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(total cost US$ 653,000; requested GEF funding US$ 653,000)
39. The successful implementation will require the strengthening of EnEffect with the training of existing staff and recruiting of additional staff, as needed, to ensure a small, dedicated management team. A Chief Project Manager (CPM) will have overall responsibility for the management of the program, including the DZ Support Office located administratively within EnEffect, the demonstration and dissemination activities. The CPM will provide overall leadership and oversight of the project to ensure budget, schedule, and goals accomplished. He is the lead for the policy activity to translate the lessons learned to national policy recommendations. The CPM will be supported by a Business Manager and a secretary. A foreign consultant will provide assistance to the project manager during the first 2 years of the project.
40. The CPM will draw up Terms of Reference for the staff and supporting contracts that cover the overall work plan. The management philosophy will be to keep the management team small through the maximum use of contracts that tap the capabilities of existing programs so that the DZ Program is seen as enhancing existing efforts and not duplicating current activities. All contracts will be awarded competitively on the basis of merit. Management consultants, with extensive experience in managing large energy projects with an emphasis on quantifiable results, will be appointed to draw up detailed work programs for each project. A National Capacity Building Coordinator will be responsible for coordinating all National Capacity Building activities; a Demonstration Coordinator will be responsible for coordinating the demonstration activities. A financial/economic analyst will be responsible for providing financial and economic analysis and business planning support to all elements of the project and play the lead in subproject 3.
Within each project, the work program will be expected to achieve explicit targets for the replication of project. The contracts with international consultants will provide for the training of local personnel in order to build a self-sustaining capacity to run the Program.
41. The CPM will focus his/her efforts on obtaining concrete, replicable results. The project managers and contractors will be hired on performance-based agreements in order to achieve this goal.
42. This program is fully consistent with Operational Programme #5 (Removing Barriers to Energy Conservation and Energy Efficiency) of the GEF Operational Strategy.
43. The GEF contribution requested is $US 2,575,000. The funds are primarily devoted to the enhancement of the Governmental effort in favour of energy efficiency with particular emphasis on capacity building to overcome technical, economic, and managerial barriers and to create self-supporting activities. The program will create greater energy efficiency and facilitate measurable reductions of GHG emissions. The program is a national priority within the context of the National Environmental Strategy. The institutional and technological assistance provided by the program will be an important step toward creating an attractive climate for future investments in the Bulgarian economy. The program itself will lead to investment in energy efficiency projects by other institutions. However, at this time, the GEF funds are needed to catalyze the project and to pay the foreign exchange costs in the technical assistance and demonstration portion of the project. The GEF funds are largely devoted to staffing and foreign exchange costs for technical assistance and demonstration components of the project.
44. A similar investment for global benefits cannot be justified in the current economic context by the Government of Bulgaria. Through the GEF funding, combined with the Governmental and donor involvement, Bulgaria will benefit from lower energy intensity, and improved environmental conditions--including a substantial contribution to the implementation of the FCCC. The proposed program also meets the following development criteria, in addition to falling within the global environmental protection area. The program:
(a) Contributes to human welfare through sustainable development;
(b) Is innovative and internationally replicable;
(c) Is financially sustainable after initial GEF support with the involvement of local financial institutions and other donors;
(d) Gives new dynamic and environmental dimension to on-going Bulgarian activities;
(e) Develops institutional capability and trains personnel;
(f) Has a firm scientific and technical basis;
(g) Fits within the context of existing national, regional, and municipal programs;
(h) Involves local participation and collaboration;
(i) Includes studies that will lead to a better understanding of energy use patterns in Bulgaria;
(j) Will have quantifiable results within the project timetable.
45. In 1992, EnEffect initiated a discussion with the Bulgarian Government and municipalities to assess their interest in the DZ program. After receiving a positive response, EnEffect contacted five municipalities, which had shown an interest in the program, and selected Gabrovo because of the demonstrated commitment of its municipal leaders. EnEffect submitted an initial proposal for selecting Gabrovo as an energy efficiency demonstration zone at a 1992 meeting in Rome of the EE-2000 Program of the UN ECE. After receiving additional guidance, EnEffect prepared and resubmitted a revised proposal to the UN ECE Secretariat.
46. In 1994, funds were granted by the GEF as a project preparation facility for the preparation of energy efficiency strategies in Central and Eastern European Countries. Additional preparatory work for the demonstration zone was undertaken by EnEffect together with the Municipality of Gabrovo, including consultations with governmental and non-governmental institutions.
47. The preparation of a revised, final project proposal was initiated in June 1995 with GEF funding through the UN ECE. Preliminary consultations with potential project participants and funding sources were carried out by EnEffect. Letters of support from these contacts were received During the preparatory process, valuable technical assistance and technical reviews were provided by a number of local and international institutions. The Bulgarian Ministry of the Environment, the Ministry of Industry and the Committee for Energy assisted EnEffect in defining the scope and goals of the proposal. Major contributions were provided by international organizations and programs, including the UN ECE Energy Efficiency 2000, UNDP/GEF, Battelle/Pacific Northwest National Laboratory (USA), the U.S. Department of Energy, and Novem (The Netherlands). The instructions on project preparation and methodologies for evaluation of incremental costs, provided by GEF technical experts, served as practical guides during the preparatory process.
48. A national meeting was organized by the Ministry of Environment, the UNDP country office, and the Bulgarian Foundation for Energy Efficiency EnEffect on January 19, 1996 in Sofia. Participants from Bulgarian governmental and non-governmental institutions, and from international organizations, foreign missions and companies discussed the project and agreed upon a memorandum of its support.(See attached Memorandum ).
49. A donors' meeting was held on the 19th of March, 1996. The meeting was organized by the Ministry of Environment and the Bulgarian Foundation for Energy Efficiency EnEffect. The meeting was attended by responsible officials of embassies and international organizations representatives located in Bulgaria. The goal of the meeting was to provoke donors' interest in supporting the project and show the possibilities for co-operation.(see attached minutes from the meeting).
Financial Sustainability
50. The project is expected to be sustainable beyond the initial phase of the GEF support primarily because it will be providing a commercial service for which, once successfully demonstrated, there will be a continuing demand. The industries and expertise created with project support will be able to market their services to potential clients both within and outside the initial demonstration zones.
51. Energy prices in Bulgaria are being raised toward world market levels. With more that 50% of the country's energy imported, this pressure is continuing. These high prices are making it financially attractive for a growing number of organizations to implement energy management and energy conservation investment programs. The project aims to significantly improve the capacity of Bulgarian organizations to undertake sustainable energy efficiency programs, as well as to make significant reductions in GHG emissions.
52. The project is intended to work for financial sustainability itself by focusing on overcoming the financial barriers by different types of activities and introducing working financial mechanisms.
Funding Partners Activities
53. Bilateral and multilateral donor activities in energy efficiency measures started in Bulgaria in early 90s. In 1992 the U.S. Government supported the establishment of the Bulgarian Foundation for Energy Efficiency EnEffect and contracted its activities through US AID for the first three years. Demonstration projects were applied for the cities of Plovdiv, Gabrovo and Stara Zagora. In 1996 US AID starts a new energy efficiency project for Bulgaria, Municipal Energy Efficiency Initiative. It is planned to be realized in close cooperation with the GEF project for Gabrovo as parallel financing. This project will focus on expanding the role of private companies in the delivery of energy efficiency services at the municipal level, by providing training, demonstration projects and equipment. This work expands upon previous USAID-sponsored work at the municipal level, and supports Bulgaria's UNDP/GEF efforts.
54. In 1992 Directorate General XVII (Research) of the Commission of the European Union established an Energy Centre in Bulgaria whose activities are directed mainly at increasing the efficiency of the supply side. This Centre will support the GEF project by some in-kind activities. The PHARE 93 Programme for Conventional Energy established an Energy Project Implementation Unit within the Committee of Energy. The Programme has 3 major components: a project for evaluation of the Bulgarian renewable energy sources, a project on regional energy concepts, and a project on demonstration of energy efficiency in buildings. Although in different phases of advance, the GEF proposal was coordinated as much as possible with the PHARE programme, and mainly with the Regional Energy Concept/ Regional Energy Centre for Pilot Region I - Lovetch, and the Demonstration project for energy efficiency in buildings. Further co-operation of activities is agreed upon.
55. The European Bank for Reconstruction and Development (EBRD) is in a process of preparing a delivery mechanism for financing energy efficiency projects in Bulgaria. It is expected that a specified credit line, possibly with an ESCO, will be established. Representatives of the bank have been informed about the Demonstration Zone proposal who have assessed these projects as acceptable for future possible financing by the bank.
56. The Japanese Agency for International Cooperation (JICA), in cooperation with the Bulgarian Ministry of Industry, is working for increasing the energy efficiency in industrial enterprises, concerning mainly industrial technologies. JICA has equipped an Energy Efficiency Center to the Ministry of Industry which made a number of audits over the last years. The Agency supports the GEF project. The embassy of Japan expressed readiness to coordinate JICA's on-going program through UNDP and in due time will determine the amount of funds for parallel financing of the Demonstration Zone proposal.
57. The National Environmental Fund was established in 1992. The assets of the Fund may be spent for state assignments related to environmental protection, participation in joint environmental actions in the municipalities, lump sum allocations to individual municipalities for implementation of environmental activities, maintaining and upgrading of the system of monitoring and control on environmental protection, etc. The Regulations on Collection, Disbursement and Control of the Assets of Environmental Funds define the procedures for applying to the Fund. Financing can be achieved as a grant , as a loan, as low interest loans etc. A letter of support from the Ministry of the Environment as manager of the Fund states that the project complies with the priorities for allocation of funding from the Fund.
58. Bulgarian COE is the state body responsible for the energy sector, including energy efficiency. The Committee elaborated a draft of an Energy Efficiency Act which is in process of passing through National Assembly. Its principal objective is to create a legal framework for a national energy conservation policy. Some provisions under this law will be beneficial to this project.
59. Regulations for the establishment of a National Energy Efficiency Fund were adopted. No real input has been provided into the fund until now. It is expected that the fund will start working after the Energy Efficiency Act is adopted. The principles applied to the fund's disbursement will be preferential. During the 5 years of the project, the fund will start working and can be used for its funding.
60. The most serious point raised by the technical reviewer deals with the importance of installing heat meters and developing a scientific formula for heat tariffs. In his experience, this represents a critical barrier to the implementation of greater efficiency in district heating systems throughout former centrally-planned economies. With serious attention paid to the heat metering component, he did not feel that such systems could be improved.
61. Since receiving the reviewers comments, the section of the proposal dealing with district heating has been rewritten to reflect a strengthened emphasis on metering, tariffs and the development of a consumption-based billing system. In addition, a separate element has been added under subproject 5 dealing with district heating renovation to place greater emphasis on the importance of providing technical assistance to remove this barrier.
62. The indicative total cost of the project is US$ 8,575,000 (Tables 1, 2 and 3). The contribution of the central and local governments of Bulgaria is estimated at US$ 2,478,000. US$ 1,000,000 of them can be allocated as direct support for the demonstration projects by the National Environmental Fund after passing the legal procedures posed by its regulations. US$ 533,000 will be put into the District Heating demo-projects by the host company which is state owned. Bulgarian contribution is directed mainly into the demonstrations (US$ 647,000 for energy efficiency street lighting, US$ 1,033,000 for district heating systems and US$ 616,000 for retrofitting of buildings).
63. A commitment of US$ 850,000 from US AID and part of the network equipment is expected by parallel financing of some of the activities included in the project. Distribution of this funding among the different components can be revised after finalizing US AID plans.
64. Requested GEF funding is directed mainly to the capacity building activities. Some technical assistance under GEF funding for the engineering studies within the supporting demonstrations is envisaged. A small stimulating financial support in the initial stage of the demonstrations will provide for the successful start of the project.
65. Within the project management activities the preliminary agreements for financing will be finally settled and new funding sources and mechanisms can be found. GEF support for the project is expected to stimulate other donors' and credit institutions' funding for these activities.
66. In the absence of GEF support, the Bulgarian Ministry of Environment's programme would continue much as they have in the past three years. The Ministry would not support the kind of capacity building activities outlined in this proposal in the absence of GEF funding. The widespread dissemination of practical energy efficiency to Bulgarian energy users would occur at a much slower rate without these activities.
67. However, the Government would continue to strive to meet its obligations under the FCCC and rising energy prices would apply pressure for increased energy efficiency, although the effect would be spotty and inconsistent, particularly at the municipality level, without the comprehensive effort embodied in this proposal. The participation in energy efficiency programs at the local government level, which is critical to "grassroots" reform, would not be financed by the Bulgarian government acting alone. Dissemination of energy-saving and environment-protecting technologies throughout the country would occur, but only very slowly.
68. Further details concerning incremental costs issues associated with the each subproject are shown in Annex 1 (the Incremental cost annex). From this, it is clear that there are two categories of incremental costs to be supported by the proposal:
(a) costs to remove the transaction barriers (components 1 to 6);
(b) zero baseline costs specific to the purpose of the project management locally executed (component 7).
69. The proposal has been conformed with the specific conditions in Bulgaria and answers the acute needs of the country in the period of transition to a market economy. The projects included in the program are oriented to overcoming the existing barriers to energy efficiency and energy conservation. The most important barriers have been identified in the description of each subproject. Besides there are potential risks of general character whose preliminary knowledge is a necessary condition for the successful program implementation. The most essential potential risk is the continuing economic stagnation in the country which is especially hard in industry. This is the main reason to focus the efforts in the communal sector of a municipality mainly. The ongoing state subsidies for the energy sector are one of the most essential barriers. If the barriers are not attacked in the right way they may cause difficulties in the program implementation. The objectives described in the proposal and the actions and measure foreseen in the projects take into consideration the current situation in the country and try to avoid to a great extent the most crucial risks in the country.
70. The CPM and DZ Support Office staff will be located within the Bulgarian Foundation for Energy Efficiency (EnEffect), which will be the executing agency for the program, under the auspices of the Ministry of Environment and the Sofia office of the United Nations Development Program. Funding Partners will meet in a Financing Sub-Group where they will be informed of project progress by the CPM and will make overall project management decisions.
71. A National Steering Group will be established to oversee the whole project and will include representatives from institutions such as the Ministry of Environment, Ministry of Industry, Ministry of Finance, Committee on Energy, NEK, Bulgarian Academy of Sciences, Technical University, Association of Energy Engineers - Bulgarian chapter, Federation of the Technical and Scientific Unions etc. Local representatives of UNDP, European Union, US AID, EBRD, World Bank will be potential members of the National Steering Group too.
72. The Gabrovo municipality will have a local Steering Group to ensure local management and involvement. This is expected to be made up of representatives from the municipality, local industry, trade unions. To help guide the demonstrations and disseminate the results, each of the demonstration projects will have an advisory committee made up of technical experts and technology transfer specialists.
73. Monitoring and evaluation will be performed by expert teams, based on the guidance from the Steering Committee and according to the UNDP rules and the requirements of GEF and other funding institutions. A M&E task will be an integral part of each project. M&E will be carried out independently for the intent and purpose of providing constructive feedback to improve subsequent implementation efforts. Overall reviews of the entire program will be made after the first 18 month and after the end of the project. A budget line of US$ 50,000 is included to cover these activities.
Energy Efficiency Renovation of District Heating and End Use
Incremental Costs, Annex I:
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