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INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: ISDSC1351 1 Public Disclosure Authorized ,2 Date ISDS Prepared/Updated: 15-Jul-2015 Date ISDS Approved/Disclosed: 04-Sep-2015 I. BASIC INFORMATION A. Basic Project Data Country: Macedonia, former Yugoslav P155353 Republic of Project Name: Macedonia Gas Sector Development (P155353) Task Team Stephanie Gil,Rhedon Begolli Leader(s): Public Disclosure Authorized Estimated 11-Dec-2015 Estimated 28-Mar-2016 Appraisal Date: Board Date: Managing Unit: GEE03 Lending Investment Project Financing Instrument: Sector(s): Oil and gas (70%), General energy sector (30%) Theme(s): Climate change (100%) Financing (In USD Million) Total Project Cost: 110.00 Total Bank Financing: 100.00 Financing Gap: 0.00 Financing Source Amount Public Disclosure Authorized Borrower 10.00 International Bank for Reconstruction and Development 100.00 Total 110.00 Environmental B - Partial Assessment Category: Is this a No Repeater project? B. Project Objectives The project development objective is to support the transition towards a cleaner energy mix by providing access to gas in the Polog, Vardar and Pelagonia regions of FYR of Macedonia. Public Disclosure Authorized To achieve these PDOs, the proposed project will provide: (i) investment finance for the expansion of gas transmission within the country; (ii) investment finance to support the implementation of measures which will help incentivize the use of natural gas as replacement for less sustainable fuels; and (iii) support for project implementation. C. Project Description A US$100 million IBRD loan will be provided to FYR Macedonia to provide the necessary investment financing and policy support to meet the above PDOs. The Government is spearheading a gas sector development program which would provide a more o environmentally-friendly and efficient way of producing electricity and heating. While a gas transmission pipeline of 0.8bcm annual capacity exists, and brings natural gas to the capital Skopje from the Bulgarian border, it is only utilized at about 15% of capacity due to high wholesale gas prices, limited gas transmission and distribution infrastructure throughout the country, subsidized electricity tariffs, and general lack of demand. The Government developed pre-feasibility studies for the expansion of the transmission infrastructure in 2010. The expansion consists of extending the existing pipeline (grey line from Bulgarian border to Skopje) to cover most of the country territory (blue and green lines), and build interconnectors to neighboring countries. These studies were reviewed and complemented by a technical consultant hired by the Government and financed by European Bank for Reconstruction and Development (EBRD), in 2013. The Government plans to develop the transmission infrastructure in a phased approach: - A first phase would include the following sections: Klecovce - Shtip, Shtip - Hamzali - Greek border, Shtip - Negotino - Bitola, and Skopje - Tetovo - Gostivar (the section Bitola - Greek border was dropped from the original Government's scope). - In subsequent phases, the Government plans to build the remaining proposed gas transmission infrastructure. The Government is currently constructing the Klecovce - Shtip transmission section using as financing the debt owed by the former USSR to former Yugoslavia; additionally, the Government secured private financing for the construction of the section that runs from Shtip to the Greek border. As part of the first phase of the transmission infrastructure, Government is seeking IFI financing to build the transmission sections Skopje - Tetovo - Gostivar and Shtip - Negotino - Bitola. Additionally, the Government also prepared an Environmental Impact Assessment, which has been reviewed and complemented to comply with EBRD guidelines, and was approved by the Government. The proposed project aims to finance the construction of the following two segments: i) Skopje - Tetovo - Gostivar, forming a westward extension of the existing transmission system with a length of about 75 km in total to provide natural gas supply to the Polog region; and ii) Shtip - Negotino - Bitola segment with a length of about 120 km and would form a southward expansion of the system to provide natural gas supply to the Vardar and Pelagonia regions. The project also aims to provide investment financing and technical assistance to implement acceptable measures to improve the relative competitiveness of gas versus other fuels. Component 1: Gas Transmission Pipeline (US$80 million), comprising the Skopje - Tetovo - Gostivar Gas Transmission Pipeline ($30 million) and the Negotino - Bitola Gas Transmission Pipeline ($50 million). Under this component, the project will provide financing for the construction of gas transmission pipelines and associated equipment including: (i) valves and fittings; (ii) pipeline; (iii) crossings; (iv) stations; and (v) other facilities. Initially, the pipeline would supply the industrial customers along the pipeline, which are mostly using coal for heating. In the second phase, residential and O U commercial customers would be connected through a distribution network in major urban areas such as Tetovo and Gostivar, and Bitola and Prilep. According to a base case scenario of the EBRD feasibility study, the Skopje - Tetovo - Gostivar pipeline section would have a total throughput of about 225 mmcm by 2020 and then increasing to about 1075 mmcm by 2040. A large part of the throughput would be transit gas from and to neighboring countries (about 500 mmcm by 2040), followed by a power generation plant (about 385 mmcm by 2040) and industrial consumers (about 100 mmcm by 2040). The power generation demand is expected to come from converting the current Oslomej Thermal Power Plant (TPP) from a lignite fired TPP to a natural gas TPP. Demand projections would be confirmed during project preparation. For the Shtip - Negotino - Bitola pipeline section, the EBRD base case scenario anticipated a total throughput of about 10 mmcm by 2020 and then increasing to about 80 mmcm by 2030 and 165 mmcm by 2040. A large part of the throughput would be demand from industrial customers (about 75 mmcm by 2040), followed by household demand (about 60 mmcm by 2040) and a smaller demand from commercial consumers (about 25 mmcm by 2040). The EBRD feasibility study did not include the possible replacement of lignite-fired TPP Bitola (675MW) by a natural gas plant once the domestic lignite is depleted or the existing plant reaches end of life. Demand projections would be confirmed during project preparation. Component 2: Measures to support the switch to gas at power generation, industrial, commercial and residential levels (est. US$18 million). Under this component, the project will provide financing for the implementation of measures to be agreed with the Government during project preparation. The measures will aim at increasing demand for natural gas along the existing and newly built pipelines. An example of such measures could include: (i) financing support to initiate public sector investment in the development of gas distribution networks, should private sector participation take longer than originally anticipated; (ii) financing support to convert the Negotino fuel-oil plant to natural gas, in the event the Government decides to go ahead and publicly finance the plant conversion; (iii) establishment of credit lines to finance gas equipment purchases for industrial, commercial and/or residential users. Component 3: Project implementation support (est. US$2 million). The project will also support the main implementing agency MER, as well as other stakeholders such as the Ministry of Transport and Telecommunications (MTC), the Energy Regulatory Commission (ERC) and the Ministry of Social Welfare (MSW), to help ensure effective project implementation. This would include: (i) creation of a project implementation unit (PIU) within the MTC, primarily staffed by MER and MTC staff, to carry out Components 1 and 2, including support for procurement, financial management, technical oversight, project monitoring and reporting; (ii) support to ERC for implementation of recommendations arising from a review of gas tariff methodologies which would be undertaken as part of project preparation; (iii) support to MSW for implementation of recommendations arising from an affordability assessment which will be undertaken as part of project preparation, and (iv) support to relevant counterparts which would implement Component 2. D. Project location and salient physical characteristics relevant to the safeguard analysis (if known) Geographical scope of the project encompasses two areas: (i) area along proposed section of gas pipeline Skopje - Tetovo - Gostivar 75 km in length and (ii) area along proposed section of gas pipeline Negotino - Bitola, approximately 120 km in length. The minimal width of the gas pipeline corridor is 25m, which enables straightforward and safe O construction. The wider sanitary (protection) zone equals 250m on each side of the pipeline axis, or 500m width zone. ESIA indicated 400m width zone to be investigated for physical characteristics relevant for to safeguard analysis. The entire territory of Macedonia is seismically active. Its geomorphological development is characterized by intense processes of rising and sinking and material deposition by gravity towards valleys. Stip - Negotino - Bitola section cuts several seismically active rift valleys while Skopje - Tetovo - Gostivar section generally spreads
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