Document of The World Bank FOR OFFICIAL USE ONLY Report No: 59383-JM PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$15 MILLION TO JAMAICA FOR AN ENERGY SECURITY AND EFFICIENCY ENHANCEMENT PROJECT February 3, 2011 Sustainable Development Department Caribbean Country Management Unit Latin America and the Caribbean Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of The World Bank
FOR OFFICIAL USE ONLY
Report No: 59383-JM
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$15 MILLION
TO
JAMAICA
FOR AN
ENERGY SECURITY AND EFFICIENCY ENHANCEMENT PROJECT
February 3, 2011
Sustainable Development Department Caribbean Country Management Unit Latin America and the Caribbean Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective January 14, 2011)
Currency Unit = Jamaican Dollar (JMD)
1 JMD US$1
= =
US$0.012195 JMD82
FISCAL YEAR
Jamaica: April 1 – March 31
ABBREVIATIONS AND ACRONYMS
AFI Approved Financial Institution
APL Adaptable Programmatic Loan Borrower Jamaica BoJ Bank of Jamaica BSJ Bureau of Standards Jamaica CDM Clean Development Mechanism CERE Centre of Excellence For Renewable Energy CPS Country Partnership Strategy DA Designated Account DBJ Development Bank of Jamaica DPL Development Policy Loan EE Energy Efficiency EMF Environmental Management Framework ESCO Energy Service Company EU European Union FM Financial Management FY Fiscal Year (World Bank) GEF Global Environment Facility GDP Gross Domestic Product GHG Green House Gas GoJ Government of Jamaica GNI Gross National Income HFO Heavy Fuel Oil IBRD International Bank for Reconstruction and Development IDB Inter-American Development Bank IDPs International Development Partners IFC International Finance Corporation IFIs International Financial Institutions IFR Interim Financial Report IMF International Monetary Fund IPP Independent Power Producer IRPF Involuntary Resettlement Policy Framework IS Implementation Support JPSCo Jamaica Public Service Company LoC Line Of Credit for Energy Efficiency and Renewable Energy LNG Liquefied Natural Gas
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MDA Ministries, Departments and other Agencies participating in the Project MEM Ministry of Energy and Mining MOFPS Ministry of Finance and the Public Service NEPA National Environment and Planning Agency NPCB National People’s Cooperative Bank OECD Organization for Economic Co-operation and Development OLADE Latin America Energy Organization (Organizacion Latinoamerica de Energia) ORAF Operational Risk Assessment Framework OUR Office of Utilities Regulation PCJ Petroleum Corporation of Jamaica PIOJ Planning Institute of Jamaica POM Project Operational Manual PPA Power Purchase Agreement PPP Public Private Partnership PSMD Public Sector Modernization Division RE Renewable Energy RFP Request For Proposal SBA Standby Agreement SIL Specific Investment Loan SMEs Small and Medium Enterprises TA Technical Assistance TOR Terms-Of-Reference UNDP United Nations Development Program USAID United States Agency for International Development USTDA U.S. Trade and Development Agency WB World Bank WBG World Bank Group
Regional Vice President: Pamela Cox Country Director: Françoise Clottes
Sector Director: Sector Manager:
Laura Tuck Philippe Benoit
Task Team Leader: Michel Layec
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JAMAICA
Energy Security and Efficiency Enhancement Project
TABLE OF CONTENTS I. Strategic Context ..................................................................................................................... 1
A. Country Context ........................................................................................................... 1
B. Sectoral and Institutional Context ................................................................................ 2
C. Higher Level Objectives to Which the Project Contributes ......................................... 5
II. Project Development Objectives (PDO) ................................................................................. 6
A. PDO .............................................................................................................................. 6
III. Project Description ............................................................................................................... 6
A. Project Components ...................................................................................................... 6
B. Project Financing .......................................................................................................... 9
C. Lessons Learned and Reflected in the Project Design ................................................. 9
IV. Implementation .................................................................................................................. 10
A. Institutional and Implementation Arrangements ........................................................ 10
B. Results Monitoring and Evaluation ............................................................................ 11
C. Sustainability .............................................................................................................. 12
V. Key Risks and Mitigation Measures ..................................................................................... 12
VI. Appraisal Summary ........................................................................................................... 13
A. Economic and Financial Analysis .............................................................................. 13
B. Technical .................................................................................................................... 14
C. Financial Management ............................................................................................... 14
D. Procurement ................................................................................................................ 15
E. Social (including Safeguards) ..................................................................................... 15
F. Environment (including Safeguards) .......................................................................... 16
Annex 1: Results Framework and Monitoring.............................................................................. 18
Annex 5: Implementation Support Plan ........................................................................................ 52
Annex 6: Team Composition ........................................................................................................ 56
Annex 7: Line of Credit for Energy Efficiency and Renewable Energy Investments .................. 57
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PAD DATA SHEET
JAMAICA Energy Security and Efficiency Enhancement Project
PROJECT APPRAISAL DOCUMENT
LATIN AMERICA AND THE CARIBBEAN REGION
Sustainable Development Department Energy Unit
Date: February 3, 2011 Country Director: Françoise Clottes Sector Director: Laura Tuck Sector Manager: Philippe Benoit Team Leader(s): Michel Layec Project ID: P112780 Lending Instrument: SIL
Sector(s): Energy (100%) Theme(s): Infrastructure services for private sector development (100%) EA Category: B
Project Financing Data: Proposed terms: The IBRD Flexible Loan is denominated in US dollars, with a variable spread, commitment-linked, level repayments, with a 5.5 year grace period, 30 years total maturity and payment dates of April 15 and October 15 of each year, and all conversion options selected. [ X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:
Source Total Amount (US$M) Total Project Cost:
Cofinancing: Borrower: Total Bank Financing:
IBRD IDA
New Recommitted
US$15 million US$15 million
Borrower: Jamaica Responsible Agency: Ministry of Energy and Mining
Project Implementation Period: May 2011-June 2015 Expected effectiveness date: May 2011 Expected closing date: December 2015
Does the project depart from the CAS in content or other significant respects?
○ Yes ● No
If yes, please explain:
Does the project require any exceptions from Bank policies? Have these been approved/endorsed (as appropriate by Bank management? Is approval for any policy exception sought from the Board?
○ Yes ● No ○ Yes ○ No ○ Yes ● No
If yes, please explain:
Does the project meet the Regional criteria for readiness for implementation? Ref. PAD Section IV.
● Yes ○ No
If no, please explain:
Project Development objective: The objective of the Project is to increase energy efficiency and security through the implementation of the Borrower’s National Energy Policy.
Project description: Component 1: Strengthening the Regulatory and Institutional Framework to Improve Sector Performance, Increase Private Investment and Transition to Cleaner Fuels (IBRD US$5.130 million). Component 2: Developing Energy Efficiency and Renewable Energy Potential (IBRD US$9.080 million). Component 3. Project Management, Monitoring and Evaluation (IBRD US$752,500). The loan will also finance the Front-End fee of US$37,500.
Safeguard policies triggered? Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waters (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60)
● Yes ○ No ● Yes ○ No ● Yes ○ No ● Yes ○ No ○ Yes ● No ○ Yes ● No ● Yes ○ No ● Yes ○ No ○ Yes ● No ○ Yes ● No
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Conditions and Legal Covenants
Loan Agreement Reference Description of Condition/Covenant Date Due
Section 5.01 (a) The Development Bank of Jamaica (DBJ) Subsidiary Agreement has been executed on behalf of the Borrower and the Development Bank of Jamaica (DBJ).
Effectiveness
Section 5.01 (b) The respective Implementation Agreements have been executed as follows: (i) on behalf of the Borrower and the Office of Utilities Regulation; (ii) on behalf of the Borrower and the Petroleum Corporation of Jamaica; and (iii) on behalf of the Borrower and the Bureau of Standards.
Effectiveness
Schedule 2 – Section I. F. 1 The Borrower shall ensure that the energy efficiency and renewable energy investments (Subprojects) financed through the Line of Credit are carried out in accordance with the Environmental Management Framework, and the Resettlement Policy Framework, respectively. If a resettlement action plan would be required for a Subproject on the basis of the Resettlement Policy Framework: (i) said resettlement action plan shall be prepared in accordance with the requirements of the Resettlement Policy Framework, disclosed locally and furnished to the Bank for approval; and (ii) no works under a Subproject shall commence until (A) all measures required to be taken resettlement action plan prior to the initiation of said works have been taken; (B) the Development Bank of Jamaica has received from the responsible Approved Financial Institution (AFI) and furnished to the Bank a report in form and substance satisfactory to the Bank, on the status of compliance with the requirements of said resettlement action plan; and (C) the Bank has confirmed that said works may commence.
Throughout Project implementation
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Schedule 2 – Section I. G. 1. The Borrower, through MEM shall ensure, and cause the Office of Utilities regulation to ensure that the terms of reference for any consultancy in respect of any Project activity under subcomponents 1.2 and 1.3 of the Project, shall be satisfactory to the Bank following its review thereof and, to that end, such terms of reference shall duly incorporate the requirements of the Bank Safeguard Policies then in force, as applied to the advice conveyed through such technical assistance.
Throughout Project implementation
Schedule 2 - Section V. The Borrower shall, not later than one month after the Effective Date, recruit a Project manager, a financial management specialist, and a procurement specialist.
Dated covenant
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JAMAICA Energy Security and Efficiency Enhancement Project
I. Strategic Context
A. Country Context
1. Jamaica, the largest English-speaking island in the Caribbean Sea, has 2.7 million inhabitants with a per capita Gross National Income (GNI) of US$4,326 in 2009.1 Achieving higher growth and greater prosperity, reducing economic volatility, and providing greater social stability is urgent for Jamaica. The country has developed Vision 2030, a 25-year strategy, and a Medium-Term Socio-economic Policy Framework for 2009-2012. The latter is organized around six pillars: (1) a stable macro-economy; (2) greater security and safety; (3) effective governance; (4) world class education; (5) strong economics; and (6) energy security through energy diversification and the promotion of energy efficiency. These objectives, however, have become more elusive in the face of the global economic crisis, which has led to a contraction in foreign direct investment from Organization of Economic Co-operation and Development (OECD) countries, a near collapse of the bauxite industry, an estimated 18 percent decline in 2008 in remittances from the approximately 3 million Jamaicans living abroad, and a tourism industry that has not grown in the last year. 2. On February 4, 2010, the Board of Executive Directors of the International Monetary Fund (IMF) agreed to provide a Stand-By Arrangement (SBA) to manage short-term difficulties and support the longer term reform agenda. The SBA, in the amount of US$1.27 billion (or 15 percent of Gross Domestic Product (GDP)), is intended to cover a period of 27 months. As of September 24, 2010, approximately US$790 million (JMD67 billion) had been disbursed under the Stand-By Agreement. On February 23, 2010, the Bank approved US$200 million for the First Programmatic Fiscal Sustainability Development Policy Loan (FS DPL1) which builds on the progress made under the Bank’s previous Fiscal and Debt Sustainability DPL (January 2009) and supports the Government’s reform program aimed at improving management of public finances and reducing the debt burden on the economy. 3. The World Bank Group (WBG) Country Partnership Strategy (CPS)2 for FY10-13 was discussed by the WBG Board of Executive Directors on March 23, 2010, to support Government efforts to improve economic and social stability and achieve inclusive and accelerated growth with stronger governance and environment frameworks. The third pillar of the CPS aims at promoting sustained growth by, among other objectives, strengthening non-labor competitiveness, increasing climate resilience and reducing the debt burden on the economy.
1 From 1990 to 2008, GDP growth averaged 1.4 percent and was -3.0 percent in 2009 as a result of the crisis. Public investment has been constrained by the servicing of a large debt stock, which stood at 115.7 percent of GDP end FY 2008/09, and 129.4 percent in FY2009/10. 2 Country Partnership Strategy, Report No. 52849- JM.
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B. Sectoral and Institutional Context
4. The Project builds upon the assessment and conclusions of the Electricity Sector Note prepared by the Bank in 2008.3 Jamaica’s energy sector is characterized by high energy costs, very high dependence on imported petroleum products (in 2008, 94 percent of all energy used was imported), relatively limited renewable energy resources, and a relatively small energy market. Table 1 below provides key facts about Jamaica’s electricity sector:
Installed Generation Capacity (MW) 840 4 Peak Demand (MW) 644.4 Number of Electricity Consumers (000) 585 Access Rate (% of population) 92 Electricity consumption per capita (kWh/year) 1,142 Transmission and Distribution Losses (% of Energy produced/purchased)
23
Load Factor (%) 57 Contribution of Imported Fossil Fuels (%) 95 Contribution of Renewable Energy (%) 5 5 Average Electricity Tariff (USc/kWh) 27.5 Carbon Dioxide Emissions (Millions Metric Tons of CO2) 12.11
5. While power generation capacity is adequate to cover current demand, Jamaica’s quasi-exclusive reliance on imported petroleum products (primarily diesel oil and Heavy Fuel Oil (HFO) for power generation), together with high levels of inefficiency in power generation, and high transmission and distribution losses (23 percent in 2009)6 lead to very high electricity costs and tariffs. In 2009, the average electricity tariff and underlying cost was 27.5 USc/kWh. In addition, the country is exposed to considerable vulnerability to oil price shocks. In 2008, Jamaica’s overall oil bill amounted to US$2.7 billion or 18 percent of GDP7, of which 25 percent was used to generate electricity for the grid and 40 percent was used by bauxite refineries for generation of heat and off-grid power. These factors are hampering the country’s competitiveness. 6. Electricity demand has grown on average 3.8 percent per annum over the last ten years, with over 5 percent growth from 1996-2002 and just under 2 percent on average since 2002. The industrial and tourism sectors represent approximately 45 percent of demand. The bauxite industry has become an important buyer of electricity provided by the grid as industry self-generation has decreased. Although Jamaica does not face an energy supply crisis at this time, it is estimated that additional generation capacity of approximately 500 MW will be needed over
3 Additional information on Jamaica’s energy sector is available in the Project files. 4 Grid interconnected capacity, of which: Jamaica Public Service Company (JPSCo): 630 MW, thermal Independent Power Producers (IPPs) and Wigton Wind Farm: 210 MW. 5 Renewable energy includes 4 percent from hydroelectric generation and 1 percent from wind. 6 This consists of 2 percent in transmission losses, and 21 percent in distribution losses (of which 8 percent are technical losses and 13 percent are non-technical losses). 7 For 2009, the oil bill was approximately US$1.3 billion, which represented a decline of 50.8 per cent compared to the previous year due, in part, to the downturn in the bauxite industry.
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the next five years to meet anticipated increases in demand and the retirement of old and inefficient units.
7. Institutional Context. Given the relatively small size of the energy sector in Jamaica, its structure is relatively complex and involves several private and public institutions, potentially resulting in a complicated decision-making process and challenges for coordination. Figure 1 below outlines the key institutions in the electricity sector. As a result of the anticipated increase in the number of private partners in the energy sector (in the power sector as well as in the petroleum sector and the new gas sector), the importance and complexity of energy sector regulation and monitoring of Public-Private Partnerships (PPP) performance will increase.
Figure 1: Key Electricity Sector Institutions
8. The most important challenges facing Jamaica’s energy sector are:
a. Reducing the cost of electricity and eventually lowering prices to improve the
country’s economic competitiveness and reduce the impact of energy consumption on households’ budgets. This will require diversifying the sources of electricity generation away from expensive diesel oil to natural gas (through LNG) and heavy fuel oil, accelerating the replacement of highly inefficient generating plants8 and reducing transmission and distribution losses.
8 New generating plants commissioned by Independent Power Producers (IPP) use about 200 grams of fuel/kWh. JPSCo’s older generating units use about 350 g/kWh.
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b. Lowering the sector’s vulnerability to oil price fluctuations by reducing its reliance on imported petroleum products for electricity generation through: (i) the development of renewable energy sources; (ii) diversification toward fuels with more stable prices, such as gas and renewable energy; and (iii) energy efficiency measures.
c. Strengthening the sector regulatory framework by providing clear policy directions, regulations and incentives in order to mobilize private sector investment, promote renewable energies and increase energy efficiency at the level of utilities and end-users.
d. Mobilizing private sector financing for energy infrastructure as public finances will not be able to provide substantial financial resources directly or even through guarantees.
e. Building institutional capacity to formulate, plan and implement energy policies and
strategies and monitor and evaluate outcomes.
f. Reducing GHG emissions by switching to less polluting fuels (such as gas), developing renewable energy, and curbing energy consumption (and the underlying related generation) through energy efficiency measures.
9. The Jamaica National Energy Policy 2009–2030 (the “National Energy Policy”) approved by Parliament in November 2010 seeks to develop: “A modern, efficient, diversified and environmentally sustainable energy sector, providing affordable and accessible energy supplies with long-term energy security and supported by informed public behavior in energy issues, and an appropriate policy, regulatory and institutional framework.” Implementing the National Energy Policy and meeting the above-mentioned challenges will require increased institutional capacity to formulate, plan and implement the various energy programs and specific initiatives set out in the policy, and to monitor progress and impacts. 10. Improving Energy Security through energy diversification is a critical part of the Government energy strategy. Diversification is sought through greater use of natural gas and imports of Liquefied Natural Gas (LNG), and developing small hydroelectric plants and solar and wind resources.9 However, because of the country’s borrowing and debt-servicing constraints and Government policies, such investments will be largely financed and managed by the private sector. 11. The Natural Gas/LNG Program. In response to the challenges faced by Jamaica’s energy sector, in particular: (a) the very high dependency on imported oil and related frequent and substantial fluctuations in oil prices, and (b) climate change, the Government has evaluated different fuel supply options and on that basis developed a new National Energy Policy. Options evaluated include: continuation of the very high reliance on petroleum products, import of coal, development of large scale renewable energy, and introduction of natural gas in Jamaica’s
9 Eight small hydroelectric plants are in operation. One wind farm (Wigton) with a net output of 7 MW is also operational.
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energy matrix. The assessment of these options led the Government to decide that natural gas/LNG is a key component of the Government’s economic program and for the new National Energy Policy as it would provide for off-oil diversification, would benefit many sub-sectors (electricity generation, transport sector, industry and commercials sectors), is a cost-effective fuel option, and is a cleaner fuel. The Government will continue reviewing and optimizing the technical and commercial design of the natural gas/LNG program to ensure that it lowers energy costs, effectively diversifies the energy matrix and increases the share of cleaner fuels, and mitigates the technical and commercial risks.
12. Increasing Sector Efficiency. Reducing energy costs is also a critical aspect of the Government’s sector strategy because electricity and petroleum prices are high relative to Jamaica’s main economic partners and competitors. Alternatives considered and actions to be implemented by the Government and the private sector partners include: (a) the replacement of inefficient electricity generating units to increase efficiency in electricity generation (currently, approximately 500 MW of new power generating capacity should be commissioned within the next 3-6 years); (b) the reduction of transmission and distribution losses; and (c) energy efficiency investments in the public sector (such as schools, hospitals, public buildings and street lighting), promotion of energy efficiency investments in commercial and industrial enterprises, and increasing information and awareness of decision-makers with respect to energy efficiency. 13. Donors and Private Sector Financing. The Government is partnering with a variety of International Development Partners (IDPs) in the development of Jamaica’s Energy sector: (a) the Inter-American Development Bank (IDB) is providing grant financing for technical assistance to the MEM (assessment of energy efficiency measures in the public sector, measurement of the onshore wind potential) and to the Development Bank of Jamaica (DBJ) (training of energy auditors, promotion of energy efficiency measures in the private sector; (b) the United Nations Development Program (UNDP) is supporting the initiation of the implementation of the National Energy Policy with a specific focus on the monitoring and evaluation framework; (c) the U.S. Agency for International Development (USAID)/the U.S. Trade and Development Agency (USTDA) are assisting PCJ in the development of PPPs for waste-to-energy projects; (d) the Organization of American States (OAS) is assisting MEM in the development of biofuels; (e) the European Union is providing support with respect to the sugar sector (including for a more efficient use of bagasse) and for the greater use of the Clean Development Mechanism (CDM); (f) the Latin American Energy Organization (OLADE) is providing online training and capacity building to MEM and other stakeholders in the sector; and (g) the PetroCaribe Fund is providing financing for investments in Jamaica’s oil refinery and assisting in the preparation and in the implementation of the LNG project. The private sector is already a critical partner in Jamaica’s energy sector through JPSCo (the main power utility) and the IPPs. IFC is providing financing to private electricity generators (IPPs) and JPSCo.
C. Higher Level Objectives to Which the Project Contributes
14. The higher level objectives of the Project are to support the goals set out in Jamaica’s National Energy Policy, particularly improving Jamaica’s competitiveness by reducing end-users energy costs, reducing the very high dependence on imported petroleum products, and
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mobilizing private sector financing. These objectives are also part of the Bank Group CPS. The Project will also directly support the third pillar of the CPS, namely promoting sustained growth, by strengthening non-labor competitiveness, notably through IFC and Bank collaboration on energy programs and climate resilience, as well as vulnerability reduction.
II. Project Development Objectives (PDO)
A. PDO
15. The objective of the Project is to increase energy efficiency and security through the implementation of the Borrower’s National Energy Policy. 1. Project Beneficiaries 16. The Project’s direct beneficiaries will be all of Jamaica’s energy consumers (residential, commercial, industrial) in the public and private sectors, as the Project will contribute to reduced energy costs, increased energy security and improved economic competitiveness. The Project will also contribute globally to reducing Green House Gas (GHG) emissions. 2. PDO Level Results Indicators
17. Progress towards achieving the PDO will be assessed globally through the implementation of the National Energy Policy. Project specific results will be assessed: (a) with respect to energy efficiency through the evolution of the costs of electricity generation; and of the energy costs of the small and medium enterprises; and (b) with respect to energy security through changes in Jamaica’s energy matrix, in particular decrease in the relative share of imported oil products. Intermediate results will be assessed: (a) for component 1 through new sector regulations under preparation or approved, new generating capacity tendered, negotiated or under construction for the electricity sector, milestones in the implementation of the natural gas/LNG program, and implementation of information/communication plan; for component 2, through the number of electrical appliances labelled and of information and awareness campaigns carried out on energy efficient electrical appliances, number of prefeasibility and feasibility and investment studies, level of financial commitments and disbursements under the line of credit and for the electricity sector; and (c) for component 3 through the key personnel assigned to Project implementation, capacity building training sessions, and reports regarding financial management, procurement, environmental safeguards and Project audits. The Project Outcomes and Intermediate Results indicators are presented in Annex 1.
III. Project Description
A. Project Components
18. The Project’s three components are summarized below (Annex 2 provides the Detailed Project Description). The Project has been designed to provide broad support to the implementation of the National Energy Policy (para. 9). Successful implementation of this new National Energy Policy will require comprehensive and coordinated action by: (a) GoJ to provide a coherent and transparent enabling environment, with clear regulations and incentives
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for both the demand and supply sides; (b) the private sector in mobilizing investment financing and carrying out the investments; and (c) Jamaica’s international partners. 19. To help the Government achieve these goals, the Project supports and provides resources for: (a) strengthening the sector’s regulatory framework and the capacity of key institutions, in particular the Ministry responsible for the energy sector – MEM – and the regulatory agency – OUR (component 1); (b) financing to: (i) catalyze increased private sector investment in renewable energies and energy efficiency, and greater investment promotion for renewable energy sources; (ii) strengthen the testing/labeling efficiency program for electrical appliances and strengthen efficiency standards and energy efficiency awareness programs (component 2); and (c) implementation of the Project consistent with relevant fiduciary requirements and monitoring and evaluation of Project activities (component 3).
20. Component 1: Strengthening the Regulatory and Institutional Framework to Improve Sector Performance, Increase Private Investment and Transition to Cleaner Fuels (IBRD US$5.130 million). It includes the following sub-components:
a. Sub-Component 1.1: Provision of technical advisory services to, inter alia, develop: (a) detailed policies on renewable energy in particular for hydro, wind resources and biomass, energy efficiency, and gas, and related regulations; and (b) implementation strategies and plans related to the policies on renewable energy referred to in subparagraph (a) immediately above (IBRD US$510,000; Implementation: MEM).
b. Sub-Component 1.2: Strengthening the regulatory framework for private-public partnership monitoring capacity of the energy sector, including, inter alia, developing the capacity of the Office of Utilities Regulation (OUR) and Ministry of Energy and Mining (MEM) to: (a) develop regulations required for the development of renewable energy (including tariff setting methodologies), and a gas/Liquefied Natural Gas (LNG) program; (b) extend OUR oversight responsibilities to the gas, refinery and downstream petroleum sector; and (c) develop the monitoring and benchmarking instruments (IBRD US$1,160,000; Implementation: OUR).
c. Sub-component 1.3: Accelerating the development of cost-effective privately- financed generation in the power sector through the provision of technical advisory services to OUR and MEM, to: (a) prepare electricity non-Project investments; (b) facilitate effective interaction with the private developers; and (c) build their respective institutional capacity (IBRD US$1,610,000; Implementation: OUR).
d. Sub-Component 1.4: Introducing the LNG program to support off-oil diversification, including the institutional strengthening of MEM and the relevant ministries, departments and agencies (MDAs), and provision of technical advisory services to enhance the technical, commercial, financial, and legal expertise required for developing a sound and sustainable LNG Program and related investments, stakeholders’ information and consultation (IBRD US$1,650,000; Implementation: MEM).
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e. Sub-Component 1.5: Provision of technical advisory services to MEM and MDAs to harness the carbon credit potential created through the energy efficiency, renewable energy development and fuel substitution activities, respectively, under the Borrower’s National Energy Policy (IBRD US$120,000; Implementation: MEM).
f. Sub-Component 1.6. Implementing the National Energy Policy communication and
information plan (IBRD US$80,000; Implementation: MEM). 21. Component 2: Developing Energy Efficiency and Renewable Energy Potential (IBRD US$9.080 million). It includes the following sub-components.
a. Sub-Component 2.1: Expanding the energy efficiency testing and labeling capability, and information program of the Bureau of Standards, including, inter alia, extending the testing chambers to test refrigerators, freezers, and air-conditioners; and strengthening the related labeling and information program (IBRD US$1,550,000; Implementation: Bureau of Standards of Jamaica).
b. Sub-Component 2.2: Carrying out investment promotion activities for identified
small hydro sites, review the performance of the existing hydroelectric plants, and mobilizing investors and financiers, all in accordance with criteria acceptable to the Bank (IBRD US$2,760,000; Implementation: Centre of Excellence for Renewable Energy of PCJ).
c. Sub-Component 2.3: Promoting solar and wind energy, including the dissemination
of results of an on-shore wind resource assessment to potential investors, and promoting private sector investment in solar and wind energy (IBRD US$170,000; Implementation: Centre of Excellence for Renewable Energy of PCJ).
d. Sub-Component 2.4: Provision of line of credit/revolving facility (Line of Credit)
through the DBJ, to approved financial institutions (AFIs) to provide retail financing to the private sector (Eligible Investors) for energy efficiency and renewable energy investments (Subprojects) (US$4,600,000; Implementation: The Development Bank of Jamaica).
22. Component 3: Project Management, Monitoring and Evaluation (IBRD US$752,500). This component will be managed by MEM and includes the following sub-components:
a. Sub-Component 3.1: Strengthening the capacity of the MEM for Project management, procurement and financial management (IBRD US$662,500).
b. Sub-Component 3.2: Provision of technical advisory services to define and implement the metrics/indicators and the monitoring and evaluation system required to monitor and assess the progress in Project implementation and the related actions under the National Energy Policy (IBRD US$90,000).
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B. Project Financing
1. Lending Instrument
23. The IBRD Specific Investment Loan (SIL) to Jamaica is proposed to be US$15 million. The Project is scheduled to be implemented over 4 years (50 months, May 2011 – June 2015). The Ministry of Finance and the Public Service (MOFPS) has selected an IBRD Flexible Loan denominated in US dollars, with a variable spread, commitment-linked, level repayments, with a 5.5 year grace period and 30 years total maturity and payment dates of April 15 and October 15 of each year, and all conversion options selected. The Front-End fee will be paid from the loan proceeds. 2. Project Financing
24. The allocation of the IBRD loan amount to each of the three Project components is described in Table 2 below (Annex 2 provides a detailed cost estimate by sub-component).
Table 2: Allocation of IBRD Financing by Project Component
Project Components Allocation of IBRD Loan (US$000)
Component 1: Strengthening the Regulatory and Institutional Framework to Improve Sector Performance, Increase Private Investment and Transition to Cleaner Fuels
5,130.0
Component 2: Developing the Energy Efficiency and Renewable Energy Potential
9,080.0
Component 3:Project Management, Monitoring and Evaluation 752.5 Front-End Fee 37.5 Total IBRD Loan 15,000.0
25. Retroactive Financing. Retroactive financing of up to US$1.5 million (10 percent of the proposed loan) will be available to OUR (US$900,000) and MEM (US$600,000) for activities included in the Project description provided that: (a) the payments are for items procured in accordance with applicable World Bank procurement procedures; and (b) the payments are made by the Borrower on or after May 15, 2010, but before Loan Signing.
C. Lessons Learned and Reflected in the Project Design 26. The Project design reflects Jamaica’s specific situation, as well as lessons learned on comparable projects. Several alternatives were discussed during Project preparation, but rejected as being less preferable to the chosen project structure.
a. One specific lesson from Bank experience incorporated into the Project’s design is the importance of a comprehensive sector approach implemented within a limited number of project components that addresses regulatory framework reforms, capacity building, and the preparation of investment programs and their promotion.
b. The Project design also reflects the experience in Jamaica and internationally indicating that it is often advisable to use existing institutions and processes, rather
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than creating new ones. For example, the Project fiduciary arrangements seek to benefit from the experience of the existing Public Sector Modernization Division (PSMD) within the Cabinet Office. Similarly, the implementation arrangements for the energy efficiency and renewable energy line of credit rely on DBJ’s experience and processes and on the existing lending institutions.
c. Strong teams are also required to ensure implementation of a national energy policy
consistent with its priorities and timeframes. The Project provides specific resources to strengthen the implementation capacity of the ministry responsible for energy (MEM) and to the entities involved in Project implementation.
d. Successful project implementation relies on strong project preparation and to build,
when possible, where there has been initial progress. Accordingly, the Project activities have been selected where there has been adequate preparation. Only activities ready for implementation have been selected (for example some energy efficiency measures in street lighting have not been included as the proposed activities were not ready for implementation).
IV. Implementation
A. Institutional and Implementation Arrangements 27. The Project will be implemented within GoJ’s institutional framework. The Ministry of Energy and Mining (MEM), through its Energy Division, will have overall Project Implementation responsibility. MEM will be responsible for coordinating and reporting to the Borrower and the Bank on the activities carried out by: (i) the Office of Utilities Regulation (OUR) with respect to the strengthening of the regulatory frameworks and the mobilization of private sector financing (component 1); (ii) the entities responsible for the development of the natural gas/LNG program (component 1); (iii) the Centre of Excellence for Renewable Energy of the Petroleum Corporation of Jamaica (PCJ) with respect to the promotion of renewable energy (component 2); (iv) the Bureau of Standards Jamaica (BSJ) in implementing the extension of the testing, labelling and information program for electrical appliances (component 2); and (v) the Development Bank of Jamaica (DBJ) with respect to the implementation of the Energy Efficiency (EE) and Renewable Energy (RE) Line of Credit. Project implementation is expected to last 50 months. 28. Fiduciary Requirements. The Public Sector Modernization Division (PSMD) of the Office of the Cabinet will provide MEM with financial management and procurement support for the Project, and will be responsible for building procurement and financial management capacities. The respective roles and responsibilities of PSMD and MEM regarding financial management and procurement, and the transition arrangements are further described in Annex 3 and in the Project Operational Manual. Project Accounts will be audited once a year by the Auditor General. The LoC accounts, managed by DBJ, will be audited once a year by an external auditor acceptable to the Bank.
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29. Mechanism for Coordinating Project Implementation. To ensure full coordination with the other activities related to the implementation of the National Energy Policy and with the International Financial Institutions involved in Jamaica’s energy sector, a Project Steering Committee chaired by MEM’s Permanent Secretary, and including principals from the Planning Institute of Jamaica (PIOJ),10 Cabinet Office, OUR, DBJ, PCJ Centre of Excellence for Renewable Energy, and from BSJ, will meet at least every month during the first 6-months following Project Effectiveness, and quarterly thereafter.
30. Implementation of the Line of Credit promoting Energy Efficiency and Renewable Energy. DBJ will assume overall responsibility for the implementation of the line of credit (LoC) under Sub-Component 2.4 and will be the Bank’s main interlocutor for this sub-component. A Project Agreement will be signed between DBJ and IBRD as well as a Subsidiary Agreement between MOFPS and DBJ. DBJ will interact with the AFIs participating in the LoC, and will evaluate their financing requests. Disbursements from DBJ to the AFIs will be made on a first-come first-served basis. Each AFI will interact directly with their private sector clients and will be responsible for subproject appraisal, for the due-diligence on sub-project sponsors and for their loans. The National Environment and Protection Agency (NEPA) will interact with the private sector investors, the AFIs and DBJ to ensure compliance with the national and World Bank environmental and social safeguards.
B. Results Monitoring and Evaluation 31. Monitoring and Evaluation (M&E) will be the responsibility of MEM, as the Project coordination entity. Project implementation and results monitoring include:11 (a) the monitoring of performance and intermediate indicators presented in Annex 1; (b) quarterly progress reports using the information prepared by the implementing entities and PSMD on financial management and procurement matters as detailed in the Project Operational Manual; (c) Interim Financial Reports (IFRs) and annual audits of the Project Accounts and of the LoC Accounts; (d) World Bank supervision missions; and (e) the Project midterm review of implementation progress planned for the first quarter of CY2013. MEM will finalize the monitoring and evaluation plan during the first six-month of Project implementation; a member of MEM’s Energy Division will be assigned responsibility for collecting information and maintaining databases to monitor the implementation performance of all Project components and sub-components. 32. LoC Activities managed by DBJ. DBJ will be responsible for collecting information from the participating AFIs, for site visits of selected sub-projects and for reporting directly to the Bank with copy to MEM. An external auditor will be contracted to audit the LoC accounts and compliance with the Project Agreement signed between DBJ and the Bank. The first five EE/RE projects will be reviewed by the Bank prior to their approval by DBJ/AFIs.
10 PIOJ participated very actively in Project preparation and ensured coordination with GoJ entities and with the IFIs. 11 Monitoring and Evaluation arrangements are also described in the National Energy Policy documentation.
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C. Sustainability 33. Project sustainability rests on the following aspects fully reflected in Project design and implementation arrangements.
a. Consensus on the importance of the issues addressed by the Project, both in the short-term and the longer term. Energy sector issues are currently considered by both the private sector and the public sector, as a critical issue to be addressed as a matter of priority.
b. Building on long-term Government policy: the Project supports the implementation of the National Energy Policy approved by Parliament which addresses key sector issues.
c. Jamaican ownership: The Project has been prepared in very close collaboration
with the key sector stakeholders and the implementing entities.
d. Use of existing Institutions: Project implementation arrangements are built upon existing institutions and tested processes.
e. Delineation of activities with scale-up potential: The EE and RE Line of Credit with DBJ has been designed and funded as an activity which can be scaled-up depending on the sub-component outcomes.
V. Key Risks and Mitigation Measures
34. Project overall risk is rated as Medium I.12 The risks identified are manageable and mitigations measures have been agreed. Table 3 below presents the potential critical risks and the proposed mitigation measures (Annex 4: Operational Risk Assessment Framework (ORAF) provides a detailed assessment of the risks).
12 Medium I: Medium risk driven by potential Impact on achievement of the Project Development Objective.
Implementing capacities are relatively limited in MEM, in particular as MEM is not experienced with World Bank financed project implementation requirements.
(1) Critical role of the Project Steering Committee (including PIOJ and the principals of the implementing entities) in regular monitoring of Project implementation progress, assessing issues and proposing corrective actions. (2) MEM Energy Division will contract experienced staff to support Project implementation.
Project Financial Management and Procurement Risks
MEM and some of the implementing entities do not have experience with World Bank Procurement/Financial Management requirements.
(1) PSMD will provide support and mentoring to MEM for Financial management and Procurement, until MEM’s capacities are considered satisfactory by the Bank. (2) Project Accounts will be audited once a year by the Auditor General. The LoC accounts, managed by DBJ, will be audited once a year by an external auditor acceptable to the Bank.
VI. Appraisal Summary
A. Economic and Financial Analysis
35. The Project will support the following activities: (a) upgrade of the regulatory framework to incentivize private sector participation and financing in Jamaica’s energy sector; (b) preparation of requests for proposal and tenders, their evaluation and negotiation for private sector investments in electricity generation and off-oil diversification; (c) energy efficiency and information and awareness programs to support implementation of energy efficiency measures; (d) capacity building to support the implementation of the National Energy Policy; and (e) energy efficiency and renewable energy investments by small and medium private sector enterprises. 36. About US$9 million of the loan will be used for Technical Assistance (TA) and capacity building activities. The direct benefits from the TA and capacity building activities have not been subjected to a quantified assessment of their economic impacts (assessing Project impacts on Jamaica’s society), financial impacts (from the perspective of the sponsor/investor) or budgetary impacts, as the direct economic and financial benefits are very difficult to quantify. However, these activities support investments that are expected to be highly economically and financially attractive as indicated below.
37. Replacement of existing electricity generating units: The financial return on the replacement of about 480 MW of existing electricity generating plants is estimated to be about 35 percent for the base case. The pay-back period is estimated to be four years.
38. Extension of the testing/labeling and information program for key electrical appliances: An initial financial assessment of the impact of this activity shows that the financial return for the buyers of energy efficient appliances is expected to be well over 25 percent with a pay-back period of less than three years.
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39. Energy Efficiency/Renewable Energy Sub-Projects. The participating AFIs and DBJ will ensure that the subprojects supported by the line of credit are economically and financially attractive. International experience on energy efficiency investments shows that the financial and economic returns of such investments are quite high, typically in the order of over 30 percent. Energy audits carried out for schools, hospital and public buildings have an estimated average payback period of 2.4 years. The rate of return for renewable energy is more project specific.
B. Technical
40. Project design does not propose untested technologies, policies or implementation mechanisms, and incorporates relevant lessons from experience. The Project activities have been developed in close collaboration with key stakeholders and the implementing teams, and will be carried out within the current institutional framework. 41. AFIs will be responsible for the retailing of EE and RE loans financed through the LoC at their own risks. To ensure compliance with Operational Policy OP8.30, a due-diligence of the LoC implementing institutions (in particular DBJ and the AFIs) was carried out during Project preparation. The conclusion is that DBJ and the AFIs have the necessary expertise to perform the required functions, but that further institutional strengthening by DBJ of one AFI, the National People’s Cooperative Bank, is required before this entity becomes eligible. A summary of the due diligence process and of the main conclusions is provided in Annex 7, with additional information available in the Project files.
C. Financial Management
42. MEM does not currently have adequate experience in implementing World Bank-financed projects, in particular with respect to project financial management (FM) and procurement matters (see below). It has therefore been agreed that: (a) PSMD will provide support to MEM with respect to Project FM (and procurement activities) as PSMD has managed comparable IDB projects, and that this support will continue until MEM’s capacities are considered satisfactory by the Bank at which point Project financial management will be transferred to MEM; (b) the Project will finance the employment of a Financial Management specialist (within one month of Project Effectiveness), in addition to a Project Manager, to be assigned to the Project to ensure satisfactory Project financial management; and (c) PSMD, with Bank participation, will also ensure FM capacity building within MEM and as needed in the other implementing agencies. 43. The overall financial management risk for the Project is assessed as Medium as multiple agencies will implement the Project activities. A detailed financial management assessment of the Project was carried out by the team; a summary of this assessment and of the FM implementation arrangements is provided in Annex 3. The assessment was carried out in accordance with the requirements of OP/BP 10.02 and the guidelines for Assessment of Financial Management Arrangements in World Bank projects, issued by the Financial Management Sector Board and dated March 1, 2010.
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D. Procurement
44. Procurement for the proposed Project will be carried out in accordance with the World Bank’s "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, as revised October 2006 and May 2010; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, as revised October 2006 and May 2010, and the provisions stipulated in the Legal Agreement. A Project Procurement Plan has been agreed upon which stipulates the different procurement methods, the need for pre-qualification, estimated costs, prior review requirements and the timeframe for each contract financed by the loan. This Plan will be updated annually or as required to reflect the Project’s implementation needs. 45. A Procurement Assessment of each implementing entity was also carried out as part of Project preparation. This assessment, whose main findings and recommendations are provided in Annex 3 (with more details in Project files), focused on the capacities required to manage procurement using both World Bank and national procurement guidelines and procedures. Because of MEM’s limited experience with World Bank procurement requirements, the following was agreed. First, PSMD will support MEM in carrying out Project procurement activities, and would also build procurement capacity. Second, as part of its supervision of the Project the Bank will assess progress in building up procurement capacity, and together with MEM will agree on the nature of PSMD’s future support. Third, a procurement specialist will be contracted by MEM (within one month of Project Effectiveness) and financed by the Project to work with PSMD initially on Project procurement and on building procurement capacity within MEM. Fourth, the World Bank and PSMD will together conduct capacity building regarding the application of the Bank’s procurement guidelines.
E. Social (including Safeguards)
46. Consultations with NEPA, DBJ, the AFIs interested by the LoC, and representatives of private sector companies took place during Project preparation to design activities and implementing procedures, and to ensure support for the Project. It is not expected that the Project will lead to negative social impacts. However, to screen and manage potential issues related to the energy efficiency (EE) and renewable energy (RE) investments supported by the LoC and to ensure that studies financed by the Project assess potential social issues, an initial Involuntary Resettlement Policy Framework (IRPF) was prepared, discussed and disclosed on the Websites of MEM, DBJ, NEPA and the World Bank InfoShop on January 5, 2011. The final IRPF was disclosed on the Websites of MEM, DBJ, NEPA and the World Bank InfoShop on January 24, 2011. 47. The Project addresses social issues at different levels. At the individual/energy consumer level, the Project would help to better manage energy costs, and hence potential changes in energy prices. At the societal level, the Project would contribute to improving Jamaica’s economic competitiveness by reducing energy costs and prices and attracting private sector investments. The diversification of the energy matrix through the introduction of LNG,
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renewable energy and energy efficiency measures will also improve energy security and relatively reduce GHG gas emissions
F. Environment (including Safeguards)
48. The Project is a Category B project. The following Safeguards are triggered: OP/BP 4.01 – Environmental Assessment – , OP/BP 4.04 – Natural Habitats – , OP/BP 4.36 – Forests –, OP 4.09 – Pest Management –, OP/BP 4.12 – Involuntary Resettlement – and OP/BP 4.37 – Safety of Dams –, in relation with the private sector investments in energy efficiency and renewable energy subprojects, financed through the EE/RE Line of Credit, and with the investment preparation studies (including prefeasibility, feasibility studies, economic, financial, regulatory and legal studies, and investment promotion activities) that the Project will finance. 49. As private sector investments benefiting from the EE/RE Line of Credit of US$4.6 million will only be known and defined in detail during Project implementation, an Environmental Management Framework (EMF) and an Involuntary Resettlement Policy Framework (IRPF) have been prepared and disclosed to address Safeguards issues. The EMF and the IRPF will be used to assess the potential environmental and social impacts, and as needed to prepare management plans. The EE and RE investments are expected to be relatively small, and therefore not expected to have significant negative environmental impacts (in most situations they should have positive environmental impacts as they will reduce emissions of GHG and of other substances). An initial EMF and IRPF has been prepared, discussed and disclosed on the Websites of MEM, DBJ, NEPA and the World Bank InfoShop on January 5, 2011, and consultations with the AFIs have also been held. The final EMF and the final IRPF were disclosed on the Websites of MEM, DBJ, NEPA and the World Bank InfoShop on January 24, 2011.
50. The Safeguard Policy on Natural Habitats has been triggered as a precaution. The EMF includes screening procedures to ensure that subprojects do not involve unprecedented or significant conversion of natural habitats, to allow flexibility for potential EE or RE investments that might involved management of natural habitats. The Safeguard Policy on Forests has also been triggered as a precaution to allow flexibility for potential EE or RE investments that might involve management of natural forest areas; no logging operations will be supported under the Project. The Pest Management Safeguard Policy is also triggered as a precaution to allow flexibility to potential EE or RE investments and related facilities that may store pesticides; no procurement of pesticides will be supported by the Project. 51. The Safeguard Policy on Safety of Dams was also triggered. The Project will not finance the upgrading, rehabilitation or construction of new dams. It will however finance prefeasibility/feasibility for hydroelectric sites, that may include dams. The terms of reference for such studies will define the scope of the assessment of the potential environmental and social impacts of the investments, including an assessment of the dam safety measures and of the potential environmental and social impacts of the Project and the alternatives considered. These terms of reference will be agreed with the Bank.
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Annex 1: Results Framework and Monitoring
JAMAICA: Energy Security and Efficiency Enhancement Project
Project Development Objective (PDO): The objective of the Project is to increase energy efficiency and security through the implementation of the Borrower’s National Energy Policy.
PDO Level Results Indicators* C
ore Unit of
Measure Baseline
2010
Target Values
Frequency Data Source/ Methodology
Responsibility for Data
Collection
Description (indicator definition)
CY 2011
CY 2012
CY 2013
CY 2014
CY 2015
Indicator One: Reduction in electricity costs (per unit of energy) for generation
US$/MWh
21
21
21
18
14
12
Semi-annual
OUR and MEM's reports and data
base
OUR and
MEM
Average annual electricity generation costs(US$/MWH) incl. by generation source, based on 2010 conditions
Indicator Two: Increase in Energy Security
Structure of Energy Matrix (oil, gas and RE)
95/0/5
95/0/5
95/0/5
93/0/7
75/15/10
68/20/12
Semi-annual
MEM's reports and data base
MEM Sources of electricity generation: oil/petcoke, gas, RE (%)
Indicator Three: Reduction in energy costs of SMEs
Reduction from
business-as-usual scenario
100
100
95
90
85
80
Semi-annual
DBJ and MEM' s reports and data
base
DBJ and
MEM
Energy savings (energy or monetary values) as provided in the business plans/feasibility studies under the DBJ Line of Credit. Index=100 in 2010
INTERMEDIATE RESULTS
Intermediate Result (Component 1): Strengthening the Regulatory and Institutional Framework to Improve Sector Performance, Increase Private Investment and Transition to Cleaner
Intermediate Result indicator One: New energy sector regulations under preparation or approved
Number of regulations
_
1
3
7
10
12
Semi-annual
OUR and MEM
and reports
MEM and
OUR
Number of new energy regulations under preparation or approved (cumulative)
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Intermediate Result indicator Two: New electricity generating capacity assigned, negotiated or under construction/ installed
Generating capacity (MW)
0
100
(FO/gas)
200
(FO/gas)
380
(FO/Gas: 360
RE:20)
500
(FO/Gas:460
RE:40)
520
(FO/Gas: 460
RE:60)s
Semi-annual
OUR and MEM
reports
MEM and
OUR
New MWs of generation assigned, negotiated , under construction, etc. by source inc. renewable
Intermediate Result indicator Three: Implementation of the natural gas/ LNG program
Milestones
_
Investor selected
LNG
sourcing finalized
FSRU & pipelines Financial
close
FSRU & pipelines
under construct
ion
FSRU & pipelines
completed
Semi-annual
MEM reports
MEM
Key Milestones: 1). Selection of investor for terminal; 2). Negotiations completed, 3). Financial close.
Intermediate Result indicator Four: Information/Communication Activities (Project and National Energy Programme)
Cumulative
Number
_
2
6
10
14
18
Quarterly
MEM reports
MEM and
OUR
Number of: Workshops held, advertisements sponsored, publications distributed
Intermediate Result (Component 2): Developing the Energy Efficiency (EE) and Renewable Energy (RE) Potential
Intermediate Result indicator One: Electrical appliances labeled Information/awareness campaigns
# of labels
#
campaigns
3000
_
3000
_
4000
2
6000
4
8000
6
8500
10
Semi-annual
BSJ reports
BSJ
# of electrical appliances labeled, # of information/awareness campaigns carried out
Intermediate Result Two: Prefeasibility, Feasibility and Other investment studies underway or completed on Renewable Energy (Hydros, Wind, Solar)
Number
_
1
3
5
8
10
Semi-annual
PCJ Centre of
Excellence reports
PCJ
Number and status of investments studies (prefeasibility, feasibility, other investments preparation) carried out for development of Renewable Energy
Intermediate Result indicator Three: Commitments and Disbursements on the Line of Credit
Number of sub-projects
and value (cumul.)
_
_
5
($1 m.)
10
($2 m.)
20
($4 m.)
35
($5 m.)
Semi-annual
DBJ reports
DBJ
Number of sub-projects and $ value approved by DBJ (and sub-projects presented by the AFIs)
Intermediate Result Indicator Four: Investment commitments to Electricity Sector
US$
million (cumul)
--
120 m.
240 m.
430 m.
600 m.
625 m.-
Semi-annual
MEM's reports and data base
MEM, OUR, PCJ, DBJ
New commitments by type of investment (generation, gas, energy efficiency)
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Intermediate Result (Component 3): Project Management and Monitoring and Evaluation (M &E) Intermediate Result indicator One: Key Project personnel assigned to Project (Project Manager, Financial Management Specialist, Procurement Specialist)
Personnel assigned to Project
__ PM, FM, PS
PM, FM,
PS
PM, FM,
PS
PM, FM,
PS
PM, FM,
PS
Semi-annual
MEM and PSMD
reports, supervision missions*
MEM
Monitoring of retention of Project Manager (PM), Financial Management (FM) and Procurement Specialist (PS)
Intermediate Result indicator Two Capacity building activities regarding project management, Project financial management and procurement
Number of sessions (cumul)
_
2
6
8
10
12
Semi-annual
MEM and PSMD
reports, supervision missions*
MEM
Intermediate Result Indicator Three: Financial management, procurement, Safeguards, internal and external audits
Number and types of reports submitted (cumul)
_ _
3
6
9
12
Semi-annual
annual
MEM and
PSMD’s reports, supervision
missions
MEM
Monitoring of delivery of reports (MEM twice a year; audits: once a year)
Intermediate Result Indicator Four: Reporting on the implementation of the National Energy Policy
Number of reports submitted (cumul)
_
1`
3
5
7
9
Semi-annual
annual
MEM reports,
MEM
Implementation Progress Reports
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Annex 2: Detailed Project Description
JAMAICA - Energy Security and Efficiency Enhancement Project
I. INTRODUCTION
1. The objective of the project is to increase energy efficiency and security through the implementation of the Borrower’s National Energy Policy. 2. The Project has been designed to provide comprehensive support to the implementation of GoJ’s new energy policy and strategy covering the 2010-2030 period.13 The key goals of this new energy policy are to: (a) increase Jamaica’s energy security by diversifying the energy matrix; (b) enhance Jamaica’s economic competitiveness and performance by improving the efficiency of the energy sector, and minimize end-users energy costs; (c) reduce GHG emissions from the energy sector; and (d) delineate and implement well-defined institutional, regulatory and institutional frameworks. The Project is part of the Bank Group Country Partnership Strategy (CPS) discussed by the Bank Group Board of Executive Directors on March 23, 2010.
II. PROJECT KEY OBJECTIVES 3. The Project focuses on the following key specific objectives:
a. Strengthening the regulatory and institutional framework to improve sector performance, increase private investment and support the transition to cleaner fuels such as LNG (component 1).
b. Developing Jamaica’s Energy Efficiency (EE) potential and Renewable Energy (RE) potential through private sector investment and consumer education/information (component 2).
c. Project Management and Monitoring and Evaluation (M&E), including
compliance with fiduciary requirements and appropriate M&E activities (component 3).
4. The Project’s three components are described in following paragraphs. The allocation of the IBRD financing by component is provided in table 2.1 below with additional details provided in attachment 1.
13 The National Energy Policy was approved by Parliament in November 2010.
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Table 2.1: Allocation of IBRD Financing by Project Component Project Components Allocation of IBRD Loan
(US$000) Component 1: Strengthening the Regulatory and Institutional Framework to Improve Sector Performance, Increase Private Investment and Transition to Cleaner Fuels
5,130.0
Component 2: Developing the Energy Efficiency and Renewable Energy Potential
9,080.0
Component 3:Project Management, Monitoring and Evaluation 752.5 Front-End Fee 37.5 Total IBRD Loan 15,000.0 Component 1: Strengthening the Regulatory and Institutional Framework to Improve Sector Performance, Increase Private Investment and Transition to Cleaner Fuels (IBRD US$5.130 million including contingencies) 5. Component 1 will be implemented by the Ministry of Energy and Mining (MEM) and by the Office of Utilities Regulation (OUR). The component aims at: (i) operationalizing the new energy policy; (ii) reinforcing the energy sector regulations for mobilizing and implementing energy investment and for cost optimization; and (iii) accelerating the development of EE and RE initiatives. It includes the following sub-components. 6. Sub-component 1.1: Provision of advisory services to, inter alia, develop: (a) detailed policies on renewable energy in particular for hydro, wind resources and biomass, energy efficiency, and gas; and related regulations; and (b) implementation strategies and plans related to the policies on renewable energy referred to in subparagraph (a) above (IBRD US$510,000; Implementation: MEM). This will also include the preparation of a natural disaster (hurricane and earthquake) mitigation, management and recovery plan for the energy sector, the detailed definition and approval and the implementation of a net metering program. 7. Sub-component 1.2: Strengthening the regulatory framework for private-public partnership (PPP) monitoring capacity of the energy sector including, inter alia, developing the capacity of the Office of Utilities Regulation (OUR) and Ministry of Energy and Mining (MEM) to: (a) develop regulations required for the development of renewable energy (including tariff setting methodologies) and of the gas/Liquefied Natural Gas (LNG) program; (b) extend OUR oversight responsibilities to the gas, refinery and downstream petroleum sector; and (c) develop the monitoring and benchmarking instruments (IBRD US$1,160,000; Implementation: OUR). This will include:
a. Preparing gas/LNG sector regulations (US$200,000). This subcomponent includes
support for the development of a comprehensive gas law and secondary legislation.
b. Expanding OUR’s mandate to gas and petroleum products (US$410,000). The mandate of the regulator is being expanded to the regulation of the gas and petroleum products. OUR’s staff will need to be trained, and information and M&E systems will need to be developed and implemented. This will include: (a) extension of OUR’s regulatory oversight to the gas, refinery and downstream petroleum sector (US$100,000), development of capacity for gas sector regulation (US$80,000), identification and
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implementation of monitoring and benchmarking instruments (US$80,000), definition of the reporting and information sharing requirements for entities in the new sectors (US$60,000); and (b) training for the gas sector regulator and other entities (US$90,000).
c. Preparing new regulations and tariff setting methodologies, such as net metering, applicable to renewable energies (US$200,000) to incentivize the development of solar, wind and small hydro resources.
d. Strengthening OUR’s regulatory and monitoring capacity of the power sector (US$350,000). As a result of the increasing complexity of supervising JPSCo, of the entry of new IPPs and of the fuel sourcing strategy, the regulator needs more sophisticated regulatory instruments and timely monitoring. In order to meet this challenge, OUR will need to:
o Acquire modern sector planning instruments, and train its staff to use the new
planning instruments (US$100,000). o Reinforce its capacity to monitor the activities of the main utility and of the
IPPs with the support of a sector financial model and of a dispatch model to monitor the optimality of the dispatch carried out by JPSCo (US$150,000).
o Develop a regulatory data base for performance benchmarking purposes (US$100,000).
8. Sub-component 1.3: Accelerating the development of cost-effective privately financed generation in the power sector, through the provision of technical advisory services to OUR and MEM to: (a) prepare electricity non-Project investments (that are not financed by the Project); (b) facilitate effective interaction with the private developers; and (c) build their respective institutional capacity (IBRD US$1,610,000; Implementation: OUR). This will include:
a. Provision to OUR and MEM of expertise needed for the preparation of new projects and
to assess the compliance of these projects with sector policy, and with regulatory and licensing requirements (IBRD US$400,000).
b. Provision to OUR of expertise required to successfully interact with IPP developers, in particular to implement the generating capacity replacement program (IBRD US$1,210,000). OUR’s latest least cost power sector investment plan shows that several new dual-fuel generation projects (representing a total of 480 MW14) will have to be developed quickly to replace old, inefficient and high-cost generating units.15 Successful and effective preparation of these projects requires specialized skills within OUR and access to the expert services with international experience in power projects development and project financing. The Project therefore supports: (i) the provision of expert services – financial, technical, legal and marketing – required for the preparation of Power Purchase Agreements (PPAs) and for the development of wind capacity under
14 To be implemented in two phases: 360 MW by 2014 and additional 120 MW by 2016. 15 In particular, this includes generating units using diesel oil.
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private financing (US$1,150,000); and (ii) training of OUR and MEM staff in the preparation and execution of tenders for new power generating capacity (US$60,000).
9. Sub-Component 1.4: Introducing the LNG program to support off-oil diversification, including the institutional strengthening of MEM and the relevant ministries, departments and agencies (MDAs), and provision of technical advisory services to enhance the technical, commercial, financial and legal expertise required for developing a sound and sustainable LNG Program, and related investments, stakeholders’ information and consultation (IBRD US$1,650,000; Implementation: MEM). 10. The natural gas/LNG program will include several components that need to be developed in parallel. First, the development of gas sector regulations to be carried by OUR and supported directly by the Project (see subcomponent 1.2). Second, the development, financing and management by the private sector of the infrastructure required with respect to the LNG to be imported, re-gasified, stored and delivered to the gas off-takers (initially through pipelines). This activity is currently managed through the Office of the Prime Minister and is assisted financially by the PetroCaribe Development Fund. Third, the promotion of the use of natural gas, including the delineation of a gas market and of a gas industry structure, and the capacity to monitor the gas sector. Project support to MEM will include:
a. Developing a sound industry structure, and delineating the institutions and the modus
operandi required to expand the market for natural gas in Jamaica, and ensure an efficient management of the gas sector (IBRD US$300,000).
b. Defining the actions required to effectively maximize the availability of gas in Jamaica and to optimize the use of the existing import infrastructure (IBRD US$300,000).
c. Acquiring technical, commercial, financial, regulatory and legal advisors (IBRD US$600,000).
d. Developing the national capacities to assess and manage the environmental and social aspects associated with the natural gas/LNG program, and to communicate with the stakeholders and the public. This activity will be carried out jointly by MEM and National Environment and Planning Agency (NEPA) (IBRD US$300,000).
e. Informing and consulting regularly with the stakeholders and potential natural gas users (power sector, bauxite industry, transportation sector and others.) and drawing lessons from comparable natural gas/LNG programs. This will include workshops, and promotion activities (US$150,000).
11. Sub-Component 1.5: Provision of technical advisory services to MEM and MDAs to harness the carbon credit potential created through the energy efficiency and renewable energy programs and the fuel substitution activities under the Borrower’s National Energy Policy (IBRD US$120,000; Implementation: MEM).
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12. Sub-component 1.6: Implementing the National Energy Policy communication and information plan (IBRD US$80,000; Implementation: MEM). This sub-component will provide resources to implement the Project communication and information plan, as well as the National Energy Policy communication plan. Component 2: Developing Energy Efficiency and Renewable Energy Potential (IBRD US$9.080 million including contingencies) 13. Component 2 will be implemented by the Bureau of Standards of Jamaica (BSJ), the Development Bank of Jamaica (DBJ), and the private sector (financial institutions and SMEs), and by the Centre of Excellence for Renewable Energy of PCJ. It will finance: (i) the expansion of the appliance labeling and consumer awareness program of the Bureau of Standards of Jamaica; (ii) a line of credit (revolving facility) managed by DBJ for Energy Efficiency (EE) and Renewable Energy (RE) investments to finance private sector energy efficiency investments and renewable energy investments; and (iii) the mobilization of private sector financing for about thirteen small hydroelectric projects, and the promotion of wind energy. 14. Sub-Component 2.1: Expanding the energy efficiency testing and labeling capacity and the information program of the Bureau of Standards (BSJ), including, inter alia, extending the testing chambers to test refrigerators, freezers, and air conditioners, and strengthening the related labeling and information program (IBRD US$1,550,000; Implementation: Bureau of Standards of Jamaica). 15. This subcomponent will incentivize Jamaican households and commercial entities to purchase highly energy efficient appliances (in particular refrigerators and freezers, and air conditioning units). This will reduce energy costs to end-users and investment requirements in generation, transmission and distribution of electricity to meet the peak demand of the interconnected electricity system (by up to 20 percent), and also lower relatively GHG emissions. 16. Drawing on its own and on international experience, GoJ and BSJ have decided to scale-up the national testing and labeling program,16 and in particular to test/label refrigerators and freezers and air conditioning units (all these appliances are currently imported from various countries and manufacturers). 17. The activities to be carried out include: (a) an overhaul of BSJ’s electrical appliances testing capacity including adding testing chambers within BSJ’s premises in Kingston. BSJ will finance the retrofitting of the BSJ office building and the loan will finance: (a) modifications in the existing BSJ facilities (IBRD US$400,000); (b) the purchase of the equipment (IBRD US$1,000,000); (c) a review of the existing standards and of the labeling strategy (IBRD US$50,000); (d) strengthening the enforcement capacity, in particular regarding appliances screening at entry points (IBRD US$30,000); and (e) the delineation and launching of a
16 Currently BSJ can only test only 10 percent of these electrical appliances. By increasing test stations from 4 currently to 16, BSJ will be able to test the various brands and sizes and provide comprehensive information to the consumers.
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comprehensive energy efficiency promotion campaign aimed at the household, commercial and industrial sectors, and a new consumer awareness program (IBRD US$70,000). 18. Sub-Component 2.2: Carrying out investment promotion activities for identified small hydro sites, review the performance of the existing hydro-electric plants, and mobilize investors and financiers, all in accordance with criteria acceptable to the Bank (IBRD US$2,760,000; Implementation: Centre of Excellence for Renewable Energy of PCJ). 19. About ten hydroelectric sites have been identified or developed to pre-feasibility stage, but require preparation of full feasibility studies, tender documentation and investment promotion for their implementation as IPPs. This includes the following sites: Green River (about 1.4 MW), Morgan River (about 2.3 MW), Martha Brae (about 4.8 MW), Rio Cobre (about 1 MW), Dry River (about 1 MW), Negro River (about 1 MW), Mahogany dual purpose project (about 50 MW), Spanish River (about 2.5 MW), Yallahs River (about 2.6 MW) and Wild Cane River (about 2.5 MW). Three other sites have been studied at feasibility level. Resources are therefore provided to: (a) quickly promote the sites for which adequate feasibility studies exist (IBRD US$300,000); (b) carry out the feasibility studies and update existing ones (IBRD US$1.900 million), and (c) for the Center of Excellence to strengthen its capacity by recruiting a small hydro power engineer and an experienced financial analyst (US$480,000). Additional resources are also allocated to: (a) review the performance and evaluate issues with respect to the eight existing hydro sites17 (IBRD US$30,000); and (b) develop an on-line system for information and submission of offers by interested investors (IBRD US$50,000). 20. Sub-Component 2.3: Promoting solar and wind energy, including the dissemination to potential investors of the results of an on-shore wind resource assessment, and promoting private sector investment in solar and wind energy (IBRD US$170,000; Implementation: Centre of Excellence for Renewable Energy of PCJ). The estimated wind potential of Jamaica is between 60 and 85 MW. The Centre of Excellence has undertaken, with the support of IDB, a campaign for onshore wind measurement to prepare a wind atlas and wind measures for investors; this activity will support the dissemination of these results. Resources required for the strengthening of the renewable energy regulatory and incentives framework will be provided separately under sub-component 1.2. 21. Sub-Component 2.4: Provision of line of credit/revolving facility (Line of Credit) through the DBJ, to approved financial institutions (AFIs) to provide retail financing to the private sector (Eligible Investors) for energy efficiency and renewable energy investments (Subprojects) (US$4,600,000; Implementation: The Development Bank of Jamaica). This sub-component will finance an initial endowment for an Energy Efficiency (EE) and Renewable Energy (RE) Line of Credit/revolving facility aimed at promoting EE and RE private sector investments. Grant funds from the Global Environment Facility (GEF) and the Multilateral Fund for implementation of the Montreal Protocol (MP), carbon finance and from other sources may also be mobilized subsequently. Retail financing to private firms for EE and RE projects will be provided by selected local financial institutions (Approved Financial Institutions – AFIs) working with DBJ and drawing from the EE and RE line of credit. 17 Part of JPSCo generating assets.
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22. This line of credit will also benefit from a partial guarantee instrument set-up by DBJ to allow the AFIs to lend for EE and RE without full collateral for the loans, and from targeted information and communication efforts financed through an IDB grant. This line of credit could be operational quickly as DBJ has experience in working with multilateral and bilateral institutions and in managing lines of credit including in the preparation of documentation suitable for an EE/RE dedicated line of credit. DBJ, the AFIs and the professional associations have identified a pipeline of possible EE/RE projects that exceed the resources available through the proposed EE and RE program. Over the years, DBJ has developed relationships and processes with the AFIs and tested procedures to involve certified energy auditors and engineers working with the Centre of Excellence and Jamaica’s University of Technology (UTECH). Annex 7 discusses in more detail the line of credit and compliance with the Bank’s OP8:30 (Financial Intermediary Lending). If this demonstration line of credit is successful, it is expected that additional resources would be made available for this facility from multilateral and bilateral agencies. Component 3: Project Management, Monitoring and Evaluation (IBRD US$752,500; Implementation: MEM) 23. This component will strengthen the Energy Division of MEM responsible for implementing the National Energy Policy and the Project by providing resources for: (i) management of the National Energy Policy; (ii) Project procurement and financial management, including for external Project accounts audits; and (iii) information/communication activities and monitoring and evaluation (M&E). 24. Sub-Component 3.1: Strengthening the capacity of the MEM for Project management, procurement and financial management (IBRD US$662,500). Over the Project implementation period (4 years), this sub-component will finance experts and capacity building in Project management, procurement and financial management, including the acquisition of office equipment and office software, and will ensure compliance with the Project’s fiduciary requirements (including accounting and financial management requirements, procurement requirements and requirements regarding the external audits of Project accounts). 25. Sub-Component 3.2: Provision of technical advisory services to define and implement the metrics/indicators and the monitoring and evaluation system required to monitor and assess the progress in Project implementation, and the related actions under the National Energy Policy (IBRD US$90,000). The project M&E system will be based on and complement the M&E system delineated for the National Energy Policy.
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Attachment 1 to Annex 2
JAMAICA - Energy Security and Efficiency Enhancement Project
1 Component 1: Strengthening the Regulatory and Institutional Framework to Improve Sector Performance, Increase Private Investment and Transition to Cleaner Fuels
1.1 Provision of technical advisory services to operationalize the National Energy Policy
510.0 MEM
1.2 Strengthening the regulatory framework and private-public partnership monitoring capacity of the energy sector
1,160.0 OUR
1.3 Accelerating the development of cost effective privately financed generation investment in the power sector
1,610.0 OUR
1.4 Introducing the LNG Program to support -off-oil diversification
1,650.0 MEM
1.5 Provision of technical advisory services to MEM and MDAs to harness the carbon credit potential
120.0 MEM
1.6 Implementing the National Energy Policy communication and information plan
80.0 MEM
Subtotal 5,130.0 2 Component 2: Developing the Energy Efficiency
and Renewable Energy Potential of Jamaica
2.1 Expanding the energy efficiency testing and labeling capability, and information program of the Bureau of Standards
1,550.0 Bureau of Standards (BSJ)
2.2 Carrying out investment promotion activities for identified small hydros sites
2,760.0 Centre of Excellence for Renewable
Energies (CERE/PCJ)
2.3 Promoting solar and wind energy 170.0 Centre of Excellence for Renewable
Energies (CERE/PCJ)
2.4 Provision of line of credit/revolving facility (Line of Credit) through the Development Bank of Jamaica, to approved financial institutions (AFIs) to provide retail financing to the private sector for energy efficiency and renewable energy investments
4,600.0 DBJ
Subtotal 9,080.0
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3 Component 3: Project Management, Monitoring
and Evaluation
3.1 Strengthening the capacity of the MEM for Project management, procurement and financial management.
662.5 MEM
3.2 Provision of technical advisory services to define and implement the metrics/indicators and the monitoring and evaluation system.
90.0 MEM
Subtotal 752.5 Front-End Fee 37.5 Contingencies Components 1, 2 and 3 (Price and
Quantity)
TOTAL IBRD 15,000.0
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Annex 3: Implementation Arrangements
JAMAICA - Energy Security and Efficiency Enhancement Project
1. This Annex 3 presents the arrangements proposed for Project implementation, including Financial Management, Disbursements and Procurement, Environmental and Social Management including Safeguards, and for Monitoring and Evaluation. It also describes the role of Jamaica’s international partners.
I. Project institutional and implementation arrangements
A. Project Administration Mechanisms
2. Overall Implementation Responsibility. The Ministry of Energy and Mining (MEM) will have overall responsibility for Project implementation and in particular for coordinating the implementation of the activities carried out by the entities outside the MEM. The following figure below sets out the Project’s Organization Chart. The Project implementing entities are: (a) the Energy Division of MEM, also responsible for the implementation of Jamaica’s National Energy Policy and for coordinating Project preparation; (b) the Office of Utilities Regulations (OUR); (c) the Centre of Excellence for Renewable Energy of the Petroleum Corporation of Jamaica (PCJ); (d) the Bureau of Standards of Jamaica (BSJ); and (e) the Development Bank of Jamaica (DBJ). The Public Sector Modernization Division of the Cabinet Office (PSMD) will support the financial management and procurement activities of the implementing agencies and also build capacity in these two areas. The Project Operational Manual details the implementation arrangements and the fiduciary and reporting responsibilities, and provides MEM Energy Division’s organizational chart.
3. Project Management. The Division Head of MEM Energy Division will ensure overall Project implementation responsibility. A Project Manager would be responsible to carry out the Project daily activities. The Project Manager will be responsible for coordinating all Project activities including procurement, financial management and fiduciary responsibilities, monitoring and evaluation (M&E activities) and reporting. The Project Manager would coordinate the implementation of the activities carried out by MEM, OUR, the Bureau of Standards, the Centre of Excellence for Renewable Energy- PCJ, DBJ, and PSMD. The Project Manager will also coordinate the interactions with the World Bank and in particular would ensure that the agencies receive inputs and support in a timely fashion and that the respective commitments are met. Table 3.1 below presents the area of responsibility of each implementing entity. Additional information is provided in the Project Operational Manual.
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Table 3.1: Area of Responsibility of Each Implementing Entity Implementing Entity Component/Sub-Component Component-
Sub-Component#
Ministry of Energy and Mining (MEM) – Energy Division
Implementation of the Energy Policy and sub-policies Introducing LNG in the Jamaica’s Energy matrix Carbon Credit Mobilization Implementation of the Project communication/information plan and of the National Energy Policy communication plan Project Management, Monitoring and Evaluation
1.1
1.4
1.5
1.6
3Office of Utilities Regulation (OUR) Strengthening the regulatory and
monitoring capacity of the Energy Sector Accelerating the development of cost effective
electricity generation
1.2
1.3
Bureau of Standards (BSJ) - Testing and Labeling Division
Expansion of the Electrical Appliances Testing, Labeling and Information Program
2.1
Centre of Excellence for Renewable Energies – The Petroleum Corporation of Jamaica (PCJ):
Promotion of small hydros sites Promotion of Wind and Solar Energy
2.22.3
Development Bank of Jamaica (DBJ) (with AFIs)
Line of Credit for Energy Efficiency and Renewable Energy Investments
2.4
Public Sector Modernization Division (PSMD)
Financial Management and Procurement Support to the Project Coordinating entity (MEM) and to the Implementing entities
4. Responsibilities of the Public Sector Modernization Division (PSMD). PSMD will provide support to the MEM with respect to Project procurement and financial management, and will also be responsible for capacity building in procurement and financial management. The Borrower will ensure that PSMD is maintained during the first twelve months of the Project; during the first annual review of the Project implementation, the Borrower and MEM will assess MEM in-house capacity for procurement and financial management, and take any action recommended by the Bank. The roles and responsibilities of PSMD will be delineated in a memorandum-of-understanding between MEM and PSMD and are also reflected in the Project Operational Manual.
5. Interagency Coordination. A Steering Committee chaired by the Permanent Secretary (PS) of the MEM, and comprising representatives from the Planning Institute of Jamaica (PIOJ), the Ministry of Finance and the Public Service, and from the implementing agencies will monitor Project implementation to ensure an effective and efficient implementation of all Project activities, consistency with the overall energy program, and that such activities are carried out in accordance with the agreements, policies and procedures of the Project and the Project Operational Manual. The Steering Committee will meet once a month for the first six months of the Project and quarterly thereafter.
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6. Implementation Agreements. Implementation Agreements will be signed between MEM and the implementing entities (OUR, PCJ and BSJ); the Bank will review these agreements prior to their signature. A Project Agreement and a Subsidiary Agreement will be signed respectively between DBJ and the Bank, and between DBJ and MOFPS.
7. Mid-Term Review. Project implementation will be expected to last 4 years. A project mid-term review is planned for early CY 2013.
B. Financial Management, Disbursements and Procurement
1. Financial Management
Summary 8. A Financial Management (FM) Assessment was carried out by the Bank team of the Ministry of Energy and Mining (MEM), the Public Sector Modernization Division (PSMD), and the Development Bank of Jamaica (DBJ).18 Areas examined included financial management capacity, budgeting, accounting, reporting, auditing and internal controls to implement the Project. The assessment was carried in accordance with OP/BP 10.02 and the guidelines for Assessment of Financial Management Arrangements in World Bank projects issued by the Financial Management Sector Board, dated March 1, 2010. Details are provided below, and in the Project Operational Manual and Project Files.
9. MEM will have overall responsibility for implementing the Project. However as MEM current FM capacity is not fully adequate to meet the Bank’s fiduciary requirements, PSMD will initially provide support to MEM for the financial management of the Project, and will also be responsible for capacity building. PSMD has an adequate financial management system and staff experienced in project financial management. PSMD uses the AccPac accounting software, which should be adequate to generate timely financial reports and annual financial statements of the Project. The DBJ will be provided about US$4.6 million through the Line of Credit. DBJ has adequate financial management capacity.
10. The main conclusion of the FM assessment is that the above mentioned financial management arrangements for the Project satisfy the Bank’s minimum requirements under OP/BP10.02 and are adequate to provide, with reasonable assurance, accurate and timely information on the status of the Project as required by the Bank. Some actions need however to be carried out and are delineated in Table 3.2 below:
Table 3.2: Action Plan for Financial Management Action
A Financial Management Specialist will be contracted to provide support to MEM in maintaining Project accounts and preparing the six monthly and annual financial statements as well as to maintain the liaison between PSMD, MEM and the participating implementing entities. The Specialist should also have adequate knowledge about the World Bank’s procurement guidelines. A Project Operational Manual delineating a comprehensive set of procedures to efficiently manage Project funds, and provide fiduciary assurance, has been prepared by MEM and considered satisfactory to the Bank. The Auditor General will conduct the annual audit of the Project accounts under terms-of-references agreed with the Bank. The findings of the audit reports will be discussed with the World Bank during Project
18 As DBJ will implement the Line of Credit through the Financial Intermediaries.
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supervision. The annual audits of DBJ Line of Credit will be carried out by external auditors acceptable to the Bank and under terms-of-reference acceptable to the Bank. The Internal Audit Unit of the MEM would conduct internal audit of the Project expenditures and a summary of the findings of the audit would be shared with the Bank during Bank’s supervision mission. The internal audit for the Line of Credit would be conducted by the DBJ’s Internal Audit Unit.
Detailed FM Assessment and Implementation Arrangements 11. The objective of the FM assessment was to determine whether the Ministry of Energy and Mining, the Public Sector Modernization Division (PSMD), and the Development Bank of Jamaica have acceptable financial management capacity, including producing timely, relevant and reliable financial information on its operations, and if the accounting systems for the proposed operations and the underlying internal controls are adequate to meet fiduciary objectives and to allow the Bank to monitor compliance with the agreed implementation procedures and to appraise progress towards its objectives. Additional information is available in the Project Operational Manual and in the Project Files.
12. Project financial management arrangements are built on two assessments - the Country Financial Accountability Assessment (CFAA) and the Public Expenditure and Financial Accountability (PEFA) - as well as on World Bank experience in Jamaica. The CFAA and the PEFA provide a complete overview of the public financial management strengths and areas for improvements in Jamaica. Although the public financial management system in Jamaica has a strong legal foundation, outlined mainly in the Financial Administration and Audit Act (FAA), its implementation is limited by the country’s tight fiscal space. Jamaica does not have a fully Integrated Financial Management Information System (IFMIS). The Government follows modified accrual basis of accounting and most of the accounting records are maintained manually. However, PSMD is using the AccPac Accounting software and the system is adequate to prepare reliable and timely financial statements for the Project.
13. Country Issues and Risk Assessment. As mentioned above, the CFAA and the PEFA outlined a number of weaknesses and critical areas needing significant improvements. Key recommendations were to: (i) strengthen the link between policy, planning and budget allocation by moving toward a Medium-Term Expenditure Framework (MTEF) and costing the Corporate Plans; (ii) improve the quality and timeliness of financial reporting notably by implementing a financial management information system; (iii) improve cash predictability by defining a transparent mechanism for warrant releases that maintains budget consistency with government priorities; and (iv) strengthen the capacity of the Internal Audit Directorate (IAD) and increase the financial independence of the Auditor General’s Office. Jamaica is implementing the CFAA and the PEFA recommendations with the support of the IDB and the European Union (EU). In addition, the Bank is providing support through an Institutional Development Fund (IDF) grant to improve the accountability and governance environment. The Bank is planning further support for assessing the capacity of the Parliament and the oversight institutions. Project risks are identified as “Medium” currently and also after implementation of the mitigation measures.
14. The GoJ and WB teams discussed alternative project implementation arrangements in particular regarding Project procurement and financial management. As required by its policies and project appraisal requirements, the Bank carried out its due-diligence on these matters. Financial flows and project accounts were also discussed with the Ministry of Finance and the Public Service. The required due diligence regarding the line of credit/revolving fund for Energy
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Efficiency and Renewable Energy investments to be managed by DBJ and by financial intermediaries was also carried out. A separate due diligence was also conducted by the Bank of some participating AFIs in line with the requirements of OP/BP 8.30 (see Annex 7).
15. FM Implementation arrangements. Project fiduciary responsibilities will be under MEM with support from PSMD. The FM unit of PSMD is adequately staffed and includes a Finance Manager and Accounts Officers. All staff has sufficient background and experience for their duties. The Ministry of Energy and Mining will assign a Financial Management Officer responsible for the Project and also for maintaining liaison with the other implementing agencies. DBJ, who is implementing the line of credit with the Approved Financial Institutions (AFIs), has adequate financial management and regulatory capacity to manage the line of credit.
16. Throughout Project implementation, GoJ will maintain within PSMD, key staff, including a Finance officer, an Accounts Officer and as needed other staff, all with qualifications and experience satisfactory to the Bank. The Project will be implemented in accordance with the Project Operational Manual. The interested agencies have been informed of the requirements of the Bank Anti-Corruption Guidelines.
Budgeting, Accounting and Internal Controls and Audits 17. Budgeting. All expenditures financed by the IBRD loan will be budgeted by MEM (using the support of PSMD) and by the other participating agencies. PSMD and MEM follow the government budgeting system.
18. Operational Manual and Accounting System. The Project Operational Manual has been agreed. PSMD uses the AccPac accounting software, which has a detailed chart of accounts. AccPac will be able to produce timely reliable financial reports and to capture all activities related to the Project.
19. Reporting. Disbursements under the Project will be report-based. The Project Progress Report will comprise two elements: (i) Interim Unaudited Financial Report (IFR); and (ii) physical progress report. MEM (with the support of PSMD) will provide the Bank, no later than 45 days after the end of each six month, with the progress report and the disbursement request.
20. Internal Controls and Internal Audit. PSMD, MEM, and DBJ have adequate rules and procedures, for implementing the Project. The relevant sections of these rules and procedures have been integrated into the Project Operational Manual. Internal audits would be conducted by the internal audit units of the MEM, the Auditor General, and DBJ, and the findings of the reports will be shared with the World Bank team during Project supervision.
21. External Audits. Project Accounts will be audited once a year by the Auditor General. The LoC accounts, managed by DBJ, will be audited once a year by an external auditor acceptable to the Bank. The audit reports are to be transmitted to the World Bank no later than six months after the end of the fiscal year (Fiscal year: April-March). The audits must be conducted as per auditing standards acceptable to the World Bank. The terms of reference of the audits will be prepared by PSMD for MEM, and agreed with the Bank. Since IBRD resources
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will be provided to DBJ, DBJ will be required to submit audited financial statements to the Bank within six months from the end of its financial year, during the implementation of the Project.
22. Supervision plan. Given the risks related to Project financial management, close supervision will be required. Supervision missions will be conducted twice a year. The IFRs and the annual audit reports will also be carefully reviewed.
2. Disbursement Arrangements
23. Project activities and resources allocated by components and sub-components are provided in Annex 2. The Project will use the report-based disbursement mechanism. IBRD funds for the Project, except for sub-component 2.4, will be disbursed primarily to a segregated US dollar denominated Designated Account (DA) to be opened at a commercial bank acceptable to the Bank, and operated by the Ministry of Finance and the Public Service. From the DA, funds will be transferred to a Project Account in a commercial bank, jointly operated by MEM and PSMD. Upon loan effectiveness, an advance of US$2 million will be disbursed. Subsequent advances will be made based on funds requirements to be reflected in the Interim Financial Reports (IFRs). The formats for the IFRs to be used for reporting the use of Advances and Reimbursements have been agreed upon. Disbursement requests will also include: (i) bank statements of the DA and Project account; (ii) Reconciliation statement of the DA; and (iii) Cash flow forecast for the following six months. The DA will have a Variable Ceiling. The frequency for reporting eligible expenditures paid from the DA will be once every 6 months. The Project will also be able to use the Direct Payment and Reimbursement disbursement methods. The Minimum Application Size for Direct Payments and Reimbursements will be US$400,000 equivalent. Direct Payments will be documented by Records.
24. DBJ Line of Credit. The funds required for the line of credit managed by DBJ will be advanced directly from the Loan Account to a segregated US dollar account opened by DBJ as per the Project Agreement at a commercial bank acceptable to the Bank. This account will act as a DA specifically for Sub-Component 2.4 only. This DA will have a Fixed Ceiling of US$4.6 million. The use of the funds of the Line of Credit will be documented through the Progress Report to be submitted within 45 days after the end of each six month period. The flow of funds within the Line of Credit is illustrated below:
Flow of Funds and Terms
IBRD terms Agreed-Terms Average Monthly Rate from (IBRD terms) Savings Deposit DBJ Rate from BoJ + 2% margin + max.4% margin US$ US$ JMD JMD
IBRD Loan Ministry of Finance & the Public Service
DBJ (US$4.6 million)
AFI Sub-Borrower
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25. Retroactive Financing. Retroactive financing of up to US$1.5 million (10 percent of the proposed loan) will be available to OUR (US$900,000) and MEM (US$600,000) for activities included in the Project description provided that: (a) the payments are for items procured in accordance with applicable World Bank procurement procedures; and (b) the payments are made by the Borrower on or after May 15, 2010 but before Loan Signing.
26. Withdrawal Schedule. The withdrawal schedule is provided in table 3.3 below.
Table 3.3: Withdrawal Schedule
Category
Amount of the Loan Allocated
(expressed in Dollars)
Percentage of Expenditures to be financed
(inclusive of Taxes)
(1) Goods, consultants’ services and Non-consultant Services under Parts A.1, A.4, A.5, A.6 and C of the Project
3,112,500 100%
(2) Goods, consultants’ services, and Non-consultant Services under Part A.2 and A.3 of the Project
2,770,000 100%
(3) Works, goods, consultants’ services and Non-consultants Services under Part B.1 of the Project
1,550,000 100%
(4) Goods, consultants’ services and Non-consultants Services under Parts B.2 and B.3 of the Project
2,930,000 100%
(5) Works, goods, Non-consultant Services, and consultants’ services for
Subprojects under Part B.4 of the Project
4,600,000 100%
(6) Front-end Fee 37,500 Amount payable pursuant to Section 2.03 of the Loan Agreement in accordance with Section 2.07 (b) of the General Conditions
(7) Premia for Interest Rate Caps and Interest Rate Collars
0 Amount payable pursuant to Section 2.07(c) of the Loan Agreement
TOTAL AMOUNT 15,000,000
3. Procurement Arrangements
Introduction 27. A procurement capacity assessment was carried out to evaluate the procurement capacities, in particular of the Public Sector Modernization Division (PSMD) of the Cabinet Office (of the Prime Minister) for providing procurement support to the Project. The Ministry of Energy and Mining (MEM) is responsible, on behalf of GoJ, for managing the Project. However to meet Bank fiduciary requirements, it was agreed that PSMD will provide Project fiduciary support to MEM and the other implementing entities.
28. Procurement Capacity Assessment. The procurement capacity assessment was carried out to: (a) evaluate the capability of PSMD and the adequacy of procurement and related systems in place to administer procurement in general and Bank-financed procurement in particular;
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(b) assess the risks (institutional, political, organizational, procedural) that may negatively affect the ability of the agency to carry out the procurement process; (c) develop an action plan to be implemented as part of the Project to address the deficiencies delineated by the capacity assessment to minimize the identified risks; and (d) propose a suitable Bank procurement supervision plan for the Project considering the relative strengths, weaknesses and risks revealed by the assessment.
29. Jamaica Public Sector Procurement System. Rules and regulations for government procurement have been adopted by the Government of Jamaica under the Contractor-General Act of December 12, 2008. The public sector procurement policy was adopted with the objectives of (i) maximizing economy and efficiency in procurement; (ii) fairness, integrity and public confidence in the procurement process; (iii) sustainable development through minimizing negative impact on the environment; and (iv) fostering national growth and development. For the implementation of the regulations, a Handbook of public sector procurement procedures (the "Revised Handbook") has been prepared containing the applicable procedures which must be strictly adhered to by every Public Body which seeks to engage in a Government of Jamaica procurement or contract award activity.
Procurement Arrangements 30. Alternative arrangements were discussed with GoJ to comply with Jamaica and World Bank fiduciary requirements, in particular with respect to compliance with the World Bank Procurement Guidelines and Financial Management requirements taking into account the fact that five entities are involved in Project implementation, and that some entities have limited experience with Bank requirements. As discussed above, GoJ proposed and it was agreed that PSMD will provide Procurement and Financial Management support to the Project.
31. PSMD will: (a) provide support to the Project fiduciary activities for the Project; and also (b) carry out capacity building activities on these matters. The PSMD Division has the required procurement expertise and currently manages satisfactorily an IDB project. To ensure that Project procurements matters are treated diligently and that, in parallel, capacity is built in the implementing agencies, the IBRD loan will finance one procurement specialist working closely with PSMD’s procurement specialists. This arrangement will also ensure that procurement and financial management expertise is immediately available for Project implementation.
32. Based on the staff review, it appears that PSMD has extensive experience in government procurement using procedures described in the national procurement handbook available on the Contractor-General website, http://www.ocg.gov.jm/ocg/gpphandbook.php. Additional information is provided in the Operational Manual and in the Project Files. PSMD has been involved in the implementation of other donors-financed projects and has a fruitful experience with IDB procedures through the implementation of the IDB project. While PSMD is experienced in national and IDB procurement procedures, its experience with World Bank procurement procedures is limited. This implies that capacity building activities under the Project needs to continue19 to ensure timely and smooth implementation of procurement activities.
19 World Bank Procurement training was carried out in Kingston in May 2010.
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33. Support, Control Systems and Record Keeping. As a government department, PSMD is subject to the control of the Auditor General Office. External auditors are also allowed on a contractual basis for specific activities. PSMD procurement records and filing system need to be strengthened with appropriate office furniture/equipment and a computerized monitoring system as the work load will increase considerably with new activities.
Risk Assessment and Action Plan 34. Because of PSMD limited experience with World Bank procurement requirements, as well as the substantial Country risk for procurement, the overall procurement risk for the Project is considered Medium.
35. The following procurement risk mitigation measures have been agreed:
a. Within one month of loan effectiveness, hiring by MEM of a procurement specialist with relevant experience in Bank’s procurement, to handle the Project procurement activities with the support and initial supervision of the PSMD. The TORs and the recruitment notice for the proposed specialist have been agreed.
b. Additional procurement training will be provided by the Bank to the staff of PSMD, MEM and of the other implementing agencies, as soon as the Project is declared effective. Further training will be provided by PSMD and the Bank during the first year of implementation.
c. Fiduciary capacity building during the first year of Project implementation. d. Hiring of short term consultants as needed for specific technical tasks and capacity
building within MEM during Project implementation. 36. In addition to the above mentioned action, procurement thresholds and methods have been set to mitigate procurement risks (see table 3.6 below). Project formal supervision, including of Project procurement activities, will be conducted every six months. Post review of procurement actions will be carried out once a year.
Procurement Plan 37. The Project Procurement Plan (dated January 28, 2011), prepared by MEM with the support of PSMD, provides the basis for the procurement activities and methods. Table 3.4 below provides a summary of the procurement packages for the first 18 months after Project effectiveness. The Procurement Plan has been agreed between MEM and the Bank Project Team and will be available at Web Address http://www.worldbank.org/procure within 30 days of signature of the Loan Agreement. Updated Procurement Plans, along with information on actual procurement execution, will be disclosed at this site.
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Table 3.4: Summary of the Procurement Packages (first 18 months) 1 2 3 4 5 6 7
Ref. No.
Description Estimated Cost US$ 000
Procurement
Method
Packages Domestic Preference
(yes/no)
Review by Bank
(Prior / Post)
1 Goods, works and goods for upgrading and construction of test chambers
800 ICB` 1 N Prior
2.1 Goods for testing equipment, office equipment, software
200 ICB 1 N Prior
2.2 Goods for testing equipment, office equipment, software
180 ICB, NCB
3 N Post
3.1 Consultant Services for strengthening the regulatory framework and mobilizing investment financing
5290 QCBS, QBS
N Prior
3.2 Consultant Services for strengthening the regulatory framework and mobilizing investment financing
600 QCBS, QBS
N Post
4.1 Consultant Services for development of renewable energy potential
2650 QCBS, CQS
N Prior
4.2 Consultant Services for development of renewable energy potential
300 CQS, FBS, DC
N Post
5.1 Consultant Services for Project/Program management
497.5 CQS N Prior
5.2 Consultant Services for Project/Program management
155 QCBS N Post
6.1 Non-Consultant Services for workshops
150 Shopping 1 N Prior
6.2 Non-Consultant Services for training, workshops
300 DC, Shopping
3 N Post
38. Procurement procedures for private sector EE and RE investments financed by the Line of Credit (Subcomponent 2.4). Procurement under this subcomponent will be undertaken by the respective beneficiaries in accordance with well-established private sector procurement methods or commercial practices that shall be acceptable to the Bank. However, even in these situations, open or limited international or national competitive bidding may be the most appropriate procurement method for the purchase of large single items or in cases where large quantities of like goods can be grouped together for bulk purchasing. Basic guiding principles and acceptable procedures are described in the Project Operational manual.
39. Prequalification: Bidders for large contracts shall be prequalified in accordance with the provisions of paragraphs 2.9 and 2.10 of the Bank Procurement Guidelines.
Thresholds for Procurement Methods and Prior Review 40. Recommended thresholds for use of the procurement methods and for Bank prior review of procurement actions are presented in Table 3.5 below. Specific contracts subject to prior review will be detailed in the procurement plan.
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Table 3.5: Procurement Methods and Bank Prior Review Expenditure
Category Contract Value
(Thresholds) US$ thousands
Procurement Method
Contracts Subject to Prior Review
1. Works >1,500 ICB All
150 – 1,500 NCB None
<150 Shopping None
Regardless of value Direct Contracting All
2. Goods >150 ICB All
25-150 NCB None
<25 Shopping None
Regardless of value Direct Contracting All
3. Consulting Services
3.1 Firms
>100 QCBS,QBS,FBS, LCS All
<100 QCBS,QBS,FBS, LCS and CQS
None
Regardless of value Single Source All
3.2 Individuals Regardless of value Comparison of 3 CVs in accordance with Chapter V of
the Guidelines
None
Note: ICB= International Competitive Bidding; NCB=National Competitive Bidding; QCBS = Quality- and Cost-Based Selection; LCS=Least-Cost Selection; FBS=Fixed Budget Selection; CQS=Selection Based on Consultant’s Qualifications C. Environmental and Social (including Safeguards
41. The Project is a Category B project. A review of the Bank Environmental and Social Policies is provided in Table 3.6 below. OP/BP 4.01 – Environmental Assessment – , OP/BP 4.04 – Natural Habitats – , OP/BP 4.36 – Forests –, OP 4.09 – Pest Management –, OP/BP 4.12 – Involuntary Resettlement – and OP/BP 4.37 – Safety of Dams – are triggered in relation with the private sector investments in energy efficiency and renewable energy subprojects, financed through the EE/RE Line of Credit (See Annex 2, subcomponent 2.4), and with the investment preparation studies (including prefeasibility, feasibility studies, economic, financial, regulatory and legal studies, and investment promotion activities) that the Project will finance.
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Table 3.6: Review of Bank Environmental and Social Policies Safeguard Policies Triggered Yes No TBD Environmental Assessment (OP/BP 4.01) X Natural Habitats (OP/BP 4.04) X Forests (OP/BP 4.36) X Pest Management (OP 4.09) X No pesticides are to be employed. Physical Cultural Resources (OP/BP 4.11) X . Indigenous Peoples (OP/BP 4.10) X Involuntary Resettlement (OP/BP 4.12) X Safety of Dams (OP/BP 4.37) X Projects on International Waterways (OP/BP 7.50) X
NA Projects in Disputed Areas (OP/BP 7.60) X
NA 42. The Safeguard Policy on Natural Habitats has been triggered as a precaution. The EMF includes screening procedures to ensure that subprojects do not involve unprecedented or significant conversion of natural habitats, to allow flexibility for potential EE or RE investments that might involved management of natural habitats. The Safeguard Policy on Forests has also been triggered as a precaution to allow flexibility for potential EE or RE investments that might involve management of natural forest areas; no logging operations will be supported under the Project. The Pest Management Safeguard Policy is also triggered as a precaution to allow flexibility to potential EE or RE investments and related facilities that may store pesticides; no procurement of pesticides will be supported by the Project.
43. The Safeguard Policy on Safety of Dams was also triggered. The Project will not finance the upgrading, rehabilitation or construction of new dams. It will however finance prefeasibility/feasibility for hydroelectric sites, that may include dams. The terms of reference for such studies will define the scope of the assessment of the potential environmental and social impacts of the investments, including an assessment of the dam safety measures and of the potential environmental and social impacts of the Project
44. Environmental and Social Safeguards Documentation. On January 5, 2011, prior to the initiation of Project Appraisal, an initial Environmental Management Framework (EMF) and an initial Involuntary Resettlement Policy Framework (IRPF) were disclosed on the websites of MEM, NEPA and DBJ, and in the Bank’s Infoshop. The final EMF and IRPF were disclosed on the websites of MEM, NEPA and DBJ, and in the Bank’s Infoshop on January 24, 2011.
45. Private sector subprojects financed through the EE and RE Line of Credit (see Annexes 2 and 7) will be assessed with respect to their potential environmental and social impacts using the guidelines provided by the two frameworks. It is not expected that these investments will
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have significant negative environmental or social impacts (in most situations they will have positive environmental impacts as they will reduce emissions of GHG gas and other substances). However, to ensure that proper environmental and social screening, and that assessment and mitigation plans are carried out, an initial EMF and an initial IRPF reflecting national and Bank environmental and social policies and guidelines were prepared and disclosed on January 5, 2011, discussed with NEPA, DBJ and the AFIs, and disclosed on the websites of MEM, NEPA and DBJ, and in the Bank’s Infoshop.
46. About US$9 million of the US$15 million IBRD Loan will be used to access technical expertise and to build the capacity required to further develop and implement Jamaica’s National Energy Policy. Terms-of-Reference (TORs) for prefeasibility/feasibility, technical and other studies financed by the Project, will require a no-objection from the Bank, and will include, when relevant, an assessment of the likely environmental and social impacts of the investments under evaluation.
D. Monitoring and Evaluation
47. Project outcomes, results indicators and intermediate results are provided in Annex 1. MEM will be responsible for monitoring and reporting on Project implementation progress relying on inputs provided by the other implementing entities, as well as on the implementation of the National Energy Policy. Project reporting arrangements are described in the Project Operational Manual.
II. Role of Partners
48. Good coordination between GOJ and its partners will be critical for the implementation of the national Energy Policy. A coordination mechanism has been put in place (Annex 3 para.5) The following International Financial Institutions are currently involved in Jamaica’s Energy sector: (a) the IDB is providing grant financing for technical assistance to the MEM (assessment of energy efficiency measures in the public sector, measurement of the onshore wind potential) and to DBJ (training of energy auditors, promotion of energy efficiency measures in the private sector); (b) UNDP is providing support for the development of sub-sectoral policies; (c) USAID/USTDA is assisting PCJ in the development of PPPs for waste-to-energy projects; (d) the Organization of American States (OAS) is assisting MEM in the development of biofuels; (e) the European Union is providing support with respect to the sugar sector including for the more efficient use of the bagasse; and (f) the PetroCaribe Fund is providing financing for investments in Jamaica’s oil refinery and the implementation of the LNG project including a floating storage and regasification unit. IFC is providing syndicating financing for the IPPs and is also financing JPSCo investment program. Attachment 1 to Annex 3 summarizes the interventions of the international partners with respect to energy efficiency activities.
49. The private sector is already a critical partner and will be more so in the future for Jamaica’s energy sector. For the future, it is expected that the private sector’s role will increase as it is Government policy (and reflective of the country’s borrowing and debt-servicing constraints) to rely on private sector capacity to mobilize financing, build and manage energy projects. About 500 MW of new power generating capacity should be commissioned within the
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next 4-6 years. Energy diversification through natural gas and renewable energy projects is also expected to be financed and managed by the private sector.
- 45 -
Attachment 1 to Annex 3 Role of Partners
JAMAICA - Energy Security and Efficiency Enhancement Project Area/Intervention Description Responsible
agency/company Timeline/comment
Policy Development
Development of sub-sectoral policies MEM/UNDP Ongoing. Financing expected from WB Project
Power - Generation, Transmission and Distribution - 20
Management of generation assets, and of the interconnected transmission and distribution system. Financing of some generation and of all transmission and distribution investments Generation
Jamaica Public Service Company (JPSCo) Jamaica Energy Partners, (diesel units). Wigton Wind Farm (subsidiary of PCJ)
Selection of private sponsors and mobilization of financing underway for additional generation. Financing expected from WB Project A second phase of the Wigton Wind Farm is under consideration
Energy Diversification Program
Overall natural gas/LNG Program LNG project. Development of the infrastructure for regasification, storage and gas delivery system
MEM/WB Cabinet Office of the Prime Minister/Petrocaribe Development Fund
Support expected from WB Project Ongoing
Renewable/Alternative Energies
Biofuels. Development of a biofuels program Development of Waste-to Energy projects Bagasse utilization: Optimization of use of bagasse residues form sugar cane operations
MEM/Organization of American States (OAS) PCJ/USTDA Sugar industry/European Union
Ongoing On-going On-going
Energy Efficiency Public awareness campaign
Broad public education campaign to promote EE and explain all initiatives to be carried out under the EE program.
MEM/WB 2011-2015. Financing expected from WB Project
Regulatory Framework
Strengthening of the regulatory framework MEM/WB 2011-2015 Financing expected from WB Project
Public sector Jamaica Public Building Code
Building Code includes the International Energy Efficiency Code and its Application Document, to support energy efficiency in buildings. It gives guidance for energy
MEM/Bureau of Standards of Jamaica (BSJ)
The codes have been approved. The National Building Act (Law) is to be completed during FY 2011. The Green Building Code will be presented for consideration for adoption during FY 2011.
20 IFC is participating in the financing of JPSCo investment program and of some IPPs.
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efficiency techniques and calculations for use in buildings. In addition, a new International Green Building Code is being prepared.
Public Sector Energy Efficiency Program
- US$437,500 IDB grant for EE studies and audits of public buildings
- IDB expressed interest in financing US$20 million investments recommended under the studies.
MEM/IDB Timeframe under discussion
EE Improvements in Public Sector
US$2 million GoJ/UNDP investments to replace lighting equipment and install solar water heaters in hospitals and schools.
PCJ/UNDP Ongoing (until 2012 at least)
Implementation of Energy Efficiency Program for Street lighting
IDB expressed interest in financing corresponding street lighting investments.
MEM/IDB Timeframe under discussion
Households and private sector Revolving credit line
US$5 million World Bank line of credit to DBJ for the establishment of a revolving credit line to SMEs and other private entities for EE and RE investments
DBJ/WB 2011-2015. Financing expected from WB Project
Support to Promote Energy Efficiency, Energy Conservation and Sustainable Energy
US$807,000 IDB grant for an assessment of the demand for investments in EE and conservation technologies in Jamaica, a training program for energy auditors and managers and public awareness campaign of the DBJ revolving credit line.
DBJ/IDB
BSJ testing and labeling program
As part of the WB project, US$1.2 million to overhaul testing capacity and launch a promotion campaign
BSJ/WB 2011-2015
Fund for Capacity Building of the Caribbean Private Sector Environmental and Energy Management Capabilities
US$ 810,000 EU grant for EE capacity building and audits in the private sector.
Private Sector Organization of Jamaica (PSOJ)/EU
July 2010- Sept. 2011
Energy Saving Compact Fluorescent Lamps (CFLs) Project
Distribution of Compact Fluorescent Lamps (CFLs) to the 5 remaining constituencies under a US$2.1 million in kind contribution from the Cuban Government.
Negotiations and Board Package Version JAMAICA - Energy Security and Efficiency Enhancement Project (P112780)
Project Development Objective
The objective of the Project is to increase energy efficiency and security through the implementation of the Borrower’s National Energy Policy.
PDO Level Results Indicators:
1. Reduction in energy costs for end-users
2. Increase in Energy Security
Risk Category
Risk Rating
Risk Description
Proposed Mitigation Measures
Project Stakeholder Risks
M-I
Country Engagement with the Bank Dialogue is very constructive. There is also a significant level of donor coordination between World Bank Group, IMF, IDB, EU, UNDP, CDB. Financial support from the IFIs for the Government’s reform program is expected to reach high levels, nearly 20 percent of GDP. The country may not however have all the fiscal space to be able to carry out the Project. Economic Prospects The current global financial crisis and resulting economic downturn is expected to reduce Jamaica’s growth rates through lower exports, tourism, remittances and FDI financing as well as tighter credit conditions. The GDP growth rate declined by -1.4 percent in FY08/09 and by a further about 2.6 percent in FY09/10.
The Project has been reviewed by the Ministry of Finance and the Public Service, and the Planning Institute of Jamaica (PIOJ). Because of its potential benefits it was agreed that the IBRD loan should be US$15 million, notwithstanding the debt ceiling and fiscal space. The Government has also agreed with the IMF on a Stand-By Arrangement (SBA) to manage short term difficulties and support the longer term reform agenda. The SBA, in the amount of US$1.27 billion, covers a period of 27 months and was approved by the Board of Executive Directors of the IMF on February 4, 2010. The IMF has disbursed SDR 478 million or approximately US$780 million (J$67 billion) as of September 24, 2010 under the standby arrangement. Among the pillars of the economic program are fiscal consolidation and institutional reform, public-debt restructuring, completed as a precursor to the signing of the agreement. The country has also committed to financial sector reform including improvements in consolidated supervision of non-bank institutions.
Implementing Agency Risks
M-L
Implementation Capacity and Sustainability The Ministry of Energy and Mining (MEM) is responsible for defining the general policy and
The proposed Project has been designed to support the implementation of the National Energy Policy presented early
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strategy for the energy sector, and will be responsible for Project coordination. However the MEM currently has limited coordination and monitoring capacity. Sector expertise and resources are however available in the Office Utilities Regulation (OUR), the Development Bank of Jamaica (DBJ), the Petroleum Corporation of Jamaica (PCJ) (where the Center of Excellence for Renewable Energy is located), the Planning Institute of Jamaica, in the private power utility (JPSCo) and in the private sector.
2010 by the Minister of Energy and Mining. The Project also supports some of key sector players (MEM, OUR, PCJ, DBJ,). The proposed Project will rely on the existing institutional set-up for implementing the proposed actions. Capacity building is also a key aspect of the proposed Project. The Project allows significant resources to strengthen the design and implementing capacities of the MEM, the OUR and the Centre of Excellence for Renewable Energy.
M-I
Governance The country’s overall governance framework is being strengthened by the IDB’s PRODEV and Public Financial Management Programme. Several reforms have been launched over the past years to improve accountability, including a change in the role of the Contractor General, and improved access to information. Efforts to curb corruption include the establishment of the Anti-Corruption Branch of the Jamaica Constabulary Force, and the Public Accountability Inspectorate (PAI) at the Ministry of Finance and the Public Service.
Through its policy dialogue, the WB encourages the government to accelerate the implementation of reforms, specifically the strengthening the oversight and accountability of institutions such as, the Public Accounts Committee, Office of the Auditor General, and public financial management system such as, implementing an integrated financial management system, making all budget reports available in the public domain, and strengthening internal controls and internal audits, etc. The Project is also relying on the support of the Public Sector Modernization Division (PSMD) of the Cabinet Office of the Prime Minister to strengthen Project Financial Management and Procurement activities, and will finance the services of a Financial management expert and of a Procurement expert to strengthen fiduciary compliance (component 3). The World Bank will also promote investments in an IT system that tracks procurement processes.
M-L
Financial Management. Although the Project will be coordinated by the Ministry of Energy and Mining, implementation would entail a number of entities, thereby requiring more complex financial management arrangements. The public financial management system is still being developed. Jamaica does not have a fully integrated public financial management system. Different government organizations are using different systems, which are difficult to link together.
During Project preparation, GoJ and the Bank agreed that the Project would benefit from the expertise of the Public Sector Modernization Division (PSMD) of the Cabinet Office of the Prime Minister and of its experience with IDB projects, to strengthen management of the Project Fiduciary aspects (Financial Management and Procurement in particular),and to build capacity. The Project will use a computerized accounting system managed initially by PSMD, from the Cabinet Office at the Office of the Prime Minister. All internal and external financial reports and
- 49 -
Project audit reports would be available in the public domain as per the World Bank’s recent policy on Access to Information, and will be review during Project supervision. Measures to strengthen the financial management capacity in the Ministry of Energy and Mining and in the implementing entities to enable financial management and procurement of the Project have also been agreed. Furthermore, the Bank would assess the capacity of the Jamaican Parliament to implement Parliamentary control of public expenditures.
M-L
Procurement. Delays have been experienced on the implementation of some projects due to lengthy procurement periods.
Through the Development Policy Loan, Country portfolio Performance Review and Country Partnership Strategy, the GoJ and the Bank agreed to lay the foundation for a productive approach to the broader country procurement issues, in particular to address the systemic procurement delays on the GoJ side. The Project will rely on the experience and expertise available in PSMD (see above) to provide procurement functions. The Project will also finance qualified professionals to ensure that Project procurement and financial management matters are diligently carried out and national and Bank requirements are complied with, and that capacity building activities are carried out. The Bank will closely monitor the implementation of the agreed fiduciary action plan including training of procurement staff.
Project Risks
Design
M-I
Project Implementation Capacity. MEM has limited resources and operational capacity for project implementation.
The proposed Project specifically strengthens the implementation capacity of MEM, and has been designed to support the implementation of the National Energy Policy. The Project also supports some key sector players (MEM, OUR, PCJ, DBJ, BSJ). It also strengthens the enabling environment and incentives to further entice private sector investment have been incorporated into the Project design.
M-I
Line of Credit/Revolving Fund. There is a risk that there will not be a demand for Energy Efficiency (EE) and Renewable Energy (RE) investments per the line of credit/revolving fund.
During Project preparation, the Bank worked closely with DBJ to review the lessons learnt from the past efforts such as collateral requirements, margins of the financial institutions, access to technical expertise in the areas of energy efficiency and renewable energy investments, and in the marketing of the EE and RE initiative. DBJ has also secured grant financing from IDB to: (a) present to the AFIs and the SMEs the benefits of
- 50 -
energy efficiency investment programs including success stories; and (b) certify energy experts. Information/Consultation sessions have been carried out, and other are planned to inform the participating AFIs and the management of the SMEs about the program and the line of credit.
Social and Environmental
M-I
Social and Environmental Safeguards Energy efficiency and renewable energy investments (subprojects) supported by the Project may potentially have negative environmental and social impacts. Such subprojects need therefore to be screened early on in the appraisal process and the potential environmental and social impacts assessed.
Line of Credit for Energy Efficiency and Renewable sub-projects. As the EE and RE private sector investments are not yet delineated, an Environmental Management Framework (EMF) and an Involuntary Resettlement Policy Framework (IRPF) have been prepared, and disclosed prior to initiation of Project appraisal in the websites of NEPA, MEM, DBJ and in the Bank Infoshop. These two frameworks lay out the principles and guidelines to assess the environmental and social impacts of the proposed investments. An initial screening of the proposed sub-projects will also be carried out for their potential environmental/social impacts, and their overall risk profile. The Bank has provided and will continue providing technical support on environmental and social matters to the entities involved in Project implementation, in particular DBJ and the AFIs. With respect to the Project’s support to the promotion of private sector investment for small hydros, the gas diversification strategy and other investments, the Bank will provide a No-Objection of the Terms-Of-References prior to their inclusion in the RFPs, including as needed required scope of work to comply with the Bank and the national environmental and social safeguards.
Program and Donor
M-I
Program Coordination The Project supports the implementation of the National Energy Policy. The Ministry of Energy and Mining is working with the WB Group, IDB, UNDP, USAID, EU and OAS on the implementation of the policy. Maintaining a very good coordination and synchronization of actions is, therefore, critical.
The Planning Institute of Jamaica (PIOJ), the Ministry of Finance and the Public Service, and the Ministry of Energy and Mining are closely monitoring and coordinating the multilateral and bilateral agencies’ inputs. Energy sector coordination meetings with other development partners have been held in the initial phases of Project development. Coordination and sharing of information between the key donors in the sector (WB Group, IDB, UNDP and USAID) will be an important aspect of Project implementation, in particular during the first two years.
Delivery Quality
M-I Monitoring and Evaluation Project preparation and implementation requires a strong commitment from the Ministry of Energy and
Resources will be provided to strengthen the implementation teams. A Project Steering Committee chaired by the Permanent
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Mining as well as from the other implementation agencies, and metrics to monitor and evaluate implementation progress.
Secretary of MEM, and including the Planning Institute of Jamaica (PIOJ), the Ministry of Finance and the Public Service, and the principals of the implementing agencies has been set-up. The donors (WB, IDB, and USAID) are working closely together supporting the implementation of the National Energy Policy, to ensure that the required technical assistance is provided to the implementing agencies.
Overall Risk Rating at Preparation
Overall Risk Rating During Implementation
Comments
Medium – I
Medium – I
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Annex 5: Implementation Support Plan
JAMAICA - Energy Security and Efficiency Enhancement Project
I. Strategy and Approach for Project Implementation Support
1. The strategy for Project Implementation Support (IS) by the Bank team reflects the nature of the Project, the Project risk profile and Jamaica’s institutional set-up particularly in the energy sector. The strategy aims at making IS to the client more efficient while remaining focused on implementation of the risk mitigation measures delineated in the ORAF assessment. It is also an indicative and flexible instrument which will be revisited during Project implementation and as part of the Implementation Supervision Report (ISR) reviews and adjusted based on what is happening on the ground. 2. The proposed Project represents one element in GoJ implementation plan of the National Energy Policy (2009-2030). Other implementation resources are provided by: (a) GoJ personnel financed through the national Budget; (b) the Project participating entities (PIOJ, MEM, PCJ, OUR, DBJ, Bureau of Standards, PSMD and others); (c) by other development partners involved in Jamaica’s Energy sector (in particular IDB, USAID, EU, UNDP others); and by: (d) the private sector entities (investors and financial intermediaries) involved in Jamaica’s energy sector. 3. Project design and the IS plan reflects the following philosophy and requirements:
a. Coordination amongst GoJ entities and with the IDPs is critical.
b. As much as possible, existing institutions (public or private entities) are to be used for Project implementation. No new entity or Project Implementation Unit (PIU) has been set-up for Project preparation and implementation.
c. As needed existing institutions will be strengthened through targeted capacity building efforts and technical assistance.
d. To ensure compliance with Bank and Jamaica fiduciary requirements and based on the Project Financial Management Capacity Assessment and the Procurement Capacity Assessment, the PSMD of the Cabinet Office will provide financial management and procurement support and capacity building to the MEM Project team and the implementing entities.
e. The Project Operational Manual (POM) has been agreed.
4. Overall Project Coordination. Ensuring a satisfactory implementation of the Project during the first 12 months following Effectiveness would be critical. During that period, the critical implementation areas are: capacity building, procurement particularly for major contracts, financial management, environmental and social safeguards, and Project information and communication. A Steering Committee would meet regularly to: (a) review progress and issues in Project implementation; and (b) ensure consistency with the objectives of the National Energy Policy and with the efforts of the other entities. The Steering Committee would meet on
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a monthly basis during the first six-month of the Project life, and quarterly thereafter. A mid-term review will also be held early CY2013. 5. Financial Management and Procurement. As the Bank has not implemented a Project with these entities over the recent years, experience with Bank’s financial management and procurement requirements is limited. The strategy has therefore been to look for relevant capacity and experience within GoJ. PSMD meets these requirements and will therefore provide Project financial management and procurement support to MEM and the implementing entities as well as building capacity in these two areas. Financial management and procurement implementation support by the Bank will be available and will include: (a) providing training to MEM and the Project implementing entities; (b) providing detailed guidance on the Bank’s Financial management requirements, Procurement Guidelines, and on the environmental and social safeguards; (c) reviewing procurement documents and providing timely feedback to the Procurement Unit; and (d) monitoring procurement progress against the Procurement Plan. 6. Environmental and Social Safeguards. With respect to the Bank Environmental and Social Safeguards the Project is rated as a Category B project. Two-third of IBRD financing will be used for technical assistance and capacity building. However, as physical EE and RE investments will be carried out through the EE and RE line of credit managed by DBJ, an Environmental Management Framework (EMF) and an Involuntary Resettlement Policy Framework (IRPF) have been prepared, discussed with NEPA, MEM, DBJ and the AFIs and disclosed prior to Project Appraisal in MEM, NEPA, DBJ and the Bank websites. The Bank team will closely supervise the implementation of the agreed EMF and of the IRPF, will provide timely guidance to MEM, DBJ, NEPA and the AFIs to provide guidance, address any issue and will monitor deviations from the planned investments and from the agreements.
II. Implementation Support Plan
7. Project implementation involves the following two key phases:
a. Phase I: Project first 12 months.
b. Phase II: From Project month 13 to month 48 (Project closing date).
8. Project Preparation. The following have been agreed: (a) Project Operational Manual (POM); and (b) term-of-references for: (i) the Project Manager included in MEM Energy Division, (ii) the FM and procurement experts included in MEM and working with the support and initial supervision of PSMD, and (iii) the advisors required by OUR for the selection of Independent Power Producers (IPPs). 9. The implementation support plan broken down in two parts (first 12 months, and next 36 months) is summarized below in table 5.1.
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Table 5.1: Implementation Support Plan Time Focus Skills and Resource
Estimate Partner
RoleProject first twelve-months
Recruitment of the Project Manager, the Financial Management Specialist and the Procurement Specialist.
Specialized financial management and procurement training of all entities involved in Project implementation (two sessions)
Technical and procurement review of the RFPs and assessments prepared by OUR
Technical and procurement review of the
TORs for renewable energy prefeasibility/feasibility studies managed by Centre of Excellence on Renewable Energy.
Review of the first 5EE/RE projects proposed
for EE/RE revolving fun financing and of the operations of the EE/RE facility managed by DBJ
Environmental and social assessment of fist five EE and RE projects
First Supervision Mission incl. assessment of
fiduciary and safeguards aspects
Procurement specialist: 2 SWs Financial Management specialist: 2 SWs. Financial management and procurement specialist: 2 SWs each Power Specialist: 2 SWs Small hydro/Renewable Energy specialist: 2 SWs Energy Efficiency specialist: 2 SWs Environmental and Social specialists: 1 SW each Project team: 1 SW each person
N/A
Project months 13 to 48 (SWs per year)
Review of selection of sponsors/mobilization of financing for investment in new power generating facilities (360 MW)
Review of Operations of Energy Efficiency (EE) and Renewable Energy (RE) Revolving Fund
Review of implementation of the diversification and LNG program
Environmental and social monitoring
Mid-Term Review (mid/end CY2012) Review of the Project financial management
and procurement arrangements and issues
Task leadership
Task team leader and IPP specialist: 2 SWs per person Line of Credit specialist: 2 SWs Energy Efficiency specialist: 2 SWs LNG specialist: 2 SWs Environmental and Social specialists: 2 SWs Financial management and procurement specialists: 2 SWs TTL: 6 SWs
Note: SWs: Staff Weeks
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III. Skills Mix Required
Table 5.2: Skills Mix Required Skills Needed Number of Staff
Weeks per YearNumber of Trips per
YearComments
Financial Management Specialist 2 2 Shared with other tasksProcurement Specialist 2 2 Shared with other tasksEE/RE line of credit private sector specialist
2 1 Use of videoconference facilities
LNG specialist 2 As required Use of videoconference facilities
Power sector IPP specialist 2 1 Use of videoconference facilities
Energy Sector Regulatory Specialist 1 As required Environmental Specialist 2 1 Social Specialist 2 1 Project Management 6 4 Including support from
Country office
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Annex 6: Team Composition
JAMAICA - Energy Security and Efficiency Enhancement Project
World Bank staff and consultants who worked on the Project Name Title Unit
Michel Layec Task Team Leader, Lead Energy Economist LCSEG Ananda Covindassamy Lead Energy Consultant Consultant Edith Ruguru Mwenda Senior Counsel LEGAF
Shern Frederick Junior Professional Associate LCSEG
Karen Bazex Energy Specialist LCSEG
Yao Wottor Senior Procurement Specialist LCSPT
Yingwei Wu Senior Procurement Specialist LCSPT
Mozammal Hoque Senior Financial Management Specialist LCSFM Rohan Longmore Economist LCSPE Anjali Acharya Senior Environmental Specialist LCSEN Pilar Larreamendy Senior Social Development Economist LCSSO Fermanda Pacheco Language Program Assistant LCSEG Juliet Georgette Williams Language Program Assistant LCCJM Ashok Sarkar Peer Reviewer ETWEN David Santley Peer Reviewer COCPO Marcelino Madrigal Peer Reviewer ETWEN
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Annex 7: Line of Credit for Energy Efficiency and Renewable Energy Investments Compliance with World Bank Operational Policy OP8.30 on Financial Intermediary
Lending
JAMAICA - Energy Security and Efficiency Enhancement Project
1. This annex discusses the implementation arrangements for the Line of Credit (LoC) managed by DBJ in support of private sector investments in Energy Efficiency (EE) or in Renewable Energy (RE). The annex also presents the due diligence carried out during Project preparation and compliance with the Bank Operational Policy on Financial Intermediary Lending (OP 8:30). A. Summary
2. The Project includes a Line of Credit (LoC) of US$4.6 million to promote private investment in Energy Efficiency (EE) or Renewable Energy (RE) (see Annex 2 Detailed Project Description). The Development Bank of Jamaica (DBJ) will act as an apex institution, borrowing the funds from the Ministry of Finance and the Public Service (MOFPS), on-lending to a set of DBJ’s Approved Financial Institutions (AFIs) that meet established financial performance criteria, which will then lend to final borrowers (SMEs but also to other private entities). A Project Agreement delineating the roles and responsibilities of the parties involved in the LoC will be signed between DBJ and IBRD. A Subsidiary Agreement will also be signed between MOFPS and DBJ. 3. Jamaican private sector companies are seeking to invest in energy efficiency or renewable energy technologies to significantly reduce their energy costs and increase their profitability and competitiveness. Expected typical investments (the subprojects) are solar panels, water heaters, coolers, lighting, insulation, replacement or retrofitting of electrical appliances and processes for commercial, industrial, agricultural, tourism, and other activities.21 Energy Service Companies (ESCOs) will also be eligible to the LoC. It is estimated that the subproject costs will average US$150,000-$300,000 most likely to be carried out by small and medium enterprises (SMEs).22 At the national level, such subprojects are expected to reduce electricity costs and investment, lower vulnerability to oil price variations, increase energy security, reduce GHG emissions, and support the government’s objective of achieving 15 percent electricity generation from renewable domestic sources. 4. The Ministry of Finance and the Public Service (MOFPS) will use the IBRD Loan to on-lend to DBJ in US$ the US$4.6 million available for the LOC, and DBJ will lend to the AFIs on a subproject basis at a rate based on the latest “Monthly Average Savings Deposit Rate” available from the Bank of Jamaica (BoJ),23 a margin for the foreign exchange, and a margin of 2 percent. The AFIs will be allowed to charge a margin of up to 4 percent based on their analysis
21 As of December 2010, DBJ has compiled a list of projects totalizing US$20.7 million. 22 There is no standard definition for SMEs across Jamaican financial institutions, but DBJ defines any business with assets of US$10,000 – US$200,000, 250 employees or less, and up to US$4m in annual turnover as an SME. 23 This rate was at 3.23 percent in August 2010.
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of subborrower risk, which is entirely borne by the AFI. DBJ will also provide interested AFIs with a partial risk guarantee (the Credit Enhancement Facility) to cover weak collaterals and other credit risks. The Government of Jamaica (GoJ) is pursuing this LoC on these terms in order to meet two key objectives of its energy policy: jumpstarting private investment in EE and RE technologies as a way of reducing energy costs and the very high reliance on imported oil, and of reducing GHG emissions. B. Macroeconomic and Financial Sector Framework
5. Jamaica’s macroeconomic and financial sector framework creates an adequate enabling environment for the LoC. GoJ’s program to improve financial management has led to a decline in interest rates on 6-month treasury bills from 24 percent in January 2009 to 8 percent by September 2010. Inflation has also declined from 16.8 percent in 2008 to 10.2 percent in 2009 and to 0.4 percent for the year ending July 2010. After a severe recession Jamaica registered a 0.5 percent increase in GDP for the year ending in March 2010, a rate which is expected to increase this year. Since signing a Stand-by Agreement with Jamaica in March 2010, the IMF has reported sufficient progress towards quantitative targets. 6. The credit intermediating institutions supervised by the Bank of Jamaica include 7 commercial banks, 3 merchant banks, and 4 building societies. These intermediaries have weathered the recent global financial turmoil without major problems. There have been no interventions, mergers or bankruptcies in the financial sector during the recent recession. The capital adequacy ratio (CAR) for the financial system was 19.8 percent as of June 2010, the Non Performing Loan (NPL) ratio for loans past due by 3 months or more was 5.9 percent and returns on average assets have been consistently positive, though declining from an annualized average ROA of 3.2 percent in June of 2009 to 2.8 percent in June 2010. Loans as a percent of assets fell slightly over that same period from 45.2 percent to 43.6 percent as did liquidity measured by cash and bank balances as a portion of total assets (from 19 percent to 18 percent). 7. Jamaica’s financial institutions were invested heavily in high-yielding treasury instruments and although these rates have fallen dramatically, average on-lending rates on loans to the private sector have fallen relatively little, from 17.9 percent (12.0 percent) on domestic (foreign) currency loans in April of 2008 to 15.8 percent (9.0 percent) as of August 2010. Domestic currency rates on personal credit were averaging 24.4 percent at end-August 2010. These averages incorporate loans of varying maturities but business lending in Jamaica tends to be between for one to three year maturities, and up to seven years for some corporate customers. Jamaica has no credit registry and financial institutions tend to require high collateral to debt coverage, so local SMEs with no longstanding banking relationships or few assets that can be pledged for collateral are paying lending rates that are often on the mid to higher end of the range between 16.8 percent and 24.4 percent and varying with maturity.
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C. Institutions: The Development Bank of Jamaica and the Approved Financial Institutions
The Development Bank of Jamaica 8. GoJ borrows from multilateral and bilateral development institutions and lends these resources to DBJ acting as the LoC apex institution, generally at cost. GoJ will not maintain the foreign exchange risk of the loans for this Project. DBJ lends directly to strategic sectors as a second-tier institution through banks and other types of financial institutions. Its Board of Directors is comprised of 14 members, 3 of which come from the government and 11 which represent a diverse group of private sector organizations and interests.24 DBJ’s recent performance appears to indicate a sufficient degree of insulation from politically subjective decision-making. 9. At end-August 2010, DBJ had a portfolio outstanding US$149 million; 54 percent to AFIs and 46 percent directly to borrowers. DBJ has been consistently profitable. It had an NPL ratio (>90 days) of 2.9 percent at end-year 2009 and capital adequacy ratio of 25.8 percent. DBJ complies with International Financial Reporting Standards, is subjected to an annual audit by an independent auditor, and has a five-member internal audit team that reports to the Internal Audit Committee of the board of directors. Approved Financial Institutions (AFIs) 10. There are 10 Approved Financial Institutions (AFIs) that may borrow from DBJ, all of which are licensed by the government. The DBJ selects AFIs on the basis of their capital adequacy, asset quality (primarily the outstanding loan portfolio), management, earnings and liquidity (CAMELs),25 as well as an assessment of corporate governance policies, compliance with regulatory statutes and general reputation. To mitigate credit and concentration risk exposure, DBJ monitors on a quarterly basis (or more frequently as needed) the AFIs’ CAMELs in comparison with statutory requirements and industry averages (where available, or relative to other AFIs). DBJ assigns a score of 1 to 5 to each AFI based on the results of the CAMEL analysis, and takes the actions indicated the table 7.1 below depending on the results:
Table 7.1: DBJ CAMEL Analysis and Impacts on Eligibility Rating Attributes
Action
1 = Excellent Exceeds industry standards in most or all areas.
Eligible for increases in loan facilities.
2 = Good Above average; earnings and other performance measures are sustainable.
Eligible for continued lending within 50 percent of net worth limit.
24 DBJ has strict conflict-of- interest policies that restrict Directors and their families from investing in AFIs or other companies to which DBJ lends. It also requires Directors to declare their financial interests in any company (and related parties) to which DBJ lend. If a possible conflict of interest exists between a Director and a firm in which the Board is considering investing, the Director is not allowed to vote or be present when the Board votes on the decision to invest in that firm. 25 In Jamaica, Non Performing Loans (NPL) ratios are calculated on a 90 days past due basis.
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3 = Satisfactory Stable and compares favorably with performance standards, however signs of weakness exist in some areas.
Continued lending within 50 percent limit; monitor specific areas of weakness.
4 = Unsatisfactory Below established standards and industry averages. Requires corrective action.
No increase in loans until situation improves; placed on a ‘watch’ list. Request collateral security for existing facilities.
5 = Poor Possible threat to solvency; deteriorating trends and losses.
Not eligible for new loans. Commence collection procedures.
11. DBJ uses statutory requirements as baseline indicators where these exist for key variables such as capital adequacy and liquidity. A recent appraisal of DBJ indicates that it has demonstrated institutional capacity in monitoring and evaluating AFIs but needs to ensure that the quarterly assessments of AFIs are completed in a timely fashion, and that specific performance benchmarks are established to determine how AFIs score along the scale of 1 to 5 and thus what actions will need to be taken. 12. The National People’s Cooperative Bank (NPCB). In order to increase rural outreach, the DBJ relies heavily on one AFI in particular: the National People’s Cooperative Bank (NPCB), which funds 78 percent of its portfolio with lines of credit from DBJ. Loans to NPCB constitute 10 percent of DBJ’s total outstanding portfolio. Given the risks inherent in this relationship for both institutions and DBJ’s own assessment of NPCB performance, DBJ and NPCB are implementing an Institutional Development Plan (IDP). The IDP focuses on ensuring that NPCB has the mechanisms in place and the capacity to adequately manage and fund its loan portfolio, and be profitable. The Bank team has reviewed DBJ’s IDP and the proposal to initially limit on-lending from the LoC to the six most profitable branches of NPCB. Sufficient progress on time bound performance indicators set out in the IDP, as agreed by the Bank, DBJ and NPCB will be required before DBJ can on-lend LoC funds to NPCB. Total DBJ financing as a percent of the NPCB’s portfolio must also decrease over time.
D. The SubProjects
13. The LoC will allocate US$4.6 million from the IBRD loan to be extended to private companies (primarily SMEs) for the purpose of investing in technologies or upgrades that significantly enhance energy efficiency or that replace greenhouse gas-producing methods and fuels with renewable energy sources. Solar panels and water heaters, gas-producing biodigesters, insulation and energy efficient lighting are among likely investments, which DBJ estimates will average US$150,000-$300,000 per subproject.26 These subprojects are expected to reduce energy costs, lower vulnerability to variations in oil prices, and reduce GHGs emissions and support the government’s objective of achieving 15 percent net electricity generation from renewable domestic sources. The pipeline of eligible sub-projects exceeds the IBRD resources allocated to the LoC.
26 There is no standard definition for SMEs across financial institutions, but the DBJ defines any business with assets of US$10,000 - $US200,000, 250 employees or less, and up to US$4m in annual turnover as an SME.
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14. Sub-Projects Appraisal and Evaluation. The appraisal and evaluation of sub-projects will be carried out by the AFI extending the loan, together with the private sector sub-project sponsor (likely to be an SME). DBJ, the Petroleum Corporation of Jamaica (PCJ) and University of Technology (UTech) have teamed up to analyze EE and RE investment opportunities and are marketing these to the AFIs and potential borrowers. Interested borrowers will be required to hire a Certified Energy Auditor registered by the PCJ to assess subproject costs, returns and impacts. The borrower will pay the energy auditing costs, as well as the costs of the entire required feasibility study upfront, if necessary, with the option of incorporating these costs into their loans. DBJ is guaranteeing AFIs that it will reimburse them for up to J$25,000 (about US$300) in auditing costs should an investment be rejected. Once sub-project appraisal is completed, the AFI will submit a funding application to DBJ. Sub-Project funding by DBJ will be done on a first-come first-served basis.
15. Interest Rate on Sub-Project Loans. DBJ will borrow LoC funds from the Ministry of Finance and the Public Service in US$ on agreed upon terms similar to the IBRD terms to Jamaica; the foreign exchange risk on the IBRD loan will be borne by the DBJ. DBJ will lend to AFIs at a rate based on the latest “Monthly Average Savings Deposit Rate” (this rate was 3.23 percent as of August 2010) available from BoJ, a margin for the foreign exchange risk, plus a margin of 2 percent. to contribute to DBJ administrative costs. The AFIs will be allowed to charge a margin of up to 4 percent based on their analysis of borrower risk, which is entirely borne by the AFI. The flow of funds is as follows:
Flow of Funds and Terms
IBRD terms Agreed-Terms Average Monthly Rate from (IBRD terms) Savings Deposit DBJ Rate from BoJ + 2% margin + max.4% margin US$ US$ JMD JMD 16. DBJ Partial Risk Guarantee. DBJ has developed a Credit Enhancement Facility (a partial risk guarantee) available to the AFIs to incentivize financing of investments by small and medium enterprises and in particular situations where potential borrowers do not fully meet the collateral requirements of the AFIs. 17. Sub-project Costs and Debt Financing. The LoC will finance up to 80/90 percent of the sub-project costs; the financing gap will be covered by the sub-project sponsor’s equity.
18. Compliance with the Environmental and Social Safeguards. When appraising borrowers and their sub-projects, the AFIs will be required to ensure that the subprojects are in compliance with World Bank Safeguards policies and processes as described in the disclosed Environmental Management Framework (EMF) and the Involuntary Resettlement Policy Framework (IRPF),
IBRD Loan Ministry of Finance & the Public Service
DBJ (US$4.6 million)
AFI Sub-Borrower
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and also with the relevant national regulations. The AFIs will be required to fill out a checklist to ensure that the subproject complies with the Bank and the National Environmental and Social Safeguard policies. For sub-projects requiring additional environmental and social assessment, borrowers will be required to obtain permits from the appropriate licensing agency in particular from the National Environment and Planning Agency (NEPA). 19. DBJ’s loan officers will review subproject documentation and as appropriate would release LoC resources to the AFI. DBJ will also conduct periodic site visits for every subproject financed from the LoC to ensure that subprojects are duly implemented and are compliant. The Internal Audit department of DBJ also reviews a sample of subproject files every quarter to check them against requirements. 20. Energy auditors will be contracted by DBJ to monitor annual progress in energy savings, GHG reductions as well as financial results under the individual sub-projects. The results of these annual audits will be reviewed by the Bank to ensure that positive financial and environmental benefits are accruing from the projects as well as safeguards compliance. 21. Reporting and Bank Reviews. The AFIs’ and DBJ’s reports and compliance with the Project Agreement to be signed between DBJ and IBRD will be assessed by the Bank project team on a quarterly basis for the first year of the Project, and bi-annually after to ensure that only the AFIs regulated by and in good standing with the banking supervisor will be allowed to access the Bank-funded LoC. E. Coordination with IFC
22. In the financial sector of Jamaica, IFC has committed US$30 million to the National Commercial Bank Jamaica Ltd. (NCBJ), and US$20 million in debt and equity to First Global Bank. It will likely be providing advisory services to both of these institutions to improve their SME lending capacity. The Project team has been coordinating with the IFC representatives involved in these investments, as well as with the Energy Finance Product Leader for Latin America.
