760t Tons/year %* 90 SO2 28.3 2.9 25.4 1.9 23 NOx 8.4 6.5 39.1 97 CxHy 40.2 1.1 CO 225,3 45.4 180.0 80 Particulates 13.7 2.3 11.4 83 CO2 4,108.9 0 4,108.9

13 Coal has to be transported by road from Ukraine to be used in Moldova. Likewise, biomass needs to be transported from the fields to the biomass boiler house, but due to the smaller transport distances (distance up to 20 km), CO2 emissions from transport of biomass are considerably lower compared to transport of coal. However, due to difficulties in assigning exact emission factors to both transport requirements, this is seen as positive leakage and not taken into consideration in the calculation.

14 In addition to emission reductions generated from fuel switch, GHG emissions are also reduced by avoiding straw being burnt on the fields. Due to the uncontrolled burning process, CH4 and N2O emissions are generated. These additional emissions total to 82.26 kg CO2e per ton of straw burnt on the fields. This gives a total annual emission reduction of 4,258.9 tons of CO2e.

The estimated lifetime of the technology used in the boiler rooms is 20 years. Therefore, the total global decrease in emissions is 85,178 tons of CO2 over the lifetime of the technology (or 42,589 tons of CO2e over a project life of 10 years). The average level of field burning amounts to about 70% of the annual straw yield of one million tons. The project will stimulate the use of new baling technologies in Moldova and will certainly have an effect on the average perception of level of use of agricultural wastes, not only in the use of wastes as a fuel, but also for alternative uses including animal forage and bedding systems and mushroom production.

As mentioned before, the Project will also indirectly contribute to further reduction of carbon emissions from replication of biomass technologies at least under CDCF and possible other possible programs in the country.

f) Decrease in dependence on fuel imports

Currently 96% of all fuel requirements are imported. The project impact on imports will not be significant, the significance will be the movement to utilize a renewable resource for public/private buildings with the same profiles as the implemented demonstrations sites, on base of gained experience and success/lessons learned of the project. Public awareness and information dissemination will promote the idea that biomass is available with the potential, within a 5-6 year horizon, to utilize 15,000tons of wheat straw for energy, about 3% of the annual yield, replacing 6,600tons of imported black coal.

g) Reduction in the field flaring of agricultural wastes

The average level of field burning amounts to about 70% of the annual straw yield of one million tons. The project will stimulate the use of new baling technologies in Moldova and will certainly have an effect on the average perception of level of use of agricultural wastes, not only in the use of wastes as a fuel, but also for alternative uses including animal forage and bedding systems and mushroom production.

h) Increase in general awareness concerning the use of alternative energy sources

The project will overcome the general barrier concerning the use of alternative energy sources in Moldova, providing examples of good practice by implementing demonstration energy heat units based on straw fired technologies.

PROJECT COMPONENTS AND COSTS

A. Biomass Energy Demonstration Units

This component of the project will consist of installation and operation of biomass fuelled heating systems in public buildings in rural communities and one demonstration unit within the Biomass Center in Chisinau, capital of Moldova, with a total capacity of 3,000 kW in 7-10 installations. In total 30 candidate communities have been ranked for potential installation, of which 6 have been ranked as ‘first in-line’ based on the social and agricultural assessments that was carried out in respect of community performance and suitability judged from previous improvements to the social infrastructure – a ‘social credit score’.

15

There is no systematic use of biomass in Moldova, limited to simple domestic use. To promote the usage of biomass as a serious energy source for all user categories and to promote the use of more efficient technologies, pilot and demonstration sites are a prerequisite.

This component in substance can be interpret as follows: overcoming barriers in using biomass technologies by providing examples of best practice (demonstration plants) in the use of biomass fuelled energy systems as a viable alternative to gas, oil and coal and as a sustainable means of addressing the energy supply problems facing rural communities and agro-enterprises. The component is divided in the following activities:

A.1 Technical Studies

Before any implementation activities materialized in biomass heating system equipment purchase, a range of technical documentations needs to be prepared:

• Finalization of detailed technical documentation for the construction of the straw fuelled boiler systems. Technical documentation will be elaborated by specialists on energy, technology, operational process and production of straw boilers in various module sizes; • Finalization of technical documentation and detailed schedules of works for each social building based upon recommendation developed within the PDF A; • Detailed energy audits for each public building will determine heat demand and the requisite fuel demands based on the energy strategy for each building. Based upon the size of the heat load the appropriate heat system solution will be configured; • Preparation of Tender documentation for equipment purchase: This activity will require co- operation between CAPMU, World Bank/GEF and consultants from each representative body preparing detailed documents.

Public consultation: meetings with the project participants, state officials, local authorities, entrepreneurs, mayors of municipalities, directors of schools, sub-contractors, and any other relevant stakeholders.

A.2 Installation of Demonstration Sites

Procurement of biomass boilers and accessories suitable for public/private buildings selected within the project. It will replicate the project in 7 to 10 rural communities by replacing the existing coal/gas boilers with the biomass (straw, woodchips, etc.) fuelled one, registering a full capacity of up to 3000 kW generated heating energy:

• Dismantling of existing systems; • Construction work: preparation of boiler rooms, including preparation for connection of building with heating system; • Upgrade of the heating systems for compatibility with biomass based system; • Supply and installation of new boiler plants on a turn-key basis.

The technical evaluations will determine for each social building the emissions profile and the individual contribution to emissions reduction as part of the portfolio of installations that will be undertaken during the three-year implementation period of the project.

This component will state the ‘Moldova’s Reference Design’ for biomass based heating systems based upon an ‘average rural community’ of about 1000 households and 1200Ha of surrounding arable land. It

16 will clearly demonstrate the reference capacity of the sites; the modularity of the site components; the investment requirements; the raw material treatment and logistics; the energy distribution system; the cost and maintenance characteristics; the cost benefit analyses as well as social-economic and environmental impact.

A.3 Training and Capacity Building

The project will provide training and capacity building through training seminars, workshops and exchange of regional expertise (from Romania and Ukraine, EU). Management of each activity included in project, particularly the reconstruction of boiler rooms and installations of the biomass boilers. Training and technical instruction to equipment operators, in order to ensure sustainable use and maintains of the respective biomass system (boilers and boiler rooms) during its lifetime.

GEF contribution: US$ 402,500 Co-financing: US$ 745,000

B. Biomass production and fuel cycle support

This component of the project is designated to construct and create a full biomass chain supply, aiming to transfigure biomass agriculture wastes, often lost and into a sustainable market product and a suitable thermal energy raw material.

The Republic of Moldova is an agricultural country facing, the problem of agricultural wastes, especially the cereal one that is commonly burned on the field. Storage, preservation and use of agricultural wastes are continually matters of discussion, analysis and planning, still remaining without any adequate practical solution. The uptake of this new and unproven technology in Moldova will depend upon proving system operation in real practice and making biomass fuelled systems available as an affordable and competitive energy product. Successful implementation will require the establishment of systems providing reliable and predicable fuel availability and the technical and financial performance of the systems. The straw market is presently undeveloped in Moldova, having mainly a virtual meaning. During the Soviet time, there was no perception of market for straw. The straw was baled and used mainly for internal consumption of the collective agricultural farms (as bedding for livestock and in rare cases for feeding animals). Basing on these focal points the component will be consisted of few activities:

B.1 Technical Studies

Within this activity the same procedure needs to be provided, as it was mention in p. A.1, to ensure the accurateness when specific technical equipment is procured.

This activity will also include the straw module in terms of size, shape and specification. The bale specification will in turn result in the nature of the baling and handling systems, and the terms of the fuel supply contract from the supplying local agro-enterprise. Specific technical documentation might be required, while trying to pilot demonstration sites, other then the straw fuelled one (other agriculture waste, woodchips, etc.)

B.2 Financial Intermediation for Biomass Supply

Although the GEF project is a grant funding activity, it aims to develop sustainable arrangements, referring to the biomass material supply, which will allow local agricultural businesses to provide a brand new product on the Moldova’s market – cereal straw as a thermal energy raw material. The use of straw-

17 bales as a biomass fuel would be a logical extension of existing machinery services, especially the baling of wheat straw, which is commonly, and illegally, burnt in the field.

The main scope of the project consists in continuation of biomass production, even when the project will be finished. This will be achieved by a range of financial measures provided by the project including: • 7-10 grants accorded to selected best score agro-enterprises for biomass equipment purchase; • Financial lease arrangements which will allow to mitigate the high price investment related to the biomass equipment procurement; • Constant contract arrangements aiming to get together the buyer and the seller of this specific product – biomass material.

It is expected that the project will create 7-10 new independent agro-businesses, except the granted ones, in a new area of agricultural business – biomass material market.

Sector existing barriers: The situation with baling equipment in Moldova is worse than in case of other types of equipment. Almost none of the Moldova’s companies have imported baling equipment during the last 10 years. There are a very limited number of companies that still have baling equipment that is worn out. Most of the baling equipment is soviet type “Kyrgyzstan” and over 15 years old. Such equipment is very difficult to operate and has a down time period over 50%.

There are no presently suppliers of baling equipment on the market. This is conditioned by the fact that this is very specific equipment, quite difficult to operate and is rarely used at present because of the absence of market for straw.

In order to diminish the created situation the project will provide conditioned investment grants to the beneficiaries, which will cover approximately 40% of the imported price of the bailing equipment and one year straw supply costs for the demonstration sites. Along the provided grants, the project will establish financial arrangements that will allow using the leasing scheme to delay the debtor payments of 60%, giving an economic shove for a perspective biomass market development in Moldova. Appropriate leasing and discount mechanisms have already been developed and are operating within the 2KR agricultural machinery leasing system and RISP lending program.

Summarizing all above this activity will include:

• Supply of baling and bale handling systems to agro-enterprises, according to the bale module required, through grants and leasing arrangements. In most cases the module size will be 250kg or above; • Develop the commercial infrastructure to produce, promote, market and sell biomass as an alternative heating source; • To create a transaction based market for biomass fuel (straw) on the basis of supply contracts for heating systems in rural communities; • Leasing contract finalization between agro-enterprises and leasing company; • Credit contracts development between financial institution and final beneficiary; • Contract finalization between agro-enterprises and local authorities for the storage and supply of baled straw according to the required specification and delivery schedules; • Preparation of straw fuel storage facility near bye to the boiler house.

B.3 Institutional Strengthening

18 Training for the operators and maintenance staff for both the baling systems and the boiler room installations will be conducted according to the contracts signed with relevant suppliers. Additionally community based training for operators and other project representatives will be carried out at the participating sites. These representatives will include farmers, machinery operators and drivers; mayors, institutional directors and staff, and; boiler operators. The training will need to cover all aspects of the systems including the agro-enterprise, institutional user, public administration, public health and safety services, organizations providing maintenance and support services.

This subcomponent will include a range of measures that aims to consolidate the created biomass supply system within the project, to act as a catalyst for its further development even when the project will be finished. In order to ascertain that the project financed activities will have a long term impact on the first steps of biomass market development, institutional strengthening measures will include: • Full integrated training program, regarding the technical side of the problem, will be provided to the farmers that have beneficiated from project grant program and to farmers that would be selected as futures potential suppliers of biomass product. This specific training program will be build around of agricultural technology issue: harvesting with minimal loss, storage and preservation, baling up and preparation for sale, livestock usage, etc.; • Training for the operators and maintenance staff for the baling equipment; • Legal support to demonstration sites, including contracts designing and monitoring between agro- enterprises and boiler pilot sites. Both leasing contract and grant agreement will include clauses that will provide full guarantee maintenance of baling equipment during the leasing period and maintenance assistance in base of a commission payment when contracts expire. The mentioned contracts will tie up all the actors involved in biomass chain supply; • The project will insist on sustainable development of agro-enterprises involved in biomass chain supply. Although it is planned to provide grants only for baling equipment procurement, there is also an options to cover a part of operational costs of biomass fuel for one season supply to demonstration sites, depending on financial situation and negotiation results regarding local taxes amnesty. Due to the fact that a number of demonstration sites are public institution there is a possibility to revoke local taxes, that have to be paid by agro enterprises, in exchange of supplied biomass product; • Marketing and promotion of cereal biomass product on the market. This will include development of agro-enterprises capacities to sell biomass as a recognized merchandise and not only for heating purpose; • Continuous and permanent monitoring regarding enterprise capacity to supply biomass product on time an on previously agreed conditions; • Solving all possible divergences that could appear on base of non judicial/piece full way, attracting all the stake holders involved in the project.

GEF contribution: US$ 209,348 Co-financing: US$ 909,338

C. Public awareness, outreach and dissemination, information barriers removal

The overall outcome of this project component is to promote the project objective of removing the existing barriers to extend the usage of renewable energy from agricultural wastes in Moldova.

The main barrier to the use of renewable energy (agricultural wastes) is that there is no current possibility for an independent and rational decision maker, in Moldova, to investigate or source a renewable energy / biomass option as a fuel for an energy requirement. Availability and information is totally geared toward gas, oil, coal and electricity. The means to overcome this barrier have been reviewed at length, drawing

19 on experiences in countries including the Ukraine, Romania, some other Balkan Countries and Austria. There exists a common perception in Moldova that agricultural wastes cannot be effectively utilized to produce heat. This energy source is therefore not considered as a serious option. The development of demonstration sites, information and commercial infrastructure for the marketing of efficient technologies are the key constraints to the use of renewable energy.

Raise awareness with key public and private decision makers as well as with the profession of architects and engineers who are in a position to provide advice to these decision makers.

The program of measures to overcome the existing informational barriers together with the demonstration sites implementation will include: • Presentations at conferences, seminars, and training events including those targeting and engaging the local governments and general public, and the international community; This task will include also a considerable number of local seminars targeting rural communities, involving training at boiler demonstration sites. • Promotion of baling systems and technology into other regions of Moldova and an information campaign for rural communities applying for MSIF project grants; • Case studies to showcase the project will be published in targeted publications for farmers; • Participation in fairs at the ‘Mold-Expo’ in Chisinau; • Promotion through information and extension to agro-enterprises, mayors, students (all levels), heating engineers, government officials and policy on renewable energy (biomass); • Regional debates & panel discussions; • Biomass center training room; A non-commercial unit will be created in Chisinau, that will provide free of charge information related to: legal aspect of climate change institutions, biomass equipment including commercial offers, biomass possibilities in energy sectors, existing programs and national policies in climate change movements, etc. All the services will be provided free of charge. The Biomass Centre – a Training, Technology Transfer and Information Centre operating within a demonstration site in a university, college or research institute. This centre would link with the advisory services capacities developed through the World Bank Rural Investment and Services Project (RISP). This would provide for comprehensive information dissemination on a National scale backed up by advisory services and consulting (energy audits). Training and education would require development of new academic, vocational and instruction courses. • Advertising campaign - TV, radio; • Info campaign for households, regional media campaign; • Miss-perception & gaps identification surveys; • Teaching Contract (professional lessons at sites); A specialist will be appointed in a training of trainers program, provided to local school teachers/professors in order to instruct them how to disseminate the information among the students of the local schools, colleges, universities and others educational institutions; • Books for publication; • Advertising booklets.

GEF contribution: US$ 164,675 Co-financing: US$ 0

D. Project Management, audit, monitoring and evaluation activities

CAPMU as a Project Implementation Unit (PIU) will oversee the implementation of the Project, disseminate project related information to stakeholders and be responsible for contracting for the delivery

20 of goods, works, and consultant services. The project would raise environmental awareness in the project region and support NGOs and local communities in promoting environmentally sustainable development policies at the local and national level.

D.1 PIU Support

Incremental operating costs of the PIU, including communication support system to serve individuals and organizations engaged in project implementation and dissemination of project results through website and traditional means (mass media, written articles); incremental current costs of the PIU, vehicle operation and maintenance, and office rent.

D.2 Monitoring and evaluation

M&E of all project activities will be conducted throughout the entire project by CAPMU. Monitoring activities will include regular reporting on the development of project activities and achieved outcomes (Section VI contains more detailed information on the monitoring and evaluation plan).

GEF contribution: US$ 196,397 Co-financing: US$ 0

SUSTAINABILITY ANALYSIS AND RISK ASSESSMENT

Sustainability analysis

The indicative target for raising the share of renewable sources of energy is equivalent to 650,000t CO2e per year, approximately 2.5% of total national emissions, and 1% from biomass. This would equate to the use of 10-15% of the national annual average yield of straw. This would equate to 100-200 systems, of a type that are to be developed by the project.

There are no currently working biomass systems operating in Moldova, other than simple stoves in households (1-5KWth). The first and most important step in removing barriers is the development of demonstration sites supported by an efficient information, promotion, and procurement and supply infrastructure. Successful project implementation and replication depends on few main factors: availability of straw bales to the specification required; the economic competitiveness of biomass in comparison with fossil fuels, and; the financing mechanisms for the supply of systems. All analyses indicate positive outcomes, including the experience of a pilot straw based installation in the Ukraine. The financing mechanisms for replication represent new and untested areas, but the indications are that the financing mechanisms now in development in Moldova will play an important role in placing biomass energy systems as part of the “common” decision practice for thermal energy generation in rural and sub- urban locations.

The performance indicators of sustainability of the project could be summarized in: • Sustainability of demonstration sites, created and supported according to components activities described above; • Creation of private investment into biomass supplies in terms of possible sustainable financial intermediations propose and created within the project. As it was mentioned above, the project aims to transform biomass into a profitable sold product as a fuel source of energy. This will be achieved by rewarding invest ional grants and providing financial arrangements that will give possibilities to decrease investments costs relating to this new kind of business in Moldova.

21 Despite the medium lifetime of the project it is expected that new enterprises will choose biomass product as a alternative direction of their businesses basing on the financial arrangements already created and proved within the GEF project or could apply to the lend credits provided by RISP project, when the GEF project will be finished; • Continued training and capacity building provision. This directions needs to be negotiated with state authorities in order to cover the related expenses by national/local budgetary sources. It is also possible to provide these kinds of services through Biomass Center that will be created within the GEF project.

Pre-completion risk

The methodology of community selection was based upon the identification of 30 rural villages, located in gas free regions, drawn from the database of communities that have successfully collaborated in social development programs. This track record serves as an indicator of the innovation and organizational capacity of the communities, which will be required to successfully implement a demonstration project and also have the capacity to promote replication in surrounding communities. Focus group discussions were organized in 10 of the 30 communities selected as suitable candidates, with representatives from the local public administration, community businesses, community social institutions and community NGOs. Following a ranking based on specific selection criteria, letters of commitment were agreed with the mayors of selected communities.

Technology risk

Thermal energy generated from biomass fired boiler is a brand new technology for Moldova, though the use of straw as an alternative energy in Western Europe is already common, especially in Nordic countries.

Consideration of the type and nature of the use of renewable energy has been the focus of the CEI Working Group on Energy, specifically the use of biomass for the production of thermal energy in Central and Eastern Europe and in the Balkans - preliminary process specifications. This has led to links with other countries in the region, most notably with the Ukraine, which has already begun to produce western based biomass (Straw) technology under license from Danish producers. These considerations and links have led to a clear understanding of the technology and the means of access from regional producers with an understanding of local conditions and economies. The Biomass Center in Kiev has been involved in the PDF A, first starting relations in the biomass arena with Moldova in 2003 with the first preliminary biomass energy audits in Moldova. This has continued with an analysis of technical and price conditions for various batch fired straw fired thermal technologies suited to the social, economic and technical conditions in Moldova, together with a budget estimations (including certification, importation, training and installation cost estimates) for systems installations (fuel supply and boilers).

Operation risk

A full training program will form part of the project, specifically included within the supply terms and conditions for both baling and energy generation systems. Training will be undertaken by experts from the equipment manufacturing companies, both during installation and commissioning and in service. Support, service and maintenance will be provided by local organizations. The primary operational risks will relate to logistical aspects regarding the fuel cycle especially handling and storage to maintain the correct fuel specification required for efficient operation of the boilers.

Raw material supply risk

22

The use of straw-bales as a biomass fuel will be an extension of existing agricultural post harvest field operations. Wheat straw has to be removed from the surface of a field to prepare the ground for the succeeding crop. Baling of wheat straw will form a third and income generating option in addition to chopping and sloughing the straw residues or field burning (though prohibited by legislation, it remains a common practice). In total there are some 600,000 hectares of winter wheat grown annually yielding some 600,000 to 1,000,000 tons of straw, on average 400 - 600 tons per settlement, of which 70% is unused. The remainder would service the fuel requirements of a 500kWth system. The primary risks of raw material are weather related, either through a national crop failure (once in 25 years) or a wet weather at harvest time leading to high moisture content in the straw bales. Transportation is not a significant issue, as straw bales will be supplied by enterprises within a 2-20km radius of use.

Raw materials financial sustainability: The project will provide a full integrated approach to biomass fuel supply security. Therefore the project will set up all of the below: • The technical information base; • Sourcing/supply chain for boiler and straw recovery equipment; • Change the public opinion towards the usage of straw for energy purpose and as a market based product.

These are part of the technological barriers to be addressed by the project. The achievements will be sustained through demonstration of economical reasons in exploring the biomass. The conversion of biomass is economically and financially justifiable and feasible. Thus the economics of it will create and maintain the supporting industry.

Overall estimated biomass availability in Moldova (2002) Source Used Unused Total Oilseeds* 650,000Ha 0.30m tons 0.20m tons 0.50m tons Grains 600,000Ha 0.10m tons 1m tons 1.10m tons Orchards / vineyards 0.40m tons 0.30m tons 0.70m tons The oilseeds figure understates the much higher potential availability once effective collection systems are in place

Sales risk (biomass fuel)

Once the market is created for baled straw, there will be no appreciable sales risk for biomass suppliers. The baling and selling of straw represents an additional, margin earning revenue, compared to the costs of straw chopping (which adds a 30% power load to the combine harvester), or field burning, which is illegal and stands the risk of a (relatively) high statutory fine. The primary sales risk will be at individual enterprise level, failing to supply bales of a correct specification, where a competitor will be close by.

Approval and regulatory risk

Building permits will be necessary to obtain for each of the installations. The MSIF, having already undertaken many social infrastructure projects in Moldova is very well placed to obtain all permits that will be required regarding building works.

The other risk is approval of boilers / thermal energy generators for import into Moldova. This experience is well covered in the Ukraine having very similar State Standards structures as a result of a common regulatory background within CIS countries.

23 STAKEHOLDER INVOLVEMENT

Stakeholders were involved extensively throughout the development of the project. Their input led to the project design and the creation of both a Project Steering Committee and a Project Board.

Stakeholder Identification and Participation

Due to the size and scope of the project, a large number of project partners and stakeholders are involved. A list of these stakeholders, as well as their main area(s) of participation within the project is provided below:

Organizations participating in the preparation and implementation of the proposed project

• CAPMU, Office 544, 9, Cosmonautilor Street, Chisinau, Republic of Moldova, MD-2005, Contact person: Igor Gorashov, General Director, Tel: +373-22-223106, [email protected] • Ministry of Ecology and Natural Resources, Cosmonautilor Street, Chisinau, Republic of Moldova, MD-2005. • Moldova Social Investment Fund, 124, Stefan cel Mare St., Chisinau, Republic of Moldova, MD- 2001, Contact person: Boris Popadiuc, Executive Director, Tel/Fax: +373-22-279121, e-mail: [email protected] • The Association of Agricultural Producers (UAP), 18, Calea Basarabiei Street, Chisinau, Moldova. http://www.uap.md, Contact person: Dr Vasile Bumacov, Tel.: +373-22-278463, [email protected] • Ecological Society Biotica, Alexei Andreev / Conrad Dorer, PO Box 145117/4, Nicholae Dimo Street, Chisinau, MD-2043, Tel: +373.22.445675. [email protected], [email protected], www.biotica-moldova.md • Scientific Engineering Center - Biomass Ltd (SECB), Kiev, Ukraine. Contact person: Dr Georgiy Geletukha, Tel. +380 44 456 9462; e-mail: [email protected] , . http://www.biomass.kiev.ua • ACSA NGO, 98,31st August 1989 Street, Room 401, Chisinau, Moldova, Contact person: Dr Constantin Ojog, Tel: +373 22 210541, [email protected], www.acsa.md. • Rural Development Center NGO, 180, Stefan cel Mare St., off. 808, Chisinau, Republic of Moldova, MD-2004, Contact person: Efim Lupanciuc, Tel/Fax: +373-22-295439; e-mail: [email protected] • KWI CManagement Consultant & Auditors GmbH, Burgasse 116, 1070 Vienna, Austria. Contact person: Manfred Stockmayer, managing director.

Outreach and Consultation

Outreach for the project will be carried out using the following methods: • Seminars for decision makers, the general public and other interested groups; • Excursions to boiler room sites and agro-enterprises • Publications (brochures, leaflets) giving general information about the project; • Presentations given at other energy events; and, • Information will be available on the web sites of the main project partners

The aim of outreach activities will be wide –involvement of public, regional as well as national decision- makers to the field of biomass heating, to show a new way of environmental-friendly heating. The project puts emphasis on removal of barriers that represent contemporary obstacle in project implementation.

24 These barriers can be removed and broken by changing people’s thinking regarding the use of fossil fuels and raising awareness of alternative fuels such as biomass. The objective of the project is to participate and influence the policy making process, in order to include biomass energy aspects in the strategies and plans of policy makers. The project is the first large biomass project in Moldova. Successful realization and implementation will result in a new fuel market – straw bales. Heating by this fuel will cause a decrease in operational costs but, on the other side, an increase in investment costs. In many EU countries, investment costs for biomass heating are partly supported by the State. Developments concerning the carbon market are likely to provide the opportunity for carbon values to be used in investment off sets following a successful demonstration phase.

Social and Participation Issues

Community eligibility for a Social Investment Fund (SIF) Project is based upon the ‘poverty-map’ for Moldova, drawn up according to various poverty indicators14. For each region in Moldova a prioritized list of communities is scheduled according to the indicators; SIF fund allocation for each region is based upon a weighting calculation related to the rural population in a region as a proportion of the total national rural population Given the fund allocated to a specific region and the available average project value, a number of communities are selected on a region by region basis.

Once the rural communities have been selected a general meeting is held in every community. The meeting must be attended by at least 33% of the adult population, of which 40% attending the meeting must be women. The general meeting is supposed to vote for the investment project. At the same time a Project Committee is elected, responsible for the organization and implementation of the project. Where the community vote for the improvement of a public building, often the village school, first priority must be given to the improvement of the building structure, including roof, windows, doors and sanitation, in order that the building is brought up to an acceptable standard. Energy efficiency and heating system upgrades also often form part of the schedule of improvements to public buildings. In suitable locations the renewable energy option will be developed, in addition to energy efficiency measures. Renewable energy options will be based in communities in those regions without access to the natural gas network and with good local availability of biomass (mainly in the northern and southern parts of Moldova). In total it is expected that the project will benefit 17,000 inhabitants of 15 rural communities, 0.85% of the rural population. Of this total approximately 6,000 are children.

Public consultations

Project preparation was a wide involvement process with a tight stakeholders embracement together with a range of public consultation.

For the selection of the very first 5 pilot communities, public consultation and study visits were undertaken to all the 10 pre-selected communities: • North: Cishcareni, district Syngerei; Vasilcau, district Soroca; Navyrnets, district Faleshti; Recea, district Ryshcani; Limbenii Noi, district Glodeni. • Center: Boghenii Noi, district Ungheni; Boghiceni, district Hynceshti. • South: Antoneshti, district Stefan Voda; Taraclia and Ursoaia, district Causheni.

14 EGPRS – Economic Growth and Poverty Reduction Strategy for Moldova

25 The main purpose of the public consultation and study visits consisted in the following: • Evaluation of communities’ needs and capacities to implement heating systems, using alternative energy sources; • Organization of focus groups with the community stakeholders who would participate in the projects implementation, to determine their attitude towards the proposed innovational project, organizational abilities, their views on the advantages and disadvantages of implementing the project in community; • Carrying out additional observations at the social infrastructure buildings of community, where the alternative heating systems could be connected.

Focus groups discussions were organized in each of the 10 communities. Representatives of the local public administration, community businesses, community social institutions’ managers (school, family doctor office, house of culture, kindergarten etc.), and community NGO sector representatives participated in the discussions.

During the discussions and consultations, the team informed the community representatives on the concept and objectives of the project, way of selecting communities for piloting the proposed project and village responsibility, if selected as pilot locality.

At the same time, the following aspects have been discussed in a participatory manner and studied: • Community strengths related to the implementation of some alternative energy producing systems (potential and resources available in community for the implementation of a pilot project); • Community weaknesses in relation to the implementation of alternative heating energy producing systems; • External opportunities of community in relation to the implementation of alternative heating energy producing systems; • External dangers and risks to implementing such a project in the respective community • Possible environmental impact of the project.

Next step in public consultation included dissemination of the assets information under the PDFA activities. In this order three workshops were organized at the regional level and a national one in Chisinau, the capital of Moldova.

These consultations had very specific objectives in order to identify the weak points of the project and to disseminate the information regarding the environmental impact of the upcoming activities. Within these consultations the following topics were put under discussion: • Environmental impact of the project and the Management Plan to mitigate possible environmental impact; • The place of the GEF project within the national plans and priorities regarding the renewable energy; • Presentation of the GEF project under public critics and consultations; • Perspective of biomass market in Moldova; • Clean Development vis-a-vi renewable energy; • Social assessment and community attitude towards renewable technology; • Identification of technical characteristics of biomass fueled heating systems, existed outcomes and perspectives.

Public consultation were held with central and local administration representative (Ministry of Environment, Agriculture, Energy, Economy, mayoralty, etc.), academic institutions (The Academy of

26 Science of Moldova, National Institution on Energy), civil society, mass media, agricultural producers, environmental and energy experts, international consultants (UK, Romania, Ukraine), etc.

MONITORING AND EVALUATION PLAN

M&E will be supported by CAPMU, which is a specialist PIU, with considerable background and experience in the M&E of project delivery under International programs. The supervisory board of CAPMU includes representatives from the Ministry of Agriculture and Food Industry; the Ministry of Economy and Trade; the Ministry of Finance; Ministry of Ecology, Construction and Territorial Development, and; representatives of donor organizations.

M&E will consist in periodic oversight of the project preparation and implementation phase, and semi- annual reporting to GEF/World Bank. Evaluation will consist in a process of analysis of activities and results activities against baseline scenario using performance indicators. This will allow project decision makers to take correct decisions based on evidence of information of ongoing implementation stage of the project.

M&E will also include possible incorporating changes to implementation arrangements, if needed, during implementation; identification of weaknesses in project design, etc.

The first review meeting will be held within one month of the initiation of the project. The national project director shall prepare and submit to each Committee review meeting a Project Performance Evaluation Report (PPER) at project months 6, 12, 18 up to 36 (i.e. the project conclusion). Additional PPERs may be requested during the project when deemed necessary.

Monitoring activities will consist of the regular reporting on the development of project activities and achieved outcomes. The project team will identify an appropriate, cost-effective mix of direct and indirect measurements that will be appropriate for monitoring activities and outcomes. The project team will place special importance on the inclusion of indicators in the project-monitoring framework that focus on environmental impact and impact on the regional heating market. Demonstration sites will also be monitored for not participating or having any benefits from any carbon finance mechanisms. This will be done in agreement and cooperation of the entities implementing parallel CDCF projects in the country.

Monitoring of climate change response will be carried out in accordance with monitoring of real, achieved energy savings and related reductions in GHG emissions from use of wheat straw biomass pellets for heating in public buildings. Monitoring and evaluation reports will serve as an important source of information for other organizations, particularly best practice and lessons learned. Reports will also serve as a source of information to disseminate about biomass and renewable energy, as well as for the marketing of such investments as bankable, sustainable development oriented projects.

D - Financing15

Project budget by project activities16 $US Project component Total Cost GEF Co- Share financers PDFA - Preparation of Feasibility studies 25 000 25 000 0

15 See also ANNEX D: Detailed Budget Breakdown/Co-Financing Share 16 See also Annex D: Budget Breakdown

27 A. Biomass thermal energy heating units 1 147 500 402 500 745 000 B. Biomass production and fuel cycle 1 118 686 209 348 909 338 support C. Public awareness, outreach and 164 675 164 675 0 dissemination, information barriers removal D. Project Management, audit, monitoring 196 397 196 397 0 and evaluation activities Total (including PDFA) 2 652 258 997 920 1 654 338

Project Co-financers Co-financers resources Name of Co-financers(source) Classification Type Amount (US$) Status Government of Moldova governmental in kind 0 confirmed Government of Moldova governmental in cash 1,434,950 confirmed Project selected beneficiaries (2KR) private in kind 0 confirmed Project selected beneficiaries(2KR) private in cash 219,388 confirmed Sub-Total Co-financing 1 654 338

* Project beneficiaries: ƒ 2KR agro-enterprises selected for investment grant award, will contribute for bailing equipment procurement and other related costs with their own resources;

Co-financing structure by source $US

Project component Co- Government Beneficiaries financers (2KR) total PDF A 0 0 0 A. Biomass thermal energy heating units 745 000 745 000 0 B. Biomass production and fuel cycle support 909 338 689 950 219 388 C. Public awareness, outreach and dissemination, 0 0 0 information barriers removal D. Project Management, audit, monitoring and 0 0 0 evaluation activities Total (including PDFA) 1 654 338 1 434 950 219 388

A. Biomass thermal energy heating units Government: 1) $745 000 investments under the SIF project for energy efficiency measures 2) $689 000 straw procurement for 10 yeas period by municipalities

B. Biomass production and fuel cycle support Beneficiaries (2KR): $219 388 - storage, handling and distribution of straw

28 E - Institutional Coordination and Support

CORE COMMITMENTS AND LINKAGES

Moldova joined the World Bank in 1992. Two years later it joined the International Development Association (IDA) - the soft lending arm of the World Bank. Since then, World Bank programs have consistently supported the country’s economic reform program by working to reduce poverty and raise the living standards of its people, developing different environmental programs.

In December 2004, the World Bank adopted its Country Assistance Strategy (CAS) for Moldova for the period 2005 to 2008. The CAS, prepared in consultation with the Government of Moldova, representatives of civil society, the private sector, and development partners active in Moldova, serves as a roadmap for World Bank assistance to the country. The CAS is aligned with the priorities detailed in the country’s Economic Growth and Poverty Reduction Strategy Paper (EGPRSP - Moldova’s version of the PRSP).

The key challenge for Moldova is to sustain and improve upon the recent gains in economic growth and poverty reduction by committing to and sustaining a consistent policy reform and governance improvement agenda. The overall objective of this CAS, therefore, is to assist Moldova in reducing its high level of poverty, the highest in Europe, by (i) promoting conditions for economic stability, growth, and employment creation; (ii) improving access to social services, capital and community infrastructure, and minimizing environmental risks; and (iii) improving public sector governance and combating corruption (iv) addressing environmental challenges.

As an international financial institution, the World Bank’s main business is to lend for development projects. To date, the World Bank has financed 53 operations in Moldova for a total commitment of US$592 million. Currently the World Bank has 29 projects under implementation in Moldova. This Country Assistance Strategy (CAS) sets out the World Bank Group’s planned lending and non-lending support to the Republic of Moldova over the period 2005-2008. The CAS has been prepared in consultation with the Government of Moldova, representatives of civil society, the private sector, and development partners active in Moldova. One of the directions of the World Bank programs in Moldova is to provide technical assistance for preparation and implementation of different projects in environmental domain. Here are included projects for biodiversity conservation, climate change programs, land degradation, water sanitation, etc. Recently World Bank in collaboration with Moldova has prepared and submitted a project elective for Clean Development Mechanism.

World Bank Active Lend Projects Country IBRD/IDA Status Approval Date Project Name

Rural Investment and Services Project Moldova 5 Active 29-APR-2004 Supplemental Agricultural Pollution Control Project Moldova 0 Active 26-FEB-2004 Soil Conservation Project Moldova 0 Active 23-JAN-2004 Energy II Project Moldova 35 Active 25-NOV-2003 AIDS Control Project Moldova 5.5 Active 10-JUN-2003 Trade and Transport Facilitation in South-East Moldova 7.21 Active 10-JUN-2003 Europe Project Pilot Water Supply and Sanitation Project Moldova 12 Active 20-MAY-2003 Rural Investment and Services Project Moldova 10.5 Active 20-JUN-2002

29 Biodiversity Conservation of the Lower Moldova 0 Active 28-MAR-2002 Dniester Project Health Investment Fund Project Moldova 10 Active 22-AUG-2000 Social Protection Moldova 11.1 Active 24-JUN-1999 First Cadastre Project Moldova 15.9 Active 23-APR-1998 Private Sector Development Project (02) Moldova 9 Active 10-JUN-1997

CONSULTATION, COORDINATION AND COLLABORATION BETWEEN IAS, EAS AND GEF SEC

Project design incorporated lessons learned from other GEF biomass projects under development and implementation in the region. Although there are no active projects currently and this particular request will be the first attempt to implement something in this area in Moldova, an important number of environmental and agricultural NGOs have been involved in the debating and discussion of this project proposition. Moldovan Social Investment Fund, Union of Agricultural Producers, Rural Development Center, Biotica NGO, Agency for Consulting and Scholarship in Agriculture, Regional Environment Center of Moldova, Eco-Spectru NGO, Alliance for Cooperation in Agriculture, Pro-Rural-Invest NGO, Pro-Terra NGO, Consulting and Credit in Agriculture NGO, Agency for Consulting and Agricultural Information, etc., there are just a limited number of stakeholders’ names involved into the project design identification and exchange of lessons and experience learned. These lessons were considered in project design, particularly in system design, selection of project goals, and local environmental considerations.

The Renewable Energy from Agricultural Wastes project shall pave the way for a broad implementation of biomass as an energy source in Moldova, with a special focus on straw, but not excluding other potential sources such as woodchips, bark or waste wood. The project will demonstrate in pilot installations the use of straw as an energy source and will establish the necessary biomass supply chain in designated regions. The intention is to destroy the wall of distrust and build much more confidence of Moldova rural people in usage of straw for thermal energy provision, which is currently hardly believable heating source.

In cooperation with the on-going Rural Investment and Services Project (RISP, WB-funded, USD 30 million) the straw utilization for heating purposes might be promoted through the large agricultural advisory system, implemented by the Agency for Consulting and Scholarship in Agriculture. This network holds today the broadest coverage in the country with its 500 village consultants around the whole rural Moldova. With the support of these forces the project concept could be shared with an important number of potential users, which rises up to 300,000 as ACSA clients. Annually this network is implementing up to 150 demonstration plots, some of which would be focused and linked to the alternative energy (biomass) change.

Under the Support to RISP Project (S-RISP, British DFID, GBP 3 million), which is a complementary operation to the World Bank RISP, an important assistance is provided to village inhabitants to develop new businesses and set up new SMEs in rural areas. An excellent potential is observed here to support the straw producers (farmers) with a know-how and business development support, as well as guidance to access funding sources for machinery and implements acquisition from the RISP investment credit lines.

Another WB-funded (USD 20 million) project is currently implemented by the Moldova Social Investment Fund, which provides basic foundation and financial resources to the rural communities to support their initiatives to restore village social infrastructure. In close cooperation with this project, the REAW Project would be able to prepare new foundations to disseminate the accumulated experience,

30 share the success stories and show practical results from the best cases to those extreme unbelievers in project goals.

The Agricultural Pollution Control Project (APCP, USD 5 million, GEF/WB funded, also CAPMU managed) will also have a good potential for linkages with the proposed REAW project. One of the main goals of APCP will be the development of the Code of Good Agricultural Practices, where the new technologies for cereals wastes harvesting and further utilization could be easily promoted.

The Lower Dniester Biodiversity Conservation Project (managed by the Biotica NGO, USD 1 million, MSP GEF/WB project) might provide additional opportunities for cooperation, especially in the area of villages training in communal use of public goods for biodiversity conservation goals, where burning of straw in the open fields represents a real danger.

The are a couple of other, than the World Bank, donors’ funded projects – Japanese 2KR, IFAD – Rural Finance Project, USAID CNFA – Agribusiness Development Program, USAID Private Farmers Assistance Program, TACIS SME Development Project, etc., where the project implementation team would be able to build the cooperation relation with, therefore the REAW operation could indeed serve as a catalyst initiative to remove current strong lack of faith into biomass potential and to promote an important number of success replication throughout the country.

The interaction within the project with the Moldova Social Investment Fund and the Rural Investment and Services Programs in Moldova provide an established, national, network of information and extension services. In addition, within the 2KR complex, Chisinau, there will be training, maintenance and servicing facility covering biomass baling and handling systems. This will be an extension to facilities already established for agricultural equipment.

The National Advisory and Extension Service, developed through the RISP, have representatives in over 400 communities in Moldova. The yearly work plan for the service will include a ‘renewable energy – biomass’ activity plan including publications. This will take into account the MSIF promotional activities providing community leaders and mayors with information concerning the MSIF, together with case studies and analyses.

The proposed GEF project comprises for the first time those activities to enable the replication of renewable energy from agricultural wastes with real examples within the demonstration units, but will not activate as an autonomous project, being in tight linkage with existing and ongoing projects involved in renewable energy programs in Moldova and boarded countries.

• Austrian JI/CDM Program: co-operation with Central and Eastern Europe

Austria has been working on setting up co-operation in the field of energy policy with the countries of Central and Eastern Europe since 1989, focused upon renewable energy and energy efficiency. The Austrian JI/CDM Program aims to make a contribution to achieving the Austrian reduction commitment under the Kyoto Protocol through the application of the project-related Flexible mechanisms, Joint Implementation and Clean Development Mechanism. Within the scope of the Program are:

• Purchase of emission reduction credits from JI or CDM projects, which lead to avoidance or Reduction of greenhouse gas emissions; • Financing of particular immaterial services, such as Baseline Studies etc., which are necessary with respect to JI or CDM projects.

31 The Clean Development Mechanism (Article 12 of the Kyoto Protocol) allows Annex I countries to purchase emission reduction certificates through projects in non-Annex I countries. The peculiarity of the CDM is that, in contrast to other mechanisms, participation of the developing countries is provided for, meaning of the countries having no qualified emissions limitation or reduction commitments. For the developing countries, CDM therefore represents an important instrument for technology transfer and ought to contribute to sustainable development.

Participation in CDM projects takes place by mutual agreement between the investor and home countries. While carrying out a CDM project, an Annex I country or an institution or enterprise from an Annex I country A participates in an emissions reducing project in a developing country (Non Annex I country) B and can purchase resulting Certified Emission Reductions (CERs).

The Austrian Development Agency is going to open a permanent office in Moldova, within the Swiss Embassy together with SDC. Links between Moldova and Austria in this respect have been developing since 2002 through the Energy Working Group of the CEI (last meeting, Vienna 2004). The Sector Study on Renewable Energy17 in Moldova, undertaken in 2002, was financed by Austria. There is also a high level of co-operation and information dissemination between Moldova and the Ukraine (Biomass Centre, Kiev), through which projects under the Austrian scheme are being identified and developed. Projects completed, underway and under development include those relating to land-fill, district heating, industrial and bio-gas. There are also associated developments of equipment manufacture joint ventures with EU Member Countries in respect to technology availability including specialist biomass technology.

• The United Nations Development Programme: National Self Assessment of Global Environmental Management

The goal of the project is to improve coordination and integrate actions undertaken under the three Rio Conventions and fortify national capacity in order to reinforce the synergetic effect of these Conventions, thus contributing to long-term sustainable development of the country. The overall objective of the project is to identify through a country-driven consultative process, taking into consideration the national environmental policy objectives of the Republic of Moldova and its relevance to the global context, priorities, needs, and constraints for capacity building in order to meet obligations under the global environmental Conventions to protect the global environment.

Collaboration with this project will contribute in attaining the overall objective of ’” Public awareness, outreach and dissemination, information barriers removal” component of the REAW project. REAW project will be a further continuation of NCSA activities in order to increase public awareness upon renewable energy and its perspective within the general energy consumption of the country. REAW will use NCSA already implemented and established network of facilitating the implementation of activities under the three Rio Conventions, including climate change obligations, awareness building among the stakeholders e.g. governmental agencies, research institutions, universities, NGOs and other recognized legal entities which performs activities within climate change movement. It is a great opportunity to involve NCSA project appointed experts as possible participants to REAW implementation through their experience and in base of already obtained results.

• United Nation Development Programme: Energy Efficiency in Buildings

Ministry of Environmental and Natural Resources of Moldova serves as executing agency of this project. The project itself aims to improve the knowledge about and the availability of mechanisms necessary for

17 Moldova – Renewable Energy (Biomass) Sector Study, Potential Use of Renewable Energy (Biomass) in Moldova, Financed under the Austrian Global Environment Consultant Trust Fund

32 financers and energy consumers to fund viable energy efficiency projects by removing barriers and lowering transaction costs to initial funding of the housing and institutional sectors. The REAW and the cited UNDP project will collaborate in addressing the following objectives:

• Development of an energy efficiency strategy implying also renewable technology • Building capacity for implementation of energy audits in the building sector • Addressing the informational barriers for energy efficiency consumption and renewable energy usage.

IMPLEMENTATION ARRANGEMENTS18

The Consolidated Agricultural Projects’ Management Unit, established under the Government of Moldova (CAPMU), will serve as the executing and implementing agency responsible for the overall management of the project, planning and budgeting, use of funds and generation of outputs, accounting, reporting, monitoring and evaluation of the project, TOR’s preparation, tendering and supervision of the sub-contracts, impact assessments and audit of resources. The General Director of CAPMU will serve as the National Project Manager (NPM). However, a Project Manager Assistant (PMA) will be appointed to manage all the technical issues of the project implementation process. S/he will assume the responsibility for the project implementation works and performance achievement (i.e. fulfillment of the overall technical objectives of the project, assurance for reaching the project targets and performance indicators, as well as day-to-day management of the respective personnel, including local and foreign consultants). S/he will be accountable for the quality, timeliness and effectiveness of the services provided and the activities carried out under the preliminary agreed annual working plans.

The project will be overseen by the CAPMU Steering Committee. The CAPMU Steering Committee comprises representatives from the Prime Minister Office, Ministry of Ecology and Natural Resources, Ministry of Agriculture and Food Industry, Ministry of Finance, Ministry of Economy, National Bank and Parliament, therefore covers almost all the interested parties form the Beneficiary’s side. The Steering Committee is chaired by the Deputy Prime Minster, responsible for the agricultural sector, environmental and rural development under the Cabinet. The Project Steering Committee is responsible for policy input, functional guidance, and overall co-ordination of the project. The main function of the Steering Committee is to approve the annual working plans and budget of the project implementation team, so later to accept their annual reports. Functional guidance will be provided in relation to the execution of the project activities through the review of regular reports and monitoring and evaluation activities. It will also coordinate activities in relation to the replication of the project and will coordinate its works with other country operations.

18 See also ANNEX B: Financial Management Arrangements

33 PART II – RESPONSE TO REVIEWS

A - Convention Secretariat

Project Design

Reviewer: Please clarify the incremental cost analysis, by juxtaposing investment, fuel, and O&M costs of all alternatives, and including that the boilers that would be replaced anyway through the ongoing efforts. On page 9 there is a statement that so far the improvements have never tackled the boilers, but just due to technical wear they would have to be improved at one point, and that would be part of the baseline, at least to the degree that would happen under MSIFII. (Also, on page 33 it is implied that the fossil-fuel burning heating systems were upgraded under MSIFI, potentially including the boilers).

Project owner: Without the GEF project, there would be some energy efficiency measures implemented over time. Most would not involve boiler replacement, as there is little economic incentive to do so. Some communities might opt for such replacement, but still to basically the same type of a boiler they are used to. The Project will demonstrate the benefits to switching to Biomass, and how expectation is that once it is demonstrated, the conversions will follow, especially assisted by financial incentives under the CDCF (for additional sites, not part of the GEF Project). To be conservative, we are taking expected improvements as baseline, even though we could simply take the current situation as baseline.

Reviewer: The project intends to remove these barriers and put in place demonstration for biomass- based energy systems, in the context of a government sponsored municipal social investment fund (MSIF), and with strong link and follow-up of this activity with the CDCF. It seems that the Community Development Carbon Fund will work primarily on energy efficiency measures in public buildings. If the GEF intervention succeeds in raising interest in biomass use for heating, the CDCF will pick it up.

Question: Is the additional money potentially leveraged through using CF from the very beginning insufficient to make the investments including biomass economically so attractive that no GEF intervention is needed? If possible, please supply a quantitative example.

Project owner: The CF provides just financial incentive - it basically says that if a community converted to the use of biomass, there would be some carbon revenues from the investment. This alone does not address the core issue, which are the very barriers that the GEF project is trying to remove: (i) information, and lack of any confidence in biomass technology; (b) absence of technology locally; and (c) nonexistence of the straw market. These are the prerequisites for any potential scale-up of biomass. GEF deals with these.

Reviewer: Is there an institutionalized "fire-wall" between the two mechanisms, so that no projects can double-dip, and that the GEF project does not subsidize the cost of the CDCF?

Project owner: There cannot be double-dip. The Project will focus on three barriers above. While doing this, it will install some demonstration boilers fed on biomass - a very limited number, 10. That is it. These 10 WILL NOT be included in the CF project. All others will get no financing from the GEF, again referring back to the above: once the barriers are removed, the financial incentive of the CF will work alone on further scaling-up the use of biomass.

Reviewer: Is eligibility of biomass boilers in public building with public support (like the MSIF) already positively identified?

34 Project owner: Yes, the draft documents for a replication project using CDCF financing has been prepared and preliminarily approved by CDCF.

Reviewer: Would GEF sponsorship of a demo-phase have any influence on the eligibility of the projects for the CDM?

Project owner: No. If I understand the question. GEF has no interaction with CDM what’s so ever. These are implemented by different agencies. We again confirm that the demo sites included in the GEF will NOT be part of the CDM.

Reviewer: Please correct / clarify: - Calculation of three-year costs for baseline boilers, page 9 - Log frame: "Up to 10 demonstrations" is not a good target. Please, as a general rule, formulate minimum targets rather than maximum targets throughout the log frame!

Project owner: We changed the "Up to 10" to "at least 7 and up to 10" throughout the text. Again though, we do not want to focus the GEF on too many actual boiler installations. We will also try to identify the least expensive option for having boilers in Moldova, including possible production of some parts in the country.

Sustainability (including financial sustainability)

Reviewer: The fuel supply chain will be improved during the project so that the future cost of fuel may expected to be lower. Therefore, the operation of the demonstration plants should be ensured. A different question is whether there are sufficient financial resources available for potential maintenance problems etc.

Project owner: The Project will set up all of the below (info base, supply chain, and maintenance expertise). These are part of the technological barriers the project is trying to address. If the question is how the achievements would be sustained-- the answer is that the conversion to biomass is economically and financially justifiable and feasible. Thus, the economics of it will create and maintain the supporting industry. Do we really have to reflect these in the project document?

Reviewer: The public opinion is that agricultural wastes can only be used in small household stoves, even if agriculture accounts for 25 % of GDP.

Project owner: Yes, this is the public opinion -- but this is one of the problems (information barrier) we are trying to address.

Replicability

Reviewer: Please clarify the replication potential: is there a total of 30 suited public buildings in all of Moldavia (number from the technical annex and CDCF section)?

Project owner: No. This is a left-over from out conservative thinking. We are in the process of estimating the CDCF replication potential. It looks like within next 3 years, we can expect somewhere up to 100 biomass boilers under MSIF, we changed the number to 60 in the Brief. In addition, Swedish SIDA is showing some interest to replicate the biomass boilers (again, it all depends on whether our project is implemented efficiently and TIMELY!) - This would mean another 60-70- boilers. We all are very optimistic about other replication potential (by private enterprises), but do not want to just guess in

35 the project brief. The bottom line is that our studies have clearly demonstrated the potential and feasibility for biomass technology, now we have to convince others by showing.

Reviewer: The project entails a replication strategy for the boiler equipment based on Carbon Finance. See questions under "project design". Will Carbon Finance also be able to cover the increased investment needs for the baling equipment and straw supply chain? If not, there should be a separate replication/scale up strategy for the straw market.

Project owner: Yes, you are right -- the CF will not provide financial incentives for straw supply chain and bailing equipment. This will be done by market forces. We will set up initial supply chains under GEF to feed our demo-sites. We have credible partners (2KR Equipment Supply Program of Jap Government) which is eager to take on the initial supply chains and sustain them as needed. We will also work with these partners to develop contract forms, leasing instruments, and all other ingredients for making it easy for anyone who wants to enter this business of straw bale production, storage, and distribution. The business will be profitable (as it will be demonstrated under Project), so it is reasonable to assume that market forces will encourage emergence of such businesses. We do have preliminarily interested parties identified (medium/large farms).

Monitoring and Evaluation:

Reviewer: Please specify the time interval for reporting to GEF/World Bank. Even if MSPs do not have to submit PIRs, annual reporting to the GEF M&E / Sec would be good due to the specific constellation with carbon finance in this case.

Project owner: We mentioned semi-annual reporting in the revised Brief.

Reviewer: The monitoring and evaluation plan should include keeping track of the investment and operation plans for both, the GEF sponsored and the CDM sponsored installations, so as to ensure that the GEF sponsored plants will not sell CERs.

Project owner: Included in the revised Brief..

Financing Plan

Reviewer: The bulk of the community co financing goes to the fuel supply. The cost analysis shows that the biomass based fuel is lower-cost than the currently used fossil fuels. This means that the communities actually spend less money on fuels in the GEF case than in the baseline. The money saved over the project duration and some additional co financing should go into the project itself. Please clarify. In the baseline case (without straw and efficient boilers) the communities will have significant expenses for fuel. In the project case, the expenses for straw are probably lower than in the baseline case. This means that the municipalities save money. I would expect that they spend the same amount of money at least for one year or two on co financing the project, in order to share the cost of switching to a new system with the GEF.

Project owner: This comment was extremely helpful. We have reconsidered the incremental cost matrix in relation to the financing tables, and revised both in the latest Project Brief. The numbers in all tables now should correspond to issues correctly raised.

Reviewer: Consultation, Coordination, Collaboration between IAs, and IAs and EAs, if appropriate the project will support the NCSA efforts. Other potential links to ongoing efforts have been explored and will be utilized.

36 PART III – ANNEXES

ANNEX A: LOGICAL FRAMEWORK MATRIX

Project Objective Indicators M&E ƒ Installation and operation of biomass fuelled heating The main objective is to overcome barriers to the systems in public buildings in rural communities and update of biomass technologies by providing one demonstration unit within the Biomass Centre in examples of best practice (demonstration plants) in the Chisinau, with a total capacity of 3,000 kW in no less use of biomass fuelled energy systems as a viable then 7 installations; ƒ Semi-annual reporting, Progress reports; alternative to gas, oil and coal and as a sustainable Track of the investment and operation plans for both, means of addressing the energy supply problems ƒ 15% increase in awareness of rural population the GEF sponsored and the CDM sponsored facing rural communities and agro-enterprises. regarding renewable heating systems fueled by installations. Demonstration systems would be of a size, scale and biomass, as measured by stakeholders’ calculations, cost appropriate for wide replication in rural areas. including at least RISP, 2KR and MSIF projects ƒ Bank supervision; This would be supported by access to information, beneficiaries; technical support and a fund to cover the incremental ƒ Consultant reports. capital cost in installation of biomass-fuelled systems. ƒ 70-100 of rural businesses, households attending the boiler demonstration sites and 70-100 farmers attending the biomass supply demonstration farms.

ƒ Expected additional 60-80 communities switching to biomass heating systems, instead of existing coal one, after the GEF project is over.

Project Outcomes Indicators M&E a) Demonstration of social and economic benefits of (i) At least 30% lower fuel costs per unit of thermal renewable energy, including decreased operating energy generated for demonstration units; (ii) costs; Maintenance of service hours over the entire heating season (approx. 2,250 full load hours) in demo units; (iii) demonstration of operational efficiency of biomass boilers of 80% compared to less than 50% efficiency of existing coal boilers. ƒ Semi-annual reporting, Progress reports; Track of the investment and operation plans for both, a) Research for local enterprises to product and sell the GEF sponsored and the CDM sponsored b) Identification of least expensive „local solutions“ biomass system equipment on basis of western installations. for production of biomass systems; license. (boilers’ bodies and houses, chimneys, spare parts, pipes, etc.). ƒ Bank supervision; c) Encouraging development of straw bale market; (i) Increased incomes for agro-enterprises supplying the ƒ Consultant reports; straw biomass at $30 per ton is demonstrated; (iii) Providing up to 10 invitational grants for agro-enterprises ƒ Sector assessments presented. 37 which will cover < 40% of bailing equipment costs; (iv) Establishment of lease or lending mechanism for bailing equipment and accessories investments; (v) additional 10 agro-enterprises, but those participants in the project, engage in production, storage, and sale of straw bales by end of project;

(i) Annual emission reductions of 4258 tons of CO2e Improvement in global and local air quality as a result through greater efficiency and fuel switching from coal to of implementation of biomass demonstration systems straw biomass; (ii) higher portion of use of renewable with a total capacity of 3,000 kWh; energy sources;

b) Higher portion of use of, and interest in, renewable d) Increase in general awareness concerning the use energy sources; of alternative energy sources; Follow-on implementation of straw burning systems in e) Dissemination of straw technologies in rural areas other public buildings, private companies, organisations, in Moldova; etc.

Project activities to achieve outcomes Indicators M&E (including cost in US$): ƒ Semi-annual reporting, Progress reports; Component A: Biomass Energy Demonstration Track of the investment and operation plans for both, Units the GEF sponsored and the CDM sponsored GEF contribution: US$ 402 500 installations. Co-Financing: US$ 745 000 ƒ Bank supervision; The component objective is installation of demonstration sites in rural communities along with ƒ Consultant reports; the integrated and relevant support to new thermal ƒ Biomass system installations in 7-10 selected energy heating units, including provision of communities with an installed capacity of up to ƒ Sector assessments presented; equipment for installing a complete biomass heating 3000kW; systems on sites, training to the beneficiaries on ƒ Financial Monitoring Reports (FMR’s); maintenance, demonstration of systems’ operation to ƒ Satisfactory maintenance and operation of more than 500 potential future users. All the project demonstration sites over the project life. ƒ Procurement Report: Once a year beneficiaries would come up with their own (includes special procurement supervision for post- contributions in kind and cash at the level of 15% per review/audits); site. Pilot installations at demonstration sites: ƒ Annual external audit, provided by an A.1.: Technical Studies: Preparation of independent expert. technical documentation and specifications A.1.: Technical studies completed within 4 months for installation of demonstration sites, of project effectiveness; through stakeholder consultations;

A.2.: Installation of Demonstration Sites: 38 Supply and Installation of boiler plants on a turn key basis; A.2.: 7-10 demonstration sites installed, with total capacity of 3000Kw in 36 months of project A.3.: Training and Capacity Building for effectiveness; equipment maintenance and operation. A.3.: Demonstration unit staff is trained on Component B: Biomass production and fuel cycle maintenance and operation of installation; capacity support created for providing follow-up training in future GEF contribution: US$ 209 348 sites; by end of project. Co-Financing : US$ 909 338

The component objective is to assist farms in establishment of full biomass chain supply, which would contribute with their own land, labor and machinery, but also receive a partial grant support ƒ Demonstration sites supplied with sustainable from the project to motivate and compensate for the uninterrupted sources of biomass; new market start up risks, to transfigure biomass agricultural wastes, often lost, into a sustainable ƒ Annual reduction in straw flaring in fields (2070 market product and a suitable thermal energy raw tons of straw on 1000Ha). material:

B.1.: Technical Studies: preparation of technical specification for biomass bale production equipment purchase, and B.1. Technical Studies completed within 4 months adequate storage facility establishment. of project effectiveness;

B.2.: Financial Intermediation for Biomass Supply: provision of co-financing grants to enterprises willing to invest into B.2. 10 grants for bale equipment purchase biomass bale supply system (equipment and provided to biomass (straw, etc.) producers for storage facility). demonstration supply system establishment;

B.3.: Institutional Strengthening: TA and capacity building for all engaged stakeholders for developing a sustainable B.3. (i) TA for establishment of the supply system, biomass supply systems, including including long term supply contacts between contracting arrangements, technical agro-enterprises and boiler pilot sites, provided to specifications, quality insurance, training, demonstration sites; (ii) 70-100 agro-enterprises etc. trained on bases of experience of the 10 demonstration supply systems.

Component C: Public awareness, outreach and dissemination, information barriers removal GEF contribution: US$ 164 675 Co-Financing : US$ 0

39 The objective of the component is to provide a full range of measures, including an intensive information (i) 20 training programs delivered to stakeholder campaign throughout local mass-media, an important groups for visits to boiler demonstration sites; and number of regional and site workshops, seminars, biomass demonstration farms; (ii) Organization of panel discussions, a telephone “hot-line”, etc., in order 20 local seminars in rural areas; (iii) publication of to get a 15% increase in awareness of rural population, 1000 information booklets; (iv) participation in regarding usage of renewable energy and biomass in “Mold Expo” in year 3 of the project; (v) up to 20 the country. media campaigns.

Component D: Project Management, audit, monitoring and evaluation activities GEF contribution: US$ 196 397 Co-Financing : US$ 0

The component will provide support for day-to-day project management, including planning and division ƒ Satisfactory project implementation without of tasks, book-keeping, disbursement and reporting, major delays. procurement, budgeting and performance analysis; direct and indirect monitoring and evaluations of the process indicators and outcome indicators, including global and local impact of the project. This will also include the independent audit of the project accounts and financial reports:

D.1.: PIU Support to provide incremental funding to the PIU for project management. D.1.: Timely submission of reports to the Bank; D.2.: Monitoring and Evaluation to provide for timely procurement of contracts; satisfactory audit reports; timely information on the status of project implementation, impact on beneficiaries, and D.2.: Timely submission of monitoring and evaluation achievement of main objectives; also to allow for reports, including stakeholder consultations. corrections / changes to be introduced to implementation modalities, if needed.

40 ANNEX B: FINANCIAL MANAGEMENT ARRANGEMENTS

The financial management arrangements for the Project will be incorporated in the CAPMU financial management system in the similar way as other Projects administrated by CAPMU (RISP, APCP).

Financial management arrangements and project management unit

Project design assumes that project will be administrated by CAPMU (Consolidated Agricultural Project Management Unit – multi-project’s implementing agency) having a designated Project team for this particular Project, which means that all the functions of financial management, procurement, accounting, preparation of disbursement documents and other financial documents, financial reporting (FMRs preparations) will be done within the legal framework of CAPMU. There is no need to develop a full scope new financial management system and it is more effective to use experience and capacities of the current CAPMU taking in account that staff of that unit will work on the time and cost sharing bases with other projects that this unit implements.

Funds flow specifics of the project

Preliminary design of the project assumes participation of the different counterparts and donors that requires that all such finances have been accounted and properly reported to the Bank.

It is planned that project will use Special Account mechanism for the disbursement under the standard rules used for disbursement of funds for the WB-financed projects and such account will be opened in the local bank Moldova Agroindbank, which is considered as acceptable to the World Bank. The Government counterpart financing is to be disbursed through the Ministry of Finance procedures applied to the budget institutions. In kind contributions from the communities will be assessed and evaluated according to the procedures that should be developed for the project.

Financial management system

As the project financial management arrangements will be implemented by the CAPMU it will simplify the process of FM arrangements development. Above mentioned group has already been assessed and currently runs successfully 2 other projects. Specific work to be done by the CAPMU FM specialist for this particular Project includes: 1) development of the chart of accounts of the project capable to incorporate disbursement categories, project components and activities; 2) development of financial reporting formats (Financial monitoring reports); 3) incorporating all the arrangements in the accounting/FM/disbursement software used by CAPMU; 4) development of specific annex to the CAPMU financial management manual that should reflect major financial management arrangements of the project like budgeting, accounting, reporting, disbursement procedures, internal control design, audit arrangements, etc.

Disbursements

The Project will use the standard disbursement procedures applicable to the World Bank financed projects in accordance with Disbursement Handbook. The authorized allocation in the Special account will be limited to USD 200,000. The Statement of Expenditures (SOE) or Summary Sheet (SS) – based disbursements will be made for all Project expenditures. Summary sheet will be used for all consultants’ contracts estimated to cost more than $50,000 equivalent (prior review threshold). The disbursement applications will be submitted upon demand of funds for Project expenditures but at least every 6 months. The following table summarizes estimated costs and respective disbursements for the three years of the GEF project by expenditure category.

41 Total FY05 FY06 FY07 I. Goods $375,000 $145,000 $115,000 $115,000 II. Consultant Services & Training $314,175 $107,558 $105,808 $100,808 III. Matching Grants $150,000 $50,000 $50,000 $50,000 VII. Operating Costs $133,745 $44,581 $44,581 $44,581 TOTAL $972,920 $347,140 $315,390 $310,390

Audit arrangements

The project will be the subject for the annual external audit. This audit will be provided by the independent private auditor, acceptable to the WB in accordance with the terms of reference acceptable to the WB. The audited financial statements of the project should be provided during the 6 months period after the fiscal year end.

42 ANNEX C: PROCUREMENT

Procurement Responsibility. Implementation of the project requires procurement of goods, works and selection of consultant services from firms and individuals. CAPMU is staffed by an experienced procurement officer who will be responsible for carrying out procurement of goods, works and services, according to the Procurement Plan shown at table below.

Procurement Methods

Procurement of goods and works under the Grant will be conducted in accordance with the Bank’s guidelines “Procurement under IBRD Loans and IDA Credits” published on May 2004. The procurement of consultants will be conducted in accordance with the “Guidelines - Selection and Employment of Consultants by World Bank Borrowers” published on May 2004.

A detailed procurement plan and Procurement arrangements are given in table below.

Goods. Off the shelf goods, estimated to cost up to $50,000 equivalent per contract, will be procured through Shopping procedure, based on comparison of quotations obtained from at least three domestic suppliers.

Matching Grants. The project contains matching grants for Baling equipment delivery and Storage, handling and distribution for demonstration pilot, including finance for one year fuel supply with average amount $4,000 equivalent each with a limit amount of $5,000 equivalent. These matching grants will reimburse 40 percents of equipment cost for each beneficiary. Equipment will be procured and leased through Japan funded 2KR project.

Consulting Services. The grant contains a contract for consulting services for project audit, which will be selected based on Least Cost Selection (LCS) method together with other projects implemented by CAPMU.

Consultants Qualifications (CQ). Contracts for consultant services estimated to cost up to $100,000 equivalent per contract will be procured according to Consultants Qualifications method.

Individual Consultants (IC): The consulting services to be contracted to individual consultants will be procured on the basis of Individual Consultants in accordance with the Bank’s Consultants Guidelines. For the individual consultants to be hired for more than six months duration the positions will be advertised for expressions of interest in international and/or national media depending on the expertise required and selection will be based on comparison of qualifications of those expressing interest.

Single Source Selection (SS): The consulting services, which: (i) would be a natural continuation of previous work carried out by the firm; (ii) must be selected rapidly due to an emergency need; (iii) has an exceptional nature where only one firm is qualified or has experience of exceptional worth for the assignment; and (iv) is estimated to cost less than US$ 100,000, with the Bank’s prior agreement, will be done procured through SS in accordance with the Bank’s Consultants Guidelines.

Training/workshops. All training and workshops will be conducted according to semi-annual plans agreed with the Bank before implementation.

Operational Costs. The grant will finance operational costs such as operation and maintenance of staff salaries, vehicles, rent, and office equipment, insurance for equipment and vehicles procured under the project, office materials and utilities and communication expenditures required for the implementation of the project.

43 Prior review Thresholds • First shopping contracts for goods; • First three matching grants; • The audit contract; and all consultants’ contracts estimated to cost more than $50,000 equivalent; • All TOR’s for consultant services, irrespective of the estimated cost of the contracts, are subject to prior review. All contracts not subject of Bank’s prior review will be subject to ex-post review, on selective basis.

Procurement Records. The PIU will establish procedures to manage procurement and contract implementation in accordance with the Guidelines. Separate records and filing system by contract acceptable to the Bank will be established.

Project Cost table by procurement methods

Amount Method No. of Packages I. Goods Biomass boilers equipment for demonstration pilots $345,000 ICB 3 Transportation and outreach for demonstration sites $30,000 Shopping 1 Subtotal $375,000 II. Consultant Services & Training Biomass thermal energy production fuelled heating units LTA $27,000 Individual Several Biomass thermal energy production fuelled heating units FTA $24,500 Individual 1 Biomass production and fuel cycle support LTA $18,000 Individual Several Biomass production and fuel cycle support FTA $20,000 Individual 1 Workshops $30,000 TR/W Several Information dissemination $68,000 CQ/SS Several Training $37,500 TR/W Several Study & international conference $27,675 TR/W Several Impact assessments & identification surveys $27,000 CQ Several Audit $15,000 LCS 1 Subtotal $295,675 III. Matching Grants $136,848 N/A Several VII. Operating Costs PIU Operating Costs $42,941 IOC19 PIU Staff $123,456 IOC Subtotal $166,397 TOTAL $972,920

Overall Procurement Risk Assessment

Low Frequency of procurement supervision missions proposed: Once a year (includes special procurement supervision for post-review/audits)

19 Incremental Operating Cost will be agreed with the Bank on annual basis.

Note: ICB = International Competitive Bidding; CQ = Selection Based on Consultants Qualifications; SS – Single Source selection; TR/W – Training and Workshops, LCS – Least Cost Selection; IOC = Incremental Operating cost

44 ANNEX D: BUDGET BRAKEDOWN $USD ITEM Co- Total Cost GEF Share financing PDFA - Preparation of Feasibility studies 25 000 25 000 0 A. Biomass thermal energy heating units 1 147 500 402 500 745 000 Technical documentation and preparatory work 19 500 19 500 0 Energy scan for demonstration pilots 6 000 6 000 0 Biomass system assessment for demonstration pilots 4 500 4 500 0 Social assessment and community development for demonstration pilots 9 000 9 000 0 Training/Consultations 26 000 26 000 0 International technical assistant 20 000 20 000 0 Training at site 6 000 6 000 0 Demand-side efficiency support 712 000 12 000 700 000 Demonstration pilots development support (thermal energy units) 12 000 12 000 0 Energy efficiency measurements (10 years assumption) 700 000 0 700 000 Incremental costs of biomass boilers 345 000 345 000 0 O&M of Coal/Biomass Boilers 45 000 0 45 000 B. Biomass production and fuel cycle support 1 118 686 209 348 909 338 Technical documentation and preparatory work 18 000 18 000 0 Demonstration pilots fuel support (biomass fuel cycle) 6 000 6 000 0 Agricultural assessment 12 000 12 000 0 Fuel supply/Storage, handling and distribution of straw 956 186 46 848 909 338 Establishment of straw biomass fuel supply 144 500 144 500 0 Baling equipment delivery (matching grant) 90 000 90 000 0 Transportation and outreach for demonstration sites 30 000 30 000 0 International technical assistant 20 000 20 000 0 Training at site 4 500 4 500 0 C. Public awareness, outreach and dissemination, information barriers removal 164 675 164 675 0 Regional debates & panel discussions 15 000 15 000 0 Seminars/workshops 15 000 15 000 0 Information dissemination through ACSA and other extension agencies 15 000 15 000 0 Biomass center training room 9 000 9 000 0 Info campaign for households, regional media campaign 12 000 12 000 0 Advertising campaign - TV, radio 21 000 21 000 0 Advertising booklets 3 000 3 000 0 Biomass web page 2 000 2 000 0 Miss-perception & gaps identification surveys 12 000 12 000 0 Book preparation & publication 15 000 15 000 0 Teaching Contract (professional lessons at sites) 9 000 9 000 0 School/children training 9 000 9 000 0 Capacity building through international experience 27 675 27 675 0 D. Project Management, audit, monitoring and evaluation activities 196 397 196 397 0 Personnel 123 456 123 456 0 Office maintains & communication 6 000 6 000 0 O&M on Equipment 1 800 1 800 0 Transport maintenance 32 400 32 400 0 Consumables & Miscellaneous 2 741 2 741 0 Annual audit 15 000 15 000 0 Annual impact assessment 15 000 15 000 0 Total 2 652 258 997 920 1 654 338

45 ANNEX E: SUMMARY OF ASSESSMENTS CARRIED OUT UNDER PDF A ACTIVITIES

Approach

The method of selection of rural communities and the consequent identification of social buildings, sources of biomass fuel supply, technical specifications and environmental monitoring has been based upon a series of assessments. Social – capacity of communities Agricultural – capacity of enterprises to supply the biomass fuel Energy scanning – condition and energy demand of the social buildings Environmental – emissions abatement and environmental management plan Technical – systems specification and operating characteristics

The primary means of rural community selection for involvement with the project is through the procedures, methods and experience of the Moldova Social Investment Fund. The consequent assessments serve to define the methods and systems of sourcing biomass fuels on a reliable long-term basis and the specification of thermal energy systems that are appropriate to local conditions and which have a high operating efficiency with a consequent positive impact in terms of efficiency and emission reductions, estimated at 90% in relation to the most common biomass-Coal fuel switch that will be taking place.

The assessments have identified 30 communities that are suitable candidates for biomass based heating systems. The average heat demand at each location is approximately 200kWth. The overall objective is to establish up to 10 demonstration sites over an implementation period of 3 years, with an installed capacity of 3,200kWth. The detailed assessments carried out within the PDFA focus on the first 6 demonstration sites for implementation during year 1 of the project, these initial sites having an assessed capacity of 1215kWth.

Summary of the social assessment methodology

The social assessment was undertaken through the Moldova Social Investment Fund (MSIF), set up to improve the living conditions of the poor rural populations. Immediate objectives are to improve the quality of basic social and economic services and to empower rural communities by strengthening their capacity to make decisions, organize, and manage. The MSIF has detailed knowledge of rural community performance and capacities as a result of completed social infrastructure projects.

The methodology of community selection was based upon the identification of 30 rural villages drawn from the database of communities that have successfully collaborated in social development programs. This track record serves as an indicator of the innovational and organizational capacity of the communities, which will be required to successfully implement a demonstration project and also have the capacity to promote replication in surrounding communities. In order to identify 30 rural villages and from these to select the initial demonstration sites a social evaluation was undertaken of all communities that have collaborated with MSIF and that have achieved a high performances evaluation.

The methodology for selecting these communities was based upon an analysis of: • Literature and outcomes of research on the use of renewable energy • The National gasification program to 2005 • Community projects implemented under the MSIF • Monitoring and evaluation of project impact on community development in 280 villages • MSIF impact assessment on community beneficiaries • Agricultural enterprises with the potential to supply biomass fuels (information supplied through the agricultural assessment)

46 Based upon this approach the selection of rural communities was carried out in stages: • Selection of districts was based upon those with limited access to the natural gas network in the period to 2010, which identified 13 administrative regions. • Selection of 30 potential beneficiary communities from these regions based on the following indicators: • Track record of community development • Communities that have implemented MSIF projects other than gas projects • Stable and well managed local agricultural arable enterprises • Public buildings suited to act as demonstration sites • Identification of 10 communities for detailed analysis, drawn from different geographic regions, though weighted to the north, regions having the least access to natural gas. • Selection of 5 pilot communities for initial implementation of alternative heating systems

Consequently evaluations were made concerning various indicators: • Physical condition of social infrastructure buildings in the communities and the technical potential for project implementation • Community attitudes to change • Organizational skills of the community leaders • Abilities of community leader to promote experiences to other communities. • Based on the evaluation of the indicators above, 10 rural village communities were selected as top ranked (maximum score 500), with the first 5 prioritized as initial pilot demonstration sites:

No Community Region Score Rank 9 Selected for first demonstration sites Max 500 1 Ciscareni 9 Singerei 490 1= 2 Taraclia 9 Causeni 490 1= 3 Boghenii Noi 9 Ungheni 480 2 4 Antoneshti 9 Stefan Voda 470 3 5 Limbenii Noi 9 Glodeni 445 4 6 Ursoaia Causeni 440 5 7 Vasilcau Soroca 435 6 8 Navirnets Falesti 405 7 9 Boghiceni Hincesti 265 8 10 Recea Riscani 225 9

Summary of the agricultural assessment methodology

The agricultural assessment was undertaken through the 2KR (agricultural mechanization fund) and the Union of Agricultural Producers (UAP), which have detailed knowledge of private agricultural enterprises competence as agricultural producers and managers.

The objective of the assessment was to identify agricultural enterprises that could reliably enter into long term supply arrangements for biomass (wheat straw) fuel supply to local communities implementing biomass fuelled systems for heating selected public buildings. The following criteria for the selection of agricultural enterprises were formulated in consultation with stakeholders:

• Located in one of the administrative regions without access to natural gas • Arable land area of over 700Ha under single management.

47 • Availability of modern agricultural equipment • Record of stable production • Stable crop rotation and good management practice • Record of good financial management

Candidate enterprises were drawn from 623 enterprises, members of the UAP. Enterprises were cross referenced to the database of the 2KR Project, which contains information concerning agricultural mechanization and lease transactions. A total of 192 enterprises located in the gas free regions were selected from which 30 were identified as best meeting the remaining selection criteria based upon the selection criteria. These enterprises were further examined, leading to a detailed ranking of all the enterprises. Based upon this assessment the 10 best agricultural enterprises in the target regions were identified.

No Enterprise name Region, Village Area Ha Score Max 60 Rank 1 LTD “Logafat Prim” Falesti, Navirnet 1871 60 1 2 CA “Glia” Cantemir, Pleseni 2573 55 2 3 LTD “ Danulischii” Glodeni, Danul 2800 53 3= 4 LTD “Bogatmos” Causeni, Taraclia 2500 53 3= 5 LTD “Valea Plopilor” Leova, Tochile Raducani 1300 53 3= 6 LTD “Focaro Agro” Stefan Voda, Copceac 3700 53 3= 7 SA “Nistru Olanesti” Stefan Voda, Olanesti 2229 49 4 8 LTD “Prietenia Agro” Soroca, Slobozia Cremene 2880 45 5 9 LTD “Rosiorii Lux” Singerei, Chiscareni 2145 43 6= 10 GAS “Fintina Rece” Riscani, Recea 1950 43 6= 23948

In some cases the agricultural enterprise farming land around the community was judged not suitable to reliably enter into a long term arrangement for biomass supply. In these cases the nearest enterprise (within a 20km radius) was identified. This arrangement would not exclude the contracted enterprise sourcing straw from the immediate locality.

Summary of the energy scanning assessment methodology

The energy scanning assessment was undertaken through the MSIF, which has implemented many energy efficiency and heating system projects within social buildings.

The scanning assessment was undertaken in relation to the 10 villages selected for in-depth social evaluation and accordingly ranked. The energy scan reviewed the physical and operating conditions in the selected social building in the 5 top ranked communities. In addition to these 5 demonstrative rural pilot sites an energy scan was undertaken at the greenhouse of company Ecoplantera, Chisinau.

The energy evaluation of demonstrative pilot objects and sites was done in following several stages: • Elaboration of the selection methodology and energy evaluation • Desk evaluation of 10 communities identified during the social evaluation stage and selection of 5 pilot demonstrative objects for an in-depth field energy evaluation • In-depth field study of the thermal and technical aspects of 5 pilot demonstration buildings, plus the Ecoplantera greenhouse in Chisinau • Preliminary estimation of the required capacity of heating systems • Evaluation of investment cost-efficiency • Elaboration of conclusions and recommendations - technical, economic and legal

48 • This selection relates to the first group of social buildings to be used as demonstration sites. It is expected that a further 10 social buildings will be included in years 2 and 3 of the project, to take the total installed capacity of all demonstration sites to approximately 3,000kWth.

Social buildings assessed

N District Location Objects Score Rank Capacity Max 300 1. Singerei9 Ciscareni Theoretical lyceum 300 1 400kW 2. Glodeni9 Limbenii Noi Community center 255 5 40kW 3. Ungheni9 Boghenii Noi Administration office 275 =3 25kW 4. Hincesti Boghiceni School N/A 8 Excl. 5. Falesti Navirnets Kindergarten N/A 9 Excl. 6. StefanVoda9 Antoneshti School 275 =3 300kW 7. Causeni Ursoaia School N/A =6 Excl. 8. Causeni9 Taraclia School 290 2 400kW 9. Soroca Vasilcau Administration office N/A =6 Excl. 10. Ecoplantera209 Chisinau Exhibition greenhouse 50kW Total 1215kW

In selecting the most appropriate demonstrative sites various indicators and sub-indicators were utilized regarding the condition of: • Roof • External walls • Windows • External doors • Boiler house • Internal heat distribution system, and • Availability of weatherproof fuel storage close to the building

Summary of the environmental assessment and simple management plan

The assessment was undertaken by the Biotica Ecological Society, an NGO founded in 1993, which has received public benefit status. Biotica main areas of activity are Biodiversity Conservation, Development of «third sector» and Environmental Law and Policy. Currently under management is the ‘Biodiversity Conservation in the Lower Dniester Delta Ecosystem’, a project supported by GEF and implemented under supervision of the World Bank.

The environmental assessment covered a. Overview of the project b. Environmental and social country baseline c. Legal baseline for the Project d. Examination of alternatives e. Analysis of project Impacts f. Simple Management Plant to diminish and prevent probable impacts of the Biomass Project.

20 The Ecoplantera exhibition greenhouse is sited within a plant propagation and agricultural machinery delivery and maintenance complex in Chisinau. It is a high visibility site in open view to many visiting farmers and delegations.

49 The conclusions of the assessment were that the Biomass Project will result in a triple environmental benefit, by: i.) Diminishing the carbon release that takes place from the use of any fossil fuels; ii.) Decreasing air pollution by both reducing the field burning of unwanted biomass (straw) reducing consequent soil damage; iii.) Reducing soil and water pollution as a result of fuel switching from biomass from coal; iv) Emission reduction calculations based on a planned installed capacity of 3000 kWh and an energy use of 24,30 TJ over a heating season of 2,250 hours (tons):

Type of fuel Emissions reduction Emission Coal Straw kg/year % 28.3 2.9 25.4 90 SO2 8.4 6.5 1.9 23 NO x 40.2 1.1 39.1 97 C H x y 225.3 45.4 180 80 CO

13.7 2.3 11.4 83 Particulates

0 4108.9 CO 4.108 2

The conclusion is that the demonstration sites will stimulate the use of renewable energy (biomass) biomass technology as it is probable that there will be wide support from local public authorities. A Simple Management Plan outlines measures to diminish and prevent probable impacts of the Biomass Project and includes an Impacts Monitoring Plan.

The Inter-Agency and Public/NGO Consultation Process concludes that the Biomass Project will primarily impact on the local public authorities, which have the main responsibility for the operation of public buildings. Indirect impact will relate to the Ministry of Education, local health and environmental authorities, regional departments of the Ministry of Agriculture and Food Industry and local agricultural producers.

Summary of the technical assessment

The technical assessment was undertaken by the Scientific Engineering Center - Biomass Ltd (SECB), Kiev, Ukraine. The SECB was registered in 1998 working in sector of energy production from biomass. The company mission is to render high-quality consultancy in the field of energy production from biomass and to promote production, marketing and sale of bio-energy equipment.

The technical assessment covers: • Overview of straw based biomass heating projects in the Ukraine – lessons learnt • Recommendations for systems components for potential straw fired heating systems with budget estimations • Manufacturers able to supply and support biomass systems suited to the social, economic and technical conditions of Moldova • Estimation of GHG emission in straw fired heat supply systems • Recommendations as to establishment of a “Biomass Center” in Moldova • Conclusions

50 As follows from energy assessment all buildings are constructed according to Soviet period standards for heat resistance of walls and windows. The social objects selected for assessment have been subject to building improvements upgrading their thermal efficiency (upgraded roofs, external windows and doors). This decreases heat loses and hence considerably decrease required heat output of boilers and their capacity and price.

The source fuel, straw, requires relative to gas or coal, quite expensive straw fired boilers and auxiliary equipment. The smaller the boiler the higher the price per unit of energy produced. The recommendation is thus to install single boilers with a capacity equal to the calculated requirement. The capacity of straw fired boiler should cover the base heat demand with any peaks covered by existing reserve coal fired boilers.

In selecting straw fired boilers preference should be given for boilers using large bales as they provide greater flexibility in choosing suppliers of baled straw in differing size modules (from 11Kg to 500Kg), as a rule the larger the bale the smaller the relative price. Conditions regarding equipment application, servicing, and labor quality are quite similar in Moldova and the Ukraine. The Ukrainian experience indicates a need for suitable and robust equipment stable that will stand improper operation and fuel straw with considerable deviation in the dimensions of bales, elevated humidity of straw and soiling of straw, which may content rocks and wire. These factors exclude the utilization of efficient but very sensitive boilers with straw bale shredding. Electricity supply in rural area often is unreliable, limiting the utilization of boilers with forced circulation of water through boiler. This determines the choice of boilers with batch straw bale combustion as appropriate for consideration in tendering for equipment delivery to Moldova.

There is also the availability of straw boilers, produced under license in the Ukraine, based upon proven Danish technology, available at less than 50% of the price of equivalent sized boilers produced in Western Europe.

51 ANNEX F: ENVIRONMENTAL MANAGEMENT PLAN

1.1. Impact Mitigation Measures

Foolproof removal and temporal storage of straw ashes would decrease probable danger of dust pollution in settlements.

Planting of greenery on the “Ecoplantera” area would be appropriate in order to compensate some increase of flying pollutants due to substitution of gas-burning by straw-burning heating system.

Removal of straw from fields causes loss of potential soil organic matter (despite usually nobody plough straw in soil) and takes away such nutritive elements as phosphorus, potassium, magnesium and removal of calcium may change sometimes PH of soil. The problem may be solved through use of ash for fertilizing and applying of other fertilizers. Additional expenses for that may be assessed as 7 UDS per one tone of straw and not exceed 10 % of straw cost.

Problem of straw storage may be mitigated through contracts for gradual supply by straw using small depot to provide stability of supply.

1.2. Impacts Monitoring Plan

It is necessary to establish regular monitoring of straw combustion efficiency (not less than 80%) to control exceeding the normative emissions and support economical efficiency.

Control of planting of greenery in the “Ecoplantera” area has to be done (fact of planting, effective ratio of live plants to the end of spring, safety of plantation) targeting to soften some increase of CO and other pollution.

That is a measure to exclude damage of human health to control regularly (i) sanitary state of heating-house, (ii) equipment and (iii) safety measures for heating-house personnel. The last matter is directed to avoid damage of their health from dust of straw trash because of cellulose inhalation-connected diseases and probable allergy.

It is very important to control strongly state of indoor temporal ash-straw depot and to prevent formation of straw-ash depot outdoor that would cause air, soil and water pollution.

1.3. Recommendations

To assess engineering state of heating-house building in Chiscareni Village and provide necessary measures if necessary taking into account 7-point earthquake zone of the village.

To organize mutually beneficial and correct system of applying the straw-ash fertilizers accompanied as possible with organic fertilizing; to take measures for beneficial selling of straw-ash with normative benefit- sharing to support soil fecundity in involved territories.

1.4. Inter-Agency and Public/NGO Consultation Process

Biomass Project does not create wide effects for state agencies. Local public authorities that bring main responsibility for operation of social objects are the main real stakeholders.

52 At the same time there such social objects as kindergartens, primary and secondary schools are subordinated to district sections of the Ministry of Education. Informing of relevant officials would have supportive meaning instead of possible negative demonstrations I case of ignoring. The same may be said concerning local health and environmental authorities; interaction with local sections of the Ministry of Agriculture and food Production could help additionally with establishing stable cooperation with local agricultural producers.

Being in spirit of legislation the simple information about project in implementation localities would substitute public consultation process; it may be done through local authorities and NGOs if they exist.

Table 1. Environmental Management Plan for Moldova Biomass Project: Environmental Impacts

Issues Anticipated/Potential Effects on Environment Actions or Mitigation Measures Environmental Impacts

Control of i) Quantity of released emissions i) Air quality will be preserved i) Control of combustion efficiency using normative from heating-houses will by avoiding the over-normative the engineering control of installations for emissions decreased and air pollution emissions. burning. through prevented as possible ii) Additional air pollution from ii) Monitoring of quality of straw fuel efficiency use of additional organic fuel using for burning. will be avoided. Foolproof i) Outdoor air and water pollution i) Removal of risks to decrease i) Engineering control of hatches and removal and from produced bottom-ash dust of environmental benefits from other devices for bottom-ash removal in temporal burnt straw will be prevented. removal of straw burning in heating-houses. storage of ii) Indoor air pollution from the field ii) Engineering control of boxes for straw ashes produced bottom-ash dust of burnt ii) Declining the risk to pollute temporal storage of ash. straw and related risks for indoor air and damage health iii) Develop and implement a practical personnel will be diminished. of personnel that would manual for engineering control of diminish benefits from bottom-ashes. Probability of occurrence: removal of coal burning. iv) Sanitary control of state of heating- Moderate houses. iv) Create responsibility control for foolproof removal of bottom ash from heating system and ash circulation in the temporal indoor ash-deposit. Compensate i) Diminution of impacts from air i) Compensation/ recovery of i) Planting of greenery* in the release of pollution due to substitution of gas some increased emission “Ecoplantera” area would be appropriate pollutants in heating system by straw-burning factors will improve air quality in order to compensate some increase of the “Eco- one will be done. around the heating-house and flying pollutants. plantera” contribute to biological area Probability of occurrence: High purification of air in locality. Nutritive i) Soil quality will be improved Better productive lands with i) Organise a system of use of straw-ash- elements of through use of bottom-ashes of increased organic matter, based and organic fertilizers in areas of soil burnt straw as fertiliser. reduce humus and soil loss. stoking the straw fuel. ii) Applying the benefit-sharing system in Probability of occurrence: High framework of commercial selling of straw-ash-based fertilizers. *Rapidly-growing pyramidal poplar should be used as main absorber of pollutants, being accompanied by shrubs and other trees.

53 Table 2. Environmental Management Plan for Moldova Biomass Project: Mitigation Plan

Issue Mitigating Cost Institutional Comments measure Responsibility (e.g. secondary impacts) Phase Install Operate Install/Operate Installation Compensate Planting of Included in the PIU, board of Also supervised by the release of greenery in the project “Ecoplantera” Chisinau Territorial pollutants in the “Ecoplantera” area Ecological agency. “Ecoplantera” area Installation Nutritive elements Organise a system Included in the PIU, local Supervised by district of soil of use of straw-ash- project authorities authorities based and organic fertilizers in areas of stoking the straw fuel Operation (on-going) Applying the Included in the PIU, local Supervised by district benefit-sharing project authorities authorities in system in (developing cooperation with local framework of system of NGOs (as possible) commercial selling benefit- of straw-ash-based sharing) fertilizers. Operation (on-going) Control of Control of Included in the Provided by Also supervised by normative combustion project engineering Territorial Ecological emissions efficiency (periodic staff agencies. through inspections). efficiency standards Installation Foolproof Develop and Included in the PIU The instructing is removal and implement a project included in education temporal storage practical manual of engineering staff of straw ashes for engineering control of bottom- Operation (start) ashes. Included in the PIU, district In contact with local Create project authorities public organisations responsibility control for foolproof removal of bottom ash from heating system and ash circulation in the temporal Operation (on-going) indoor ash-deposit. Operation cost Provided by Also supervised by Engineering engineering Local Territorial control of hatches staff Ecological Agencies and other devices (LTEA) for bottom-ash removal and boxes for temporal storage of ash. Decommissioning ·N/A

54 Table 3. Environmental Management Plan for Moldova Biomass Project: Monitoring Plan

The parameters Cost Responsibility Phase What Where How When Why Install Operate is to be is it to be is it to be is it to be is it to be Install monitored? monitored? monitored/ monitored- monitored type of frequency of (optional)? monitoring measurement equipment? or continuous? Baseline N/A Installation Planting of “Ecoplantera” Inspection of During To ensure local Incl. in PIU, greenery in and adjacent planting fact installation air purification project “Ecoplantera” the area and efficiency, and after board “Ecoplantera” and safety of area plantation Operation Quality of Deposits of Gravimetric When To control Incl. in PIU, local straw fuel straw and visual purchase and over-normative project. engineering staff using for methods in critical emissions of burning. periods of combustion storage Operation Combustion Burning Engineering Monthly? To control Opera- Local efficiency equipment control over-normative tion engineering staff emissions costs Operation State of Heating-houses Engineering Seasonally To prevent use Opera- Local devices for control of damaged tion engineering bottom-ash devices and costs staff, LTEA removal and connected temporal pollution storage Operation Outdoor Localities Inspection of At random To prevent air/ Opera- PIU, LTEA deposits of presence/ mode water pollution tion bottom-ashes absence and costs inappropriate use of potential fertilisers Operation Sanitary state; Heating-houses Inspection Seasonally and To avoid Incl. in Local bodies of safety (dust in air, etc) using the at random damage health project preventive measures for sanitary mode of personnel opera- medicine heating-house standards from dust of tion personnel straw trash costs Operation Applying the At sites Control of At random To avoid loss Incl. in PIU, Local benefit-sharing contracts for mode of nutrients in project authorities, system fuel supply soils and NGOs support sustainable use Decommission N/A

2. List of References

Anuarul statistic al Republicii Moldova, 2003. Chisinau. Statistica. 2003. 704 p. [In Romanian and Russian]. Agroclimatic resources of the Moldovan SSR. Leningrad. Gidrometizdat. 1982. 198 c. [In Russian]

55 BWA: Energiebericht 1996. http://www.vms.at/8/Modul8_4.htm Centre for Biomass Technology (CBT). Straw for energy production: technology, environment, economy (2nd Edition). Danish Energy Agency, Copenhagan, Denmark. 1998. Duca Gh., Stoleru I., Teleuta A. Starea factorilor de mediu din Republica Moldova. Min. Ecologiei, Constructiilor si Dezvoltarii Teritoriului al Rep. Moldova. Banca Mondiala. Inspectoratul Ecologic de Stat. ONG “Ecospectru’. Chisinau. Grafema-Libris. 2003. 79 p. [In Romanian]. Energy and Environment Basics. FAO. Regional Wood Energy Development Programme in Asia GCP/RAS/154/NET. Bangkok, 1997. 85 p. Energy, work. Interactive calculator. http://www.convert-me.com/ru/convert/energy. Geletukh G.G., Zheleznaia T.A. Review of technologies of straw burning aiming at production of heat and electro energy. Ecotechnology and resource economy. 1998. 6. P. 3-11. [In Russian]. Kalvert C., Inglund G., ed. Atmosphere protection from industrial pollutions. Moscow. Metallurghia. 1988. [In Russian]. Krupennikov I.A. Soil cover of Moldova: the past, the present, management and prognosis. [In Russian.] Kishinev. Shtiintsa. 1992. 265 c. International Centre of Energy Efficient Technologies http://www.cenef.kiev.ua. Legislatia Moldovei. http://www.docs.md. Martinov M., Schulze Lammers P., Bux M. Energy efficiency and agricultural engineering concept of university course on energy in agriculture. EE&AE’2002 – International Scientific Conference – 04- 06.04.2002, Rousse, Bulgaria. 2002. Nielsen, V., 1999. Delivery of straw for energy purposes (In Danish with English summary). Grøn Viden No. 214. Arable Farming. Danish Institute of Agricultural Sciences. Nielsen V., 2001. Baling and collection of straw. Labor requirement and capacity (in Danish). Grøn Viden No. 245. Plant Production. Danish Institute of Agricultural Sciences. 6 p. Nielsen, V., Kristensen, E.F., 1998. Energy grain as big bales: Harvesting and handling (In Danish with English summary). DIAS Report No. 4. Arable Farming. Danish Institute of Agricultural Sciences. Nielsen, V. & Mortensen, H., 2001. Baling of straw into round bales or mini-big bales. Techniques, labor requirement and capacity (in Danish with English summary). DIAS report No. 57. Plant Production. 33 p. Newman R. A trial burn of rape straw and whole crops harvested for energy use to assess efficiency implications. B/U1/00768/00/00. URN 03/1569. Crown copyright 2003. Portal für Enerdiesparen und Erneuerbare Energien. http://www.thema-energie.de. 1. Starea mediului ambiant in Republica Moldova. Chisinau. Editura AGEPI. 1999. 136 p. [In Romanian]. 2. Starea mediului in Republica Moldova in anul 2002 (Raport national). Tnst. Nat. de Ecologie. Chisinau. Mediul Ambiant. 2003. 144 p. [In Romanian]. 3. Straw for Energy Production, Technology-Environment-Economy, The Centre for Biomass Technology, 1998. 4. Zabel M. (1990). Utilization of agricultural raw material as an energy source - a case study of the alcohol industry in Sao Paulo State, Brazil. In: A.A.M. Sayigh (ed.) Energy and the Environment into the 1990s. Proceedings of the 1st World Renewable Energy Congress (Oxford, Pergamon Press) vol. 3, pp. 1892- 1896.Zong, W.I. (1989).

56 ANNEX G: DISTRIBUTION OF STRAW-PRODUCTIVE CEREALS IN MOLDOVA

In order to imagine mutual role of different crops in their present distribution the general sown shares of different crops in 2004 is cited below21.

Main cereals producing the straw: winter wheat – 214077 ha (26.3% of sown area) and spring barley – 53781 ha (6.7%), together – 43% of sown area (area of spring wheat is too little to be considered); grain corn – 178514 ha (21.9%); sunflowers – 180560 ha (22.2%); sugar beet – 30386 ha (3.7%); leguminous plants – 14482 ha (1.8%); legumes – 10386 ha (1.3%); tobacco – 5370 ha (0.7%); potatoes – 2436 ha (0.3%); forage crops – 35607 ha (4.4%). Areas of vineyards and fruit-berry plantations are about 152000 and 120000 ha (data for 2002).

That figures clearly show that only areas of cereals and sunflower may significantly influence upon mutual distribution besides grazing areas (about 12% of lands of agricultural destination) and perennial plantings which areas are relatively stable from year to year after sufficient decline of 1992-2001. Hence, tables 1 and 2 are enough significant. Table 1 demonstrates the last areas under the winter wheat. Table 1. Distribution of winter wheat areas in districts and Agro-climatic Zones in 2004, ha. Northern Zone Area Central Zone Area Southern Zone Area Mun. Balti 123 Anenii Noi (1/2) 3082,5 Anenii Noi (1/2) 3082,5 Briceni 4152 Causeni (1/2) 3927 Causeni (1/2) 3927 Donduseni 5814 Criuleni (1/2) 1874 Criuleni (1/2) 1874 Drochia 12420 Leova (1/2) 1456,5 Leova (1/2) 1456,5 Edinet 6304 Calarasi 399 Basarabeasca 3000 Floresti 10316 Falesti 9882 Cahul 10584 Ocnita 4293 Hincesti 6340 Cantemir 4940 Glodeni (1/3) 2614 Glodeni (2/3) 5227 Cimislia 8585 Rezina (1/2) 1684,5 Rezina (1/2) 1684,5 Dubasari 1710 Singerei (1/2) 4715,5 Singerei (1/2) 4715,5 Stefan Voda 12339 Telenesti (1/3) 1133 Telenesti (2/3) 2266 Taraclia 8923 Riscani 9282 Ialoveni 3919 UTA Gagausia 22128 Soroca 7667 Nisporeni 498 Soldanesti 2781 Orhei 5137 Straseni 1188 Ungheni 6129 Mun. Chisinau 1604 Total in zone 73299 59329 82549 However 2004 is not so indicative year because drastic drought of extreme low yield of cereals caused three factors affected on these figures: some owners had intention to increase own provision by grain; some owners were influenced by common trend of undeveloped market to increase automatically the lately deficit production; some actors lost economical positions and passed to “poor agriculture”. As the result average

21 All of crop areas are calculated for peasant farms and different kind enterprises of 10 ha and more.

57 growth of winter wheat areas from 2003 to 2004 is 152.2% for Moldova and fluctuates from minus10.9% up to plus 1059.3% (without extremes)! The Table itself shows old trend in wheat distribution in main agro- climatic regions despite distances are not too large in total.

Table 2 demonstrates rectified data and selects clearly “wheat district”. It is interesting that done procedure changed leadership between Southern and Northern Zones and relatively increased a lag of the Central Zone. Table 2 Sown areas of winter wheat in selected districts where the area is more than 4000 ha and growth-2004 of the area less than 150%. Northern Zone Area Central Zone Area Southern Zone Area Briceni 4152 Falesti 9882 Cahul 10584 Drochia 12420 Hincesti 6340 Cantemir 4940 Floresti 10316 Ungheni 6129 Taraclia 8923 Glodeni (1/3) 2614 Glodeni (2/3) 5227 UTA Gagausia 22128 Singerei (1/2) 4715,5 Singerei (1/2) 4715,5 Riscani 9282 Soroca 7667 Total in zone 51166,5 32293,5 46575 Note: Leading “wheat districts” of Moldova are marked by bold. Next pare of Tables 3 and 4 makes the same data on spring barley. Table 3. Distribution of spring barley areas by agro-climatic zones in 2004. Northern Zone Area Central Zone Area Southern Zone Area Mun. Balti 0 Anenii Noi 1525,5 Anenii Noi (1/2) 1525,5 (1/2*) Briceni 2604 Causeni (1/2) 1154 Causeni (1/2) 1154 Donduseni 2592 Criuleni (1/2) 205,5 Criuleni (1/2) 207,5 Drochia 2729 Leova (1/2) 936 Leova (1/2) 936 Edinet 2922 Calarasi 86 Basarabeasca 464 Floresti 3130 Falesti 1452 Cahul 2185 Ocnita 2491 Hincesti 1213 Cantemir 1127 Glodeni (1/3) 483,3 Glodeni (2/3) 967,7 Cimislia 1473 Rezina (1/2) 304,5 Rezina (1/2) 304,5 Dubasari 895 Singerei (1/2) 819 Singerei (1/2) 819 Stefan Voda 4043 Telenesti (1/3) 213,3 Telenesti (2/3) 424,7 Taraclia 1219 Riscani 1954 Ialoveni 817 UTA Gagausia 5129 Soroca 3613 Nisporeni 100 Soldanesti 633 Orhei 729 Straseni 176 Ungheni 565 Mun. Chisinau 818 Total in zone 24488,1 12292,9 20358

58 Clear leaders in barley production (about 2000 and more hectares are: in Northern Zone – Briceni, Donduseni, Drochia, Edinet, Floresti, Ocnita and Riscani; in Central Zone –Anenii Noi and Falesti are not so far from leaders; Southern Zone – Cahul. Superleaders (more than 3500 ha) are Soroca on north, Stefan Voda and Gagauzia. In distinguishing from wheat surfaces of barley are mainly stable: 106% of 2003 in 2004, with fluctuations from 66 up to 234%, mainly between 80 and 126%. Table 4 exposes data on areas of straw- producing cereals in sum.

Table 4. Distribution of winter wheat and spring barley areas by agro-climatic zones in 2004. Northern Zone Area Central Zone Area Southern Zone Area Mun. Balti 123 Anenii Noi (1/2) 4608 Anenii Noi (1/2) 4608 Briceni 6756 Causeni (1/2) 5081 Causeni (1/2) 5081 Donduseni 8406 Criuleni (1/2) 2079 Criuleni (1/2) 2081,5 Drochia 15149 Leova (1/2) 2392 Leova (1/2) 2392,5 Edinet 9226 Calarasi 485 Basarabeasca 3464 Floresti 13446 Falesti 11334 Cahul 12769 Ocnita 6784 Hincesti 7553 Cantemir 6067 Glodeni (1/3) 3097 Glodeni (2/3) 6195 Cimislia 10058 Rezina (1/2) 1989 Rezina (1/2) 1989 Dubasari 2605 Singerei (1/2) 5534 Singerei (1/2) 5535 Stefan Voda 16382 Telenesti (1/3) 1346 Telenesti (2/3) 2691 Taraclia 10142 Riscani 11236 Ialoveni 4736 UTA Gagausia 27257 Soroca 11280 Nisporeni 598 Soldanesti 3414 Orhei 5866 Straseni 1364 Ungheni 6694 Mun. Chisinau 2422 Total in zone 97787,1 71621,9 102907 Note: Leading “straw districts” (more than 10000 ha) of Moldova are marked by bold, the nearest ones (more than 5000 ha) – by italic bold.

Foreseen climate change and influence upon agro-ecological milieu22. Accelerating climate changes in the World are quite known for today.

Main warming is expected for winter when average temperate may increase for 60% to 2020 and up to 2 times to the end of century and in summer correspondingly for 10 and 25%. At the same time precipitation will increase equally for 6 and about 25% for winter, but with 20-30% decrease for summer. Duration of period of average temperatures 0° may increase to 2020 for 2-3 weeks and to the century end for 2 months if the pessimistic scenario of Moldova’s climate change (S-1) is true and in case of optimistic scenario (S-2) up to 1.5 months. Thus very visible changes will take place as early as in 15 years.

22 Extracts from: Moldova’s climate in XXI century: the projections of changes, impacts, and responses. Corobov R. (ed.) Chisinau, 2004. 315 p.

59 Conform to S-2 plant vegetation will be under arid (drought-effected) conditions but due S-1 the vegetation will be in conditions of slight drought in almost all Moldova besides Codrii and small the most northern territory to 2080. Zone of ecological optimum will shift towards north-east in case of S-2, but disappear in Moldova in case S-1.

These changes mean that winter cereals may become vulnerable for difficult environment during the whole ontogenesis especially in the Southern and Central Zones. Disadvantages could be diminished owing to changes of distribution of sorts, adaptation and selection but cannot be compensated for the Southern Zone where decrease of yield will reach 10-15%. Yields of grape will probably diminish but area of vineyards increase to 200000 ha at the expense of extension to north.

SOME FEATURES IN LOCAL USES OF STRAW

There is important difference in use of the wheat and barley straw: just barley straw is used for livestock forage first of all. Taking into account that barley areas are distributed between districts enough even with some exclusions only, and also insignificant areas of forage crops and well-known deficit of grazing areas it may conclude that barley areas are distributed within districts quite even also. That means that only strong leading districts in barley production may be considered as the producers of barley-straw that can be used for heating.

Communities with small wheat areas (mainly with large forest areas and/or orchard/vineyard areas) use wheat straw for livestock forage in full value mainly, e.g. Unguri (Ocnita District) and Holosnita (Soroca District), and probably many others.

Somewhat statistics on straw uses is absent in Moldova. Following to assessment of experienced person who was mayor of a village in north of Moldova during some periods and have good notion about economics of some districts due to different coordinative activities, the amount of burnt straw in Northern Zone exceeds at least 60% of straw yield.

Case study in Stefan Voda District based on calculations of local specialists. Data on straw production are in the Table 5. Table 5 Straw production in Stefan Voda District, 2004 Kind of straw Area, ha* Average straw yield, t Total straw yield, t Winter wheat 14189 3.20 45405 Spring barley 9193 2.75 25273 Oats for grain 196 20.00 392 Total 23572 71070 * in farms of any size and kind.

General consumption of straw for construction, reparation and other husbandry uses (excluding forage) is about 3200 tones (4.5% of the yield-2004).

In case of all-the-year-round use in conformity with some norms for cattle, sheep, goats, pigs and horses total consumption would amount 52414 tones (74%) of straw. However district specialists have assessed that such consumption does not exceed 25%; thus it is fully covered by barley straw. That means the whole volume of the burnt straw in fields is about 70% in 2004 that is similar to above mentioned expert assessment for northern districts.

60 In addition one may assess that sown area under cereals would decrease for 20-25% at least in case of implementation of soil-protective crop rotations in future. Probably, increase of living standards, balancing and growth of consumption of agricultural products in space of the Eastern Europe, Caucasus and Central Asia will change land involvement under cereal crops in long-term future. Nevertheless these factors could not change sufficiently the turned out specialization of main straw-producing districts and zones.

Conclusions

Natural biogeographical zoning of Moldova is reflected in agro-climatic zoning that determines distribution of some agricultural crops and plantations. However main straw-producing crops – winter wheat and spring barley – have principal position in distribution of arable areas. Dominance of these two crops is determined by distribution of relatively flat surfaces in high degree.

Due to natural conditions and turned out practice the main areas of straw-producing crops are located in the Northern and Southern Agro-climatic Zones. Selection of districts focusing on such crops has to be based on wheat sown areas, which s are concentrated in Drochia, Floresti, Riscani and Soroca Districts (Northern Zone), Singerei and Glodeni (partly Northern and Central Zones), Falesti District (Central Zone), Cahul and Taraclia Districts as well as Gagausia Autonomic Territorial Unit (Southern Zone). Stefan-Voda District may be added to such areas at the expense of barley crops.

As usual such concentrations are connected with especial deficit of geosystem buffers – environment stabilizing territories that are mainly forest zones in Moldova, which are conserved or created in zones with complicated relief and steep surfaces inappropriate for sustainable agriculture. Implementation and growth in use of straw boilers instead coal heating systems would contribute to environment protection in such areas with stronger deficit of green defense.

61 ANNEX H: REPLICATION UNDER CDCF /SIF

Moldova Social Investment Fund (MSIF) is a Government of the Republic of Moldova project, created with the support of the World Bank aiming to contribute to EGPRSP23 implementation by empowering poor communities and their institutions to manage their priority development needs. The Social Investment Fund is considered to be an efficient mechanism for changing community attitudes and behavior, and increasing the quality life increase of poor population and vulnerable groups by enhancing their access to improved social services.

The Phase I of the MSIF project was lunched in 1999 and finished its activity by the end of 2004, with total funding of US $23.5 million. It promoted a range of capital investments according to its prearranged components, targeting social communities. The SIF mainly provides community grants for priority infrastructure investments on community level, as determined by the community itself. Rural communities, participants in the MSIF project received up to US $75,000 for schools and kinder-garden rehabilitation, roads and bridges construction, installation of gas and water supply conducts, etc. The improvements into the social infrastructure of selected communities funded by the MSIF I included upgrades and replacements of roofs, external walls and windows as part of the investment project. The assessment of the social buildings selected for demonstration sites included energy scans to determine heat demand, taking into account the demand side savings as a result of the building upgrades. While the communities determined the nature of investments, most of the sub-projects under MSIF I supported energy infrastructure related interventions, mainly heating of school and other important public buildings in rural areas (190 sub-projects). The upgrades to energy infrastructure did not include any conversions to renewable energy, and mainly relied on upgrading the heating systems to still use fossil fuels (coal, mazut, etc.).

The Phase II of the MSIF was approved in 2004 with total funding of US $29.17 million, to support similar type of interventions as SIF I, based on the lessons and outcomes of the SIF I. The SIF II is expected to support up to 350 sub-projects. Based on the SIF I experience, large part of these sub-projects will deal with upgrading and improving the energy infrastructure of rural public buildings, mainly schools. The proposed MSP will work with MFIS to identify from 7 to 10 demonstration sites, and support a set of measures, such as information campaigns, design options, and biomass fuel supply system, which will provide all necessary inputs for converting to biomass fueling systems. These demonstration communities will be selected so the pilots are economically and financially justified, and communities have sufficient local supply of biomass fuel.

GEF Replication under CDCF

The central idea of CDCF24 “Public Heating Systems in Moldovan Rural Communities” project is to enable energy efficient and renewable energy (biomass) systems to be available to poor rural communities for the heating of public buildings (schools, hospitals and other public service buildings), on affordable terms and conditions. Carbon credits would form the catalyst in conjunction with Moldova Social Investment Fund (SIF) for replicating the demonstrations of the REAW project. Rural community selection will be carried out in the first half of 2005, at which time baseline carbon emissions verification could take place. It is expected that 200 communities will participate, within the framework of SIF energy related projects. Implementation will be during 2005-2008. Emission reductions will derive from energy efficiency and fuel switching (biomass).

Communities that will benefit from CDCF project will be selected according to:

23 Economy Growth and Poverty Reduction Strategy Paper 24 Community Development Carbon Fund

62 ƒ Community eligibility for a Social Investment Fund (SIF) Project in the period 2005-2008 based upon the ‘poverty-map’ for Moldova, drawn up according to various poverty indicators25. For each region in Moldova a prioritised list of communities is scheduled according to the indicators; ƒ SIF fund allocation for each region is based upon a weighting calculation related to the rural population in a region as a proportion of the total national rural population ƒ Given the fund allocated to a specific region and the available average project value ($75,000), a number of communities are selected on a region by region basis.

There are a lot of criticism and doubt on renewable energy in general and for CDCF option, in particular. Basing on the SIF criteria, the rural communities take their own choices regarding the type of projects that they agree to implement jointly with World Bank co-financing. Taking into consideration the current situation of renewable energy usage it is easy to predict the most possible decision of local community administration upon the SIF energy implementing components. As it was analyzed above the energy option would be chosen in favor of fossil fuels; CDCF project, in this case could be dedicated only for energy efficiency and heating system upgrades activities.

The confidence, information and technological barriers are considered to be addressed through pilot installations within the GEF “Renewable Energy from Agricultural Wastes”. The GEF project are designed as a test step for such kind of activities that could be considered in the future as eligible for a CDM26 small scale project, being a continuous replication of the GEF REAW project. Community participation will be aligned with the Moldova Social Investment Fund (SIF), which focuses on infrastructure development in rural areas. The biomass fuel supply infrastructure will be developed through the Japan Government supported ‘2KR’ Agricultural Equipment Fund, which has successfully organized the re-equipping of numerous agricultural enterprises in Moldova and the World Bank Rural Investment and Services Project (RSIP).

As is could be concluded a future CDCF project will be constructed in base of the GEF lessons learned, involving the same stakeholders and using performed and tested infrastructure within the GEF REAW project. Along with energy efficiency and heating system upgrades a renewable energy option would also be developed, these activities being group as eligible for CDM small scale project. Taking into consideration the GEF REAW project activities, CDCF renewable energy options will have the same strategy but on already tested and cleared field of informational and technological barriers removal. Bearing in mind already performed arrangements within the REAW project, the CDCF supply arrangements for agricultural equipment, biomass fuel supply and heating systems will be based upon proven mechanisms developed within the GEF REAW by the SIF, 2KR and RISP, including lease purchase mechanisms developed for agricultural machinery supply.

These activities are the main arguments of understanding and acceptance of renewable technologies that could be used when the project will be finished. The CDCF project potential is estimated at 60-80 project sites switching to biomass fueled systems. Thus reformulating all above it could be mentioned that the GEF project will enable the biomass replication in 30-100 communities under the CDCF project that is equal to about 60 buildings that could start using renewable energy after the GEF project will conclude its activity.

The experience gained and practical lessons learned at the pilot stage shall be taken into consideration for implementation of the rest 60 communities and would subsequently be disseminated throughout the country. Next step for renewable technologies replication in Moldova would be installation of big units within different industrial objectives such as factories, plants, etc.

25 EGPRS – Economic Growth and Poverty Reduction Strategy for Moldova 26 Clean Development Mechanism

63 ANNEX I: COUNTRY ENDORSEMENT LETTER

64 ANNEX J: COUNTRY ENVIRONMENTAL CLEARANCE OF THE PROJECT

65 ANNEX K: CO-FINANCING LETTERS

One of the project’s objectives consists in installation and operation of biomass fuelled heating systems in public buildings in rural communities and one demonstration unit within the Biomass Centre in Chisinau, with a total capacity of 3,000 kW in up to 10 installations.

Local government budget contribution is confirmed by three already selected social communities for the project replication, assessed under PDFA activities. Rest of the communities will be selected in 2006-2008. Thus local governmental contribution based on preliminary estimations will be $USD 689,950.

66 67 68 69 ANNEX L: MAP OF MOLDOVA

Political map of Moldova

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