1~~ 5 t 8 EnergySector Management Assistance Programrie Public Disclosure Authorized Public Disclosure Authorized Mexico EnergyEfficiency Management TechnicalAssistance to the Comision Nacional para el Ahorro de Energia (CONAE) Public Disclosure Authorized Report No. 180/96 Public Disclosure Authorized Ft L.. P=...... JOINT UNDP/WORLD BANK ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) PURPOSE The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) is a special global technical assistance program run by the World Bank's Industry and Energy Department. ESMAP provides advice to governments on sustainable energy development. Established with the support of UNDP and 15 bilateral official donors in 1983, it focuses on policy and institutional reforms designed to promote increased private investment in energy and supply and end-use energy efficiency; natural gas development; and renewable, rural, and household energy. GOVERNANCE AND OPERATIONS ESMAP is governed by a Consultative Group (ESMAP CG), composed of representatives of the UNDP and World Bank, the governments and other institutions providing financial support, and the recipients of ESMAP's assistance. The ESMAP CG is chaired by the World Bank's Vice President, Finance and Private Sector Development, and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Programme's strategic agenda, its work program, and other issues. ESMAP is staffed by a cadre of engineers, energy planners, and economists from the Industry and Energy Department of the World Bank. The Director of this Department is also the Manager of ESMAP, responsible for administering the Programme. FUNDING ESMAP is a cooperative effort supported by the World Bank, UNDP and other United Nations agencies, the European Community, Organization of American States (OAS), Latin American Energy Organization (OLADE), and public and private donors from countries including Australia, Belgium, Canada, Denmark, Germany, Finland, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Sweden, Switzerland, the United Kingdom, and the United States. FURTHER INFORMATION An up-to-date listing of completed ESMAP projects is appended to this report. For further information or copies of completed ESMAP reports, contact: ESMAP c/o Industry and Energy Department The World Bank 1818 H Street N.W. Washington, D.C. 20433 U.S.A. TABLE OF CONTENTS PREFACE EXECI. UTIVESUMMARY ................................................ 1I Background ................................................. 1 Objectives and Methodology ................................................. 1 Implementation................................................. 2 Key Issues ................................................ 3 Summary of Recommendations................................................. 4 Institutional Reorganization................................................. 4 Funding........................................................ 5 Creation of Policy and Planning Unit ................................................. 5 Development of Proposals for World Bank/IDB Loan .............. ............6 Next Steps ................................................. 7 II. CONSULTANTS REPORTS Strengthening Mexico's National Energy Efficiency Function by John Armstrong Progamme Planning, Targeting and Monitoring by Andrew Gilchrist ANNEXES I. Executive Summary in Spanish II. Trip Report: Mexican Mission to Southeast Asia mII. ESMAP Activity Initiation Brief Preface This report records the outputs of a technical assistance project in Mexico executedby the World Bank's Energy SectorManagement Assistance Program (ESMAP) and financed by the German Goverrnent. The activityprovided expert assistanceto the ComisionNacionalpara el Ahorro de Energia (CONAE),Mexico's principalagency for energy conservation, in the specific areas of insitutional and policy analysis, and in program planningand evaluation.The specificissues arose from a previous World Bank review of CONAE's organization and programs, as well as from the institutional adjustmentsthat had to be made in responseto the recent economiccrisis. It is considered that the most important outputs of the acitvitywere the personalinteractions of ESMAP expertswith CONAEofficials and staff duringthe missionsto Mexico, and not the written reports themselves.These reports by the main consultantsare neverthelessincluded in this document. The ESMAP activity benefitedimmensely from the support of CONAE officials, particularlyFemando Bueno,the formerTechnical Secretary, and Odon the Buen, who is now Officer-in-Charge.The technicalcontributions of the staff, particularlyDr. Claudia Sheinbaum,Guilermo Rodriguez, Ricardo Escobar, Agustin Acosta, GuillermoOrtega and others too manyto be namedhere are likewisewell appreciated. The WorldBank/ESMAP staff who managedthe activityare Ernesto Terrado and AnkeMeyer. Supportwas providedby LA2INthrough Luis Luzuriaga. ExecutiveSummary Background CONAE,the nationalenergy conservation commission in Mexico,was set up in 1989 as an interministerialagency, integrated by the Department of Energy, Mines and Parastatal Industries (SEMIP)-now simply the Department of Energy-and the Departments of Treasury (SHCP), Commerceand Industry (SECOFI), Communication and Transportation(SCT), SocialDevelopment (SEDESOL) and PublicEducation (SEP), as well as the Mexico City government,the nationalpetroleum company PEMEX and the national electric utility CFE. The Secretary of Energy is CONAE's President while a TechnicalSecretary acts as chief executiveofficer. In June 1994, CONAE's managementwas replaced by an interim management team, headedby FernandoBueno. The team assumedan active't.aretaker" role, providing continuityto ongoingprograms and implementingsome limited measuresto improvethe administrativeand technicaleffectiveness of the institutionprior to the appointmentof the new permanent management. In January 1995, after Presidential elections and the assumptionof the new federaladministration, the interimmanager was formallyappointed TechnicalSecretary of CONAE. However, in December 1995, after completionof the ESMAP main missionfor the present technicalassistance activity,Fernando Bueno was transferred to the Department of the Interior. Mr. Odon de Buen was named acting TechnicalSecretary and stillhas this position as of this writing. These organizationalchanges were largely induced by the national financial and economiccrisis of 1994/1995that severelyreduced budgetary support for ma,;y public agenciesand programs,including CONAE and its activities.During this period *'ONAE's total staff complementwas reduced by about 30% as it reorganized *.selfinto a leaner agency. Among the major changes was the abolition of FONA: CONAE's technical implementingarm. Programs that required significantinvestments, such as cogeneration, have been generallyput 'bn hold".However, some programs,such -;sthat for transport, have even expandedbecause the higherprices of transport fuels caused by the crisis have providedadded incentivesfor conservation.In a period of economicdifficulties, energy conservationis increasinglyseen as a key instrumentfor improvingthe competitivenessof Mexicanindustries. In sum, the economicdownturn has not diminishedthe relevance of energy conservationefforts in Mexico but has underscoredthe need to make CONAE's programs more focused and sustainable.In turn, the need to put CONAE on a firmer institutionalfooting so that it can discharge its functions effectivelyhas taken on some urgency. Objectives and Methodology The original objective of the ESMAP technical assistance activity was to help CONAEaddress some of the key deficienciesidentified in the 1994World Bank reviewof its 1 orgaizational setup and operations,particularly the need to delineateCONAEs institutional identityand strengthenits capabilityfor strategic planning and internal evaluation of its programs.The adventof the economiccrisis did not changethese basic objectives.Some of these issueswere alreadybeing examinedby EEC expertsin 1994/95as part of a bilateral programand CONAEitself had alreadyinitiated some effortsin this direction,including the preliminaryexamination of optionsfor institutionalreorganization and the draftingof an energyefficiency law. It was thoughtthat complementaryinternational expertise provided by the ESMAPactivity would strengthen these ongoing efforts and thereby accelerate the process. The expertiseto be providedwould be in the specificareas of institutionaland policyanalysis, and energymonitoring and targeting. In addition,resources were to be providedfor one to two CONAE officialsto undertakea studytour of energyefficiency institutions in Asia. In the courseof the ESMAPactivity, the possibilityof inclusionof an energyefficiency component in a proposed WB/IDBenergy sector loan emerged,with CONAEand FIDE as the potential beneficiaries.Consequently, the task of assistingCONAE to developa preliminarypackage of activitiesfor financingunder the loanwas addedto the ESMAPactivity. Implementation The above objectiveswere reaffirmed,with some revisions in scope and focus, during an ESMAP mission in May 1995. Specifically,it was agreed with CONAE that focuswould be in: • examinationof options for reorganizingCONAE into a more sustainableintermediary institution for energyefficiency; - assistancein the creation of a planningunit withinCONAE, including definition of its specificfunctions and initialprogram of work. It is in this context