Document of The World Bank FOR OFFICIAL USE ONLY Report No: 46662-KZ Public Disclosure Authorized PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN Public Disclosure Authorized IN THE AMOUNT OF US$48.0 MILLION TO THE KAZAKHSTAN ELECTRICITY GRID OPERATING COMPANY WITH THE GUARANTEE OF THE REPUBLIC OF KAZAKHSTAN FOR A Public Disclosure Authorized MOINAK ELECTRICITY TRANSMISSION PROJECT August 7,2009 Sustainable Development Department Central Asia Country Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective June 23,2009) Currency Unit = Kazakh Tenge (KZT), 1 KZT = 100 tyin KZT 1.0 = US$0.0066493 US$l.O = KZT 150.39 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS ARNM Agency for Regulation of Natural Monopolies DA Designated Account DBK Development Bank of Kazakhstan DP Development Plan EA Environmental Assessment EBRD European Bank for Reconstruction and Development EIRR Economic Internal Rate of Return EMP Environmental Management Plan ESO Energy Supply Organization FIRR Financial Internal Rate of Return FM Financial Management FY Fiscal Year GHG Greenhouse Gas GOK Government of Kazakhstan GWh Gigawatt Hour (1,000,000 kWh) HPP Hydroelectric Power Plant HV High Voltage IBRD InternationalBank for Reconstruction and Development ICB InternationalCompetitive Bidding IFR Interim Financial Report KEGOC Kazakhstan Electricity Grid Operating Company KOREM Kazakhstan Operator of Spot Electricity Market KZT Kazakh Tenge kV Kilovolt (1,000 Volts) kWh Kilowatt Hour (1,000 Watt Hours) LA Loan Agreement LAP Land Acquisition Plan LAPF Land Acquisition Policy Framework MES Regional Branch of KEGOC MHPP Moinak Hydroelectric Power Plant MWh Megawatt Hour (1,000 kWh)) NGO Non-Governmental Organization NPV Net Present Value NIS North-South OHTL Overhead Transmission Line OSY Outdoor Switchyard PIP Project Implementation Plan PMD Project Management Department PP Procurement Plan REK Regional Electricity Distribution Company ROK Republic of Kazakhstan SOE Statement of Expenditures ss Substation TWh Terawatt hour (1,000,000,000 kWh) - Vice President: Shigeo Katsu Country Director: Motoo Konishi Sector Manager: Ranjit Lamech Task Team Leader: Istvan Dobozi FOR OFFICIAL USE ONLY KAZAKHSTAN Moinak Electricity Transmission Project CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 1. Country and sector issues .................................................................................................... 1 2 . Rationale for Bank involvement .......................................................................................... 5 3 . Higher level objectives to which the project contributes .................................................... 5 B. PROJECT DESCRIPTION.................................................................................................. 6 1. Lending instrument.............................................................................................................. 6 2 . Project development objective and key indicators .............................................................. 6 3 . Project components.............................................................................................................. 6 4 . Lessons learned and reflected in the project design ............................................................ 8 5 . Alternatives considered and reasons for rejection ............................................................... 8 C . IMPLEMENTATION........................................................................................................... 9 1. Partnership arrangements .................................................................................................... 9 2 . Institutional and implementation arrangements .................................................................. 9 3 . Monitoring and evaluation ofoutcomes/results ................................................................ 10 4 . Sustainability ..................................................................................................................... 10 5 . Critical risks and possible controversial aspects ............................................................... 11 6 . Loan conditions and covenants.......................................................................................... 12 D . APPRAISAL SUMMARY .................................................................................................. 13 1. Economic and financial analysis ....................................................................................... 13 2 . Technical ........................................................................................................................... 16 3 . Fiduciary ............................................................................................................................ 16 4 . Social ................................................................................................................................. 18 5 . Environment ...................................................................................................................... 18 6 . Safeguard policies............................................................................................................. -19 7 . Policy Exceptions and Readiness ...................................................................................... 21 Annex 1: Country and Sector Background ............................................................................... 22 Annex 2: Major Related Projects Financed by the Bank and/or Other Agencies ................. 27 Annex 3: Results Framework and Monitoring......................................................................... 28 Annex 4: Detailed Project Description ...................................................................................... 31 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization . Annex 5: Project Costs ................................................................................................................ 38 Annex 6: ImplementationArrangements .................................................................................. 39 Annex 7: Financial Management and Disbursement Arrangements ..................................... 43 Annex 8: Procurement Arrangements ....................................................................................... 50 Annex 9: Economic and Financial Analysis .............................................................................. 55 Annex 10: Safeguard Policy Issues............................................................................................. 66 Annex 11: Project Preparation and Supervision ...................................................................... 68 Annex 12: Documents in the Project File .................................................................................. 69 Annex 13: Statement of Loans and Credits ............................................................................... 70 Annex 14: Country at a Glance .................................................................................................. 71 Annex 15: Map ............................................................................................................................. 73 MAP IBRD 36700 KAZAKHSTAN MOINAK ELECTRICITY TRANSMISSION PROJECT PROJECT APPRAISAL DOCUMENT EUROPE AND CENTRAL ASIA ECSSD Date: August 7, 2009 Team Leader: Istvan Dobozi Country Director: Motoo Konishi Sectors: power (100%) Sector Manager: Ranjit Lamech Themes: Infrastructure services for private sector Sector Director: Peter D. Thomson development (P) Project ID: P114766 Environmental screening category: Partial assessment Lending Instrument: Specific Investment Loan Safeguard screening category: Limited impact (B) Source Local Foreign Total BORROWER 5.272 20.089 25.361 INTERNATIONAL BANK FOR 0.000 48.000 48.000 RECONSTRUCTION AND DEVELOPMENT Total: 5.272 68.089 73.361 Borrower: Kazakhstan Electricity Grid Operating Company (KEGOC) 37 Beibitshilik, Astana 010000, Republic of Kazakhstan Tel: +7 (7172) 97 01 59 Fax: +7 (7172) 97 04 55 E-mail: keaoc@,kepoc.kz Guarantor: Republic of Kazakhstan Responsible Agency: KEGOC JSC I Does the project depart from the CAS in content or other significant respects? Ref; PAD [ No A.3 Does the project require any exceptions from Bank policies? Ref; PAD 0.7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [ ]No Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [XINO Re$ PAD C.5 Does the project meet the regional criteria for readiness for implementation? Re$ PAD [XIYes [ ]No D. 7 Project development objective Ref. PAD B.2, Technical Annex 3 The primary project objective is to increase and improve the supply of electricity to business enterprises and households in southern Kazakhstan in an economically and environmentally sustainable manner. Project description Ref. PAD B.3.a, Technical Annex 4 Construction of 220 kV overhead transmission lines (OHTLs)