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JOINTUNDP/WORLD BANK ENElGYSECTORMANAGEMENT ASSISANCEPROGRAMME EMP) PURPOSE

The loint UNDP/WorldBank EnergySector ManagementAssistanceProgramme(ESMAP)was launchedin 1983 to complementthe EnergyAssessmentProgammewhichhad beenestabUshedthree years earlier. An international Commissionwas convenedin 1990to addressthe creation of ESMAP's role in the Ninetie . It concludedthat the Progrmme had a crucial part to play over the next decade in assistingthe developingcountries to better manage their energy sectors given that the supply of energy at reasonableprices is a critical determinantof the pace and magnitude of the growth process. The Commission'srecommendationsreceived broad endorsementat the November1990ESMAPAnnualMeeting. Today,ESMAPis carryingout energy assessments,preinvestmentand prefeasibilityactivitiesand is providinginstitutionaland policy advice. The programaimsto strengthen the inpact of bilateraland multilateralresourcesand private sector investmentthroughproviding technicalassistanceto the energysector of developingcountries. The findingsandrecommendationsemergingfrom ESMAPactivitiesprovide governments, donors, and potential investors with the information needed to identify economically and environmentallysound energyprojectsand to acceleratetheir preparationand implementation. ESMAP's operationalactivitiesare managedby two Divisionswithin the Industry and Energy Departmentat the World Bank and an ESMAPSecretariat. e The Programme's activitiesare governedby the ESMAPConsultativeGroup which consists of its cosponsors, the UNDPand the WorldBank, the goveramentswhichprovide financialsupportand representativesof the recipientsof its assistance. The Chairmanof the C-oup is the WorldBank'; Vice President,Sector Policyand Research. He is assistedby a Secretariatheaded by the Group's Executive' -ietary who is also responsiblefor relationswith the donorsand securingfundingfor the Programme'sactivities. The Secretariatalso gives support and adviceto a TechnicalAdvisoryGroup of independentenergyexpertswhich meets periodicallyto reviewand scuinize the Programme'sstrategicagenda, its work program and other issues related to ESMAP's functioning.

* The ESMAPStrategyand ProgramsDivisionis responsiblefor advisingon whichcountriesshouldreceive ESMAPassistance,preparingrelevantESMAPprogramsof technicalassistanceto these countriesand supportsthe Secretariaton fundingissues. It also carries out broadlybased studies such as energyassessments. * The ESMAP OperationsDivision is responsiblefor the detailed design and implementationof tasks consistingmaily of sub-sectoralstrategyformulation,preinveastment work, institutionalstudies,technicalassistance and training withinthe frmework of overall ESMAPcountry assistanceprograms.

The ESMAP represents a cooperative internationaleffort supported by the World Bank, the United Nations DevelopmentProgrammeand other UnitedNationsagencies,the EuropeanCommunity,Organizationof American States (OAS), Ltin AmericanEnergy Organization(OLADE),and a number of countriesincluding Australia, Belgium, Canada, Denmark, Germany, Finland, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Sweden,Switzerland,the United Kingdomand the United States. FURTHER INFORMATION For further informationor copies of completedESMAPreports, contact: Office of the Director Industryand Energy Departmnt The World Bank 1818H Street N.W. Washington,D.C. 20433 U.S.A.

OR

The ExecutiveSecretary ESMAPConsultativeGroup The World Bank 1818H Street, N.W. Washington,D.C. 20433 U.S.A.

Report No. 8234-DO

DOMINICAN REPUBLC ISSUES AND OPTIONS IN THE ENERGY SECTOR

May 1991

ESMAPStrategyand Programs Division Industryand Energy Department World Bank Washington,D.C.

'his documenthas restricteddistributionand may be used by recipients only in the performanceof their officialduties. Its contentsmay not otherwisebe disclosedwithoutUNDP or WorldBank authorization.

lhis report is based on the findingsof an energyassessmentmissionwhichvisitedthe Dominican Republicin March1989. Its memberswere:J.U. Richter(MissionLeader),J. PortoCarreiro(Energy Planner), A. Menendes(ElectricitySpecialist,Consultant),J.M. Girard (PetroleumSpeciist, Consultant),T. Synnott(Forestryand WoodfuelsSpecialist,Consultant),B. Philippi(Institutional Specialist,Consultant) andMs.M. Kronen(Environmental Specialist,Consultant).Mr. Richterreviewed thedraftreportwiththeGovernment in the Dominican RepublicdunogJanuary15-19,1991andupdated the analysisin regardto energypricing,investment,and majorsubsectordevelopments.

ABSTRACr

Three basic problems affect tk.e energy sector of the Dominican Republic: limited indigenousresources and high cost of developingthese resources;inefficienciesin energy production, transmissionand end-use;and distortionsin the legal/reglatory and institutionalframework. Inefficient consumptionof energyhas beena drag on economicdevelopment. Twentypercentof foreignexchange earningsare pre-emptedto finance energy importsand nearly 40% of exteral public debt is enerelated. Under current policies, future energy requirementswould claim close to 30% of foreign exchangeearningsby 1995and wouldaccountfor a correspondinglylarger share of the country's external debt. Indiscriminatedeforestationand contaminaton resultng from energy processes are bound to produce major enviromental danger if no abatementmeasuresare taken soon. The principalrequirementsto makethe energysectormore viable are, in the short term, settingenergy prices at levelsthat cover economiccosts, rehabilitaftingthe installationsin the electricity subsector and in the marketing of petroleum products and preparing measures to improve energy efficiency,stem deforestationand reduce contamination,and over the medium term, rationalizingthe legal/regulatoryframework,stregtheningthepolicymaking andoperationalinstitutions,tighteningpolicy coordination,and preparinga least-costinvestmentprogram. The Goverment shouldattachhigh priority to increasingthe efficient participationof the private sector, especiallyin the generationand distribution of electricity. The energy assessment report analyzes the main issues and options in regard to the legal/regulatory/institutionaframework;energydemandmanagement;the electricity,petroleum,forestry and woodfuels,and householdenergysubsectors;and energy-environmentalinterlinks. The assessment for the 1989-2000periodtotallingUS$2.1bilion proposesan investmentand technicalassistance-program in line with the developmentrequirementsof the energy sector and suitable for obtain donor support Major efforts will be required to implement the conditionsfor energy developmentand to secure necessarydonor financing.

ABBREVIATIONS API bbl B/D cm3

ft'

ha in kgoe km I LPG m m2 m3

Mcf M.T. NGL RON SCF sec Tcals toe tpy

AmericanPetroleumInstitute (crudegravity measurement) barrel barrel per day cubic centimeter cubic foot hectare iich (2.4 cm) kilogramof oil equivalent kiloriueter liter LiquefiedPetroleumGas meter square meter cubic meter thousandcubic feet (naturalgas) metric ton Natural Gas Liquids ResearchOctaneNumber StandardCubic Feet (naturalgas) second Teracalories ton of oil equivalent metric ton per year ACRONYMS

AID Agencyfor InternationalDevelopment CDE CorporacionDominicanade Electricidad CEA ConsejoEstatalde Azuar COENER ComisionNacionalde Pol i tica Energetica CONATEF Comisi6nNacionalTecnicaForestal DGF Direccion GeneralForestal DNP Direccifn Nacionalde Parques FIDE Fondo de Inversionespara el DesarrolloEcon6mico IDB Inter-AmericanDevelopmentBank INDRHI InstitutoNacionalde RecursosHidrdulicos ONAPLAN OficinaNacionalde Planificacion ONATRATE Oficina Nacionalde TransportesTerrestres OPUVISA OperadoraPuerto Viejo SociedadAn6nima REFIDOMSA Refinerfade Petr6leosDominicanaSociedadAn6nima SURENA Subsecretarfade RecursosNaturales UNDTCD United NationsDepartmentof TechnicalCooperationin Development

I OFFICIAL FISCALYEAR

January I - December31 CURRENCYEQUIVALENTS CurrencyUnit: Peso (DR$) DR$1 = US$0.16 US$1 = DR$6.35

ENERGY CONVERSIONFACTORS

EnergySource

Density (M.T./mt)

Crude Oil Fuel Oil Naphtha LiquefiedPetroleumGas Gasoline AviationGasoline Kerosene/letFuel Diesel Oil Gas Oil Fuelwood coal Electricity

0.86 0.95 0.70 0.55 0.73 0.70 0.81 0.84 0.92 0.50 1.45 n.a.

CalorificValues 10,860kcal/kg 10,500kcal/kg 11,500kcal/kg 12,100kcal/kg 11,200kcal/kg 11,400 kcal/kg 11,100kcal/kg 10,900kcal/kg 10,120kcal/kg 3,500 kcal/kg 6,300 kcal/kg 860 kcai/kWh

This report is based on the findings of an energy assessment mission which visited the Dominican Republicin March 1989. Its memberswere: J.U. Richter (MissionLeader), J. Proto Carreiro (Energy Planner),A. Menedes(ElectricitySpecialist,Consulant),J.M. Girard (PetroleumSpecialist,Consultant), T. Synnott(Forestryand WoodfuelsSpecialist,Consultant),B. Utria (Renewableand Householdenergy Specialist, Consultant), B. Philippi (institutional Specialist, Consultant) and Ms. M. Kornen (EnvironmentalSpecialist,Consulant). Mr. Richter reviewedthe draft report with the Governmentin the DominicanRepublic during 15-19 January, 1991 and undertookrequiredupdatingof the analysism regard to energypricing, investment, and major subsectordevelopments.

TABLE OF CONTENTS

RESUMEN DE LAS CONCLUSIONESY RECOMENDACIONES .... SUMMARYOF CONCLUSIONSAND RECOMMENDATIONS .... 1.

la.

........ .........

ENERGYAND THE ECONOMY ............................. Background. ........................................ Energy Constraintson EconomicDevelopment................... Energy-Macroeconomic Interrelationships .................. Impact on the Environment ........................... EnergySector Management ........................... Energy Resources,Productionand Consumption.................. EnergyResources ................................. EnergySupplies ... ............................. EnergyConversion ................................ Final Energy Consumption............................ EnergyInvestment, 1980-88 .............................. ENERGYDEVELOPMENTSTRATEGYAND INSTITfTIONS .... GovernmentEnergy Objectives,Strategies,and Institutions........... InstitutionalFramework .10 Major Issues .11 Requirementsand Recommendations.12 Energy DevelopmentStrategy..........................

i-xiii xiv-xxv I I 2 2 3 3 4 4 S 5 6

8 .....

10 10

12

m.

ENERGYDEMANDMANAGEMENT.......................... Jenerat ........................................... EnergyPricing ....................................... PetroleumProducts ................................ Electricity ...................................... Woodfuels...................................... ComparativeEtiergy Prices and Costs ........................ Energy Conservationand Substitution ........................ EnergyConservation ............................... EnergySubstitution ................................ Requirementsand Recommendations ......................... Energy Pricing ................................... Energy Conservationand Substitution .....................

16 16 16 16 18 19 20 22 23 24 25 25 26

IV.

ELECTRICITY.28 MajorIssues .28 Background.28 TechnicalIssues .28 InstitutionalIssues ............

29

FinancialIssues.3.0............... .. ... ... .. ... .. . . EmergencyManagement andExpansionPlanning .............. PrivateSectorPartcipadon ........................... Privatizationof CDE ................... Financingof PrivateInvestment ........................ Requirements andRecommendations ...... ........ .......... SystemRehabilitation andExpansion ........ .. ........... PrivateSectorParticipation ........... .. .............. Privatization of CDE .. .......... Financingof PrivateSectorInvestment........ .. ..........

30 31 32 34 34 35 35 37 38 39

V.

HYDROCARBONS .......................................40 Institutional Arrangements............................... 40 PetoleumImports.......... 40 CrudePetroleum.................................. 40 PetroleumProducts ................................ 41 SecurityStocks................................... 41 PetroleumRefining.................................... 41 RefineryExpansion................................ 42 Marketingof PetroleumProducts ........................... 43 LiquidFuels .................................... 43 LiquifiedPetroleumGas ............................. 43 Marketingin RuralAreas .......... ................. 44 LPG Storage .................................... 44 Petro;eumExploration.................................. 45 General........................................ 45 Impediments to Exploration........................... 45 Requirements andRecommendations ......................... 46 ProcurementandRefining ............................ 46 Marketing...................................... 46 PetroleumExploration. ................... 47

VI.

FORESTRYANDWOODFUELS .48 MajorIssues.48 Deforestation andReplanting.48 Institutional Constraints .49 Optionsfor SustainedFuelwoodProductio.50 RuralWoodfuels:Agro-Forestry Extension.50 UrbanandCommercialWoodfuels .50 TreePlantations.51 NaturalForestManagement .51 Requirements andRecommendations .51 WoodfuelStrategy.52 Institutional Strengthening .52

Vll.

VRI

IX.

HOUSEHOLDENERGY ................................... Major Issues ........................................ Energy MarketConstra.nts.53 InstitutionalConstraisits.54 Requirementsand Recommendations.........

53 53

................

54

ENERGYAND ENVIRONMENT............................. Main Issues.56 EnvironmentalImpactsof EnergyOperations ................ InstitutionalConstraints.............................. Requirementsand Recommendations......................... EnvironmentalStrategy .............................. InstitutionBuilding ....................................

56 56 57 57 58

ENERGYOUTLOOK,1989-2000 ................... ......... Projected EnergyDemandand SupplyRequirements ............... EnergyDemand .................................. Energy SupplyRequirements .......................... Investmentand TechnicalAssistanceRequirements ................ Investnent ...................................... TechnicalAssistance ...............................

59 59 59 60 61 61 62

56

TABLES 1.1 1.2 1.3 1.4 1.5 3.1 3.2 3.3 3.4 5.1 9.1 9.2

Energy and the Balanceof Payments,1980-88 ...................... Primary EnergyResources, 1988 .............................. CDE ElectricityData 1980-88 ................................ Final EnergyConsumption,by Source ........................... Final Energy Consumption,by ConsumingSector, 1980, 1988............g Price Structureof PetroleumProducts, October1989; December 1990 .... ... Prices of PetroleumProductsto the Final Consumer, 1985-90 .... ........ Prices to Consumersof VariousForms of Energy, Santo Domingo, 1989 ..... EconomicCost of VariousForms of Energy, SantoDomingo, 1989 .... .... StorageCapacityfor PetroleumCrude and Products, 1989 .............. ProjectedEnergy Imports, 1993-2000 ............................ ProjectedDevelopmentExpenditurein the Ene;gy Sector 1989-2000 .... ....

2 5 6 7 17 18 20 22 44 60 62

ANNEXES

la lb 2a 2b

Sumariode Problemas,Objectivosy AccionesRecommendados ........... Summnary of Issues,Objectives,andRecommended Actions.............. EnergyIndicators 1980,1988 ............ .................... ProjectedEnergyIndicators 1993,2000 ..........................

3 4 5 6 8

EnergyBalance- 1980 ...................... EnergyBalance- 1988 ..................... ProjectedEnergyBalance- 1993 ............................. ProjectedEnergy Balance- 2000 .............................. ProjectedEnergyBalance- 1993 .............................. ProjectedEnergyBalance- 2000 ..............................

9 10 11 12 13 14

SecondaryEnergyDemand.................................. Falconbridge (Ferronickel).................................. CDE's PowerBalance..................................... CDE's ElectricalEnergyBalance.............................. Electricity- ResidentialConsumption Data ........................ ProjectedHouseholdEnergyConsumption........................

7

MAPS

SupportingInfrastructure IBRD21902Hydrocarbons: Sedimentary Basins, IBRD21903ForestedAreas IBRD21904ElectricitySubsector

64 75 85 6 37 88 89 90 91 92

93 94 95

96 97 98

RESUMENDE LAS CONCLUSIONESY RECOMENDACIONES

1. Tres problemas basicosafectan al sector energdticode la RepublicaDominicana: los recursosenergEticosautdctonossonlimitadosy su explotaciones costosa;la produccion,transformacidn y uso final de la energfa son ineficientes;y el marco institucionaly las polfticas no son adecuados. Debidoa la evolucionecon6micapoco satisfactoria,el suministrode energfaha disminuidoy la eficiencia del uso final de 4sta ha bajado, en taino que la actividadecon6micaha sido afectada por la gesti6n desacertadade la energfa. En particular, el suministroinsuficientede electricidadesta retardando la expansi6n de los sectores manufactureros y el turismo. Los precios de la energfa que eran subvencionadospor perfodoslar5 os han sido la causa del ripido aumento del consumoy del uso final ineficientede esta. Los subsidios econoimicosal consumo de energfa -que segin las estimaciones ascendieronal 4,5% del PIB en 1989- estin debilitandola balanza de 'agos y la situaci6n fiscal y agravandolas presionesinflacionarias. El medio ambienteso ha deterioradodebido a Is deforestaci6n y a la contaminacidncausada por las operacionesenerg6ticas. Este problema no tiene ficil solucion debido a que las medidas tendientes a proteger el medio ambiente entrailan un aumento de las importacionesy una carga adicionalsobre la balanzade pagos. 2. Las limitacionesffsicasy economicassoven agravadaspor las deficienciasinstitucionales. Entre esas deficienc,asse cuentanun marco legal y regulatorioambiguo;una organizacidnde estructura inadecuada;una division poco clara de las responsabilidadesentre las institucionesque formulan las poifticas y las institucionesoperacionales; la falta de una estrategia de desarrollo, de planificaci6n energdticaeficaz y de cooruinacidnde las pol(ticas en el sector; y las deficienciasadministrativasy operacionalesde las empresas. Estas deficienciashan inducidoal Gobiernoa intervenire-cesivamente y a centralizardemasiado la toma de decisiones. La principal instituci6nenergetica del Gobierno, COENER,no tiene un mandatoadecuadoy carece tanto de recursos comode una estrategiaclara. 3. A fin de poner el sector energdticosobre una base mis s6lida, es preciso aplicar una estrategia global y bien orientada, concentrindoseprimero en los aspectosesencialesy abordandolas tareas restantesuna vez que se haya fortalecidola capacidadinstitucional. La misi6nrecomiendaque el Gobiemo enfoquesu acci6nen lo siguiente: Prioridadesinmediatas a)

Poner los preciosde los derivadosdel petrdleoy de la electricidada nivelesque permitan financiar las necesidades de los entes operacionales en materia de rehabilitaci6n y ampliaci6n.

b)

En el subsectorde la electricidad,i) ejecutarel programade rehabilitaci6nfinanciadopor el BIRF y BID y preparar un programs de mantenimientopreventivoy capacitacidnde personal.

c)

En el subsectordel petroleo, i) establecerpreciosrealistas en los acuerdoscontractuales entre el Giobiernoy REFIDOMSA,ii) mejorar la comercializaciondel gas licuado de petr6leo (GLP)y del queros6ny eliminarlas restriccionesde importacionque se aplican a los cilindrosde GLP, y iii) examinarmas adecuadamentelos aspectoseconomicosde la ampliacion planeada de la refinerfa y de la operacion del terminal de GLP de OPUVISA.

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d)

En el subsector de la silvicultura, aumentar los derechos de corte y mejorar su recaudaci6n,de modo de cobrar a los usuariosel costo econ6micode los combustibles derivadosde la madera.

e)

Respectoal medioambiente,llevar a caboun programade medicionde las emisionesen la zona metropolitanade Santo Domingo-Haina. Prioridadesde corto a medianoplazw

t)

Fstablecer preciosbasadosen costos econdmicospara todos los derivadosdel petrdleo, la electricidad,el carbdny los combustiblesderivadosde la madera, a fin de aumentar la eficiencir de la produccion, transformacidny uso de energfa, obtener recursos financierospara fines de ampliaci6ny aumentarlos ingresosfiscales.

g)

Establecer incentivos relacionados con el mercado, asistencia tecnica y medidas regulatoriascon el objetode (i) aumentarla eficienciaen la produccion,transformacion y uso final de la energta en la industria, el transporte, los edificios pdblicos y los hogares, y (ii) lograr una sustituci6nenergeticaecon6micamenteviable.

h)

En el subsectorde la electricidad,(i) establecerun organismoreguladorcompetentepara que dirija y supervisea los entesoperacionales;(ii) prepararun programade inversiones a medianoplazo de costo mfnimo,que debeser aprobadoy respaldadopor el Gobierno, y (iii) aumentaria participaci6ndel sectorprivadomediantela creaci6nde un fondopara desarrollode la energfay, por dltimo, la privatizacionde CDE.

i)

En el subsectordel petr6leo, (i) liberalizarla adquisicionde crudo y productos con el objeto de realizar mdrgenesde eficienciay (ii) fortaleceruna instituci6npdblica que se encargue de asuntos relacionadoscon la explorii6n de hidrocarburos y reanude la promocionde la exploraci6ncon mirasa incentivarlaz compafifasinternacionales.

j)

En el subsectorde la silvicultura,(i) fortalecer la gesti6nmedianteel mejoramientode las leyes, reglamentacionusy coordinacionentre las institucionespdblicaspertinentesy las organizacionesno gubernamentales(ONG), (ii) llevar a cabo un programaorientado hacia el rendimientosostenidoque comprendala plantacidnde arbolespara prop6sitos multiples,comoparte de los programasde desarrollorural, y (iii) ampliarla capacita'-i6n y las investigacionessilvfcolas.

k)

En el sectorde la energfaresidencial,difundirpracticaseficientesy artefactosdomesticos que reduzcan el costo que tiene la energfapara los consumidores.

I)

En el campo del medio ambiente, (i) preparar programasy proyectos en los cuales se abordenlas interrelzcionesentre la energfay el medio ambiente,comolos problemasde deforestacion/erosiony contaminacidn,(ii) mejorar la gestidn ambiental mediante el fortalecimientode la estructura legal, regulatoria e institucional, como parte de una estrategiaglobal relacionadacon la energfay el medio amoien.e.

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m)

lii -

A nivel sectorial,mejorar la planificacionenergeticay la coordinaci6nde las poifticasa fin de lograr una gesti6nmas eficaz del sector energeticoen su conjunto.

El Gobiernoseguira cumpliendouna funcionclave en el desarrollo de la energfaen lo 4. que respecta a defuir objetivos, establecerel marco estratEgicoe institucionaly aplicar las polfticas. Respectoa lo demgs, el Gobiernodeberfalimitar su intervenciona los camposen los cuales el sector privado no puede o no desea participar. La planiflcacionenergdticaeficaz y la coordinacionde las poifticas son esencialespara conciliarlos objetivossectorialescon las limitacionesmacroocon6micas, catalogarlas prioridadesintersectorialesy reforzar la funci6nde los precios en el desarrollodel sector energetico. Para poder fortalecerlas institucionesy mejorarla coordinaci6nentre ellas, COENE^iaebe transformarseen el organismoprincipaldel Gobiernoen lo que respecta a la energfa,lo que dejarfaa las mas altas autoridades de Gobiemo libres para ocuparse solamentede las decisiones fundamentales. COENER necesita un refuerzo considerablepara actuar competentementeen lo referente a formular estrategiasy polfticas de energfa y supervisar su aplicaci6n. Las relacionesentre el Gobierno y las empresaspUblicasdebenbasarse en la autonomfade gestiony la responsabilidadpor los resultados. El potencialdel sectorprivadodebemovilizarsemediante(i) ladesconcentracion,para evitarlos monopolios pdlblicoso privados, (ii) la descentralizacion,para facilitar la toma de decisionesal nivel menos global posible, y (iii) la competenciao reglamentacidnapropiada,dentro de un marcode polfticaestable. Gesti6nde la demandade energfa Preciogde la energfa Losprecios de la energfafijadospor el Gobiernoson deficientesen cuantoa su estructura 5. comode su nivel. Las alzasno eran suficientespara compensarpor la devaluaci6ny la inflacifninterna. Las precios relativos no reflejan el costo relativo y las distorsionesresultantestienden a fomentar el fraude y otras deficienciasde la asignaci6n. Los precios de los derivadosdel petrdleose cuentan entre los mas bajos de AmericaLatina, y sus ajusteshan guardadoescasarelacidncon las fluctuacionesde los precios internacionales. No hay impuestosclaramentedefinidos sobre los combustiblesy no se ha consideradola posibilidad de recuperar a traves de los impuestoslos cargos a los usuarios de las carreteras. Las tarifas do la electricidadtanto residencialcomocomercialde bajo consumono cubre ni el costo financierode CDE ni el costo econdmicodel suministro,en tanto que las tarifas comercialese industrialesson superiores a los costos econ6micosy mas altas quo las tarifas residenciales. La tarifa mediade CDE, equivalentea USC6.5/kWh,cubrensolamenteel 86% del costo econ6micodel suministro en un sistemade tamafiodptimo administradoeficientementepero apenasal 62% del costo efectivode CDE. En virtud del proyecto de rehabilitacidndel sector de la electricidad, se preve aumentar semestralmentede modo que alcancen un promedio equivalentea US07.5kWh hacia 1991, lo cual, cubrira el costo econ6micode CDE a condici6nde que la rehabilita.-6n de ese organismode buen estan determinadospor el mercadopero no reflejan resultado. Los preciosde la lefhay el carb6nde lebAa el costo de la replantaci6nde los arboleso del uso alternativode la tierra. El costo de energfapara la economfase minimizarfasi se usara principalmente(i) GLP 6. y querosen en los sectores residencial,comercial y administrativo;(ii) carb6n y fuel oil en el sector industrial;y (iii) dieselpara el transporte. No obstante,las deficienciasdel sistemade fijaci6nde precios y de comercializaci6nde combustibles, adewds del gasto que significa cambiar de equipo, han obstaculizado en forma seria el uso eficiente de la energfa. Otros obstaculos han sido: a) el desconocimientotanto de las tdcnicas apropiadas de consumo de energfa como de las tecnologfas

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disponibles;b) la renuenciaa asumirel costo y riesgo olela lntroduccidnde nuevas tecnologfas;y c) la falta de financiamientopata aplicar medidas de racionalizacionde la energ(a. Se podr(a obtener un ahorro de energfapor lo menosdel 20% en la industria,transporte,edificiospdblicosy viviendassi se mejoraranlos metodosde operacidny el mantenimientoy re efectuaranpequefiasinversiones. COENER coordin6un programa de racionalizaciondo la energla en la industriapero el Gobiernoabandonoese programacuandolos fondosasignadosa este por USAIDse desembolsaronen su totalidad. La eficiencia de la energfaen el £ajor es baja, pues los vehfculosno cstgn mantenidosdebidamentey el sistema de transporte pdblico es deficiente. Ciertas medidas adoptadas por el Gobierno, como dotar a ONATRATEde autobusesnuevos y crear una oficina tEcnicapara reglamentaral transporte pdblico, todavfano han hecho sentir sus efectos. En el caso de los edificiospdblico, el ahorro de energdaque se podrfa obtener en las construccionesnuevaspodrfa ser hastadel 30% si se tomaran algunasmedidas cuyo costose recuperarfaen menosde cuatro ados. En el sector midencial ya que la difusi6nde cocinas mnseficienteses lenta y diffcil,y solo se puedeIlegar hastael gran ndmerode consumidoresparticulares medianteuna polifticade preciosapropiada. 7. En cuanto a la conversionenergetica, en el subsector de la electricidadlas perdidas t6cnicasy administrativasde CDE, tomadis en conjunto,exceden el 30%. En virtud del proyectode rehabilitaci6nde CDE se aumentara la eficiencia de la generacion y se reduciran las perdidas de transmisi6ny distribuci6n. Es probable que la refinacidnde R6leo ofrezca un margen adicionalde eficienciaenergtica, cuyo alcance tendrfa que definirse con mayor precisi6n medianteuna auditorfa actualizadade la refinerfay un estudiode optimizacion. T(picamentela eficienciade la produccionde carb6nde lefia es inferioral 23%, y podrfaaumentarsepor lo menosal 30% si se mejoraranlos hornos de calcinacionque requirieranuna inversionpequeoa. 8. Sustituci6n de energfa. Las opciones comprenden lo siguiente: en el caso de la generacionde electricidad,el uso del carb6n en vez del fuel oil como fuentede energfaprimaria; en el del transporte, la sustituci6nde gasolinapor diesel; y, en el de las viviendas,el reemplazode la lefla y el carb6nde lela por GLP y querosen. No obstante,el uso del carbon de leoa como fuentede energfa domesticaesta ampliamentedifundido. En la industriay la generacionde electricidal se ha producido una considerablesustituci6nantiecondmicaa medida que el fuel oil ha sido reemplazadopor diesel pot causa de menorprecio. Requisitosy recomendaciones 9. Fijacionde los precios de la energfa. Los preciosde energ(adeben basarse en el costo econ6micode esta, es decir, el costo cif de las importacionesen el caso del petr6leo y el carbon y el costo marginal a largo plazo en el de la electricidady combustiblesleflosos. El objetivo deberfa ser: a) eliminar los subsidiosa los productosdel petroleo para fines Oc 1990; b) tener tarifas electricasque cubran el costo econdmicopara fines de 1991; y c) establecerprecios para la leoa y el carbon de lefia que cubranel costo del cultivo y cosechade las plantaciones,medianteel aumentoy la aplicacidnmas eficaz de los derechos de corte en el caso de ambos productos. Los aumentosfuturos de los precios deberfanser regulares y automaticos. Los subsidiosal consumoresidencialde electricidadtienen que limitarse a los grupos de bajo ingreso. La estructursde las tarifas debe reflejar mejor la diferenciade costo del suministroa diferentes nivelesde tension. En el caso de los consumidoresde medianaa alta tensi6nhay que introducir los cargos por energfareactiva como incentivopara mejorar los factores de potencia, como se preve en el programade ajustede las tarifas de CDE. Los aumentosde precios de la energfa, si se implementancuidadosamente,deberfantener solamenteun impactoreducido, dada la

vv

proporcl6nrelativamentelimitadade la energfaen el costo de la vida (menosdel 10%). Las campawfas bien orientadasde informacifnsobre el verdaderoalcancedel aumentode los precios relacionadoscon la energfa y medidastendientesa superar los estrangulamlentosde la oferta podrfan ayudar a contener las presiones inflacionarias. Conservaci6ny sustituci6nde ensefa. Para aumentarla eficienciade la energfa, los 10. precios sobre la base del costo econdmicotienen que ser reforzadospor los incentivosrelacionadoscon el mercado,la aplicacionde normasde eficienciay una reglamentacidnque sejustifiqueecon6micamente, cuyo cumplimientopueda exigirsey verificarsey que no inttoduzcadistorsiones. Medianteestudiosde factibilidad,habrfaque ayudara las empresasindustrialesa prepararproyectossusceptiblesde encintrar financiamiento. El aumentar la eficiencia de los combustiblesen el transporte hace necesario el establecimientode cargos adecuadosa los usuariosde los caminos- especialmenteimpuestossobre los combustibles-, el mejoramientode la red de caffeteras, el volumende trafico, el mantenimiontode los vehtculos y de la manera de conducir, asf como de la renovaci6n de la flota de vehfculosy una planificacidnen el transporteintermodal,que tome en cuenta la eficienciaen el uso de la energfa. Las normas de construccidny diseflosapropiadosson esencialespara aumentarla eficienciadel uso de la que solicitar asistencia a los donantes energfa en los edificios pdblicos. El Gobierno trfa internacionalespara continuarcon programasde uso eficientede la energfaen la industriae iniciarestos programasen otros sectores. Habrla que seWalara los bancos nacionaleslas oportunidaaesque ofrecen los proyectosrelativos al uso eficazde la energfa y los funcionariosde esos bancos tendrfanque estar capacitadospara llevar a cabo estos proyoctos. Un marco eficaz de institucionesde polfdcases una condicionbasicapara que estas medidasque aumentanla eficienciaenergedcatengan exito. Subsectorde la electricidad La crisis de la electricidades la culminaci6nde un largo perfodode deterioro de CDE, I1. cuyasprincipalescausashan sido: a) la falta de objetivosy responsabilidadesclaramentedefinidos;b) la ausenciade autonomfay responsabilidadadministrativa;c) la planificaciony control deficientesy d) los recursosfinancieros,administrativosy humanosinsuficientes.El matonimionto insuficienteha causado un suministropoco seguro, ha elevadolos costosde operaci6ny perdidast6cnicasdel sistema, asf como los mdtodosdesacertadosdesde el punto de vista del medio ambiente. La capacidaddisponiblede CDE se ha reducidode alrodedorde 1.100 MW a menos de 700 MW y las instalacionesestan en mal estado. Las redes de transmisi6ny distribuci6nestin recargadas. Los proyectosde inversidnfrecuentemente estin mal concebidosy hay grandesdemorasen la planificacidny ejecuci6nde los proyectos. La delimitaci6nambiguade la autoridadentre el Gobiernoy CDE, y entre el ditectorio 12. y el consejode administracionde esa Corporaci6n,ha menoscabadola toma de decisiones,ademis de perjudicarel flujo de informaci6ndentrode esta. El personattecnicode CDE esta mal preparadopara las operacionescotrientes,y para los trabajosimportantesde rehabilitaci6n.La situaci6nfinancierapoco s6lida se debe a las tarifas demasiadobajas y a la administraci6nfinancieradeficiente,especialmenteen lo que respecta a facturaciony cobranzas,agravadapor devaluacionesde la moneda nacionalque han afectado el costo de las importacionesy los serviciosde la deuda externa. Los costos de operaci6n exceden los ingresos provenientesde las ventas en cerca del 20%. CDE tiene considerablespagos en mora ante sus proveedoresy no ha cumplidocon pagos correspondientesa prestamosexternos, lo que le impideobtenernuevosprdstamosexternos. Las perdidasfinancierasde CDE aumentarondebidoa las demorasen iniciarla rehabilitacidn,en tanto que las deficienciasfinancierashan frenadola rehabilitacion y la inversi6n.

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el Gobiernose limit6a las solucionestdcnicasa cortoplazopara resolver Inicialmente 13. ftsica, generalde CDE. Larehabilitaci6n por la reorganizaci6n suficientemente la crisis,sin preocuparse institucional y financierade estase financiarden parteconun prdstamodel BIRFde US$105millones del sectorde y del BIDde US$148millonespara un proyectointegradode distribucidny rehabilitaci6n con estos la electricidad,que ha de estar tertninadopara 1993. Este proyectose complementard de las redesprovinciales.Ademdsde rehabilitar prestamosy confuentesbilateralespara rehabilitacidn la capacidadactualde generaci6n,en el perfodode 1992-97se necesitaranalrededorde 600 MW adicionalesde capacidadpara satisfacerla demandaprevistade electricidad.Es probableque el usode centralesa carb6npara la demandabaseconstituyala opci6nde menorcostode expansi6n.Podrfan complementarsecon represas hidroeldctricasde propdsitosmdltiples,tal como con sistemasde cogeneracifna basede baga7oy otrostiposde autogeneraci6n. del sector2rivado. Sin una participaci6nimportantedel sectorprivado Participaci6n 14. diffcilmentese podra prever un desarrollosostenidodel sector eldctrico. La autogeneracidnde de las a pesar de queel equipoy el costo del combustible electricidadha aumentadosustancialmente elevados,agravandola cargaquerepresentan son relativamente unidades,sobretodode las pequefilas, del sectorprivadoen la generaci6nde electricidadde para el pafs. La participaci6n las importaciones reducirfala presi6nfinancierasobre el sectorpdblico,y mejorarfala tamailoconvencional-comercial CDE seguridaddel suministrotal comola eficienciaoperacional.Ademasde 66 MWde Falconbridge, de 30-60MWde capacidadde autogeneraci6n.El Gobiernoha podrfadisponercasi inmediatamente preparadouna ley quetienepor objetofomentarla inversi6nprivadaen el desarrollode la electricidad pero las oportunidades ofrecidastodavfason muy limitadas. El Gobiernodeseaponer en manosdel de este sectorprivadola mayorpartede la capacidadadicionalde generaci6nperolimitarla participaci6n en la transmisidny distribuci6na la necesariapara atenderlas nuevasinstalacionesindustrialesy turfsticas. CDE, en tal caso,tendrfaque permitirque su red de transmisi6nse usara al igualpara la electricidadprovenientede otrasfuentesde generacidn. rehabilitaday reestructurada de CDE. Unavez queCDEest6enteramente i5. Privatizacidn medio y su autonomfa administrativa restablecida,su privatizaci6n a medianoplazoconstituirfael ldnico posiblede preservarlos alcancesa que se aspira y dar a CDE accesoal capitalde inversi6n. La privatizacidn inmediatade CDEserfadiffcilpor razonescomercialesy polfticasy se verfaobstaculizada y sectoriales.No obstante,hayopcionesfactibles macroecondmicas tambienpor las actualescondiciones que gradualmenteconducirfanal logro de esta meta, como a) encomendaralgunasfuncionesa privados;b) crearempresasconjuntaspara administrarlos restantesactivosde CDE;y subcontratistas del Gobiernoen CDE mediantela ofertade bonosy/o capitalde c) reduciro eliminarla participacidn y privatizar se podrfadescentralizar privados.Ladistribucifnde la electricidad riesgoa losinversionistas parcialo totalmente.Inicialmente,serfafactiblecrear compafifas regionalesde distribucionabiertasa la participacidn de empresasdistintasde CDEen zonasde gran demandaindiustriales y comerciales. de la inversi6nprivada. Dada la escasezde recursos financieros Financiamiento 16. nacionales,el financiamiento externoes de importanciadave para el logro de la inversi6nprivada. Algunospafseshan creadomecanismosque tienenpor objetopermitirel accesode los inversionistas privadosal financiamientoexterno,por ejemplo,medianteun fondo de desarrollode la energla garantizadopor el Gobiernoy supeditadoa otrasfuentesde endeudamiento.(Apartede los proyectos de electricidad,un fondo de ese tipo podrfa financiarproyectosrelacionadoscon el petr6leo,la de la energfa.) Tanto el derivadosde la maderay la racionalizacion silvicultura,los combustibles Gobiernocomoel sectorprivadoestaninteresadosen estaopcion.LaUSAIDha ofrecidofinanciamiento conla energfa. US$12millonespara idversionesdel sectorprivadorelacionados de aproximadamente

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Rquisitos I recomendaciones

del sistenma.El Gobiernodebe dar igualprioridada la rehabilitacion Rehabilitacion 17. de CDEdebe ffsicade esta. La administraci6n y financierade CDEcomoa la rehabilitacidn institucional debenser claramentedefinidas. tenerplena autoridadoperacionaly sus funcionesy responsabilidades A pesar de la urgencia,las medidasde emergenciadebenprepararsedebidamentey debenser de costo debenbasarseen un preciobiendefinido. de electricidad mfnimo.Los contratosconlosautoproductores de la escasezde electricidad. Habrlaquemejorarla gesti6nde la cargaa fin de atenuarlas repercusiones modianteel refuerzo Se debedar altaprioridada la reducci6nde las perdidastcnicas y administrativas facturacidn y cobranza. de los sistemas de el mejoramiento del sistemay con CDE,debedeftinirprontolos Expansi6ndel sistema. El Gobierno,conjuntamente 18. objetivosa medianoy a largoplazodel subsector. E! programade ampliacidna medianoplazodebe estrategica.Hayqueasegurarquelas medidas tenersuficienteflexibilidad,comopartede la planificacidn de expansi6nde costomfnimoa mediano con el programa consonancia actualesde emergenciaestenen de la ampliaci6nde medianoa largoplazono posterguenlas medidasde plazoy quelas preparaciones rehabilitaci6n.La expansi6nde la generaci6ndebe ir unidaa mejoramientosconsiderablesde la administraci6nde la red y a un refuerzode la transmisi6ny distribuci6n. Los programasde rural y de las zonasperi-urbanasdebenemprendersesolamentesi son econ6micamente electrificaci6n viables. de CDE administrativa del sistema.Usiavez quese logrela autonomfa Reglamentaci6n 19. eflcazpara y un mayot grado de participaci6ndel sector privado,se necesitarauna reglamentacidn en lo establecerrelacionesprevisiblesentreel Gobiernoy los organismosdel subsector,especialmente regulador organismo Un naturales). querespectaa la distribuci6n(quese caracterizapor los monopolios independientey competente,con presupuestopropio, debe definirlos parametrosde los acuerdos que comprenderfan:a) solicitud,evaluaci6ny aprobaci6nde propuestaspresentadaspor contractuales c) normastecnicasde servicio; b) acuerdosentre CDE y los autoproductores; los autoproductores; coordinaci6nde los planesde a tarifas; f) respecto e) polfticas de concesi6n; de zonas d) delineaci6n claramente inversi6n;y g) soluci6nde problemasambientales.Igualmente,esteorganismodebeesWar de la Industriade la facultadopara exigirsu aplicaci6n.El Directoriode Desarrolloy Reglamentaci6n creada- debe ser fortalecidapara poder funcionar EnergfaElectrica- entidadque fue recientemente comoorganismoreguladorapropiado. e institucional La inversidnprivaday su financiamiento.La estructuralegal/regulatoria 20. debe ser adaptadapara fomentarla inversi6nprivadaen electricidad.En las polfticasde fijaci6nde los privados. Sinembargo, preciosde la energfahayqueteneren cuentalos interesesde los inversionistas conlfmitesde tiempo de alta prioridad, habrfaqueofrecerincentivossolamenteen el casode proyectos conel sistemafinanciero,debeasegurarsede quelos claramentedefinidos.El Gobierno,conjuntamente inversionistasprivadosque deseeninvertiren proyectosde energfacuentencon suficienteaccesoal crddito. Habrfaquetomarmedidaspara atraercapitalinicialtantooficialcomoprivadopara proyectos necesariospara que los inversionistas energeticosviables. Habrfaque establecerlos procedimientos nacionalesutilizaranoptimamentelos fondosdisponiblesy los prestamistasobtuvieranseguridades de los proyectos,la ventade maximas.Esasseguridadesincluyengarantfasrelativasa la completacion las tarifas),y el libreaccesoa divisasparafinesde repatriaci6nde fondos. electricidad(especialmente de CM. Aunqueestaconstituyala soluci6ndptimadentrode un mediano Privatizacidn 21. inmediatay totalde CDEsea factibledesdeel punto a largoplazo,no es probablequela privatizacidn

- viiide vista comercial ni aceptable desde el punto de vista poiftico. Sin embargo, cualquier ampliaci6n deberfaser emprendidapreferiblementepor empresasprivadasmientrasse rebabilitaCDE. Una vez que se haya logradoconvertir CDE en una corporaci6ncon fines de lucro - posiblementedentro de cuatro aflos - esa empresadeberfa ser privatizadaparcial (por lo menos en un 51%) o totalmente. Subsectordel erleo

Imprg idn. REFIDOMSAtiene la flexibilidadnecesariapara diversificary optimizar 22. las adquisicionesde crudo, aientrode los lft(ites del acuerdode SanJosEcon MExicoy Venezuela. Otros crudos procedentesdel Caribe y del norte de AmericaLatina quizis sean tEcnicamentemds adecuados que los crudos mexicanos y venezolanos. Sin embargo, parece que el cambio de fuentes de abastecimientono ofrece ningunaventajasi no se puedenobtener condicionesde financiamientopor lo menos iguales a las establecidasen virtud de ese acuerdo. Las compras de crudo en el mercado de entrega inmediata("spot") exigirfangran flexibilidadfinancieray operacionaly el riesgode no disponer de crudo y de financiamientopara la compra en el momentonecesariopodrfa contrarrestar con creces la ventajatemporaldel precio. Los productosdel petr61o se importan en virtud de contratosa plazo y son ofrecidosprincipalmentepor REFIDOMSA,que de esta manera tiene un monopoliode hecho en lo que respecta a las adquisicionesde crudo y de derivados. Refinaci6n. Las actividadesde REFIDOMSAson eficientes desde el punto de vista 23. tdcnicoy suelenser ecan6micamenteviables, debidoa que el gasto de flete del crude es menor que el de los derivadosy a quo su costo de refinaci6nes relativamentebajo. Sin embargo, la refinaci6nhabfa sido deficitariapor un largo perfodo, debido a que la mayorfade los precios ex-refinerfafijadospor el Gobiernono han sido aumentadosa pesar de que los preciosintermacionalesdel crudo han subido. No obstante,desde mediadosde 1990,los preciosex-refinerfaexcedenlos preciosde importacionsalvopara GLP. Las relacionesfinancierasentre REFIDOMSAy el Gobierno son complejas. La renegociaci6n del contrato basico que esta en marcha determinart si la ampliacionprogramada de la refinerfa (a 45.000BID)se realizara o no. Esteproyectopareceser econdmicocomparadoa los preciosactualesd' crudo y los derivadosdel petr6leo, debido a un aumentode la eficienciay del valor de la producciou comoresultadodel proyecto. La produccionadicionalse venderfatotalmenteen el mercadointemo. No obstante, la ampliaci6nes muy sensiblea las variacionesde los margenesde refinacion,que hasta hace muy poco eran demasiadoestrechospara garantizarla viabilidadde la refinacidn,excepto en el caso de las refinerfasmas modernasde los pafses que cuentancon crudo propio. Comercializaci6n.Hasta muy recientemente,los mgrgenesfijadospor el Gobiernopara 24. los productos del petrdleo no bastan para cubrir el costo de comercializacion. Como reacci6n, las compafifasde comercializacionhan limitadoel servicioy las inversionesde reposicidn. Cincocompaflfas nacionalescuyas operacionestienen un alto costoy cuyas instalacionesno son adecuadasse encargande la comercializacionde la mayor parte del GLP. Esta situacidn se ha visto agravada por la falta de cilindros para GLP, como resultado de la protecci6n arancelaria del productor nacional. Los consumidoresrurales de GLP y querosen se encuentranen una situaci6nparticularmentedesventajosa. La capacidadnacionalde almacenamientode GLP casi se duplicaponiendo en servicio la terminal de OPUVISA. Unacompafifaextranjeraha manifestadointerespor operarla terminal,pero la incertidumbre respectoal refinanciamientode la deudaexterna y los cambiosque habrfaque efectrar en el sistemade comercializaciondel GLP hacen dudar de que esta compafa vaya a hacerse cargo efectivamentedel terminal. Ademis, el acuerdc que se preve, basado en un sistemade costo mEshonorarios, no ofrece un incentivosuficientepara funcionar eficientemente.

- lx la existenciade pequeflosyacimientosde acidn del va&e. Se ha comprobado 25. noso ha efecuado perocompleja.Recientemente, hidrocarburos.Lageologfapetroleraes prometedora ningunaexploraciondebidoal obstaculoque constituyenla legislacidnmineralantiuada, la faita de del contratomodeloy la fata de un enfbqueclavedent-odel Gobiernoparaasuntosrelativos flexibilidad a la exploracidnpetrolera.El Gobiernohadadorelativament.pocaprioridada estadltima. Ha rehusado asistenciadel BancoMundialy del BID para promoverla prospeccidn,pero mas recientemente,e1 Gobiernoha utilizadoasesorfade parte de UNDTCDy ha aceptadolas propuestasde dos empresas petrolerasde EstadosUnidosrelativaa la exploracionsobrela basede contratosde riesgo. RequisitosI recomendaciones y a quelas Adquisicion de petr6leo. Pesea la eficienciaoperacionalde REFIDOMSA 26. alternativas para el pequeftas,habrfaque tratar de encontrar cantidadesen cuesti6nson relativamente sistemaactuala fin de aumentarla competencia.Dentrode los lfmitesde las economfasde escala,el de la adquisici6n de productosdelpetr6leo,paralo cual Gobiernodeberfaconsiderar:a) la liberalizacion tendrfaque permitirque las compaflfas de distribucion,grandesconsumidores,etc. puedanefectuar y con la produccidnde que compitieranconlos productosimportadospor REFIDOMSA importaciones operaciones de almacenamiento. de las la refinerfade esta;y b) la diversificaci6n 27. Refinaci6n. Los arregloscontractuaesentre el Gobiernoy REFIDOMSAdeberfan de losprecios corrientes,establecerla revisidnautomStica basarseen los costosy preciosintemacionales y, en dltimainstancia, de los preciosinternacionales on la refinerfade acuerdocon las fluctuaciones conducira ia liberalizaci6n del sistemade adquisicifny fijaci6nde preciosdel petr6leo.Lospreciosexeficientesy de costo mfnimode crudo y de productosdel refinerfadebenbasarseen adquisiciones petroleo. El Gobiernodeber(avendersu participacidnen la refinerfa,parcialo totalmente,al sector privado.Dadoel riesgoinherentea la ampliaci6n programadade la capacidadde refinaci6n,eseproyecto deberfaser financiadoen su totalidadpor el sectorprivado. 28. Comercializacin. La rehabilitaciony el mejoramientode la comercializacion de ios de distribucidnde GLPy queros6nen lugares derivadosdel petroleorequiere:a) aumentarlos mSrgenes remotosy mantenerlos margenesrespectoa otrosproductos;b) aumentarla ofertade cilindrosde GLP mediantela eliminaci6nde las restriccionesa la importaci6ny de los impuestosy derechos de las norms de seguridadpara el manejodel GLP. La discriminatorios; y c) exigirel cumplimiento terminalde OPUV7SA deberfaser puestoen serviciosolamentesi pudierafuncionarecondmicamente. 29. Promocidnde la exporaci6npetrolera. El Gobiernodeberfareanudarla promoci6nde para la capacitacidn la exploracionde los hidrocarburos y aceptarasistenciade donantesinternacionales de personaly para la realizaci6nde estudiospreparatoriosrelacionados,tales comola compilaci6ny a las etapasde internacionales reinterpretaci6n de la informacidn existentepara poderatraercompafifas flexiblepara alto costoy alto riesgode la exploraci6n.El contratomodelodeberfaser suficientemente de compafifas de distintospafsescondistintosregfmenesfiscales.Lafacultad adaptarsea las necesidades al Presidentede la Repdblica. de concluircontratosde exploraci6ndeberfacorresponder

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y cmbustibles lefiosos Silviculturag El corte ilicito de krboles para lefia y para fabricacionde carb6n vegetal ha afectado 30. en las tierras del bosqueseco, en las cuales las condicionesde crecimientonatural proporciones grandes son inferioresy donde en gran parte los arboleshan sidotaladosen su totalidad. La deforestaci6nha sido causadaprincipalmentepor la agriculturacomercialy por el corte comercialde la madera, inclusopara la produccidn de carbon vegetal. La plantacidn de arboles por parte del sector privado se ve obstaculizadapor la falta de financiamiento. La cosechade plantacionesestablecidases principalmente para fines no energeticosdebido al bajo precio de mercadode la lefnaen comparacidncon el alto costo de produccidnde esta con arbolesprovenientesde plantacionesy a que los preciosde los postes y madera para construcci6nson mas altos. La legislacionforestales engorrosay frecuentementecontraproducente. Las prohibicionesrelativasa la tala de arbolesy a la produccionde carb6n vegetalhan desalentadola plantaci6nde arboles, fomentadolas actividadesilegalesy, posiblemente,agravadoel problema. La responsabiidad de las distintas institucionesesta fragmentada. No hay ningdn programade extensi6n forestal ni existe la ordenacidnde bosquespara obtener un rendimientosostenido. La coordinaci6ncon organizacionesno gubernamentalesha sido tenue. La falta de capacitacione investigacidnrelacionada con ia silviculturaperpetda las fallas de administracidn. Requisitosy recomendaciongs.La estrategiade desarrolloforestal debeconcentrarseen 31. la desaceleraci6nde la deforestacidncausadapor usos energeticos,en el estfmuloa la reforestaci6n,y en la racionalizacidnde las relacionesinstitucionales. Esto ha de lograrse mediantea) la ordenaci6nde los bosquespor las comunidadeslocalesde modode obtenerun rendimientosostenido,especialmenteen las tierras del bosque seco; b) el mejoramientode los serviciosde extensi6n; c) un mayoracceso a los bosques hdmedos que no estan amenazadospor el deterioro; d) el aumento de la eficiencia de la producci6nde carb6n vegetal, y e) programasde sustitucionde la lefia y el carb6nvegetal por GLP y querosen. Para garantizara las poblacionesruralesuna oferta de energfaeficienteen funcidnde su costo, habra que incorporaren los programasde desarrollorural los sistemasagrfcolas,silvfcolasy de pastoreo, asf comola plantaci6nde arbolespara finesmultiples. Hay que racionalizarlas leyes y la reglamentacidn forestal y delimitar claramentelas responsabilidadesde la DGF, CONATEFy COENER. Habrfa que tratar de establecerrelacionesmas estrechascon las ONGpertinentesque pudierandesempeflarun papel itil. Habrfa que aumentarlos derechosde corte y aplicarloscon mayor eficiencia. Habrtaque mejorar el acceso al crdditoy la extensidnforestal para fomentar la plantaci6nde arboles por parte del sector privadoy las comunidades. Habrfaque efectuar estudiosregularesde los recursos forestalesy obtener mayorfinanciamientopara investigaciones,inclusoa traves de la asistenciaexterna. Energfaresidencial El patr6nde consumode energfaresidencialno reflejael costo econdmicorelativode los 32. diversos combustibles, principalmentedebido a distorsiones de los precios y restricciones de la comercializacidn. El elevadocosto inicial del equipoha impedidola difusionde GLP y del querosen. No se ha asignadoa ningunainstitucidnpdblica la responsabilidadde velar por la oferta y el consumo eficientesde energfaresidencial. Los estudiosy proyectospilotosejecutadospor COENERy CONATEF han influidosolamenteen forma limitadaen las polfticasdel Gobierno. = jijts v rnomndaciones. Para aumentarla eficienciade la oferta y uso de energfa 33. residencialse necesita a) fijar los preciosrelativos de la energfade acuerdo con su costo econdmico;y b) oliminarlas restriccionesy los gravdmenesfiscalesdiscriminatoriosque se aplicanal equipopara usar

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ene g(a. Basandose en estas consideraciones,COENER, en colaboracidncon CONATEF, deberfa preparar una estrategiay polfticarelativa a la energla residencial. Se necesitauna mejor comprensi6n de a) la magnitud y composicidnde las necesidades energeticas residenciales,que ha-de obtenerse medianteencuestassobre el consumo;b) las repercusionesde los preciosde los combustiblesresidenciales sobre el ingresode los consumidores,la deforestacion,etc; y c) el tipo mas eficazde artefactosen el uso de la energfa y el alcancede su difusi6n, asf como los elementosnecesariospara esta. El GLP y el querosendeberfanser promovidoscomocombustiblesresidencialesmas eficaces. Habrfaque evaluarla viabilidadde un sistemade crdditopara la comercializacidnde equipos,posiblementefinanciadopor los proveedoresde equipos y combustiblesy por ONG extranjeras. Si se establecieransubsidiospara la compra del equipo estos deberfanser estrictamentetemporalesy otorgarse solamentea los grupos de ingresosmas bajos. Energfay medio ambiente 34. Las actividadesrelacionadascon la energfa afectan gravemente al fr&gilecosistema tropicaldel pafs a traves de a) la deforestaci6nque causala erosi6ny el deterioro de los suelos; y b) las emisiones de la combustidn del carb6n y de los productos petrolfferos, especialmenteen la zona metropolitanade Santo Domingo-Haina.El sector del transporte es la fuente principalde emisionesde CO y NO,,y la dnica fuentede emisionesde plomo. Las centralesa vapor de CDE emitencantidades considerables de NO. y SO.. Sin medidas contrarestantes, el deterioro del medio ambiente inevitablementese ac3leraraa medidaque aumententanto el consumode energfacomosu concentraci6n regional. 35. Las leyes y notmas ambientalesno son adecuadasy un proyectode ley sobre protecci6n del medioambienteno abordalos aspectospracticosde la aplicaci6nde las polfticas. Tampocoexisten institucionesencargadasde coordinarlas medidasrelativasal medio ambiente. La Comisi6nNacional del Medio Ambiente, presididapor el Presidentede la Repdblica,no influye perceptiblementeen las estrategiasy polfticas del Gobierno. Hay poco contactoentre las institucionespdblicas y las ONG, y ninguno de ellas conoce los complejosproblemas que presentan las repercusionesambientalesde las actividadesrelacionadascon la energfa. La concienciaambientalde la poblacidn9Sbaja. 36. Reguisitosy recomendaciones.Las necesidadesmas abrumantesincluyen:a) cuantificar los problemasambientalesexistentesmedianteprogramasde medici6n;b) dotar a la Comisi6nNacional del MedioAmbientede facultadesejecutivasy de coordinaci6n;c) mejorarlas leyesy normasambientales para obligar que se tomen medidasque no perjudiquenal medio ambientey/o medidaspara atenuar los dafios ambientales;y d) establecerun sistemade planificaci6ny observaci6ndel medio ambientecon el objetode asegurarsede que en el desarrollode importantessectoresproductivosse tengan en cuenta los factores ambientales. Las medidas tendientes a aumentar la eficiencia de la energfa suelen ser beneficiosaspara el medio ambiente y hay que tratar de aplicarlas por esta raz6n. Para lograr el equilibrio entre una estrategia energetica de costo mfnimoy la preservaci6n del medio ambiente, se requieren medidas que formen parte de una estrategia ambiental mas amplia. Hay que estudiar cuidadosamentelas repercusionesde los preciosde la energta en el uso de los recursos forestales. La Comisidn Nacional del Medio Ambiente debe coordinar sus actividades estrechamente con las de SURENAy SEA en lo que respecta a la ordenaci6nde los recursosnaturales;con ONAPLANen lo que respecta a las repercusionesambientalesde las estrategiasde desarrollomacroecon6micasy sectoriales; y con COENERen lo que respecta a la planiflcacidnde sistemasde oferta y de utilizacionde la energfa que estenbien concebidosdesde el punto de vistadel medio ambiente. Las medidasde reducci6nde la

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contaminaci6ndeben conformarsea los principiosde la economfade mercado, es docir, hay que cobrar los costos identificablesdel deteriorodel medio ambientea los causantes,en vez de ofrecer subsidiosa quienesapliquen medidasque beneficienal medio ambiente. Entre las medidasbeneficiosasdel punto de vista ambientalse contartan: a) en el caso de la generaci6nde electricidad,la conversional carbon de bajo contenidode azufre,la instalaci6nde precipitadoreselectrostaticosen las centralesde electricidad y la reducci6ndel ndmerode pequeflasunidadesde autogeneracidn;b) en el del transporte, la reduccion del contenido de plomo y de azufre de carburai'tes, la intro&jccidnde la inspecci6ntecnica de los vehtculos y la reducci6n de la densidad de los autom6vilespara pasajeros mediante un sistema de transporte p1blico mejorado y de administraci6ndel tr4fico; y c) reducir la deforestaci6nmediante la ordenacidnde los bosquesde modo de lograr un rendimientosostenido,la producci6nmas eficientede carbdnvegetal,y el aumentode la eficienciaen el uso final de los combustiblesderivadosde la niadera. Necesidadesen materia de inversionesy asistenciatdcnica 217. El desarrollo acelerado del sector energetico exige una inversidn considerable en rehabilitaci6ny expansidn. Segdn las proyeccionesde la misidn, los requerimientosde inversi6.ien el perfodo de 1989-2000ascenderfana un total de US$2.100 millones (a precios de 1989), habiendose obtenidohasta la fecha menosde US$300 millonesen compromisosde financiamento. Tal como en el pasado, la mayor proporci6n-US$1.800 millones- correspondert a la electricidad. El sector pdblico tendrfa que financiaro garantizarel financiamientode por lo menos la mitad del gasto necesario, ain sunoniendoque una proporci6nconsiderablede la inversionrelacionadacor la energfasea financiadapor el sector privado y ditimamentela propia CDE sea privatizada. Si se efectuara la ampliacionde la capacidadde refinaci6nde petrdleo, estinada en US$24 millones, el Gobiernotendrfaque financiarla mitad de esta si continuarasu sistemaactual de participaci6n. No obstante, la misi6nrecomiendaquo esto sea financiadopor el sectorprivado en su totalidad. La comercializacidny slmacenamientode los derivadosdel petr6leorequierensolouna pequefilainversi6nadicional,quedeberanefectuarlas compafifas privadas. El gasto de desarrollorelacionadocon la silviculturaylos combustiblesderivadosde la madera se situara entre US$3 millones y US$5 millones anuales, segdn las proyecciones. El gasto en racionalizaci6nde la energfadebe aumentara unos US$5-10millonesanualesy el gasto rlacionado con el medio ambientetendrfaque ser por lo menosde ese mismoorden de magnitud. 38. Para respaldarlas inversionesy polftieasenergeticasse necesitardconsiderableasistencia tecnicaen relaci6ncon la evaluacionde polfticase instituciones,preparacionde estudiosde prein%ersi6n y sistemas pilotos. La comunidadde donantes tendrfa que ayudar a corto y a mediano plazo en la evaluaci6nde los siguientescamposprioritarios: a)

Gesti6ndo la oferta y la demanda denerga: opcionesy mecanismospara la fijacidn de preciosde la energfabasados en el costo econ6mico;opcionesy requisitosrespecto al aumentode la eficienciade la produccidn,conversion,transmisi6ny uso final de la energla.

b)

AnMlisisinstitucional: fortalecimientode la Iunci6nde COENERen la planificaci6nde la energfay en la coordinacidny seguimientode las polfticas.

c)

Subsecor de la electricidad: opcionespara aumentar la funcidn del sector privado, incluso la privatizaci6n de CDE; fortalecimiento de la administraci6n, direccion financiera y administrativa,direccion de ingenierfa, y direcci6n de producci6n y

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operacionesde CDE, y reduccidode las perdidastdcnicasy administrativas;necesidades regulatorias. c)

Subsectordel getrdlo: mejoramientode la comercializaciondel GLP y del querosdn; refuerzo del marco institucional,legal y contractual con el objeto de promover la exploraci6npetrolerapor parte de compafifasextranjeras.

d)

Silviculturay combustiblesderivadoade la madera: refuero de la legislaci6nforestal y del marco institucional;administraciony capacitacidnrelacionadaal subsectorforestal.

e)

Energfarsidncial: encuestassobre el consumode energfaresidencialen importantes centros de consumo;programasde sustituci6nde combustiblesy la difusidn de cocinas de mejor rendimiento.

f)

Medigamient: ambiente.

refierzo de las leyes, normase institucionesrelacionadascon el medio

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SUMMARYOF CONCLUSIONSAND RECOMMENDATIONS

1. Three basic problems affect the energy sector of the DominicanRepublic: indigenous energy resourcesare limitedand costlyto develop;energy production,transformation,and end-useare inefficient;and the legal/regulatory/institutional frameworkand policiesare inadequate. Weakeconomic performancehas curtailedenergy supplies and has depressed the efficiencyof energy end-use, while deficient energy managemerithas dislocated economicactivity. Inadequate electricity supplies are retardingthe expansionof manufacturingand tourism. Subsidizedenergyprices over extendedperiods have been responsiblefor rapidly increasingconsumptionand inefficientenergy end-use. Economic subsidieson energy consumption- estimatedat 4.5% of GDP in 1989- have weakenedthe balanceof paymentsand aggravatedinflationarypressures. Deforestationand contaminationassociatedwith energy operationshave degradedthe environment. This problemdefiesan easy solutionbecauseenvironmental abatement inevitably require higher imports and thus result in a further burden on the balance of payments. Institutionalweaknessesaggravatephysicaland economicconstraints. They includean ambiguous legal/regulatory framework, inadequate organizational structure, unclear division of responsibilitiesamongpolicyand operationalinstitutions,the absenceof a sector developmentstrategy, effectiveenergy planningand policy coordination,and managerialand operationalshortcomingsat the enterprises. These weaknesses have invited excessive Government intervention and excessive centralizationof decision-making. The Government'sprincipal energy institution,COENER, has no proper mandate, is devoidof resources, and has little influenceon decisionmaking. 3. ;n order to place the energysectoron a sounderfooting,the Governmentneeds to pursue a comprehensiveand well-focusedstrategy, focusing first on essential requireme-ntsand tackling the remaining tasks once its institutionalcapacity is strengthened. The mission recommends that the Governmentdirect its attertion as follows: ImmediatePriorities (a)

set prices of petroleum products and electricity at levels that they meet financial requirementsof the operating agenciesfor rehabilitationand expansion;

(b)

in the electricity subsector, implement the IBRD- and IDB-financedPower Sector Rehabilitationprogramand preparea preventivemaintenanceand staff trainingprogram;

(c)

in the petroleumsubsector, (i) base contractualarrangementsbetween the Government and REFIDOMSAon realistic pricing arrangements;(ii) improve LPG and kerosene marketing and remove import restrictions for LPG cylinders; and (iii) review the economics of the planned refinery expansion and of operating the OPUVISA LPG terminal;

v xv -

(d)

in the forestry subsector, increase stumpagefees and improve their collectionso as to charge the economiccost of woodfuelsto their users;

(e)

for environmentalmanagement,initiate a program to measure emissions in the Santo Domingo-HainaMetropolitanarea;

Short-toMdiumtermnPriorities (f)

establish economicpricing for all petroleumproducts, electricity, coal, and woodfuels to enhance the efficiencyof energy production,transformation,and end-use, mobilize financialresourcesfor expansion,and increasefiscal revenue;

(g)

provide for market-relatedincentives,technical assistance, and regulatory measuresto (i) enhance efficiencyin energy production,transformation,and end-use in industry, transport, public b4ildi"igs,and households;and (ii) achieveeconomicallyviable energy substitution;

(I)

in the electricity subsector, (i) establish a competentregulatory agency to direct and monitorthe subsectorentities;(ii) preparea least-cost,medium-terminvestmentprogram to be approved and supported by the Government; and (iii) increase private sector involvementthrough the creationof an Energy DevelopmentFund and eventually,the privatizationof CDE;

(i)

in the petroleum subsector, (i) liberalize the procurementof petroleum products to mobilizeefficiencygains;and (ii) built up the Government'scapacityto deal with hydrocarbonexplorationand resumethe promotionof thehydrocarbonpotentialfor exploration by internationalcompanies;

(j)

in the forestry subsector, (i) strengthensubsectormanagementthrough improvinglaws, regulations, and coordinationamong the relevant governmental institutionsand with NGOs; (Hi)implementa programof sustainedyaIidmanagement,includingmulti-purpose tree planting, as part of rural developmentprograms; and (iii) expandforestry training and research;

(k)

in the householdP.nergysector, disseminateenergy-efficientpracticesand appliancesto reducethe costs of energyto consumers;

(I)

for environmentalmanagement,as part of an overall energy-environmentaldevelopment strategy, (i) prepare programs and projects addressing energy-environmental interrelationships, such as deforestation/erosionand pollution problems; and (ii) strengthenthe legal/regulatory/institutional framework;

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(m)

at the sectoral level, improveenergyplanning and policy coordinationto achievemore effectiveenergy-widemnnagew5ient.

4. While the Governmentwill continueto play an importantrole in energy development for definingobjectives,setting the institutionalframework,and conductingpolicies, it should limit its dirts,tinvolvementto areaswherethe privatesectoris either unableor unwillingto participate. Effective energyplanningand policycoordinationare essentialto reconcilesectoralobjectiveswith macroeconomic constraints, rank inter-sectoralpriorities, and reinforce the guiding role of energy pricing in sector development. To strengthenthe institutionalframeworkand improve coordination,COENERshould become the Government's lead institutionin energy matters. COENER needs to be considerably strengthenedto be ableto formulateenergystrategiesand policiesand monitortheir implementation.The relationshipbetweenthe Governmentand the public enterprises needs to be based on the enterprises' managerialautonomyand accountabilityfor performance. The potentialof the private sector needs to be mobilized through (i) de-concentration,to avoid monopolies either public or private; (ii) decentralization,to facilitatedecision-makingat the least aggregatelevel possible;and (iii) competitionor appropriateregulation,withina stable policy framework. EnergyDemandManagement Energy Pricing Government-setenergyprices are inadequateboth in regard to their structureand level. 5. Relativeprices do not reflect relative costs and resultingdistortionstend to encouragefraud and other allocativedeficiencies. Pricesof petroleumproductsfor extendedperiodswere amongthe lowestin Latin America,and price adjustmentsbore little relationwith internationalprice movements. There still are no clearlydefinedfuel taxesand no considerationis givento recoveringroad user coststhroughtaxation. Electricity tariffs paid by residential end small-volumecommercialconsumers cover neither CDE's financialcosts nor the economiccosts of supply, whereascommercialand industrialtariffs exceed their economiccosts and are aboveresidentialtariffs. CDE's averagetariff, USc6.51kWhequivalentin 1989, amountsto 86% of the economiccost of supply of an optimallysized and efficiently-runsystem but merely62% of CDE's actualcost. Underthe PowerSectorRehabilitationProject,the averagetariff will be increasedsemi-annuallyto USc7.5/kWhequivalentby 1991whichwould coverCDE's economiccost by then, provided that the entity is successfullyrehabilitated. Prices of fuielwoodand charcoal are market-determinedbut do not reflectthe cost of replantingtrees or of alternativeland use. 6. Energy costs in the economy would be minimizedthrough using primarily LPG and kerosenein the residential/commercial/administrative sectors; coal and fuel oil in the industrialsector; and diesel in the transportsector. However,powerfil obstacleshave preventedhigher energyefficiency levelsfrom materializing. They include:(a) inadequaciesin energypricing and marketing,and the costs associatedwith equipmentswitching;(b) lackingawarenessof appropi` teenergyconsumptiontechniques and availabletechnologies;(c) reluctanceto assumethe costs and risks of introducingnew technologies; and (d) lack of financingfor energyrationalizationmeasures. Energy savingsof at least 20% might be securedin industry,transport, public buildings,and householdsthrough improvingoperatingpractices,

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better maintenance,and minor investments. COENERcoordinatedan energyrationalizationprogram in industry but the Goverment discontinuedthis program once the allocated US-AID fiundswere fully disbursed. Energy efficiencyin tran on is low as vehicle maintenanceand the public transport systemare poor. Governmentmeasuressuch as reequippingONATRATEwith new busesand creating the TechnicalOfficeof Transportationfor regtulatingpublic transporthaveyet ti maketheir imorint. For public buildings, the potential for energy savings in new constructionmay be as high as 30% for measureswith a paybackof less than four years. In the hosehold sgcr, the disseminationof improved stoves tends to be slow and difficultand the large numberof individualconsumerscan be reached only by meansof appropriatepricing. As regards energy conversion, in the electricity subsector, CDE's technical and 7. administrativelosses exceed 30%. Under the Power Sector Rehabilitationproject, CDE's generation efficiencywill be improvedand transmissionand distributionlossesreduced. Petreum refiningis likely to hold further energy efficiencyreserves whose scope needs to be better defined through an up-dated refineryaudit and optimizationstudy. The efficiencyof charcaling typicallyis below 23%, which could be increasedto at least 30% with improvedkilns requiringlittdeinvestment. 8. Enerty Substitution. Availableoptions include: in electricitygeneration, using coal instead of fuel oil as the primary energy source; in transport, substitutingdiesel for gasoline-powered vehicles; and in households, replacingfuelwoodand charcoalthrough LPG and kerosene. However, charcoalcontinuesto be widelyused in householdsand significantuneconomicsubstitutionhas occurred in the wake of distortedrelativeprices in industryand in electricitygenerationwhere fuel oil has been replacedby lower-priceddiesel. Requirementsand Recommendations 9. EnergyPricing. Prices of all forms of energy needto be based on their economiccosts, i.e. c.i.f. importcosts for petroleumand coal and long-runmarginalcosts for electricityand woodfuels. The aimshouldbe to (a) eliminatesubsidieson petroleumproductsand achieveelectricitytariffscovering economiccosts by end-1991;and (b) establishprices for fuelwoodand charcoalwhich cover the cost of cultivationand harvestingat plantations,through increasesand more effectiveapplicationof stumpage fees. Future price increasesshouldbe periodic and automatic, in line with movementsof international energyprices and exchangerates. Gasolineand dieselprices shouldalso allow for the recoveryof road user costs. The electricitytariff structureshould reflectmore closelythe differencesin costs of supply at differentvoltagelevels. For medium-tohigher-voltageconsumers,chargesfor reactiveenergyshould be introducedas an incentiveto improvepower factors, as envisagedunder CDE's Tariff Adjustment Program. Subsidiesfor residentialconsumptionof electricityneed to be limitedto low-incomegroups. Handledcarefully,higher energy prices shouldhave only a small impact, given the relatively reduced share of energyin the cost of living(ess than 10%). Well-focusedinformationcampaignsaboutthe true extent of energy-relatedcost increasesand measuresto overcomesupply bottenecks couldhelp to keep any inflationarypressuresin check.

- xviii -

10. EnergyConservationand Substitution. To enhance energyefficiency,pricing based on economic costs needs to be reinforced through market-related incentives, application of efficiency standards,and regulationsthat aweeconomicallyjustified, enforceableand non-distortionary. Industrial firms should be assisted through feasibilitystudies in preparing bankable projects. To increase fuel efficiencyin transport, adequateroad user charges,especiallyfuel taxes shouldbe established,the road network, traffic flows, vehicle maintenance and driving habits be improved, the vehicle fleet be modernizedand intermodaltransport sector planningresponsiveto energy efficiencyconsiderationsbe enacted. Appropriateconstructionstandardsand designsare essentialfor improvingenergyefficiency in public buildings. The Goverrunentshould seek assistancefrom internationaldonors for resuming energyefficiencyprograms in industryand initiatingtheseprogramsin other sectors. Domesticfinancial institutionsshouldbe madeawareof the opportunitieswhich energyefficiencyprojectsprovide,and their staffs be prepared to handle these projects. An effective institutionaland policy frameworkwill be essentialfor non-pricingmeasuresto succeed. ElectricitySubsector 11. The electricitycrisis is the culminationof a long deteriorationat CDE whosemain causes are: (a) lack of clearlydefined objectivesand responsibilities; (b) lack of managerialautonomy and accountability;(c) deficientcorporateplanningand control;and (d) inadequatefinancial,managerial,and professional/technicalresources. Inadequatemaintenancehas resultedin unreliablesupply, high operational costs and system losses, and environmentallyunsoundpractices. CDE's available capacityhas declinedfrom about 1,100 MW to less than 700 MW and is in poor condition. The transmissionand distributionsystemsare overloaded. Investmentprojectsoften are ill-conceivedand seriousdelaysoccur in project planningand implementation. 12. Unclear divisionof authoritybetween the Governmentand CDE, and between CDE's Board and Management,and an inadequateflow of informationwii.h the Corporationhave weakened decisionmaking. CDE's technicalstaff is ill-preparedfor handlingcurrent optrations, let alone major rehabilitationworks. Weak finances arise from inadequatetariffs and poor financial management, especiallybillingsand collections,compoundedby devaluationsaffectingimport costs and foreigndebt service. Operatingcostsexceedsales receiptsby nearly 20%. CDE has substantialarrears with its own suppliers and has defaultedon externalloans. CDE's financiallosses have increaseddue to delays in initiatingrehabilitation,whilefinancialweaknesseshave slowed down rehabilitationand investment. 13. The Governmentinitiallyfocusedon short-termtechnicalsolutionsto resolve the crisis, withoutgiving sufficient attentionto CDE's institutionaloverhaul. CDE's physical, institutional,and financialrehabilitationis supportedby a US$105mn IBRD loan and a US$148 mn loan from IDB for an integrated Power Sector Rehabilitationand DistributionProject, to be completedby 1995. This project is to be complementedby loans from bilateral sourcesfor rehabilitatingprovincialsystems. In additionto rehabilitatingexistinggeneratingcapacity,about600 MW of new capacityare neededduring 1992-97to meet expectedelectricitydemand. Coal-firedsteamplants for base load are likely to be the least-costexpansionoption. They could be complementedby multi-purposehydro schemes, as well as bagasse-firedco-generationand other self-generation.

- xix -

Private Sector Participation. Without efficient private sector involvement,sustained 14. electricitydevelopmentis hardly feasible. Self-generationof electricityhas increasedsubstantiallyeven though equipmentand fuel costs of the mainly small units are relatively high and have aggravatedthe import burden. Private participation in conventional'y-sizedelectricity schemes would reduce the financial pressures on the public sector, increase the reliability of supplies, and enhance operational efficiency. In additionto 66 MW from Falconbridgewhichhas beentappedfor a numberof years, 30-60 MW of self-generatingcapacitycould be made availableto CDE almost immediately. The Government has passeda law aimed at stimulatingprivate investmentin electricitydevelopmentbut the scope offered still is severelycircumscribed.The Governmentwantsthe privatesectorto providethebulk of additional generatingcapacitybut plans to limit its involvementin transmissionand distributionto that requiredto serve new industrialand tourismfacilities. CDE's transmissionsystemwouldhaveto be made accessible of CDE which could take up to four years, to wheel electricity. The full rehabilitation/corporatization effective management. Given the overall institutional is only possible under continuityand control of contractwith an weaknesses,continuitymaybe soughtthroughsome form of management-performance experiencedforeign utility. Privatization of CDE. Once CDE is fully rehabilitated and restructured and its 15. managerialautonomyreestablished,its privatizationoverthe mediumterm wouldbe the only feasibleway to preserve the improvementsand to secure CDE's access to investmentcapital. CDE's immediate privatizationwould be difficult on commercialand political grounds, and would be hindered by the prevailingmacroeconomicand sectoral conditions. However,there are optionsgraduallyleadingto this goal such as (a) subcontractingsome functionsto private firms; (b) formingjoint venturesfor operating CDE's remainingassets; and eventually, (c) reducingor eliminatingthe Government'sshare in CDE through offering bondsand/or venture capitalto private investors. Electricitydistributionin particular could be decentralizedand privatized either partiallyor totally. Regionaldistributioncompaniesopen to non-CDEparticipationcould initiallybe set up in areas of strong industrialand commercialdemand. 16. Financingof PrivateInvestment. Giventhe limitedavailabilityof local capital, external financing is essential for private investmentto succeed. Jn some countries, mechanismshave been developedto allowprivate investors' accessto externalfinancing,e.g. througha government-guaranteed Energy DevelopmentFund that is subordinatedto other sources of borrowing. (Apart from electricity projects, such a fund mightfinanceprojectsin petroleum,forestryand woodfuels,and energy efficiency improvements.) The Governmentand the private sector are interested.U this option. U.S. AID may provide approximatelyUS$12millionfor private energy-relatedinvestment. Requirementsand Recommendations 17. System Rehabilitation. The Governmentneeds to give the same priority to CDE's institutionaland financialrehabilitationas it does to CDE's physicalrehabilitation. CDE's management needs to have full authority over operationalmatters and its functionsand responsibilitiesneed to be clearly defined. Emergency measures need to be well-prepared and be ieast-cost, their urgency notwithstanding. Contracts with private producers need to be based on a well-definedprice for electricity. The reduction of technical and non-technicallosses through system reinforcement and

- xx -

shouldbe improved improvedbillingsandcollectionsneedto be givenhighpriority. Loadmanagement to alleviatethe impactof electricityshortages. 18. SystemExpansion. The Governmentin conjunctionwith CDE and privateinvestors shouldsoon define the medium-to longer-ermobjectivesof the subsector. CDE's medium-term expansionprogramshouldcontainsufficient flexibilityas part of strategicplanning. It needsto be ensuredthat ongoingemergencymeasuresare consistentwith a least-cost,medium-termexpansion program,in the sameway as the preparationsfor medium-to longer-termexpansiondo not impede rehabilitationmeasures. The expansionof generationneeds to be accompaniedby substantial and the reinforcement of transmissionanddistribution.Pcri-urban in grid management improvements programsshouldbe undertakenonlyif theyare economically viable. and rural electrification 19. Syem Regulation.Oncemanagerialautonomyat CDEanda higherdegreeof private sectorinvolvement is achieved,effectiveregulationis neededto establishpredictablerelationsbetween prevail. andthe subsectorentities,especiallyin distributionwherenaturalmonopolies the Government An independent and competentregulatorybodywithits ownbudgetshoulddefineandmonitorthe key parametersfor contractualarrangements including(a) solicitation,evaluation,andapprovalof proposals from self-producers;(b) agreementsbetweenCDE and self-producers;(c) standardsof service;(d) delineatingconcessionareas; (e) tariff policies;(f) coordinatinginvestmentplans; and (g) resolving environmental concerns,and establishingclear authorityover their application.The recentlycreated to andRegulation of theElectricalEnergyIndustryshouldbe strengthened Directoratefor Development becomea properregulatorybody. andinstitutionalframework Tnvestment and its Financing.The legal/regulatory 20. pdry"ate needsto be modifiedto stimulateprivateinvestmentin electricity.Energypricingpoliciesshouldtake accountof privateinvestors'interest,butincentives shouldbe reservedfor thoseprojectsthatmeethighpriority criteria, with clear time limits. In conjunctionwith the domesticfinancialsystem, the Governmentshouldensurethat privateinvestorsin energyprojectshave adequateaccessto credit. Measuresshouldbe takento attractbothofficialand privateseed capitalfor viableenergyprojects. Proceduresshouldprovidefor theoptimalutilizationof availablefundsby localinvestorsandmaximum securityto lenders,includingguaranteesregardingthe completion of projects,saleof output,tariffs,and currencyconvertibility. 21. Privatizationof CDE. Whilebeingthe optimalsolutionin the mediumto longerterm, feasiblenor politically the immediateand full privatizationof CDE is not likelyto be commercially acceptable.However,any expansionin the electricitysubsectorshouldbe undertakenby privatesector entitieswhileCDEis rehabilitated.OnceCDE's 'corporatization'is achieved-say,withinfouryearsthe entityshouldbe privatizedeitherpardy(i.e. at least51%)or filly. PetroleumSusbsector

REFIDOMSA has flexibilityto diversifyand optimizecrudeoil 22. PetroleumImts. withinthelimitsof the SanJoseAccordwithMexicoandVenezuela.Alternativesupplies procurement,

- xxi from the Caribbean/northernLatin America may be technically more suitable than Mexican and Venezuelancrudes but there seems to be no advantagein shiftingto other sources of supply unlessthe same financingfacilitiesas extended -der the Accord are obtainable. Spot market purchasesof crude would require considerablefinancialand operationalflexibilityand the risk related to the availabilityof crude and of financing at the required time might over-compensateany advantages derived from temporarilylower than contractprices. Petroleumproductsare importedunder term contractsand are mainlytenderedby REFIDOMSA,which thus has a virtual monopolyfor the combinedprocurementof crude and products. PetroleumRefining. REFIDOMSA'soperationsare technicallyefficientand tend to be 23. economicallyviable, on accountof the prevailingfreightcost differentialin favor of crude and relatively low refiningcosts. Refiningfor extendedperiods was financiallyloss-makingbecause Government-set ex-refinerypricesremainedunchangeddespiteincreasesin internationalprices of crude. However,since mid-1990,ex-refineryprices haveexceededCIF import costssave for LPG. Financialinterrelationships between REFIDOMSAand the Governmentare complex. The renegotiationof the basic contract underwaywill determinewhetherthe plannedrefinery expansion(to 45,000 B/D) will indeed be carried out. This project appears to be economicat current crude/petroleumproducts prices provided the expectedefficiencyimprovementsand higher-valueproductionmaterialize. The increasedproduction would be sold entirely on the domesticmarket. However, the expansionis highly sensitiveto changes in refinery marginswhich until very recentlyhad been too small to ensure viabilityof any but the most modernrefiningoperationsin countrieswith their own crude base. 24. Marketing. Until very recently, government-setmargins for petroleumproducts were insufficientto cover marketing costs. The subsidiariesof internationalcompanies responsiblefor distributingliquid fuels respondedby limitingserviceand foregoingreplacementinvestment. Marketing of LPG is mainly carried out by five local companieswhoseoperationsare high-costand whosefacilities are inadequate. This situationhas been aggravatedby the lack of LPG cylindersas a result of complete import protection for the local producer. Rural consumers of LPG and kerosene are especially disadvantaged.Country-widestoragecapacityfor LPGhas beennearly doubledwith the commissioning of OPUVISA's terminal. A foreign companyhas shown interest in operating the terminal but the uncertaintiessurroundingthe refinancingof the Yen-dominateddebt and the changesnecessaryfor the LPG marketingarrangementscast a doubt over the viabilityof such an operation. Petroleum Exploration. Minor ocurrences of hydrocarbonshave been proven. The 25. petroleumgeology is promisingyet complex. No recent explorationhas been carried out, impededby the outdatedminerallegislation,insufficientflexibilityin the modelcontract,and the lack of a focalpoint within the Governmentfor petroleumexplorationmatters. Tbe Governmenthas given relatively low priority to petroleumexplorationand has declinedassistanceby the World Bank and IDB in exploration promot-.onbut has recendy utilizedadvisoryservicesby UNDTCDand has acceptedthe proposalsby two U.S-basedcompaniesfor sole-risk exploration.

- xxii Jteoirements

and RecoMenda-ios

andthe NotwithstandingREFIDOMSA'soperationalefficiency, E=leumProcurent. 26. relatively small quantities involved, alternativesto the present arrangementsshould be explored to enh&ncecompetition. Within the limits of economiesof scale, the Governmentshould consider (a) liberalizingpetroleumproducts suppliesthrough permittingimportsby marketers, large consumersetc., in cormpetitionwith REFIDOMSA's products imports and refinery production, and (b) diversifying storage operations. Refining. Contractualarrangementsbetweenthe Governmentand REFIDOMSAshould 27. be based on current internationalcosts and prices, incorporateautomaticrevisions in ex-refineryprices in line with changes in internationalprices, and eventuallylead towards liberalizing the system of petroleumprocurementand pricing. Ex-refineryprices shouldbe basedon efficientand least-costimports of crude and petroleumproducts. The Govenment shouldsell its share in the refinery pardy or fully to the private sector. Given the inherentlyrisky nature of the planned refiningexpansion,that project should be entirelyprivatelyfinanced. Marketing. Rehabilitatingand improvingthe marketingof petroleumproductsrequires: 28. (a) increasingmarginsfor distributionof LPG and keroseneto remotelocationsand maintainingmargins for other products;(b) increasingthe supplyof LPG cylindersthrougheliminationof importrestrictions and of discriminatory taxes and duties; and (c) enforcing safety regulations for handling LPG. OPUVISA'sterminal should be commissionedonly if it can be operated economically. PetroleumExglorationPromotion. The Governmentshould resume actions to promote 29. the hydrocarbon potential and accept assistance by internationaldonors for staff training and for preparatorystudiesto compileand reinterpretexistinginformationso as to attractinternationalcompanies for the high-cost/highrisk phases of exploration. The model contract should be flexible enough to acommodate companiesfrom a range of countrieswith different fiscal regimes. Authorityto conclude explorationcontractsshould be vested in the Presidentof the Republic. Foresty and Woodfuels Unauthorized fuelwood cutting and charcoal manufacturing have reached serious 30. dimensionsin the dry woodlandswhere naturalgrowth conditionsare inferior and where extendedareas havebeen clear-felled. Deforestationhas mainlybeen causedby commercialagricultureand commercial cutting of wood, including charcoal production. [rivate tree planting is hampered by the lack of financing. Harvestingof establishedplantationsis mainly for non-energyuses because of low market pricesfor fiielwoodcomparedto the high productioncost of woodfrom plantationsand higher pricesfor poles and timber. Forestry legislationis cumbersomeand often counter-productive.Prohibitionsof tree fellingand of charcoalproductionhavediscouragedplanting,stimulatedillegalactivitiesand as such, may have aggravated the problem. Institutionalresponsibilitiesare fragmented. Forestry extension and sustained-yieldforest managementare weak, and coordinationwith non-govermnentalorganizationshas been tenuos. The lack of forestry-relatedtraining and researchperpetuatesmanagementweaknesses.

- xxiii -

31. euigmuezs. and Reommendatins. A forestrydevelopme;t strategyneedsto focuson decelerating energy-related deforestation, stimulating refore'tation and rationalizing institutional relationships.Tlis is to be achievedthrough (a) sustained-yieldforest management,especiallyin dry woodlandsby local communities;(b) improving,extensionservices; (c) improvingaccessto wet forests not threatenedby degradation;(d) improvingthe efficiencyof charcoalconversion;and (e) programsto substituteLPG and kerosenefor fuelwoodand charcoal. To securecost-effectiveenergysuppliesto rural populations, integrated agro-sylvo-pastoralschemes and multi-purpose tree plantings should b incorporatedinto rural developmentprograms. Forestry laws and regulationsneed to be rationalized, and responsabilitiesbe clearly divided betweenDOF, CONATEF, and COENER. Closer interaction should be sought with the relevent NGOs which have a useful role to play. Stumpagefees should be increased and more effectivelyapplied. Accessto credit and forestry extensionshould be improvedto stimulateprivate and conununaltree planting. Regular surveysof forest resources and more adequate fundingof research should be ensured, includingthrough external assistance. HouseholdEnergy 32. The householdenergy consumptionpattern does not reflect the relative economiccosts of the various fuels, mainly becauseof price distortionsand marketingrestrictions. The high initialcosts of equipmenthave limitedthe disseminationspeciallyof LPG and kerosene. No Governmentinstitution has been assigned responsibilityto attend to the efficiency of energy supplies to, and use in, the household sector. Studies and pilot projects by COENER and CONATEFhave had litde impact on Governmentpolicies. 33. Reunirementsand Recommendations. Improvingthe efficiencyof supplies and use of energyin the householdsector requires(a) settingrelativeenergyprices in line with the economiccosts, and (b) removingrestrictionsand discriminatoryfiscallevieson householdenergyequipment. COENER in coordination with CONATEF should prepare a strategy and policies for household energy development,based on theseconsiderations. A clearer understandingis neededof (a) the magnitudeand compositionof householdenergy requirements,to be establishedthrough consumptionsurveys; (b) the implicationsof pricingof householdenergyon consumerincomes,deforestation,etc.; and (c) the optimal type of energy-efficien.appliancesand the scope and requirementsfor their dissemination. LPG and kerosene are the most efficienthouseholdfuels and their use should be promoted. The feasibilityof credit arrangementsfor marketing fuel-efficientequipmentshould be evaluated, possibly funded by equipmentand fuel suppliers and foreign NGOs. Subsidies,if any, for equipmentpurchaseshould be strictly temporary and be limitedto the lowest-incomegroups. Energyand Environment 34. Energy-relatedoperationshaveseriouslyadverseimpactson the country's fragiletropical eco-system,through (a) deforestationcausingsoil erosion and degradation,and (b) emission-from the combustionof coal and hydrocarbonfuels especiallyin the SantoDomingo/HainaMetropolitanarea. The trasport sector is the largest single source of CO and NO. emissions and the sole source of lead emissions. CDE's steam plants emit significant anounts of NO. and SOQ. If left unchecked,

- xxiv -

environmentaldegradationis bound to accelerateas energy consumptionand its regional concenaion Increases. Environmental legislation and standards are inadequate snd a draft Environmental 35. ProtectionLaw does not addresspractical aspectsof policy enforcement. Nor are there institutionswith executiveresponsibilitiesto coordinateenvironmentalacton. The NationalEnvironmentalCommission chaired by the Presidentof the Republichas no discernibleimpacton the Government'sstrategies and policies. There is little contact between governmentalinstitutions and NGOs, neither of which are familiarwith the complexproblemsinvolvedin analyzingthe environmentalimpactsof energyactivities. The level of environmentalconsciousnessamongthe general public is low. 36. Reirements a.ndRecommfldaMti=n.The most importantrequirementsinclude: (a) in the short-term, quantifying existing environmental problems through measurement programs; (b) equippingthe NationalEnvironmentalCommissionwith executivepowersand a coordinatingfunction; (c) improvingthe environmentallegislationand standardsto enforce environmentaly-congenialaction and/orabatementmeasures;ard (d) developingenvironmentalplanningand monitoringto ensure that the developmentof major productive sectors takes environmentalconcerns into account. Measures to enhance energy efficiencytend to have environmentallybeneficialimpacts and should be pursued also on environmental grounds. Achieving a proper balance between a least-cost energy strategy and eavironmentalconcernsrequiresmeasuresthat are part and parcel of a more wide-rangingenvironmental strategy. The impactof energypricingon the use of forestry resourcesneedsto be carefullyconsidered. The National EnvironmentalCommissionshould coordinateclosely with SURENA/SEAon natuw resource management;with ONAPLANon the environment impact of macroeconomicand sector0l developmentstrategies;and with COENERon the planningof environmentallysound energysupplyas'. utilization systems. Pollution abatement measuresshould be market-based,i.e. identifiablecosts of environmentaldegradationshould be chargedrather than subsidiesofferedfor environmentallyadequate operations. They shouldinclude(a) for electricitygeneration,convertingto low-sulphurcoal, equipping powerplantswith electrostaticprecipitators,and reducingself-generationin small units;(b) for transport, reducing the lead and sulphur content of fuels, introducingtechnicalvehicle inspections,and reducing the density of passengercar traffic through improvedpublic transport and traffic management;and (c) reducingdeforestationthrough sustained-yieldforest management,more efficientcharcoalproduction5 and increased end-useefficiencyof woodfuels. Investmentand Technical AssistanceReauiremes 37. Acceleratedenergy developmentrequires substantial investmentfor rehabilitationand expansion,projectedby the missionto total for the 1989-2000periodUS$2.1 bn (1989prices), for which financingof less than US$300mn has been obtainedthus far. As in the past, electricitywillaccount for largest share, i.e. US$1.8 bn. The public sector would have to obtain or guaranteethe financingof at least one-halfof the required expenditureeven assumingthat a substantialproportionof energy-related investmentwill be privately financed and that CDE itself will be eventuallyprivatized. Should the petroleumrefiningexpansionestimatedat US$24 mn go forward, the Governmentwouldhave to finance one-halfof it if presentparticipationarrangementscontinue. The mission recommends,however, that

xxvx

this scheme be entirely privatelyfinanced. Litde addidonal investmentis required for marketig and storage of petroleumproductsto be undetaken by privatecompanies. Developmentexpenditurerelated to forestry and woodfuelsis projectedat US$3-Smn/year. Expenditureon energyrationalizationneeds to be increasedto US$5-10mn/year, and environment-relatedexpenditurewould need to be at least of the same order of magnitude. In support of energy investmentand policies, substantialtechnical assistancewill be 38. required for policy and institutionalevaluations,preinvestmentstudies, and pilot schemes. The donor community should assist over the short to medium term in the analysis and preparation of recommendationsin regard to the followingpriority areas: (a)

Ener=v supply and demand management: Opdons and mechanismsfor energy pricing basedon economiccosts; optionsand requirementsfor enhancingthe efficiencyof energy production,transformation,transmission,and end-use;

(b)

Instituton building: strengtheningCOENER's role in energy planning and in policy coordinationand monitoring;

(c)

Electricitysubsector: Optionsto increasethe role of the private sector, includingthe privatization of CDE; strengthening CDE's Management, Finw.Acial/Administrative Directorate, EngineeringDirectorate, and Productionand OperationsDirectorate, and red"cing CDE's technicaland non-technicallosses;requirementsfor subsectorregulation;

(d)

Petroleum subsector: Improving LPG and kerosene marketing; strengthening the imstitutionaland legal/contracturalframework to promote the petroleum exploration potentialto foreign companies;

(e)

E.tea and woodAes: Strengtheningforestrylegislationand institutionalarrangements; forest-relatedmnagement and training;

(f)

Household energy: Consumption surveys in major population centews; fuel conversion/stovedisseminationprograms;

(f)

invrognment:Strengtheningof environmentallegislation,standards, and institutions.

I. ENERGY AND THE ECONOMY

Backgro With a 1988per-capitaGNP of US$ 680, the DominicanRepublicis one of the poorest 1.1 countriesin Latin America. Followinga periodof vigorousgrowthfrom the mid-1960sto the late 1970s, economicand social conditionsdeterioratedin the wake of severe, prolongedexternal shocks and an inadequate economicpolicy response. Real GDP during 1979-1986increased at about 1% p.a. or considerably less than population growth. The economic stagnation was caused largely by the deteriorationof the externaltrade and debt position,aggravatedby the absenceof an adequateadjustment program. Significantgrowthof manufacturedexportsdid result in exportdiversificationand a reduction of the traditionalexports' share to about40% of total exportsby the mid-1980s. This, however,did not preventthe terms of trade from deteriorating. In 1987real GDP growth acceleratedto 8% in responseto a massivepublic investment 1.2 programfinancedmainly throughmoneycreation,depletionof internationalreserves, and accumulation of external arrears. As a consequence, inflation accelerated to 58% and 41% in 1988 and 1989 respectively,and reached 101% in 1990. Real GDP in 1990 declinedby 5.1% and external arrears reached aboutUS$1.3 bn by the end of 1990. To halt the rapidly deterioratingeconomicsituation, the Govermmenthas recently 1.3 undertakenmeasuresto adjustkey domesticpriceslike fuelsand electricity,proposeda radicaltax reform to Congress,and changedregulationsaffectinginterest rates and the exchangerate regime. Under the new regulations,the foreign exchangemarket wouldbe temporarilysegmented,with a fixed (devalued) rate to be applied to certaintransactions includingpetroleumimports and external debt, and a freely floating interbankrate for other transactions. The two rates would be unified at the level of the freely floating rate by September 1991, and the surrender requirement for foreign exchange would be eliminated. All regulationspertainingto depositand lendinginterest rates in the bankingsystem were lifted, and steps were taken to reduce portfolio requirements. In addition, the Governmentis in the processof designinga coherentdebt strategy policy, for which it will need to reach an agreementwith the InternationalMonetaryFund, and to obtain reschedulingin the Paris Club as well as additional financingfrom the CaribbeanGroup for Cooperationand EconomicDevelopment.

-2 Development EnergyConstraintson EconoMnic Energy- MacroeconomicInterrelationshiRs 1.4 Providingjust aboutone-thirdof the economy'senergyrequirements,the energysector's productivecapacityis limitedand high cost. In tandemwith the overall economy,the energysector has not achievedits full developmentpotential. Weakeconomicperformancehas affectedenergy supplyand demand,whileenergyshortageshave dislocatedeconomicactivity. This is particularlyseriousin the case of electricitysupplyshortageswhichhave resultedin a lossof economicoutputestimatedat US$180 mn in 1988 alone, or 3.3% of that year's GDP. Inadequatemaintenanceand the shortage of essential materials and spae parts continue to cause supply interruptionsand hil.5 energy losses in electricity generation, exacerbatedby deficiencies in electricity transmissionand distribution and in petroleum products marketing. 1.5 The energy sector draws considerableresources from the economy. In view of the country's high dependenceon energy imports - petroleum and coal are imported in their entirety, accountingfor 58% of primaryenergy suppliesand 91% of non-biomassenergy supplies, respectively- excessiveconsumptionand importsof fuelshaveexcacerbatedthe balanceof paymentsand externaldebt problems. Petroleumimportshave preempteda considerableproportionof foreign exchangeearnings, peaking in 1981at nearly 35% for US$497 mn. Their costs in 1988, US$322mn augmentedby coal importsof US$11 mn, was aquivalentto 20% of that year's foreignexchangeearningsand to 7.6% of GUP. Whilethe availabilityof financingunder the San JosEAccordfor petroleumimportshas softened the impact of the foreign exchange constraint on energy suppl'es, this has resulied in a build-up of petroleum trade debt which has reached about US$250 mn by end-1990. Should the domestic consumptionof these fuels continueto increase at 6-7% p.a., the petroleumimport bill by 1995 could reach US$700mn (in current prices), or 27% of exportearningsprojectedfor that year. 1.6 Energy-related investment, estimated at US$100-120mr, p.a. during 1984-88, has accountedfor 24% of public sector investmentand 6% of overall fixed investment. Energyinvestment has tendedto be high-costand inefficient. Investmentin the electricitysubsector- which accountsfor the bulk of energy-relatedinvestment- includesa large numberof self-generationunits whoseper-unit capitaland operatingcosts are high. About 40% of externalpublic debt disbursedduring 1986-88has been energy-relatedmainly for electricityprojects. Externaldebt relatedto electricityinvestmenttotals about US$350mn. Table 1.1:

ENERGY AND THE BALANCEOF PAYMENTS,1980-88 (USS millions) 1980

C1) Petrolewu Imports C2) Goods and Non-factorService Imports (3) Goods and Non-factorService Exports C1) as Percent of (2) (1) as Percent of (3)

1985

1988

449

427

322

1,860 1,160 24.1 38.7

1,490 1,225 28.7 34.9

1,896 1,636 17.0 19.7

sgurce: COENER; Central Bank; World Bank; IMF; mission estimates.

-3 -

1.7 Subsidieson energ consumption ha"ebecomea seriousimpediment to soundeconomic management.'ncludingtheeffectof the preferentialexchangerate for energyimports,the subsidization of energyconsumption mayhaveproducedeconomiclossesof US$235mnequivalentin 1988,or 4.6% of thatyear's GDP,andUS$216mnequivalentin 1989,or 4.1%of projectedGDP(i.e. US$50mnfor electricity,US$70mnfor petroleumproducts,andUS$90mnfor woodfuels).Thesesubsidieshavebeen extendedindiscriminately, thus losingthei; originalobjectiveof alleviatingthe cost of livingof lowincomegroups. Theyare largelyresponsiblefor the lowefficiencyin energysuppliesandend-use,thus affectingthe productivity of the overalleconomy. 1.8 The energy sector thus has contributedmuch to internal and external financial disequilibria andto acceleratedinflation.Thesectorenterpriseshave incurredgrowinglosseswhichin the case of CDE, reachedUS$163mn equivalentin 1988,or 74% of the deficitof the Consolidated PublicSector.I/ Tne refiningcompanyREFIDOMSA, ownedin equalpartsby the Governmentand Shellhadbeenloss-making 1988-89becauseGovernment-controlled salespricesdidnotcovercosts. The energysector's contributionto publicrevenueshas been limitedand declining: fuel taxes in 1987 contributedonly8.7% of governmenttax revenue(15.2%in 1984)andthe Government'sparticipation in profitsof REFIDOMSA,aboutRD$7mnin 1987,was less than 1% of that year's Government's currentrevenue,and was negativein 1988-89. The subsidizationof energyconsumptionthus has worsenedthe publicsectordeficit. Thiswaslargelyfinancedthroughdomesticcreditexpansionwhose inflationary pressureshavewipedoutanyrestrainingeffectonthe costof livingwhichsubsidizedenergy pricesweresupposedto achieve. Impacton the Environment 1.9 Energy-related operationshavecausedenvironmental damagethroughdeforesta-tion and pollutionwhoselong-termeconomiccost is unknownbut is likelyto be considerable.Deforestation estimatedat 1%of raturalforestsp.a. posesa seriousenvironmental as well as energyproblem. It has been caused by charcoalproductionas well as commercialagricultureand cutting of timber. Deforestationhas been severe in the dry woodlandswhere naturalgrowthconditionsare inferior, aggravatingerosionandsiltationin its wake. Theuncontrolled burningof low-qualityfuelswitha high content of pollutantsin industry,transport, and power generationare adding to environmental degradation.A solutionto this problemis complexbecausethe replacementof woodfuels,a shiftto cleanerfuels,andenvironmental abatementinvestments inevitablyaddto importcostsandto theburden on the balanceof payments. Ener-Sectr Managemen 1.10 Inadequaciesin energysector managementhave been a consequenceof, as well as contributedto, the weaknesses of the overalleconomicmanagement.Symptomsof theseinadequacies are inattentionto energy demand management,subsidizationof energy consumption,misguided LI

1wdIncgUS$115.5minlossesincurred dueto devaluation.

- 4investment,lackof a functionalset-up of sector institutions,an ambiguouslegal framework,and serious operationalshortcomingsat the enterprises. They havedivertedscarceforeignexchangeto the inefficient consumptionof imported fuels, and have led to the breakdown of the public power system and the proliferationof high-costself-generation. Weaknessesin the energy sector especially the electricity subsectorhave becomea drag on economicgro-wth.Unlessenergysupplies are adequateand least-cost, the economywill continueto suffer interruptionsin essentialsupplies and services. A central issue for economicdevelopmentwill thereforebe how to meet the energyrequirements at least cost, and how to improvethe efficiencyof energysuppliesand use, under the prevailingfinancialconstraintsand without aeverse environmentalconsequences. EnergyResources.Productionand Consumption Energy Resources 1.11 Energyresources are limitedand their developmentis high-cost. Fuelwoodis the most importantindigenousresource,accountingfor 23% of primary energysupplies and 15%of final energy consumption. Natural forests are estimated at about 2,400 km2 , equivalent to 5% of the national territory, and about 6,000 km2 are under partial forest cover, providinga stnding stock of about about 150mn m 3 . Bagasseproductionamountsto 2.5 mn tpy, of which some90% is beingused by sugar mills for producingsteam and electricity,thus contributing2% of total electricitygeneration. In line with falling sugar production,the availabilityof bagassefor elect-lcitygenerationhas declined. 1.12 Althoughthere is proven petroleumpotential,no recent explorationhas taken place and the economicsof productionfrom knownresourcesmaybe marginalat currentand projectedinternational prices. Unexploitedlignite depos:ts in the northern region are estimated at 40-60 mn M.T. but their qualityand heatingvalue are low and mining conditionsdifficult,so that their utilizationfor electricity generationdoes not appear to be viable. The hydroelectricpotential in more than 100 basins and river systems is estimated to total 8 TWh p.a., equivalentto 1,800 MW installed capacity. 20% of this potentialhas been or is in the process of beingdevelopedbut most of the relativelysmall sites are not competitivewith thermalpowergenerationat projectedinternationalenergyprices. Geothermalresources may exist in four distinctlocationsbut have not been assessed. Their use does not seem to be economic and may also have adverse environmentalimpacts. The solar and wind potential is very little known. Its energycontributionis likely to remain limitedto small-scaleand special-purposeuses in isolatedareas where transport costs for conventionalenergy are high.

Table1.2: PRIMARY ENERGY RESOURCES, 1988 (TOEand Percent) Resources TOEmn Crude Oll Fuetwood I/ Begasse 21 Hydro A/ Lignite 4/ Coat

To be evaluated 37.8 0.5 1.8 10.7

Siol=ies TOE'000 Percent 1,900 825 447 195 103 3,470

54.8 23.8 12.9 5.6 -

3.0 100.0

1]

Standing wood resources:150mn mP, equivalent to 105 mn N.T. AAnnual production 3/Annual maximuntheoretical generation. Conversion to TOE basedon the amountof fossilfuelenergyconsumed to prodce equivalent electricity, f.e.230 TOE/GWh(e). 4/ Estimated at 50 mn M.T. witha heatingvalueof 2.145kcaltkg. Source: COENER,CEA,CDE,missionestimates.

Energy Supplies 1.13 Domestic Production. Domestically produced energy during 1980-88 increased at 3.2%, on annual average, from 1.1Imn toe to 1.5 mn toe, representing 32% of total energy supplies in the latter year. Only fuelwood, bagasse and hydropower are presently produced. Production of fuelwood hats largely followed consumption trends determined by population growth and increased per-capita consumption. Fuelwood thus accounts for 56% of domestic energy production and 18% of overall energy supplies. Bagasse production has declined in line with shrinking cultivation of sugar cane. Generation of hydropower has increased by 16% p.a. since 1980-88, in line with the expansion of generating capacity to 207 MW in 1988, but accounts for only 10% of electricity generation. The output of wind and solar energy is unrecorded and is likely to be very small. 1.14 Imprts. Petroleum and coal requirements are met entirely through imports. Crude imports for domestic refining in 1988 amounted to 1.9 mn M.T., supplemented by 1.2 mn M.T. of products imports. Increases in import volumes during 1980-85 were relatively slow (1.2% on annual average) but accelerated considerably after 1985 when deteriorating consumer prices boosted consumption. Petroleum imports (crude and products) in 1987-1988 grew at 28%, compared to real GDP growth totalling 10% in those two years. Imports of coal for electricity generation, 0.1 mm M.T. in 1988, will increase to about 0.6 mn M.T. in 1989 when CDE's Itabo II power plant will be operating normally, and are likely to increase further as electricity expansion is planned to be based on coal-fired plant. Energy Cgaversion 1.15 Energy conversion is carried out through charcoaling, petroleum refining, and electricity generation. Conversion is inefficient, except for petroleum refining (where own consumption and losses account for 3.3% of crude inputs). For charcoal production (0.2 mn M.T. in 1988), the energy efficiency is about 23%. The bulk of electricity is generated from imported fuels, i.e. fuel oil (63%),

-6diesel (18%), and coal (7%), in additionto generationbased on hydropower(10%) and bagasse (2%). In turn, electricitygenerationaccountsfor nearly 50% of total (intermediateand final) consumptionof petroleumproducts. Thermalgenerationefficiencyaveragesjust about27%. In addition, CDE's own consumptionand technical losses in electricityoperationstogether with non-technical(administrative) losses total at least 30%. Table 1.3:

Consum,tion Residential Commercial Industrial Public Lighting Goverment Losses and Unbilted --X of Requirements Recuirements/Net SuctX Met by: Purchases Generation 1. Fuel Oit-based 2. Coal-based 3. Gas Turbines 4. Diesel-based S. Hydropower Less: Self-censumption % of Met Generation

COE ELECTRICITYDATA, 1980-88 tG6Sh)

1980

1981

1.913.6 723.9 230.6 719.5 24.5 215.0

20j4. 817.8 256.4 757.9 26.0 226.6

L889.3 732.3 228.3 673.2 24.2 231.4

715.6 27.2

703.1 25.2

959.7 33.7

2.787.7

2.629.3

1982

1983

1984

1985

1986

1987

1988

2.210,Z 839.6 244.6 662.0 83.5 380.5

2.315.2 906.2 254.2 628.6 432.9 93.3

Z.423.4 950.2 264.0 693.7 422.3 93.2

2.710.1 1,101.6 316.6 764.3 434.3 93.3

2,618.3 1,059.0 297.4 748.3 93.6 420.1

1,172.5 37.4

992.5 31.0

1,020.8 30.6

1,162.6 32.4

1,172.9 30.2

1,021.6 28.1

2.849.1

3.135.4

3.202.7

3.336.0

3,58.0

3.883.0

3.639.9

1.962.2 739.6 223.6 717.2 28.3 254.1

283.0

194.0

468.1

428.0

415.0

343.0

437.0

425.1

396.2

2,460.4 1,992.7 0.0 247.8 11.0 208.9

2,707.0 1,909.0 0.0 277.1 6.6 514.3

2,498.3 1,888.4 0.0 284.1 6.4 319.5

2,853.5 2,208.9 0.0 279.2 10.8 354.5

2,932.7 1,890.9 128.7 466.2 10.0 436.9

3,182.4 1,867.5 628.8 244.9 12.0 429.2

3,327.1 1,698.7 728.0 365.7 16.1 518.6

3,652.1 1,747.9 753.6 560.1 16.6 573.9

3,243.7 1,385.6 663.2 344.2 9.1 841.6

114.1 4.6

113.4 4.2

117.3 4.7

146.1 5.1

145.0 4.9

178.0 5.4

194.3 5.3

171.9 6.1

189.4 5.9

Source: COE

Final Energy Consumption 1.16 Consumptionby EnergySource. Reflectingthe lowper capitaincomeand the low energy intensityof the economy,final energyconsumptionin 1988 wasjust about 2.9 mn toe, or 0.42 toe per capita. Petroleumproducts accountfor the largestshare, i.e. 56%. The relativelyhigh share of biomass (29%) and the low share of electricity(13%) are characteristicof many countriesat a similar stage of development.The compositionof energysourceshas changedsignificandysince 1980,with a substantial increasein the share of petroleumproductsand electricityand the adventof the use of coal, mirroredby a declinein the use of biomassprimarilybagasse (Table 1.4).

Thbte14:

FINALENERGY CONStWPTIOW, BY SOURCE (TOE '000 and Percent)

1980 TOE'0O Percent Petroteum Products Biomass Etectricity Coal

1.123 1,047 212

47 44 9 -

F,-3-;2 100

TOE'OO

1988 Percent 56 29 13

1,603 830 367

2.845

2

-2j

Changep.s. (Percent) 4.5 -9.7 7.1

10022

Source: Annex3 and 4.

1.17 The increase in final energy consumptionduring 1980-1988averagedjust about 2.2% p.a., in part becauseof a shift from fuelwoodtowardsmore efficientand convenientsecondaryenergy like charcoal and electricityin the wake of urbanization. In contrast, gross primary energy demand increasedfrom 3.5 mn toe to 4.9 mn toe during this period, or 4.3% p.a., indicatingan uncommonly high elasticityin relationto GDP of 1.7. 1.18 Anothereffectof the abovementionedshift in energyconsumptionpattern is the drop in the final consumptionof biomass, from 1.05 mn toe in 1980to 0.97 mn toe in 1988, caused in part by the substitutionof charcoalfor fuelwood. The increase in charcoaluse provoked a faster increase in gross demandof fuelwoodsince the transformationof wood into charcoaland its subsequentenergyuse is less efficient than directly usinj wood, the relatively higher efficiency of charcoal stoves notwithstanding.2/ The consumptionof products bas hetroleum increased particularlyfast from 1985 onwards, at more than 15% p.a. (excludingelectricitygenerationby CDE and consumptionby the 100% foreign-owned- ferronickelproducer Falconbridge). This was stimulatedmainly by low and declining real prices and the increased use of emergencygenerating equipmentin the wake of the electricitycrisis. Electricityconsumptionin 1988was about 4,500 GWh, equivalentto 650 klWhper capita (includingself-generationestimatedat one-thirdof total generation),which is low compared to other countriesin the Region.XI Increasesin CDE's sales during 1980-88averagedabout5% p.a. and in 1988reached2,618 GWh. Only 38% of householdsare connectedto the publicgrid. The residential sector accountsfor 41% of CDE's 1988sales and the industrialsector, for only 28%. This, however, does not reflect the full weight of the industrialsector as electricityself-generationby the five largest industrialfirms alone is equivalentto over one-quarterof CDE's gross generation. 1.19 Consumptionby EconomicActivity. Industry accountsfor the largest individualshare of final energyconsumption,i.e. 40% in 1988which is less than in 1980(44%). The sugar industryand Falconbridgetogether account for nearly 60% of total industrialenergy demand. The sugar industry meets most of its energyrequirementsfrom bagasse, a by-productof its own activity. Falconbridgehas its own power plant and petroleumrefinery and importsdirectlythe crudeoil it needs to operate, using offshore funds to finance energy imports. The transportsector accountsfor 30% of total consumption

21

Theendresultwasan increasein woodconstwtionfromn1.6 mntpy to 2.4 mntpy during1980-88.

I/

Per-capitaelectrkityconswnption in 198 was1,)O0kMI4q in Jamnaica and1,100kWhan CostaRica.

-8followed%vthe residentialsector(about27%), with the commercial/administrative sectorand agriculture accountingfor the remainder. 1.20 Increases in final energy consumptionin the industrial, conunercial, and agricultural sectors averaged2.2% p.a. over the whole 1981-88period. Tbey were fastest in the transport sector, especia!lysince 1985 when real-term prices started to decline. Residentialenergy consumptionhas remainedstagnant in input terms which, however, disguisesa move towards more efficient fuels and applications(e.g. substitutionof LPG for charcoalas cookingfuel).

Table 1.5:

FINAL ENERGYCONSUMPTION, BY CONSUMING SECTOR,1980; 1988 (TOE and Percent) 1980

TOE'OOOPercent Industry Transportation Residential Sector Co erciat Sector AgricuLture

1,051 564 674 81 12 2,382

44.1 23.7 28.3 3.4 0.5 100.0

1988

TOE'OO0Percen-t 1,204 859 675 95 13 2,845

39.8 29.8 26.7 3.2 0.4 100.0

Change p.a.

Percent 1.7 5.4 0.0 2.0 1.0 2.2

Source: COENER and mission estimates.

1.21 Amongthe variousenergyusers, the industrialsector (not consideringthe sugar industry and Falconbridge)consumesbasicallydiesel for heat generation. Althoughdiesel's economiccosts as measuredby its CIF importcost is 50% abovethat of fuel oil, from 1985onwardsits domesticprice was fixedby the Governmentbelow that of fuel oil, which causeda massivesubstitutionof dieselfor fueloil. Gasolineaccountsfor almost 80% of fuel consumptionfor land transportnotwithstandingthat diesel is lower-pricedand more energy-efficient.Woodfuelsaccountfor 67% of householdenergyconsumption. More than one-halfof fuelwoodis transformedinto charcoallargely for consumptionin urban areas. EnergyInvestment. 1980-88 1.22 Energy-relatedinvestmentduring 1980-88is estimatedby the mission to have totalled about US$900 mn. The bulk of it, i.e. nearly US$830 mn, was allocatedto the electricitysubsector, including an estimatedUS$360 mn spent on the acquisitionof backup generators totalling 450 MW outsidethe CDE s-stem. 1.23 In the petroleum subsector, REFIDOMSAinvested since 1980 a total of US$28 mnnin maritimeterminals, refiningde-bottenecking,and storage and distributionfacilities, includingUS$8 mn on a floating LPG terminal at Haina. In addition, the Governmentspent US$39 mn on the constuction of the LPG terminalof Azua, situatedat 120kmfrom Santo Domingo.

- 9.

1.24 In theforestrysubsector,aboutUS$4mnwerespentin tree plantingandsustained-yield management of naturalforests.Ile projectswerefinancedby theGeneralForestryDirectorate,extrnal donors (mainlyUS$0.7 mn USAIDfundingadministeredby FIDE for COENER'senergy farms program),and a in smallpart by the privatesector. Expenditureon energyrationalization wasfairly limited,i.e. lessthan US$4.5mnfor the wholeperiod,andwaslargelyU.S.-AIDfinanced.

-

1o-

U. ENERGYDEVELOPMENTSTRTEGY AND INSITIUrIONS

GUovenmentEner

Objives.

Strategies and Insitutions

2.1 Giventhe closelink betweeneconomicdevelopmentand energyrequirements,the capital intensityand long gestationof energy investments,and closesubstitutibilityof various fonns of energy, it is essentialthat a long-termview of energydevelopmentis taken. The complexproblemsposed by energy developmenttherefore call for comprehensivestrategies, well-focusedpolicies, and effective institutions. A developmentstrategy needsto aim at securingenergy suppliesat least-costand needs to be underpinnedby rationalplanning,effectivepolicy coordinationand appropriateregulation. The Govermnentis awareof the need to put the energysector on a sounderfootingand 2.2 to providesufficientenergysuppliesfor sustainedeconomicdevelopment. The objectiveis, in the short term, to secure the availabilityof energy, and over the mediumor longer-tenn, expandenergysupplies, promote more efficientenergy use, and strengthenthe institutionsand the planningprocess both at the sectoraland the operatinglevels. In the electricitysubsector,the Governmentaimsat rehabilitatingCDE and increasing the participationof the private sector. For petroleumdownstream operations, the Governmentis seekingto improve reliabilityand expandthe capacity of the refinery and of the LPG storage system. However, in other essential areas, objectivesand strategieshave not yet been defined and appropriateinstitutionsand policies have not been put into place. Progress in energy demand managementhas been achieved through more adequate electricity prices which are to be regularly adjustedto eventuallymeet their economiccost, and throughrecent increasesin gasolineand dieselprices althoughappropriateaction is neededin regardto other petroleumproducts. Non-pricingmeasuresaimed at more efficient energy use in industry, transport, and the household sector still fall short of requirements. InstitutionalFramework 2.3 In the absenceof an Energy Ministry, a numberof institutionsintervenein the energy sector. Reportingto the Technical Secretariatof the Presidency,dheNational Commissionfor Energy Policy(COENER)is an advisorybody in matterspertainingto energyplanningand policies,whereasthe National PlanningOffice (ONAPLAN)in charge of economy-wideplanning, also has energyplanning responsibilities. The General Mining Directorateof the Secretariatof Industry and Commerceissues resolutionson petroleumproductsprices and has nominalresponsibilityfor the evaluationof mineralfuel resources. However, decisionson energy pricing and investmentas well as hydrocarbonexploration normally are taken by the Presidency. The Secretariat of Finance represents the Government in petroleumrefiningand is responsiblefor handlingfinancialmatters. The General Forestry Directorate withabout 2,500 employees,and the NationalTechnicalForestryCommission(CONATEF)are charged with forest- and fuelwood-relatedmatters. Most recently, the Directorate for Development and Regulationof the ElectricalEnergyIndustryhas been createdto facilitateprivate sector participationin electricitygeneration.

-

11 -

2.4 At the operationallevel, the DominicanElectricityCorporation(CDE) is responsiblefor electricitygeneration,transmissionand distributionin the publicgrid. CDE is by far the largest entity in the electricitysubsector and the largest enterprise in the economy: Its installedgeneratingcapacity amountsto nearly 1,120 MW (including207 MWof hydro) which is equivalentto 70% of total installed capacity,and it is responsiblefor the entire transmissionand distributionsystems(i.e. 375 kn of 138kW lines; 1,090 km of 69 kW lines, 9,400 km of primary distributionlines; 1,820 km of secondarylines). The NationalInstituteof Water Resources(INDRHI)is chargedwithplanningand executinghydroelectric works. There also is substantial self-generationincludingby other public sector entities such as the National Sugar Council (CEA). REFIDOMSAoperates the 33,000 B/D petroleum refinery. The Canadian-ownedminingcompanyFalconbridgegenerateselectricity(198 MWinstalledcapacity)and runs a smallpetroleumrefinery (3,000B/D). Privatecompanieshandlethe marketingof petroleumproducts. organizationsin the energy sector include the University-associated Non-governmental/non-commercial DominicanTechnologyInstituteand communityinstitutionsactive in reforestationsuch as Plan Sierra. Major Issues 2.5 At the time when increasinglycomplex decisions are required on energy matters, deficienciesat the policy and operatinglevelshave weakenedthe sector. A comprehensivedevelopment strategy for the energy sector does not exist. Institutionalresponsibilitiesfor the sector are ill-defined and fragmented,with no provisions for systematiccoordinationand follow-up. This has resulted in duplicationand overlapfor someactivitiessuch as reforestationwhereboth the Presidencyand the Armed Forces have supervisorypowers. On the other hand, no Governmentinstitutionhas clear responsibility for petroleumexplorationor for matters pertainingto the rational use of energy. Decisionmaking is highly centralized,in part becauseof the scarcity of managerialcapabilitiesand technicalexpertise, so that most sector institutionshavean executingfunction. Legislationoften is cumbersomeand out of step with present requirements and no proper regulatory framework exists. Energy planning is done haphazardlyand bears little relevance for optimizingthe developmentand use of energy resources. Programs and policies are inadequatelyprepared and coordinatedand little informationis exchanged amongthe agenciesconcerned. The lack of clear guidelinesfor evaluatingand selectingprojectsaffects the preparationof investmentprograms. Shortagesof resources over many years have weakenedthe institutionsat the sectoral and operatinglevels.

COENER.Createdin 1981to developstrategiesto solveenergyproblemsand to monitor 2.6 the implementationof thesestrategies,COENERhas neverbeen givenauthorityto participatein decisions on energy pricing, sector regulation, and investmentprogrammingand over the years has become less and less relevantto policy decisionmaking. It has focused insteadon preinvestmentand pilot activities related to industrial energy rationalization, reforestaton, and renewable energy supplies. The representationon its Board of other sector entities,especilJlyof the operatingagencies,has restrictedits abilityto formulateindependentpositionson policy issues. The Governmentwants to steer COENER back towards energy sector analysis and monitoring and therefore wants the entity to discontinue preinvestmentactivities. While it is appropriateto reemphasizea sectoralrole for COENER, the entity underwentmajor retrenchmentduring 1988-89,from nearly 60 to about 10 mainlyjunior professional staff, and has lost manyqualifiedstaff in the process.

-

12-

2.7 OperatingAgencies.Operatingagenciesare adverselyaffectedby the lackof managerial autonomyand accountabilityfor performance, the absenceof corporate planning and of management informationsystems,shortagesof qualifiedmanagersand staff, and scarcityof financialresources. Under these circumstances,little delegationof responsibilityis feasible, and even minor decisionsare being referred to senior managementor even the policy level. Governmentinterferenceis excessiveeven in routine matters. At the same time, operating entities are not effectively supervised so that their performanceis hardly monitored. There is no coordinationof the developmentof electricitygeneration among CDE, INDRHI and CEA which pursue individuallytheir own projects, nor betweenCDE and REFIDOMSAin operationaland investmentmattersconcerningthem both. 2.8 Shortagesof qualifiedstaff at the profess:onaland technicallevelshave largelybeen the resultof unattrativepublicsector salariesvis-a-visthose c f private firms. Workingconditionsgenerally are unsatisfactoryand career prospectsuncertainas they tend to be stronglyinfluencedby considerations other than professionalcompetenceand institutionalrequirements. Public sector institutionscan retain middle-andhigher-levelstaff only with difficulty. On the other hand, unskilledlabor is in excess and representsa financialas well as administrativeproblem.

andRecommendations er Airements Strategy EnergyDevelopment In order to put the energy sector on a sounder footing, the Governmentfaces four 2.9 principal tasks: (a) rehabilitatethe productiveinstallationsin the electricity subsector;(b) secure the least-costexpansionof electricityand petroleumsupplies;(c) manageforestry resources such that their productivityis raised and sustainablequantitiesof woodfuelsare providedover the longer term; and (d) limit adverseimpactson the environmentthat emanatefrom energy operations. For attainingeconomic efficiency, it is essential that prices of different forms of energy reflect their economiccost, and that least-cost technologiesfor production, conversion, marketing, and use of energy be applied. These conditionsare best met through competitivemarketsthat penalize inefficientproducersand users or in the case of natur2lmonopolies,through a regulatoryframeworkwbich securesprices consistentwith the Government'soverall developmentobjectives. To ensurethe viabilityof the energysector, the principal strategicobjectivesare as follows: (a)

energy demandmanagementshould have highestpriority, given the relative scarcity of indigenousenergyresourcesand the cost and long leadtime involvedin developingthem. Energy pricing based on economic cost needs to be reinforced by market-related incentivesto enhance the efficiencyof energy production, conversion,and end-use, so as to allocateenergyamongvarious users consistentwith relative economiccosts;

(b)

the rehabilitationof the electricitysubsectorshouldbe urgentlypursuedand the potential for lossreductionin generation,transmission,and distributionshouldbe mobilizedprior to any expansion. Capacityexpansionshouldbe economicallyviable, i.e. it should be

- 13 consistentwith realisticdemandforecastsand be based on least-ost solutionsto meeing fiuturerequirements; (c)

the legal/regulatoryand institutionalframeworkshould be strengthenedto meet sector development requirements. The sector entities need to be adequately structured, managed, staffed and eq ipped and their resources be more effectively used. Staff developmentshould be given more altention. Energy planningshould be improvedto provide the basis for decisionson inter-sectoralpriorities and for reconcilingsectoral objectiveswith macroeconomicconstraints;

(d)

the potentialof the private sector for energydevelopmentshould be more filly utUized through the removal of remaininglegal/adminisrative impedimentsand economically viable projects be prepared that are suitable to attrac external and private sector financing;and

(e)

the energy-environmentalinterrelationshipsand trade-offsneed to be taken into account in investment-relatedand operationaldecisions.

The impactof internationalenergypriceson the country's energypositionand prospects 2.10 carefulconsideration. Shouldthesepricesbe relativelylow, the burden on importsand given be needs to the balanceof paymentswfllbe alleviateddependingon the price elasticityof demandfor importedfuels. However, relativelylow energy prices are bound to affect the viabilityof projects aimed at developing indigenousenergy resourcesand at improvingthe efficiencyof energy end-use. Given price volatility, the Government'sprioritiesand the viabilityof individualprojectsneedto be constanly monitoredunder due considerationof risk and uncertainty, to avoid that viable longer term options are sacrificed at considerable opportunity cost once energy prices increase. In particular, hydrocarbon exploration promotionhas become more difficult,increasingthe urgencyfor the Governmentto reviewits legal and otractuwal fmework and to remove any remaining obstaclesto secring the participationof foreign companies in hydrocarbondevelopment. The Governmentalso needs to act quicldyto realize sudden benefits that may occur from windowsof opportunity,such as for petroleumprocurement,stockpiling and refining. Picipation. Mobilizingthe managerialand financialresources of the PrivateSx 2.11 private sector is of particular importance for the efficiency and financing of expansion of energy operations. To facilitateincreasedprivate sector participation,the followingis required: (a)

deconcentration,to avoidmonopolieseither public or private and to foster competition;

-14(b)

decentralization,to facilitatedecision making at the least aggregate level possible of energy producersand users and to increaseefficiency,self-regulation,and self-reliance in the energysector; 4/ and

(c)

institutionalstability and a predictable policies to ensure optimal energy pricing and investmentdecisions. Anysubsidieson energyconsumptionshould be made explicit,be restrictedto the intendedbeneficiaries,and have a clear time limit.

Govqrnment-PrivateSector Relationships. Laws and regulationsneed to provide for a 2.12 clear institutionalseparationbetweenplanning/ policy formulationand policy implementation,be nondiscriminatorybetweenpublic and private sector entities,and allowprivate firms to developactivitiesin areas hithertoreservedfor the public sector. The Governmentshouldlimit its involvementin the enerW sector to those areas where the private sector is either unable, or unwilling,to operate. Nevertheless, the role of the State in energysector developmentwill remain importantfor defning objectives,setting the strategic/institutionalframework, and conductingpolicies, as well as for the compilationof basic information. To improve the quality of decisionsand the effectivenessof their implementation,the relationshipbetween the Governmentand the sector enterprises needs to be based on the enterprises' autonomyand accountabilityfor performance,to be mirroredby closercoordinationat the policy-making as well as the operating levels. Effective sector planning and policy coordinationare essential to reinforce the guidingrole of energy pricing and to ensure the adequacyof the investmentprogram. COENER's Future Role. To improvethe coordinationamong the sector instuftions, 2.13 COENERneeds to acquire the capabilityto formulateenergy strategies and policies and be given the authority to effectively monitor their implementation. It also needs to be given the political support necessaryto coordinateand guide the other policy-makingand operationalentitiesin the energy sector. Guided by the Presidency's Technical Secretriat, COENER should become the Government's lead institutionin energy matters, with principal responsibilityfor elaboratingand coordinatingplans and policies and for advising on energy pricing and investment. Ihe entity should participate in the preparationof lawsand regulationsand act as an arbiter in energypolicymatters, leavingit to the highest levels of Governmentto attend to fundamentaldecisionsonly. Together with ONAPLAN, COENER should define the basic assumptionsfor energy planning and criteria for project evaluation, thereby ensuring the consistencyof energy and overall economicplanning, especiallyinvestmentplanning. In close cooperationwith the operatingagencies,COENERshouldbe responsiblefor coordinatingstudies on energyresources, production,transformationand marketing,and for the periodicrevisionof energy projections. In coordinationwith the NationalEnvironmentalCommission,COENER should address energy-environmentallinkages. 2.14 In order to be able to carry out these functions, COENER needs to be upgradedand streamlined. An AdvisoryCouncilshouldbe establishedconsistingof the highest-rankingofficialsof the maindecision-makingbodies in Government. COENER'sExecutiveSecretaryshouldhave wide-ranging

I/

EmkpIes are

markf.

wedscenaralon

of elec*y

generation and the liberalitown of petrolewn procurement and

-

s

-

waority and sould be givendirect accessto the Presidency. COENER'sstaff shouldconsis of a limitednumberof high-calibreprofessionalsas principalpolicyanalysts,supportedby well-quaified technicalspecialists.

- 16In. ENERGY DEMANDMANAGEMENT

General Giventhe country's scarce resourcepotential,strengtheningthe energysector hingeson 3.1 efficient demand managementthrough pricing based on economiccosts and non-pricingmeasures to increasq,the efficiencyof energyproduction,transformation,end-use. The Governmentis aware of this requirementandhas madeprogressin takingappropriateenergypricingmeasures. However,direct, nonpricing measuresto improveenergy efficiencyhave yet to be prepared and implemented. ERnergy Priging Energy pricing based on economiccost is crucial for providingcorrect signals to the 3.2 economicagents, allocating energy efficientlythroughoutthe economy, and financingthe enterprises' current operationsand investments. In the DominicanRepublic,both the levels and structureof energy prices are still inadequate,recent improvementsnotwithstanding,is prices of most petroleumproducts, electricity,and woodfuelsremainwell belowtheir economiccost and relativeprices bear little semblence to cost relationships. Price increasessince 1986have not matchedthe rate of devaluationand domestic inflation. Subsidies in 1989 on the consumptionof petroleum products and electricity may total RD$1.1bn, or about4.0% of projectedGDP. Petroleum Products Prices, marginsand taxesof petroleumproducts are set by the Government. They were 3.3 for extendedperiods among the lowest in Latin America. Price adjustmentshave been haphazard and haveborne littlerelationshipwith internationalprice movements. Untilmid-1990,all petroleumproducts were priced below their economiccost with the exceptionof gasoline, fuel oil for industry, and jet fuel sold to foreignairlines, whichthus cross-subsidizethe consumptionof other products. Prior to its partial elimination,the applicationof the preferentialexchangerate had accountedfor over 50% of economic subsidieson petroleumproductsin 1988. A preferentialexchangerate for petroleumimportswhichhad been applied for severalyears was abolishedin 1989. Followingthe increasesin internationalpetroleum prices in mid-1990,the Governmentincreasedthe prices of petroleumproducts by substantialmargins so that subsidieshave been eliminatedsave for LPG and fuel oil, whereas gasolineand jet fuel now are priced considerablyabove their economiccosts, thus generatingfiscalsurpluses. Followingthe latest increase,the consumerprice of LPG for residentialuse coversonly 3.4 24% of economiccost which is a lower portionthan in 1989(39%) and that of LPG for industrialuse, 59%. In constantterms, however,prices since early 1988have increasedfor all petroleumproductsand now are at their highest level since 1985. The pricing deficienciesin the past have caused rapid increases in the consumptionof 3.5 petroleumproductsas wellas seriousdistortionsin consumptionpatterns,whichtends to encouragefraud

-

17 -

and other allocativeinefficiencies: in industry, less fuel oil is consumedthan diesel whereas highly subsidizedLPG for residentialuse is beingdivertedto industrialand transportuses. Followingthe 1990 price increases,however, the consumptionof petroleumproductshas dropped sharplyby nearly 15% at an annual rate. Table 3L:

PRICESTRUCTURE OF PETROLEUM PRODUCTS, 1989-91

Bultk CIF CIF lnport Ex. Ref, Distrib. Inport Price g/ M4argin Cost Cost USS/bbl. -- --- v----------.------X--

Economic Jhole- Retail Narketing Distrib. Retail sale Cost Price Margin Price (RD$/gal) ---------------------------

Surplus or Economic Subsidy(-) Cost hI

gOctgober I98

Gasoline

23.9

3.6

5.68

0.10

5.78

0.22

6.00

0.67

4.29

1.71

Gas Oil

21.6

3.3

2.29

0.05

2.34

0.16

2.50

0.67

3.93

-1.43

Kerosene Jet Fuel Jet fuel-CDA

22.8 22.8 22.8

3.5 3.5 3.5

2.54 5.73 2.50

0.05 0.15 0.10

2.59 5.88 2.00

0.16

2.75

0.67 0.40 0.40

4.12 3.85 3.85

-1.37 2.03 -1.85

Fuet Oil Fuel Oil CDE

14.7 14.7

2.2 2.2

2.35 1.76

0.04 0.01

2.39 1.77

0.37 0.10

2.59 2.32

-0.20 -0.55

LPG-Vehicles LPG-Domestic LPG-industry

13.5 13.5 13.5

2.0 2.0 2.0

1.92 0.85 3.71

n.a. 0.22 0.22

-0.94 -1.91 -1.39

n.a. 1.07 3.93

0.08 0.26

2.00 1.33

0.90 1.20 0.50

2.94 3.24 2.54

February 1991 8.47

30.55

8.62

17.09

0.88

17.98

1.82

20.00

2.91

11.53

Gas Oil

) 34.31

9.68

12.45

1.25

13.70

1.96

0.31

10.77

2.06 0.33

11.74

)

11.64 10.46

0.58

Gas Oil-CDE

8.34

2.34

Gasoline

.

2.64 1.46

13.03 11.85

4.97 8.48

8.00

.

.

1.92

8.03

-0.03

6.14

.

.

0.18

6.29

-0.15

6.00 5.00

12.79 11.79

-9.68 -4.85

10.39

15.36 18.87

0.77 1.43

16.36 20.33

) 21.66 )

6.11

6.08

1.92

5.96

0.18

LPG-Vehicles ) LPG-Domestic ) 24.07 LPG-Industry )

6.79

g/

.

.

) Kerosene ) 36.83 Jet Fuel Jet Fuel-CDA ) Fuel Oil Fuel Oit-CDE

.

1.64

2.44 9.70

18.00

3.11 6.94

Includes contributions to Coapensation Fund for cross-subsidi2ation of fuel oil and LPG.

W Defined as the sun of CIF iaport cost anJ economicmarketing cost. Not aWlicable. mission estimates. REFIDONSA; Source: COENER;

Relative Eid . Price relationshipsdo not reflect relative.economic costs. Ihe ex3.6 refinery price for gasoline exceeds that of diesel by 46% even though the CIF import cost of diesel normallyis equal to, or even higherthan that of diesel. Thesedistcrtionsprevail through the consumer level where the price of gasolineexceedsthat of diesel by an equal proportion. LPG for residentialuse .s priced lessjust about45% of that for industrialuse, even thoughtheseproducts are identical(LPGfor both uses is subsidized). Distortionsare aggravatedby preferentialprices extendedto CDE, the Armed Forces, cementproducers, and the nationalairline. There are no explicittaxes on petroleumproducts:

-

18-

fia leviesare incorporatedinto ex-refiney pricesin form of *differentials" whichare higheston gasoline,jet fuel, andkerosene,andvery lowon diesel(irrespective of use),and negativefor LPGand fuel oil. No consideration is givento recoveringroadusercoststhroughfueltaxes. Table3:

Gasotine

Current 1985 1985 1986 1987 1988 1989 (Oct.) 1990 (Dec.)

PRICESOF PETROLEUN PRODUCTS TO THEFINAL CONSUIR,1985-90 (Current an 1985 RD$/gal) Gas Oit .FueL

Current

1985 MDS

lOS

ROS

110

3.66 2.71 2.71 3.60 6.00 20.00

3.66 2.46 2.13 1.96 2.52 5.85

3.76 2.31 2.31 2.50 2.29 13.70

3.76 2.10 1.82 1.36 0.96 4.01

erosene

Of RDS 3.65 3.65 3.65 2.35 2.35 6.20

Current 1985

RD1 3.65 3.32 2.87 1.28 0.99 1.82

lOS

RDS

3.75 2.75 2.75 2.75 2.75 18.00

3.75 2.50 2.16 1.50 1.15 5.31

Curtrent 115 RDS RDS 31.50 28.50 28.50 28.50 28.50 70.00

31.50 25.87 22.40 15.52 11.95 20.65

g/ For residenttal use (1DS/100tb). Source: COEiER;AEFIDONSA; mission estimates.

Eilectricitv

3.8 For long periods,electricityrates paid by residentialand small-volumecommercial consumersneithercoveredCDE'sfinancialcostsnor the economiccostsof supply. In contrast,tariffs commercialand industrialconsumersexceededeconomiccostsandwereabovethose for larger-volume fbrresidentialconsumers saveabove800kWh/month consumption, thuscross-subsidizing otherconsumer groups. Followingincreasesaveraging33% in mid-1988and 30% in mid-1989,the averagepriceof equivalent,comparedto US17.5/kWh whichis requiredunder electricityamountsto aboutUSC6.5/kWh optimalconditionsof efficiencyto adequatelyoperateandmaintainthe publicelectricitysystemandto contributeto financingsystemexpansion.By comparisor,CDE's operatingcostspresendyare in the orderof USc010.5/kWh (assuming6% technicallossesand25%administrative losses). In addition,the tariffstructureis complexanddifficultto administer. costs of marginal(i.e. averageincremental) 3.9 TheWorldBankhas carriedoutan evaluation of electricity,basedon the costsof systemexpansion.The resultsare as follows:

-

19-

,Cost pDUiW

USi Long-run economiccost, CDE Long-run economiccost, residentialuse Long-run economiccost, industrialuse Avoided cost, residentialuse - 5kW Avoidedcost, industrial/commerciause - 500 kV Avoided cost, large-volumeindustrialuse A/ - with CDE reserve - withoutCDE reserve Estimatedgeneratingcost, emergencyequipmenthi a/ hI

RD$

7.4 8.9 6.0 35.8 12.3

0.47 0.57 0.38 2.27 0.78

6.8 10.6 5.4

0.44 0.67 0.35

Three shiftsper day 40 MW barge-mounteddieselengines

3.10 Underthe Bank-financedPowerSectorRehabilitationProject, electricitytariffs are being restructured so as to reflect more adequatelythe economiccost of supplies and to generate adequate financialresourcesfor onroing operationsand expansion.They are plannedto be increasedat least semiannuallyto averageaboutUSc7.5/kWhby 1991whichwouldbe adequateto coverCDE's economiccosts by then, providedCDE's rehabilitationresults in efficientsystem operation. Maximumdemandcharges have already been increased. Aimingto send clearer price signals to consumersand to achievemore efficientload managementand electricityuse, CDE is in the processof implementingfurther adjustments to movetoward tariffs based on long-runmarginalcosts. These adjustmentsinclude: (a) a smootherand simpler tariff structure for residentialand small-volumecommercialconsumers,through reducingthe numberof blocksand chargingdifferentrates accordingto voltagedeliverylevels; 0b)a time-of-daytariff for customersof more than 1,200 kW; (c) reactivepower meteringand billing when the power factor fals below 85%; and (d) in some cases, slight reductionsin tariffs for high-voltageconsumers. 3.11 As a result of the tariff increases in 1988-89and the ongoing restructuringof tariff blocks, subsidiesto low-voltageconsumershavebeenconsiderablyreduced,especiallythoseto residential consumersabove 300 kWh/month. They are planned to be eliminatedby end-1990. Subsidieson residentialconsumptionbetween50-300kWh/monthare plannedto be eliminatedby 1992. Woodfuels 3.12 Prices of fuelwood and charcoal are market-determined. To the extent that wood is collectedfree of charge and no proper stumpage is levied, no attempt is made to recoup the cost of replantingtrees or of alternativeland use estimated at RD$ 230/M.T. of wood equivalent. This is especiallyserious in the case of charcoalwhose resourcecosts are high becauseof substantialfuelwood requirementsper given amount of charcoal. While prices of fuelwood and charcoal paid by urban residentialconsumers(i.e. RD$ 1.- and RD$2.-, respectively,per kg in 1989)covertheir economiccost, those paid by industial and commercialconsumersdo not.

- 20 -

Ener Comparative

L=rice an Costs

costsof energyalternatives havea stronginfluenceonconsumerchoices. 3.13 Thecomparative In additionto thepriceof energy,however,thecostsof thesealternativesaredeterminedby relativeendwhichvaryaccordingto the typeof energyandof equipmentused,specificapplications, use efficiencies andthe equipment'senergyefficiencyand poweroutput. Properanalysisthereforeshouldincludethe they investmnent costsof theenergyusingequipmentastheseoftenaresubstantialandbeingfront-loaded, mayinfluenceconsumerdecisionsmorethanthe energypriceitself. of energypricesto consumers(marketprices)adjustedby the end-use The comparison 3.14 efficiencyof equipmentofferssomeimportantconclusions(Table3.3). In the residential/commercial/ sectors,LPG is the cheapestenergysourcefuel followedby kerosene. Electricityis in administrative forthe highpriceper themiddlerangebecauseof the highend-useefficiencyof appliancescompensating energyunit whereascharcoaland fuelwoodare the mostexpensivefuelsgiventhe low efficiencyof wood-andcharcoal-burning stoves.In the industrialsector,fuelwood,coalandfueloil are thecheapest boiler fuels followed by diesel, kerosene, charcoal, LPG, and electricity. For both the residential/commercial and industrialsectors,these relationshipschangelittle even if more energyefficientequipmentis used sincethe inherentprice and efficiencydifferentialsare too large to be compensated throughefficiencyimprovements.In the transportsector,dieselis lower-ost on account efficiencycomparedto gasolineandLPG. of its lowerpriceandhighercombustion Table 3.3:

PRICESTO CONSUMERS OF VARIOUS FORMS OF ENERGY, SANTO DONINGO, 1989 (ROD/UsefulKWh)

AveragePrice

Average Price/ kWh/kg Gross kWh

(ROS/Unit)(WD/kg)(RDS) (RD5)

Average Average Current Utiliza- Price/ Improved Price/ Useful tion Useful Util1iation EfficiencykWh EfficiencykWh

(Percent) CRDS)

(Percent)CADS)

Residentia/Comerciati AdninistrativeSectors

1.-/kg 2.-/kg 2.75/gal 1,33/gal 0.23/kWh

1.00 2.00 0.91 0.65 n.a.

4.60 7.78 12.91 14.07 n.a.

0.22 0.26 0.07 0.05 0.23

15 30 40 35 60

1.45 0.86 0.18 0.08 0.40

30 35 60 65 80

0.72 0.73 0.12 0.07 0.30

0.04/kg 0.50/kg 318/N.T. 2.75/gal 3.93/gal 2.50/gal 2.39/gal 0.43/kWh

0.04 0.50 0.32 0.91 1.92 0.78 0.67 n.a.

4.60 7.78 6.30 12.91 14.07 12.67 12.56 n.a.

0.01 0.06 0.05 0.07 0.14 0.06 0.05 0.43

40 60 56 65 70 70 70 85

0.02 0.11 0.09 0.11 0.19 0.09 0.08 0.51

55 65 65 75 75 75 75 95

0.02 0.10 0.08 0.09 0.18 0.08 0.07 0.46

Gasoline (93 RON) DieselOil

1.30 3.60/gal 2.50/gal 0.78

13.02 12.67

0.10 0.06

15 20

0.67 0.31

LPG

2.-/gal 0.98

14.07

0.07

10

0.70

Fuetwood Charcoal Kerosene LPG pj Electricity IndustrialSector

Fuelwood Charcoal Coal Kerosene LPG DieselOil No.6 FuelOil Electricity kr TransoortSector

W/ Residential tarifffor 150 kWh/month consumption y

consumption. highvoltagetarifffor a 25 kW maximumdemandand 730.5kWh/month Industrial

missionestimates. Source:COENER;CDE; REFIDONSA;

-213.15 The analysisof comparativemarketpricesof energyis use' *for explainingthe demandrelatedfactorsin energyconservationand substituton. However,giventhe distortionsin marketprices, to draw conclusionsfor the optimalsupply of energy, the relative economiccosts of the various energy forms including the related equipment costs also need to be analyzed. On this basis, in the sectors, LPG remains the cheapest fuel, followedby kerosene, residential/commercial/administrative fuelwood, and electricity. Charcoal is the most expensive source of energy on account of its high resource cost. In the industrial sector, fuel oil and coal are the cheapest boiler fuels, whose cost approximateeach other very closely, followedby d;esel, kerosene, LPG, and fuelwood. Electricity is an expensive energy source - despite the high efficiencyof electrode boilers - surpassed only by charcoal. In transport, the combinedenergyand capital costs of diesel-poweredvehicles are about 10% less than those of gasoline-poweredvehicles whereasLPG as transportfuel is considerablymore costly. 3.16 The foregoinganalysisindicatesthat the costs of energy would be minimizedthrough a administrativesectors;coaland use patternemphasizingLPGand kerosenein the residential/commercial/ fuel oil in the industrialsector; and diesel in the transportsector. To achievesuch a use pattern, relative prices of energyneedto reflecttheir relativeeconomiccosts, and supplybotdenecksneedto be removed, especiallyfor the distributionof LPG and kerosene. Nevertheless,relativelyexpensiveenergysources may be required for reasons of process technology(e.g. electricityfor nickel refining). Also, future energy price relationshipson internationalmarkets will be importantsuch as for gasoline vs. diesel. Sincethe options for replacingmiddle distillatesare relatively few, demand for diesel on international markets is likely to remain relatively strong and consequently,prices over the medium term might increaserelative to those of gasoline. Shouldthis be the case, the aboveconclusionswouldneed to be modified.

-22 TabtR M4

ECONOMIC COSTOF VARIOUS foRS OF ENERGY, SANTO OONINGO, SEPTENDER 1989 (USSEquivalent)

CIF Ilport/ 1nternal Domestic Marketing Total Prod. Cost Cost / Cost -----USS/M.T.--)

Total EnergyCost/ Energy Energy Useful Cost/Useful Cost kWh TOE U56/kWh OUS) (USO equiv.)

Energy EquipmentEnergyplus Cost Cost p.s. Equipment p.e.a bW Cost p.a8h C------- 1-15 -------

Residental/Com eel/ Adinistrative Sectors c/ Fuelwood Charcoal Kerosene LPG Electricity y

36 235 196 175

27 76 35 93

63 11 231 268

1.35 6.57 1.80 1.96 8.16

9.03 1.9 4.49 3.57 13.60

1.050 2,546 523 415 15.81

141 34 70 56 213

0.1 4 12 12 S

142 347 82 68 218

36 235 45 196 175 168 87

15 276 5 35 39 33 16

51 511 SO 231 214 201 103

1.10 6.57 0.68 1.80 1.57 1.61 0.82 6.33

2.74 10.95 1.22 2.77 2.24 2.30 1.17 7.45

319 1,273 142 322 201 268 136 866

2.41 9.63 1.07 2.43 1.97 2.02 1.03 6.55

1.91 1.91 1.91 1.91 1.91 1.91 1.91 1.91

4.3 11.5 3.0 4.3 3.9 3.9 2.9 8.5

206 168 175

38 33 69

244 201 244

1.79 11.93 1.61 8.05 1.79 17.89

Industrial Sector Fuelwood Charcoal Coal Kerosene LPG DieselOil Fuel Oil Electricity / Transoort Sector Gasoline Diesel LPG pj 1Y fj cy j/

1,387 936 2,080

1,803 1.217 2,704

2,170 2,400 2,170

3,973 3,617 4,874

Includes distributors margin. For industrial fuels, costs of internal marketing are assumedto be 75X of those for residentialt comuercial/administrative sectors. CapItal recovery factor of 12X. For fndustrial sector, energy cost per N.T. of steam produced. For cooking only. Residential teriff for 150 klh/menth consumption. Industrial high voltage tariff for a 25 NMmaxIuni demandand 0.35 load faetor.

Source:COEMER; CDE;REFIDONSA; mission estimates.

&CMrConsevaionandSubstiuton 3.17 Normally,energypricingbasedon economiccostsis the mosteffectivespur to energy efficiency,whichoftenis a lesser cost optionto meetingfiutureenergyrequirementsthan expanding supplies.However,in the DominicanRepublic,lowanddistortedpricesof energyfor extendedperiods have thwartedefficiencydrives. In addition,energyefficiencyIs impededby the lack of awareness amongenergyusersaboutavailableenergysavingtechnologies, reluctanceto assumethe costand risk of introducing newtechnologies, andlackof financingfor efficiencymeasures.In industry,soft budget constraintsas resultof heavyimportprotectionhave bluntedthe incentivesto reducecostsincluding energycosts. On the part of Government,there is litde experienceto conceptualizeand implement energyrationalization programs.

-23

-

i3negy Conseration

energy Indsty. In the industrialsector consistingof about 1,500 establishments, 3.18 consumption is concentratedamongrelativelyfew firms,whichtendsto facilitateenergyrationalization measures.Basedon the experiencein othercountries,it canbe assumedthat an energysavingspotential of at least 20% existsthroughlow-costhousekeepingmeasuresalone, equivalentto about0.24 mn toe/year(US$31.5mnat an international petroleumpriceof US$18/B).Anadditional15-20%ofenergy savingsprobablycouldbe mobilizedthroughmajorinvestments suchas retrofits. COENERin the early 1980sorganizedbrief surveysof about 100 industrialfirms to collectenergyconsumptiondata and subsequently coordinatedsome 60 auditsin light industries,serviceestablishments, and commercial buildings.Follow-upmeasureswererecommended in about40 cases. US-AIDloanedUS$7mnin 1985 for an industrialenergy rationalization programcoordinatedby COENER. As the program'smost importantcomponent,aboutUS$4 mnwereon-lentthroughFIDEof theCentralBankfor energyaudits and follow-upinvestments(withgrantfundingfor 50%of the costsof the auditsup to a maximumof RD$ 25,000). Energyrationalization investments rangedfromRD$0.2-3mnper project,wit! returns averaging40%. A portionof the U.S. AIDfundingwasmadeavailablefor pilotprojects(RD$1.1mn) whichincludedrepairsof boilersand pipes. Despitestrongdemandby industry,this programwas discontinuedin 1989oncethe US-AIDfundswerefullydisbursed.No follow-onexternalfundinghas as yet beenidentified,whereasdomesticbanksare reluctantto financeenergyefficiencymeasuresfor lackof familiarity. COENER'sindustrialenergyrationalization programhas hadrelativelylittle impacton 3.19 publiccorporations - pardybecausetheselackedcounterpart fundsto complement loans- butwasmore successfulin privatefirmswhereit wassupportedby the Association of Industries(AIRD).According to COENER,investment of approximately US$3 mnresultedin energysavingsduring1985-87of about 7,000toep.a., indicatinga pay-backperiodaveragingsomewhatoverthreeyears. Somelargerindustrial firms have carriedout energy efficiencymeasureson their own as part of cost reductiondrives. Falconbridge has retiredoneof its three smeltingfurnaceswhilepreservingoutputlevels,reducingits electricityrequirements by 66 MWwhichnoware madeavailableto CDE. METALDOM has reduced its specificfuelconsumption by morethan50%, to about10gal/M.T.of rolledsteelproducts.Furdier reductionsto about3.5 gal/M.T.,whilefeasible,wouldrequiremajorreequipment.In the wakeof the electricitycrisisandtariffincreases,somefirmshavestartedto analyzetheirelectricityconsumption more carefullyandare considering to instalpowerfactorcorrectionequipment.In the sugarindustry,energy efficiencywill be improvedwithCEA's ongoingrehabilitation.In cementproductionand breweries, measureshavebeen slowin coming,mainlybecauseof the lackof financing. 3.20 Transportation is an importantarea for energyrationalization, givenits high share in overallenergyconsumption,especiallyof petroleumproducts. Fuel efficiencyin transportationis low as thevehiclestockis oldand inadequately maintainedandthe publictransportsystemis poor. Thus, efficiencygainsare difficultto achieve. The publicbus companyONATRATE is weakandthe private sectorhas no incentiveto provideserviceas the Government-controlled tariffsdo not allowadequate returns. Passengertransportin SantoDomingorelieson fixed-route,fuel-inefficient taxis. Thereare no institutionsnor incentivesto preparethe necessaryprograms. Energysavingsof at least 20% are

- 24

-

probablyattainablethrough improvedoperatingpractices, better maintenance,and minor investments. Specific options include incentivesfor purchase of efficient vehicles (e.g. fiscal incentivesor price discounts), impiovementof mass transit (through increasing the number of routes and frequency of service), improvedtraffic management,vanpooling,and regulatory measures (e.g. mandatoryregular inspections,disallowingthe importationand sale of highly inefficientvehicles). Enforcingefficiency standardsfor vehicles probablyis the administrativelymost convenientway to achieveenergy savings, whereascampaignsto improvevehicle maintenanceand driving habitsare more difficultto implement. In attemptingto improvethe situation, the Governmenthas reequippedONATRATEwith new buses, eliminatedduties on the importationof buses, and created the Technical Office of Transportationfor levy on gasoline introducedin 1987 regulatingand promotingpublic transport. A special (RDC60W#l) is to assist in financingthe acquisitionof buses. 3.21 Public Buildingsnormally accountfor a significantshare of non-industrialenergyuse, especiallyof electricityfor air conditioning. Relativelysimplehousekeepingmeasuressuch as cleaning filters and preventingwarm air infiltrationcan result in large efficiencygains, as will the replacement of existing incandescentlights with fluorescent tubes. The potential for energy savings in new constructionmay be as high as 30% for measureswith a paybackof less than four years, in addition to passive efficiencymeasuressuch as shadingand daylightingwhich require no maintenanceor further attention. For improvingenergy efficiencyin public buildings, comprehensiveprograms are needed based on a reviewand revisionof buildingcodes and appliancetesting and labeling. In the Household SC=, the potential is considerablefor increasing the efficiencyof 3.22 woodand charcoalstovesand of other energy-consumingappliances. However,disseminatingimproved stovestends to be a slow and difficultprocess for which no effectiveinstitutionsexist, either private or public. The large numberof individualconsumersin the householdsectorcan only be reachedby means of appropriatepricing. Therefore, any well-definedprogram hinges on realistic targets and effective institutions. As regards energyconversion,in electricitygeration, CDE's thermalplants consume 3.23 nearly 1 mn toe p.a. of primary energy inputs. Fuel efficiencyis low, about 340 toe/GWh, mainly due to lacking maintenanceand other technical deficiencies. Technical and administrativelosses on the system in the order of 30%. Under the Bank-financedPowerRehabilitationProject, CDE's generation efficiency will be improved and transmissionand distributionlosses reduced. This will reduce fuel requirementsand capitalinvestmentsotherwiseneededto increaseelectricitysupplies. Petroleumrefining may hold further potential for improvingenergy efficiency, whose scope needs to be better defined throughan up-datedrefinery audit and optimizationstudy. Charcoalproducaionis carried out mainly in earth-moundkilns whose conversioneffienciencytypically is below 23%. Improving kilns, which requireslitde expenditure,could increasethe charcoalingefficiencyto 30-35%. EnergySubstitution There is significantpotential for fuel substitutionto lower costs in major economic 3.1-' acte.ities. This includes:in electricitygeneration,using coalinsteadof fuel oil as primary energysource

- 25 for steam units; in transport, substitutingdiesel for gasoline; and in the household sector, replacing fuelwood and charcoal through LPG and kerosene. However, these options often are technicaJly complicatedand costly, which limits their applicationsto those cases where reequipmentor other major investmentsare undertakenanyhow. In the householdsector, despitethe generalawarenessthat LPG and keroseneare the cheapest cookingfuels, manyconsumerscontinueto use charcoalbecausethey cannot afford the requiredappliances(LPG stovescost approximatelyUS$1SO-200).In rural areas, inadequate distributionnetworksfor LPG and keroseneposeadditionalimpediments.There has also been significant uneconomicsubstitutionas fuel oil in industryand electricitygenerationhas been replacedby - more cheaply-priced- diesel. This demonstratesthe need for energy pricingbased on economiccost and for improvedavailabilityof fuels to promoteeconomicallyefficientsubstitution. Requirementsand Recommendations Energy Pricing 3.25 A systemof energyprices basedon economiccosts is needed, i.e. c.i.f. import costs for petroleumproductsand coal and long-runmarginalcosts for electricityand woodfuels. Requiredprice increases should be periodic and automaticand should reflect exchange rate movementsas well as domesticinflation. While these increasesmighthave to be phased, the aim shouldbe by end-1991to (a) eliminate remaining subsidies on petroleum products and liberalize prices afterwards; (b) achieve electricitytariffs coveringeconomiccosts of efficientsystem operation,as it is envisagedin the power rehabilitationproject; and (c) establishprices for fuelwoodand charcoalwhich cover the economiccost of wood cultivationand harvestingat plantations,through proper applicationof stumpage. 3.26 As a step into the right direction,the Govermmenthas terminatedthe applicationof a preferential exchange rate for petroleum imports and has increased retail prices of most petroleum products to levels at which they cover economiccosts. Seriouspricing deficienciesremainfor LPG for industrialand domesticuse. LPG is used as householdfuelby lower incomegroups: giventhe magnitude of the increase required and the high visibilityof prices of LPG for householduse in the Dominican Republic,these increaseswouldhaveto be gradualbut steady. Their effect shouldpossiblybe.cushioned by open yet temporaryand well-targetedsubsidiesto lowest-incomeconsumers. 3.27 Changes in electricitytariffs should includea loweringof the thresholdfor subsidizing residentialconsumption,presently nearly 800 kWh/monthper connection. Tariffs need to better reflect the differences in economiccosts of supp;y at different voltage levels and should be set at comparable levels for comparableconsumergroups to avoid unwantedshifts between consumergroups. A tariff structure that does not reflect these cost differentialsaffecs the efficiency of electricitysupply to the overall economy: too high a tariff may over-stimulateself-generationto the detrimentof economiesof scale, whereas too low a tariff over-stimulateselectricityconsumptionespeciallyfor unproductiveuses. The subsidizationof electricityshouldbe strictly limitedto lowest-incomeresidentialconsumersand be residentialconsumers,so as to ensure firanced through a surchargelevied on high-income/high-volume that subsidiesindeedare directedto their intendedbeneficiaries. Subsidiesshouldbe eliminatedas soon as possiblefor large-volumeresidentialand commercialconsumersand shouldbe phased out by 1992or

-26 earlier for lower-volumeresidentialconsumersexcept for those with a consumptionbelow 50 higher-voltage consumers,measuringsneedto be normalized(i.e. for kW, kWh/month.For medium-to KWh,kVA, kVAr)startingwiththe 50 or so largestconsumersof morethan 1,200kW. Chargesfor as an incentiveto improvepowerfactors. reactiveenergyneedto be introduced 3.28 Handledcarefully,higherenergypricesshouldhave only a smallimpact,giventheir measuressuch as relativelylimitedincidenceon the cost of living,E/ especiallyif counterbalancing minimumwage increasesare taken. The Governmentshouldundertakewell-focusedinformation campaignsexplainingthetrueextentof theimpactof increasesin energypriceson the costof living,and supportmeasuresto overcomesupplybottlenecks. Especiallythe latter would help to keep any inflationaryimpactof higherenergypricesin check. Enery Conservation andSubstitution energyefficiencyisimportantforincreasingtheoperationalefficiencyin major 3.29 Improving adjustment.In orderfor thisto takeplace,it is essential economicsectors,in supportof macroeconomic thatboth absoluteandrelativeenergypricesreflecteconomiccosts. In addition,information,technical assistanceto consumers,and market-relatedincentivesto improveenergyefficiencyare neededto reinforcepricesignals,as wellas othernon-pricemeasures(e.g. regulation,directcontrols)whichare justified,enforceable,andnon-distorting.Mobilizingthe energysavingspotentialhinges economically shouldprovide to a sustained,long-termeffortby theprivatesector. The Government on a commitment the institutionaland policy frameworkand facilitateeffbrtsby individualenergy users to carry out efficiencymeasures.Thiscouldbe donethrough(a) supportfor surveysandenergyauditsto establish andpilot of energy-efficient technologies the scopefor energysavings;(b)promotionanddissemination projects, to demonstratetheir potentialbenefits;(c) training in energy efficiencytechniques;and, possibly,(d)financialassistance.COENERshoulddesignthe relevantstategiesandcoordinatepolicies to realizethe savingsso identified. 3.30 In the industrialsector,firmsshouldbe assistedin preparingbankableprojectsbasedon of energyaudits. Beforeindustriescanbeginto saveenergyeffectively,theywill the recommendations needassistancein identifyingthe sourcesandscopeof enerywasteandoptionsto reducewasteand in measures.Priorityshouldbe givento industrialsubsectorsthat are implementing energyrationalization and whose experienceis replicable. They includebuilding viable, energy-and export-intensive, materials,foodandbeverages,glass,paper,textiles,andchemicals.In the transportsector,improving energyefficiencydependslargelyon adequateroad user charges,especiallyfuel taxes. Beyondthat, and includeimprovingthe roadnetworkandtrafficflows,improvingvehiclemaintenance requirements drivinghabits, modernizing the vehiclefleet, and initiatingintermodaltransportsectorplanningmore all of whichare transportsectorconcernsas they are responsiveto energyefficiencyconsiderations, energyconcerns. The Governmentinstitutionsoverseeingtransport(primarilythe NationalTransport

S/

Accordingto the Centralank's cost-oflivingindex,theItems"hosehold enervyand "trnportfiwk *account for kw ttan9%of hoseholdaependiture. %lch Iicates hattheimpact ofaiy butsubsantaincreases ienergyprices on the costof livingwouldbe quiesmalL

-27

-

Office)andmanagingpublicbuildingsshouldbe assistedin acquiringexeie Intheir respectivesectors.

In energyrationalization

3.31 Ihe Government shouldmobilizefundingfromintemational donorsfor energyefficiency programs.Domesticfinancialinstitutions shouldbe alertedto theopportunities whichlendingfor energy efficiencyprojects provide, and their staffs should be trained to deal with this type of prjects.

-28 IV. ELECTRIC1TY

Major ssues Bac=FQoun-

4.1 Frequent and long interruptionsof electricity supplies pose the most immediate and intractableproblem in the energysector. They ca%iselosses in industial productionand inconvemence to consumersin general, and tend to affect investmentdecisions. Ibis situadonis the culminationof a long deteriorationprocess at CDE whosemain causes are: (i)

lack of clearly definedsubsectoraland operationalobjectivesand responsibiliies;

(ii)

and accountability,and attendantwealnesses at the board, lack of managerialauto1nomy managerial,and operationallevels;

(iii)

deficientcorporateplanningand c%'Tol;

(iv)

tariff inadequacies,lack of financialresources, and excessivedependenceon external borrowing;and

(v)

lack of qualifiedmanagementand of professional/technicalpersonnel, inadequatesalary levels, and high turnoveramongmanagementand higher-levelstaff.

TechnicalIssues 4.2 CDE's institutionalweaknesseslargely explainthe inadequatemaintenance,precarious operatingconditions,and insufficientinvestmentlevels, which in turn cause high losses and unreliable supply. A programof preventivemaitenance does not existand necessaryrepairshave not been carried out for extendedperiods. CDE's available capacityin early 1991had been reduced to just about 650 MW, and most of the remainingcapacityis in poor condition. This is not enoughto attendthe 760 MW peak load even with the support of 66 MW that Falconbridgenormallysuppliesto the public grid. The energy deficit, which was some 800 GWh in 1989, amounts to nearly 20% of requirements. The differencebetweenCDE's availablecapacityand peak demanddoes not fully indicatethe severityof the problem: if one large unit like Itabo I or II (125 MW each) is out of commissionor simultaneous breakdownsof small units occur, the supply is affectedeven at off-peakhours. Becauseof its capacity deficit, CDE has delayed preventivemaintenanceso as not to reduce availablecapacityfurher, raising the risk of more frequentbreakdownsin future. 4.3 The shortcomingsresult in high operational costs and in environmentallyunsound practices. While the Itabo I and II plantsare equippedfor dual firing, coal accountsfor at most 30% of

-29

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fuel use, due to unresolvedtechnicalproblems in coal handling.fi Hydro reservoirs are being overused, to the detrimentof irrigation. Becauseof the lack of protectivedevices,the - generallyoverloaded - transmissionand distributionsystems are also becomingdefectivewhich occasionallyhas resulted in total system breakdowns. System losses exceed30% and CDE has been losing customers. Investment projects often are ill-conceivedand serious delays occur in the planning and implementationof system expansion,with the risk that evenwith successfulrehabilitation,capacityshortageswill recurby the early to mid-1990s. InstitutionalIssues Restoringthe reliabilityof electricitysupplieshas become the Government'sparamount 4.4 concern in the energy sector. However,deep-seatedinstitutionaland financialproblemsimpedeCDE's rehabilitation.Relationsare unsatisfactorybetweenthe Governmentand CDE, and ineffectivebetween CDE's Board and Management,which creates confusionwithinthe entity, restricts CDE's managerial autonomyand accountability,and results in delayed and inappropriatedecisions. This in part is the outflow of the electricitylegislationwhich has imposedobjectiveson CDE that contraveneeconomic efficiencyprinciples,whileleaving mechanismsfor tariff settingand for financialinterrelationshipswith the Governmentundefined. ExcessiveGovernmentinterferencein managerialmatters,over-centralizationof decision4.5 maling, and inadequate flow of information within the CDE make effective management and administrationin the Corporationdifficult. CDE managementhas beenconsistentlyby-passedin decision making. The lack of effectivemiddle-levelmanagementlimitsthescope for delegationof responsibilities. CDE's procedures are excessivelybureaucratic, leading to the duplicationof functions within the organization. Unreliable cost-related and financial information impedes corporate planning. 2/ Frequent managementchangesand high turnover of staff at mid-levelsbave weakenedthe institution. Becauseof the acute lack of professionalstaff, CDE's top managementhas to devote an inordinateshare of its attentionto operationalmatters, at the neglectof administration,sales, finance, and other critical areas of management. operations, CDE's largelyunderqualifiedtechnicalstaff is ill-preparedto carryout curremnt 4.6 do not policies development let alone major rehabilitationworks. Systematicin-housetrainingand staff exist: CDE professionalsreturningfrom training overseas rarely receiveresponsibilitiescommensurate with their newly gained expertise. CDE for extended periods was about 15-20% overstaffed at the technical level as politicalpressuresprevented the necessarystreamlining. A substantialretrenchmet took place in late 1990which before long should contributeto increasinglabor productivity. However,

9/

Thisis so eventhoughat US$45c4fM.T. (US$70/toeequivalent)andabout1.5% sulphurcontent,coal Isbothcheaper and environmentaflymore acceptablethanfuel ofIfrom the localrefinery (USSM72/.T.or USS75hoeequivalen and morethan3% sulphur).

Z/

cost. Thereis no allocationoffixed costs,due to the only operationsandmaintenance Costaccountingcomprises of plant and equipment. of aproper valuationof assetsand of depreciation absence

-30measuresto improvethe qualificationsand employmentconditionsof CDE staff to bring them closerto those prevailingin the private sectorhave yet to be taken. FinancialIssues Weakfinancesarisefrom inadequatetariffsand poor financialmanagement,compounded 4.7 by the impactof currency devaluationson CDE's import costs and foreign debt service. Accordingto IDB, CDE during 1984-87sustainedoperating losses totalling US$308mn and total losses (including financialcharges)of almostUS$400mn. The entity increasinglyrelied on loans and a draw-downof its workingcapital,since Governmentsubsidiesbarely makeup for unpaidenergybilled to Governmentand parastatal institutions. The dependenceon the Government as a source of funds has made CDE vulnerableto political interferencein managementdecisions. CDE's losses in 1988-89increasedfirther due to delays in initiatingrehabilitationand decliningsales as a resultof lower plant availability(this in part wascompensatedby lower fuel requirementsand lower than projectedfuelcosts). Nevertheless,the entity run up substantialaccounts-payablewith its suppliersand was not able to providecounterpartfunds for externallyfinanceedprojects. The Corporation in 1990 did start aggressiveefforts to expand the meteringof consumersand to cut down on llegalconnections. However, by early 1991, billingsand collectionshad not improvedas expectedbecauseof slow progressin implementingthe USAID-financed RevenueImprovementProject to strengthenCDE's customerservicesand commercialpractices. CDE collectsjust about 72% of its bills-operating costs exceed sales receipts by nearly 20%-and has high accounts receivablewith governmentaland parastatalentities. In turn, CDE's arrears are substantial especiallywithFalconbridgefor electricitypurchasesand INDHRIfor use of hydroresources. The entity has defaultedon external loans which holds up the financingof importantprojects, such as the Eastern transmissionsystemthrough KfWof Germany. CDE in some instancespledgedreceiptsfrom individual large-volumecustomersagainst its own obligationsbut has recentlystoppedthis practice. CDE for a long time has receivedlittle Governmentsupport in its attemptsto enforce 4.8 payments by governmental and parastatal institutions and to reduce losses and dieft of electricity. Governmentpayments to CDE still are made in a late and stop-gap fashion. A prerequisitefor the financialrehabilitationof CDE is that its largest parastal debtors make paymentson time. lTheentity is dependenton cash subsidiesfrom the Central Governmentwhich in 1988 were less than one-halfof requirements,however, (i.e. US$6.9 mn equivalentvs. US$15 mn); and in 1989 on a net basis i.e. energy billingsless subsidieswere virtuallynon-existent. Ihis has sloweddown the implementationof rehabilitationand investment. Delays in tariff increaseshave resultedin higher deficits than originally envisaged (US$150 mn equivalent in 1989 alone) and correspondinglylarger requirementsfor tariff increases in future. More recently, CDE has once again requested the Government to make a contributionto its workingcapital in the order of RD$500mn, equivalentto abouttwo monthsof sales receipts. If this request is not met promptly, it will not be possib'e to implement the integral rehabilitationof CDE.

-31 -

EmU

n lanagment Ly. aasiornPlanning

4.9 in tryingto resolvethe electricitycrisis,the Governmenthas focussedon short-term technicalsolutionssuchas installingdieselunitsandsteppingup purchasesof electricityfrom existing and newnon-CDEproducers. It has givenrelativelyless importanceto CDE's institutional overhaul. A contractwith the Transcontinental/Wartsilia consortiumenvisagesthe purchaseof firm energyand capacity(40 MW)startingsometimein 1991. CDE is in the processof negotiatingwithself-producers for the purchaseof about30 MWof electricityandplansto acquiretwo 60 MWgas units. However, whilethe technicalmeasuresenvisagedare usefultemporarydevices,they are costlyandnot likelyto solvethe electricitysupplyproblempermanently.1/ 4.10 Aware that the rehabilitationof existinggeneratingcapacitywill take time, the Government andCDEare aimingat properplanningand management of outages,andthe installation of effortto be implemented over the mediumterm, andto emergencyunitsto underpinthe rehabilitation secureback-upgeneration.Whileemergencymeasurestendto be morecosdythanan orderlyexpansion, theyare necessaryin the presentsituationto containthe coststo the overalleconomyof electricitynot served. CDE assistedby consultantsis preparingan emergencyplan to restore reliableelectricity supplies. However,the implementation of thisplan has beendelayedbecauseof inadequateplanning, the lackof technicalandfinancialspecifications for obtainingequipment,and inadequatecoordination betweenthe governmental ElectricityEmergencyCommitteeandCDE. In supportof rehabilitating CDE,IBRDhas extendeda US$105mnloanforan integrated 4.11 Project(LoanNo.2949-DO), to be completedby 1995.'Me PowerSectorRehabilitation andDistribution objectivesof the Projectare (a) physicalrehabilitation of the generatingsystem2/ and of the Santo rehabilitation, withinthe frameworkof a five-yearAction Domingodistributionsystem;(b) institutional Plan, in orderto raise CDE's operationsto the levelof comparableelectricityutilities;and (c)financial rehabilitation, throughincreasingtariffsto levelsat whichthey coverthe economiccost of electricity supplies,and throughimprovedfinancialreporting,withthe aim to eliminatesubsidiesby 1991. The IBRD-financed project is expectedto be complemented by a loan from IDB of US$148mn for rehabilitating provincialelectricitysystems(theIDB loanwas signedin December1990,butis not yet effective). 4.12 CDE is currendyreviewingthe medium-term investmentrequirementsfor generation, transmission, anddistribution.Accordingto its estimates,to meetmediumandlongertermrequirements, about 820 MW of new generatingcapacityare needed over the next ten years or so. The least-cost

8/

Althoughgeneratingcapacityoutside CDEand Fakonbridgemay amowntto as much as 400-5(0 MW, most of it is in small high-speeddiesel units, whichcan runfot shor periods only. Probably40 MW wouldbe available n uits capableof providing base load, comp3redto a capacityshortageestimatedto be above 100 MW

2/

nstaled capacityinthe order of 395 MW wereplnned to be rehabilftatedduring 1990-91,i.e. 53MW in 1989; 280 MW in 1990;and 62 MWin 1991. CDE in early 1991esthmted the costs of rehabilitatingits systemat US$330mn, of wh*chUS$115mn wouldstill be required/orrehabitating generadoncapacityof nearly 350 MW that is presently out of service.

-32

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generationexpansionis likelyto be basedon importedcoal-firedsteamplantsfor base load, to be investment.Fewif introducedfromaround1995onwards,requiringrelativelyexpensiveanti-pollution anyotheroptionsareavailableto expandthesystem. Theuse of indigenouslignitefor powergeneration doesnotappearattractive: its costsare estimatedto be aboutfivetimesthoseof usingimportedsteam coalat US$45/M.T., even disregardingoperatingproblemsrelatedto lignite'shigh sulphurand ash optionwouldbe smallsinceopen-castminingis content. (Also,the socialbenefitsof a lignite-based capitalintensiveand requiresrelativelylittleunskilledlabor.) Mosthydroschemeshave a capacityof and wouldbe onlymarginallyeconomicas peakingplants. less than50 MW, with30-35%availability, are moredifficultto operateand may compromisethe However,coal-firedplantswhilecost-efficient by stabilityof supply,due to their large size in relationto the grid. Tey couldbe complemented in industry andotherself-generation co-generation hydroprojects,as wellas bagasse-fired multi-purpose and commerce. CDE is in the processof preparingan expansionplan for the 1991-2005period estimatedat US$1.5bn (1990 whosetotalcostarepreliminarily comprising generationandtransmission, of about1,670MWadditionalgenerating pricesandexchangerates). Thisplan foreseestheinstallation the programdoesnot seemto meet hydro. However, capacityover thisperiod,290 MWof whichare ones, are includedoftenfor the sole reasonthat least-costcriteriaas projectsparticularlyhydroelectric bilateralfinancingmaybe available. PrivateSectorParticipation in electricityhasdevelopedin responseto the acutedeficiency Privatesectorinvolvement 4.13 in servicesprovidedby CDE.JQ/ Accordingto a 1989surveyby COENER,about 900 MW of 500 MWof whichby small industrial, generatingcapacityare installedoutsideCDE, approximately commercial,andevenresidentialself-producers.Almostall of the lattercapacityis comprisedof small dieselunitsdirectedto serveas standbyandis notgearedto cogeneration.However,30-60MWcould has beensellingelectricityto CDE be madeavailableto the publicgridon a regularbasis. Falconbridge for fuelplusa smallchargefor operationsand for someyearsundera contractstipulatingreimbursement maintenancecosts. The technicalinterfacebetweenCDE and Falconbridgeis workingsmoothly. Stimulatedby exemptionsfrom importdutiesand incometaxesfor the installationand operationof generatingequipment,theprivatesectorhasdevelopedproposalsforadditionalschemesincludingthesale of largegeneratingunitswiththe primarypurposeof sellingelectricity, of excesspower,tl6einstallation utilitieswithgenerationanddistributioncapability.As of smallindependent andeventhe establ.shment (mainlyto meettheirown requireof early 1989,planswereafootfor about75 MWby METALDOM ments,but alsofor sellingexcesspowerincludingto CDE),50 MWto be deliveredto tourismandfree in PuertoPlata, and300 MWof importedrefurbishedcoal-firedsteamplant. zone establishments Given le generatin{deficitat CDEandtheprivatesector'sstronginterestinparticipating 4.14 is seekingsolutionsthroughtapping it is notsurprisingthat the Government in electricitydevelopmnent, the potentialfor purchasesof excesspowerfrom self-producers.Indeed,without moresystematically significantprivatesectorparticipation,the rehabilitationand sustaineddevelopmentof the electricity

,Q/

However, exsting legislationalso requiresindustrieswW power requirenenusin excess of 8 MW to instaltheir own generatingcapacity.

. 33 -

subsectoris hardlyfeasible. The Governmentconsidersthat new generatingcapacityshouldbe provided primarilyby the private sector, given CDE's inabilityto handle more than just present operationsand rehabilitation. However, in transmissionand distribution,private sector involvementis to be limitedto that requiredto serve new 'development centers", essentiallyindustrialand tourismfacilities, whereby CDE's transmission system would be made accessible to wheel electricity. Energy sales and interconnectionagreements,includingtariffs, would be through individualcontracts. 4.15 At present, there are institutionalimpedimentsto increasing private sector electricity development. The legislationremainsrestrictiveand is interpretedas concedingto CDE the monopoly of electricitysales: self-generationis authorized,but any surplusescan only be sold to CDE. Private i-tvestors' interest also is affected by lack of commercialdiscipline in the electricity subsector and apprehensionof inadequatereturns. An ElectricityDevelopmentLaw (Ley de Incentivoal Desarrollo ElectricoNacional)waspassed in 1990. Aimedat increasingsuppliesfrom self-producers, .itoffersfiscal in generationfor saleto the public grid and to groups of consumerswithinfree incentivesfor investmnent trade zones as well as for system efficiencyimprovements,thus removingCDE's monopolystatus.ll/ A Directoratefor Developmentand Regulationof the ElectricalEnergy Industryhas been establishedto adirinister the implementationof the new Law and to carry out regulatory functionsfor the overall electricity subsector. However, the new institutionis essentiallya promotion entity and has few regulatoryfunctions. Relativelylittle considerationhas been givento sales from non-CDEproducersto final consumers,and no arrangementshave been made to open up the CDE transmissionsystemto nonCDE producers. While there is general political support for a broadenedinvolvementof the private sector in electricityoperations,there is at the sametime a strong current of opinion that this should not be done at the expenseof CDE. The Government's initiative is an important step towards more reliable electricity 4.16 supplies. The focus on generationis appropriate,given that this is the weakestpart of the system. Investmentshouldpreferablybe mobilizedfor large-sizedunits to realizeeconomiesof scale. However, local private investorshave only limitedtechnical experienceand narrow capital resources, which they prefer to invest in more profitableventuresor in smaller-scaleelectricityschemes. The domesticcapital market is too smallto mobilizethe necessaryfunds. Therefore, larger-scaleprojectscan only be financed by foreigninvestors, includingpublicutilitiesand equipmentsuppliers.Theseare likelyto insist on price and foreign exchangetransfer guarantees.

WL

Byearly 1991, contractshad been suscribedwith eightpotential serf-p oducersof electricity(in the range of 10.35 MW installedcapacity, usingfuel oil). he contractsenvisageelectricitysuppUesto CDE, ratherthan directly to electricityconsumers,basedon take-or-payarrangements.Theinvestorsare givena 20-yearexemptionfromal taxes su4iclent and dutiesrelatedto electriciy generationoperations,and are guaranteedan alocationofforeign exchange to cover inports requiredfor operationsand profit remitances. Tar&ifor electricitysales to CDE are set at US MS/kWh (IUSd/kh for deliveriesabove5.84 GWhnonth), payable to local currency,and are to be indexedon companieswouldpay prices, the RD$ exchangerate, anddomestic inflation. Thegenerating Internationalpetrokewn the same (referential)pricesforfuels like CDE. Thereare mutualperformanceand paymentguaranteeson part of the self-producersof electrkcityand CDE. Thusfar, no seif-producingscheme is operating.

-

34 -

PrivatiUtionof CDE Even with substantialprivateinvestment,CDE will remainthe backboneof the country's 4.17 electricitysystemand shouldthereforebe preservedas the principalsubsectorentity. However,oncethe entityis rehabilitatedand its managerialand financialautonomyis reestablished,CDE's privatizationmay capital. In turn, be the only way for these improvementsto last and to secure the accessto investmnent CDE's stabilityand institutionaland financialwell-beingare essentialfor an effectiverole of privatefirms in the electricitysubsector. 4.18 CDE's immediateprivatizationis not feasiblefor commercialand politicalreasons such as the lack of interest among private investorsto acquire the companyin its present condition, and oppositionby trade unions and the publicin general, especiallyif privatizationwere to be accompanied by substantialfurther retrenchmentand tariff increases. Also, the macroeconomicsituation,prevailing energypriciing,and other sector conditionsare not conduciveto operatinga large privately-ownedutility successfully. Never ieless, a numberof alternativesexist to enhanceprivate sector involvementin CDE in increasingorder of intensity,i.e. (a) subcontract,nga numberof CDE's functionsto private firms (e.g. maintenance,billing and collection, and custo-nerconnectionand disconnection),and/or engaginga performancecontractorfor a significantportionor all of CDE's operations;(b) settingup regionaldistribution companies open to non-CDE participation, e.g. by municipalities, large-volumeelectricity consumers, and electricity se!f-producersselling to regional distribution systems; 11/ (c) divestiture of someof CDE's assets combinedwith leasing,especiallyBOT/BOOarrangeiaentsfor existingand new plant;L/ (d) joint ventures with foreign firms; and (e) offering bonds -nd/or venture capital of CDE to local investors includingCDE and public sector employees,insurancefunds, and the public at large. The Governmentalready is consideringperformancecontractingfor CDE by a foreignpublicutility and even the outright sale of CDE to foreign investors. On the other hand, successfulmobilizationof local funds for privatizatingCDE will not be possible withouta substantialstrengtheningof the local capital market, as well as of CDE. BarringCDE's immediateprivatization,the optimalapproachwould be to rely on the privatesector for expansionof generationand rehabilitateand streamlineCDE in preparation of its eventualprivatization. Electricitydistributioncouldbe decentralizedon a pilot basis in areas of strong industrial and commercialdemand (e.g. in tourist resorts and industrialprocessingzones) as an incentive in combinationwith a performance componentmade up of residential demand where nontechnicallosses need to be reducedconsiderably. Financingof Private Investment 4.19 Externalfinancing is essential for makingprivate sector electricity (and other energyrelated) investmentfeasible. However, there are serious obstaclesto mobilizingexternalfunding such

LI J.l

componentoftheprivatizadonof the elecicity subsecrorin Turkeyha beentheformation For example,an bnporfont of new, privately-owneddutributioncompanieswhichhave been carved out of the aesting nationd ut0iy. optionseemsto be preferableas this DOTarrangementsare lessof a departurefromtradiionalpracices but the BOO would ensure investor's interest in maintainingplant and equipmentin good order (eventhoughthe possibility of extendingoperationagreementsbeyondthe capitalpay-backperiod can be incorporatedinto BOT agreements).

- 35 as externaldebt ceilings, reluctanceof foreigncreditorsto lend to the private sector withoutGovernment guarantee,and lackof Governmentcreditworthiness.Foreigndebt-to-equityconversions,whichare being consideredby the Government,13/could provide investiblefunds albeit not in foreign exchanqe. In other countries, mechanismshave been created that allow private local investors access to financing normally reserved for the public sector. These include government-guaranteedFunds which provide financing in addition to third-party loans and whose proceeds are subordinatedto other sources of borrowing.l4/ Apart from electricity projects, such a fund could finance petroleum-related and woodfuels-relatedprojects, as wellas energyefficiencymeasures. TheGovernmentand theprivate sector haveshownstrong interestin this option,suggestingthat such a fund couldbe administeredeither through FIDE, the NationalReserveBank or a consortiumof privatecommercialbanks. U.S.-AID is providing technicalassistancefor privateenergy-relatedinvestment,including(a) the servicesof a long-termadviser to the Government, ard (b) specific assistance on creating regulations for independentelectricity producers and on leasingof electricityfacilities. Requirementsand Recommendations System Rehabilitationand Expansion 4.20 Policy Level. The Governmentneeds to give high priority to the institutionaland financial requirements of CDE's rehabilitation and action plan, in addition to CDE's physical rehabilitation. This includes financial restructuring through the absorptionof CDE's debt by the Governmentand resolvingthe issue of CDE's ownershipof assets, in the context of the contrat plan concludedbetweenthe Governmentand CDE which definesthe rights and obligationsof both parties. The Governmentshouldlimit its involvementin the electricitysubsectorto resolvingstrategyand policy issues and should refrain from interveninginto CDE's managerialand operationalmatters. Once the

13/

The Government'sMonetaryCouncil(JuntaMonetaria)proposeda debt-equityconversionscheme in late 1988 on whicha decisionis pending. It essentiallycomprisesthe conversionofabout US$80mn of debtheld with commercial banks over a period of severalyears, with initial wwountsof about US100 mnnp.a., to be usedfor financing investnents in priority areas includingenergy. TheGovernmentis concernedamong others about the potentially inflationaryimpactof monetaryexpansior.resultingfrom debt-equiy conversion.

41/

In Pakistan,the EnergyDevelopmentFund is a key componentof that country's sector developmentstrategy. TIls US$500mnfaciliy fundedthroughcontributionsfromthe WorldBank, USAID,Canada,Italy, Japan, and theU.X.) offersup to 30% limitedrecoursefwndingnotrequiringa Governmentguarantee,forprojeczsforningpart of the lezicost expansionprogram in electricity,provided that the investorscontributeat least 25% in equity. The remaining 45% would be mobilizedthrough third-partyloanjfnanci.. withpriority accessto repaymentover the Fnd. The securitypackagecomprises: ImplementationAgreement(betweenthe Governmentand the private company),Power PurchaseAgreement (betweenthe public utility and the private company and guaranteed by the Government), ConstrucionAgreement(withperformanceguaranteebenefitsto lenders), Operaions and MaintenanceAgreement, and Fuel SupplyAgreement. Thepower purchaseprkceand (non-guaranteed)returnon equityprovidefor efficient project iplemkentationand operation. ContractorsbearfullresponsiblIyforprject implementation(to besecured throughperformancebonds plus equityparticpation in the project). Price ropeners areforeseen to accountfor factors beyondthe controlof the private investor/lende-. The Government5uaranteesstabily in the appitcadonof taxes and duties, as well as avaiilty offoreign exchangeto meetforeign debt and equity obligations. The latter purpose is also to be met througha Debt ServiceReserve EscrowAccount (coveringat leastsix-monthdebt service requirementandfunded by the privatepower company).

-36principles of economic tariff setting have been established, the Governmentshould give up direct responsibilityfor tariff adjustments. Tariff adjustmentsshould be handled more expeditiouslyso that CDE's financialstrengtheningcan be achieved. 4.21 OperationalLevel. CDE's managementneedsto be strengthenedto ensure that the entity is properlyrun and is able to attract and maintaincompetentstaff. Functionsand responsibilitiesof line managementneed to be clearly defined. Emergencymeasuressuch as contractinggeneratingcapacity and base-loadenergy need to be well-preparedand be arranged for a sufficientlylong period to allow CDE to rehabilitateits generatingcapacity. Emergencymeasuresshould be least-costand the location and operationof emergencyequipmentbe optimizedfrom the technicaland economic/financialpoint of view. The purchaseprice for firm and non-firmelectricityfrom self-producersneeds to be well-defined and should not exceed the generatingcost of CDE's most efficientunit, adjustedby a factor to account for the emergency situations (say, at most 15%). Proper load management should contribute to "leviatingshortagesof energyon the system. Peak demandshouldbe reduced in the short run through acceptablepower rationingand over the mediumturn, throughstrictlyapplyingthe agreedtariff reforms, possibleincentivesthroughpreferentialtariffs, and informationcampaignsaimedat using electricitymore economically. 4.22 To achievefinancial equilibriumon the basis of tariffs reflectingoptimum operating conditions,CDE needs to reduce costs in all its activities, reduce technical and non-technicallosses through system reinforcementand improvedbillings and collections,and pursue least-costinvestment. However, efficiency improvements(a) cannot be achievedunless CDE's working capital is raised to satisfactorylevels; and (b) are complementaryto, and no substitutefor, tariff increases. Financialand cost informationshouldbe timely and reliable as this is essentialfor adequateplanningand operations. CDE itself should coordinatetechnical assistancefrom different donors. Technical assistanceteams should operate withinCDE's echelons,and shouldprovide tangiblesupport to CDE, includingthrough staff training. 4.23 ExpansionProgram. The Governmentin conjunctionwith CDE shouldclearlydetermine the medium-to longer-termobjectivesof the subsector, takingthe environmentalimpactof the available generationalternativesintoaccount. CDE's medium-termexpansionprogramtogetherwithprivate sector projectsshould be consistentwith a coherentsubsectorstrategy, which is sufficientlyflexibleto account for uncertaintyand risk associatedwith alternativeoptions. Emergencymeasuresneed to be compatible with least-costexpansion,in the sameway as specificexpansionprojects shouldnot hinder the progress of the ongoingrehabilitation. The installationof emergencygeneratingequipmentneeds to be balanced with investmentin new capacityconsideringthat (a) generatingcosts of the emergencyequipmentare considerablyhigher than those of conventionally-sized base load equipment,and (b) any further delays in initiatingexpansionwillresu!t in a recurrenceby the early to mid-1990sof the very capacityshortages afflictingthe system at present. Given the considerabledelay in preparingthe next project (i.e. the 125 MW coal-firedunit) and the need to instalthe followingunit shortly afterwards,the missionrecommends to combine both investments into one project, which would reduce investmentcosts by 25-30%. Generation expansion needs to be accompaniedby considerablereinforcementof the transmission, subtransmissiori,and distribution 'stemswhichhas becomeas urgent as the rehabilitationof generation

- 37 and improvementsin load management. In planning the future transmissionsystem, proper attention needs to be givento technicalfactorssuch as the locationof existingand futuregeneratingplants,power flows, and sytemstability. 4.24 Peri-urbanand rural electrificationprogramsat presentare of relativelylesser importance and should be undertakenonly if they are economicallyjustified. Local alternativesto expandingthe CDE-rungrid shouldbe evaluated,such as electricitysuppliesfrom self-generationand small-scalehydro schemes.

4.25 A meaningfulprivateparticipationin electricitydevelopmentdependson clearlydefined and stable macroeconomicand sectoral policies and an appropriatelegal/regulatoryand institutional framework. The Governmentneedsto createthe conditionsconduciveto private investmentin electricity, in particular pursue energy pricing and commercialpolicies that take account of private investors' interest. A number of specific issues have yet to be clarified in the regulations to the Electricity DevelopmentLaw. They include: (a) delineationof concessionareas; (b) bidding procedures for electricity sales to CDE; (c) direct sales by self-producersto individualcustomers; (d) tariffs for electricitysales by self-producersto CDE and/or to individualcustomers,possibly based on avoided costs; 15/ and (e) technical standards for private operations, based on efficient units consistentwith least-costsystem expansion. The conditionsfor curtailability/dispatchabilityof electricitysuppliesfrom self-producersneed to be clarified so as to facilitatetechnicallyand economicallyoptimaldispatch and avoid uneconomicpower purchases. To the feasible extent, tariffs should reflect fuel diversity and environmentalbenefitsof particulartechnologies. 4.26 Regulation. Once there is a higherdegreeof managerialautonomyat CDE and of private sector involvement,tight regulation is essential for establishingtransparent and predictable relations between the Governmentand the operating agencies, public as well as private. This is especially importantin the caseof naturalmonoplies,such as distribution. The objectiveof regulationis to balance conflictinginterestsand facilitate contractualchangeswhen future conditionschange. Regulationthus has to addressproblemsrelatedto purchase/salesof electricity,investmentpermits, leasesand operating permits, etc. While regulationshould be sufficientlyflexibleto adapt to a future set of conditions,it shouldsupportstablerelationshipsso as not to discourageinvestmentin electricity. In order to establish a proper regulatoryframework,an independentand professionallycompetentstatutorybody should be created with a budget of its own, to define the parameters for satisfactory pricing and contractual arrangementsand to monitor their implementation. This body should have clear authority over (a) coordinatingelectricityinvestment;(b) identifyingand implementingcriteriafor solicitation,evaluation,

5I

In this context, CDEs treatment of avoided generationcosts and of transndssionand distributioncosts wiU be important. The company appears to have a good grasp on marginal variablegeneratingcosts as weU as some reasonablecriteriafor determiningtransmissionanddistributioncostswhichcouldformthe basisfor establishingany future 'wheeling' charges. However,CDEdoes not appearto have clear criteriafor determiningavoidedmarginal costsforfuture expansionalternatives.Such criteriaare neededto evaluateany proposalsfromthe privatesectorfor the sale of ekctricity to CDE.

- 38 and approvalof electricitysupplyproposals from private firms; (c) preparationof agreementsbetween CDE and self-producers(e.g. for electricity purchases and interconnections);(d) establishingtariff policies;(e) enforcingefficiencyand minimumstandardsof service, includingaddressingenvironmental concerns; (t) delineatingconcessionareas to be awardedto CDE and other utilities; and (g) settingup an EnergyDevelopmentFund. Highestpriorityfor regulatoryaction shouldbe the qualityand efficiency of service, not tariff setting. The new ElectricityDevelopmentDirectorateshouldtake on this regulatory function. The ElectricityDevelopmentLaw needsto guaranteethe independenceof the regulatorybody and of its individualmembers,who should be chosen for fixed terms on the basis of their professional competence. 4.27 Also, CDE's specificconcernsneedto be addressed. Theseare: (a) self-producersmight want to sell electricityto CDE at a higher than CDE's own tariffJ,6 which would involvelosses for CDE as long as its own tariffs are inadequate;(b) alternatively,self-producersmight prefer to sell electricityto consumerswith high ability to pay, leavingCDE with the roor and risky segment of the market; and (c) CDE would be excluded from any system expansionif the private sector becomes exclusivelyresponsiblefor future investment. To meet these concerns, in addition to tariff increases, CDE needsto becomemore efficientto be able to competewith private firms both for customersand for expansionprojects. More basically,to facilitateefficientelectricityexchanges,CDE's transmissionand distributionsystemsneedto be reinforced,lossesneedto be reduced,a power dispatchsystemorganized, and wheelingchargesdesignedthat are in line with transmissioncosts. 4.28 Incentivesif any should be given only for projectsmeetinghigh-prioritycriteria. They have clear time limits and should be discontinuedonce the electricity supply deficits are should eliminated. Irrespectiveof any efforts to enhanceprivate sectorparticipationin electricitydevelopment, CDE needs to be rehabilitatedsimultaneouslyas an importantpre-conditionfor strengtheningoverall electricityoperationsand for attractingprivate resourcesas well. Privatizationof CDE 4.29 In the short-to medium term, any expansion in the electricity subsector should be undertakenpreferablyby the private sector while CDE is rehabilitatedand streamlined. Once CDE's "corporatization"is achieved-for which a four-year time limit should be set-the entity should be privatized either pardy (i.e. at least 51%) or fully. The privatizationoptions for CDE should be evaluatedas a matter of priority, under due considerationof specificlocal conditions. Steps conducive to CDE's privatizationshould be taken immediatelysuch as out-contractingof certain activities (e.g. maintenance;billing and collection;managementcontractsfor rehabilitatedgeneratingplants)and more complex measuresbe prepared such as leasing and BOO/BOTarrangements,joint ventures, and the setting up of independentdistributioncompanies.

16/

Thetarifffor electrkityto be sold by self-producerscouldbe basedon CDE's avoidedcost includingfkedcost ffinn capacityi spfied. Theseare lkey to be lowerthan CDEs cost of newgeneralionbut higher than CDE's current tariff Before thisissuecan be resolved,however,CDEneedsto bIprove its cost analysisso that it can deternnneits own costs of supplyng electricity.

-39 Financingof Private Sector Investment 4.30 The Governmentshouldensure that private :nvestors in the electricitysubsector(and in the energy sector at large) have adequateaccessto the local financialsystem. In addition, steps should be taken to attract foreigncapital includingsupplierscredits. Proceduresshould be establishedto allow optimalutilizationof available funds by local investorsand maximumsecurityto lenders. Guarantees for project completion,sales, adequatetariffs, collectionof billings, and transferabilityof dividendsand capital are essential to ensure that projects are commerciallyviable and suitable to attract external financing. Any measuresto develop a domestic capital market would benefit the financingof private sector projects in electricityand in the energy sector at large.

-40 V. HYDROCARBONS

InstitutionalArrangements

5.1 A number of institutionsare involvedin petroleommatters at the policy-makinglevel, i.e. the Presidencyof the Republic,the FinanceSecretariat,the Secretariatof Industryand Commerce, and COENER. Operationsare doraiinatedby REFIDOMSA,a joint venture owned in equal shares by the Governmentand the Royal Dutch/Shel group and managed by Shell. REFIDOMSAowns and operatesa 30,000 B/D refinery, importscrude and petroleumproducts, and holds 70% of the country's primary storage capacity totalling 2 mn B. The company thus exercises a virtual albeit efficient monopolyover petroleum procurement,refining, and storage. OPUVISA, a recently formed state company, is in charge of the LPG terminalat Azua to be managedby WesternEnergy, a group based in Puerto Rico. Marketingof petroleumproducts is entirelycarried out by private firms. PetroleumImports Crude Petroleum 5.2 REFIDOMSAimportsvirtuallyall crudesavefor smallamounts(about2,000-3,000B/D) acquired by Falconbridge under offshore arrangements for its own small refinery. Mexico and Venezuela,under the San Jose Accord,havemet most crude requirementsfor domesticrefiningsincethe early 1980s(i.e. 28,000 B/D). Mexicancrudes generallyare heavy, with a high-sulphurcontent which tends to affect the quality of refined products. Venezueleancrudes normally are mixed with middle distillates which allows adapting the refinery output to the domestic demand pattern. Within the constraintsof the Accord, REFIDOMSAthushas flexibilityto diversifyand optimizecrudeprocurement, in line with the price of the crudes in questionand the productsneeded P'referehtialfinancingconditions under the Accord (i.e. credit for 20% of purchasesat 8% interestan. repaymentover five years) reduce the cost of crudepurchasesby about2% over five years, dependingon availableconventionalfinancing. In addition,the Accordprovides for financingfor developmentprojects (i.e. 6% interestand repayment over 13 years for up to 20% of the crude purchasebill). 5.3 Other crudes from the Caribbean/northernLatin America are competitiveand may be technicallymoresuitablefor domesticrefining(e.g. from Colombia,Ecuador, and Trinidad). However, the Governmentsees no advantagein shiftingto thesesourcesunless at least the samefinancingfaciities as under the Accord are available.17/ 5.4 Spot market purchases of crude are considered to be occasionally lower-cost than purchasesunder the SanJose Accord. Over an extendedperiod, however, any differencesbetweenspot

L,/

relatedtopetrokwum mportstotallingUS$246 debtwithVenezuela Also. .AeDominicanRepublc has an accwn*daed mA IncludingInterest,which nayfall due (fthe Govermnentwere to switch to new sources of crude supplies.

- 41 and term contract prices teid to be small. Spot market operations require considerablefinancial and operationalflexibility, involvinghigh risks associatedwith the availabilityof crude as well of financing at the time required. To limit these risks, relatively large stocks of crude need to be held. Given that neither REFIDOMSAnor the Governmentcan providethe necessaryfinancing,the risk involvedin spot markettransactionsseems to over-compensateany advantagesfrom purchasestemporarilyat lower than contractprices. Similarconsiderationsapplyto netback-and forward-marketcrudepurchaseswhoserisk elementmight be even higher than for spot purchases. Petroleu-mProducts Imports of petroleumproductsstarted in 1987to meet emergingsupplydeficits from the 5.5 domesticrefinery. They have grown rapidly,necessitatingconsiderableinvestmentby REFIIDOMSAin handling and storage facilities. Petroleumproducts initiallywere purchasedon spot markets, but now are acquired under term contracts from Maraven of Venezuela. They are mainly tendered by REFIDOMSA- althoughCDE and the La Romanasugar companyat times have importedproducts and are allowed only to the extent that the refinery cannotmeet domestic requirements. In 1990 when REFIDOMSA'srefiningmarginshad turned negativeand trade financingwas more easily availablefor products than for crude, all domestic petroleum requirementswere met for several months through products imports. Seculity Stocks 5.6 The Government'starget for securitystocks amountsto 90 days of consumption. This has never been achievedbecauseof foreign exchangeand credit shortages,so that stocks normallyhave been less than 30 days of consumptionand by nearly 1991, had dwindled to barely ten days of consumption. Stocksare mainlyheld by REFIDOMSA,which thus has to bear the bulk of the related financingcosts. Shortagesof storage capacityemerged towards the end-1980s,especiallyfor gasoline and diesel following fast consumptionincreases. Theyare being addressed under REFIDOMSA's expansionproject. Storagecapacityfor gas oil at the refineryhas been increasedby 80,000B to nearly 170,000B, equivalentLi 15 days of consumption. PetroleumRefining 5.7 Petroleum refining essentiallyis limited to REFIDOMSA's30,000 B/D (1.5 mn tpy) hydroskimmingplant, besidesFalconbridge'satmosphericdistillationunit producingnaphthaand heavy diesel only. Refiningby REFIDOMSAis technicallyefficientand also tends to be economicallyviable, notwithstandingthe existenceof large export refineries in the Caribbean. This is on account of the prevailingfreight cost differentialin favor of crude (aboutUS$0.60/B)and relativelylow refining oosts (about US$2.30/B, both for early 1991), the difference of which is less than the present c.i.f. cost differentialbetween crude and products. Costs of the refinery have been kept low because of its high capacity utilization, simple technical configuration,and efficient stock management. Own energy consumption and losses, about 3.3%, are within industry standards. However, refining became financiallymarginal and even loss-makingduring 1988-90because Government-setex-refineryprices

-42 remainedunchangeddespiteincreasesin crudeimportcosts. REFIDOMSAhad to use short-termcredits from the domesticbankingsystem (totallingRD$715mn in 1990)to stay afloat. Refiningoperationsare also affectedby frequent interruptionsin CDE's electricitysupplies: there were 60 power dips and total failures in 1988.90, up from 42 in 1987 and 27 in 1986.

5.8

Financial interrelationshipsbetween REFIDOMSAand the Governmentare complex. Ex-refineryprices are basedon crudeimport costsvaluedat 1980pricesand exchangerates ("controlled prices") and subsequentlyadjusted(to current "marketprices"). To the extent that actual crude import costs are lower than those incurred in 1980, REFIDOMSApays a 'differential' to the Government, whereasa paymentby the Governmentto REFIDOMSA- a 'negative differential' - is due if the actual crude importcost exceedthose incurredin 1980. REFIDOMSAcollectsthis chargefrom its customers, thus acting as the Government'sfiscal agent. Its profits are subjectto a 40% corporate incometax, and its shareholdersare entitled to a guaranteeddividendfixed at 15% of the originallyinvestedcapitalof US$4.4 mn. To make this dividendpaymentpossible,the Governmentin 1988had to remit more funds to REFIDOMSA than it received. Both the Government and Shell consider this arrangement unsatisfactoryand inherently instable. The REFIDOMSAcontract is therefore being renegotiatedto ensure the financialviabilityof the entity. Refin= &paLQn 5.9 REFIDOMSAis consideringan expansionproject - without changes in production techniques- whichalso aims at increasingoperationalflexibility,reducingoperatingcost, and improving the match betweenthe refinery yield pattern and domesticdemand. The project includes(a) expanding the primarydistillationcapacityby about50% (to 45,000 B/D); (b) expandingcrudepre-heatingfacilities; (c) increasingcatalytic reforming; and (d) installinga merox unit for de-sulphurizingkerosene. The project wouldalso provideadditionalstoragecapacityfor crudeand petroleumproducts totalling0.6 mn B, 4 MW of power generating capacityto make refinery operations less dependenton supplies from CDE, and other apronfacilitiesfor a possiblesecond-stageexpansion(from 45,000 B/D to 60,000 B/D). 5.10 Shellestimatesthe costsof the project to be US$24mn; its implementationperiod, three about four years. The project appearsto be economic years; and the pay-backperiod of the investmnent, as it would result in cost reductionsthrough de-bottleneckingand improvementsin thermal efficiency, and in productionup-grading(primarilythrough extractinga larger share rf gas oil from fuel oil reducing the lead content of gasoline, and reducing the sulphur content of kerosene), with environmental benefits..l/ Together with other feasible changes in the specificationsof refined products - e.g. through producingdifferent grades of gas oil for vehicularand industrialuse, and through reducingthe kerosenecontentof fuel oil consumedby CDE - annualsavingsestimatedat US$5 mn couldbe attained. REFIDOMSAassumesthe commercialrisk of the expansionto be low since the increasedproduction would be sold entirelyon the domesticmarket, with no need for reexportsat distress prices. Refinery marginson internationalmarketshave improvedsignificantlysincelate 1988and are expectedto remain high until the early 1990s, although the outlook for relative prices of petroleumproducts vs crude

Xl

TherefineiyIs ownconswnpdon wadlosses of energy soad be maintaied at 3.3%.

- 43 containsconsiderableuncertainty. However,the profitabilityof the expansionproject is very sensitive to changesin refinery marginswhich often have been too small to ensure viabilityfor any but the most modernrefineriescloseto their own crudesource. Becauseof financialuncertaintiesrelatedto domestic fuel pricing, REFIDOMSA's expansion plans are in abeyance as Shell has made Its participation contingent on an improvementof domestic prices and of other arrangements (para. 5.8) and of Governmentparticipation. REFIDOMSAmeanwhilehas started to identifypossiblesources of external financing. Mark_ing of PetroleumProducts

The distribution of liquid fuels is adequately handled by the subsidiaries of four 5.11 internationaloil companies.j.2/ Transportation is handled by private road tanker operators under contract with the distribution companies as the latter are not allowed to haul petroleum products. were insufficientto cover costs Government-settransportand distributionmarginsfor extendedperi.-xds and to secure adequate returns, nor did the margins for individualproducts reflect relative marketing costs. Marginswere not changedfor a numberof years despitehigh inflation. The companiesresponded by limitingservice, reducingoverheads,promotingproductsthat are notprice-controlled(e.g. lubricants), and foregoingreplacementinvestment. Finally, together with the substantialprice increases in August 1990, distribution margins were increased to more adequatelevels (i.e. 10% for retailers; 5% for wholesalers; 3% for sales to CDE). As prices were unified op!a countrywidebasis, the costs of deliveriesto more distant areas are being subsidizedby deliveriescioserto the refinery. Nevertheless, with retail prices and marginscontrolledand market shares virtuallyfrozen, the companieshave neither the incentivenor scope for competition. LiquifiedPetroleumGas 5.12 In contrastto liquid fuels, marketingof LPG is deficientand high-cost. Except for bulk sales by Shell to industrialand large-volumecommercialconsumers, LPG marketingis carried out by five local, under-capitalizedcompanieswhosefillingand transportfacilitiesare inadequateand whichpay little regard to security of supplies and operational safety. This aggravates the impact of high internationaltransport costs (in the range of US$50-60/M.T.). Imports of LPG are substantial as REFIDOMSA'sproductionmeets only about 15%of domesticdemand. Becauseof inadequatemargins, the d;stributioncompanieshave stoppedto provide cylinders and transport services so that consumers have to purchase and transport cylindersthemselves. This situationhas been aggravatedby the lack of cylinders(for which the local producerhas 100% importprotection)especiallyfor smaller sizes. As a result, prices for cylinders exceed Government-controlledprices by a factor of two. Also, locally producedcylinderstend to be of poor quality, which imposesan additionalsafety hazard.

L/

the cowwy. these are Shell(W.I.),Texaco,Isla,andEssooperaifg a otalof 470sAiou throughout

-44Markeing-in Rural Am

by thelackof adequatedistribution facilities Ruralconsumers areespecially disadvantaged 5.13 for keroseneandLPG,whichdo notextendmuchbeyondmajorcitiesandtowns. Thisvoidis filledby unauthorizedmiddlemenwho chargepricesoften 100-300%abovecontrolledpricesand well above distributioncosts,thusreapingscarcityrentsandassigningthe subsidieson theseproductsto themselves. Thesedeficienciesimpedethe promotionof LPGand keroseneas woodfuelsubstitutesin rural areas. LPG Storag providesnearly capacityfor LPGstorage. REFIDOMSA Thereis amplecountry-wide 5.14 3 3,350 n of storageat the refinery,withineasyreachof localmarkets. In addition,OPUVISA'sAzua to be managedby Western terminalholdinga storagecapacityof about9,000m3 hashwencommissioned, and OPUVISA'sfacilities Energy(a PuertoRicancompany)on a cost-plusbasis.ZQ/REFIDOMSA's combinedexceedpresentdomesticrequirementsby a substantialmargin. Barringa quantumjump in domesticLPGdemand,thereare few prospectsthat bothterminalscanbe operatedeconomically. alsoenteredintoa commitment WesternEnergyunderits contractwiththe Government 5.15 to distributeLPG domestically.Whilethe entryof an experiencedinternational firm intothe domestic surroundingthe refinancingof the debt incurred the uncertainties LPG marketwouldbe advantageous, of changesnecessaryfor improvingthe for the constructionof the Azuaterminalandthe introduction casta doubtoverWesternEnergy'seventualinvolvement.WesternEnergy LPGmarketingarrangements of LPG to otherCaribbeancountriesbut this alsohas plans to use the Azuaterminalfor transhipment wouldbe feasibleonly if it is cheaperthandirectLPG importsby the countriesconcerned. PRODUCTS, 1990 FORPETROLEUM CAPACITY Thbte5.1: STORAGE (5'000)

Crude GasofineDiesel Fuel Kerosene/ LPG Oil Jet Fuel Refinery PuntaTorecitla Azue Term SantoDomingoAirport Days of Storage Source:COENER

850

185

168

191 210

0.5 33

16

5

39 514 105

5 15

123

3

164

Note:REFI'INSA's expansion plan includes further additional storagecapacity 0.6 m B. forctie oil,gasolireand gas oil, totalling

IQ/

m south-westof Santo Domingo,wasconstructedwih Japanesefinancing. IheAzuaLPGterminal, locatedabout150l Becauseof the appreciationof the Yen, the costsof the terminalin USSterms havemore thandoubled,to US$39m". 7heagreementwithWesternEnergyenvisagedthat operationswillbe contigentupona sat factory soltion to the debtservice issue relatedto the investnent.

- 45 -

etroleumExploration

5.16 The DominicanRepublichas minoroccurrencesof hydrocarbons. Thepetroleumgeology is promising yet complex in several discrete sedimentary basins 21/ on which a fair amount of geologicalinformationexists. However, little explorationhas taken place in recent years and seismic informationis scarce on all basins. Given the country's total dependenceon petroleumimportsand the impactof growingpetroleumimportrequirementson the overalleconomy,it is justifiedto better identify any domesticpetroleumpotential- through reinterpretingand integratingexistinginformationapplying more moderntechniques,as wellas throughseismicexplorationand exploratorydrilling- and to develop this potentialto the economicallyfeasibleextent. Impedimentsto Exploration Therehave beenseriousinstitutionalimpedimentsto petroleumexploration. The mineral 5.17 legislationdating bNtckto the 1950s, is outdated and is no longer applied. A model contract was subsequentlyprepareI which, however, was not sufficientlyflexibleto accomodatepotential investors. No focal point exists withinthe Governmentfor petroleumexplorationmatters: the Mining Department within the Secretariat of Industry and Commerce does not have the required authority and the Presidency'sTechnicalSecretariatis ii: equippedto monitorexplorationactivities. The Governmentover extendedperiods has given little priority to petroleumexploration, having declinedproposalsby IBRD and IDB for assistancein petroleumexplorationpromotion. Morerecently,however,followingtechnical assistancefrom UNDTCD,the Governmentacceptedproposalsby two US-basedcompaniesfor sole-risk explorationcontracts, includingfor offshoreexploration._2/

21/

TheseareprimarilyClbao,SanJuanAzua, andEnriquillo. TheahoreportionoftheSan is of less interest,due lo rapidly ncreasingwaterdepths.

2/

Assisted by UNDTCD, the Governnent has negotiated with Mobil and Once-Once Co. (a Puerto Rico based idependent) sole-risk explorationcontractscovering2-3 mniha each The explorationphase of these contrats is initialyfor twoyears, with thepossibilityof three extensionstotalingfiveyears. Totalcontractdurationfs32years. Thecontractsincludeseisnic workcommitnents((or1,500line-knboth on-andoffshorein thefirstyearand additionaI seismicinthefoUlowing years) anddrillingcomnmitments albeitfor relativelyshallowweUs- 1800m - and a relawvely small nwnberof wells (oneeachper extensionof the explorationperiod). A US$0.5ntnsignaturebonuswil be levied. Informationacquiredfrom explorationbecomnes the propertyof the Government.A relinquishmentclause ako is in and nceasing to 30% for effect. In case of discoveries,a royaltystartingat 17% for a productionof 20,oK BI5D)4 100,000 BID and up) and corporateincomnetax at the generallyapplicablerate (40%) wUi be levied. In case of production,the companiesare entitledto receivepaymentin convertiblecurrencies. Thecopanis'workprogrwas need to be approvedon an annualbasis. Environmentalprotectionclouses are IncludedIn both contracts. These contractsstiUneedto be approvedby Congress,whichis expectedto occurby March 1991. Mobil's coCessioncovers 2.3 misha both onshoreand offshorein the Azua and San Pedrobasins. Overthefirst two years, the companywil spend about US$3 mnifor concessionrights and seinsic data. le the contract conditions appear generaly acceptable,the Gove,-wnentdoes not have the expertiseto monitorand supervisethe companiesnor has It taken any stepsto acquiresuch expertise. An entityto superise the operatons of the petrolem companes is planned to be sa Secretariat. This enty would have to rely heaviy on extermn up, probably within the Industry and Commnerce advsors, at least In initialphases.

PedrolMuertwRidgebasin

- 46 -

Bequirement ad Itecommenati(ns

Procurementand Refinini, In regardto crudeprocurement,the Governmentseemswell-advisedto continuewith term 5.18 contractpurchases under the San Jose Accord. However, it shouldmore activelypursue any options to tap cheaper sourcesof crude - over and abovethe deliveriesunder the Accord- providedthat favorable financialconditionsare attainable. Large security stocks at present are less of a necessitybecauseof guaranteedcrude supplies under the Accord, the proximityof the REFIDOMSArefinery as principal source of petroleumproductsfor the domestic market, and the existenceof large-scaleexportrefineries in the Caribbean. Nevertheless,the Governmentshouldsystematicallymonitorpetroleumstocks,evaluate requirementsfor their optimization,and increasethem over and above their currentlydepressed levels, especiallyif future consumptiongrowth and/or developmentson internationalpetroleummarkes make this advisable. In the interestof loweringcostsof petroleumsuppliesto the economy,options shouldbe 5.19 explored to inject a higher degree of competition into petroleum operations, notwithstanding REFIDOMSA'soperationalefficiencyand the relativelysmall quantitiesinvolved. Within the limits of economiesof scale, the Governmentshouldconsiderto (a) liberalizepetroleumproductsprocurementand permit unrestricted imports by marketers, large consumers etc., in competitionwith REFIDOMSA's productsimportsand eventually,locallyrefinedproducts,withoutrisking discontinuityof relativelysmall shipments;and (b) diversifystorage operations. Contractualarrangementsbetweenthe Governmentand REFIDOMSAshouldbe based 5.20 on current (insteadof historical)internationalcosts and prices, so that the refinery's efficiencyand its foreignexchangeimpacton the overalleconomycanbe correctdymeasured. Theyshouldallowsufficient flexibiRityin line with changesin internationalpetroleumprices. However,ex-refineryprices shouldbe based on cost-efficientprocurementof crude,and be in linewith least-costimportsof petroleumproducts, to provide a spur to efficiencyand to eventuallypermit liberalizingthe system of petroleumprocurement and pricing. In the interest of mobilizingadditionalprivate capital, the Governmentshould consider selling all or part of its share in the refinery to Shell or other private investors. Given the inherently risky nature of the refinery expansionproject whoseeconomicsare highly sensitiveto refiningmargins, the Governmentshouldrefrain from participatingin this project. M&ake2in Improving the marketing of petroleum products requires (a) maintaining adequate 5.21 transport and distributionmargins especiallyfor distributionof keroseneand LPG to remote locations; (b) increasing the supply and reducing the costs of LPG cylinders and of other equipmentthough removing import restrictions, eliminatingdiscriminatory taxes and duties, and making distribution companiesresponsiblefor supplyingcylinders; and (c) enforcingsafety regulationsfor handlingLPG,

-47 includingthrough periodicinspectionof fillingstationsandtesting of cylindersthroughthe Govenmet's Technical Inspectorate. This in the final analysis wIll require the liberalizationof prices and of the marketingsystemi. The Azua LPG terminalshould be operated only if this is economicallyviable. PetroleumExploration 5.22 A strategyfor systematicpetroleumexplorationstUineedsto be formulated. It must start witi a reevaluationof the country's potential for containing commercialreserves. Ultimately, the petroleumpotentialof an area can be testedonly by drilling in seismicallydefined anomalies. This is expensiveand risky and the Governmentis correct in leaving this to internationaloil companieswhich can afford the risk of failure. Nevertheless,the Governmentshouldpromotethe hydrocarbonpotential more actively and accept assistanceby internationaldonorsto undertakepreparativestud! s to compile and re-interpret existing information and encourage additional international companies to explore. Emphasisshould be switchedto a more general synthesisof all prospectiveareas. TIis should include a -agionalaeromagneticsurvey and seismic re-evaluationof previouslyexploredareas to identify any further stratigraphicor structural details, with emphasisoni the Cibao Basin. At the same time, the informationon former producingareas shouldbe re-evaluatedin detail, especiallyon geo-chemistry,to be integratedinto a comprehensivereport. Sucha report wouldmeet two objectives,i.e. (a) providethe Governmentwith recommendationson explorationstrategy,and (b) provideinterestedoil companieswith the infoumationnecessaryto decideto explore in the country. 5.23 The Governmentshouldassumeminimumexpensesfor promotionand the productionof data packages,and for relevanttrainingof Mining Departmentstaff. The scope and timingof effortsto attract foreign companies need to be decided in the light of the conclusionson the likely petroleum potential and the prevailinginternationalclimate for petroleumexploration. Conditionsoffered should be flexible enough to accommodatea range of companies, e.g. in line with taxation rules in these companies'homecountries. Authorityto concludeexplorationcontractsshouldbe vestedin the President of the Republic. Donor financingshouldbe activelyengagedfor pre-drillingexploration,strengthening the legal/institutionalframework,and trainingof Governmentpersonnel.

- 48 -

VI. FORESTRY AND WOODFUELS

Maier Issues Deforestationand Repla fing Deforestation,estimatedat 20,000 ha p.a. (or about 1% of the nationalarea with tree 6.1 a seriousenviroitmentalas well as energyproblem. Themain causesof deforestation has become cover), have been commercialagriculture,i.e. crop cultivationand livestockraising, and commercialcutting of wood for industrial purposes and charcoal production. Local gathering of fuelwood has had a comparativelyminor impact. The nEfP-algrowthof wood resourcesapproximates10mn n' p.a., which is well above the woodfuel consumnion of about 4 mn in p.a. (about one-half of it for charcoal production). However, most forestsare neither legallyavailablenor suitablefor producingfuelwoodas their mainobjective. Unauthorizedand largelyunrecordedwoodcuttingand charcoalmanufacturinghave reached serious dimensionsin the dry woodlands where natural growth conditionsare inferior. Tree felling in the dry woodlandstotals about 1.2 mn in p.a., or twice of what can be produced on a sustainablebasis. Extendedareas have already been clear-felled. Replanting. About 10,000ha of forest plantationshave been establishedsince the late 6.2 1960s(of which 7,000 ha by the General ForestryDirectoratein some 35 separate areasand 125 ha by Falconbridgeon mined-outareas), largelyin responseto concernsaboutdeforestationand the degrdation of water catdziments.Plantationsfor fuel, poles, and industrialtimber have been establishedsince 1980 as part of in.egratedrural developmentand soil conservationprojects. They mostlyconsistof pines, with an annual wood incrementof about 0.1 mn mi (assumingan incrementof 10 m/ha/year for the pineeucalyptmixture). The smallamountof woodnowharvestedis mainlyused for poles and posts and may in future be used for timber. Existingplantationsare not expectedto make a major contributionto fue.lwoodneeds, since fuelwoodprices are too low to competewith pole prices as their opportunitycost or to cover the economiccosts of plantation-producedwood (about RP$64/m3 in 1989).7/ Private tree p!antingis a low-returnactivityand as such is hamperedby the lack of financing. USAIDhas been the mainfinding source for reforestationunder COENER'senergyfarms program: RD$4mn were made availableover a four-yearperiod for speciestrials, demonstrationplots, and private plantationsof fastgrowing species. However, reforestationthus far has had relatively little impact: it tends to be concentratedin areas less affectedby deforestation,whileharvestingof establishedplantationsis mainly for other than energyuses. Most plantationsare not yet harvestedeither becausetrees are too young or becauseof public concern abouttrue cutting. Growthrates in some plantationsof Egj&M, Leumaenaand other suitable specieson 6.3 are high, often over 20 m31ha/year.Private eucalyptusplantationswhich have been sites favourable

a/

or 91 RD$ti2LT costs of RD$641mn A 1986feasibilitystudyof fewood producdonin Ped.-naesindicated (tD$14OI. T. at 989prices),includingIterest but notgroundrentnortransport. his Isaboutthe sameasthe marktprie offlrewoo.

-49 harvested have been highly profitable. Plantationsof Pious occidentlis and Pinus ari are also reported to be growing at 15 m3/ha/year, but most pine plantationshave lower growth rates, being on less favourablesites and lacking intensive management. Also, trial plantationson drier sites or with unsuitablespecies show much slower growth. The average productionin existing plantationsthus is estimatedat 10 m31ha/year. However, for proposedfuel and pole plantations,where better sites are availablefor financiallyprofitableinvestments,an averageof 20 n3 is assumed. Therefore, the economic potentialfor plantationsis promisingbecauseof the large present and projectedfuture demandfor poles and timser. InstitutionalConstraints Problems in the forestry subsectGrin large measure related to the legal/institutional 6.4 framework. Legislationis cumbersomeconsistingof occasionallycontradictorylaws and decrees, and therefore, is oftenincorrectlyapplied. Responsibilitiesare fragmentedand ambiguouslydividedbetween the NationalTechnicalForestryCommission(Comisi6nNacionalTecnicaForestal;CONATEF)as policy planningand monitoringbody and the GeneralForestryDirectorate(DireccionGeneralForestal; DGF), the executingarm, which is vulnerableto bureaucraticcomplications. DGF's responsibilitiesare not clearly definedwhile CONATEFhas not yet had much impacton forestry matters. Neither institution has the financialand staff resourcesto adequatelydischargeits responsibilities. Programs for .orestry extensionand sustainedforest managementdo not exist. Relationswith non-governmentalorganizations have been tenuous. While the Governmentgenerally supports a revision and rationalizationof the forestry laws and organizationas proposedby FAO's 1988Tropical ActionPlan, details kave not yet been agreed. The lack of forestry-relatedtrainingand researchperpetuatesthe managementweaknesses in the subsector. Production Controls. Legal and administrativecontrols to regulate the commercial 6.5 harvestingby private companieshave been placedon tree cuttingfor manyyears. As a result of public concernaboutlogging,sawmillswere closed,tree-fellingprohibited,and DGF's operationalinvolvement extended. However,extensiveprohibitionsof tree cuttingand charcoalproductionhavediscouragedtree planting and stimulatedillegal activitiesand thus, may have aggravatedthe fuelwoodproblem. Some prohibitionsare now being relaxed, allowingthinning in DGF pine plantationsand limitedsawmilling. For fuel use, dead wood may be collectedand small quantitiesof charcoal(up to three sacks) removed for domesticuse withoutlicenceor officialpermit. However,charcoalmanufactureand cutting of live trees are illegalexcept when and where officiallyapproved. One of the main tasks oi the governmental forestry service is te -.ontrolillegaltree cutting. Recognizing that permission for limited charcoal production is unavoidable, the 6.6 Goverhmenthas approvednine areasfor commercialproductionof firewoodand charcoal,three of them for actualcharcoalproductionunder agreedplans (knownas Sur, Pinea NorOeste,and Este), as well as several other areas of operationalor pilot-scaleforest management. A DGF permit is required for transporting charcoal to market, for an official fee of RD$1.- per sack, granted only for officially approvedcharcoalproduction. DGF in 1988authorizedthe transportof 0.66 minsacks, of which 93% were sold in SantoDomingo(1984: 1.0 mn sacks; 1981: 1.6 mn sacks). The bulk of charcoalmarketed

- 50 is not officiallyauthorized,however. 13 areas were openedup for commercialcharcoalproductionin 1987, which is also permittedon areas for pilot projects carried out by governmentalentities. Optionsfor SustainedFuelwoodProduction 6.7 Alternativesources :ad systems for woodfuelssupplies exist that could economically contributeto meetingnationalenergyneeds, avoidingthe prevailingsocialand enviromental problems. A distinctionneeds to be made betweenrural requirementsmet through local coilectionand the urban domesticand commercialconsumptionsuppliedthrough commercialchannels. Rural Woodfuels:Agro-ForestryExtension 6.8 Most rural people obtain firewood and small amounts of charcoal locally, using the natural sustainablegrowth of existingtrees (includingsome planted fencing, shade and fruit trees) and causinglittledeforestationor environmentaldegradation. Productionfrom local areas is low - oftenonly 1-2 m3/ha/year - but usuallyenough for rural populationdensities, except in areas of intensive, largescale cultivationor ranching. In some areas, however,woodfuelgatheringrequiresmuchdomesticlabor as suppliesdwindle, which is bound to become a more serious problem wherever populationsrise and cultivationor grazing intensifies. Any further reductionof wood supplies will aggravateeconomicand environmental pressures which cannot be resolved by commercial plantations alone. Tle most appropriatesystemfor ensuringadequatewoodfuelsuppliesin rural areas will be through agro-forestry tree planting. 6.9 Substantialbenefits may arise from agro-forestryextensionand programs of integrated rural developmentand watershedmanagement,whichalreadyhavebeen startedin someareas. They help to reduce deforestation and environmentaldegradation and support the productive and protective managementof forest reserves. Tree planting contributesto farmers' needs and to the productiveand social sustainabilityof land-usesystemsby providingpoles, fodder, and cash crops, as well as firewood, often as a by-productfrom pole plantations,windbreaks,fruit trees, and live fences. In addition, by stabilisingsoils, trees reduceerosion and slow down the sedimentationof hydro reservoirs. Ur-banand Comn,grcialWoodfuels 6.10

The principaloptionsfor supplyingwoodfuelsto urban areas are as follows: (a)

Sustained Productionfrom Dry Woodlands: The bulk of fiuelwoodand charcoal for urban residentialand commercialuse is derived from dry woodlandsand is distributed through commercialchaanels. Fuelwoodproductionof 2 m3 (1.4 M.T.)/ha/year may be sustainablein dry woodlands,totalling0.56 mn M.T. from 0.4 mn ha (i.e. just about one-half of present production); which can be achieved by continuing with current methods,providedthat cuttingand grazing intensitiesaresnot excessive. While charcoal manufactureoften involv:s almost completeclear-felling,sustained-yieldmanagement will restrictover-cuttingand over-grazing. Cuttingintensitiescanbe regulatedby simple

-51 practices such as rotational cutting, temporary protection from livestock during the regrowthstage, and protectionfrom prematurecutting. Some elementsof management are already being initiated in the CONATEF pilot project areas and in the approved charcoalingzones. Lessons from these areas will be used to design more extensiv: managementprograms. However, the low productivityof the woodlands will limit managementto simple, cheap, and extensivesystems. (b)

Promotionof Forest Managementby Local Communities:'Me traditionaluse of wooded areas under communalsystems(principioscomunitarios)mayalso in future be supported by local populations,providedthat they receivethe benefitsfrom the managementand use of the woodlands. This form of managementcouldbe attemptedin some pilot areas. However, there may be obstaclesto implementingmanagementin the dry woodlands, includinga reluctanceto investin remote "low-potential"areas. Its successwill depend on the Government'scommitmentto resolvingthe wider economicand social issuesof rural development.

Tree PlIantions 6.11 Whiletree plantationsare economicfor manypurposes, includingpoles, timber and soil protection, dedicated fuelwoodplantations do not appear to be economic at pr-sent. Nevertheless, continuedGovernmentplantationprogramsfor pine timberand other products, and incentivesto private landowners for multipurposeplantations, are worth considering. They include a rationalizationof controls so that trees planted may be harvested as freely as other crops, as well as tax incentives, extensionservice, and technicaladvice. NaturalForest Management 6.12 At present,there is almostno productivemanagementin the naturalpine and broadleaved forests with a few exceptionssuch as under Plan Sierra.21/ Productivemanagementfor timber and other forest products has been recommendedby DGF. The high priority areas for productive managementare the pine forests, but all forests shouldbe managedappropriately. Fuelwoodis expected as a by-product,so its foreseeableproductionfrom naturalforestswouldcontributeonly a relativelysmall share to commercial markets. Other high priority management objectives are soil and wildlife conservation. ReCquirements and Recommendations 6.13 Commercialsuppliesof firewoodand charcoal,now obtainedmainly from over-cutting in dry woodlands,can be providedto about one-halffrom sustainedmanagementof 0.4 mn ha of dry

LI/

Under PlanSierra, afew small privaely ownedpineforests and a 3,800 ha projectforest, La Celestina,are being sold by COMT7EF.Sawn pine mber sproducedIna projectsawmWUand thnedandireatedunderplansapproved to localcarpenters.Pinecharcoalhasbeenproducedin to projectkUnS, but isnot readgysaleable.

- 52 woodlands,with smallcontributionsfrom commercialplantationsand managednaturalforests. However, a large part of current consumptioncannotsustainablyor economicallybe suppliedfrom these sources. Therefore, to avoidcontinuedenvironmentaldamageand increasingenergycosts, muchof the urban and commercialenergy demand must be provided from sources such as LPG and kerosene. Since the productionof fuelwoodthrough plantationsis not likely to be viable at present costs and market prices, multi-purposeplantationsshould be established,with fuelwoodas a by-product. WoodfuelsStrateg 6.14 The highestpriorities of a forestrydevelopmentstrategyshouldbe to slowdown energyrelateddeforestation,stimulatereforestation,and rationalizeinstitutionalrelationships. Consistentwith such a strategy,the Governrmentshould focus on (a) initiatingsustainedforest management,especially in dry woodlands by local communitiesfor supplies to urban consumer,: (b) improving extension services, includingthrough distributionof seedlingsat cost; (c) improvingaccess to forestedareas that are not threatened by degradation, such as wet forests; (d) improving the efficiency of charcoal conversion;and (e) preparingand implementingprogramsto substituteLPG and kerosenefor fuelwood and charcoal. To secure cost-effectivesupplies to the rural populationwhich depends on woodfuels, efforts shouldfocus on integratedagro-sylvo-pastoralapproachesand multiple-purposetree plantingsas these often represent the most productiveuses of marginal lands. They should be pursued as part of agriculturalextensionand be incorporatedinto rural developmentprograms. InstitutionalStrengthening 6.15 Forestry laws and regulations need to be streamlined and updated. Institutional responsabilitiesneed to be clearlydividedbetweenCONATEFand DGF, and effectivemechanismsfor coordinationneed to be established. The Governmentshould seek closer interactionwith NGOs, given their potentiallyuseful role in forestry development. Additionalfunds are requireu for sustainedforest management,tree planting, and forest administration,probably in the order of US$3-5 mn equivalent p.a., which, amongothers, should be mobilizedthrough more effective applicationof stumpagefees. Incentivesto stimulateprivate sector tree plantingshould include improved credit facilities, technical servicesand, possibly, the supply of subsidizedplanting stock. Private sector entities experiencedin reforestationshouldbe encouragedto provideassistance. Regularsurveysof forest resourcesand wellfocusedresearchare also necessaryfor sustainedforestry developmentand externalassistanceshouldbe requestedfor these activitiesas a matterof policy.

- 53VII. HOUSEHOLD ENERGY

Major Issules Energy MarketConstraints 7.1 Eenergy consumptionin households,estimatedat 0.67 mn toe in 1988, accountsfor nearly 25% of energy end-use. It takes largely the form of fuelwood (34%) followedby charcoal (25%), electricity (19%), LPG (17%), and kerosene (5%) even though this energy mix differs significantly accordingto consumers' locationand incomes. Low-incomerural consumersmainly rely on firewood for cookingand on kerosenefor lighting,whereasurban consumersuse mostlycharcoalfor cookingand electricityfor lighting. Higher-incomeurban consumerstend to use LPG for cookingand electricityfor appliances(includingair conditioning),in additionto lighting. Becauseof distorted energyprices and marketingrestrictions,this consumptionpattern is not in line with economiccosts of the various forms of energy (these are considerablylower for LPG and kerosenethan for charcoal). In addition, high equipmentcosts have limitedthe disseminationof LPG and kerosene. The growthof householdenergy consumption- estimatedat about 3% p.a. during 1981-88- is likely to exceedpopulationgrowth also in future as it will be strongly influencedby urbanization,rising incomes,and attendantincreasesin percapita energy consumption. 7.2 Firewood. Domestic firewood is obtained from virtually all inhabited areas, including farmland and grazing land. The preferred firewood comes from the dry woodlands. In rural areas, firewoodis obtainedlocallythrough familylabor, mainlyas dead wood, at little or no cash experse. As rural populations tend to use the natural and sustainable growth of the existing tree stock, little deforestationor environmentaldegradationresults. Productionwithineasy collectingdistancesis usually sufficient,exceptin areasof intensive,large-scalecultivationor ranching. In somearmas,however,much domesticlabor is allocatedto fuel gathering, which is likely to increase wherever populationsrise and cultivationor grazing intensifies. The bulk of firewoodis not marketedor is sold only withinthe village neighborhood. 7.3 Cbharcal. Urban markets are supplied by a large number of professional charcoal producersoperatingmainlyin the dry woodlandsin the South-Westand North-Westof the country, with ;maller quantitiesbeingobtainedfrom the South-East. Charcoalused in rural areas is produced locally from whateverwood resourcesare available, by family labor or part-time producers. In urban areas, charcoalis a major cookingfuel eventhough it is more expensivethan LPG or kerosene,mainlybecause many familiescannot afford LPG or kerosenestoves or have no access to these substitutes.2_/ Most urban and rural families also use charcoalin smaller quantitiesas a back-up fuel in the event of LPG shortages.

;4/

In 1989, the cost of -.sking wishcharcoal(includingfuel and amortizationof equipment)was approximately RD$4.50/day, comparedto RD$L.-forLPGandRD$0.70forkerosene.Thecombinedcostof a LPGstoveand gas cyUnder,RD$1,50-2,000, amnounted to mtorethanthe minimwnmonthtysalary in that year.

-54 -

7.4

.

Theuse of LPG for cookingis restrictedto high-incomehouseholdsin both urban

and rural areas, and to middle-incomehouseholdsin urban areas. The mainbarrier to the dissemination of LPG among low-income families is the relatively high costs of LPG stoves and cylinders and deficienciesin the distributionsystem. 7.5 Krose. Althoughkeroseneis the cheapestcookingfuel in urban areas, the relatively high equipmentcost and the poor distributionsystem have preventedits wider use. Keroseneis sold at only about 40 service stationsthroughoutthe country. Supplementingthe formal distributionnetwork, a variety of improvised secondary systems have developed. This marketing system is costly and inefficientand as a result, keroseneprices to the final consumeroften are up to three times the official retail price. 7.6 Electricity. About90% of urban householdsand 29% of rural househoidsare connected to the grid, accordingto estimatesby COENERand the Centrode Estudiosde Poblaciony Desarrollo. The rural distributionnetwork has not kept pace with populationgrowth. Householdconsumptionof electricityis generallylinkedto incomelevels, exceptwhen electricityis obtained fraudulendy. Illegal consumersare generous in the use of lightingand manyuse electricityfor cookingon improvisedstoves. InstitutionalConstraints 7.7 No Governmentinstitutionis responsiblefor addressingthe strategic issues related tr, energysuppliesto, and use in, the householdsector, save.for somelimited involven nt by COENER(on the demand side) and CONATEF (on issues related to supplies). Consequendy, there is little comprehensionof the relevant technical and economicissues. Studies carried out by COENER, the Higher AgriculturalInstitute,ISA, and the Instituteof Populationand DevelopmentStudies(IEPD)have had little impacton Governmentpolicies. rGovernmentinvolvementhas been limitedto experimentation with improvedstoves, most of whichhave beendiscontinuedfor lack of funds. Requirementsand Recommendations 7.8 As in other sectors, energypricingbased on economiccosts is essentialfor achievingan optimal fuel mix in the household sector. In addition, supplies of energy and energy-consuming appliancesneed to be improvedand costs loweredthrough expandingdistributionnetworks, removing barriers to competitionsuch as import prohibitionsfor LPG cylinders, and eliminatingdiscrininatory taxes and duties. 7.9 COENERin coordinationwith forestry-relatedinstitutionsand CDE should prepare an integral strategy and consistent policies for household energy supplies. This requires a clearer understandingof (a) the magnitudeand compositionof householdenergyconsumption,(b) the least-cost options for household energy consumption,(c) the impact of energy pricing on consumer incomes, deforestation,etc., and ._-)the optimaltypeof energy-efficientappliancesand the scope and requri ments for their dissemination.

ISs -

7.10 Householdenergyconsumptionsurveysshouldbe undertakento providethe information base for the required measures. In preparing disseminationprograms, the feasibility of credit arrangementsfor initial purchases of energy-efficientappliancesshould be evaluated, especally fbr kerosene stoves to encourage their use by low-incomegroups. However, financial internediaries specializingin consumercredit have been weakenedby negativespreads betweendeposit and leading rates and by other forms of de-capitalization.Optionsto extendfinancingto distributors- rather than purchasers- of energy-efficientappliancesand raised from energy suppliers, foreign NMOsetc should be considered. Subsidiesif any should be providedthrough reducedprices of appliancesrather than of fuels, be strictly temporary, and be limitedto low-incomegroups.

-56VIIL. ENERGYAND ENVIRONMENT Main Ussue Environmental!Dactsof EnergyOperations 8.1 Energy-relatedoperationshave major adverse impactson the country's fragile tropical eco-system,mainly through (a) deforestationcausingsoil erosion and degradation;and (b) air and soil pollutiondue to emissionsfrom fuel combustion.Soil erosionis particularlyserious in the arid and semiarid West of the countrywhere major rivers originate. It has led to declines in agriculturalyields, siltation of hydro reservoirs and irrigationchannelsand a deteriorationof hydrologicalsystemsoverall. The mission estimates that in the absence of rehabilitation measures, the costs of capacity losses of hydropowerplantsdue to siltationcould reach US$130 mn over the lifetime of these plants (i.e. about 30 years; 1989 present value). Additional costs of maintaining irrigation channels subject to impoundmentwill be about US$2 mn annually. 8.2 The effect of emissionsfrom fuel combustioncannotbe quantifiedwith any accuracyas there are no reliabledata on their atmosphericconcentration. Petroleumproducts and coal account for a relatively small share of energy-relatedpollution and probably are not yet producing a dangerous concentrationof toxics. However, they pose a greater hazard than the production and utilizationof biomass fuels because of their higher concentrationin the heavily populated Santo Domingo-Haina metropolitanarea and the emissionof relativelylarge quantitiesof toxic substancessuch as SO, and lead. In fact, potentiallyhazardouscontaminationlevels may be reachedin that area becauseof the combined effect of various enviromnentallyunsoundpracticesrelated to transportation,industry, and household energy use, as well as the proliferationof electricitygenerationin small units. The transport sector is the largest single source of CO and NO,, emissions and the sole ;urce of lead emissions, which is aggravatedby the generally poor technical condition of vehicles. CDE's steam turbine plants emit significantamountsof NO. and SO.. REFIDOMSAhas taken measuresto mininize pollutionbut other industrial firms (e.g. METALDOM,sugar refineries) produce considerableatmospheric, soil, and groundwatercontamination. The energy-relatedimpactson the environmentare bound to accelerateas energy ;onsumptionand its regional concentrationincreases. InstitutionalConstraints 8.3 The Governmenthas no environmentalstrategy nor are there institutionsto coordinate and monitor necessaryaction and perform regulation,e.g. in regard to permissiblelevels of energyrelated pollution. No comprehensiveenvironmentallegislationnor standards for emissionsor disposal of toxic substancesexist. To the extent that mandatorycorrectivemeasuresare specified,there arc no mechanismsto ensure compliance. A draft EnvironmentalProtection Law has been prepared which, however, does not address practical aspects of policy enforcement. A National Environmental Commissionestablishedin 1987and chaired by the President of the Repu"'lichas had no discernible impact on the Government's strategies and policies. The entity is primarily engaged in general

- 57 discussionsof environmentalissues, withoutfocusingon the related socio-economicimpacts,and has no executive power nor a budget of its own. Links are tenuous between the Commission,the Natural Resources Subsecretariat (SURENA), and scientific entities. There is little contact ietween the Governmentand some 40 NGOsactive in the environmentalfield. Neitherthe governmentalinstitutions nor the NGOs are familiar with the complexproblemsinvolvedin analyzingthe environmentalimpacts of industrial and energy activities. The low level of environmentalconsciousnessamong the general public also impedeseffectiveaction. Reqguirements and Recommendations EnvironmentalStrategy In order to managethe energy-relatedimpactson the environment,the most important 8.4 immediaterequirementsare: (a) develop an emissionmeasurementprogramfor the most affected areas to quantify existingenvironmentalproblemsand collect baseline data for abatementaction; (b) tighten standards for emission and concentration levels and ensure compliance; (c) establish an adequate legal/institutionalframeworkand equip the Natanal EnvironmentalCommissionwith executivepowers and a coordinatingfunction;and (d) developenvironmentalplanningand monitoring. The environmental impact of energy pricing needs to be carefully considered. Since increases in prices of petroleum products in isolation could lead to accelerateddeforestation, they need to be combined with price increasesfor woodfuelssufficientto cover their long-termeconomicand environmentalcosts, measures to improvethe distributionof LPG and keroseneleadingto a reductionin the pricespaid by consumers, and disseminationof improvedstovesusing woodfuelsas wellas petroleumproducts. However,a proper balancebetweenthe objectivesof least-costenergysuppliesand environmentalprotectioncan be achieved only as part of a more wide-rangingstrategy coveringall activitiesthat produceenvironmentaldamage. 8.5 Abatementmeasuresshouldbe market-based,i.e. chargesshouldbe leviedcommensurate with the environmentalcost caused to the economyrather than subsidiesbe offeredfor environmentally benignaction. Priority rmieasures to reduce environmentaldamageshould include: (a)

for nower gneration: converting to low-sulphurcoal, equipping power plants with electrostaticprecipitators,and reducingself-generationin small units;

(b)

for transport: reducing the lead content of gasoline and the sulphur content of diesel; introducingtechnicalinspectionsto improvethe technicalconditionof vehicles, reducing peaks in passenger car traffic through traffic management,and improving the public transportsystem;and

(c)

for biomass conversion-andUse: reducingthe use of woodfuelsthrough disseminating improvedwoodstoves,improvin.gthe efficiencyof charcoalproduction,and substituting petroleum-basedfuels for fuelwoodand charcoal.

-58

-

8.6 Watershed management andreforestation programsto stemerosionandsUltation alsoneed to be prepared. Indeed, any measuresaimed at increasingthe efficiencyof energ production, conversion,and end-se that result in a reductionin deforestation,emissions,and electricityselfgenerationin smallunitswillhavebeneficialeffectson the environment. Insthuinbuiin

8.7 The NationalEnvironmentalCommissionshould become the lead enionmenta institution,as partof the Presidency'sTechnicalSecretariat.It shouldbe givenclearlydefinedexecutive shouldact on thepriorities witha smallbutcompetentstaffof itsown. TheCommission responsibilities for energy-related environmental actionas identifiedby the mission,reviewandimproveenviromental legislation,standards, and enforcementmechanisms,analyzepolicy requirements,and introduce activities.The Commission impactof energy-related monitoringsystemsto quantifythe environmental resource management; with ONAPLANon the needsto coordinatewith SURENAISEA on natural environmental impactof development strategies;andwithCOENERon the planningof environmentally sound energy supply and utilizationsystems, includingtough energy efficiencyenhancement. Analyticalsupportshouldbe acquiredfromscientificinstitutions.

-59 IX. ENERGY OUTLOOK, 1989-2000

PrQiectedEnegryDemandand SupplyReauirements Enrgy Demand Future energy demand is largely determinedby basic socio-economicfactors, such as 9.1 output growth and investmentin the overall economyand in its major p:oductivesectors; the growthof populationand of personalincomes;and structuralshiftsin the economy. In addition,energypricing and other demandmanagementpolicies will have an importantbearing. The mission has developed two scenarios tc. illustrate the effect of different energy 9.2 policies: an Action-OrientedScenario and a Trend-BasedScenario. They differ in their assumptions aboutenergy demandmanagementand the efficiencyof energy transformationand end-use- While the scenarios represent a range of possible outcomes rather than accurate forecasts, they do illustrate importantstucturalchangesin the energysectorthat are likelyto occur as a resultof alternativestrategies and policies. Energy demand projectionsfor both scenarioshave been based on projections by the 9.3 WorldBank of real growthof GDP, sectoral valueaddedand personalincomes. Theyreflect a 'medium range" scenariowhich assumesthat real economicgrowth will be in the order of 4% p.a. during 19911993 and 5.3% p.a. during 1994-2000. The Action-OrientedScenario indicatesthe improvementsin energy supply and demand v,'atcould result from adequatepricing policies and mcasuresto encourage the efficiencyof energy use, includingshifts in demand to more economic and less environmentally damagingfuels, and reductionin energyconversionand distributionlosses. This scenarioassumesenergy pricing aimed at covering economiccosts and meeting requirementsfor financing investmentsin the energy sector. Under the Trend-BasedScenario, few of these measures would take place. It thus assumesthe continuationof presentenergypricingpoliciesand limitedenergydemandmanagement.The successfulrehabilitationof CDE is assumedin both scenarios. In regard to woodfuels,under the Action-OrientedScenario, it is assumedthat measures 9.4 will be taken to reduce wood consumptionto the maximumsustainableproductionthat can be expected from 0.4 mn ha of dry forests, i.e., 0.56 mn tpy. As the rural population is likely to continueto use substantialvolumesof firewood for cooking, this scenario assumesa massivesubstitutionof LPG and kerosenefor charcoalin urban areas. The largestdifferencesbetweenthe two scenariosare thus found in regard to the assumedsubstitutionof LPG and kerosenefor woodand charcoalin the residentialsector which is considerably larger under the Action-Orientedthan the Trend-Based Scenario. Fuel oil consumptionis four times higher in the Action-OrientedScenariobecausethe process of substitutionof diesel for fuel oil is assumed to be reversedand industryis assumedto switch back to using fuel oil for heat generationin responseto adequateenergypricing. The environmentalLbnefitsresultingfrom the

-60preservationof the natural forests and reduced emissionof contaminantswould be as importantas the energysavingsexpectedto be obtainedthroughthe policymeasuresunder the Action-OrientedScenario.

Energ SUDDIV ReauireMMnt Differencesin energy substitutionpatternsand in the efficiencyof energy end-usewill 9.5 have a considerable impact on future energy supplies. Under the Trend-based Scenario, energy requirementsby 1993are 13%higherand by 2000, 27% higherthan underthe Action-OrientedScenario. Likewise,the comDositionof energysuppliesis projectedto be substantiallydifferent:under the ActionOrientedScenario, domestic energyproductionwould decline by 19% during 1989-1993and by 27% during 1993-2000. This wouldresult mainlyfrom substitutingpetroleumproductsfor fuelwoodin urban areas, and to a certainextentfrom increasedefficiencyof energyuse, especiallyin regardto domestically producedenergy. In the Trend-BasedScenario, fuelwoodand charcoalconsumptioncontinueto grow thus drivingdomestic energyproduction,so that wood cutting would increase 17% in the period 19891993and 23% from 1993to 2000. Hydro electricitygenerationis assumedto be the same under both scenarios,so that differencesin electricitydemandof each scenarioresult in differentthermalelectricity generationrequirements. EnergyImports. Theseare projectedby 1993to be equivalentto 19% of goodsand non9.7 factor servicesexports under the Action OrientedScenario(20% under the Trend-BasedScenario)and to increasefurtber to reach by the year 2000 US$1.I bn under the Action OrientedScenario(US$1.6bn under the Trend-BasedScenario,all in current prices). The compositionof energyimportswoulddiffer under both scenarios: althoughthe bulk 9.8 would consist of crude and petroleumiproducts, under the Action-OrientedScenario LPG imports are higher because they would replace woodfuels, while diesel imports are substantiallylower due to industry's shift towards cheaperfuel oi!

Table 9.1:

19E8 T _on M an

Crude Petrolow Products Subtotal Coal Total

1.8 1.1

185 137

2.9 0.24

322 _1 333

SourM: MfIsIon estimates.

ENERGY lIiORTS, 19d8; 1990; AND1993; 2000 (PROJECTED) (N.T. and current USSmillions)

_ 1990 m n MTon 201 1.5 1.6 307 3.1 0.01

508 1 509

SCENARIO TREND-BASED SCENARIO ACTION-ORIENT0 2000 1993 2000 im 1 NUn USSn MTm US$nn Nnm USS T mn US$ 2.8 612 2.8 364 2.8 612 2.8 364 864 71 2.8 1.6 341 0.39 75 0.5 3.3 0.46

439 _4 463

4.4 1.4

953 105 1.058

3.2 0.54

435 28 403

5.6 1.8

1,476 135 1,611

-61Investmentand TechnicalAssistanceRequirements Ivsnmex In order to implementthe mission's recommendationsfor a viable energydevelopment, 9.9 substantialinvestmentis required over the medium to longer term. The mission estimatesthat these requirementsfor the rehabilitationand expansionof energy productionto meet the economy'senergy needs during the 1989-2000period may total US$2.1 bn (at 1989prices and exchangerates), of which US$1.3bn need to be carried out by 1994. As in the past, the electricitysubsector will account for the largest share: the required 9.10 increase in gensratingcapacityof about 900 MW would involveinvestmentof US$1.2 bn and together with associatedexpenditurein powertransmissionand dis-tibution,electricityinvestmentis likelyto entail costs well over US$1.8 bn. The public sector probablywouldhave to provide at least one-halfof the requiredfinancingevenif a substantialproportionof electricity-relatedinvestmentwere to be carriedout by the private sector and CDE itself were to be privatized. Externalfinancingthus far committedtotals just about US$250 mn (i.e. IBRD US$105 mn, IDB US$148 mn) for rehabilitating generation, transmissionand distributionsystems. Additionalfinancingmay be forthcomingfrom Italy and Spain for generationexpansion. Investment requirements in other energy areas are minor by comparison. In the 9.11 petroleumsubsector,the refining expansionestimatedat US$24 mn is expectedto go forward (US$40 mn for both expansionstages). One-halfof this investmenthas to be financedby the Government,if presentparticipationarrangementscontinue. Little additionalstoragecapacityis requiredduringthe next years over and above what is included in the refinery expansionproject. Investment in storage and distributionthus is assumedto average about US$3-5 mn/year. Rehabilitationand expansionof tkese facilitiesare expectedto be entirelyprivatelyfinanced. In the forestry subsector,replanting,sustainedyield forest management,infrastructuralmeasures,training etc. are estimatedto require expendituresof aboutUS$1 mn p.a. but significantforest-relatedexpenditurewouldbe undertakenas part of agricultural projects. Expenditureon energy rationalizationin the residential,industrial,and transportsectors needs to be increased -.- US$ 5-8 mn p.a., whereas environment-relatedexpendituremight be at least of the sameorder of magnitude. 9.12 It willbe a major challengefor thepolicymakersto accomodatethe expenditurerequirements for the energydevelopmentwithinthe severelyconstrainedbudgetof the public sector. To raise to this challenge,the Governmentshould emphasizethe followingapproaches. First, least-cost solutionsto meeting future energy requirementsshould be stric-dyapplied. This includesthe options of extensive repairs,technicalmodificationsetc. shouldthesebe more economicthan newinvestment. Second,energy efficiency enhancementespecially for electricity and petroleum products should be actively pursued especiallyif this meets requirementsat lower cost than expandingsupplie. and permitspostponingmajor supply-related investments. Third, energy investment to the feasible extent should become the responsabilityof the private sector so as to increase the efficiencyof investmentand to alleviatethe

-62

-

burdenof financingfor the publicsector. Finally,relationshipswithexternaldonorsneed to be much of the requiredfundsbecomesreasonablycertain. improvedso that the mobilization IN THE EXPENDITURE DEVELOPMENT Tgb 9.2: PROJECTED 1989-2000 SECTOR, ENERGY (1989USS mtllions) 1989-94

TOTAL

Electricity Subsector Generation Transmission and Distribution Other Petroleum Subsector Refining Distribution Forestry and Uoodfuels Subsector EnergyRationalization Environmental Measures

1905-2000

LIM

1,136 (658) (460) (38) 54 (40) (14) 6 35 35

WD (543) (159) C-) 42 (23) (19) 6 40 40

Total

L9 Lmo 1,838

(1.201) (599) (38) 96 (63) (33) 12 75 75

mission estimates. Source: COENER;COE;REFIDONSA;

TechnicalAssistance andto strengtheninstiwionsto In orderto preparestrategies,policies,andinvestments 9.13 securethe lon3-termviabilityof the er ergysector,substantialtechnicalassistanceis neededfor policy and institutionalstudies,preinvestnentevaluations,and pilotschemes. To be effective,mostof this assistanceneedsto be extendedwithinthe nexttwoyearsor so. The donorscommunityshouldconsider the followingpriorityneedsfor technicalassistancewhosecosthave beenestimatedby the missionat aboutUS$8.5mn:

W

(a)

Energypolicy and institutionalanalysi: Evaluationof optionsand mechanismsto andforpricingof fuelwood consumptio)n, eliminatesubsidieson petroleumandektMricity for energy requirements and of options evaluation costs; on economic based charcoal and buildings evaluationof the savings in industry,transport, and public/commercial COENER'ssolein strengthening towards a view with institutionsin the energysector, andmonitoring; energyplanningandpolicycoordination

(b)

Electricitysubsector:Evaluationof optionsto increasethe role of the privatesectorin and institutionalissues electricityoperations,and of the technical,economic/financial, related to increasingelectricitysuppliesfrom self-producersand to the gradual privatizationof CDE;Preparationof a programto strengthenCDE's Productionand losses;21/ OperatiousDepartment,and to reduceCDE's technicaland now-technical evaluationof regulatoryrequirements;

Thisprogran wil be preparedby CDE wih assistanceof consulw, as pan ofAe Bank-fnacedpower rhaiuadon project.

-63 -

j/

(c)

e: Evaluationof optionsto improvethe marketingof LPG and in rural areas; evaluationof optiop,'to updatethe legal/contractal keroseneespecially andto promotethe explorationpotentWto foreig frameworkfor petroleumexploration companies;institutionalassistanceto the MiningDepartmentto monitorpetmleum explorationby privatecompanies;

(d)

of sustained-yield forest FoEty and woodfeihs: Preparationand implementation managementprograms; improvementof forestry legislationand of institutional arrangementsin the forestry subsector;forest-relatedtraining at the mwagerial, professional,andtechnicallevels;

(e)

Preparationof a householdenergyconsumptionsurveyin major Houshold en=: consumingcenters;preparation of fuelconversion/stove diseminationprogramsin urban and ruralareas;and

(f)

Environment:Provisionof measuringequipmentand of othertechnicalresources;26/ problemsthroughmeasuringprograms;andstrengthening of environmental quantification of environmental legislation,standards,and instiutions.

IZG (FederalRepublic of Germny) kvconsideringtoprovide dL type of assistance,at an etnated cost of US$24 mnnfora program ewtendingover three years.

Pt

REPUBLICA DONINMCARA EVALUACVON DE SECTOR ENERGETICO

Resumien deog LasarabIan.oanteados. losobietiMoestabtecidos v las medidas recomondadas

Aspecto general

Problemas especfficos

ObJetivos

Medidas recouendadas

1. Asnectos macroecon6micasv sectoriates: Fijaci6n de los precios de ta energfa

Los precios de atgunos derivados del petr6lero (6LP y fuel oil) de la electricidad y de los coa2ustibles de madera no cubrensu costo econdmico, lo quo resultaen la asignaci6n ineficiente de los recursos y tiene un efecto debilitador en las finanzas ps2bicas y la balanza de pages

ConeervacHin y sstituciin de energ1a

Baja eficiencla en el sumfnfstro, transformaci6n y uso finaL de la energfaen todas las octividades principaLes, a

causndo precios

FijacIon de preciospara la energfe que propicien eficiencia econ6dica, la generecion de super6vit fInncleros en las entidodos operacionaLes e ingresos fiscates

Ahorro de energfa de por Lo nenos el 20Xmediente el meJoramiento de Los procedimientos de rutina

y operacfonales

inadecuadosdo en la Industria, la enorgta,la falta eL transporte de familiarfdad y los edificlos con tecnologfas orientadas al ahorra de energia,la ausen-

Instituciones responsabtes

Prioridad

Gesti6n do la Demanda do Enerafa

1. Establecer de precios basados en el costo econ6micepera los todos los derivados del petroleo y la electricided cidad (finde 1991) a mis tardmr

Mediano ptazo

Presidencia de la Repdblica; Secretartas de Finanmzas e Industria y Comercio; COENER; CDE;REFIDONSA

2. Aumentode los derechos de carte en relaci6n can los conabstibtes de mdera cemrciaLizados a fin de quo los preefos cubranet costo mrginal a targoplazo

Cortopaloz

Subsecretarfa de RecursosNaturates; DGF; COMATEF

1. Exhmenesdol uso de energta por etpresas In&strlales y ediOIclos psbblicos y estudios de viabitidad conexos

Corto a mediano COERER plazo(1991-1993)

3

a

de 11

Pa8ina2 de II Cuestfdn

Problemas especfficos

Medidas reccendades

Objetivos

cia de apoyo institucionat y financiero, y La insuficiencis de financismiento

Priaridad

Instituciones responsables

2. Preparacidn eeprogr_s par& fomentar e usao eficiente de la energia en el sector de tramporte, inctuidos le aptiescidn estricta de las normasde eficiencia, la cepecitaci6n de ronduetores de vehfculos, el mantenfuiento de vehfculos, el ordenamlento del transporte urbano y wnaplanifleacldn dot sector de transporte caqpatible can las moetesde eficienceen el uso de la energta

Nedieno plazo 1993-95)

OGT;ONATRATE

3. Ffnancliuento externo pars la racfonaliacidn energ6tlca en le industrie, los edificfos pDblicos y at sector do transporte

Corto pla20

FIDE COEMER

Corto plazo

Pader Legislativo; Presidencia; COENER

11. farco lurfdfco e instftuclonal Legistaci6n; reg1amtntaci6n; instituciones sectoriates y subsectoriaLes; participaci6n del sector pCblico frente a la det sector privado

La tegisleci6n apliceble a Las actividades en la esfere de La etectricided, el petr6leo y los coobustibtes de

Marco jurfdico, regla ntarioe institucional que propicie la eficazordenaci6n dol sector de energfa y la

1. Promlgacidn de los regLaientos adocuadbs a unamoeve Ley de electricided a fin de promover ue mzyor participeci6n deL sec-

Am

I

P6sina 3 de C4estfdn frente a Ladel sector prfvado

Probles

especfflcos

Objetlvos

maderaesta desfasadb,es eabiguay no propicf La efIciencia de las operaciones. No existe um marco regutador. La participaci6n del sector privado se ve ispedida por los controles antiecon6micos de los precios y otras restricclones

eficiencle de las operaciones. Esto exige La creacfdn de condicionesque estiuten una mayorconpetencia a trav6s de la deconcentraci6n, la descentralizacfdn y latiberalfzaci6n de los mercadosdoeaner#tf con

La excesiva centraLtzacfdn del proceso de adpopvt n do dest ones, la coordinaeidn inadecuaday las deffciencies financt eras y de personal tienen un efecto desfavorabte en las fnstituclones a nivel de LaspoLftices y las operaceones

Gestidnmis ef1c4z del sectorde energ1a

N_iedid recomendadas

Prioridad

T

Instituciio

responsabtes

torprivado en ls generaci6ny distribucl6nde eLectricidad 2. Creacf6nde un organismode reslamentacf6inindependiente y eficaz para qu fiscaLice las operacionesptbLicas y privades)

Corte plazo

Idem

3. Asegurarel acceso a financiamfentopora La reatlizacfdnde inversionesprivadas en actividades reLaconadesconla electrfcidad, el petr6leo, los cofbustibLes de maderay la oftcfencfa dol usode La energfa

Corto plazo

Secretarfa de finantas; Secretarfa de Industria y Co orolo; BancoCentral/ FIDE;COENER

FortaLecimfentode COIEER para que actk e1ficazmente com la tnstftuctdn principal en eera de lopLanificacfdn y la coordfnaef6nde lespoLftfeas en et sector de enerrfa; limitaci6n de la partfcipsaf n do los nivetes superlores dot Gdbfernoa las deifsfones de lfpertancta bisica; otorgamentode autonoafa apropfadaa las entfdades1mportantes y iosorgonisos operaclonales

Corto pLazo

Presfdmncia/Secretarfa 6cnica; Secretarfa de Finanzas:Secretarfa de Indistria y Cnoercia; Stusecretartado Recurso Maturates; COINER; COE;REFIDONSA

Am

CuestIon

Problems espeecficos

Nedidas recomendadas

Objetivos

Prioridad

I

Instituefones responsables

Jll. Subsector de eoectricidad 1. Posicide tecnSca, financiera e instituiconal de CDE

2. Expansion del sistema

500 MMde capac1dad instalada estdn fuera de servicio y et restose encuentra en deficientes condiciones operacdonates, to que produce frecuentes cortes det suministro y p6rdidas de activided econ6mica que se estimanen un 3,3X del PI. La posicSon de COE se ha debilitado debido at nivelinadecuado de tas tarifas y la deficiente sestion financiera, a la interferencia dot Cobierno, a la inadecuada organizacionfuncionat y a Lasdeficienctas en losniveles ditrctfvo y profesionaL

Nocesided de que e0 programs de expwnsiOn at costo mfnfiodot subsector sea finstfzadoy aprobado por et gobferno, ntegrando las prayectos de fnversf6n de WDE y

dotsector privado

1. Restabtecimiento de la viabitidad t6cnica, financiera e institucionat de 0E

1. Rehabititacf6n tecnica, ffnanciera e institucionat de COE, seg2n to previsto en retaci6ncon proyectos financiados por el BIRF y otros 2. Seguridad de donantes, mediante: un suministro adoi) apticaci6n det plan cuado de electride acci6nde CDE, cidadmedianteuna inctuida (a rehabilitamayorparticip3cSon ci6nde toselementos del sector privado ffsfcos, la reduccfdn y ta expansiOn de t(sp6rdidas, et det sistea reajuste de las tarifas, et mejoramiento dot sistema de facturacfdn y cobro y el perfeccionamioentodet personal; if) aptficaoMndet *contract ptan* entreet Gobiernoy CDE que prev6ta autono.faajuinistrativa y operacionat de La Instituf ony au coqproWSso especffico de mojorar sas operaciones

ExpansiOnat minimo costo que: (f) permlta atender las nocesidades de la econmnia pare electricfdad a mediano y largo pLtoz, y con seuridad 6ptima, (f) este

Imaediata

Presidencio; COE;COENER

2. Instatacidn de equipo Cortoplazo de genoraci6n de emergencf a en consoaci a con la rehabftitacfdn y expansidn de COE al menorcosto posibte; concertaci6n de acuardoscon productores aut6nomospara et suministro de electricidad at sistema p(bLico

Presidencia; CDE; autoproductores de electricided

1. Aprobacidn por el Gobermo dot programs decenat de expans10nde menor costo posible (quo comprend laoseneraci6n, trensmisidn y distribuci6n)

Prosidancia; COWER; CDE

Iruediata

Pbginae5-db--11-

Cuesti6n

Probtema especificos

Necedidad de establecer sabreuna s6tida base contractuat tos retaciones entre ME y losautoproductores Privati2aci6n de CDE

Lo rehabftitacion deo subsector soto tiene probabitlidad de ser duraderasi la propiedad y gesti6n de CDE se trospesan at sector privado

objetivos

en consonancia con et programs bisico de inversi6n det Gobierm, y iii) sea sprnpiada pare atraer financiamiento privado nacionet y extranjero

edidns reancnddas

Prioridbd

Instituciones responsables

2. Preperacidn de los proyectos de Itab6 IlI y IV pare su financiumiento en gran medida o exclusivamentepor et sector privado

Inmeaiata

CDE; COEMER;

Gestidn y operaci6n 1. Preparaci6n del coneficiente de ta CDE tratopara to gesti6n de CDE

Imediata

Presidencia; ME; C03isi6n Reglamentaria (que habra de crearse)

2. Reestructurtci6n de Nediano plazo CDE modionte ta reducci6n deL atcance de sus actividades y ta consolidacion de sus operaciones restantes en tas esferasde: f) generaciWn: lto proyectos de uolacidn deben se erendidOs en gran medldo o exclusivaoente por et sector privado; 1t) tran.nmsiGn: et sistem, aunqm persmnecerfacoaw parte de CE, debeabrfrse a ta traronrsi6n de electricidad provenlente de otras fuentes a conmumidores quo no son clientee de CDE; ffI) distrbucfidn: en ta mayor wedida posibLe, la sukdivfsfdn de los redes de dfstrlbucfdn locates y to creacldn de co3pafas lndIpe ientes ablertas o lapsrticipacidn det sector privodo 18auitcs pios y CWE 3. (Una vez que se hays Medians pLazu Presidencia; Poder procedido a ltplena Legistativo; rehabilitacidn y reestrucComisl6n Regtamentaria; turacl6n de CDE);Redc&ci6n progresiva de Is participecifn det Goblerno oeCOENER; CDE diante unes oplia partictipacfdn deo sector privado

Cuesti6n

Problemas especfficos

Nedidas rec_mndads

ObJetivos

Prioridad

Instituciones responsables

IV. Subsector de petr6teo AdquSsicidn de crudo y derivados de petr6leo

Refinaci6n: arreglos institucionales y financieros

La importaci6n en greanmedida esti timitada a REFWI #sA. Dado que REFIDONSA es el ainico refineador y tieneta mayor capacidad de alencenamiento en et pafs, soza de un moropolio virtual aunqueeficiente

Las relaciones financieras 6obiernoREFIDOSAse fundamentanen los precios internacionales y tipos de cambio vigeetes en 1980.to que exige reajustes comptejos e insatisfactorios

Mayor transperencia en et merceado y aumento de la eficiencia en la adquisicf6n y a(amcenuaiento mediante la competencia

Estabtecfmiento de relaciones transparentes y claras entre el Gabierno y REFIDONSA para propiciar la eficiencia operacionat de tas actividades do refinaci6n

1. Liberatizacidn de las iportaciones de crudo a fin de permitir la refinaci6n orientada a atender necesidades especificas (lo que tabieinreducirfa las necesidades de capital de trabajo de REFIDoNSA).

Corto piala

2. Liberatizacidn de Las iqmortaciones de derivados del petrto(o pars estimutar ta calpetencia, agregar flexibilidad y aprovechar lss oportunidcdes existentes en el mercado internacional

Corto a mediano Presidencia; Secretarfa plazo de Finanzes; Banco Central; COENER

1. Fflacifnde precios en la ex-refinerfa qu refleJen: 1) os movimfentos de tos precici internacionates y los tipos do cabio, y if) niveles razonables de effelencia en la adquisicidn y refinacidn

Irsnediata

2. En oltima instancfa, Liberalizaci6n de los precfd 4e los derivedos dot petrdleo Refifacidn: proyecto de expansion

La viabilided de la Sufinistro de los expansidn planeada derivados det de ta capacided de petroleo at costo refinaci6n en un 50 mInimo es ouy sensible at margenentre los proCios internecionates del crudo y de los derivados del petr6teo y, por consiguiente, es inherentemente riesgosa. En virtud de tos actuates atuerdos de propiedd, e0 Gobiorno cqpartirfa et riesgo

Reevaluacidn detproyecto con base en varias hfpdtesisviables relativas a Los precios. Dado el riesgo quo entrafla et proyecto, et Goblerno deberfa abstenerse de participer en el, y su ffnanciufiento deberfa dejarse totalsante en mnos deL sector privadb

ediano pLazo

Corto plazo

Presidencia; Secretarfa de Finanzas; Banco Central; COENER

Presidmncia; Secretarfa de Finanzas; Secretarfa de industria y Cosercio; COENER; RIFIODGSA

den

Idem

Pbtna 7 de 1i

C4esti6n

Coemrctatizaci6n de toederivadbs del petr6lea

Problems especfficos

Cbletivos

Medides recomendedas

Priorided

Los mirgenes de Camercializacion utiltidedes son ineficiento de toas suftcientes aunque derivados de mejorados y tienen petroteo desde el un efectoadversoen puntode vista las operaciones y en econ&imcoy inversiones necesafinanciero rias. La comerciatizaci6ndel GLP y del querosin en las zones ruralesse ve particularmente ofectada

1. Wantener los Irmediata Mirgenes de utilidades do los derivados del petr6leo a niveles quo permiten cubrir el costo econ6mico do ta comercializaci6n y reflejen mejorlasdiferencias en loscostos

La capacidad de almcenalfento do GLPes excesive y antiecon6mica

3. Nejoramiento det sisCortoplazo tems de comercielizacfdn del UPL y el querosen e"dlante: 1) la aplicaoi6n estricts de las normas de seguridad; if) el Uementode to oaerta y la redutcion dot costode las botettasde 6PL a trav6sde ta etliminacl6n do las restricciones a leimportacl6n, y Mi) ta expansl6n de ta reddo distribuci6nformaten las zonrs

2. En gltima instancla, libera(izacidn de los precios

:n4titucianes respwiUables

Presidben{; Secretarfe de FinanZas; Secreterft de Jndustria y Comercio; COENER

Nedianoptazo Idem

Secretarfa de finan¢s; Secreterfa de Industria y Comercio; COEVER;copepifes dr -4 stribuif6n

rurales

Explorecidn de petr6leo

La lnterrupctin do las actividados de exploraci6n de petr6leadesdeprinciplos de los aflos 80 hesta mny reclentewmnte debidof) et cerkcter restrictivo de is legistaci6n y eltndelo do contrato, y ii) la priorided re(attvamente baja atribfIe parel G6b1erno a Iaexplorscionde

ALmentode los conoclmientos acerca de losposibtes recursos de hidrocarburas y el costodo su explotaecon como basepars toda actividad future at respecto

4. operaclfn dot terminal de OPUVISA solamente 6i results econ6mIcauonte viable

Irmedlata

Presidencfa; Secaeterla de FInrnzas; Secretarfl de industria y Comercto; CODIER;OPUVISA

1. Realfzaclin por el 60blerno de un s%nimo de gastospare fortalecer ta Direcci6n Ceneralde Minesa findo quo se ocupede lascuestlores relacionaeds con ta exploraclin de petr6lea

Cortoplazo

Presidencs;Secreterfa do Industris y Coserolo; COEIER

Ptnex

C4esti1n

Problms especfticos

El Gobiernoest6 mel preparadopera un seguimiento eficz de las actividades de las cupaflfas

Gesti6ndletosrecursos forestales

Sarco ju fdceo e institucianal

nbJetivoe

Wedidas recamendadas

Prioridad

InstItucianes responsables

2. Aceptacidnpore1 CobIernode ayuidbde dbnantes parapromor la exploracidnde petr6leo

Plazoscorto a mediano

3. Aceptacldnpore0 Gablernode oferSaapropiadosde ewpresas petroleras pare la realizacfdnde actfvfdades de explormi6n

Plazoscorto Presideacia; epress a medians petroleras internedi mles

IV. SIIvicultura v combustIblesde madWra La deforestaci6nen Suwinistro do 1. Limitwlin delaumento NedIanopLazo sran oscala exiseentecoabustfblesde do la demmnda do catbustfespecimalenteen las maokraen unaforna btes de maderamodiante: basquessees. La econ6Dmicamente viai) ladfstribucidn de reforestaciOn es blo y sostenible cocinfs do neJorrenditleninsufiefente para deeds de puntode to y ii) et reemptazo por cubrfr e.dffcit vistadelmedio GLPy etquerosdn do madera parecom- ambiente bustibte, y se ve 2. Acelerar la refores- Cortoa afectada porobstacidn y seabrar 6rboles mediano plazo tSculos legales, de was mltipLes coes instituciamnles y partedeldesarrollo fnfinancieros. No tegral do la2anarural sonviables leas a trav6s de ponerservico plantwclones dedicade extenstdny faciltfddes dosexclusivamento do obtencidndo credito a laproduccidn de maderepera combustible, y estd afectdad porobst63. Remover obst6culos Iumedfate culosloales,inslegates para la plantatituclonales y ffci6n de d rboles nanmieros. Plantacioneas de prop6sito de prvd&ccfdn de ltefl no sonviables La legfsleidn estd desfasaday es contradictoria; no existe uneclara asfgnocidn de responsabilidedes institucionates, raozn porlacualhay pasfbitldodes de

a1bI

MarcoJurfdico * .t Etfmfnacidn de los institucinal qub obst6culosjurfdie. y apoyeeldesarrolltoadonistrativos quese do tos recursos oponena la epLicacdon forestates de la geostidnforestal. orientar al logro de rendimfentos sostenfdos y a ia plantse1dnde irboles y otorginuentode lmontlfvs pora ese fin

Cortoplazo

Idem

CONATEF: COEJER mpresas de distribuciHn de petr6teo

See.de Agricultura/Subsetarfede Agricultura; Banco Central; DGF;CaNATEF; COCERE

Presfdminc; OGf;COF; ER

Presidemnca; Smbsecretarta de RecursosNaturales; DSF; COKATEF

Anexo I

Pigina 9 de 11 Cuestfdn

Probltems especificos

Nedidas resoendadas

abjetivos

d&plicscidn o de incumptimiento de Las femciones necesarias

Prioridad

2. Asignacidn de responCorto plazo sabifidades de DOF, COATEF sobre wn base mis funcionat

Irnstituciones responsablos

Idem

V. Ener.fa residencial Eficienceia del uso final de ta energia

Baja eficieneia de ta producei6n, transforumcidn y consut final de los caubustibles .usados para fines residinciates

Logro de eficieneia en ta producci6n, comercializacidn V uso final de ( energ1a residenciat

1. Aumnto de ta eficiencia en la produccidn de cwrbdn vegetal a por to menoset 30X mediante et uso de mejores hornes; Incresento de la eficiencia de ta cornciatizaci6n de carb4n

Medianoplazo

DGF; CrNATEF;COINER

Corto a a mediens

Presidemia/Secretarfa Tccnica; CONER;CONATEF

2. HeJorar (a efiefencia de tasestufes y otros aparatosque utilizan energfa mediante programs p1Loto y de divutgwcidn basados en encuestas sobre et consa de energia resfdencmal

Coordinaeldn de polfticas

Me hay ningma instftuctdn effcazen candicfones de preperar programs de enargfa residenmiat y coordinar su puesta en prictica

Aumentar(a eficasca de tas estrategias y potiticas relativas a to energia residenclal

Suministro a COINER de las recursos nocesrios pare que pueds cewwertirse en (a fnstftucfdn prlncipat del Gdbferno en la esfera de laenorgfa residentiat

Vi. vfnculos entre et Sector enerqf1ewdio-ambiente Reperctsiones de Ias qperaciones relaciarndas con la energia en et medio abiente

La deforestaciAn y la contaninacidn tienen itportantes repercusiones adversas a nivel local, sin conocer su CEgnitud exacta

Reduccidn y, de ser posible, eliotnacfdn de lssrepercusiones aublentates adversas de las operaciones de energte

1. Apt Icsein de un program de medicidn de (a contuinaciOn stmosf6rica de la regi6n metrapolitona de Santo Doamngo-Haina y F.eparaci6n de un proyecto para rede ir ta contafnacfdn

Corto plaza

Presfdencife/Secretarfa TEcnica; Comtsidn Macionat detMedio Ambiente; DOCT

Airxg

I

Pigina 10 de 11 Cfestfon

Marco jurfdico, institucional y de estrategias

Problaems especfficos

No existe ninswna legislaci6n o reglamentaci6n sobre et nedio arbiente. No hay ninguna estrategia para abordar (as consideraciones asbientales en relacl6n con el desarrotlo energ6tico. La Comfsi6n Nacional del edio Ambienteno tiene la autorided eJecutiva necesaria

Nedidas recomandadas

Objetivos

Adopci6n de uns estrategia de desarrotto energdtico sostenible desde el puntode vista del media ambiente. Creaci6n de institucianes apropiadas

Prioridad

Instituefones responsables

2. Adopci6n de medidas para detener la deforestacfdn e fapulsar la reforestaci6n ,v6ase la Secci6n IV)

Pla0zs corto a mediano

Subsecretaria de Recursos Naturales; OGF; CONATEF

1. PromulgaciWnde tegfslacfdn que sirva de sufe pare ta acci6n en la estera del medio amblente y preparaci6n de Los reglamentos conexos

Inmediata

Presidencia; Pader legistativo

2. FormuLacidnde estraCorto plazo tegias basadasen una cozprensidn clara de la coptementariedad y caIensaciones entre el desarrollo energ6tico y las consideracianes smbientales quo incorporen: 1) reforestaciSn; fi) ffjacfdn de precios de to energfabasadosen los costos ecen6micos; iii)medidasdirectes para mejorarla eficiencia del uso de la energa (v&ase to Seccl6nIII). y iv) cobro del costa de degradaci6n del medio amblent. a los casantesde dfcha degradacfdn

Presi4encia/Secretaria TMcnica; Cmision Nacianal del Medio Mbiente; COEER.CONATEF. OGF

3. Fortalee1miento de taCoffsidnMacianat del ned1iAublente en su cat cterde principal institueidn de coordinacidn

Presidenefa/Secretarfa TMcnica; Coi6i1n aecianat del WedfoArbiente

-.

Vil. InversfOn v Asaftenefa Tdcnfca Program de inversfdn a plazas msdiano a largo

Falta de in prograwa integral de inversi6n para el sector de nergfa y sus principales sIbsectores

Program de inversiondel menor costo minifm para el sector de energfa cam parte del plan global de inversion

Preparaci6n de planes de desarrollo que abarquen et sector de energfa en su conjuntoy suW principales sabhsctores y medidaspara fnermenter

Corto plazo (se precisar6 la actualizac1in sabre una base regular)

Presidencia/Secretaria TEicra; COEER;COE; REFIDONSA; DSF; CONATEF; Coaisidn Nacional del Medio Ambient.

Cuest1in

Probtemas espeefflcos

Obletfvos

Nedids recomendadss

Prfaridad

Inst tIiC es resperabtles

taeficienf a en et usor de onergfaen too pr6xfm*s cfneoafls Cyen forms indfcativa en los cinco afiossbUsiguientes), queestEnen cornsowncla con tametade satisfocer tEaS necesidmdes do energfaat nenor costo econimico y orblentat posible Asistencia t6cnica para et desarrolto energitico

FaLtode coordinecidn an to asistencfa tdcnice, la quese ltimto a aliviar situaclonesde emergencfa. Es insuficiento to participecfdn de los orgenisms operacionotes

Prograsmde asistencds tienics pars spoyar Is fonmtlaelony estrateoges, potfticas y programQSde iawerswines

1. Examen r finetizacidndetprogramsde asistencia tdcnfca propuestoporlemisfin 2. Identificar y solfciter donentespare asistenmis t6enica retelcionda con to enorgia y medlo blente

Irimediato

ldk

,Ane

I

Page I of 10 DOMINICAN REPUBLIC ENERGY ASSESSMENT Summrv of Issues.Obiectives, and RecommendedActions

Specfic Issues

Problems

Measurs Objectives

Recommended 1. Ie

Energy pricing

Energy consevation and substitution

Dcnd

Prices of some petrolemn products (LPG and fuel oil), elctricity, and woodfueis do not cover their conomic costs, causing inefficiet resour- alloation and wviakenig of public finnces and of balance of paymns

Energy pricing conducive to economic efficiency and to genuating funancial surpluses at opeating entkies and fiscal mrvenues

Low efficieny of supply, transformation, and enduse of emergyin Ulmajor adcivitis, caused by inadequate enrgy prices, inadequate maintenance, lack of fandliarity with energy saving teemnlogics, and absence of institutional and financial suyort

Energ savings of at least 20% through improvd housekeep-ing'improved optional practices in indusry, transport, and public buildings

Responsibla Priority

Instiutions

1. Establisheconomic cos-based prices foa aU pdeleum products and eectricity (by end-1991 at the laste)

Short tem

Presidencyof the

2. Increasc stumpage fees on marketed woodfucesso that pnces cover LRMC

Short team

1. Energy audits of induwtrialfirms and public buildings and anendant feasibility studies

Short4o medium term (1991-93)

COENER

2. Prepration of energy efficiency programs in tnupost including enforcement of efficiency standards, dnver education, vehicle maintenance, urban trnsport management, and transpot sector planning consistent "xh energy efficiency goals

Medim term (1993-94)

DOT; ONATRE

3. Extmal funding for energy rationalizationin industiy. public buildings, and tansport

Short trm

FIDE; COENER

Manant

Republic; Frnace and Industry & Commec Sectariates; COENER; CDE; REFIDOMSA NatuwalResources SUecreariat; DGF;CONATEP

s

Page2 of 10

Specific Problems

Issues

Measures Recommended

Objectives

Piority

Responsible Instuions

H. Leal and Instuional Framework Lgislation; ngulations; sectotaland sub-sectoral institutions; privatevs. publicsectorinvolvement

LegislationcoVering electricity,petroleumand fiuevood-reatedactivities is outated, ambigucas, and does not support efficientopeations. No regulatoryframework exists. Privatesector involvemcatis iimpded by uneconomicprice controlsand other estritions

Legal,regulatory,and institutionalftamework.in supportof effective energysectormanagamnt and efficientoperations. Thisincludescreationof conditionsfor enhanced competitionthrough deconcenttation, decentralization,and liberalization of energymarkets

1. Enactappropriate regulationsto new ElcctricityLawin support of extendingprivate sectorpatlicipationin electricitygenerationand distribution

Shot-term

LegislativeBranch; Presidency;Ministryof Justice;COENER

Short term

- ditto-

Sholtterm

FmanmcSecrtariat; Cetnd BankJPIDE; COENER

Short term

PresidencylTechmical Secretariat; Fmance Socreta; Industry & Commerce Secretariat; Natural RCEsourCSubsecretariat; COENER; CDE; REFIDOMSA,

2. Createindepdent and effectiveregulatory agencyto oversee(public and private)opeations 3. Ensureaccessto fing for private investnent in electricity, petrleum, woodfiels and energy rationalization

$

Highly centrlized decision making, inadequate coordination, and resource weaknesses affect institutions a the policy and opeating leVCes

More effective enaey sector management

Upgrade COENER as effective Lteadinstiution in eneray planning and policy coordination; highest levels of Governmcnt to attnd to basic decisions only; substantial entitics and operating agencies to be given appropriate autonomy

1ff. ElectricitySubsector 1. Technical, ftnancial, and institutional position of CDE

SO0MW of installed capacity are out of service and reminder is in poor operating condition, causing frequent swpply

Page3 of 10

-ssues

Specific Pmoblaes

interrptions and lossesof economicactivty estimatedat 3.3% of GDP. CDR has ben debili by inadequate tarffs and psor financial managenent,Govemnt inter-ferece, poor functionalorganization, and managerialand profesionalweaknesses

Objeclives

Measures Recom

Subsetor least-o expansionprogramneeds to be fnalizodand approvedby Govenument, thus integratingCDEprivatesectorinvestment. CDE-self-producer relationshipsneedto be put on soundcontractual footing

Respoble Institutions

2. Secureadequate projccts,through(i) elcricity suppliesthrough implancatingCDEaction increasedinvolvementof plan includingphysical pivadt sectorin system rehabiliation,reductionof expanion losses,tariff adjustments, imprvemen of billingsand collections,and staff d (ii) implemaetingthe contract plan bween the Govemnmtdand CDR envisagingCDE's manageraland opertionl autonomyand CDE's specificcomminments to improveoperations 2. Instalemergency ganeatingequipmeat consistentwith CDP's rehabilaion and east-ost expansion;improveamangemeas withself-producers to supplyelcticity to publiec grid

2. Systapansion

Priority

Least-costexpansion whict:(i) meetselectricity needsof the economyover the mcdium-to longer term at optimalrcliability, (ii) is consistenwith Governmentcor investmentprogrm; and (iii) is suitableto attractlocaland foreignprivat sector financing

Shoitterm

Presidency;CDE; elctricity self-produces

Pae 4 of 10

Issues

3. CDEpsiatuaton

Specific PrPblems

Objectives

Subsectorrhabilitation can be susaied only if

Efircientmanagement and ope_aio ol CDE

Meaes Rccommended

1. Management contractfor nmningCDE

Respoil Int_utio

Priority

Immediate

CDE is pivately owd

Predecy; CDP; Regulty Commision (to be ced

and mgcd 2. Restructuringof CDE throughreducingthe scope of its actities and

Medium tam

-

Modiunm term

esi Lgislative Banch; Regulory Commision;COENER; CDE

ditto -

consoldating reaning

opertions, in regardto (i) genaetion: expansion

projets to be undetaken largelyor exclusiveby privatesector (ii) transnission:while remainingpart of CDE, the systemshouldbe openedto wheeing of elerity fiom non-CDM produces to nonCDMconsumers;(NOi distribultion: to the feasible exten, sping-off local distiution networksand crating independent compais open to pritelmunicipa!/ CDE 3. (OnceCDE is fully rebabilitatedand remtructured:)Govenmat ownershipshouldbe succvely

reduce

throughwidelydrued

-rva pailio"n

- 79-

1}i

I~~

11l1 I

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Page 6 of 10

ams

lhobum products M g

Specific Pmbems

Objectives

Margins while improved ar still insuffwicnt for some products, which

Economically and fiuancially efficient marketing of petroleum

1. Imease margins of petroleum products to levels covering economic cost of

affectsopetions and

products

marketingand to bener

necessr invesmen especiaUllyfor marketing of LPG and kersene in mural areas. LPG stoage capacity is over-sized and uneconomic

c

PSolm

eportion

Intermuon in ptrolum exploration since early 1980s until very rcently on account of (i) restrictive legislation and modal contrat, (Hi) rclativey low Goemmnt prioriy given to perleum exploration. Govenmet

is ilpead

to monitor

company activities

Measures Recommended

Prioriy

Immediate

Responsible Institutiom

Presidency; Fnane Secretariat; Industry and Commerce Secreariat;

COENER

reflect cost differces 2. Eventually, liberalize prices

Medium term

3. Improve LPG and kerosene marketing system through (i) enforcing safety standards, (ii) increasingthe supplyand reducing costs of LPG cylindes thrugh renoving iorot resrictions, aNd(i) expanding formal distibution network in rurml areas

Shoutterm

Finance Secretar; Industry and Comerce Secrceariat;COENER; maeting companies

4. Commissioningof OPUVISA tminal only if this is eonomicay viable

Immediate

Prsidency; Fi-ance Secetariat; ndustry and Commerce Secretariat; COENER; OPUVISA

- ditto -

Annex I Page 7 of 10

Specific Issues

Poblaems

Measures Recommended

Objectives

Priority

Responsible Institutions

Short term to medium term

Presidency; intemational petroleum companies

I. Limit increases in woodfuels demand through (i) dissemnination of improved stoves and (ii) substitution of LPG and kerosene

Medium tenn

CONATEF; COENER; petroleum distribution companies

2. Acclerate reforestation and multi-purpose tree planting, as pant of integrated rural development schems, through providing extension services and improved access to credit

Short to medium team

Natural Resources Subsecreariat; Agriculure oo Secretariat; Central Rank; DGF; CONATEF; COENER

3. Remove legal obstacles to tree planting (e.g. cutting prohibitions)

Immediate

Presidency; DGF; COENER

1. Remove tegal and administrative obstacles to, and grant incentives for, substained-yieid managenent and trec planting

Short tern

Presidency; Natumal Resources Subsecretariat; DGF; CONATEF

2. More fimutional assignments of responsibilities been DGF, CONATEP, and relevant NGOs

Short term

3. Governmentto accept suitable offers by petroleum companies to explore

IV. Forestry and Woodfuels Forest resource managanent

Legal and institutional framework

Large-scale deforestation especialy in dry woodlands. Reforestation is inadequate to cover fielwood deficit, and is hindered by legal, institutional, and financing obstacles. Planttions solely for fuelwood production are unviable

Legislation is outdated and contmdictory; allocation of institioutnal responsibilities is unclear, wih potential for either duplication or noncomplianceof fiuctions

Economically viable and environmentallysustainable woodfuel supplies

Legal and institutional framework in support of improved forest resourec management

- ditto -

PagoB of 10 Issues

Specific Ptoblens

Mcsures Recommended

Objectives

Priority

Responsible nstiutions

V. HouseholdEne, Efficiencyof ener end-use

Lowefficiencyof production, transfomation,and enduse of fuels used in households

Efrfcienthouseholdenergy production,marketing, and end-use

1. Increasecharcoaling efficiencythroughimproved kilnsto at least30%; increas fficincy of charcoalmarketing

Mediumterm

DGF;CONATER; COENER

Shostto mediumterm

Presideny)Technical Seretariat; COE-NER; CONATEP

Shortterm

Presdency/Tchbnical Secretarit; National Environmnal Commisson;DGT

Short-to mediumtenm

Naturl Resouces Subsecrariat; DWF; CONATES

2. Improveefficiencyof stovesand of other energ usingapplinces through pilot and dissemination progapmsbasedon nrg consumptionsurvey Policycoordintion

No institutonis equipped to develophosehold en_g progms and to coornate the

nnimpnntion Impactof energy-rlated operationson enviroment

Defostation and conaminationhave substani advers local impactswhos exten as yet is unknown,however

Bnhanceeffective-nss of householdenergy statgie and policies

Conver COENERinto C tovernmes leadinstitutionin householdenergy mers

VI. enem-EnvironmentalLinkaees Reduceand if feasib1e, 1. Atmosphericpolution eliminateadverse measurementprogramin the environmentalimpacts SantoDomingo-lHaa e g n cnrgy Metropoltanarea and operations preparationof poDlution

abomatemeject 2. Measuresto sten deforedationand to support reforestation(see Section IV)

Page 9 of 10

Specific Problems

Ihms

Legal/institutionaland strategy framewwrk

N4oenvironmental legislalion nor regulations exist. lhee is no strategy to deal with environmental concers as pant of encrgy development. National Enironmental Commission has no executive authority

Measures Recommended

Objectives

Environmentally sustainable energ development strategy and appropriate institutions

s

lmndiae

Preidecy; Branch

2. Fonrulate strategies based on a ckar understanding of the complelpentariticsand tradeoffs between energy development and envitonmenal conermns, incowrating (i) reforestation, (ii) energy pricing based on economic cost, (iii) direct measures to inpowve eergy efficicy (see Section III), and (iv) charg the cost of environmental degradation to originators

Shost term

Presidency/Technical Secretaria; National Envirn-menal Commision; CORNER; CONATEF; DGF

VII. Invesmnt and Technical Assisc Lack of comprehenive invweent progamn for aeergy sector and principal subsectors

Last-C energ investent program, as past of overall investment program

Responsble Insthutions

1. Enact draft legstionto guide environmentalaction and prepare attendant regulations

3. Stengthen National Eviron-vmntal Commission as principal coordinating institution

Medim- to longer term investment program

Priority

Comprhensive development expenditure plans covering ovcrall er sector, principal subsectors and energy sector, prinipal subsectors and energy efficiency measures for the next fivc years (and indicatively, the following five years) consistent with te goal of meeting enery requiremt at Ins

Legislative

Presidency/Techni"cal Secretariat; National Environenta Commission

Annex I

Page 10 of 10 Specific Issues

Problems

Objectives

Measures Recommended

Responsible Priorty

Institutions

economic and environmental cost

TechnicalassisLtance for ener development

T.A. is uncoordinated and focusedon all-viating emergencies.Insufficient involvementby operating agences

T.A programin support of the preparationand implementation of energy sector strategies,poticies, and investennts

1. Reviewand finalize T.A. programproposedby mission

immediate

Presklency/Technical Secretariat;multilateral and bilateraldonors

2. Identifyand approach donorsfor energyand environment-related T.A.

Short term

- do -

.

X .

:

g

'

ENERGY INDICATORS,1980; 1988

I.

~~~~~~~~~~~~~Pace 1'

COMPOS ITE ENERGYSUP-LY/DEMAiw BALANCE

1980

1988

ToO *000 Primary Supplies

*

Percent

2.708

Too *000

Percent

Production

(1,128)

100.0 (41,7)

Net Imports Stock Changes (-Increase)

(1.524) (56)

(56.3) (2,1)

(2.054) (-SI)

Secondary Energy imports

565

20.9

1168m

33.7

1,103

40,7

1.793

Sl 7

2.170

80.1

2,045

82.0

2.170

80,1

2.845

82.0

3,470

t00l0

(1.467)

(42.3) (59.2) (1.5)

COmversica and Dlstribution

Losses Not Supply Secondary Exports Final Consumption Source.

CNE; ENAP; ENDESA; mission estimates

COWOSITION OF FINAL CONSUMPTION - 19lO and 1988 (Percent) BACHARCOAL WOOD GASSE COAL LPG

Total Residential Corcial,

-

11,4 9e3

21.2

GASO- KERO- GAS FUEL LINE SENE OIL OIL ELECT TOTAL

5,9 3.7 14.3 509 3.2

3.2 14,3 16.2 9,8 100.0 0.6 4.9 23.9

PIkI

1.i

Transpowt

Agriculture Industry, aines

14.3

2.1 21,2

OS

2,6

8.6 0,5

0,6 5,2 1507

I.

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1.6 9.0 14.2 Bo0

11

6.0 4.9 20*1 6.0 3.9

5.5 21.5 4.3 12.9 100.0 1,2 4.5 23.7

0.2

26,0

0.6. 3.8 48.4

GASO- KERO- GAS FUEL LINE SENE OIL OIL ELECT TOTAL

0.3 20*1 1.6 1.0 14.2

0.5

0.S

4.3

5.5 0,1

2.6

3.3

30.2

0,4 0.4 15.0 4.2 5.8 42.3

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-93Amnex9 Page 1 of 1

SECONOAnY

'IM

1980 1981 1982 1983 1984 1985 * 1986 .418Y

j¶l;3

COAL

62 41 36 69 71

CtlA\R%VOCD OAGASSE COAL

686 689 69t 694 697 700 702 705 7o

2.558 2.868 3.205 3.20t 2.068 2.338 2.170 2.366 2.21t

-1t.6 d0.4 e..ti .o.0Sounos: COL%R, R1FIOOMSA;Ceatral A-.

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%EnC3O OE-MANCO

197 203 209 215 225 229 240 252 265

Mr.

869 932 L.OZ7 1.154 1.124 1.122 1.254 1.330 t.3a8

GASOUSE

2.497 2.268 2260 2.374 2.556 2.594 3J.158 3.840 4.386

.

7.3 6.0 3.8 aaOkCD4 Faconbndae: Co.VmTEF:CZA.

l;EROSENE

JET FtEL

GAS OIL

137 155 159 149 176 141 209 225 246

406 420 431 497 538 489 671 706 956

2.55 2.3n2 -2.'06 2.253

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t.l1.. um

L.277 2.321 2.956 3.062

FUEL Oll.

.1.140 1.151.307 1.296 1.453 1.ca 1.102 939 711 691

TOTAL

rFTR

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9.760 11.559 6.!t

ELC Tr.WIrY

2.G66 3.005 3.106 3.40n 3. 18 3.5')0 3.U90 4.254 4.049 i

4PC:4o-t&bIeS:3zs11-10-89 94 J?C:do-tabLes:u::I1-I0-89

AnnexI. 10of I ~~Page

FALCC9SRIOGE(FERRONMICKEL) Power Generationand Cruoe Consumotlon

Year

1980 1981 1982 1983 1984 1985 1986 1987 1988

total Electricity Sales to Generation COE GWh GgEh

834 815 632 986 1,105 1.102 1,120 1,446 1,392

290 M95 469 431 412 337 429 431 448

Crude Consumation bbl'OOO

1.759 1,963 462 1.774 2,15a 2,347 2,192 3,422 3,107 _

Age

11

COE' POWERBALANCE tsts~~~~~~~~~~~~~~~~ Ik

_108"16

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3103

8"0t4

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153.0 30.0 33.0 60 68. M5O

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330

-96-^ Annex 12 Page 1 of 1

COEsEL£CT:ICALNe'TY BALANCE

L

'98o

t281 a92

CONSUMPTION Residentiat

1.9s" 72'

2.085 8t8

Catmmevcia tlust:naj PutWicigt ting Governmem

2.31 719 :5 215

25'6 758 26 227 705 25 2%

L

LOSSESANOUNBILLED ae Reqwrements

IL.

REOUiREMENSS

7t6 27..

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t Coet -lttelo - ttooo ii -

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64

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317

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717

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1.909 1.408 510 1t1

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2.209 1.636 289 355

1.391 1.341 25t _00

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121

17

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62

76

67

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40

26

24

64

91

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128 is

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0 ItO 246 55

:4 '3 :5 .

7

6

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514 0 36

319 0 46

355 2 38

209 0 47

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2.t10 840

3.203

11

S. Ilynro - .jr jo -Los .amci

740

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31.35

248

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'.963

188A 752

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2.349

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185

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2L529

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8. Geneaion

'283

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45 86 17

249 120 36

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214 85 5

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113 4.2

117 4.753

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JPCdo.tables:sZ:11I10-89

- 97-

Annex 13

Page 1 of 1

ELECtAIC1TY - RESICEtNTIAL CCNSUMPTION OATA

Consumption (GWh) Customers at year end

1970

1975

1980

1985

Is9o

1987

263.6

450.7

723.9

906.2

950.2

1101.4

175.160 243,200

351.800 487,CO

1908 (est.) 1059.0

S03LOC0S25.CO 525,1CO

Consumot ion Per customer (kWh/year)

1,544

1.897

2,199

1,964

1,923

2:.93

2.017

Electr ification Ratio

253.4

26,41

500.31

35.9S

3;.3r.

37.71

37.71

Source:

COE

.. 'L

-98-

Annex 14

PROJECTED HOUSEHOLD ENERGY CONSUMPTION

Page1 of

TRENDSCMARIO TOE '000 '93

:93n3

___

FueC!_JCCo URBAN RURAL

227 5 222

100 2 98

242 ' 2.37

1C0 98

CHARCOAL URBAN RURAL

172 1.34 33

100 -,a 22

207 16a -9

100 G35 ^1 I

ZS 5 30

1aO 13 37

LPG URBAN RURAL

112 1Ca

100 96

197 191

4

o

EL-:CR;c:rr

129 124

KE0CS1E URBAN RURAL

4

JRPAN PURAL

0oo 96

5

4

::9

___

iCO 5

Z5_

98 !00

::o -5

7

554 !o

9

IOC 97 3

-,-3 :99 9

*O 97 3

1O oo54 96

::6

54 *CO * 17 45 _,3

169 162

___

7

!00

4

3

37 .

ACTION ORENTEDSCENARIO TOE 1000 t818

°993

_

__

FUELVlCCD URBAN

227 5

100 2

.34 5

100 2

:55 3

*Q 2

RURAL

222

98

229

98

152

98

CHARCOAL URBAN RURAL

172 134 38

100 78 22

96 78 18

100 31 19

17 14 ;

100 8.3 17

35 5 30

ICO 13 37

69 12 57

100 17 33

:55 29 126

'CO 9 8t

LP5 URBAN RURAL

112 108 4

100 96 4

:04 198 6

100 97 3

363 35 11

100 ?7 3

ELEC-RiOfY UReN PUPA

129 t24

100* 96 4

168 161 7

100 .96

241 t 7

'95 )7 3

KEROSENE URBAN RURAL

*

5

4

-99ENERGYSECTOR MANAGEMENTASSISTANCEPROGRAME COPLETED ACrTVITIES

Cowary

Acdy

Dhte

Number

07/88

085/88

08/88 02/89 05/89 08/89

087/88

SUB-SAHARANAFRICA AfricaRegional AnglophoneAfricaHousehold EnerqyWorkshop RegionalPower Semnar on ReducingElectrc Power System Loes in Africa Istitutional Evaluationof EGL BiomassMappingRegion Workshp FrancophoneHouseholdEnergyWo*rshop InterafricanElectricalEngineeringColee Proposalsfor Shortand Long-TermDevelopment Biomas Assessmentand Mapping Angola Energy Assessmnt Benin Energ Asessment Botowanka EnergyA_essnmt Pump ElectrificationPrefeasibilityStudy Reviewof ElectricityServiceConnectionPolicy Tui Block Fams Electification Study HouseholdEnergyIssues Study Urban HouseholdEnergyStrategy Study BwkinaPFas EnergyA_essment TechnicalAssistanceProgram Burundi Energy Assessment PetroleumSupplyManagement Staou Rport Presentationof EnergyProjects for the Fourth Five-YearPlan (1983-1987) ImprovedCharcoalCookstoveStrategy Peat UtilizationProject Cape Verde Energ3rA _snt HouseholdEnergyStrategy Study Comoros Eneqy Assessment Congo EnergyAssessment Power DevelopmentPlan C6te d'Ivoire Energy Assessment ImprovedBiomassUlization Power SystemEfficiencyStudy Ethiopia Energy Assessment Power SystemEfficiencyStudy Agricultual ResidueBriquettingPilot Ptoject Bagass Study CookdngEfficiencyProject Gabn E A _mt The Gamba EnergyAssesnt Solar Water Heaing RetrofitProject Solar PhotovoltaicApplications PetroleumSupplyManagementAssistce

03/90 03/90 )05/89 06/85 09/84 01/86 07/87 07/87 02/88 05/91 01/86 03/86 06/82 01/84 02/84 05/85 09/85 11/85 08/84 02/90 01/88 01/88 03/90 04/85 04/87 12/87 07/84 10/85 12/86 12/86 12/87 07/88 11/83 02/85 03/85 04/85

098/89 -

103/89 112/90 -

4708-ANG 5222-BEN 4998-BT 047/86 071/87 072/87 -

132/91 5730-BUR 052/86 3778-BU 012/84 011/84 036/85 042/85 046/85 5073-CV 110/90 7104-COM 6420-COB 106190 5250-IVC 069/87 -

4741-ET 045/85 062/86 063/86 -

6915-GA 4743-GM 030/85 032/85 03S/85

- 100-

Cont Ghana

AMv

EnergyAssessment EnergyRationalizationin the IndustrialSector SawmillResidussUtDUzation Study Guinea EnergyAsesswment Guinea-Bissau EnrxgyAssessment ReccaimendedTechnicalAssistanceProjects ManagementOptionsfor the ElectricPower and Watr Supply Subsectors Power and Water InstitutionalRestructuing (Fench) Kenya Energy As&sssment Power SystemEfficiencyStudy Status Report Coal ConversionActionPlan Solar Water HeatingStudy Peri-UrbanWoodfiielDevelopment Power Master Plan Lesotho EnergyAssessment Liberia EnergyAssessment RecommendedTechnicalAssistanceProjects Power SystemEfficiencyStudy Madagascar EnergyAsessment Power SystemEfficiencyStudy Malawi Energy A _essment TechnicalAssistanceto Improvethe Efficiencyof Fudwood Usein the TobaccoIndusty StatusReport slamicRepublic of Mauritania EnergyAssessment HouseholdEnergy StrategyStudy Mauritius Enegy Assessment StatusReport Power SystemEfficiencyAudit BagassePower Potential Mozambique EnergyAssemet HouseholdElectricityUtilizationStudy Niger EnaergyAsswsment Status Report ImprovedStovesProject Houehold Energy Conservationand Substitution Nigeria Energy Assessment Rwanda Enery Assessment StatusReport ImprovedCharcol CookstoveStrategy ImprovedCharcoalProductionTechniques Sao Tome andPrincipe Energy Assst10/85 Senegal Enegy Assmmnt Sttu Report IndustrWial Energy ConservationStudy Ppaty Assistancefor Donor Meeting UrbanHouseholdEnergy Strategy

Di te

Nunmer

11/86 06/88 11/88 11/86 08/84 04/85

6234-4H 084/88 074/87 6137-GUI 5083-OU1 033/85

02/90 04/91 05/82 03/84 05/84 02/87 02/87 10/87 11/87 01/84 12/84 06/8'5 12/87 01/87 12/87 08/82

100/90 118/91 3800-KE 014/84 016/84 -

066/87 076/87 -

4676-LSO 5279-LBR 038/85 081/87 5700-MAG 075/87 3903-MAL

11/83 01/84

009/83 013/84

04/85 07/90 12/81 10/83 05/87 10/87 01/87 03/90 05/84 02/86 12/87 01/88 08/83 06/82 05/84 08/86 02/87

5224-MAU, 123/90 3510-MAS 008/83 070/87 077/87 6128-MOZ 113/90 4642-NIR 051/86 080/87 082/88 4440-UNI 3779-RW 017/84 059/86 065/87

07/83 10/84 0S/8S 04/86 02/89

S803-STP 4182-SB 02S/84 037/85 056/86 096/89

-101-

Countiy Seychelles Sierra Leone Somalia Sudan

Swaziland Tanzania

Togo Uganda

Zaire Zambia

Zimbabwe

Acr*t E0ergy A1ssst Electric Power SystemEfficiencyStudy Energy Asment Energy Assessment ManagementAssistanceto the Ministryof Energyand Ming Energy Asmesnt Power System EfficiencyStudy Stts Report WoodEnergy/Foresty Feasibility Energy Assessment Energy Asment Peni-UrbanWoodfuelsFeasibilityStudy TobaccoCuring EfficiencyStudy RemoteSensingand Mappingof Woodlands IndustrialEnergy EfficiencyTechnicalAssistance EniergyAssessment WoodRecoveryin the NangbetcLake Power EfficiencyImprovement Ener Assessnt Staus Report nsitutional Reviewof the Energy Sector EnergyEfficiencyin TobaccoCuring Industry Fuelwood/ForestryFeasibilityStudy Power SystemEfficiencyStudy Energy !;fficiencyImprovementin the Brick and Tile Industry TobaccoCuring Pilot Project Ene0gAwssment Energy Assesnt Sts Report Energy Sector InstitutionalReview Power SubsectorEfficiencyStudy Energy StrategyStudy Urban HouseholdEnergy StrategyStudy Energy Aessment Power SystemEfficiencyStudy StatusReport Power Sector ManagementAssisance Project PetroleumManagementAssistnce Power Sector ManagementInstitutionBuilding CharcoalUtilizationPrefeasibilityStudy

Dote

Numner

1/84 4693-SEY 08/84

021/84

10/87 6597-SL 12185 5796-SO 05/83 003/83 07/83 4511-SU 06/84 018/84 11/84 026/84 07/87 073/87 02/87 6262-SW 11/84 4969-TA 08/88 086/88 05/89 102/89 06/90 08/90 122/90 06/85 5221-TO 04/86 Q55/86 12/87 078/87 07/83 4453-UG 08/84 020/84 01/85 029/8S 02/86 049/86 03/86 053/86 12/88 092/88 02/89 097/89 03/89 UNDP Terminal Report O5/86 S837-ZR 01/83 4110-ZA 08/85 039/85 11/86 060186 02/89 093/88 02/89 094/88 08/90 121/90 06/82 376S-ZIM 06/83 005/83 08/84 019/84 04/85 034/8S 12/89 109/89 09/89 06/90 119/90

-102-

Conway

ActdWty

Dale

Nunaber

11190

-

ASIA AND THE PACDFIC Asia Regonal

Pacific Householdand Rural EnY

Sm

Bangladesh oEIWWg AsseS9nent PtialitY IIV9nvestn PhOJ SWa"sReport

02/85 12188 05/89 06/83

031/85 101/89 105/89 4462-FlI

11/88 07/90 11/81 09/84 02/86 04/87 12/88 02/90 12/90 03/87 06/85 08/83 01/85

091/88 120/90 3543-IND 022/84 050/86 067/87 095/88 107/90 124/90 068/87 5416-BA 4474-NEP 028/84

E=V Aessnnt 06/82 StatusReport 07/83 EWngyStrtegy PAper InstitutionalReviewNinthe EnergYSector 10/84 Poore. Tariff Study 10/84 SolomonIslands EnergYAwnt 06/83 SouthPacific Ptroleum Transportin the SouthPacific 05/86 Sri Lanka Eneq Aaennt 05/82 07/83 Power SydsemLos ReductionStudy Status Reot 01/84 Industa EnergyConservationStudy 03/86 Thailand Ey Awesmnt 09/85 Rural Energy Issuesand Options 09/85 AcceleratedDimination of ImprovedStovesand Charcoa Kilns 09/87 Norhest RegionVillageForestry and Woodfiels C,2g8 PreinveatmentStudy 08/88 Impactof Lower Oil Prices 10/89 Coal Developmentand Utilizaion Study Tonga Etgy A _t 06/85 Vaumatu Ene0 A _t 06/85 06185 Wasteinsmw EoorAssessment

3882-PNG 006/83 023/84 024/84 4404-SOL 3792-CE 007/83 010/84 054/86 5793-TH 044/85 079/87

China Fiji Iudia bndonesia

Malaysia Myannw NXepal Papua New Guinea

Power SystemEfficiencyStudy SmDllScale Uses of Gas Prefeaibiity Study ts County-LevelRundEnergYAme FuelwoodForestry PreinvestmentStudy Energy A _t Opportunitiesfor Cmcialization of Nonconvenional EnergySystems BagasseCogeneation Preinvestoet Study Enrgy Assment StatusReport Power Geneation EfficiencyStudy EnergyEfficiencyin the Brick, Tile and Lime adustries Diesel GeneratingPlant EfficiencyStudy Urban HouseholdEney Strategy Study BiomassGasifierPrinvestment Study SabahPower SystemEfficiencyStudy Earg Asessment Pnet8y Adsess¢ent Stitus Report

10/82 3873-BD J05/83002/83 04/84 015/84

12/89

083/88 -

S498-TON 5577-VA 5497-WSO

-103-

CeimbY

Activity

Df.

Nwubr

EUROPE, MIDDLE EAST AND NORTH AUCA (MENA) A3sset Status Report Ener A _S88 Household Assessment of PhotovoltdcPrograms, Applicatios, ad Mak Alt y A0sSmt Electric Power EfficiencyStudy Energy Efficic Improvemet in the Cemt SeCtOr Ener EfficiencyImProvementin the Ffedlir SOctr

10/89 04/84 05/86 09/88 04/89 06/90

Tunisia

Fuel Substiutilon

03/90

TurkY Yemen

EY Aeyt Ener Asement EnergyIvestmoet Priorities

03/83 12/84 02/87

103/89 4824-PO 5822SYR 089/88 099/89 115190 3877-TU 4892-YAR 6376-YAR

HouseholdEnergyShatg Stdy Phse

03/91

126/9

Morocco Pakistan Portuga Syria

LATIN AhMCA LAC Regional

Bolivia

chile Colombia Costa RiCa Dominican Republic Ecuador

Hondus Jamaica

Pans81

-

ANDTIHECARIBBEAN(LAC)

RegionalSeminaron Eleclc Power SystemLoss Redu

in the Caribbean t Ener A Natnl EnergyPlan La PazPrivat PowerTecbnicalAs NaturalGasDistribution Prefeasibility EvaluationRurl BlectificationandDemad _04/91 Er Sector Review Paper EneY Str EnergyFAmeS_t As _otoPW R_ TOChniCII Forest ResiduesUtilizationStudy E¢nr; Assesme0t EQetgA8Se8t Energy Satgy Ph

8

I

EmWSbiWa Haiti

0/84 0Energ 4157-MOR 01/86 048/86

EQe Sl0XBRepoit E A PetroleumSupplyManagemet EneyAmes t PetroleumProcrement, Refining,and DistnbutioAStudy EnergyEfficiencyBuildig Code Phase I EnergyEfficiencyStndards and Labds Phase I ManagementIn_ormationSystemPhase I Charcoa ProductionProject SawmiliRedues Utilzation Study FMDCO Power SySem EfficiencyStudy

07/89 04/83 4213-BO 12/V87 11/90 111/90 03/91 12S/91 08/88 1286 01/84 11/84 02/90 OS/91

129/91 7129-CH -

465S-CR 027/84 108/90 8234-DO

12/85 S865-EC miss0788-

~~~~~~~04/91 06/82 08/8S 08/87 03/91 0418S 11/86 03/88 03/88 03/88 09/88 09/88 06/83

3672-HA 04118S 6476-H1O 128/91 S466-3M 061/86 -

090/88 088/88 004/83

- 104-

Acdtvt

Date

Number

EnergyAsmsmesnt Rcommended TechnicalAssistalce Projeca StAu Repofn Ener As_t Stts Report Proposal for a StoveDissmination Program in tOeSiora EnargsyStralegy EneW A_nmmt

10/84 09/85 09/85 01/84 08/8S 02/87 12190 09/84

5145-PA

09/84

5103-STy

12/85

5930-TR

11/89

-

04/90

-

Cowry Pa Peru

y

Saint Lucia St. Vincentand the Grenadines Energy Assessment Trinidadand Tobago Energy Assessment

-

043/85 4677-PB 040/85 064/87 S111-SLU

GLOBAL EnergyEnd Use Efficiency:Researh and Strategy Womenand Energy-A ResourceGuide he Intematonal Network: Policiesand Experieno

053191

UNITEDSTATES OFAMERICA

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