KAUNAS ENERGY SECTOR & MODERNISATION PROJECT

cancelled

The project consists of: (i) restructuring of the Kaunas energy sector and establishing a private concession for its management and development; and (ii) the modernisation of the co-generation infrastructure. The project supports the introduction of private management under a lease agreement for the operation of the local ditrict heating system and the two combined heat and power plants. It also promotes the establishment of independent energy suppliers and the improvement of the environmental performance. Moreover, the project will act as a pilot as the sector is still untested in terms of private investment and privatisation. Kaunas Energy Company (KEC), a single-purpose company owned by the Kaunas Municipality which will own the combined heat power plants and district heating supply system (the infrastructure). Operation and maintenance of the assets are likely to be transferred under a commercial contract to a private company. The EBRD is likely to extend a US$ 32 million (ECU 28 million) long-term loan to KEC under a sovereign guarantee. The Council of Europe Social Development Fund is likely to provide co-financing of US$10 million. KEC will also provide its own funds (US$ 12 million). The total project cost is US$ 54 million (ECU 47 million). The project was classified as B/1 requiring an environmental analysis and audit. These were carried out prior to the Bank approval. The main environmental objectives of the Project are: An Environmental Action Plan (EAP) was developed which will bring the company's operations in line with Lithuanian regulations and World Bank environmental guidelines. KEC’s two thermal power stations (Kaunas and Petrasiunai) use natural gas and heavy fuel oil. Although the plants are generally in compliance with relevant national standards the use of heavy fuel oil frequently results in higher local ambient sulphur dioxide levels. NOx emissions are just below the limits set by the relevant national standard. Particulate emissions would be an issue only when a significant amount of heavy fuel oil is burnt. The company has committed to increasing the use of natural gas, and to limiting heavy fuel oil use to emergency situations only (included in the EAP). This would reduce the emissions of both sulphur dioxide and particulates. No environmental improvements are planned for the Petrasiunai CHP plant at present, since it is awaiting the final decision of the regulatory authorities regarding its closure (to be achieved not later than December 2000). If the decision is taken to continue operating the plant, the company will develop a programme of environmental improvements for approval by the Bank latest by July 2001. The EAP also includes the following measures: upgrading of boilers at Kaunas CHP to further reduce NOx emissions; improving health and safety management; and improving waste management (particularly the handling, storage and disposal of asbestos). Two technical cooperation studies have been awarded for the purpose of project definition (technical feasibility study) and implementation of the new structure for the sector (concession preparation).