Peru: Extending the Use of Natural Gas to Inland Provinces Public Disclosure Authorized
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36869 ESMAP TECHNICAL PAPER 103 Peru: Extending the Use of Natural Gas to Inland Provinces Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized April 2006 Public Disclosure Authorized Papers in the ESMAP Technical Series are discussion documents, not final project reports. They are subject to the same copyright as other ESMAP publications. ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) PURPOSE The Energy Sector Management Assistance Program (ESMAP) is a global technical assistance partnership administered by the World Bank and sponsored by bi-lateral official donors, since 1983. ESMAP’s mission is to promote the role of energy in poverty reduction and economic growth in an environmentally responsible manner. Its work applies to low-income, emerging, and transition economies and contributes to the achievement of internationally agreed development goals. ESMAP interventions are knowledge products including free technical assistance, specific studies, advisory services, pilot projects, knowledge generation and dissemination, trainings, workshops and seminars, conferences and roundtables, and publications. ESMAP work is focused on four key thematic programs: energy security, renewable energy, energy-poverty and market efficiency and governance. GOVERNANCE AND OPERATIONS ESMAP is governed by a Consultative Group (the ESMAP CG) composed of representatives of the World Bank, other donors, and development experts from regions which benefit from ESMAP’s assistance. The ESMAP CG is chaired by a World Bank Vice President, and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Programme’s strategic agenda, its work plan, and its achievements. ESMAP relies on a cadre of engineers, energy planners, and economists from the World Bank, and from the energy and development community at large, to conduct its activities. FUNDING ESMAP is a knowledge partnership supported by the World Bank and official donors from Belgium, Canada, Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom. ESMAP has also enjoyed the support of private donors as well as in-kind support from a number of partners in the energy and development community. FURTHER INFORMATION For further information on a copy of the ESMAP Annual Report or copies of project reports, please visit the ESMAP website: www.esmap.org. ESMAP can also be reached by email at [email protected] or by mail at: ESMAP c/o Energy and Water Department The World Bank Group 1818 H Street, NW Washington, D.C. 20433, U.S.A. Tel.: 202.458.2321 Fax: 202.522.3018 Peru: Extending the Use of Natural Gas to Inland Provinces Technical, Social, Environmental, and Economic Studies of Natural Gas Supply Projects within Peru: Ayacucho, Junín, Ica, and Cusco April 2006 Energy Sector Management Assistance Program (ESMAP) Copyright © 2006 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing April 2006 ESMAP Reports are published to communicate the results of ESMAP’s work to the development community with the least possible delay. The typescript of the paper therefore has not been prepared in accordance with the procedures appropriate to formal documents. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, or its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. Papers in the ESMAP Technical Series are discussion documents, not final project reports. They are subject to the same copyrights as other ESMAP publications. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the ESMAP Manager at the address shown in the copyright notice above. ESMAP encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Preface The Peruvian Government Agency for the Promotion of Private Investment, ProInvestment, requested the technical–economic prefeasibility studies on the extension of trunklines from the main Camisea pipeline within Peru. The study provides the terms to be used for the natural gas transportation and distribution concession bids within four regions: Ayacucho, Junín, Ica, and Cusco. The prefeasibility study on the extension of trunklines to supply natural gas to the Ica, Ayacucho, and Junín regions was assigned to Consorcio R. García Consultores S.A., INTEC Engineering S.R.L. and ARCAN Ingeniería y Construcciones S.A. and financed by ESMAP as part of its workprogram on the diversification of energy supplies under the Energy Security Thematic Area of the 2005-2007 Business Plan. Similarly, the Canadian government funded the prefeasibility study on the extension of trunklines to supply natural gas to the Cusco Region, prepared by Canadian firms Colt Engineering/Stantec. The above- mentioned studies were completed in 2004. Subsequently, under the sponsorship of the Camisea Project contractors, Consorcio R. García Consultores & INTEC/ARCAN was requested to expand the study on the Cusco Region pipeline, and this was completed in the latter part of April 2005. This consolidated report contains the final results and conclusions of these studies, which provide important considerations on the strategy and structuring of future concessions to supply gas to those regions. The study’s results became useful tools for the government with its goal to grant concessions for gas supply services to the regions, which has the characteristics of a “Greenfield” project.1 Technical, social, and environmental studies have served as the basis for the economic analysis of the project, making it possible to identify the savings to be generated for the population and the regions’ economic activities (trade, industry, electricity generation, transport) from the use of natural gas. Finally, this led to the development of financial models, whose results, combined with those of previous studies, were useful in the design of the most appropriate strategy and approach to meet the goals of the country and of the regions. The final report has been structured in five main chapters with an Executive Summary that includes the most significant conclusions and recommendations. Chapter 1 summarizes the regions´ demand projections used for the Economic–Financial Prefeasibility Study, explaining the basic premises to quantify the potential demand for natural gas for the period under analysis (2005-2025). Chapter 2, Cost of Supplying Natural Gas to the Regions, takes into account all costs involved in the provision of the service to supply natural gas for the regions (CAPEX, OPEX) including the costs incurred to make the connection for the users (internal installation and conversions) to be able to use the natural gas. This chapter presents the technical–environmental studies carried out with respect to the design of the main and secondary routes. It shows the methodology followed to quantify the different 1 Frequently used term that identifies businesses, where, once the potential demand has been identified, one would need to start from zero to develop the required infrastructure to be able to commercially exploit the identified business. iii costs of the supply chain; those which are unique to the laying and commercial exploitation of the natural gas trunklines and networks of these new businesses, plus others, which are exogenous to the behavior of the concessionaires, such as the cost of the natural gas flow and transportation through the Camisea trunk pipeline to the point where it connects with the new regional trunklines. Chapter 3 details the results of economic and financial prefeasibility studies, as well as the methodology used in the economic studies to quantify the net economic benefits of the regional projects, the price assumptions, the valuation of the energy demand substitutable by natural gas (NG); and the criteria for the allocation of costs per sector (residential, businesses and small industries, vehicle natural gas, and large industrial customers). This methodology helped determine the benefits for each of the sectors that will be converted to natural gas. A subject, which is also important, is the sensitivity analysis with respect to the modifications of the critical variables that detected: positive effects (+) or negative effects (-) by case. In addition, this chapter includes the results of the financial prefeasibility evaluation. This item summarizes the business cash flow, breaking it down by main trunklines, secondary trunklines, and distribution networks or integrated by region; revenues required from the business units for the financial sustainability of the natural gas supply services, composition of the service’s costs (in CAPEX