Document of The WorlcdBank FOR OFFICIAL 1USEONLY Public Disclosure Authorized Report No. 4360-CY STAFF APPRAISAL REPORT Public Disclosure Authorized CYPRUS ENERGY PLANNING AND CONSERVATION PROJECT Public Disclosure Authorized April 20, 1983 Projects Department Public Disclosure Authorized Europe, Middle East and North Africa Regional Office 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. CURRENCY EQUIVALENTS - Currency Unit = Cyprus Pound (CE) Ct 1 = 1,000 mils CZ 1 = US$2.00 US$l million= CE 2 million WEIGHTS AND MEASURES kV kilovolt kW = kilowatt MW = 1,000 kW kWh = kilowatt-hour GWh (Gigawatt-hour) 1,000,000 kWh kVA = kilovolt-ampere Mi1VA = Megavolt-ampere = 1,000 kVA Mile = 1.609 km "r ton = metri-c ton GLOSSARY AND ABBREVIATIONS EAC = Electricity Authority of Cyprus MCI = Ministry of CoTmwerceand Industry AREC = Applied Renewable Energy Center HTI = Higher Technical Institute EAU = Energy Advisory Unit KIBTEK = Turkish Cypriot Electricity Authority FISCAL YEAR January 1 to December 31 _/ Adjusted as of February 1983, FOR OFFICIALUSE ONLY CYPRUS ENERGY PLANNING AND CONSERVATIONPROJECT Table of Contents Page No. I. POWER AND ENERGY SECTOR .................................. 1 A. Energy Sector.................. 1 Commercial Energy Balances ............... 1 Energy Resources .................. 3 Energy Pricing ................. ................. 3 Energy=.. Policy ............... 5 Organization .................................... 5 B. Power Subsector ...................... 6 Background ........... ...................... 6 Organization of EAC ......................,.. 6 Training . 7 Existing Facilities .......... 7 Operations ........... 7 Unbilled Consumption . .......................... 8 Electricity Tariffs ....... 8 Sales ..... 9 Bank's Participation in the Power Subsector ......... 9 EAC's 1983-1987 Expansiorn Program .10 II. THE PROJECT ............................. 11 Project Objectives and Description . .11 Project Costs .. 12 Project Financing ................................... 13 Project Implementation . .13 MCI Component Implementation . .14 EAC Component Implementation . .14 Studies and Consultancy Services . .15 Procurement ................... 15 Disbursements ............................. 16 Environmental Aspects .. 16 The report'was prepared by Messrs. W. Hamlet (Financial Analyst), K. Sheorey (Engineer), I. Johnson (Economist), R. Dosik (New Energy Sources Adviser, Energy Department) and A. Malik (Renewable Energy Specialist, Energy Department) on the basis of an appraisal mission to Cyprus during January/February 1983. This document has a restricted distribution and may be used by recipients only in the performance of I their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Page No. III. FINANCE ................................................... 17 Accounts ................................................... 17 EAC's Billings and Accounts Receivables .... ............... 17 EAC's Taxes and Duties .................................... 17 Past Performance and Present Position of EAC .... .......... 17 Financing Plan .......................... 18 EAC's Future Performance .......................... 19 Financial Covenants ...................................... 19 Audit .................................................. 20 Insurance ......... .. .......... 20 Monitoring System .......................................... 21 TV. BENEFITS, JUSTIFICATION AIND RISKS ........................ 22 MCI Component ............................... 22 EAC Component ..................... ................... 23 Least Cost Alternative ................. 23 Economic Rate of Return - EAC Component .23 Sensitivity Analysis .. 24 Risks .. 24 V. AGREEMENTS TO BE REACHED.25 ANNEXES 1.1 Electricity Authority of Cyprus - Organization Chart: ..... 26 1.2 Electricity Sales in GWh by Categories 1976-1987 . 27 i.3 Description of EAC's Expansion Program for 1983-1987 28 1.4 EAC Expansion Plan 1983-1987, Existing and Planned Facilities ........................ 30 1.5 EAC Expansion Plan 1983-1987, Costs .. 31 2.1 Project Description ................. .. .................. 32 2.2 MCI Component - Project Costs ............ .. .............. 44 2.3 EAC Component - Project Costs ............ .. .............. 45 2.4 EAC Component - Project Implementation Schedule .......... 46 2.5 MCI Component - Project Implementation Schedule .......... 47 2.6 Estimated Disbursement Schedule for the MCI Component .... 49 2.7 Estimated Disbursement Schedule for the EAC Component .... 51 2.8 MCI and EAC Components - Disbursement Profiles ........... 52 3.1 Income Statements for the Years Ended December 31, 1977-1987 ............... .. ................ 53 3.2 Balance Sheets for the Years Ended December 31, 1977-1987 ............... .. ................ 54 3.3 Sources and Applications of Funds Statements for the Years Ended December 31, 1977-1987 ............. 55 3.4 Notes and Assumptions for Financial Forecasts ............. 56 - 11l1 - ANNEXES (Contd) 4.1 Actual and Forecast of Energy Generated, Sold, Installed Capacity, Maximum Demand and Annual Load Factor ........ 58 4,2 EAC Component - Economic Rate o:E Return .... ..............59 5.1 Selected Documents Available in the Project File ......... 60 MAP IBRD lb999R April 1983 (1350P, p.2 7-2 9) I. POWER AND ENERGY SECTOR A. Energy Sector Commercial Energy Balances 1.01 The petroleum products consumed in Cyprus are gasoline, aviation fuel, kerosene, gas oil, LPG and light and heavy fuel oil. Gasoline and aviation fuel are used exclusively in the transport sector; kerosene in the household sector; gas oil (diesel) in the transport, industrial, commercial and agricultural sectors; LPG in the household sector and a small volume in the industrial sector (bricks, mining); and heavy fuel oil in the industrial (cement) and power sectors. Commerce and industry accounted for about 65% of total electricity sales in 1982 to the Government-controlled 1/ areas of Cyprus. 1.02 Since 1970 growth in the consumption of energy has been somewhat erratic due to the political, economic and demographic disruptions following the 1974 events, as well as the international changes in the price of oil in the post 1974 period. Since 1975 growth in petroleum product consumption has averaged 6% annually, although this has varied over that time from over 10% per annum to below 4% per annum. Electricity growth (including the unbilled portion to the area not under Government's control) has averaged 6.3 percent annually, and total energy consumption has increased by an average of approximately 5.5 percent per annum. This implies an elasticity with respect to real GDP of about 1.2. The dependency of Cyprus on imported fuel and the large investment required to meet the demand for electricity places a severe financial burden on the country. To decrease dependency on imported fuel requires tne development of renewable energy sources, the generation of electricity as efficiently as possible, and the conservation and management of electricity load requirements to reduce plant investment. The proposed Loan would finance studies, equipment, training and consulting to enable Government to develop economic renewable energy sources and to establish efficient generation and load control measures to conserve fuel. 1.03 Growth of energy consumption will depend critically upon the future success of Government policy measures in, the fields of conservation and interfuel substitution. The energy balance shown in Table 1 assumes a 4% GDP growth rate and estimates that demand for energy will rise by about 4% per annum through 1986. The 1986 energy balance implies a growth in the energy import bill of 21% over the 1981 figure, equivalent to C£ 120 million (equivalent to US$240 million) in 1982 terms. However with a vigorous conservation program, especially in the industrial, electricity and transport sectors, it is estimated that by 1986 an overall saving of about 9% on projected consumption could be mnade equivalent to C£ 34 million per annum (in 1982 terms). 1/ Since 1974 the island has been defacto divided into two political/economic zones. The north is under the control of the Turkish Cypriots while the south is under the control of the Government of Cyprus. Project activities are confined to the Government-controlled area of Cyprus. - 2 - Table l: Commercial Energy Balances ('000 toe) 1981 1986 A. Supply Imports Crude 576 538 Petroleum Products 368 606 Total 944 1,144 Less Refinery Losses (16) (18) Total 928 1,126 B. Consumption Fuel Electricity Total Direct (Equivalent) Energy Tons Tons Tons Sector '000 % 000 % 000 % 1981 Domestic and Commercial 74 8 137 42 211 23 Industrial 269 29 78 24 347 37 Transport 241 26 - - 241 26 Agriculture 18 2 13 4 31 3 Public Lighting - - 7 2 7 1 Unbilled Elect. /1 - - 91 28 91 10 Electricity Gen. 326 35 - - - - Total 928 100 326 100 928 100 1986 Domestic and Commercial 99 9 159 40 248 22 Industrial 342 29 84 24 428 38 Transport 319 27 - - 293 26 Agriculture 23 2 16 4 45 4 PuDlic Lighting - - 6 3 11 1 Unbilled Elect. /1 - - 78 29 101 9 Elect. Gen. 343 33 - - - - Total 1,126 100 343 100 1,126 100 Source: Bank estimates, based on "Cyprus: Current Economic Positions and Prospects for Growth During the Five-Year Plan," January 1983, World Bank document, Report No. 4069-CY. Data modified on the basis of information given to the Bank appraisal