Energy Sector Management Assistance Programme Jamiaica Energy Sector Strategy and Investment Planning Study Volume I: Main Report Report No. 135A/92 JOINT UWDP / WORLD BANK ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMdME (ESMAP) PURPOSE The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) was launched in 1983 to complement the Energy Asment Programme, established three years earlier. ESMAP's original purpose was to implement key recommendations of the Energy Assessment reports and ensure that proposed investments in the energy sector represented the most efficient use of scarce domestic and externa resources. In 1990, an international Commission addressed ESMAP's role for the 1990s and, noting the vital role of adequate and affordable energy in economic growth, concluded that the Programme should intensify its efforts to assist developing countres to manage their energy sectors more effectively. The Comwission also recommended that ESMAP concentrate on making long-term efforts in a smaier number of countries. The Commission's report was endorsed at ESMAP's November 1990 Annual Meeting and prompted an extensive reorganization and reorientation of the Programme. Today, ESMAP is coductng Energy Asements, performing preinvestment and prefeasibility work, and providing institutional and policy advice in selected developing countres. Through these efforts, ESMAP aims to assist govements, donors, and potential investors in identifying, funding, and implementing economically and environmentally sound energy strategies. GOVERNANCE AND OPERATIONS ESMAP is governed by a Consultative Group (ESMAP CG), composed of reprsentatives of the UNDP and World Bank, the govements and institutions providing financial support, and rverentatves of the recipients of ESMAP's assistance. The ESMAP CO is chaired by the World Bank's Vice President, Operations and Sector Policy, and advised by a Techeical Advisory Group C(AG) of independent energy expert that reviews the Ptogramme's strategic agenda, its work program, and other issues. The Manager of ESMAP, who report to the World Bank's Vice President, Operations and Sector Policy, administers the Programme. The Manager is assisted by a Secretariat, headed by an Executive Secretary, which supports the ESMAP CO and the TAG and is responsible for relations with the donors and for securing funding for the Programme's activities. The Manager directs ESMAP's two Divisions: The Strategy and Programs Division advises on selection of countries for assistance, cames out Energy Assessments, prepares relevant programs of technical assistance, and supports the Secretariat on fimding issues. The Operations Division is responsible for formulation of subsectoral strategies, preinvestment work, institutional studies, technical ssstance, and training within the framework of ESMAP's country assistance programs. FUNDING ESMAP is a cooperative effort supported by the World Bank, UNDP and other United Nations agencies, the European Community, Orgnization of American States (OAS), Iatin American Energy Organization (OLADE), and countries including Austalia, Belgium, Canada, Denmatk, Germany, Finland, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portgal, Sweden, Switzerland, the United Kingdom, and the United States. FRTHER INFORMATION For frther information or copies of completed ESMAP reports, contact: The Manager or The Executive Secretar ESMAP ESMAP Consultative Group The World Bank The World Bank 1818 H Street N.W. 1818 H Street, N.W. Washington, D.C. 20433 Washington, D.C. 20433 U.S.A. U.S.A. JAMAICA ENERGY SECTOR SATEGY AND INVESTMENT PLANNING STUDY VOLUME I MNn Repot August 19 JAMAICA ENERGY SECTOR STRATEGY AND INVESTMENT PLANNING STUDY CONTENTS Abstract .. ........ . vii Foreword ..... vii Abbreiations and Acronyms... . .. ix Currency Equivalents ................................................ x SUU.MARY ............................ xi I. OVERVIW AND BACKGROUND OF ENERGY SECTOR ................... 1 Energy Sector and the Economy . ................................... 1 Background .. ........................................ 1 The Economy ......................................... 1 Energy and the Economy ................................... 3 Energy Supplies . ......................................... 4 Energy Demand ............................. I ..... 6 Instiutional Structure and Energy Sector Enterprises ............. . 6 Energy Sector Policies, Issues, and Strategies ............... . 7 Past World Bank Involvement ................................... . 8 H. ENERGY SECTOR POLCY ISSUES AND STRATEGIES . .................. 9 Macro Policies .......................................... 9 Trade Regime ......................................... 9 Petroleum Importation ...................................... 9 Petroleum Pricing ........................................ 10 Antidumping and Competition Policy .................. 11 Privatization and Divestiture ...................................... 11 Petroleum Corporation of Jamaica .............................. 11 Jamaica Public Service Corporation .............. ............... 12 Energy Conservation and Efficiency .................... 17 Financing Energy Sector Development ......... .. ........... 19 Household, Biomass, and Renewable Energies ...... ..................... 20 Environment .................. .................... 21 Institutional ........................................... 22 m. LQUID FUELS A. PKROLEIUM ....... ............... 23 Introduction and Conclusions ...................................... 23 Comments by Government of Jamaica on the Draft Report .................... 25 Sector Organization and Instit tions .................................. 26 Legislation ...................................... 26 SectorOrgaization ....................................... 26 Supply Infrastructure ........... ....... 26 Refining ......................26 Marketing and Distribution .......... ........... 27 Supply Agreements ........ ............ 27 - iii - San Jose Accord ........................................ 27 Crude Selection Under the San Jose Accord ........... ............. 28 Nigeria Supply Agreement . ................................... 29 Petroleum Exploration ..................... ................... 29 Sector ssues ad Strateges ....................................... 30 Introduction ....................................... . . 30 Ex-Refinery Pricing ....................................... 30 Product Specifications and Acquisition Differential . .................. 32 Other Ex-refinery Pricing Components ........................... 34 PerfonanceofRefinery .................................... 36 Refinery Capacity and Availability . ............................ 37 Product Demand .......................................... 38 Least-cost Supply Options ..................................... 39 Supply Alternatives ...................................... 40 Crude and Product Price Forecast .................................. 41 Import and Export Product Prices ............ .................. 42 Import and Export Parity Prices ................................ 42 Proces Engineering and Economic Analysis ........... ................. 43 Case Comparisons .... ..... ...... . 43 Environeal Measures .................................... 43 Linear Programming Analysis of Refinery Operations ................. . 44 Cash Flow Modeling Results-EIRR and NPV .. .................... 44 Common Carrier Terminal Operation ............................ 45 Privatization of the Refinery ................................. 46 Export-Odented Options ..................................... 47 Gras Roots Refinery ..................................... 47 Transshipnent Terminal .................................... 47 B.E1ELE NOL ................................. :............. 48 Recommended Strategy . ............................. . 48 IV. ELEC'ItIC POWER .. ............. . ............................ 50 Introduction . ........... . .. ...................... 50 Policy Issues and Strategies ..................................... 50 Operatonal Efficiency ................................ 50 Environmen Imnpact ................................ 51 Pricing and Tarift ................................. 51 UnaccountedlAdminstrative Losses . ............................ 52 Electricity Demand ..................................... 52 HistoricDIemand ....................................... 52 Demand Forecast ..................................... 53 Losb Reduction and Demand Side Management ....... ............... 53 ExisingFacilities .....................................I....... 54 Generating Plant ......................................... 54 Efriciency npv es ..................................... 54 Economic Load Dispatch ................................... 55 GenertngPilant Rehabiitation ............ ..... 55 Fuel Specifications ..... ........... ........ 55 Generation Augmentation Prognn ....................... 56 - iv - I nblLoads .................. 56 Tbanisminolnd Dbtibution ......................... S6 Envionmna lues . ....................................... 56 Audk ofExistins Powe Plus ................. ........ ...... 40* S6 En I ip omm11mpct of New Plan ................................ S7 Cod PltSitingStudies .................................... 57 Powe Pima Siebvemoye ...................... ......... 57 LonCot bExposion Pogwm ............... .*................. .. 58 PreioswStudies ....................................... S8 EitpmionCdoox ...................................... S8 Industria Cogzeneaton ..................................... 59 Re"dtoof LCEP Analsp .................................... 59 Sensitivity Analyse ...................................... 60 JPS Investment Program... .................................... 61 Condlusions and Stratiegs ...................................... 62 Exisdng Plmt ............................. 0.......... 62 Neov Coal-fired Stadon ..................................... 62 Other New Plant ....................................... 63 Los Reduction . ...................................... 64 Dead Side Managemet ................................... 64 Envirormnent ........................................ 64 Privat Sectr Pardsipadon ............ .................................. 65 V3. ENERGY CONSERVATION ANDE lC NY .................................. 66 Intductlon ........ ................................... 66 BaRien ad ConsaminxbEnf Conasvation .................................. 66 Preokps and Onoing Ernergy Conservion Ptograms ................................ 67 UJSAIDPrgram .......................................... 67 Einergy Sector Manuement Assistance Progame ............................... 68 JP En=g Conservation Unit .................. ..*#......... 69 Enegy Consavadon Imses anld Strateies . ........................... 70 Einarg Pricing .... .............................. 70 R*gdation ....... ............................ 70 Privee Sector Involvement . ............................. 70 Cost Recovery .... .............................. 71 Energy Consalvaion Pdiorities . ............................ 71 Demand Side Mangement ................................. 72 Concet ............................ 72 DSM Potn*W ......................... 72 Cos-Befdit Anysisof DSM Progras .............................. 72 Benefits ........................................ 73 Aggr4egeDSM Savinp ................................... 73 DSM Ptioritis ...................................... 74 ResdetW D>SM Progn .................................. 7S bAitrildEneW Consavatin ................... ..#............. 76 EnwggConavrin binte TranspoteSctor ............................... 76 hlmductio. ...n ....... 0........... 0............... 76 Major Chuamekidcs ofRoad Transport .............................. 77 lTrnportEwaConssrveonOpdons ad SbaF ............................ 77 Opdton ....... ................................ 77 -v- Improving Fleet Fuel Efficiency ............................... 77 Urban hraffic Management ................................. 78 VI. HOUSEHOLD,BIOMASS, AND R!ENWABLE ENERGIES ................. 80 Overvlew of the Household Energy Sector .............................. 80 Fuel Pricing ........................................... 81 Woodfels ... ........................................ 82 Wood Use and Resources . .................................. 82 Charcoal ........................................... 83 Petroleum Fuels ............... 84 LPG .............................................. 84 Keosene .4........................................... 84 Renewable Energy ............................................ 86 Policy Option ad Staegies ...................................... 86 VI. ENERGY AND THE ENVRONMENT ................................ 88 Introduction ............................................ 88 EnvironnenaInstiutions ........................................ 88 Ministry of Finance, Development and Planning ..................... 88 National Resourcs Conservation Authority ....... ................. 89 Other Governnent Agencies ....... .......................... 89 Energy/Environment Stering Committee ......................... 90 Other Agencies ......................................... 90 Energy and Eiromental Issues . ................................... 90 General ............................. 90 Isues By Fuel Type ............... ....91 Energy/Environnmental Strategy and Action Plan .......................... 92 ANNEXES 1.1 - Energy Balance - Jamaica (1990) 2.1 - Comments from Ministry of Public Utilities, Transport, and Energy on ESSIPS draft report 2.2 - Terms of Reference - Deregulation on the Petroleum Subsector and Privatization of Petrojam 2.3 - Terms of Reference - Consulancy Services for Power Sector Regulatory Framework and Privation of JPS 4.1 - Salt River Baseline Study - JPS Energy Expansion Project Draft Terms of Reference 5.1 - Jamaica Total Vehicle Fleet - Fall 1990 Registrations 7.1 - EFvironment Guidelines 7.2 - Draft Terms of Reference, Environmental Emissions Inventory Map IBRD 18111R - Jamaica VOLUME 1 - Iqtid Fues - Consultants' Reports Part A: Petroleum Review Part B: Etanol Review VOLUME m - Powe Sector Review and Energy Conservation - Consultants' Reports Part A: Electric Power Sector Review Part B: Electricity Demand Side Management and Industrial Energy Conservation Strategies vi - ABSTRACT Buildng on stmctural adjustments begun in the mid-1980s, Jamaica now has the prospect of extending its recovery and sustning economic growth at 3 to 4 percent a year during the 1990s. The burden of the eney sector on the economy decreased as a result of the drop in oil prices after 1986; however, Jamaica was among the hardest hit by price increases caused by the Persian Gulf Crisis in 1990. Tbis shock reinforced concerns for the need to improve efficiency in the energy sector and reduce the energy intensity of the economy and its dependency on imported oil, which supplies more than 90 percent of Jamaica's commercW energy needs. The possibilities of increasing the mobilization of capital resources, and of improving the operatng efflciency of the capital-Intensive ,/etroleum and power sectors, are apparet through expressions of interest by the private sector of participating in these subsectors with the ultimate objective of full divestur by the government. The strategy recommended in this report support the development of the energy sector with increasing private sector involvement through the further liberalization in the petroleum sector, preparation for divestiture of the power company (Jamaica Public Service Corporation) and the refinery (Petrojam), add development of energy conservation programs based on economic pricing and entrepreneurial pursuit of energy savings opportunities. FOREWORD his report was undertaken as a joint effort of the joint UNDP/World Bank Energy Sector Management Assistance Program (ESMAP) and the government of Jamaica and its agencies during the period November 1990 to April 1991. The ESMAP team comprised Joseph Gilling (ESMAP Senior Energy Economist and Task Mnaqer), Robert van der Plas (ESMAP Household and Renewable Energy Specialist), and consultants Fred Gordon (electricity demand side management), Brian Kelly (energy conservaton), William Matthews (petroleum economist), Thomas McCann (refinery engineer), Thomas Norris (power engineer), Thomas Steigerwald (etroleum pricing specialist), and Richard IThelwel (environmental specialist) ad the firm of Touche, Ross, Ogle (financial modeling). The mission grateflly acknowledges the cooperation and substantive inputs provided Ministry of Mining and Energy ( E, Petroleum Corporation of Jamaica (PC), Petrojam (refinery), Jamaica Public Service Corporation (JPS), and Planning Institute of Jamaica (PIO), as well as the members of the Minister's Steefing Committee on Private Participation in the Energy Sector. Through a Technical Assistance Agreement between PCJ and Lagoven (Venezuela), Mr. Ubaldo Hurtado (Commercial Analyst, Lagoven) worked closely with the mission on petroleum price forecasting. Mr. Zia Mian, Energy Policy Advisor, provided significant input to the work of the mission and in the review of reports. In addition, the mission worked closely with the World Bank team preparing the Energy Sector Deregulation and Privatization project Suman Babbar (Senior Power Engineer), Abderrahmane Megateli (Senior Financial Analyst), and David Baughman (Economist), and Ms. Aysegul Akin-Karasapan (Task Manager, Private Sector Development Adjusment Project). The Energy Sector.and Investment Planning Study was financed by CIDA through ESMAP. The report is preented in three volumes: Volume I, the Main Report; Volume II, Liquid Fuels (Petroleum and Ethanol); and Volume m, Power Sector Review and Energy Conservation. Volumes HI and A, reports prepared by the ESMAP consultants, provide documentation of the analytical resuts as well as their findings and conclusions. -vii- ABBREVIATIONS AND ACRONYMS AAC ambient air concentrations HO heating oil ADO utomtive diesel oil H2S hydrogen sulfide ASTM American Society for Testing and EIRR or IERR intnal economic rate of return Materials lPS Jamaica Public Service Corporation API American Petroleum Institute kIBD thousand barrels per day BCF Bolivar Coastal Field, 170 gravity, LCEP least cost expansion plan a Venezuelan grade of cuade oil LDC less developed country B-C ratio benefit-cost ratio LPO liquified petroleum gas BPCD barrels per calendar day LSFO low sulfur fiuel oil BD or BPD barrels per day (calendar day) LV liquid volume BPSD barrels per stream day MBD thousand barrels per day C3 propae MD)O marine diesel oil C4 butane MFPP Ministry of Finance, Planning, and CBI Caribbean Basin Initiative Production CFB circudating fluidized-bed mio million C & commercial and industrl MME Ministry of Mining and Energy CIDA CanadianlnternationalDevelopment MOF Jamaican Ministry of Finance Agency MOGAS motor gasoline CPE centrally planned economy MTBE methyltertybutylether, a high- DAF dissolved air flotation octane blend stock for gasoline DERD Defense Engineering Research and MNW Megawatt Development (a British NAAQS National Ambient Air Quality standards/specifications body) Standards DPSPP Deglon of the Petroleum NCS National Conservation Strategy Sector and Privatizationof Petrqjam NOO nongovernmental organizations (consultancy services and studies) NO. nitrogen oxides i)SM demand side mangement NRCA National Resource Conservation EC Buropsn Community Authority -Ez environmental impact smassement NYHI New York Harbor ENDC Energy Sector Development PSRF/JPS Power Sector Regulatory Committee Framework and PrivatiationofiPS ESDPP Energy Sector Deregulation and studies Pdivatization Project RFP Request for Propcsals ESMAP Energy Sector Management and PV present value AssistanPwgmmme RON Research Octane Number ESSIP Energy Sector Strategy and S sulfur lnestment Planning Study SPS Saybolt Furol Seconds ETBE ethyltertianybutylether, a high SO2 sufiur dioxide octane blend stock for gasoline SWECO Swedish Energy Company FCC fluid ctalytic cruker T tonne (metric ton) FCCU fluid catalytic crcing unit TEL tebaethyl lead, an octane additive FGD flue gas desulfiizing for gasoline FS fiedock USEC United States East Coast GPM gallons per minute USOC United States Gulf Coast GWh gigawatt hours USMW United States Midwest HFO heavy fuel oil WS worl4scale HSFO high-sfur fuel oil -ix - CURRENCY EQUVALENTS The Jamaican dollar is floatig. The cuent exchange rate (July 1992) s J$22/US$. The rate used in prearng this report was J$8.0/US$. ENERGY UNITS AND CONVERSIONS enery equiviaent (MJ/kg) (TOEIMI) Fuelwood (5% mcuw) 15.0 0.36 Charcoa 30.0 0.72 Crude oil 42.6 1.00 LPO (proane) 50.0 1.17 Gasoline 46.5 1.09 Kerosene 46.4 1.09 jet Fuel 46.4 1.09 Diesl (ADO) 46.0 1.08 1 kWh = 3.6 W - 860 kcal = 3,412 BTU - 0.086 kgoe 1 TOE - 7.3 barrels of oil equialent = 11.63 MWh - 42 GJ 10 million kcal - 39.68 million BTU Gasoline: 1,360 liters per MT Kerosene: 1,260 lites per MT Diesl : 1,190 litets per MT EXECUTIVE SUMMARY Introduction 1. Jamaica, one of the largest islands in the Caribbean, has a total area of 11,000 km2 wiU about 45 percent of the land used for agriculture. The population in 1990 was estimated at 2.4 million (of which about 55 percent live in urban areas) with an annual growth rate of 1.0 percent. The per capita GNP is US$1,260 (1989), and the country is well endowed with natural resources, has a relatively well educated and skilled labor force, enjoys proximity to North American markets, and has a developed financial system. The economy, however, is dependent on external factors such as foreign demand for bauxite and alumina, tourism, and the price of oil. Based on structural adjustment begun in the mid- 1980s, Jamaica has the potential for extending the recovery and sustaining economic growth at 3 to 4 percent a year during the 1990s. Energy Demnd and Supply 2. In 1990, imported energy (including energy for the bauxite and alumina sector) cost about US$380 million, an increase of about US$90 million over the 1989 import bill. The import bill for nonbauxite energy was about US$270 million and represented more than 24 percent of foreign exchange earnings from merchandise exports and nonfactor services. As a direct consequence of the crisis in the Persian Gulf, the 1990 energy import cost for the nonbauxite sector increased by about US$53 million. 3. Jamaica's petroleum demand is met mainly through local refining and direct import of refined petroleum products, which in 1990 amounted to about 18.5 million barrels of crude and petroleum products. Of this, about 7.2 million barrels of refined products were imported directly by the bauxite/alumina industry. Although the refinery's nominal capacity is 35,500 barrels per calendar day (BPCD), it imported 7.9 million barrels (21.6 KBPCD) of refinery feedstock and 3.3 million barrels (9.0 KPCD) of refined products. At present, the refinery feedstock is obtained from Mexico and Venezuela under the San Jose Accord (SJA). Refined products are partially bought under the SJA and partially from the cheapest sources. 4. Petroleum prices in the country were decontrolled, in the first phase, beyond the refinery loading rack in September 1990. Prices at the approximately 250 retail outlets and from company to company vary and reflect an element of competition in the market. Product prices up to the refinery rack, whether refined at the Petrojam refinery or imported, ire set on the basis of an ex-refinery billing price formula, wbich determines the import parity price based on weelcy variations in the U.S. Gulf Coast spot market prices with adjustments to meet Jamaican product specifications and allowing for the costs of deemed ocean freight, ocean losses, insurance, and imputed costs of terminaling. Because of the high rates of duties and taxes (more than 40 percent), Petrojam enjoys an effective monopoly on product imports for the nonbauxite sector. Taxes are added to the ex-refinery price according to government revenue needs to determine the overall refinery billing price for bulk sales. 5. In 1990, the balance of Jamaica's primary energy needs (3.6 million boe) were satisfied by bagasse (5 percent), wbich is used to generate steam in sugar factories; hydroelectric power (1 percent); and fuelwood (12 percent). About 90 MW of hydro power could be developed in the long term - xi - - xii - but are currently not economic compared with thermal alternatives at projected fuel prices. The domestic consumption of fuelwood and charcoal was approximately 2.5 million boe, of which about three-quarters was converted into charcoal. The use of fuelwood by the commercial and Industrial sectors is small, and littlo growth in fuelwood demand is expected. Eergy Demand Gmoth 6. Overall commercial energy growth (including coal after 1997) Is expected to increase in line with the economy (assuming no further significant expansion in bauxite/alumina production) from 17.5 million boe In 1990 to about 26 million boe in 2000 (average growth, 4 percent). Growth in total petroleum demand is expected to slow considerably from the 1990 level of about 15 percent a year (which was due mainly to increases in bauxite/alumina production). In the period 1991-2000 it would average about 0.7 percent a year due to the introduction of a coal-fired power plant in 1997, which would reduce the total consumption of fuel oil. Prior to 1997, annual petroleum consumption growth is projected to average 3.4 percent including bauxite/alumina demand. The petroleum growth rate from 2000 to 2010 would be about 1.7 percent, as additional coal units are added to meet the bulk of electricity demand growth. Energy Sector Issues, Poliies, and Strategies 7. Many of the issues in the energy sector are the same as those identifled in the 1985 World Bank Energy Assessment report although priorities and recommended strategies have changed in some cases in line with broad government policies such as the promotion of private sector involvement in the energy sector, and an increasing concern for the environment.' Within the context of the situation outlined above, Jamaica should gear its energy sector policy and strategy toward the following goals: a. Full deregulation and liberalization of energy sector (supplies, production, distribution and pricing, etc.) consistent with overall macro policies b. Increased reliance on private capital and private sector participation in the development of the energy sector (divestment programs and new investments) c. Decreasing the country's level of energy intensity through improved and efficient use (demand side management) and production (efficiency and loss reduction programs) of energy d. Reducing the risk of price shocks through diversification in the composition of imported energy to nonpetroleum and cheaper energy sources (primarily coal, and in the longer term, Orimulsion, if feasible) 0. Strengthening the institutional structure in the sector for integrated planning and effective sector management, including greater attention to energy and environment linkages. 1. Jmfka.' kn nd Opdogs in du EwSy S&ctr, UNDP/Wor&i Ban* &erg Asswnn Poraw, AprI 198. - xiii - These issues and policy options and recommended strategies are discussed in the context of the energy subsectors and presented in a matrix at the end of this summary. Petroleum Sector Liberalz 8. The government of Jamaica is working to develop energy sector policies and strategies that are consistent with its overall macroeconomic policies. As a cornerstone of its policy, the government of Jamaica is committed to the broad objective of relying on market forces to achieve the efficient allocation of resources. This policy includes developing competition among suppliers and ensurig that foreign exchange and interest rates reflect their economic values. Following the liberalization of all other imports, the last effective monopoly for traded goods would rest with PCI/Petrojam for die importation of petroleum products. Based on the crude and product price projections made in late 1990 and early 1991, the analysis of the least-cost supply option for petroleum indicates that the Petrojam refinery could be competitive with imported products, provided that minor debottlenecking and efficiency improvements take place. Under these conditions, there would be no apparent reason for delaying the liberalization of petroleum imports. It Is recommended, therefore, that the mporttion of petrolewn products shoud be liberalized mmediately by remoing existing tarLs Inposed under the Petroleum Act dhat provide effective protecdon to the reflnery. 9. As the cost of new storage tankage investment could be a barrier to erntry to large consumers or new marketing firms wishing to import products and to ensure that competition among importers and the refinery can lead to the lowest landed cost of products, It Is recommended that the Kingston and Montego Bay termins be operated on a common carrier basis with open access to quI1ed bpoiter meeting public safty andfinancIal requirements. Under common carrier operation, the terminal would provide throughput and storage for a fixed fee according to operating conditions to be established under regulatory supervision. 10. In view of the possibility that anticompetitive practices ranging from dumping to price collusion and other oligopolistic trade practices could develop as well as the need for transitional mechanisms to implement the policy of trade liberalization in the petroleum subsector, the government has engaged consultants under World Bank supervision to provide detailed recommendations and draft legislation regarding a new pricing and taxation mechanism, removal of barriers to competition, and a strategy for the privatization of Petrojam. Perolum Pricing 11. The ex-refinery pricing formula was established in 1963 and last revised in 1988. The notional import parity pricing formula attempts to derive prices that would correspond to the least-cost alternative based on the importation of all products. Although reference prices that form the basis of final prices are adjusted weeldy, the formula does not fully capture the dynamics of the market. With the liberaization of petroleum imports the pricing formula would be redundant except as a framework for vonitoring prices. An analysis of the pricing formula revealed inherent biases that result in excess charges. The pricing formula is based on U.S. Gulf Coast spot market prices with adjustments to reflect - xiv - Jamaican product specifications, deemed ocean freight costs, terminaling and rack fees, and a Round Island Movement (RIM) fee to cover the transport costs to equalize ex-refinery prices at Kingston and Montego Bay. 12. An analysis of product specifications and each of the components of the ex-refinery pricing formula Indicated that excess charges ranging from US$9 to US$15 million a year based on current volumes are attributable to unwarranted product specifications and components of the pricing formula. About one-third of the excess charges could result in savings in foreign exchange and could be ^ieved by changes in the product specifications, financing, insurance, and RIM costs. The remaining savings would be in local currency and would represent excess charges that would normally be absorbed by the supplier in a competitive market. Some of these excess charges result in increased cash flow to Petrojam and ultimately are consolidated in the public sector accounts. A compensating tax increase would be required to offset the loss in public revenue that could result from changes in the pricing formula. Revisions in the pricing formula, however, are recommended to provide incentives for efficient operations. It would be necessary to compensate for the loss in public sector revenue arising from changes in the pricing formula by restructuring the tax mechanism for petroleum products. As a result, not all the savings would be passed on to consumers. Petroleum lndwtq Regidatin 13. Following liberalizationof imports and full price decontrol, regulatory oversight (although not necessarily a full regulatory body) of the petroleum industry will stil be required to ensure adherence to the Antidumping Legislation and Competition Act. The Fair Trade and Monopolies Commission (FIMC) is also being established to enforce the Act's provisions. 14. Broad exposure to public review of comparative price information will be one of the most effective means of ensuring competition in the petroleum market. To meet this objective, it will be necessary to strengthen the Hydrocarbons Directorate within MPUTE with the responsibility as technical secretariat for all government of Jamaica petroleum regulation, monitoring, and sector management. The functions would include providing technical support to the FTMC, including common carrier terminal fee and capacity allocations, NRCA concerning industry environmental standards, JBS concerning product specifications, and other bodies concerned with health and safety, weights and measures and so. Staff should be experienced in international crude and product pricing, supply, affreightment, and marketing as well as on end-use product quality. The experience of the Directorate in the revision of the import parity pricing formula would serve as the foundation for subsequent price monitoring. Petroewum Refiniag 15. Improvements in operating and administrative efficiency with respect to foreign exchange transactions would permit the refinery to achieve Its nominal throughput capacity of 35,500 BPCD. Effective capacity has been ony about 24,600 BPCD because of constraints in the gasoline production unit (powerformer) and unplanned outages caused by mechanical failures and foreign exchange constraints. Physical constaints were removed by year-ed 1991; however, improvements in the opening of letters of credit and the management of foreign exchange requirements are also needed to avoid crude run-outs or refinery slowdowns. The use of standard hedging techniques available through NYMEX and finacial houses is recommended to assist in foreign exchange risk management. xv - 16. The options for least-cost petroleum product supply to Jamaica have been analyzed by comparing three petroleum supply scenarios. These scenarios were examined, on the basis of projected international market prices and Jamaican demand, to determine whether the refinery in its present or modified configuation could be part of the least-cost supply strategy. The scenarios range from (a) Importing all products to (b) continuing to operate the existing refmery with minor modifications to (c) modifying and expanding refinery capacity to meet domestic requirements and provide products for export. 17. Since about 1986, refinery gross margins have been adequate to attract new investment in upgrading existing refineries in the region, but these margins are not sufficient to trigger the construction of new grass roots refineries in the region. The analysis carried out in this study indicates that refinery upgrading could be viable as a private sector venture in a freely competitive local and export market, provided refining margins remain at levels prevailing in early 1991. Ihe conclusions of this snuy do not, howewr, constwe specifc recommendations and should not be used to direct private sector Investors In r#fnng. Rather, private sector investors themselves should decide on the ultimate viability of the refinery and its optimum configuration, based on their own assessment of market conditions, risks, and expected profitability. The willingness of the private sector to invest in the refinery on terms acceptable to government of Jamaica will be the ultimate market test of viability. i8. A reduction in refining margins of 20 percent would make the refinery, whether in its xting configuraion or upgraded, break even at best in comparison with 100 percent importation of product. A valuation of the refinery is being carried out as part of the consultancy services for the deregulation of the petroleum sector and privatization of Petrojam, which will also reassess the petroleum price projections in the light of developments since the Persian Gulf War and in view of the slow recovery of the world economy. 19. Nonetheless, a prefeasibility level study of supply options was carried out to provide a framework for government of Jamaica in evaluating proposals from private sector investors. About US$1 million in investments in environmental improvements are required whether the refinery were to be shut down and operated as a terminal or continue to operate to clean up existing oil leakage, eliminate any oily water discharges to Kingston harbor, and improve the impermeation of tankage diked areas. Any upgrading of the refinery would require investments in environmental protection to current international standards, and these costs have been considered in the evaluation of the refining options. 20. Petroleum exploration has been supported by bilateral and multilateral sources; however, effort carried out by international oil companies have not been successful, as witnessed by eleven dry holes and the lack of evidence from other geologic explorations. Further exploration has been discontinued since 1985 and would not be warranted at current oil prices. Ethanol 21. An analysis of the costs of production of wet ethanol at PCJ's Petronol facility reveals that it is not competitive with other CBI-qualifying producers. The production of anhydrous ethanol at the Petrojam Eaol facility located at the refinery, however, Is expected to be profitable on the basis of the extension of the CBI preference and the availabUity of European wet alcohol at current prices or prices up to 50 percent greater than current prices. Since ethanol operations are peripheral to Jamaica's energy sector, and the government of Jamaica wishes to privatize the ethanol operations, It Is - xvi- recommended that these operatons should be ditested as qukly as possible. Although it would be feasible to continue operations under separae refinery/ethaol plant ownership without relocating the plant, it is important that the sale of the ethanol plant should not be an encumbrance on the sale of the refiney. Elect Power 22. Electricity demand on JPS facilities in 1990 amounted to 325 MW and 2,041 GWh and is expected to grow at about 6 percent to 1995 reducing to about 3 percent thereafter. The sent out capacity of JPS thermal generating stations will amount to some 499 MW, comprising 297 MW of oil- fired steam plant, 40 MW of low-speed diesel plant, and 162 MW of gas turbines, after rehabilitation by the end of 1993, widh an additional hydro capacity of 24 MW in nine plants producing about 140 GWh. Least-cos Eqanon Plan 23. A least-cost expansion planning study has been carried out by consultants to JPS and reviewed in detail during this study through discussions with JPS, IDB, and the World Bank. Several options were found to be close in economic merit, based on the agreed demand projections and capital, operaons, and maintenance, and fuel cost assumptions. Taking Into account the implementation schedule of the low-speed diesel units to be constructed as a BOO (Build, Own, Operate) project, the following sequence was found to be the least-cost expansion plan. This sequence does not consider the effect of demand side management programs, which are presentiy uncetain with regard to magnitude and timing. Least-cost Expanson lProgrm without DSM Load Redudion 1993 Gas turbine 1 x 30 MW 1994 1995 Lowspeed diesel 3 x 20 MW 1996 Gas turbine I x 30 MW 1997 Coal/oil fired steam statlon, Unit 1 1 x6l MW 1998 2&3 2x61 MW 1999 4 1 x61 MW 2000 5 1 x61 MW 24. It is the intention of the government of Jamaica that all future generating additions should be caried out as BOO schemes by independent power producers, by a privatized successor to JPS, or both, depending on the ultimate restructuring of the power sector. Bidding for the first BOO scheme is under way for the installation of 3 x 20 MW of low-speed diesels under the Energy Sector Deregulation and Privatization (ESDP) project to be financed by World Bank and IDB. Depending on the degree of success with DSM programs, the commissioning of a coal/oil fired plant in 1997, the earliest estat on-ine date for the first unit could be deferred. 25. Because growth forecasts and cost conditions are continually changing, it is important that periodic reviews of the LCEP be carded out by JPS, even though future expansion will be financed as m xvu - BOO schemes. Generat plant prposed by BOO operators must be part of the overall expected long- term leat-cost expaion program. The Interaction of a proposed plant with existing and fiutue plants as an Integrated system could reveal that a proposed plant is less attractive than when analyzed In isolation. Requests for proposals should indicate the duty cycle (base/peak load). The operational advante thiat the coal/oil staton and possibly orimulsion would introduce In terms of the diversity of fuels available, protection against volatlity of oil prices, and the ablity burn the lowest-priced fuel available at any time can not be fidly quwantified but should be assessed through the RFP. 26. Becu of the lead time required to prepare for the coal/oil fired plant, environmental studies should be undertaken without delay. Site selection is virtualy complete, and CIDA is prepared to fhance the Environmental Baseline Studies. An environmental audit of existing thermal plants has also been carried out for the existing Rockfort and Hunt's Bay sites In connection with preparations for the Energy Sector Deregulation and Privatization project. 27. Additional generating capacity may be forthcoming from industrial cogeneration, including sugar factories, provided that a sUndard offer buy-back tariff is established. The analysis carried out as part of the LCEP and DSM analysis in this study provides a basis for setting a buy-back tariff. Further action to formalize the tariff should be undertaken as part of the updating of the tariff study to be undertaken through consultancy services associated with the establishment of a power sector regulatory framework and the privatization of JPS. laMent PregAa 28. In addition to future generation expansion, which would be financed as BOO projects, provision must be made for additions to the ansmission and distribution investments. JPS's total investment program for FY93-FY97 is estimated at US$236 million (J$7,090 million) in constant 1992 prices, of which 32 percent would be for generation rehabilitation and two gas turbines on order, and 27 percent other plant and equipment including energy efficiency. Pbpaadon for Dlvs*imt 29. Preparation for divestiture is under way, and consultants have been selected for services to prepare a power sector regulatory fimework and privatization strat for JPS with financing from the Japanese Technical Assistance Fund under World Bank supervision to outline the forms of sector orgaization. The studies wfll address key issues such as the optmm separation/integation of generating, transmission, and distribution functions; corporate and financial structure; regulatory framework and Institutional requirements; degree of foreign/local participation; and timetable for divetitu. his is a major task with substtl specialist input concerning capital markets, macroeconomics, fncial modeling, regulatory/legal issues, and power utility operations. Energy Conseraton and Electridty Demand Side Managemt 30. Since the oil price shocks of the 1970s, the govnment of Jamaica has stressed energy conservaion as a major component of its national energy policy but has had difficulty in achieving lasing resuts due, in part, to previously low electricity prices and lack of sustIned promotiona efforts. USAID - xviii - financed a US$30 million project including the provision of an Energy Credit Fund. Results were mixed, however, and the fimd was eventually canceled after disbursing only US$0.4 million. Despite the availability of funds, financing terms were found to be unattactive and procedures overly bureaucratic, among other difficulties. Following the recommendations of the 1985 UNDP/World Bank Energy Assessment, ESMAP provided assistance to the then Ministry of Mining and Energy in devloping an Energy Efficiency Building Code (BC), Appliance Testing and Labeling (ATL) program, imprvved krosene stoves project, and as well as other technical assistance. 31. The EEBC and ATL programs are being carried out through Jamaica Bureau of Standards (JBS) with the full participation of private sector engineers, architects, and appliance distributors and manufacturers. Public awareness and concern for energy conservation has increased significantly since the electricity tariff was increased in May 1990 by an average of 37 percent and continues to grow with further tariff revisions. One of the principal barriers to energy conservation has been considerably lowered by setting the electricity tariff in structure and level to reflect the economic costs of supply. 32. A price distortion still remains, however, in electricity pricing, since taxes on the supply of electricity are minimal (5 percent on generating equipment, no consumption tax on retail sales), while electrical equipment and energy efficiency equipment are heavily taxed with the exception of fluorescent lamps which have recently been zero-rated under provisions of the General Consumption Tax (GCT). Ite current tax structure creates a comparative bias in favor of electricity consumption, and the payback period to consumers for the purchase of energy-efficient equipment is thereby lengthened. Selective reductions in taxes on energy efficiency equipment are conceivable, but they are not recommended, as such a move woud serve to introduce futher distortions in the overall tax structure, which the government of Jamaica is working to remove. In the absence of a general reducdion of taxes In dutes to remoe price dinortlons throughout the econmy, it Is recommended that the GCT shoudd be applied to electriciy consunpton. The application of the GCr to electricity consumption would provide strong support to conservation and would support efforts to increase private paricipation in the power sector through private consumer financing of demand side measures as an alternative to supply expansion. Electt DemaNd Sde Management 33. Major work is now under way in the area of demand side management (DSM) in the power sector. An Energy Conservation Unit (ECU) has been established in JPS and is carrying out pilot and demonstration projects in commercial and residential premises with current support from the Rockefeller Foundation and IDB. Grant funds are also expected from the Global Environment Fund. Benefits to be attained from DSM measures include energy savings through reduction in energy consumption through improved efficiency, energy savings through shifting to off-peak periods when fuel costs of generation are lower, and generating capacity savings through load reduction or peak shifting. GEF wfll also support a demonstration project for solar and cogeneration absorption air-conditioning systems. 34. To the extenthtat tariffs reflect the economic cost of supply, consumers have an incentive to make energy efficiency improvements. Lack of awareness, transaction costs in terms of arranging for energy audit and evaluating proposals, and a reluctance or inability to finance conservation measures are import barriers inhibiting energy conservation efforts. These barriers can be significantly reduced by DSM programs implemented by JPS with the support of MPUTE. In the longer term, it may be possible to rely on the private sector to undertake energy conservation and DSM programs through shared savings -xix - programs offered by energy service companies. In the near to medium term, however, leadership and promotion by JPS in particu'ar will be needed to demonstrate the beneflts of DSM to consumers. 35. Eight possible energy efficiency programs have been examined by consultants to JPS and in the course of this study. Potential bnefits that would be economically justified in terms of avoided cost to JPS could range as high as 25 percent; however, this level of savings would require significant investment by JPS that would have to be absorbed in the tariff base or supported by rebates and tax reductions paid by government of Jamaica. Such measures could be seen, however, as benefiting mainly the high-income, high-volume consumers. Without tax reductions or a corresponding increase in electricity tariffs, however, it is estimated that DSM savings would be limited to S to 10 percent of total consumption by 2000. Programs to capture these savings would be economically viable with rates of return in the 9 to 45 percent range depending on the program. 36. Industrial energy efficiency programs, primarily in the form of boiler tuneups, could readily be incorporated as part of the annual boiler safety inspection carried out under Ministry of Labor regulations by private sector inspectors. Coordination of MPUTE with Ministry of Labor would be needed to prepare a program that could save 10 to 20 percent in industrial energy use. Twaspoft&ion 37. The transport sector is a major consumer of oil in Jamaica, projected to consume about 5.2 million bbl of fuel in 1995, or about 27 percent of total petroleum products. A recent survey of vehicle registrations in Jamaica indicates about 144,000 vehicles.2 Motorcars make up about 55 percent of the fleet; trucks, 18 percent; motorcycles, 16 percent; and the remaining 11 percent consists of vans, buses, tractors, and trailers. About 84 percent of the fleet consumes gasoline; the remainder consumes automotive diesel. Typical of developing countries are the large number of old vehicles-about 53 percent of the fleet is more than 10 years old. The slow rate of scrapping of vehicles is caused by low disposable incomes and the high cost of new vehicles; duty and taxes can add more than 100 percent to the import price. 38. The higher duties on cars over 2.0 liters and the restrictions on cars over 2.6 liters are effective means of limiting fuel consumption. In the long run, however, fuel efficiency will improve largely through the replacement of the existing vehicle fleet with newer, more efficient models. The recent policy of permitting the importation of second-hand vehicles up to three years old will thus help to improve the overall fleet efficiency, as newer vehicles are more fuel efficient. The high demand for public and private transportation, however, is unlikely to lead to an increase in the scrapping rate of older vehicles. Continued public information programs by MPUTE to encourage tuneups and improve maintenance are useful and recommended as a general measure but, except for large vehicle fleets, it would be difficult to carry out effective direct vehicle tuneup programs. 39. Improvements in transportation fuel efficiency can also be obtained by improvements in traffic management that bring additional benefits in the form of reduced congestion and time savings. Such measures as one-way street systems, coordination of traffic signals, widening of busy intersections, bus bays, turning movement restrictions, and greater enforcement of parking restrictions and traffic 2. The study ws carrid ot by Petrojam to assess motor one requirem. -xx. regulation could significantly reduce fuel consumpton by reducing idling time and increasing the average speed of traffic. A traffic management program would require detailed traffic surveys in peak and off- peak hours to identify the most heavily congested road sections and intersections in Kingston and Montego Bay. Because of the overal high rates of return for such projects and the benefits to road users, It Is recmended at user/beneflclay costs should be recovered through general fuel taxes or as Identied road user charges and tw MPUVE, Mlnlstiy of Transport, and local Parish CouncUls collaborate In studying the potentfor trqfflc management. Houehold and Renewable Energies Houwehold Energy 40. As in most developing countries, the primary household energy requirement in Jamaica Is for cooking. Total household primary energy use amounted to about 2.4 million boe in 1990, of which woodfuels (wood used for charcoal making plus wood burned directly) accounted for approximately 72 percent of the total, petroleum fuels for 21 percent, and electricity for 4 percent. In terms of monetary value, LPG accounts for 47 percent of the total worth of J$475 (US$ 59.4) million, charcoal for 22 percent, kerosene for 16 percent, and electricity for 15 percent. 41. For consumers, kerosene is the most attractive fuel at subsidized prices with a cost 0.13 J$/MI of end-use energy compared with 0.23 J$/MJ for charcoal, 0.30 J$/MJ for LPG, and 0.50 J$/MJ for electricity Including annualized costs of stoves. While electricity is delivered at its approximate economic cost, dereguated LPG retail prices are high compared with markets of similar size in other countries. Kerosene is cross-subsidized within the ex-refinery pricing structure by approximately 35 percent of economic cost. In the medium term, this subsidy is justifiable on environmental grounds, as it provides an incentive not to switch to charcoal for the 25 percent of the population using kerosene as a primary cooking fuel. Initial indications in ongoing survey work show that about one-half of household kerosene use charcoal as a cooking fuel in addition to LPG and kerosene and that 12 percent of the population uses charcoal as a primary fuel. The survey also reveals that existing kerosene stoves are inefficient. Removal of the kerosene subsidy would encourage the use of more fuel-efficient stoves so that there would be some offsetting of the higher kerosene prices.3 On the other hand, consumers could switch to charcoal as a preferred primary cooking fuel. 42. A switch to charcoal would place additional demand on fuel wood resources. Although estimates of woody biomass resources and of the volume of wood harvested for all purposes are highly uncertain, current indications are that 64 percent of total wood use is for charcoal making. If all kerosene users to switch to charcoal as a preferred fuel because of the removal of the kerosene subsidy, total wood consumption from all uses could double because of the conversion losses in charcoal making. 43. Although tentative, current estimates suggest that woodfuel could remain a sustainable resource, since the annual increment exceeds current demand; however, regional problems of deforestation are evident. A National Forestry Action Plan (NFAP) has been designed to carry out priority actvities in the forestry sector, but potential funding agencies have expressed concern that the 3. 1ra are wder V to dce kerosene stove that awoud be 10 ro 20percent more efent tan those present In me. - xxi - plan should be more tightly focused and that institutional strengthening is required before the NFAP could be effective. The matter has not yet been fully resolved; however, an inventory of forest resources is under way. Other studies are required and have been identified in the household fuels area to improve the weak state of knowledge of this important energy subsector. 44. At present, no resource value for wood harvested from public lands for charcoaling is charged or collected by the government of Jamaica. A resource tax or stumpage fee applied to wood is recommended but is difficult to collect. Rat%er than attempting to collect stumpage fees through the public sector administration, It Is recommended that a brief sudy be undertaken to assess other optons, including the feasibUity of auctioning concession tmber rights topublc forest areas. The concessionaire would be obliged to ensure the collection of stumpage fees, and, most importantly, would be responsible for replanting. Administrative responsibility would be confined to regulation and monitoring rather than collection and reforestation. Other measures are also required to ensure sustainable fuelwood use on private lands, where predial larceny Is a common problem. Kerosene Subsidy 45. It Is recommended at the kerosene subsidy be contled; however, adminstration through the food stap program (to ensure a more direct targeting of low-income beneflcaries) Is prWosed. The subsidy should be elimnatedfrom the refJneiy blling prce and the price decotrolled at the reta level. The present practice of restricting distribution to small drums should be discontinued. Sales through service stations at decontrolled prices would improve the availability to low-income groups, who woud be able to use kerosene/food stamps as part payment. Targeting of low-income groups is being improved and the number of beneficiaries of the food stamp program expanded as part of the government's social safety net program. Renewabk Emheqs 46. Renewable energies that can be developed economically on a large scale in the medium term are limited to primarily to solar water heaters. An analysis of renewable energy technologies in Jamaica estimated that a market of about 10,000 existing water heaters could be replaced by solar water heaters with a simple payback of less than three years. An evaluation of a proposed bagasse cogeneration project by MPUTE and JPS concluded that the project would not be economic at current fuel costs. Photovoltaics would have a limited application, in remote areas, while biogas production and solar crop driers are more relevant in agricultural than in energy production. Small hydro development has been found to be uneconomic at projected energy price levels in the medium term but might attract donor interest to help combat global warming by avoiding CO emissions. Energy and the Environment 47. There is a strong and growing national concern for environmental protection and cleanup as the basis for sustainable development in addition for the need to maintain the quality of the enMionment in support of key economic sectors such as agriculture and tourism. Tnere is also awareness that without proper management Jamaica could suffer irreversible environmenta degradation, as has already occurred on other Caribbean islands, unless a strong environmental protection program is - xxii - established. The recent creation of the National Resource Conservation Authority under the NRCA Act has been a critical step in grouping existing environmental bodies under one authority. NRCA is empowered to monitor environmental quality, set standards, and enforce regulations. 48. As NRCA has only recently been established, it is important that the necessary national and international funding and technical assistance be put in place as quickly as possible. Initial work programs have been developed, and CIDA is contributing to the funding of these activities. 49. In the energy field, requirements for environmental improvements have been identified as part of the study of each subsector. An Energy/Environmental Steering Committee has been set up under the chairmanship of the Permanent Secreay MPUTE to supervise the execution of related studies and review the environmental impacts of proposed energy projects. The recommended environmental strategy and action plan for the energy sector consists of six elements: a. Carrying out Environmental Impact Assessments for new energy supply projects as carried out for the BOO power plants and planned for the coal-fired power plants b. Cleaning up existing sources of pollution, particularly at the refinery in advance of its divestiture and also at JPS power stations C. Reducing pollution through conservation and energy efficiency improvements implemented through JPS d. Strengthening institutions responsible for environmental management, notably NRCA e. Establishing baseline data for air quality as a priority project for NRCA and for forest coverage through the carrying out of a forest inventory as part of the NFAP f. Identifying environmental zones and setting standards according to the particular requirements of the zone (e.g., Kingston metropolitan area, tourist areas, bauxite mining areas). 50. An Environmental Emissions Survey is planned, with CIDA financing, to assess the Impact of th& use of high-sulfur fuel oil in Jamaica, as it is a source of acid rain, which could be having a damaging effect on vegetation downwind from major sources of emissions. Tbese sources include bauxite/alumina factories, JPS, and other industries. The study would also aid in the identification (or exclusion) of potential power and industrial sites, depending on the severity of SO2 emissions. Depending on the impact of SO2, it may be necessary to reduce the sulfur specification in HFO below the current level of 3 percent. This possible requirement has implications for the choice of crude oil and the need for desulfurization equipment in power plants and industry. 51. Where environmental standards have not yet been establisbed, it is recommended that World Bank guidelines be accepted as the basis for energy sector planning. Based on cost and benefit evaluations using the baseline data to be collected, the need for revising the interim standards should be assessed according to the requirement of each environmental zone. [1~~ [ "pt L}l tj t2i la a rA .~E. . i _ I~ ~ o I o tI I | ~.I ff3*a~ ~ - - DC.'. a.~ -- Hf ~~~~~~~g~~~~4 OQ~~~~~~~~ I.~~~~~s - xxiv - Poky Ian,. Stty Reommdatlos Folbwup Actins StatusComments Pia"tiztono anld Petrojam refinery prper for divat - prepare RFP with consultant - DPSPP, Tuk 11 immediately funded under Energy Sector Deregulation and Privatizaion - parallel environmental study to - invest only in environmental project DPSPP under way for cleanup and powerfonner up- environmental clanup gade - carry out environmental - powerformer upgrde engineering and design complete ESthanol Operations - divest immediately - prepar RPP _ Under preparation JPS - increase private participation - Energy Sector Deregulation - World Bank loan approved through BOO schemes for a11 and Privatization (ESDP) July 1992 new generating plant including project implementation replacements - included under TORs for tariff study update - establish buy-back tariff for ________________ ________________________ small supplies Power sector - prepare strategy for divestiture - in-depth asessment of the - Consultanoy services for resuctuWing by assessing options such as various options for Power Sector Regulatory (a) retaining JPS as core restructuring and privatizing Framework and Privatization utlity responsible for systen outlined in initial studies of JPS have been engaged: planning, transmission, and distribudon; (b) developing - cary out corporate planning Phase I - Broad Structure and local distribution companies; study investigating all aspects Ownership of Power Sector (c) separating generation, of capital market, financial transmission, and distribution planning, tariff impact, legal Phase 1 - Detailed fulctions requiremnents; tie in with Organizational Structure and ____________ __________________ relatorp1ay study Regulatory Framework ReWulation - establish perfoman-ba - carry out regulatory framework for all aspects of framework study Phase m Implemntation power sector regulation Program - set up autonomous regulatory board following Studies to be completed Qtr recomnundations of study /1993 Eng Sector - develop access to foreign and - Implementation of Energy Flnancig local capital markets for Section Deregulation and power sector Privatization project - invedige local capital markets as paet of divesiture planning - xxv - Policy issues Strategy Recommendatons Follow-up Acon status/comments Eergy Consan___ Power Sector DSM - provide incentives for Demand - apply same tax treatnent to Side Management by power generation a to correcting price distortions appliances; put taxes and caused by tax differentials duties on power supply inputs and OCT on sales or level all taxes to lower, uniform rate - pursue economically viable - build institutional delivery ongoing with funding from energy conservation capaoity within JPS. Rookefeller Pund, IDB, and opportnies anticipated from GEF Building codes - make energy efficiency an - continue support for integral part of design and technology transfer primarily construction through JIE and JIA - identify and implement retrofit - part of JPS DSM program possibilities in existing buildings Industrial energy - pursue low/no-cost measura - identify conservation - coordination needed between conserwvation in improving combusion opportunities during walk- MPUTE and Ministry of efficiency through audits in conjunction Labour with boiler inspection - folow up with longer-payback - carry out detailed audits and ___ ______ .___ energy conservation measures develop consvation projects ._-_,_ . l Tnsportation - improve fuel efficiency and - maintain high fuel taxes and - fuel taxes to be proposed reduce fuel consumption road-user charges under DPSPP studies - improve urban traffic flow - traffic management study in Kingston metropolitan area Household, Biomass, - asses volume and sustain- - carry out biomass inventory - aerial photo survey compleed and Renewable ability of biomass resources under National Foretry Ergies Action Plan - improve management of forest - study mams of levying and tesourca collecting stumpage fees and ensuring replanting of trees - capture resource value of woodfuel - ncourage use of kerosene by - tuget kerosene subsidy low income households through food stamp program - inrove efficiency of kerosene - apply tax/remove subsidy from distribution retail prce - xxvi - Poky issues Strategy Rmm o Foow-up Acons Statu/Commen EnVIroument - internalze environmental cost - mandatory environmental - oomplted for BOO power in energy supply Impact assssment (IMs) for projects, audits included in spooified energy projects power and petroleum sector - determine energy/environment privatization consultancies Unkages; identify sensitive - staff up NRCA as quickly as areas as pat of power system possible planning - baseline emisions studies - To be financed by CIDA - clean up ealating pollution sources - power generation site inventory - engineering studies and - coveed under consultanoy Investment required for services engaged for refinery and power plants privatization of Petojam and JPS Institutional - consolidate focus of - strengthen MPUTE in major - regulatory framework studies responsibility for energy policy areas with smaU for power and petroleum policy within MPUTR; leave number of well-qualified and sectors will define specific sector entities to function motivated staff requirements under clear mandates and authority - accelerate pivatization - tighten the focus of Minister's - Speialized working groups process Steering Committee on Pdivate established during peparaidon Sector Privatization, establish of ESDP project, oonsultanoy more compact worcing groups services now under way with tcchnical assistance, as required JAMAICA ENERGY SECTOR STRATEGY AND INVESTMNT PLANNING ST'UDY VOLUME I Main Report August 1992 L. OVERVIEW AND BACKGROUND OF ENERGY SECTOR EneBM Sector and the Ecoomy Backgmwud 1.1 Jamaica, the largest English-speaking iland In the Caribbean, has a total area of 11,000 square kIlometers, with about 45 percent of the land used for agriculture. The estimated population growth rate of 1.0 percent In 1990 wu lower than the 1.4 percent growth of 1989, and 1990 population was estmated at 2.42 million, of which about SS percent live in urban areas. The per capita GNP is US$1,260 (1989), and the country is well-endowed with natural resources, has a relatively well-educated and skilled labor force in adequate supply, enjoys proximity to North American markets, and has a developed financial system. 1.2 Ihe Jamaican economy, however, is highly sensitive to exeral developments, such as foreign demand for Its exports, price of energy, interaional interest rates, tourism preferences, and so on. Unexpected changes in any of these variables can make large differences in the country's economic situation and prospects. Jamaica depends for about 99 percent of its commercial energy needs on imported oil (97 percent) and coal (2 percent). Principal economic activities are bauxite/alumina mining and proceSsing, tourism, manufng, and agriculture. Together, these sectors accounted for (in 1990) about 55 percent of the GDP, 50 percent of employment, and 75 percent of foreign exchange earnings. In the recent past, nontraditional exports such as garments, furnture, and leather goods have also been developed. lme &..tom 1.3 Ecenemt Perenuace is Ie 1970s. From its independence in 1962 up to 1972, Jamaica enjoyed a steady growth, spurred by direct foreign investment in the capital-intensive bauxite/alumina sector and also in the more labor intensive tourism sector. As a consequence, whereas the GDP increased at an average rate of S percent per year, employment grew at a much slower rate despite the growth in tourism. Between 1973 and 1980, the economy experienced a period of sustained decline that resulted from increases in energy costs; the impact of the mid-1970s recession in the industrial countries on the sugar and alumina industries; the increase In i=nnational interest rates; an overextnded public sector; and a disruption of production caused by th increased role of the state in the economy. An ersion of the prvate sector's confidence in the government led to reduced productive investment and an outflow of capital and skilled manpower. 1.4 EcOoak A#Jwlsaeat lX th 198(. Tie first half of the 1980( saw no real economic growth in Jamaica. During that period, as the policy adJustments were being put in place, bauxite and -2 - alumina exports fell. Jamaica developed unsusinale fiscal and external balances, with public sector and current account deficits averaging 15 percent and 17 percent of GDP, respectively. The external debt more than doubled from 1980 to 1985, with offici creditors accounting for virtly all of the US$2.2 billion increase in debt. 1.5 During the second half of the 1980s, the reforms, as well as stabilization efforts, were deepenei. The economy responded slowly but positively to the program of economic reforms, which had been aimed at libeizing the economy, developing export industries including tourism, and raising the domestic savlpgs rate, especially that of the public sector. Vastly improved terms of trade (induced by a fall in oil prices and sustained increases in export prices for alumina, sugar, and bananas) brought about an economic tunound. Between 1986 and 1988, GDP growth averaged 3 percent per year (compared with 0 percent between 1981 and 1985), the overall public sector deficit equaled about 4 percent of GDP (compared to 16 percent in the earlier period), inflation averaged 10 percent a year (15 percent during 1981-1985), and the external current deficit (excluding grants) equalled 6 percent of GDP (from 14 percent in first half of that decade). Had it not been for the dislocation caused by Hurricane Gilbert in September 1988, Jamaica's perfomance would have been even better, especially in terms of economic growth and reduction of the public sector deficit. 1.6 Recent Economic Pefonnance. Since 1989, the new government has advanced signifcandy in reducing the overall public sector deficit by increasing revenues, controlling noninterest expenditures, and improving the performance of public sector enterpries, largely through tariff increases and reduction in general subsidies. Beginning in FY88/89, the overall public sector deficit, including grants and divestment proceeds, was reduced from 16 percent of GDP to 1.8 percent of GDP. 1.7 The government's response to the Guif crisis of 1990 also indicated its commitment to adjustment and stabilization. In September 1990 it decontrolled domestic petroleum prices (except for kerosene for domestic use, which is cross-subsidized through the ex-refinery pricing structure for environmental and socia reasons) and allowed a full pass-trough of the higher intermational oil prices, including devaluation effects, to the consumer. At the same time, electricity tariffs were raised to reflect higher fuel costs; water charges were increased; and, as a part of the policy of phasing out general food subsidies, prices of food products were increased. Thus, most of the externa shock was absorbed through domestic adjustment. 1.8 Considering the adverse exogenous factors dtat affected the economy, economic performance in 1990 was positive, and GDP, in real terms, increased by 4.2 percent in 1990. The growth was largely supported by agriculture, forestry, and fishing; mining and guarrying; and the financial sector. 1.9 Growth Prospect. For a relatively small island economy, Jamaica retains unusually diverse opportunities fr growth. The short-term economic outlook depends on successful implementation of stabilization and adjustment programs. Barring major external shocks and a continued macroeconomic adjustment process, supported by IMF, the World Bank, and the Inter-American Development Bank (1DB), GDP growth Is expected to be fairly broad-based, averaging at least 3 to 4 percent a year in the - 3 - period 1992-95 and to increase gradually to about 6 percent by 1999. Sectors that are closely linked to growth In enerW demand show above-average prospects for growth. The manufacturing sector is eveted to grow at an average 3.8 percent and 6.0 percent a year In the corresponding periods. These higher growth rates are expected to be In response to improvements in the incentive framework for private sector Investment. A more rapid growth In services, including tourism, is forecast to grow at 5.4 percent between 1995 and 1999, compared with 2.8 percent In the period 1989-94. Tourism has become more competltive as a result of exchange rate developments and is expected to grow steadily through the 19908. 1.10 The miDng sector (bauxite and alumina) accounted for roughly 60 percent of total merchandise exports (and about 25 percent of total exports of goods and nonfactor services) in 1990. The sector is operating close to capacity and cannot grow appreciably In the medium term. Profitability, however, could Increase with real price increases in aluminum and real price declines in oil prices in the medium tem, thereby stimulating an expansion of capacity beyond 1995. weri and d Economy 1.11 As the Jamaican economy is highly energy Intensive, developments in the energy sector signSicantly affct the overal economic performance. In the period 1989-90, total energy consumption Inreased at about 17 percent a year, and the commercial energy consumption at an average of about 21 percent a year. Growth came mainly from the baxite, alumina, and power subsectors. 1.12 In 1990, total primary energy consumption (before conversion losses) in Jamaica was about 21 million barrels of fuel oil equivalent (boe), as shown in the energy balance, Annex 1.1. CommercW energy consumption was about 83 percent (17.5 million boe), represented by petroleum (80 percent), coal (2 percent), and hydropower (1 percent). Noncommercial energy consumption consisted of wood and charcoal (12 percent), and bagasse (5 percent). About 99 percent of the commercial energy needs were met from impoted petroleum (97 percent) and coal (2 percet). Indigenous energy sources (hydropower, bagasse, and peat) are limited, have low potential, and are not yet filly developed; solar energy shows economic potenti for domestic water heatg, however. 1.13 Of the total primary energy consumption In 1990, the bauxite industry accounted for about 34 percent (onsuming 43 percen of the country's petroleum); the power sector, 20 percent (25 percent of petroleum); the transport sector, 13 percet (16 percent of petroleum); aviation, 6 percent (7 percent of petroleum); the sugar industry, 6 percent (mainly bagasse); and the cement industry, 3 percent (mainly coal). 1.14 In 1990, Imported energy (including energy for the bauxite and alumina sector) cost about US$380 million, an increase of about US$90 million over the 1989 import bill. The import bill for nonbauxite energy was about US$270 million and reprsented more than 24 percent of foreign exchange eanings from merchadie exp and nonfactor services. As a direct consequence of crisis in the Persian Gulf, 1990 enr import cost for the nonbamite sector increased by about US$53 million. -4- Energy Suppies 1.15 Jamaica's petroleum demand is mainly met through local refining amd direct import of refined petroleum products. In 1990, Jamaica Imported about 18.5 million barrels of petroleum and petroleum products. Of this, about 7.2 million barrels of refined products were imported direcdy by the bauxite/alumina Industry. Although the refinery's nominal rated capacity is at 35,500 barrels per day (BPCD), bottlenecks in the refining process currently reduce the effective throughput capacity to 26,400 BPCD, and Jamaica imported 7.9 million barrels (21.6 KBPCD) of refinery feedstock and 3.3 million barrels (9.0 KPCD) of refined products. 1.16 At present, the refinery feedstock is obtained from Mexico and Venezuela under the San Jose Accord (SJA). Refined products are also bought under the SJA and from the cheapest alternate sources. The refinery sells refined and imported petroleum products to four petroleum marketing companies: ESSO, Shell, Texaco, and the PCJ subsidiary, PETCOM. The transportation fuels, gasoline, and diesel are sold through a network of some 250 retail outlets owned or operated by the affiliates of the international marketing companies and PETCOM (three stations). The outlets are supplied by road anker from loading racks in Kingston and Montego Bay by a group of independent road haulage contactors. 1.17 As household kerosene is used for cooking by about 25 percent of the low-income population, it continues to be subsidized. To ensure that the intended consumers benefit from this subsidy, kerosene is sold in tins or bottles to urban and rural households by peddlers and local shops. 1.18 The petroleum prices in the country were decontrolled, in the first phase, beyond the refinery rack in September 1990. Every week the refinery publishes ex-refinery billing prices, which are based on refrence postings in the U.S. Gulf; deemed freight, ocean losses, and insurance costs to Jamaica; imputed terminal and financing costs to supply products ex-terminal; and a tax element that is fixed by government of Jamaica based on its rever,ue needs. The oil companies add to this price their own operating margins and transport costs and establish wholesale prices to the retailers. The retail traders add their operational costs and margins and post ex-outlet prices. 1.19 Prices from outlet to outlet and company to company vary and reflect an element of competition in the market. The program of decontrolling petroleum prices has proceeded smoothly. In the short run, retail margins rose, as was expected, and are now begining to stabilize as greater competition is occurring. 1.20 Jamaica has 3 million barrels of crude and product storage capacity among the refinery and marketers, not including tankage at large customers' premises, which represents about four months of inland consumption. 1.21 To reduce dependence on petroleum imports, the government has taken several initiatives to broaden and develop the county's indigenous sources of energy. Bilateral (Canada) and multilateral -5-* (IDB and IBRD) donors have supported the search for oil and gas. An exploration program has been in place since 1955. On-shore drilling has been carried out by international companies. Jamaica's oil exploration efforts have not been successful, and drilling (eleven dry holes) and the geologic explorations have not produced evidence of hydrocarbons. 1.22 The joint UNDP/World Bank energy sector assessment in 1985 concluded that although "systematic geologic studies of the area could contiue which would throw additional light on the unknown geologic aspects of the perspective areas additional exploration drilling should be dependent upon the result of further studies and should be undaken by the private sector alone or by private sector risk participation." 1.23 The balance of Jamaica's primary energy needs are satisfied by bagasse (5 percent), which is used to generate steam in sugar factories; hydroelectric power (1 percent); and fuetwood (12 percent). Nine hydroelectric jower plants are currendy installed, with an aggregate capacity of 24 MW (about 4 percent of Jamaica's insalled capacity). The hydropower potential, which may be economically developed during the next 15 to 20 years, depending on long-term real petroleum price increases, is estimated at about 90 MW of generating capacity. This would substitute for petroleum-based power generation at the rate of about 1 million barrels per year. 1.24 In 1990, the sugar industry consumed 1.1 million boe of bagasse and about 200,000 barrels of fuel oil. With an energy efficieicy program, sugar factories should be able to satisfy all their own energy needs and supply surplus power to the national grid. 1.25 Peat is the only indigenous proven fossil energy resource available in Jamaica; it is not curently exploited, and the economic viability of its development has not been demonstrated. Moreover, the environmental implications in its development are serious. Peat is therefore not considered as a viable option within the horizon of this study. 1.26 Solar energy for water heating could make an economic contribution to the reducdon of electricity demand, provided costs to consumers can be reduced to increase market penetration (para. 1.12). 1.27 Although Jamaica currently produces fuel ethanol, its viability depends on the prices of wine acohol in Europe (currendy heavily subsidized by the European Community; EC) and on the favormble treatment of its imports to the U.S. market under the Caribbean Basin Initiative (CBI). For the dormestic market, it is not economic for blending with gasoline, given the opportunity to export to the U.S. narket and the present low petroleum prices. 1.28 In 1990, the domestic consumption of fuelwood and charcoal was approximately 2.5 mfllion boe, of which 64 percent was converted inta charcoal. The use of fuelwood by the commercial and industrial sectors is small, and litle growth in fuelwood demand is expected. Further efforts are being made through the National Forest Action Plan and the ESMAP Cookstoves Project to optimize the use of fuelwood and charcoal (para. 6.1). -6 - 1.29 The UNDP/World Bank Energy Assessment Program Repott, with a view to alleviating the serious drain on the country's foreign exchange reserves caused by imports, emphasized the need for further developing Jamaica's indigenous sources of energy, Improving efficiency in energy use, and effectively managing the energy sector. A number of agencies, including CIDA (through ESMAP), IDB, and the Rockefeller Foundation are currently providing assistance to the government to design and Implement a program to improve energy efficiency in supply and end use (para. S.18). EnerD Demand 1.30 Barring significant discoveries of oil and gas or unforeseen technological breakthroughs, the country will continue to rely on Imported oil to meet most of its energy requirements during the next two decades. In 1990, petroleum consumption totaled 17.6 million barrels. Of that, the Jamaica Public Service Company (JPS) consumed 4.1 million barrels, the bauxite industry consumed an additional 7.3 million barrels, gasoline consumption accounted for 2.0 million barrels, and automotive and marine diesel oil consumption was 2.6 million barrels. In the past three years, demand for petroleum products has increased about 14.6 percent a year, mainly from the increased demand of the bauxite/alumina industry and the power sector. During the next decade, in line with macroeconomic growth prospects, demand for gasolines is projected to increase at about 3 percent per year, for kerosene at 3.4 percent per year, and for automotive diesel at 3.8 percent per year. For a summary, see the energy balance, annex 1.1. Institutional Structre and Energy Sector Enterprises 1.31 Energy sector policies and the activities of energy sector entities are coordinated by the Ministry of Public Utilities, Transpon and Energy (MPUTE). The two main public sector entities in the energy sector are JPS in the power subsector, and the Petroleum Corporation of Jamaica (PCJ) in the petroleum subsector. Rationalization in 1989 to bring both these subsectors under the portfolio a single mistry has significantly improved the coordination of energy sector policies.4 It has also facilitated the formulation of a national energy policy, based in part on this ESSIP study. 1.32 To coordinate the activities and provide policy guidelines required for the introduction of tOa private sector in energy development, the government formed, in November 1990, a Steering Committee on Private Sector Participation chaired by the Minister of Energy and including representatives from the Ministry of Public Utilities, Transport and Energy, the Ministry of Finance, as well as lPS, PCI, PIOJ, the Attorney General's Office, and BOJ and is intended to serve as a focal point for the formulation and adoption of policies regarding the participation of private sector investors in energy as well as overseeing the implementation of these policies. MPUTE is the Secretariat of the Steering Committee and is responsible for all coordination. Also at the request of the government, the World Bank seconded a staff member to the government to assist in the development of energy sector policy. 4. Uxdl Jauy 1992, *e MbaWry of M8i and EaeV (MME), now te Mbhsry of Public Utii, Transpo and Y0U. -7- 1.33 PCJ is a wholly owned state corporation established under the Petroleum Act of 1979. Its core functions are (a) to import, export, refine, and distribute petroleum and petroleum products; and (b) to explore, develop, and maage petroleum resources. Its most important subsidiaries are Petrojam, responsible for oil refining, and PETCOM, the most recent entry into petroleum product marketing. Following a strategic review in 1990, PCJ divested itself of a number of nonenergy activities (relating to tourism and engineering services, for example) were judged by the government to be beyond the scope of the Petroleum Act, and at the same time, significantly reduced the size of the headquarters staff. 1.34 Tne overall management of petroleum product marketing is dominated by the three local affiliates of international majors-ESSO, Shell, and Texaco-with minor participation by PETCOM. The road transportation and operation of retail outlets is in the hands of private Jamaican entrepreneurs. 1.35 JPS, the only power utility in Jamaica, has exclusive responsibility for the generation, transmission, and distribution of electric power for public consumption. The government of Jamaica has 99 percent ownership of the company, which is regulated by MPUTE. Energ Sector Polides, Issues, and Strategies 1.36 Many issues in the energy sector are the same as those identified in the 1985 World Bank Energy Assessment report (para. 1.29), although priorities and recommended strategies have changed in some cases in line with broad government policies, such as the promotion of private sector involvement in the energy sector and an increasing concern for the environment. Within the context of the situation oudined above, Jamaica should gear its energy sector policy and strategy as follows: a. Fully deregulating and liberalizing the energy sector (supplies, production, distributioy,, pricing, etc.) consistent with overall macro policies b. Increasing reliance on private capital and private sector participation in the development of the energy sector (divestment programs and new investments) c. Decreasing the country's level of energy intensity through improved and efficient use (demand side management) and production (efficiency and loss reduction programs) of energy d. Reducing the risk of price shocks through diversification in the composition of imported energy to nonpetroleum and cheaper energy sources (primarily coal, and in the longer term, oil emulsion, if feasible) taking into account environmental impacts e. Strengthening the institutional structure in the sector for integrated planning and effective sector management, including greater attention to energy/environment linkages. 1.37 Each of these issues is set out in chapter II; detailed analyses and discussion of subsectoral strategies are given in corresponding chapters. -8- Past World Bank Involvement 1.38 'ne World Bank has made four loans to JPS, which total US$90.5 million. Prominent in these lending operations have been (a) financing construction of generation, transmission, and distribution facilities; and (b) proviing technical assistance for improving operations and maintenance pracices and overall efficiency. The latter was particularly Important during the implementation period of the second loan (1S16-JM, US$20.0 mUlion, 1978) when adverse macroeconomic conditions took a toll on the company. 1.39 The third and fourth loans, in addition to financing construction and providing technical assistance and trining, focused on rehabilitating plants and general upgrading of the power system. In particular, the ongoing fourth loan (2869-1M, US$18.0 million, 1987) aimed to improve operating efficiency witbin the JPS system by (a) expanding and upgrading transmission lines, substations, and the distribution network; (b) establishing a permanent traiing center and training program; and (c) providing engineering/consultant services for JPS. The project was designed to help JPS meet its power needs through 1992. 1.40 In July 1992, the Energy Sector Deregulation and Privatization Project loan number 92- 0070 (US$60 million out of US$165 million total project cost) was approved to install about 120MW of generating capacity (90MW in the private sector and 30MW in the public sector) and transmission lines, establish and operate a Private Sector Energy Fund to provide long-term financing for private investments in the power sector, provide consulting services to assist in the development of BOO projects and a glatory framework for the power sector, and develop and implement a privatization strategy for JPS and Petrojam. 1.41 Institution building has been a major focus of all World Bank lending operations in the Jamaican power sector. Training and strengthening of sector human resources have also received particular attention. In the Energy Sector Dereguation and Privatization Project, the primary concern will be to establish the institutional and incentive framework, as well as the local financial and technical capability needed to attract and support private sector development. Accordingly, the project will incorporate a strong technical asistance component as a short-term measure to make up for local deficiencies in technical expertise. 1.42 The Petroleum Exploration Loan (2017-JM, US$ 7.5 million, 1981) was aimed at prmoting the exploration for and development of Jamaica's hydrocarbon potential. Although no commercial discovery was reported, the project partily achieved its objectives by increasing knowledge of the prosectivity of the Pedro Bank area offshore and of the northern and western areas onshore. The interpretations of the survey data enhanced the understanding of the areas explored and identified areas such as New Bank on the South Coast Shelf, where fiuther exploratory work would be warranted at higher oil prices (para. 3.29). The negative results of the exploration activities and the lack of sound alternative uses led in January 1986 to closure of the loan and cancellation of about 50 percent of the apped fimds. -9 - H. ENERGY SECTOR POUCY ISSUES AND STRATEGIES Macro Poldes Trde Regim 2.1 The development of energy sectr policies and strategies must be consitent with government of Jamaica's overall macroeconomic policies. As a cornerstone of its policy, the government of Jamaica is committed to the broad objective of relying on market forces to achieve the efficient allocation of resources. This policy includes developing competition among suppliers and ensuring that foreign exchange and interest rates reflect their economic values. Since 1987, the government has been working toward liberalizing trade, particularly with respect to tariffs and duties. Under the Common Extnal Tariff (CET) of Caricom introduced in February 1991, protection of local mfacturehas been reduced so that the maximum duty is 45 percent, and exemptions will be severely limited.5 A General Consumption Tax (GCI) or equivalent of 10 percent was introduced in 1991. 2.2 These measures are expected to result in cheaper, higher-quality goods for consumers and a more efficient allocation and use of resources; however, unless similar policies are applied to the pricing of electncity, a tax distorion will remain against energy efficiency improvements, since electricity is not subject to sales tax nor is heavy fuel oil, which accounts for about 80 percent of generation, taxed. This distortion works significantly against a major government objective-to increase energy end-se efficiency. Petkewm Impo*aton 2.3 Following the liberalization of all other imports, the last effective monopoly for traded goods rests with the Petroleum Corporation of Jamaica (PCI) and Petrojam for the importation of petroleum products. Analysis of the least-cost supply option for petrolem-based on crude and project price projections made in late 1990 and early 1991-indicates that the Petrojamn refinery could be competitive with imported products following iinor debottlenecking and efficiency improvements. Under these conditions, there would be no apparent reason for delaying the liberization of petroleum imports. 2.4 PCJ/Petrojam, however, raised concerns (Annex 2.1) regeading the viability of the refiery in a liberalized market and requested interim protection at least. This and other issues discusse below are the subject of the Deregulation of the Petroleum Sector and Privatzaion of Petrojam Study (DPSPP). Footnotes throughout this chapter refer to relevant sections of the DPSPP (Annex 2.2). S. ke govewr ha set an ofa/a ar8f 5arge /Sto 20per and wl conw to pressf r af r redco w**k CARiCOM, ukh presty has a cwnon ernal< tafctwere of0to 45pecena -10- 2.5 Petroleum products are covered by the CET and are subject to ex-refinery taxes, which were projected to contribute about J$740 in FY91/92, or 8 percent of total indirect taxes. It Is therefre recmmended tat the Importaton of petroekwn products should be liberalized Inmediately by removing exLsting tarffs Wosed under the Petroleum Act that provide effective protection to the refinery.2 Liberalization of imports would also put pressure on the refinery to make efficiency improvements as rapidly as possible. 2.6 To ensure that competition among importers and the refinery can lead to the lowest landed cos of products, It Is recommnded at the langstoa and Montego Bay terminals be operated on a common carrier basis, with open access to qudlfied Worters meeting standards for public safety and financal soundess, for storage jor afixed fiee and operadng conditons under regulatory supervision.' Petrokaew Prcng 2.7 In case full liberalization could not occur immediately, some time might be required to ensure that product specifications were established and that continuity of supply would be assured at all times should significant changes occur in trading patterns. During the interim period, it might be necessary to revise the ex-refinery pricing formula (para. 3.34) to reflect the required product specifications and terminaling and delivery rack charges that would obtain in a competitive market. C.i.f. reference prices for products imported under the formula pricing arrangement should continue to be based on platt's spot price quotes for U.S. Gulf Coast.4 2.8 The review of the pricing formula carried out by the consultants to the mission indicated that the application of the present pricing formula may be leading to overcharging or excess costs of supply of up to about US$15 million for petroleum products, leading in part to additional profits by Petrojam. As these profits form part of the consolidated surpluses of public sector corporations in meeting the IMF tests, it is essential that under any revised pricing formula, adjustments and made to the tax formula in order to retain the surpluses as part of public revenues. 2. ha co ox dAe drqt reponn 2.1), Petromn proposed a 36wmoxh phae-in periodfor inwpors lberaalwono topeM*hAe acqs Wonf downsream diuriswlon owku. The phasekn period to be addressed in DPSPPs udkes (Reguatowy Framewrk, Task A (b)). 3. Pero comened at hred ankage arnagemew shoult be klf uqp to the pesrolewm indwy itsefVrather ttaA hyosed by goenxw. 2J appah cou help to achieve eo of scale in tanage. the enny of smal Indpende mw*nrs oud sWll be hibed becawse of dhe need to couwtru or otherwise gain access to storage faciis. To beirther addressed wnder DPSPP (Reuaty Frmewo*, Task B 0) and 1rlvada Strategy, Task (bJ). 4. Revsios to die pricg formula to be proposed under DPSPP ftegulatory Iouwwork, Task A (c)). 5. Ta revimo propo to be made wder DPSPP (RegaWory Fraework, Task A (b)). - 11 - Aniidnpa and CompedWon POllc 2.9 PCJ/Petrojam have expretsed concerns that free importation of petroleum products could lead to dumping; however, antidumping legislation was enacted in 1988, and the Prices Commission will be strengthened to carry out the necessary technical accounting and economic investigations. The Commission is expected to become operational during 1992 under the Ministry of Industry, Commerce, and Production.' As a further measure to ensure fair trade, the government of Jamaica has begun development of a competition policy that covers restrictive business practices, mergers, price fixing, resale price maineace, consumer protection, and other aspects of policy. This policy is also expected to become effective during 1992. Given the small number of petroleum marketers and the vertical integration in the present industry structure, the potental for unfair trade practices is greater than in other markets both from dumping of bulk imports or from restrictions in retail trade.7 Privatization and Divestiture 2.10 The National Investment Bank of Jamaica (NIBM), reporting to the Prime Minister's office, has been assigned the responsibility of coordinating and Implementing the privatization of energy sector entities including JPS, Petrojam (refinery), Petrojam (Belize), and the ethanol operations. Petiklex Coepordon of Jasaka 2.11 Pdrjia Reinery. The analysis of the least-cost petroleum supply options (chapter 3)-based on 1990-91 data-concluded that the Petrojam refinery, with minor upgrading, could compete profitably with imported products in the local market, thereby minimizing petroleum supply costs :ased on current and projected conditions in the regional petroleum markets. With more extensive upgrading though the addidon of a catalytic cracker, the refinery could be compedtive in export markets and could run at close to full utilization. It would be up to private sector investors, however, to judge the expected long-term viability of the refinery and the potential value of upgrading options. This expectation would then be reflected in the price they would be willing to pay. Since this judgment can only be tested through bona fide offers, technical assistance is being provided under the Petroleum Deregulation and Privatization Study to prepare a detailed privatization strategy including a valuation of Petrojam and a prospectus to offer it for sale. 2.12 So that the sale of the reflnery will not be delayed or prejudiced, It Is recommended tw no bnvames for expansion or mod$flcadion should be made before dIvesttre except for (a) environmenta ckleanp and (b) the debouienecking of the powerformner.' The environmental cleanup 6. Twalncawia wilbeproviwed der he World Bkecond 4eand acal SorA entLoan, 191. 7. Fai trade ad co ssus to be adressed wsder DPS?P (Regalatosy Fh_wev., Task A4(d) ad Task 541)). a The pow fimwis nie *Jbr goe prodt -12- would be required even in the event that the refinery were closed and the tankage were to be used for termining. Furtherore, it would remove any reason for discounting the sale price because of possible concerns of purchasers for eventa liability for inherent enviroment defects. As for the powerformer, it would have a payback period of less than 12 months.' 2.13 Fahw Opermtio. Beca the cost of producing fuel-grade alcohol in Jamaica Is greater than the equivalent cost of gasoline, dry alcohol production is viable only for export to the United States under the CBI preference and based on the availability of European wet alcohol (para. 3 and Vol. II-B). Production of wet alcohol at Petronol is not competitive with regionally produced wet ethanol tha would qualify under the CBI, and It is concluded that the Petronol operations are uneconomic. Production of dry ethanol, however, is expected to remain profitable, since the CBI preference has been extended to the year 2000, provided that European wet alcohol remains available. 2.14 Since ethanol operations are peripheral to Jamaica's energy sector and the government wishes to privatize ethanol operations, It Is recommended ta these operaions shoudd be divested as quickly as possibk. If a private sector buyer saw a profitable opportunity, then the sale would go quickly. It is understood that interest has already been expressed in the Petrojam Ethanol facility located adjacent to the petroleum refinery. Because of the physical location of the anhydrous ethanol distillation unit close to the refinery, it is Important that the sale of the ethanol plant should not be an encumbrance to the sale of the refinery; however, it would be feasible to continue operations under separate refinery/ethanol plant ownership without relocating the plant. j3nsaka Pabic Seryke Coeporatia 2.15 The government of Jamaica's long-run goal in the power sector is divestiture, although it recognizes that the process for power is likely to require more time than for the petroleum sector and shoud begi with more limited forms of private sector participation such as the use of BOO projects for generation. The objectives of private participation are as follows: a. Increase sector efficiency to meet electricity demand at lowest cost to the nation and consumers. b. Increase access to foreign and local funding for system expansion. c. Provide a stimulus for local capital markets. d. Transfer to private capital the business risks inherent in investment in the power sector. e. Reduce public sector debt through the sae of assets. f Reduce the involvement of government in the operation of the power sector. 2.16 Although some of these objectives can be achieved only with private participation, efficiency improveme and increases in local fimding-at a minimum-can be achieved by improved regulation of JPS as a public corporation, including a greater reliance on internal cash generation by 9. PevJm wook th powerfonsw upras pt of anml maWnae In l 1991. An eniroment andk is be doe in paralkel with he Deregaion and PrivatW ilt.v - 13 - raising tariffs as required. Private sector initiatives and market-oriented behavior can be expected to stimulate better performance and productive efficiency. In this respect, the role privatization can play is akin to that of regulatory measures that focus on incentives rather than on government intervention in the administration of the sector. 2.17 In an effort to further the initial steps taken by the government, a study, consisdng of three phases, has been commissioned by the government and is being administered by the World Bank under the ESDP project (FORs, Annex 2.3). The first phase of the study will recommend the broad structure and ownership of the power sector and an appropriate regulatory framework for the privatized power sector. The second phase of the study addresses the detailed implications of the recommended structure, including the organizatons required for the new structure, including the regulatory institutions, allocation of assets in the sector, required tariff adjustment mechanism, and so on. The third phase of the study addresses the implementation program, including the required legislative and regulatory changes, and a detailed strategy, program, and implementation schedule for the privatization. Consultancy services are being provided by a major international firm (Coopers and Lybrand) and are scheduled for completion in Quarter 1 1993. Issues to be addressed in the study, among others, are outlined below. 2.18 Scope for Compedtion. Power systems have traditionally been organized as vertically Integrated natural monopoly industries with the attendant need for regulation to prevent excess profits from being extracted. Natural monopolies are characterized by economies of scale (declining average unit cost); economies of multiproduct outputs; and a high degree of sunk costs Oarge investments in fixed plant with no alternative uses leading to low short-run marginal costs). There is thus a natural barrier to entry for any new firm wishing to offer the service and a clear diseconomy in duplication of services in the same geographic territory. A situation wherein it is cheaper for a single firm to produce the output rather than for two or more firms to produce it is the essential feature of a natural monopoly. 2.19 It is generally accepted that transmission and distribution constitute natural monopolies and should continue to be treated as such. Whether they adjust as an integrated entity or as separate firms, regulation will be required, since competition will not be feasible. There is, however, much discussion in the literature concerning the scope for competition at the generating level. There is a fiuther possibility that transmission and distribution networks could act as common carriers according to a standard taiff of wheeling charges to permit the sale of power from an individual generating firm to a specific purchaser. In this mamer, a generation company could compete with a distribution company that purchases power in bulk for resale. These options become economic when a single generating plant is relatively small in comparison with the total system demand and economies of scale have been exhausted. TiEs situation is found in large systems such as in the U.S., U.K., and a number of the larger developing counies. The limit to economies of scale is reached for unit sizes in the order of 500 to 800 MW, and the existence of power pools with a large number of generating stations renders marginal the output fiom an individual unit. 2.20 An examination of the sitation of Jamaica suggests that economies of scale in generation have not yet been exhausted. The Least-cost Generation Expansion Plan (LCEP), for example, shows ^ 14 - that larger units benefiting from economies of scale should be brought on line as the peak demand continues to grow (para. 4.45).0 Because of the relatively small maximum demand, lumpinmss of investment In generation, and the small extent of the transmission network, the Jamaican power sSytem can be expected for some time to exhibit the characteristics of a traditional power udlity. In transmission and distribution, unit costs will decline with load growth as transmission voltage increases and load density increases in distribuion. 2.21 Competition can occur in generation expansion through a build, own, and operate (BOO) bidding process at the time the investment is to made and through power purchae contracts that ensure short-run cost minimization through merit-order dispatching. 2.22 Power Sector Regalion. A BOO contract will essentially meet many of the overall objectives of sound power system regulation. Bids will be made on the basis of clear specifications of output, including incentives and penalties for good and poor performance, respectively. To ensure the continued development of new generating facilities using the BOO concept, it is importan to establish a consistent and transparent regulatory framework so that the rules of the game can be evenly applied to all participant as they join in (assuming that several operators would eventually become involved). Precedents will be established, with the initial agreements for the proposed 3 x 20 MW low-speed diesels, that should form the basis for future contracts. 2.23 A recent World Bank study concluded that ownership is not critical to good performance; rather, performance depends on management capacity and degree of autonomy."1 General conclusions drawn by the study are that effective regulation is most likely to be achieved where a. Legislation has been put in place to establish the relationship between government and industry b. Regulations are clearly spelled out concering the procedures for setftng prices, limt on borrowings, and investment program c. An independent regulatory body with clear rules and authority to function according to the legislation and regulations d. Government focuses on strategy and policy through a corporate plan or performance contract to be administered by the regulatory body e. Financial incentives are used within the power sector to reward good performane and Impose penalties, including loss of job status where targes are not being met. 10. De nex a4ftitw is cqapalO will be 20 MW ofdtu 60 MW coal-jlrd walL have beenfound to be pan of the WE?P in later years. 11. A Revkew ofRegul of te Power Sners Inthe Deveoping Coun, Iduty and Energy Depat Eneuy Sris Woring Pwr No. 22, Feray I9M Auonomy would be eWpcted to be Inreasd with greaer degree ofpriwe pW*00*n and ownehp. -.1S- These aspects will be examined In the context of Jamaica under Phase I of the Power Sector Regulatory Framework and Privatization of JPS studies. 2.24 Power Secdor Ratrudwing. The establishment of private power generation companies would involve a minor restructuring of the power sector. Further restructuring could be considered to separate the existing JPS generation from the transmission and distribution functions. Although it is conceivable that regional distribution companies could be established to buy in bulk from the transmission system, there do not appear a priori to be any cost advantages, given the small size of the JPS system. On the contrary, there would likely be increased administrative costs and regulatory problems in maintaining uniform island-wide tariffs. As pointed out above, ownership is not the key to achieving improved performance, and the introduction of BOO operators as power suppliers to JPS involves only the purchase of power rather than direct competition. For this roason, the option that JPS should remain in its present structure-as the core utility buying power from independent BOO and cogeneration suppliers and as responsible for island-wide transmission and distribution-and other fundamental questions are being examined as part of the Regulatory Framework/Privatization studies (para. 2.23). 2.25 System Planng. As the core utility, JPS should continue to be responsible for all aspects of system planning. Least-ost generation expansion plans should be revised annually, with major reassessments every two years. BOO bids for new generation additions should be requested as required on the basis of the duty cycle that the plant type should perform (base/peak load, etc.). The LCEP (chap. 4) indicated that several plant sequences were close in economic merit; hence, it is important to reevaluate the expansion program regularly to take into account changed conditions of load growth, fuel, and capacity costs. In the broadest circumstances, the fuel and plant type need not necessarily be specified (only the duty cycle, i.e., whether base or peak load) if it can be reasonably expected that srious offers will be obtained by leaving these specifications open. The bids should then be evaluated using the LCEP planning models to take into account the impact the proposed plant would have on the future expansion plan. 2.26 Tbe avoided costs of generation should also be determined as part of the system planning exercise. These costs for marginal capacity and energy should then be used to establish a standard buyback tariff for small independent producers or cogenerators up to, say, 20 MW. Larger cogeneration cases based on bagasse or other energy sources should be treated as filly independent power projects subject to the same evaluation as BOO projects. 2.27 Pheparton for Increased Pdvae Palkipar on and Divesdtww. Although the government's goal is for complete divestiture of JPS, the process must begin with performance improvements t-rough increased private participation. As a general guidine, consideration should be gien to putting out to contract any compon of JPS's admistraton or operation dw could coneivably be siled more cost-4fctlvly than by JPS Itself. Use of contractors is the norm in large construction projects; however, routine operations for which performance sandards and incentives can be defined should be considered for contracting ouL Billing and collection in particular could be contracted out and would have clearly measurable results in terms of reduced administrative losses. In order to assess the performance in individual areas, bulk meters should be installed on feeders to cross- - 16- check total billings with supply and to aid in tracking losses. The contractor should receiv incentives for reducing losses or suffer penalties for not meeting agreed targets. The standard commercial practice of using agencies for collecting past-due bills should also be followed by JPS. 2.28 Greater competition could help reduce costs of fuel supply. Liberalized petroleum imports would allow JPS to arrange its own fuel contracts from the cheapest source. Consideration shoud be given, however, to letting contracts on the basis of a total service package to help reduce the cost of energy used rather than the cost of fuel supplied. By using this approach, JPS could obtain technical assistance and investment in facilities by a fuel supplier to permit JPS to use cheaper, lower- quality fuel oil. The purchase of fuel oil futures contracts should also be explored as a hedging technique. 2.29 The capital market in Jamaica probably would be able to absorb a limited share offering over a given period. Phase m of the Regulatory Framework/Privatization studies will consider the capital markets from institutions and individual investors. The cost of capital and creditworthiness of JPS for bond offerings should also be investigated, along with the possibility that a large share offering could crowd out other capital requirements. The sale of existing assets now held by the public sector to the private sector would help retire the public debt but would not result in new productive investments. The sale of shares and debt instruments could be tied to incremental capital requirements. 2.30 Untl JPS as a public sector or mixed private/public company becomes creditworthy in its own right for nonrecourse foreign exchange fincing, JPS will have to continue to finance its own trasmission and distribution program (as distinct from privat power generation projects) through traditional public sector sources. In the long term, however, JPS is expected to finance investments (other than for generation) entirely through internal cash generation. 2.31 CpoptA Planng for Divest h. JPS has established its corporate planning department under the Director of Planning and is presently responsible for investment planning under the framework of a public sector corporation. Setting out the scenarios for increased private sector participation and divestiture is a major task. Substatl specialist input is being provided through the consultancy services for the Regulatory Framework/Privadzation Studies concerning (a) capital markets, (b) macroeconomics, (c) financW modeling, (d) regulatoryllegad issues, and (e) power utility operations. 2.32 A number of key questions are being addressed, including the following: a. What forms of sector organization are relevant to Jamaica-ranging from separate generating, transmision, and distribution companies to various combinations thereof? b. How should divestiture proceed? c. What performance standards can be established? d. What rate of performance improvement can be expected, and with what costs and benefits? e. What will be the impact on tariffs, taking into account exped performance increases? f. What degree of foreign participation should be sought? g. What are the balance of payment implications of debt servicing and dividend repatriation? h. What are the personnel and labor relations implications of each option for divestiture? - 17- 2.33 Rt Setdt. Rateseing principles should be established early in the planning process and shoulJ be coordinated closely with the regulatory studies (para. 2.17). The basic principles now in place should remain unchanged but will need modification to reflect power purchase from privat suppliers. ZTese principles are as follows: a. Rates should reflect full costs, including duties and taxes that are applied to all other industries. b. Overal revenue requirements should be established on the basis of existing loan agreements with international agencies and the government to meet rate-of-reurn and self-financing tests with adjustmens for inflation based on a retail price index minus an incentive factor for productivity improvement (generaly known as the RPI minus X formula, as used in the UK). c. Indexing of foreign exchange and fuel-cost fluctuations. d. Tarifs should be structured according to marginal cost principles according to peak and off-peak ost, voltage level, capacity, and energy costs, and so on. e. Pass-tbrough of purchased power charges and adjustments with initial contracts subject to rgulatory board approval. Energy Conservation and Efficiency 2.34 On a macro level, Jamaica is subject to external faors-such as movements in bauxite, alumina, and oil prices-that have an immediate impact on the balance of payments. Because of the relatively high energy intensity of the economy, the oil price shocks experienced during the 1990 Gulf Crisis were particularly acute. Fuel diversification, energy conservation, and efficiency improvements are thus esential in an overall energy strategy to reduce costs of energy and risks of shocks. Such a strategy, however, should not lead to the selection of energy alternatives that would still be uneconomic with due allowance for risk-reduction benefits. A reduction in energy intensity will be achieved in the long run through consistent macro policies and the reduction in price distortions. Details of the energy conservation and efficiency strategy are given in chapter V and in vol. 1-B. 2.35 Efficiency improvements on the supply side are already programmed in the power sector (para. 4.3). A review of the performance of the petroleum refinery has revealed opportunities for process and operational improvements (para. 3.47), and liberalization of imports would help to ensure petroleum supplies at lowest cost. 2.36 Power Sector Demand SWe Management. Demand Side Management (DSM) in the power sector has become a generic program for many power utilities, particularly in North America, to induce consumers to use electricity more efficiendy. It is apparent in many jurisdictions that the cost of a kIlowatt hour saved is less than the cost of an additional kIlowatt hour supplied. On this basis, it apps economic to invest in DSM programs as a supply alternative. Often, however, consumers -18- themselves do not invest in conservation becase the price of electricity does not reflect the full cost of supply; hence, the savings to the consumer do not provide enough incentive. The case is tihen made by DSM advocates that the power company should invest on behalf of consumers and put the costs in the rate base or that the government should reduce taxes or provide other incentives. Although these measures would overcome the intrasectoral problem of price distortions, they would constitute a second- best solution by Intoducing further distortions in the broader macroeconomic context. lhe recommended first-best strateg to be applied In Jamaica, as elsewhere, Is to level the entire playing field by reducing all taxes to a ubfonn level or by ncreasing the price of electricity to Include the same taxes as levied on other goods and services, Including the GCT when It s ktroduced.12 2.37 JPS is currently carrying out pilot and demonstration projects with assistance from several international agencies and is preparing a project for financing by the Global Environment Facility (GEF).13 These projects will provide the necessary experience to establish a DSM program in the industrial, commercial, and residential sectors. The ESSIP study has analyzed the proposed programs and found the economic rates of return to vary in the 10 to 30 percent range. Several programs would be unattractive to consumers unless savings were increased by higher electricity prices or tax reduction. Untl price distortions can be overcome, it Is recommended tw DSM efforts shouldfocus on programs that provide sicint user savings to be of Interest to consumers under prevailing market prices. 2.38 Even with evident consumer benefits, barriers and constraints to implementing energy conservation programs (para. 5.3) remain, deriving mainly from a lack of information both to consumers and potential suppliers of conservation equipment. At present, the energy conservation industry in Jamaica is limited, although one is emerging through activities now under way. 2.39 Buding Codes. An Energy Efficiency Building Code (EEBC) is currently being implemented by Jamaican engineers and architects with assistance from international consultants. After three workshops, designers already report changes to their normal specifications and designs. The code is mandatory for public buildings and voluntary for private investors. Application of the code and guidelines to the standards set through cost-benefit analysis has shown that in some designs an energy- efficient building can require lower investment as well as lower operating cost. 2.40 Jamaican engineers and architects, through the professional associations and with the assistance of the Jamaican Bureau of Standards, have demonstrated a strong commitment to the implementation of the EEBC and have requested continued support in the process of technology transfer. It Is recommended dw technical assistance for Implementation of the Energy Efficiency BuUidng Code be contnued with jfancing through MPU7E and odter agencies as required. 12 A recent Worldrepwt dsiwed by he Board ofDirectors, w of Tax Reform, March1991, cowstered the argumeufor lw Pet pries (bsed hi part on low ux rate) by pointg out ta tere is no known negadve rektonship betwen domic prolewn prices and growth, whereas there is docwxened e wce f a strong positw relahp between enerv prkes and enr efficicy, he wime study recommened reducing te we of ta preference and exenptom to promte specfc emi ard social obJecve& 13. Sowces of asace *cbw CDA, trgh =MP,; GWZ; IDB; and die Rockefeler Find - 19 - 2.41 ladusta urgy Comerns on. In addition to electrical DSM opportunities, there is a poteni for low-cst/no-Ct savings of about 20 percent in fuel use in industries through improvements in fuel-fired hot-water and steam systems. Boiler tuneps are among the lowest-cct measures and should be combined with the annual boler inspection required by law. other energ conservaion opportunities can be Identified during walk-rugh audits to be carried out In conjunction with the boiler inspection (par 5.45). 2.42 T)WOo$e*Ia Improvements in fuel efficiency in vehicles can be achieved through tuneups and through replacements of the existing fleet, 50 percent of which Is more than ten years old. Ihe average age of vehicles will be reduced and fuel efficiency increased by the increased importation of new and second-hand vehicles. Goverment strategy in this area should be confined to maintaining relatively high levels of taxes and road user charges on automotive diesel fuel and gasoline to encourage attention to fuel consumption. Government support should also be given to the dissemination of information concerning possible fuel economy measures. 2.43 Improvements in traffic management and in roadways will lead to reduced engine idling and lower fuel use. These measures are justified even more when benefits in reduced congestion and time savings are considered. Responsibility for improvements in this area lies primarily with the Ministry of trnprt and with the Parish Councils. 2.44 adns and SUards. The Imposition of standards for vehicle fuel performance, appliances, and so on, is not recommended. A consistent macroeconomic policy-with the reduction in pdre ditrtions coupled with consumer information-is more likely to lead to optimal choices than reguaions that are cosdy and extremely difficult to administer. Appliance and equipment testing relevant to Jamaia is warranted, however, as an input to providing consumer information. It Is recommended wt the pplae tasdn and labeling program now under wy at JBS be broadened to Include other appliac sudc as stoves, water heaters, and lightngfirs, In addon to refrigerators andfreezers. FSnandng Energy Sector Development 2.45 The need for Jamaica to increase access to external financing that does not require a sovereig guarat increases the incentive to involve private foreign partners in energy-sector development With the planned divestiture of Petrojam and Petcom, future financing requirements for the petroleum supply sector would then be met entirely by the private sector. In the power sector, future geeation is expected to be provided through private BOO projects, and by 1996-97 JPS should be able to finance 100 percent of its own capital investment program through internally generated funds, hcreasng from 48 prcent in 1992-93. Ihe self-financing capability, of course, will depend on the timely apprval of adequate tariff increases and efficient operation of JPS.14 14. Jamaka: AwV Sor Derirguli and NWon PoJd, Apprs, MLsion a eaa, Juw 192. -20- Household, Blomass, and Renewable Energies 2.46 About 12 percent of the population use charcoal as their main cooking fuel, and 25 percent use kerosene; however, charcoal accounts for about 20 percent of end-use energy, indicating that many consumers use charcoal in addition to kerosene and LPG (para. 6.1). Because of its controlled and subsidized price, kerosene is cheaper in end-use cost than charcoal and is regarded as the "poor man's fuel" (Table 6.2). Charcoal use accounts for over half of total primary energy consumption because of the conversion losses in the charcoaling process. It is estimated that in an extreme case, total wood requirements would double if all users were to switch to charcoal if the kerosene subsidy were eliminated. 2.47 The subsidy of kerosene is justified on environmental as well as social grounds; however, the present form of market segregation between industrial sales (taxed) and domestic (untaxed/subsidized) is inefficient because of the higher costs of distributing keimosene in small drums to avoid the adulteration of more expensive transportation fuels with domestic kerosene. The current strengthening and broadening of the food stamp program under the Ministry of Labor, Welfare, and Sports could provide the means of providing a targeted subsidy to the approximately 20 percent of low-income consumers who now qualify for food stamps. Consideration of the use of kerosene stamps (or the equivalent broadening of thefood stamp program to include kerosene) Is recommended in place of the general subsidy on domestic kerosene stamps domestic kerosene. The tax Increase fordomestc kerosene and revenues collectedfor the votwne equtvlent of current consumption should then be transferred to the food stamp program. Before such a program could be implemented, a study would be needed to review the operation of the existing kerosene program and the feasibility of targeting and administering a kerosene stamp program through the existing administrative structure. 2.48 The rapid growth in the use of charcoal (by about 2.6 times in the last decade), the increased commercialization of charcoaling on public lands in addition to woodcutting for other uses, and evidence of related environmental degradation heighten the urgency of improving forest management. Knowledge concerning biomass resources and their use is inadequate at present (para. 6.7). Although the National Forestry Action Plan has been drawn up, institutional weaknesses are hampering the implementation of the program. 2.49 Improved forest management could be achieved by auctioning timber rights on public lands with an obligation for replanting. The concessionaire would be required to collect a stumpage fee to be set by the government of Jamaica that would reflect the resource value of the wood, cover the cost of the replanting, and return a royalty to the government of Jamaica. The charcoal price would be expected to increase with the incorporation of a stumpage fee, thereby promoting the use of more efficient stoves and substitute fuels such as kerosene. -21 - 2.50 To address the issues relating to blomass fuels and household energy use, fiurter studies are recommended (para. 6.22), including the following: a. A forest resource inventory b. Forest management systems including auctioning of concessions for timber rights, the introduction of s_umpe fees, and the obligation for replanting c. Periodic household energy surveys d. An analysis of possible means of reducing the cost of LPG supply and distribution e. Testing and safety certification of kerosene stoves as part of the Bureau of Standards Appliance Testing and Labelling Program £ Review of the kerosene subsidy program to improve targeting and permit the sale of all kerosene at a single price based on acual cost. Environment 2.51 The environment is an essential part of the national patrimony and, hence, is the principal national econmic resource. Jamaicans are increasingly concerned about the impact of energy supply and use on the environment and are pressing for government action. The government of Jamaica's strategy to consolidate environmental responsibilities under the National Resources Conservation Authority is sound, but considerable institution building is required to make it effective. In the meantime, specific nvironmental action programs are recommended in connection with existing and proposed energy projects. The cost of eavironmental protection measures to meet internaional standards should be intenized as project costs and thus reflected in the price of petroleum products and electricity. 2.52 Chapter 7 (paras. 7.21-7.31) sets out an energy and environmental strategy and action plan to focus on the following activities: a. Carrying out Environmental Inpact Assessments on new power plants beginning with the 3 x 20 MW low-speed diesels funded under the Energy Sector Deregulation and Privatization Project while starting the baseline environmental studies for the coal-fired power station (to be fiuded by CIDA) b. Cleaning up existing sources of pollution, notably JPS power stations (para. 4.49 n-s) and the Petrojam refinery (para. 3.59); c. Reducing pollution through conservation and energy efficiency improvements (chapter 5) -22 - d. Streening NRCA to fulfill its mndate under the Act (para. 7.28) e. Establishing baselin data for air quality and forest resources (para. 7.29) f. Identfyin standards required for paicular environmental zones such as the Kingston metropolitan area, touist areas, and so on. (paras. 7.30-7.31). 2.53 Imple ion of many of these reco ions is now under way or is planned. consultants to the govenment of Jamaica prepared Environmenal Assessment Reports on the low-speed diesels and the gas turbines to be financed under the ESDP project. Consulting services and equipment to assist in Implemeing mitigation and monitoring measures at the Rockfort and Hunt's Bay sites will das be fianced under the project. CIDA is prepared to finae the baseline environmental studies for the coal-fired plant prior to the Environmental Inpact Assessment, which is to be conducted by the priva sector. Moreover, an environmental screening of the facilities in the power and petroleum subsectors would be undertaken, and provisions are included in the privatization studies under the ESPD project. These studies will analyze and recommend mechanisms to be included in the regulatory framework for the energy sector to ensure compliance with environmenal regulations. Insttudonal 2.54 InstitutIonal problems within government have been recognized for many years but have proven difficult to resolve. The practice of creating public corporations and parastatal entities to take on many of the traditional responsibilities of ministries has led to a weakening of the public service and a demoralization of thse who remain. Increased reliance on the private sector for the functional delivery of products and services is well established as a strategy. The principal requirement that remains, however, is to refocus and consolidate the responsibilities for energy sector policy analysis within MPUTE. This objective, however, can only be accomplished through the recruitment of a sufficient number of highly motivated and experienced professionals, complemented by consulting and technical assistance services as necessary. -23- m. LIQUID FUELS A. PETROLEUM Introduction and Conclusions 3.1 On the basis of demand and price projections made in late 1990 and early 1991 (with the expectation of sustained high refining margins caused by high levels of refinery utilization in the U.S. Gulf Coast region), this study indicates that petroleum products could be supplied in Jamaica at the least- cost to the economy through an optimal combination of imports and local refining. A liberalized market based on private sector ownership and operation would encourage efficient operations within the sector. The options for least-cost supply have been analyzed by comparing three petroleum supply scenarios. These scenarios were examined on the basis of projected international market prices for crude and products and Jamaican demand to determine whether the refinery, in its present configuration or a modified one, could be part of the least-cost supply strategy. ITe scenarios range from (a) importing all products to (b) continuing to operate the existing refinery with minor modifications to (c) modifying and expanding refinery capacity to meet domestic requirements and provide products for export. 3.2 A detailed economic and financial analysis of the options for least-cost petroleum supply has been carried out (Vol. II Liquid Fuels, Consultant's Report) to (a) provide government of Jamaica with insights concening the expected least-cost option and (b) establish a framework for reviewing proposals that will be requested from potential investors. Mhe conclusions of this su do not cona*tute specifc reconmendadons, however, and shoud not be used to direct private sector Investors In refining. Rather, private sector investors themselves should decide on the ultimate viability of the refinery and its optimum configuration, on the basis of their own assessment of market conditions, risks, and expected profitability. The wiDlingness of the private sector to invest in the refinery on terms acceptable to government of Jamaica will be the ultimate market test of viability. 3.3 Petroleum supply options were compared over a 20-year study period by determining the yearly optimum refinery throughput and crude selection together with product imports to meet domestic demand and to sell into the export market on a competitive basis. A linear programming (LP) model was used to optmize refinery operations for each year. Amnul cash flows were then discounted at a 15 percent rate to determine the present value of each option once optimized. This discount rale is appropriate for evaluation in the petroleum sector because of the inherent uncertainty in petroleum crude and product price forecasts. 3.4 Since about 1986, refinery gross margins have been adequate to attract new investment in upgrading existing refineries in the region, but these margins are not sufficient to trigger the construction of new grass roots refineries in the region (para. 3.92). Operators who own or control crude oil production and are also vertically integrted in product markets may find a logistical advantage in .24 - expanding the atng refiney to gain a satisfactory netback to crude producdon. Any evaluation of this type of armngement this teport would be speclative, as it would require full knowledge of the investor's particular circumstancs. 3.5 The refinery's long-term ability to compete in local and export markets depends primarily on the gross refining margin (i.e., the difference between the prices of finished products, the yield and price of crudes, and the transport costs). Product prices in the regional spot market are determined on the basis of iterational competition using full conversion refineries. In contrast, the Petrojam refinery is a simple hydroskimming refinery, which cannot convert fuel oil to clean products (gasoline and automotive diesel) to compete in export markets. It does, however, enjoy a logistic advantage for crude importation from Venezuela and Mexico-part from any San Jose Accord (SJA) benefits-s well as for product sales together with a relatively large local market for fuel oil, particularly for power generation. 3.6 Continued refining with the existing refinery was found viable under the projected demand and price conditions reflect margins higher than in the 1980s but also dependent on access to the local market. An upgraded refiery would be less dependent on the local market and could be competitive in the export market. 3.7 Analysis of variations in throughput for the exiting refinery showed, however, the sensitivity of Its viabUity to refining margin and volume. A sustained reduction in either of these two parameters by 20 percent would eliminate any advantage the existing refinery would have over importing. With 20 percent reduced demand on the refinery for light products, the optimum throughput and hence refinery utilization would also decrease from about 80 to 85 percent to 55 to 60 percent in the near term. A reduction of margins and demand in the ner term would have a stronger impact than it would in later years becau of the 15 percent discount rate used in the economic evaluation. 3.8 A 20 percent reduction of refining margin on the upgraded refinery would result in a break-even situation compared with 100 percent importing of products, although the refinery, when upgraded, would be less sensitive to loss of local market. In view of this important sensitivity, the crude and product price forecast will be reviewed as part of the Deregulation and Privatization study and the valuation of the refinery through an evaluation of fiture income streams.' 3.9 Low utilization of existing refining capacity in the past has been caused by a variety of factors. including process bottlenecks, forced outages, and crude shortages caused by shortages of foreign exchange. For whatever reasons, historical utilization had been about 40 percent in the late 1980s, rising to 68 percent by September 1991. Further sensitivity analysis reveals that at about 50 percent utilizadon, with 1991 prices and demand levels, the economic advantage of refining would be eliminated in comparison with importing all products. 1. D*Mxk&n and Sbd, PvAo Strategy, Tasl (14 -25- 3.10 Petrojam has carried out an upgrade of the powerfomer, which has been a significant bottleneck to increasing refinery utilization.2 Further improvements to mechanisms to ensure the availability of foreign exchange and the timely opening of leters of credit are also needed as part of the strategy to Increase refinery utilization. 3.11 The benefits expected from liberalization of imports (i.e., greater efficiency and lower petroleum supply costs) can be realized only If genuine competition exists. The substitution of a private monopoly for a public monopoly In refining or product impordng likewise would not lead to least-ost supply. Opportunities must be available for importers aside from the existing three international marketing companies to compete in the market. Access to storage capacity can be a barrier to entry for small operators or large consumers such as nPS. 7herefore, to enswueJflu compeion in supply, It Is recommende that a system of conmnon carrier terminding be established that dwruld give access to the existing tankage in Kingston and Montego Bay to all Importers, and to the refinery. The refinery would then compete directly with importers, and the ex-refinery pricing formula would become redundant except as a means of price monitoring by the government of Jamaica. Comments by Government of Jamaica on the Draft Report 3.12 In its commen on the draft report (Annex 2.1) through MPUTE, PCJ/Petrojam disagreed with a number of recommendations thbt are at the heart of the liberalization strategy. Although agreeing with the desirability of liberalizing the importation of petroleum products, the govermnent also expressed Its concern regarding the modalities for (a) establishing a trlty competitive environment and (b) ensuring that government revenues in local currency and foreign exchange from the San Jose Accord could be maiained at least in a revenue-neutral manner. In particular, the need to reduce the allowed import parity price, as recommended In this report, would reduce the profitability of Petrojam and, hence, the government revenues obtained through consolidation of the financial results of public sector entitles. Compensary visons in excise or other taxes would then be required to compensate for the lost revenue. 3.13 The need to define in detail a regulatory framework, interim adjustment of the pricing formula, and development of a prospectus to offer the refinery for sale was agreed during the preparation of the Energy Sector Deregulation and Privatization Project as a necessay part of the preparatory work for prlvatization of Petrojam. To this end, bilateral tust funds were obtained to finance a study to be undertaken under World Bank supervision by a major accounting and management consulting firm with eesive ewxperience in the regulation of the petroleum subsector and the privatization of sae-owned enterprises including oil refining companies.3 Terms of reference for the study are shown in Annex 2.2. 2. Tke poweber L flse rejfg t sfor pducgasolbe. 3. Theufm Ar%wr D. akle of Cambrige, Man., wa ubbely selet to cony ow O. sudy. - 26 - Sector Orgapnlatlon and Institutions 3.14 The present institutional structure was established through the Petroleum Act of 1979, whereby the Petroleum Corporation (PCJ) was created to manage the entire sector under the supervision of the Ministry of Minig and Energy (MME). PCI was empowered to engage in petroleum exploration, refining, and importation of crude oil and petroleum products. It was also free, with the approval of the minister, to form subsidiaries to carry out any activities permitted under the Act and has done so, notably, in setting up Petrojam as the refining subsidiary in 1982. Petrojam Itself owns subsidiaries engaged in petroleum product distribution and ethanol production In Jamaica and in Belize. 3.15 The Petroleum Act permits PCJ to engage in a wide range of a activities including marketing and tralisportation. PCJ/Petrojam can import crude and products free of duties and taxes. Other importers are required under the Act to pay customs duties ranging from 10 to 30 percent, depending on the product, and an additional stamp duty of 40 percent plus consumption taxes also included in the ex-refinery billing price. As a result, Petrojam enjoys an effective monopoly on product Imports. There is no justification for protection of the refinery in the current market situation given the present level of refining margins and the potential for increased operating efficiency. Increased competition would encourage efficiency improvements to maintain profitability. Sector Ogniadon 3.16 Major petroleum companies active in Jamaica as product marketers include ESSO, Shell, and Texaco. In addition, Petrojam operates a small subsidiary, Petcom, which operates three service stations and distributes LPG. Following deregulation of retail prices of most ptoducts in September 1990, increased competition has become evident through increased investment in that service station facilities of several Jamaican-owned distribution companies. A new distributing organization of independent serice stations has recently been formed. Before September 1990, MME was responsible for reviewing and approving changes in controlled product prices; however, since the decontrol of all retail product prices except for domestic kerosene, MME (succeeded in January 1992 by MPUTE) bas monitored only price changes. Supply Inrstructure 3.17 Petrojam owns and operates a simple hydroskimming refinery in Kingston with a nominal crude capacity of 35,500 barrels per calendar day. Its port facilities are able to accommodate tankers of up to 50,000 deadweight tonnes (DWI). The refinery has total crude oil and product tankage of some -27 - 2.2 million barrls, ibcluding about 300,000 burels of tankage used for marketng and loading reck sales. ITe reinery supplies product to the three marketers In Kingston through a refinery-owned loading rack. Me*ag and DJtbWon 3.18 ESSO, Shell, and Texaco each maintain product storage terminals in Kingston, through which, prior to the construction of the refinery, they imported finished products. These terminals still have an Import capability, although they each havoe their particuar limits as tanker size and draft, product capacites, and product sogregations. The marketers share a joint aviation depot at Norman Manley aiport, Kingso. In Montego Bay, Shell and ESSO own and operae separae terninals for independent product receiving, storage, and onward sales. Total marketin company storage capaci in both Kingston and Montego Bay is about 1 million barrels. 3.19 The two main transportation fuels, gasoline and diesel, are sold through a network of about 250 branded retail outlets, which are about equally divided among the three muttona marketers but now also include a growing number of independent dealers. The retail networks are supplied by road tankers from loading racks in Kigon and Montego Bay. The marketing company outlets are about 60 percent company-owned and leased to dealers; the remainder are owned and opeaed by dealers. Only two oudets in Jamaica are both owned and operated directly by salaried company staff. Ahe road transportation between loading rack and the outlets is provided by a grOup of Independent road haulage contractors. 3.20 The deregulation of the retail products market has spurred the opening of new service stations. Procedures for site acquisition do not appear restrictive, and environmental regulations are more likely than town planning issues to be a controlling factor. Because the profitability of service stations is higbly dependent on volume sold, increased competition brought about by deregulation is likely to cau a shakeout in the retail supply network as retail margins ar^e reduced after the initial increases. Eventually a reduction in the number of service stations could occur. The overcapacity in road haulage tankers also would likely be reduced through competition. There is no apparent reason or justification for government involvement in petroleum marketing other than to ensure the uniform application of the compeon policy that is now in the final draft stages. Supply Agments Sam Jose Accord 3.21 Jamaica is party to two supply agreements-the San Jose Accord (SJA) and a bilatera agreement with the government of Nigeria. The SJA was originally established in August 1980 by the supplying counties of Venezuela and Mexico and was renewed for the eleventh time in August 1990 on the following terms: -28 - a. The supplying countries would continue to provide each up to 13 KBPD of crude and products, depending on requirements of benefidaries and availability of supplies. b. Supplies are controlled by the policies and commercial practices of the state oil companies of Mexico and Venezuela with regard to letter of credit requirements and pricing. c. Government-to-overnment credits will be granted through official financing entities for 20 percent of the invoiced value of a cargo; the general commercial exchange of goods and services will be financed under the short-term credit, and economic development projects will be financed under a second tranche, longer term, more concessionary arrangement. d. Short-term credits for general financing purposes are granted in U.S. dollars at 8 percent per annum interest for up to5 yea; long-term credits for development projects are granted for up to 12 years at 6 percent per annum interest. 3.22 Under an informal arrangement, Jamaica presendy could lift up to 13 KBPD from Mexico and 11 KBPD from Venezuela. Volumes lifted in the fiscal year (1990-91) did not exceed about 10.2 KBPD from each of the two San Jose Accord sources, on a total crude run of 20.4 KBPD. During the previous four years, total crude runs were even lower, averaging some 15 KBPD over the period. The lifting rule on sourcing of crudes at the refinery has been to force in equal volumes of Venezuelan and Mexican up to the SJA limits. Beyond these limits, the most economic crude based on the available feedstock slae is to be selected on the basis of short-run optimization performed with the help of the refiery's linear programming models. 3.23 As of mid-1991, the gross value of the short-Wterm financing under the SJA was about US$0.30 per barrel at marginal government of Jamaica borrowing rates of 12 percent and an average cmude cost of US$16.00 per barrel.' Because of complicatios in converting the short-term credit to the more concessiony long-tem financing, there is no additional benefit from this aspect of the SJA. These complications relate to the difficult process of getting Venezuelan or Mexican approval for qualifying development projects under the second tranche of long term credits, and in restrictions placed by the Venezuelans and Mexicans on sourcing of project equipment and services. These latter restrictions diminish, if not render negative, the value of the long-term credit, even if a development project were approved. Even without consideration of the SJA benefits, however, the SJA crudes provide the least- cost crude source in most cases, as discussed below. Crd. Sekefou Unider the San Jose Accord 3.24 Th'e limits under the SJA have never been reahed; therefore, lifting procedures have not been put to the test. The economics of running non-Accord crudes such as Oriente from Ecuador, as well as traditonal SJA grades such as BCF 17 and BCF 24 from Venezuela (including spike components as 4. MYsio au=W. -29 - options) and the Isthmus/Maya mix from Mexico was analyzed extensively using the linear programming models of the refinery In its existing configuration as well as with modifications. The analysis revealed that the two Venezuelan grades, Mexican Istimus and Oriente from Ecuador, are roughly equal in economic attractiveness based on projected spot market crude prices c.i.f. Kingston. One or another of these crudes has found to be optimal at various times for a given demand pattern and configuration. A drop in price of US$0. 100.20/bbl for the other crudes would make them equally attractive in the optimal solution. 3.25 Mayan crude from Mexico and Forcados from Nigeria were tested in the analysis of refinery operations in both the existing and modified configurations and were not found economic in any case. Tbeir prices would have to drop by US$0.70 to US$1.00 per barrel in the case of Mayan and US$3.00 to US$4.00 per barrel for Forcados to be competitive with the optimal crudes. 3.26 The fict that the Mexico obliges its customers, including Petrojam, to take a minimum of 30 pecent Maya along with the more attractive Isthmus grade makes the Isthmus/Maya mix about US$0.20 to US$0.30 per barrel less attractive than the Venezuelan and Oriente grades. The effect of the SIA credit, therefore, Is to put the Venezuelan grade at an advantage over Mexican mix or Oriente, equivalent to the amount of this credit. The government of Jamaica should pres. Mexico to relax the requime for minimum ljfllngs of the Maya grade, because Its inclusion at 30 percent along with Isthmus nulfas any SJA benfis. 3.27 It Is also recommended that goernmnt of Jamaica take account of crude sources and any potental loss In benefs under the San Jose Accord when revewing proposals for private sector purchase of the reflnery. Nigei Supply Agreement 3.28 Under this government to government agreement, Jamaica, through PCJ, can lift up to 20 KBPD to provide the balance of its internal requirements not covered by the SJA. Jamaica is free to proces the crude in its own or a third-party refinery or to swap the cargo through standard Industry arrangements. The refinery operational analysis confirms that it is not economic to process Nigerian crude in Jamaica. PCJ therefore employs consultants and traders to assist in the commercial arrangements necessary to derive maximum benefit from this agreement. Petroleum Exploraon 3.29 Since 1955, eleven exploratory wells-all dry holes-have been drilled in Jamaica; in addition, about 7,000 lines-km of seismic have been shot on the offshore prospects (Pedro Bank) and about 400 lines-km onshore. There has been no exploration work since 1985 consequent to the recommendations of the Energy Assessment Report. This report endorses the 1985 recommendation. The last major seismic data acquisition was in 1984, to Investigate areas other than Pedro Bank. Several -30- prospects between the shore and Pedro Bank were identified but not pursued because of lack of interest from the petroleum industry in view of falling oil prices. The task of reviewing and organizing all previously generated seismic acquisition and interpretaion data is under way In PCJ and i expected to be completed In mid-1991. 3.30 Given the projected price levels for crude, however, It s recommended t no maor expendurs should be curedforiutherpromotional acvy and thatfrther exploradon shosld be left to the private sector with the provlso wat only a nmutl-weU programn should be permited, as a single dy well could condemn the area entirely. Sector losues and Strategies Introducdon 3.31 The essential issue in the petroleum subsector is the need to increase the efficiency of supply operations. Marketing companies and consumers are free to import products; however, the duties and taxes levied under the Petroleum Act effectively block any imports. Petrojam is exonerated from paying duty on crude or products.5 The virtual monopoly position and the margins built into the ex- refinery pricing formula provide little incentive to the refinery to improve its efficiency and discourages marketing companies and large consumers such as JPS from seeking to reduce their own costs dtrough negotiation with alternative suppliers and importation on their own account.6 Ex-Rqeriey Psiin 3.32 'rhe ex-refinery pricing formula was established in 1963 and last revised In 1988. The fotional import parity pricing formula attempts to derive prices that would correspond to the least-cost alternative based on the importation of all products. Although it seeks to reflect the factors a private sector operator would consider in price setting, the pricing formula cannot capture the dynamics of the market and has been found to have inherent biases that raise the cost of products to consumers as well as to the cotry. 3.33 Ex-refinery prices regardless of product source are adjused weekly on the basis of prices derived from U.S. Gulf Coast spot market prices for comparable products plus cost adjustments to yield ex-refinery prices as discussed below.7 The refinery billing price includes the duties and taxes, which S. hi mid-190, Shel bwrted a cargo of adfee gaolin ad wm eumpedfrm paying diea on e dgrounds Petrojam ww umabl to mnan4wai the product and, hemw, did not ruqdre proteto 6. Ba*te compavn are alowed to bpopetrolewn prodsctfee qfax udr tnms of ther agreant. 7. Prkes ftn.frm PWs Oilmm. - 31 - are revised periodically and applied to the ex-refinery price to yield the price paid by marketing companies and other bulk purchasers. To retain the buoyancy in the tax system In the event of significant movements In international prices above a set level, an ad valorem consumption duty is levied in addition to the consumption tax. Taxes are adjusted as required to close the government of Jamaica's financing gap under agreement with the IMP. The expected yield for FY91/92 was J$454 million. 3.34 Details of the ex-refinery pricing formula are discussed below: a. Reference Price defined as the mean of U.S. Gulf Coast water-borne spot prices with some adjustments related to speciflc products, such as leaded gasoline, for which a reference price is no longer available (para. 3.40). b. An Acquisidon Differential specific to each product based on the differences between Jamaica's requirements or capabilities and U.S. Gulf Coast norms in the areas of cargo size, credit terms, and product quality (paras. 3.48-3.49). C. Cargo Insurance, 0.07 percent of C & F price (para. 3.43). d. Ocean Freight based on prevailing market rates from the U.S. Gulf Coast for appropriate vessel size and load port combinations applicable to the specific product (para. 3.51). e. Ocean Loss as percent of c.i.f. price; 0.5 percent for LPG, Gasoline, Kero/Turbo; 0.4 percent for ADO and MDO; 0.25 percent for HFO and asphalt (para. 3.52). f. Terminal Fee based on the actual operating costs and charges on depreciated replacement cost and inventory of operating a terminal at the refinery site (para. 3.53) g. Round Island Movement (RIM) fee representing the cost of shipping products by ocean tanker from Kingston around to Montego Bay (para. 3.54). h. Rack Fee representig recovery of costs of product truck loading operations (para. 3.53). i. The latest official exchange rate is applied to the sum of the above factors, all denominated in US$, to arrive at a total ex-refinery price in J$/IG. 3.35 Becuse international conditions are constantly changing, the pricing formula, even if reviewed periodically, cannot ensure least-cost supply to the nation and fnal consumers. Each component in the pricing formula was reviewed by the mission with respect to its rationale, impact on ex-refinery price, and cost to consumers. It was esfimated that excess charges-a minimum of US$9 million and possibly up to US$15 million, depending on the asumptions-are attributable to the ex-refinery pricing formula. Some savings could be achieved by improving supply efficiency if the market were deregulated; other savings might be made by changing product specifications and reference price. About one-third of the total excess charges could be saved in direct foreign exchange to the country through changes in -32- product specifications, fincing, insurance, and RIM costs. The remainder represents excess charges in local currency for costs; these are attributed to the supplier but could be expected to be absorbed by the supplier under deregulation. The excess charges accrue to Petrojam as profit and flow through to PCJ for consolidation in overall government of Jamaica surplus accounts. Under IMF agreements, it would be necesary to increaset level of tax on petroleum to compense for the loss in public sector revenue. As a result, consumer would pay the same final price. Pr c Spedfle ns and Acqadi. D&renad 3.36 Tne acquisition differential depends primarily on the product specifications for the Jamaica market compared with the quoted products in the USGC. Product specifications are preseny established by the refinery in consultation with the marketing companies and major consumers such as IPS. Only in the case of unleaded gasoline has the specification been established with the involvement of the Jamaica Bureau of Standards. Unnecessary or excessive costs of petroleum products arise from specifying a higher quality product than is required to meet end-use needs in the Jamaican market. The import parity cost of petroleum would be minimized by supplying fully fungible products as available in the U.S. Gulf Coast market." 3.37 The mission found that present specifications result in increased supply costs of about US$5 million a year based on current volumes as compared with the cost of supplying products better suited to overal market requirements in Jamaica. The motor gasoline specification in particular is excessive, and a review by Petrojam (para. 3.39) confirmed that it can be reduced. In the case of heavy fuel oil, the acquisition differential is based on the lower-viscosity fuel oil used primarily by JPS oather than on the basis of a lower quality (and lower price) heavy fuel oil, as used by the bauxite companies. 3.38 Tbe contributions that each of the quality changes discussed below coud make to the yearly supply cost to Jamaica are estimated as follows:' Product USS million Motor gasoline 1.90 Jet fuel/kerosene 0.4 Automotive diesel oil (ADO) 0.4 Marine diesel oil (MDO) 0 to 0.3 Heavy fuel oil (HPO) 2.7 Total 5.4 to 5.7 8. F*f kadnlearefr wlde4tradedp roare daccorigto Colonialpeespec/tiom. Becaue of a counon pecton, a prod-sa, sawo )e-c be swred iA caown ane regardks of source; henc, he prduct LdbI,Ine. 9. Penojan is In baskc agreeme wi*h die scpejbr Wngs bated on se nonnakaln ofjtwl peclcaaou. Peoan, howewr, eatbateshat HOw satns woud be on he order of US$1.4 miin rater *an US$73M Mion and ta no saisgs are possibjbr AIO, as dsh requIrementsrfor goe maian w t do not permt a reduced specicalon. Overall svgs related to prdut speckatow would thn be USS4.1 mlio per annw bad on 1990 so/nes. - 33 - 3.39 GasolIe. Consultnts to Petrojam have analyzed the octane requirements of the vehicle fleet based on a data obtained from vehicle registrations, and, by all evidence, the octane radng and cost could be lowered. Petrojam blends 95 Research Octane Number (RON) gasoline is required by only a small percentage of cars, rather than a more suitable level of 92 or 93 RON octane.10 3.40 Midgrade unleaded gasoline is now being used as the basis for ex-refinery billing, since leaded gasoline pricem are no longer quoted by Plan's. This is appropriate, as TEL additive can be blended to increase the octane to the required level for leaded gasoline; in practice, however, a cheaper low-octe gasoline would be used as the base fuel to which TEL would be added. With the lowering of the octane requirement to 92 RON about US$1.9 million could be saved by Jamaican consumers. Surveys in the United States have found that the high-octne fuels promoted by marketing companies do not provide significant addidonal benefits to a large percentage of motorists because the higher octane is in fact not required."1 3.41 Fel Qualiy Cent,l. As fiurher protection against fuel adulteration, It Is recommended taJBS be given the responsiblilyfor quaity assuranceforfels supplied in bulk whether locally refined or imported. Periodic tesdng of fuel from service stations should also be carried out to further protect cosu1Mes.12 Stiff penalties under the Fuel Products Quality Act should be applied for infractions. A fuel testing laboratory, including an octane tesdng engine, is available at the refinery for operational quality control. This laboratory could be used to carry out all quality control testing, provided that satsfactory procedures could be established with JBS to ensure its independence and the integrity of its work. 3.42 Astootve Diel Zi. With regard to the cetane specification for automotive diese oil (ADO), the present specification is a 45 cetane index rather than 40 cetane index, which is the Colonial Pipeline specification for fidly fungible fuel as supplied in the USGC region. Petrojam is concerned that the 45 cetane index fuel is needed to satisfy Jamaican fleet requirements with a high proportion of Japane and European trucks. Given e potenil costsavings and dte possibilityofuslngfuilyfungkble fiel, every ejrort should be made to lower the specfcaton. 3.43 The cetane index is of no consequence to JPS, which uses 20 to 40 percent of total Jamaican consumption of ADO in gas turbine power plants. An annual saving to consumers of about US$0.4 million could be realized by reducing the cetane index to 40 from 45, thereby reducing the acquisition differentia. No significant reduction in Petrojam's current cost would result, however, since the cetane index fuel cannot be adjusted effectively without modifying configuration of the refinery. 10 Gaon wblnedfm PerJam'sovmgaw produned bldng agens ncldigtetreyl lead asanocane boser. A raing f92 RONcorrepods to rgular gasoi th87 ocan, as cmputed by dse widely ed (RON + Motor Ocae Nnber) meods. 11. Consumer Researcb Reponis, 'Do You Need High Octane?' March 1991. Alo, AmrIcan Auoobl ociasion Maahe, JannayFebra;y 1991. ThesreporLw reaole,dthat on about 1Opercentof vecles neededhighertdan reglr grade gaole. 12. By mid-I992, JOS lwU dceckngpfuel quay at servce saoN everyfbur mont/s. -34- 3.44 Jet fe resen. The present Jamaican specification for jet fuel/kerosene is based on the more stringent DERD specification required by only one international airline.'1 It is recommended that the standard ASTM USA grade commerial jet fuel be adopted to avoid paying a premium of about US$0.30/bbl. Under deregulation, any international arier should be free to import fuel in bond for bunkering to meet whichever specification it requires. 3.45 Maria Diesel. The present price structure is based on reference USGC prices for a blend of 85 percent ADO and 15 percent HFO. A quality premium of US$0.75/bbl is added to reflect the higher-quality atmospheric gasoil, which is supplied by Petrojam from the crude unit. Given a choice, and supported by technical advice, consumers might choose the lower-quality product, which would yield an annual saving (based on current volume) of up to US$0.34 million. 3.46 Heavy Afl oil. The major users of Number 6 or heavy fuel oil (HFO) are the bauxite companies and JPS. The bauxite companies, however, do not buy higher-value straight-run HFO from Petrojam but rather low-quality cracked HFO. JPS, on the other hand, has not been consistently successful in the past in using the lower-quality, less-expensive cracked HFO because of boiler tube slagging and fuel-feed problems. The product specification should be changed to standard Bunker C with 3 perc1nt sulfur and 250 viscosity without a quality premium in the acquisition price. 3.47 IPS will likely require consultant assistance and fuel supply modifications to adjust to a lower-quality fuel. The bauxite companies have been successfil using such fuel, so there appears to be no inurmole obstacle for JPS to do likewise. Under a deregulated market, JPS could also call for bids from fuel oil suppliers to provide the tankage, oilhandling equipment, and technical assistance necessary to burn cheaper fuel. A brief study carried out in early 1992 as an extension to ESSIPS concluded that there is potential for saving in Jamaican currency equivalent to about US$3.5 million per year. Furthermore, a fuel-swap arrangement could have been made between Petrojam and the supplier of cracked fuel oil to backhaul straight-run fuel oil from the refinery to realize a net foreign exchange gain. A net gain of US$4.00/bbl could have been realized in late 1991/early 1992 under such an arrangement (see Vol. M-A, Annex 0, for Terms of Reference). Other Ex-Eflnery Prcing Compnent 3.48 Oher Acqettion D(fferenials. For all products, Petrojam receives a credit adjustment to allow for 30 days carrying cost iistead of the normal 15 days, with a current interest rate of about 8 percent. The base case of 15 days built into the acquisition price is more than adequate to load and deliver products in a terminaling case. If an additional settlement period is required, the local currency funds should be held in Petrojam's account to earn an offsetng Interest. No furher credit allowance, therefore, is required, and a reduction of US$0.06 to 0.11 per barrel is warranted. 13. T/ airl, how , s sAcaifIel as stupled o all ailnsa iaitald rnaonal Airpor -35- 3.49 The acquisition formula includes a small parcel size adjustment for HFO and LPG in the acquisition cost. Librization of imports and use of lower-quality fuel by JBS would encourage the joint importation with the bauxite companies in larger vessels, avoiding a small-ship premium. 3.50 For marine insurance, a base rate in excess of US$0.07 per US$100 valuation appears in the pricing formula, whreas a current rate of US$0.03 to 0.04 per US$100 valuation is more typical, and a reduction of 50 percent of the marine insurance allowance is proposed. 3.51 Ocean Fr¢ight. The ocean freight adjustment aumes two port loading points and certain ship sizes; however, in a deregulated market, actual shipping would not necessarily conform to the assumptions, and, combined with the product cost, this could result in lower total costs. In any event, a comparison of the World Scale Freight Points for one-port loading used in the present formula with rates currently applicable in the region suggest a reduction of about U$$0.50 to 0.60 on clean products and US$0.14 on HFO. Because of continual price changes in the shipping market, a provision should be made for monthly adjustment under the price formula. 3.52 Ooean Loses. Well-run base loaded fleets are capable of achieving lower loss rates than used in the formula." Consequently, a reduction of US$0.04/bbl is warranted for all products except LPG, for which 0.1 percent was allowed, since shipment is in a pressurized vessel. In this case, a saving of US$0.13/bbl could be achieved. 3.53 TenW and Rack Fee. The present formula for terminal fees overstates the cost of providing the service, and assigns an arbitrauy 100 percent margin to total costs, which is intended to cover loss, isrance, and inventory carrying costs of product in the teminal. The smaller ESSO and Shell terminals in Montego Bay charge a total termina and rack fee of US$1.00 to 1.05 per bbl (excluding inventory carrying costs) for a volume roughly one-sixth of Petrojam's. Allowing for Invetory carryig costs of about US$0.351bbU and based on an analysis of costs, a maximum terminal and rack fee of $1.06 would be waanted, but it could be lower in a competitive situation, given experience elsewhere. 3.54 Round iland Mowement. The Round Island Movement (RIM) charge should be removed entirely from all products in a fiuly deregulated market, as the intent of the pricing formula is to establish an ex-refinery price rather than provide a cross-subsidization mechanism for transportation to Montego Bay. Direct imports into Montego Bay may be the lowest-cost supply option; however, the present pricing formula asswmes that all products locally refited or imported are supplied from Kingston. The mater is more fily discussed in connection with the common carrier terminal operation (para. 3.86). 14. nob is c*ned by =4so of oprtLs by mudb*m. -36- Perfnwe ofReflauWI 3.55 In recent years, the refinery has run (seo Vol. II-A, Annex 6.1) at about half the officially quoted capacity of 35,500 BPCD, importing u finished products the balance of Jamaica's product requirements. An analysis of the utilization record revealed that the low throughput was atributable to a mix of physical, economic, and financial constraints. These constraints arose in part because the age of the refinery caused higher-than-normal forced outage rates and because of the need for periodic capital repairs that increwed the downtime. Foreign exchange shortages (para. 3.61) caused crude runouts and fiurther reduced refiery utilization. Table 3.1 provides a summay of the product imports, crude runs, and attendant refinery capacity utflization over the past five years." T7ABLE 3.1. Petroam Refinery Operaing Perfonwnce AVERAGE Performence measure '86-87 '87-88 '88-89 '89-90 '90-91 5 YEARS CRUDE RUN 8P0 15,642 13,454 14,668 17,502 20,415 16,336 REFINERY UTILIZATION AS X OF - NOMlNAL CAPACITY 44X 38% 41% 49% 58% 46% (35,500 BPCS) - EFFECTIVE CAPACITY 66X 55% 60% 71% 83% 66X (24,600 BPCD) TOTAL PRODUCT SUPPLY 26.587 24,789 27,160 29.526 30,211 27,709 PRODUCT IMPORTS 12,2M 12,077 13,268 12,879 10,674 12,238 AS % SUPPLY 46% 49% 49% 4X 35% 44% REFINERY PRODUCTION AS % SUPPLY 54% 51% 51% 56% 65% 56X 3.56 Low nominal utilization, however, does not in itself mean that the available capacity is not being optimally used. The effective capacity was constrained by about 30 percent because of a botdeneck in the powerformer (para. 3.59). Taking this into account, the average utilization of effective capacity has been 66 percent over the years 1987-91 compared with 46 percent of nominal capacity. With debottlenecking of the powerformer and growing demand, optimal refinery utilization would still only reach 87 to 90 percent of capacity. With the addition of a catalytic cracker, however, refinery utilization could approach 100 percent. 15. See VoL H-A, Ama 4.2for deai by prodc. -37- 3.S7 Average fixed and variable operating costs per barrel are about US$I.S7 (based on volume refined rather th total product sold, 3S percent of which is imported). The costs are about equa to the industry average for hydroskimming refineries. Refiey Capadty and Availabity 3.58 Capaty. The Petrojam refinery has a rated design capacity of some 38,000 barrels per stream day (BPSD). This level has been verified by test runs and represents the maximum amount of design (medium gravity) feedstock that the refinery can process through the atmospheric pipestill on a short-term uninterrupted run without encountering constraints in any of the downstream processing equipment, with the exception of the powerformer. After allowing for total plant downtime per year of 24 days for planned maintenance and unforeseen outages, the refinery currently rates its longer-term average processing capacity at 35,500 barrels per calendar day (BPCD). 3.59 Tbe actual stream day capacity of the powerformer is some 3,500 barrels per day. Based on analysis of overall refinery performance, it is estimated that the powerformer capacity has constrained the refinery throughput capacity to some 29,000 bafrels per stream day, which, with additional downtime requirements, resulted in an effective refinery capacity of 24,600 BPCD. This constraint has been known for several years, and Petrojam staff have made capital budget proposals to clear botdeneck. With the catayst replacement and major maintenance repairs to the unit scheduled for late 1991, the overall throughput capacity for heavy crudes would reach 35,500 BPCD. Further debottlenecking of the powerformer, as assumed in the minimum refinery investment case, would allow the running of lighter crudes and would yield a higher percentage of gasoline. 3.60 Servie Availbfilty. Over the past five years, the Petrojam refinery experienced a total of 409 days of downtime in 37 separate shutdowns. This represents an average downtime of 82 days per year, or an overall service availability factor of some 78 percent. Assuming debottlenecking of the powerformer for FY 92/93 operations and efficient operation of the existing refinery, the full nominal capacity of 35,500 BPCD could be achieved with downtime limited to 24 days per year, to yield a service availability factor of 93 percent. This serviceability is achievable providing there are no external events beyond Petrojam's control, such as problems with letters of credit. 3.61 Foreign Exchange Con,as*n . As a result of chronic foreign exchange shortages, the Bank of Jamaica (BOJ) took over the responsibility for providing foreign exchange required for Petrojam's imports. Although the situation has improved in recent years, the underlying foreign exchange shortage has persisted, particularly during the Persian Gulf crisis. Leters of credit (LCs) could not always be opened as required because of BOJ's inability to maintain adequate foreign exchange deposits with credit houses in order to keep within agreed exposure limits. As a result, delays in liftings, crude run-outs, and demurrage charges have occurred. 3.62 Delays in opening LCs as long as 20 days have been experienced, leading to cutbacks in crude runs by Petrojam, the need to import small cargo lots of finished product to cover inventory, and - 38 - payments of demurrage charges on crde vessels waiting in load port (demurrage charges increased from US$149,000 in 1988 to US$655,000 in 1990). In addition, six runouts were caused by LC delays over the past five years, for a total average downtime of 14 days per year. A further 7 days of lost capacity utilization can be attributed to reduced throughput while stretching out available crude supplies to avoid a complete shutdown. 3.63 It is expected that with the projected lower and more stable oil prices and improvements in Jamaica's foreign exchange position, the LC delays and related inefficiency costs would be reduced considerably. Nonetheless, It Is recommended that Inproved coordination of foreign exchange requirements be developed between BOJ and Petrojam, Including the use of hedging techniques through NYMEX to awmd wuepected price movements. Commercial finacial institutions offer a variety of risk management tools and strategies that can be used by refiners, product marketers, and consumers. Product Demand 3.64 A product demand forecast was prepared on the basis of an overall GDP growth rate of 3 percent a year consistent with World Bank projections available at the time the forecast was prepared. Forecasts were made by end-use in each product category and then aggregated to give an overall total demand. Table 3.2 provides a summary by product class and key forecast years (details and assumptions are given in Vol. HI-A). 3.65 Actu consumption of some 15.5 million barrels in 1989 is projected to increase to 19.6 million by the year 2000 and 23.2 million by 2010.16 The corresponding figures in KBD are 42.5, 53.8, and 63.7, respectively. These figures include a significant demand-primarily for heavy fuel oil-by the bauxite/alumina industry. Under the bauxite agreements, finns are not required to purchase from the Petrojam reflnery and may import directly. Tbe bauxite companies generally put their fuel requirements up for competitive bidding on a yearly basis. Petrojam generally does not win the bid because the bauxite companies specify the lowest quality cracked fuel oil, which can be imported at a lower cost than the higher quality straight run (uncracked) fuel oil produced by Petrojam. i. Releyear-enddataJbr 1990 was ot avabl at thetuforecast wasprepareS - 39 - TABLE 3.2 Jamaka Petroleum Product Demand Forecast Thousands of Barrels ACTUALS 4 ----------FORECAST -- - Product 1989 1991 1995 2000 2005 2010 LPG 473 521 634 809 1,084 1,317 AVGAS 14 15 17 19 23 26 MOTOR GASOLINE 1,949 2,068 2,328 2,698 3,222 3,626 KERO/TURBO 1,571 1,675 1,906 2,248 2,752 3,157 AUTO DIESEL 1,789 1,513 1,856 1,862 2,471 2,838 MARINE DIESEL 503 496 569 619 694 754 NFO LOCAL 3,782 4,554 5,098 3,996 3,273 3,910 NFO BAUXITE 5,242 7,143 7,057 7,057 7,057 7,057 ... ..... .i ..... ........... " ......... ....... ........... ...... ...... ... TOTAL FUEL PRODUCTS 15,322 17,985 19,464 19,309 20,576 22,685 LUBES 83 92 112 143 191 233 ASPHALT 97 109 138 185 262 331 . ...... .... -...... ------- ----- --- ; ..... TOTAL ALL PRODUCTS 15,503 18,186 19,714 19,637 21,030 23,249 EQUIVALENT KBD TOTAL ALL PRODUCTS 42.5 49.8 54.0 53.8 57.6 63.7 EXCLUDING BAUXITE 28.1 30.3 34.7 34.5 38.3 44.4 3.66 Table 3.3 illustrates Jamaica's actual and forecast product mix, based on the two (bauxite HFO, nonbauxite HFO) cases. As illustrated, the Jamaican demand mix with bauxite included is a relatively heavy one, with HFO accounting for more than half the total requirements on a volumetric basis. This HFO proportion drops to the 35 to 40 percent range without bauxite considered in the total mIX. TABLE 3.3 Jamaica Product Demand Mix (VoLumetric basis, Fuet Products Onty) WITH BAUXITE W/O BAUXITE Product 1989 1995 2000 1989 1995 2000 LPG 3.1% 3.3% 4.2X 4.7% 5.1% 6.6% AVGAS 0.1% 0.1% 0.1% 0.1% 0.1% 0.2% MOTOR GASOLINE 12.7% 12.0% 14.0% 19.3% 18.8% 22.0% KERO/TURBO 10.3% 9.8% 11.6% 15.6% 15.4% 18.3% AUTO DIESEL 11.7% 9.5% 9.6% 17.7% 15.0% 15.2% MARINE DIESEL 3.3% 2.9% 3.2% 5.0% 4.6% 5.1% HFO 58.9% 62.4% 57.2% 37.5% 41.1% 32.6% ...... ........ ...... ------... ------ ------. ... ...... ... .......... TOTAL FUEL PRODUCTS 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Least-cost Supply Options 3.67 Although the government intends to liberalize the petroleum market and divest itself of the refinery, it also wishes to assess the merits of options that would range from closing the refinery to modifying and expanding the refinery to varying degrees. The following analyses are intended to provide a famework for evaluating proposals from private sector operators, several of whom have already expressed interest in participating in the refinery. Each investor will have unique set of assumptions -40 - concerning future prices and markets, so the present resuts must be regarded as indicative and intended to direct vestment toward any one option. The anytical models that have been developed have been made available to MPUTE to assist In evaluating the proposals. Sapy Alternatves 3.68 Alternative product supply cases were selected and defined by reviewing earlier studies on Investment aad expansiot options and though extensive discussions with Petrojam refinery technical staff. Five petroleum product supply cases were defined as follows: a. Bse (bmnsaan). Shut down the refinery process units and port all produas using the existing port facilities, transfer lines, tankage, and other refinery offsites as required for the terminaing operation. It was anticipated that some minor Investments would be required in tankage modification or conversion, product line tie-ins and crossovers, and environmental cleanup of existing problems and additional control facilities. b. Alternae e ) L. "Business-as-usual, mininuminvestmentinthe existingrefinery inorder to carry on business, but with enhanced efficiency and capability of meeting all anticipated product specifications and environmental standards. This case was projected to involve a reformer upgrade, a light naphtia isomerizer for 100 percent unleaded gasoline production capability, some takage, and immediate pollution abatement. The refinery would remain a hydroskimwex with the same rated pipestUIl capacity as at p:--eat, 35,500 BPCD. There would be no cracking/conversion or investment in atmospheric pipestill debottlenecking. c. Alternate (RefQni) Jl. Intemewdate Invesent in a catalytic cracker with capacity balanced to the existing pipestill capacity, primarily to reduce the cost of product spikes or lighter whole crude feedstock to meet the given domestic product demand. No investment would be made In atmospheric pipestill debottlenecking, and capacity would remain at 35,500 barrels/day, but all the necessary product quality and pollution abatement investments would be included, as in Refining Case I. d. Aternate (Rq?axg) I. MAimu nvstnent at eiing site in a larger catalytic cracker plus a major debottlenecking/expansion of crude running to the highest practical level with the existing pipestill. The expanded crude capacity would be 50,000 bbl/day, and the cat cracker capacity would be increased to the balanced level. The incremental investment above Refining Case II is primarily devoted to developing an export refining capability. e. Alterate (R#Jng) IV. Sie and facities epansion would Incorporate all investments as in Refining Case m plus a new pipestill and processing unit. Because of space limitations at the existing site (some existing tans would have to be relocated, and additional storage tanks would be biUt on a separate site, identifled as land to be reclaimed near Portmore Causeway). The total capacity of the expanded refinery Is assumed to be 100,000 bbl/day. This would be a major export refining case. -41 - Crude and Product Price Forest 3.69 Tbe product-crude relationship implicildy embodies a gross refinery margin assumption; thus, it is a key detrminant of the economics of refining compared with direct product importation. This forecast is based on the late 1990 World Bank petoleum price forecast of OPEC average prices. From this base forecast, the prices of OPEC and non-OPEC cudes, including common reference grades, were derived using historical price differentials, as summarized in Table 3.4 and shown in detail in Volume II, Annex 6.2. TA8LB 3.4: Cnude **e Fore C*de Grade 1991 1995 2000 2005 2010 OPEC AVERAGE 22.49 17.76 22.84 22.49 22.49 BCF 17 16.94 13.62 17.54 16.74 17.33 BCP 24 19.74 15.70 20.22 19.67 19.95 MAYA 18.94 15.11 19.45 18.83 19.20 3.70 Ihe absolute level of crude prices is only relevant to a refining project analysis in that it sets a general price and supply/demand environment for products in relation to crude (rable 3.4). Average crude prices are forecast to remain depressed for the next few years, and on the basis of low real prices of petroleum compared with other cost factors, a stimulation of product demand is expected. lTe anticipated strong growth in product demand would fully utilize the present level of international/regional refining capacity. Extreme measures were taken in the early 1980s to rationalize refining as a reaction to the collapse in petroleum demand. This action resulted in refinery shutdowns, decommissioning, and outright scrapping of plant on a massive scale worldwide. Total world refining capacity declined by about 10 million barrels per day or 20 percent of prerationalLzation levels. 3.71 Consistent with the "stimulated demand* scenario, it is expected that refining margins will be healthier in the future and could support fiurther capacity expansion and upgrading investments in the region. Margins can reasonably be expected, based on the projected world refining situation (Vol. II), to increase to levels beyond the $4.58 per barrel (based on USCG cracking BCF 17 crude) assumed in this analysis as an average over the 20-year forecast period. 3.72 In contrast, it is estimated that a gross margin of roughly $7.00/barrel would have to be earned to amortize the capital and pay operating costs on a new grass roots cracking refinery, assuming a USGC location and 1991 'ost levels. With the projected contdnuous expansion and upgrading required, in addition to capital replacement, it is expected that gromss USGC margins will reach this level in 1991 dollars by the year 2010 at the latest, the end of the forecast piod/project-life of his study. -42- Impoat and Eport Prduc Prces 3.73 A base USGC spot product price forecast was developed in relation to the crude forecast by using the gross cracking refinery margin of $4.58 per barrel for BCF 17 crude combined with typical product yields and interproduct price relationships. The refining margin was not used directly to derive product prices, since they were determined in reality by a number of factors. Refinery margins also vary according to the crude and its yield; however, the long-term average projection of refinery margins has been summarized in terms of BCF 17 at US$4.58fbbl. A summary of the projected prices for main products for key forecast years is provided in Table 3.5. TABLE 3.5: Forecast of USGC Spot Product Pies USS/BA*REL (1990 CONSTANT PRICES) Product 1991 1995 2000 2005 2010 PROPANE 16.01 12.88 16.58 15.82 16.38 BUTANE 19.92 16.02 20.63 19.69 20.38 ULR NO$AS 31.43 25.28 32.56 31.07 32.17 JET/KERO 31.63 25.44 32.77 31.26 32.37 NO.2 GASOIL 30.00 24.13 31.07 29.65 30.70 MDO 29.00 23.33 30.04 28.67 29.68 NSFO 15.60 12.55 16.16 15.42 15.96 3.74 Venezuela has traditionally supplied product 'spikes' in whole crude grades, primarily to small simple refineries in the Caribbean area that were designed by the multinationals as satellites to their large crude supply/refining complexes in Venezuela. These spikes are semifinished products added at the Venezuelan refinery to whole crude grades such as BCF 24. Venezuela prices these products based on their opportunity values in other markets. IWpoel ad &po ParUy Prkes 3.75 The USGC spot product prices, combined with freight assumptions from the most likely source (not necessarily the USGC) and minor quality adjustments to the current Jamaican standards, were used to derive import parity prices for each Jamaican peoduct. Similarly, export parity prices were derived using the same base USGC Spot and freight data. For most of the products, however, it was assumed that significant export markets would be found at locations outside the USGC, such as the southern U.S. east coast. -43- Process Engineering and Economic Analysi Case Comparnons 3.76 The base terminalng case and the altrnate refining cases defined above were analyzed at the prefeasibility level of definition to arrive at required process configurations, capacities, capital, and operating costs, as shown in Table 3.6. TABJLE 3.6: Summary of Process Engineerng Analysis BASE REFINING ALTERNATES Factor TERMINAL I II ILt IV PROCESS UNIT CAPACITIES, KBCD . ......................... CRUDE PIPESTILL(S) NA 35.5 35.5 50.0 100.0 POIERFORMER(S) NA 5.0 5.0 5.0 12.0 CATALYTIC CRACKER NA NA 11.5 17.5 18.5 LVNI ISOMERIZER NA 2.0 2.0 2.0 6.0 HYDROCRACKER NA NA MA NA 15.0 VISBREAKER NA NA NA NA 18.5 ALKYLATION NA NA NA NA 2.3 CAPITAL USS MILLION 1991 =........................... PROJECT 2.6 15.5 130.5 175.7 737.0 SUSTAINING, YEARLY 0.4 2.5 3.3 3.7 5.0 OPERATING COSTS ..................... ............................ww FIXED USS MILLION/YR 5.7 11.0 15.2 17.9 31.1 VARIABLE US$IBbL 0.06 0.22 0.32 0.38 0.36 i Light Virgin Naphtha Source: Mission Estimates (Consultants' Report Vol. II) 3.77 Disbursements of project capital investment, ranging from US$15.5 million in refining Altenate Case I, to US$737 million in Case IV, v- ld occur over a three- to four-year period from inception. The sustaning capital investment is an estimate of the annual renewal and rebabilitation expenditure required to maintain the operating capability of the plant. EWvonentl Measwws 3.78 Capital cost esmates include pollution abatement facilities to conform to present average North American standards in all cases. These investments include a sour wa& stripper; impermeation of tkage diked areas; improved oily water collection; additional new oily water sepatators, combined with downstream dissolved air flotation, and, in the FCC cases, recovery of sulfur from off-gases. About US$1.0 million is required to complete the work on the existing refinery and would also be needed in the event the refinery were closed. -44 - Lwr Progmalg Analysk of Reftnry Operadons 3.79 A refinery linear programming (LP) model was used to determine the refinery crude selection, material balance, and equipment configuration for each year for the different refinery investment cases. The optimization objective was to supply the Jamaican petroleum product demand at minimum net cost on the basis of optimum crude processing and product import and export regardless of refinery ownership or responsibility for importation. Sensitivity analyses were carried out to determine the impact of reducing the demand on the refinery under the condition of liberalized product importaton. 3.80 The LP analysis also shows that the refinery utilization Is less than capacity in the business-as-usual (Case I), ranging between 82 and 90 percent over the forecast period, even assuming that all Jamaican demand would be supplied by the refinery. In the event that half of the gasoline and jet fuel markets, representing a major revenue loss, would be supplied by other importers in a liberalized market situation, refinery utilization would drop to between 50 percent in early years and rise to 87 percent in later years, as demand grows. With the present refinery configuration, the LP finds it optimal to reduce production (thereby lowering average utilization) and import a significant amount of product under the reduced-demand case. 3.81 Cases II and m, with the addition of the catalytic cracker, the LP finds the optimal solution is to run the refinery at 100 percent capacity throughout, even in the reduced local demand cases, and export the surplus in all years. The addition of the catalytic cracker gives greater production flexibility and makes the optimal solution less sensitive to variations in local demand. Cash Flow Modeing Reslb-EIRR and NPV 3.82 A detailed economic cash flow model was prepared to integrate all refinery production, import and export balances, and cost and revenue data for each investment case based on the crude and product price forecast. Economic Internal Rate of Return (EJIR) and net present value (NPV) were calculated for each of the refining cases, incremental to a base all-products-imported case. The EIRR and NPV results were analyzed for sensitivity to lower Jamaican demand on the refinery and to lower refining margins than in the base-product/crude- price relationship. 3.83 Each refining case was compared with the base case alternative of importing all products in a terminWing operation. The net present value of the difference in cash flows between the refining case and tetminaling case was then discounted at 15 percent, and the associated EIRR was computed. The 15 percent discout rate was used to reflect real minimum reurns required in the petroleum industry in view of the risks and uncertainty."' 17. An apporway cog of aa dwot rate of 12 prcent is annms awed iw teomk ew&aaox ofpublic seew pr:ets X Jna -45 - 3.84 Analytical results, dbcussed In detail In Vol. 1I-A, indicate that continued operation of the refiery with minor upgrades could be a lower-cost option than importing all products but could be risky in a liberalized local market. Upgrading the refinery with the addition of catalytic cracking facilities would also be viable and would be more competitive in export markets and less reliant on local markets. Refinery expansion for export would not be viable based on projected refinery margins. Of course, these results are based on the assumptions and price projections that reflect the siuation of independent refining and importing, as determined by spot market price projections. The price expectations of private sector operatos may differ from the projections used as the basis of this analysis. 3.85 In its comments on the draft report (Annex 2.1), Petrojam pointed out that about 45 perceat of refining costs are incurred in local currency, resulting In a saving of about US$6 million (at the exchange rate of September 1991). With the liberaization of the foreign exchange market and with the macroeconomic policy of market pricing, shadow pricing of local costs at a rate other than the market rate would not be warranted in the economic evaluation. In the event that importing and local refining would be equal in economic value, local employment would be an additional benefit of refining. Common Carrier Temial Operaion 3.86 The operation of the Kingston and Montego Bay terminals as common carrier faclties Is recomended to hcrease competiton under a liberalized bIWoraton regime. This system is used to reduce monopoly control of elements of the oil and gas industry hough ownership control of key rmsport and storage systmus. Govermnent authorities in several countries, notably the United States and Canada, regulate these facilities as common carriers, approving and publishing tariffs for the facility and approvig the system of administration of capacity allocation. Common carrier regulation is designed to allow smaller independent operators the use of facilities owned by others, the duplication of which would be too costly for their own use because of economies of scale. It effectively reduces the entry fee and permits an increase in competition. 3.87 The degree of regulation of open access may vary. In major interstate/interprovincial facilities, both the tariff and method of apportionment of capacity are explicitiy and directly controlled by a central regulatory authority. This approach is recommended in Jamaica for the Petrojam terminal at Kingstn and the marine terminals owned by the marketing companies at Montego Bay. In the case of smaller terminals, however, a more laissez-faire approach is warranted, whereby shippers and users are left to make their own arrangements for access with the owner/operator of the facility. The regulatory authority would intervene only in the event of a complaint of denial of access or excessive charges. 3.88 A portion of the Petrojan terminl would need to be reserved for refinery operations, with the remaining capacity brought under common carrier status. - 46 - PdvaizaoAn of the Refinery 3.89 Concerns have been expressed to MPUTE by PCJ, Petrojam, and others regarding the viability of the refmery as a privatized business in a free market. Essentially the arguments relate to the need for protection for the refinery because of the risk that international marketing companies would engage in predatory practices to force the closure of the refinery and the need for Jamaica to have a refinery ensure the security of the national energy supply. 3.90 Although the existence of the refinery in Jamaica gives flexibility of supply, it is not essential for security of supply, since Jamaica is situated within the highly competitive U.S. Gulf Coast and Caribbean petroleum supply region. Jamaica's total petroleum requirements (bauxite plus nonbauxite sectors) amount to about 19 million bbl/yr (1990) and are small relative to total regional supply, which, for island refineries alone, amounts to more than 400 million bbl/yr. Almost 60 percent (11 million of 19 million barrels) of total requirements are already met by offshore supply. In addition to the major multinational petroleum companies, a number of independent traders are operating in the region. PCJ and Petrojam already benefit from this competitive situation by dealing both with trading companies and directly with refineries. Concerning the possibility of predatory practices the following points can be made: a. A potential purchaser of the refinery will undoubtedly assess his ability to negotiate term contracts for as much of the refinery output as possible to reduce business risk before making an offer to purchase. b. The bidder will recognize the risks of operating the refinery in its present configuration as a simple hydroskimmer and will seek to cover this risk by either demanding protection or by planning to upgrade the refinery. Granting protection to the refinery as is presetly enjoyed by Petrojam would run counter to the government's general policy of market liberalization and would reduce the incentive for the purchaser to upgrade the refinery should the purchaser deem it viable. Upgrading the refinery would make it more competitive in the regional market and less dependent on the domestic market. Both the NIBJ and the World Bank, however, have advised that upgrading should be carried out by the private sector because of the inherent business risks involved. At best net revenue gains to the government from upgrading would be zero. It is more likely, however, that they would be negative, since investments to be undertaken by the government would not have the same value for a prospective buyer. The government of Jamaica should not itself make the investments in view of its stated policy to disengage from business enterprises. c. Market liberalization in product importation and distribution, by definition, should parmit the refinery operator the freedom to import products, refine, negotiate term sales contracts, and acquire distribution outlets according to the operator's own business judgment. - 47 - d. The multinational marketing companies presently operating in Jamaica are no longer vertically integrated with refineries. American petroleum companies are under a U.S. Government Consent Decree against collusion in domestic and international markets. This injunction covers not only collusion among the international corporations but also their affiliates. Of course it is recognized that the existence of legislation has not fully prevented (and cannot prevent) market manipulation and that government oversight is also required. e. The introduction of common-carrier/common-access terminaling would permit large consumers such JPS and independent retail associations to bypass the marketing companies or the refinery to obtain lower-cost products. The tankage requirements for refinery operations would not be designated as part of the common carrier capacity (para. 3.79). The implementation of such a regime is one of the essential means of reducing the potential for market manipulation. The ability of consumers to bring in products at a lower cost than otherwise obtainable in the domestic market -would reduce the possibility of monopolistic pricing. 3.91 Notwithstanding the existence of adequate legislation and the physical measures indicated above, an effective regulatory framework is required. As the availability of price iqformation is an essenti requirem "tfor the efficientfimetioning of a market, t Is recommended that the government mon.tor and make .)ublic the quantfes, price, and origin of petroleun produas being imported under the liberalid regime. An independent body with a qualified staff and adequate budget is needed to provide the necessary oversight. Extport-Oriented Options Grmas Roots Refnery 3.92 A review of the present and projected regional refining situation revealed that sufficient capacity exists, could be upgraded or could be added to existing facilities at lower cost than grass roots construction, rendering such a new facility uneconomic in the medium term (Vol. 11). Jamaica would offer no logistical advantage to an independent refiner, since it is neither close to the crude source or to product markets. Other locations, such as the Bahamas, appear more attractive. Direct access to crude or markets may well change the economics, but in that case Jamaica would merely be leasing the site. wansshipment TermIal 3.93 A proposal for a 200,000 BPD transshipment terminal has been put forward to the government of Jamaica; however, this would be a high-risk project. It is recommended that any such proposal be subject to the most careJid scrutiny, partcularly with regard to the envrownental risk, and that the government of Jomaica not nest or accept any risk In the project. -48- D. EKEANOL 3.94 Ihe production of fuel-grade ethanol In Jamaica i8 peipheral to the energy sector, as the export value is gret than the cost of gasoine t would replace in Jamaica. Nonetheless, Petrojam Ethanol, as the producer of anhydrous ethanol, Is a profitable venture because of the availability of cheap wine alcohol from the European Community and the duty exemption on exports to the United States under the CBI. The extension of the tax exemption under the CBI until the year 2000 has removed the previous uncertainty concerning the product market. A minimum of 3S percent of total f.o.b. price must be attributable to local value added, including the cost of feedstocks produced or qualifying under the CBI. As a result, wet alcohol from other CBI countries Is eligible for processing in Jamaica. Dets of the evaluation of the PCI ethanol operaions we presented in Vol. JIB and sumnmized below. 3.95 The Petronol fermentation and wet alcohol facility, with 15 million USG annual capacity located at Bernard Lodge sugar factory, was constructed in 1986 to provide CBI-quallfying feedstock to Petrojam Ethanol's anhydrous distillery, having a nominl S0 million USG capacity.1' Contrary to the original plan, Peonol has had to rely on imported feedstocks rather than using molasses from Bernard Lodge. Petronol variable production costs at US$1 .39/USG are higher than the US$1 .25/USG c.i.f. price of Caribbean wet alcohol; hence, it Is more profitable for Petrojam Ethanol to use Caribbean wet alcohol than feedstock from Petronol to blend with the cheaper European feedstock currently landed in Jamaica at US$0.S7/USG. Because of the high cost of Petronol production, the plant has never been operated at capacity, and in 1990 it produced only 1.1 million USO or 7 percent of capacity. 3.96 It apprs unlikely that Petronol could become a profitable venture, particularly if the capia cost of waste treatment (roughly US$4 million) must be taken into account as a pollution abatement measue. The waste products are presently discharged without treatment and place a high biological oxygen demand on the surface and ground waters. 3.97 Assuming that the selling price for fuelgrade ethol would follow the price projection for gasoline in the USGC market, the Petrojam Ethanol operation would remain profitable for price increases of up to 50 percent over the present farmgate level of US$0.27/USG. The cost of CBI- qualifying feedstock is not critical, provided that the CBI qualification continues to be based on percentage of value added rather than in volume term. Reemunea w 3.98 As part of the government of Jamaica privatizadon program, It Is recommended tt PCI re rs somultaeously for te purdse of both Petronol ad Petrojam EWtanolJfcItes. Bidders should be given the option of offeing for both plants individually or together. It is quite possible that the Petronol plant would be bought for relocation; however, the PetroJam Ethanol faclity could be 18. Ih gtul cqptwky Ik h two do wr ut ho a qawc*t 40 mWon USO, wh*k te sneood xmi Qf 10 Uoex USG cay Is reachd th en af susW 4tf. For sad pwpoa 40 millon USO capacty ha been asmawe -49 - operated in i prese locaion under a service agreement with tie refinery oper. Care must be taken to ensure the sale and operation of the ethanol distlery at the refinery should not become prejudicial to the sale of the refinery. 3.99 So that the government can maximize Its revenues from the sale of both ethaol and petroleum refinig assets, the timing and modality of both divestitures and atendant requests for prposas would have to be coordinated closely to ensure that the presence of the Petrojam ethanol facility on the refiy site is not an encumbrance to a sale of refinery assets to an operator not wishing to be involved with ethanol. lhe present PCJ etaol production asets should be available for purchase along with the refiney, however, in the event that a potential buyer of the refinery saw the ethanol business as an attractive add-on to the petroleum refining. -50- IV. ELECTRIC POWER Introduction 4.1 The Jamaica Public Service Company (IPS), like other power utilities in the region, faces many challenges, including fast-growing demand, capital constraints, and continual public demands for improved services without tariff increases. As a parastatal corporation, JPS also may be called upon to support government policy objectives that would not be included within the mandate or contractual obligations of a private utility. The primary policy issues confronting the government of Jamaica are how to meet growing demand for electricity while improving efficiency both in operations and In the use of capital. Improvements in the levels of tamining, experience, and productivity of staff will be essential for increased efficiency in both public and private power-sector operations. 4.2 This chapter summarizes the main findings and conclusions of the Consultants' Report (Vol. m-A), which was prepared in collaboration with JPS; the Ministry of Mining and Energy; SWECO, which has prepared a Least Cost Expansion Plan (LCEP); CIDA, on environmental matters; and others. The mission worked with JPS staff using the WASP generation-planning software to make an independent assessment of the LCEP (para. 4.42). Policy Issues and Strategies Opermional Efficien 4.3 JPS is currently making progress in key areas to improve operational efficiency through increases in generating efficiency, transmission, and mitigation of distributionlosses. Accounts receivable are being reduced; however, nontechnical losses continue to remain unacceptably high. 4.4 Cost Reducions. Reductions in fuel costs can be achieved by economic despatch, by lower fuel-quality specifications, and by improving the thermal efficiency of generating plants through rehabilitation (para. 4.20). Reduction in capiW cost (i.e., improvement in the use of capital) can be achieved by increasing system reliability, thereby reducing the reserve margin requirements, by improving the system load factor through Demand Side Management (DSM), and by optimizing the size of plant additions to meet growth. 4.5 Outage Costs. Outages are not only an inconvenience to JPS customers but are also a source of economic losses estimated by JPS at an average cost of about US$1.50 per kWh for unplanned -51 - outages, far greater than the value of revenue lost to JPS. An analysis of outages, however, shows that a significant percentage of them are attributable to transmission and distribution faults, and a lesser percentage are assignable to generation problems. 4.6 The Loss of Load Probability (LOLP) is the summary measure used for planning purposes to reflect the economic trade-off that must be made between the costs of reducing outages and the costs incurred by the outages themselves.2 In the case of Jamaica, an LOLP criterion of two days per year has been retained for generation planning and is appropriate for the composition of JPS's load and the level of economic development. Envolnmeanel Impcad 4.7 Environmental impacts from JPS generating plants occur primarily in the form of atmospheric emissions, waterborne effluents, and thermal plumes discharging into Kingston Harbor and the sea. Existing international guidelines can be used as a starting point in setting appropriate national standards but ultimately should be set on the basis of local conditions under the leadership of the National Resource Conservation Authority. 4.8 Environmental impact assessments are now required for new plants and must be carried out as part of project preparation. Additional attention is also required for existing plants (para. 5). Pdc and TWO 4.9 The 37 percent average tariff increase implemented in April 1990 was an important step to improving the financial situation of JPS. Of equal significance, the tariff adjustment included the restructuring of rates to reflect better the cost of capacity in addition to the energy-related fuel costs. A fuel cost adjustment clause reflects changes in the cost of fuel brought about not only by international oil price changes but also by changes in the exchange rate.3 Although the existence of the fuel price adjustment clause is important in protecing JPS from events outside its control, it must be remembered that tariff setting is based primarily on the cost-plus principle. As a result, JPS staff has little direct incentive to pursue efficiency improvements vigorously. 4.10 A detailed marginal cost study was completed by JPS in 1989 and updated in 1991. A further update of these studies is planned in 1992, since JPS's future capital investment program and 1. Estimating Cost of Outages to the Jamaean Economy, System Planning Divion, JPS; November 1990, draft repor. 2. LOLP is expressed as a prcentage n dds case 2/365 = 0.548 percent) tat the generating plant would be unable to meet dmand (e., ot ere wsl be load sedding becawue of the unavalabilby of generating capacity). 3. 7hefitel cost aji#went clause has been in effect since 1928. Some effcency incentive is provided, inasmuch as the fetl c_onut of loss above 15 percent of net generadon can not be recovered -52 . operations are currendy undergoing major structur changes reflecting the impact of liberalization of foreign exchange as well as the changing role of the utility in the sector, particularly in generation. Unaccwatd/Admnstradve Loses 4.11 JPS's financial performance has improved with the increase in rates and with the efficiency improvements now being implemented. A major problem of unaccounted for and administrative losses continues to thwart JPS, however, as it is often dangerous for JPS staff to enter crtain neighborhoods without the support of security forces to read mrsters-let alone collect bills. Of total losses of 17.1 percent in 1990, roughly 10 percent were estimated as technical and the remainder unaccounted or attributed to theft.4 Electricity Demand Histrica Demand 4.12 The historical growth of energy sales in the 1970s was at the modest rate of about 3.3 percent per year, followed by 2.2 percent per year to 1985, and then increasing to 6.1 per year to 1990, despite the setback caused by Hurricane Gilbert in September 1988. The production and sales since 1979 are shown in Table 4.1. The sales comprise about 32 percent to residential customers, 48 percent to TABLE 4.1: JPS MOistoal Generation and Sles not Seneratton Sales COiMany Losses and and purchases use unaccounted Year (GWh) (GMh) (Mh) CIA X 1985 1,437 1,147 9 281 19.5 1986 1,525 1,227 7 291 19.1 1987/88CApr/Nar) 1,722 1,370 7 273 16.5 1988/89(Apr/Nar) 1,651 1,271 7 372 22.5 1989/90(Apr/Nar) 1,944 1,569 8 375 19.3 1990/91 2,005 1,632 8 343 17.1 1991/92 est. 2,100 1,697 small commercial and industial, 11 percent to lrge commercial and industrial, and 9 percent to others. Tednical and unaccounted for losses are split about 50/50. By year-end 1989 there were about 285,000 consumers with a tota consumption of 533.9 GWh or 1,870 kWh per customer a year. Most 4. the able ea regardigtec sses wyfrom 10 to 14 pber btarejadged by e ion to be nearer lOpercent -53 - sinificandy, about 92 percent (264,100) of residendi consumers had an annual consumption greater than 900 kWh, indicating significant opportunides for DSM. D,MaNd Forecst 4.13 Three demand forecasts based on underlying economic growth assumptions of 3 percent a year were prepared during 1990, reviewed by the World Bank, and used as the basis for the analysis of the least-cost expansion program (paras. 4.33-4.47).' A comparison of these forecasts revealed that the difference between them was small and that the SWECO forecast would provide a realistic and acceptable basis for supply expansion planning. The forecast given in SWECO's March 1991 draft LCEP Report therefore was retained for planning purposes. The growth of electrical demand on the base case SWECO forecast (of December 1990) is summaized in Table 4.2; Table 4.3 shows average growth rates over five-year itervals (details are given in Vol. II). Loss Reduc*on ind Demand Side Management 4.14 The demand figures cited are before adjusting for the effects of projected loss reduction and demand-side management (DSM) measures. The effect of loss reduction is a saving of 4 percent on eergy and 5 percent on maximum demand by 1995 and thereafter. The effect of DSM has been taken as the mean of the low and high scenarios estimated by the mission. This reduction is substantial and amounts to some 500 GWh and 84 MW by 2005. The reductions in load stemming from loss reduction measures and DSM are also shown in Table 4.2. TABLK 4.2: Das* Load Forecast Forecast reduced after Basic forecast by SIECO loss reduction and DSN Yearly Nax. Growth Load Ded'n for Ded'n for Nax. Growth Load Energy Demand Rate Factor loss red'n oSm Energy Demand Rate Factor Year (GAl ) (W) (X) (X (Gh) (NW) (GIh) (NW) (GIh) (NW) (X) (X) 1989 1,944 309 72 0 0 1,944 309 72 1990 2,041 325 5.2 72 0 0 2,041 325 5.2 72 1991 2,167 345 6.0 72 0 0 2,167 345 6.0 72 1995 2,764 435 73 111 22 107 21 2,547 392 2.5 74 2000 3,288 516 3.3 73 132 26 269 52 2,887 439 2.8 75 2005 3.808 596 2.7 73 152 30 350 64 3,306 502 2.8 75 2010 4,419 688 2.8 73 177 34 405 71 3,837 583 2.8 75 leug DN deand side managesment Source: WECO, Nfssion estimates. S. Enersy Demand Forecasts for Jmain A Review, Dr. A. M.*andya, Merocomlca Ld, Eonoi Co _,kama, Jaxuay 1991; Energy Demand Forecast, Put 1: Summary and Conclusons, W.R AAbyh,Ar Plannng b&qUl of qmaka, Fbrwy 1996; Power Market Survey and Load Demand Forecat Study, Jamaka Public Servlcea Coop , December 19M See aLa. IPS Ectrc bAnx Load Forecu glien to World BRk mshlo November 1990. -54- TABLH 4.3: SWECO BAs ForeoWast Awrage Growth Ras ND D_ud Energy Growth Load Year (NW) ( IA) X/year Factor % 1991 345 2,167 72 6.0 19f 435 2,764 72 3.5 2000 516 3.288 73 2.9 2005 596 3,808 73 Sources Jamaica Power Narket Sury and Load Forecast Study, Ffnat Report, Dece¢ber 1990; WECO. Exstin Fadlities Gearada PAt 4.15 Tho sent-out capacity of JPS therma generating stations will amount to some 499 MW comprising 297 MW of oil-fired steam plant, 40 MW of low-speed diesel plant, and 162 MW of gas turbines, after rehabilitation, by the end of 1993. Vol. M-A, Table 3.1 gives details of the plant, which i in four stations at Old Harbour (all steam), Hunt's Bay (steam and gas turbines), Rockfort (diesels), and Bogue (all gas turbines). Some of the plant, especially the steam plant, is undergoing rehabilitation at a cost of some US$25 million; further rehabilitation is planned for the Hunt's Bay gas turbines in about 1994; two gas turbines at Hunt's Bay were rehabilitated in 1991. 4.16 JPS also has nine hydroelectric stations with a total capacity of 24 MW and an output of an average of about 140 GWh a year. All are small, the largest at Magotty Falls having a capacity of 6.3 MW (Vol. M-B, para. 0.03). 'he older schemes, dating from 1945, are to be rebabilitated under an IDB loan foUowing a feasibility study in June 1989. The work will comprise general modernization and replacement of wood-stave pipelines. Efficiency Improvements 4.17 Significant technical efficiency improvements can be achieved in JPS generating, transsion, and distribution systems. A number of proganis are already in hand including economic load dispatch, plant-perfotmce monitoring, and transmission and distribution loss reduction. Economic Load D ach 4.18 An upgraded off-line computerbased economic load despatching system has recentdy been introduced and Is estimated to have reduced fuel consumption by about 4 percent; the cost of this system has probably already paid for itself in fuel savings.' A further computer-based plant monitoring system is being introduced to warn of deterioration in plant performance and will identify incipient faults. Geneing PIt Rehabitadion 4.19 Power plant rehabilitation is required to improve operating performance and extend the life of the existing steam generation plants in particular. This work is being financed by IDB. The benefits of rehabilitation do not last indefinitely, and It is expected that further rehabilitation or plant replacement would be required again in about 5 to 7 years. Initially after rehabilitation, plant availability will be improved, and forced outage rates will be reduced; however, both these indicators will deteriorate over time. The provision of adequate maintenance resources should be given high priority to ensure maximum ongoing benefit from the investment in plant rehabilitation and life extension. Apart from undertaking the planned maintenance requirements, the maintenance resources should also be capable of responding quicldy to faults identified by the planned performance-monitoring system (para. 4.19). 4.20 Retirement of existing plant amounting to 230 MW by the end of 2000 is an important aspect of the Least Cost Expansion Program (LCEP). Ihe total new capacity required by the end of 2000 Is about 440 MW, over half of which is required to replace retired plant. By 2006, the retirements total 360 MW of the total of 760 MW of new plant to be added in the period beginning in 1991. It is very importnt, therefore, to examine the retirement policy with a view to further rehabilitation and life extesion as part of future expansion planning. Any further investment resulting in reliable life extension will be highly economic. Pe Specflsation 4.21 The steam and diesel plants all burn Number 6 heavy fuel oil (HFO) supplied from the Petrojam refinery ne= lie Hunt's Bay station. The oil is about 2.8 to 3 percent sulfur. It is of a quality suitable for use as a feedstock for catalytic cracking and is about US$1.50 per barrel more costly than Bunker C oil bought on the open market. The bauxite companies by and large are successfully using the lower-quality Bunker C oil. An analysis of the potential cost savings of using lower-quality fuel oil was carried out as an extension to this study.7 6. De oigbl systm w Itroduced in she 1970. 7. -n*sk of High 51w Fl 1 OU Prkes Jimaka, dee Ewy Fuues Group, March 1992. -56- Ge¢neA*n Augweauil Piogram 4.22 Captive installed capacity of approximately 265 MW i8 owned by bauxite companies (168 MW), sugar fcories (30 MW), the cement plant (2) MW), and other industries (40 MW). About one- third of tis toWal pacity opes at 60 Hz and is thus incompatible with JPS's system. About half the baxie compan' capacity, which opete at 50 Hz, is connected to the JPS's grid, as is a small porion of the sugar factory capcity. Although JPS has purchased electicity from these sources over the past 10 years, the volume has been sigficant-7.9 Gwh, or 0.4 percn of JPS sales in 1991. The feasibility of connecting the cement company to the grid is under investigation; however, for the purposes of long-term planning, the effective supply of power from captive plants has been taken as zero. IuteidMek Loads 4.23 Up to 70 MW in irrigation and municipal water supply pumping loads could possibly be transferred to off-peak or be designated as interuptible loads, thereby reducing demand on IPS if required. Studies are under way by consultants to JPS, and investments will be financed under existing loans from 1DB. Further interruptible loads may found as part of ongoing DSM work. TAwasaeks asd Dsbudon 4.24 The upgrading of the system to reduce losses and cater for load growth is under way, with IDB and World Bank financing. Over the past two years, JPS bas reconductored 11 km of trunk line; installed or rehabilitated 36 MVAr of capacitors, resulting ir an improvement of the day peak power factor from 0.81 to 0.90; and convertd about 311 circukit km (out of 7,290 kin) to 24 kV as part of the voltage improement program. Improvements brought about by these measures (and the completion of the program) have been taken into account in the load forecasts (Table 4.2) used in the LCEP analysis. Environmental Issues An & of dsdsag Power Plat 4.25 The existng power stations affect the environment in two main ways. The first is chimney emissions conaining sulfur dioxide (SO2) and nirogen oxides (NO,). Litde can be done about S02 wihout spending excessively on low-ulfur fuel to reduce emissions or on plant to remove the SQ, especlaly in the contex of the limited life of the plant. NO. may be reduced at the steam stations if it proves nqcesary and feasible to modify the burners. It would be possible to reduce ground-level concenrations of emissions by increasing stack heights on existing plants. Again, these measures would be costy, pardculatly in view of the planned retirement of the Hunt's Bay steam plants over the next 10 -57 - yeas. In the longer term, environmental impovements Kington can be more cost-effectively achieved by relocatng the replacement generating plant. 4.26 Te abatement of particulate emissions is being achieved and can be increased through the installation of equipment for continuously monitoring burner performance and the overall operational state of the generating plant. Improved staff training in boiler operations will reduce the emission of the dense bla-k smoke frequently visible In Kingston and will improve energy efficiency. 4.27 ITe second main environmental Impact of the power plants is in the release of effluents including dirty water, oil, chemicals, and boiler blowdown into the station dralns and hence into the sea. ImprovemeLts are possible by rearranging the station drainage system with a view to catching the waste and treadng It before disharging it to the sea. An environmental audit of the existig Hunts Bay failbities has been conducted by consult financed by IDB. An action plan will be prepared under the ESDP project to define mitigative measures, implement the recommendations of the environmental audit, and remove all hazardous material from the site. Ernvk etul Impdt of New Plan& 4.28 For a full assessment of environmental impact of the various stations in the LCEP, it is necsary to have baseline measurements of existg air and water quality and to identify the main sources of pollution. Modeling of the effects of existing pollutants, to which can be added the emissions of proposed projects of all types, not just power stations, is needed. Required grant financing for this work will be provided by CIDA. Coal Plant Swag Sudks 4.29 CIDA also intends to finance the preliminary engineering and baseline environmental studies of the Salt River site for a coal-fired plant. Earlier studies had identified a total of 18 sites. TORs for a detailed FTA were to have been prepared following a review by the EWgy/Environment Stering Committee (Annex 4.1). The stdies are expected to begin in 1992 following finization of funding arrangements and would require at least a year to complete to permit the investigation of a full seasonal cycle. Power Pa1 Ste Inventory 4.30 Iti necessary to identify the possible sites for other new plants such as gas tubies and additional lowspeed diesels. Some of this plant will be insalled at exisdng power station sites, but it is desirable to have a number of optional sites Identified as reserve, particularly becse v concerns in the Kingston metropolitan area are growing. C1lDA has also agreed to finance an island-wide -58 - emissions study that would quantify all pollution patterns caused by existing bauxite and power plants and other sources. Least Cost Expanson Program Prvious S*udks 4.31 Several least-cost expansion studies have been carried out over the past decade. These include Monenco (1985), Beck (1989), and SWECO (1991). During the periods of high petroleum prices, particular attention was given to the possibility of developing the peat resources in western Jamaica as weil as other nontraditional energy sources. Of all the options, coal has consistently emerged as the most economic alternative to petroleum and is being examined closely not only because of its lower fuel cost but also because of the opportunity to diversify from petroleum. Exanso Options 4.32 The options for the future comprise a coal/oil-fired steam station at Rocky Point (Salt River), low-speed diesels and gas turbines at existing power stations, or sites yet to be identified. Selection and proving of sites should also be undertaken as soon as possible, particularly with regard to environental impact. (Details of the capital and operating costs of each option are given in Vol. E-A, Table 5.3.) 4.33 Medium-speed diesels were considered by SWECO, but it has been agreed that they are unsuitableforusewith thehigh-vanadiumbeavyfuel availableinJamaica. Indeed, theCaribbean Cement Co. has some 27 MW of medium-speed diesel generating plant and has attempted to use heavy fuel oil but found that exhaust valves were wearing out faster than they could be replaced. The problem is due to vandium and sodium in the fuel. The diesels now can burn heavy fuel oil only when it is mixed with the same quantity of diesel oil No. 2. Eprince elsewhee In the Caribbean co#bins the serious probtems caused by bundng high vwnadlwn heayyfiwls (derlvedfrom Venezuelan crude) In medium-speed diesels, and It Is recommended that medium-speed diesel generators should not be an optionfor JPS In Jamaica. 4.34 The coal station should be pursued urgendy, since it is a significant long-term project whose earliest availability is estimated to be early 1997; however, the on-line date could be advanced if preparation work is carried out expeditiously. Proving of the site by physical investigations should be done quickdy so that a reserve site can be brougt forward if necessary. This work should be done before site-specific eonme aessments are made. 4.35 A design study will be required to take the project to the stage where specifications can be prepared for private sector flnancing as a BOO project. This study should include consideration of Circulating Fluidized-Bed boilers, to mine the S02 and NO. emissions, particularly if it proves .59 - feasible to burn heavy fuel oil. In that case, Orimulsion may prove to be an auractive new fuel, though its commercial acceptability has not yet been fully proven by experience. The size of the generating units should also be reviewed. 4.36 The Back Rio Grande hydro scheme, at 50 MW, is the largest of the hydro resources but was not found to be part of the LCEP in any of the sequences tested under the WASP model or by SWECO in the planning period. Iastl Coegesemon 4.37 Cogeneration, particularly in the bauxite industries could be feasible at the time of replacement of boilers (many are more than 20 years old) or of major plant expansions. Cogeneration at existing installations is not viable because plants have been designed to balance the process steam and power generation requirements. In addition, some plants operate at 60 Hz, whereas JPS operates at 50 Hz, and additional expenditures for frequency conversion would be required. The interest of the bauxite and other industries, including sugar factories, in cogeneration can best be determined by establishing a buy4-b taiff based on avoided costs or inviting industries to bid as independent power producers. Development of a cogeneration scheme should be left to the new owners.' Rsts of LCEP Anlysts 4.38 Detailed discussions on the SWECO Draft LCEP Report identified certain differences in costs and availability but were satisfactorily resolved.' Apparent differences in the SWECO and WASP computer modeling however, do not lead to different conclusions. Ihe joint Aide Memoire (Volume m- A, Annex H) recommended the sequence of plants shown in Table 4.6 as the agreed LCEP. 4.39 Preliminary ranking studies of various plant combinatons showed that most of the options are close in economic merit. Through detailed analysis both by SWECO and with WASP, however, the addition of steam turbines to gas turbines to make a combined-cycle plant uldmately was fund to be one of the least ecowmic options. Its high efficiency would not offet the high fuel cost, which would cause it to be despatched on peak load, further raising the average cost per kWh produced. 4.40 The progam shown in Table 4.6 is the LCEP as selected by WASP and confirmed by SWECO. As there is reasonable doubt concerning the rate at which DSM meaures will become S. Feabty Study of bo From. Cogunaon Pct, JAmaica Enegy Tem M, Sember s91. ewprojectdw ais reviwed by a Workfig Grwa consd by MPUTE, PS, and Jamaka Sgar Holngs (Frm) dta raced e san cowbeuo as th lZSSI reviw. 9. MeegswereheldiJamic (Marchl a 199)andIn WahgrU 1991)noteSWECOSNdy Mmger JS, he Word Bk, ad IDI Stkf, so a at an agreed LCP. -60 - effective, the program was established on the basis of the SWECO base forecast without any load reducdons. TALE 4.6: Least Cost KVanswio Program withot DSM Lod Redti 1993 Low-speed diesels 2 x 20 MW 1994 Low-speed diesel 1 x 20 MW 1995 Gas turbine I x 33 MW 1996 Gas turbine I x 33 MW 1997 Coal-fired steamstalon, Unitl 1 x61 MW 1998 2&3 2x61 MW 1999 4 1 x 61 MW 2000 5 1 x 61 MW 4.41 Based on the above plant sequence, it is important to proceed expeditiously with the implementation of the 3 x 20 MW low-speed diesel BOO project with the first two units to be on line in 1993 and with an option on the third machine for 1994 or 1995, depending on annual reviews of load growth and progress with DSM. A decision on the dming of the gas turbine(s) can be deferred for about two years.'t 4.42 The operational advantage that the coalloil station and possibly Orimlsion would introduce-in terms of the diversity of fuels available, protection against volatflity of oil prices, and the ability burn the lowest-priced fuel available at any tme-annot be fully quantified. For these reasons, however, the coal/oil station is to be preferred. This conclusion also confirms previous studies. isevlty Analyses 4.43 Sensitivity studies on WASP show that the plan including coal is reasonably robust as a long-term source of electricity, and although all options are fairly close in economic merit, from time to time both as turbines and low-speed diesels find a place in the LCEP. The coal-fired station becomes even more attrcve if oil and coal prices are assumed to stay at their present relative level, instead of coal prices increasing more rapidly than oil prices in real terms, as currently projected by the World Bank. la. BeausepqeintepreparnofdturCOproject to mU the wp desel, It wufou nwceayto eiae th gas tu t om kim INSto 1993. A a reult, she pln seqenc orpoted the SPD prject has becom X 30MW OT 195; 3x 20 AMW low.sed desel 1995; Ux30 MW GE. 19 . -61 - 4.44 Combined-cycle plant was not selected by WASP under any sets of data tried. Even when combined cycle was forced into the plant program, it was found to be uneconomic, and coal-fired steam was selected to follow, although somewhat delayed given the availability of the combined-cycle capacity. 4.45 Loss Reduction and Demand-Side Management measures are potentially very economic and should both be implemented with vigor. The recommended LCEP to 2000, on the basis of the forecast reduced by loss reduction and DSM, is shown in Table 4.7 and could eliminate the need for a 33 MW gas turbine in 1995. The longer-term development of coal-fired plants would delay the third unit by one year. TABLE 4.7. Recommended LCEP to 2000 Includlg Loss Reducion and DSM 1993 Low-speed diesel 20 MW 1994 Low-speed diesel 20 MW 1995 Low-speed diesel 20 MW 1996 Gas Turbine 33 MW 1997 Coal-fired steam station, Unit 1 61 MW 1998 Coal-fired steam station, Unit.2 61 MW 1999 Coal-fired steam station, Unit 3 61 MW 2000 Coal-fired steam station, Unit 4 61 MW IPS Inv_ament Progam 4.46 JPS's capital expenditure program for FY93 to FY97 assumes that all future generation investments, except hydroelectric power plants, would be undertaken by the private sector and that the expansion and improvement of the transmission and distribution systems as well as rehabilitation of existing plants and implemenion of ongoing projects would be carried out by JPS. The program, based on the projected exchange rates, is within the overall public investment program agreed between the government of Jamaica and the IMP for 1992-93 to 1994-95 ai of March 1992. 4.47 The investment program for the five years is estimated at J$7,090 million, or US$236.3 million in constant terms, and J$7,717 million (US$257.6 million) in nominal terms. Of this, the foreign component is US$150 million, or about 63 percent. The investment program, which includes apportioned costs such a adminiion ovetheads and interest during construction, is detailed in Table 4.8 and has been reviwed by the World Bank and found acceptable. -62 - TABLE 4.8& wvesbanet Prg a F"Y3-FY97 Total Cost Total Cost Foreign Category USSm JM X Exchange equvfalent equivalent (X) Production 45.4 1.361 19 74 6eneration 31.2 934 13 94 Transmission 30.8 925 13 63 Substation 31.6 947 13 73 Distribution 33-9 1.017 I5 45 Proprty 26.3 789 11 24 Energy conservation 2.7 81 1 74 Other 34 1.036 1S 61 Total: (Constant) 236.3 7?090 100 63 (Nominal) 257.6 7,717 4.48 Production (i.e., rehabilitation, improvemen, and replacement of major parts) represents the largest share of the investment program with 19 percent of tota investment, followed by distribution and general projects with 15 percent each. Generation investments, which include the already signed contract for two gas turbines at Bogue, amount to US$31.2 million, or 13 percent of ttal investment. Conclusions and Strategies 4.49 The conclusions drawn from the above analysis can be summarized in the fbliowing recommended strategies for the power sector. Exsting Plt a. The plant retirement policy should be reviewed periodically as is being done under the Plant Audit, with a view to possible further life extension in due curse, sinc the urent rehabilitaon is shown by SWECO to be very attrtive. b. The environmental issues at existing stations should be examined as outlined in the Terms of Reference In Vol. II-A, Annex 0. New Coal-iid Station c. Apart from its prime position in the LCEP, a coalloll-fired plant would itoduce diversity of fuels available for generation and give protection against the volatility of oil prices. The base load can be supplied by oil- or coal-firing, according to the cheapest fuel available at any time. -63 - d. The coal station should be designed at least to be convertible to heavy oil firing, and possibly for dual firing from the outset. Orimulsion Is also a possibility. Although Orimulsion is being proven in commercial operations in several power stations, more time is required to establish a strong track record. Jamaica should not commit itself until more extensive commercial experience has been gained elsewhere. On the present program, the design of the station need not be finatized for about two years so there is time for further assessment of Orimulsion; in any case Orimulsion could be used in the later units, if not in the first units. e. The use of circulating fluidized-bed (CFB) boilers to minimize SO2 and NOx emissions should be considered for the station, though the ability of a fluidized-bed boiler to burn solid and liquid fuels should be checked. Although CFB boilers are a recent development, considerable commercial experience with such boilers in the size range suitable for Jamaica has accumulated. Should CFB boilers be incapable of burning liquid fuels, a decision would have to be made on whether it would be economically preferable to use conventional boilers to retain the dual-fuel capability or to stay with CFB boilers to burn higher-sulfur and lower-price coals. f The proposed coal/oil station appears as the preferred long-term option in the LCEP and is sufficiently attractive to warrant proceeding as quickly as possible with completing the siting studies and implementing the environmental impact assessment. Delays in this work may be costly. g. It is also important that at least preliminary physical site investigations Lboreholes, test pits, etc.) be made quickly at Salt River to confirm its suitability and to avoid the possibility of having to abort the baseline environmental studies. If ue site investigations prove Salt River to be unsuitable, a second site should be immediately investigated based on the siting studies already carried out by consultants to JPS (Wallace-Evans, financed by CIDA). h. A fin design report should be commissioned at the end of 1992, as soon as the siting and baseline environmental studies show the site to be acceptable, with a view to commissioning the first unit for service in 1997. The report should include layout, harbor facilities, size of geerating units, type of boiler, dual- or triple-fuel facilities, ash disposal, and so on. Otkr New Pant The Back Rio Grande hydroelectric scheme (50 MW) was not selected by WASP, and estimates of its benefit-cost ratio show it to be about 0.8 at a 12 percent discount rate. This estimate corresponds closely with the SWECO/CIPS Report, which shows an iteral rate of return of 7.8 percent. Nevertheless, it is possible that the project may be attractive to countries that are willing to offer concessionary finance on environmental grounds in exchange for limiting CO2 emissions. . A buyback tariff should be established by JPS on the basis of avoided costs to solicit supplies from industrial cogeneration sources such as the sugar factories and bauxite industries. -64 - Less Reducdin k. The unaccotd loses are variously given s 5 percet or 10 percent. They represent uncollected revenue, and efforts should continue to identify and reduce them. Investigations should be made into the feasibility of putting billing and collection operations out for contract. Demand Side Management 1. The reduction and spreading of load by Demand-Side Management and energy efficiency measures should be pursued vigorously; it X potentally very profitable both to consumers and to IPS. The vibility of some of the measures wIll need to be checked as part of the continuing development of DSM. m. The avoided system costs as a basis for asessing DSM measures may need to be studied further to provide an adequate breakdown of the costs for the whole range of DSM characteristics. This matter should be reviewed when the results of the demonstration and pilot projects become available. n the interim, the avoided cost esdmates (para. 5.34) should be used as a benchmark. Eievbwont n. Environmentl sandards should be set according international guidelines, but higher standards are not recommended, since, for example, the fitting of flue-gas desufurizing equipment is very costly and likely unwarranted. Other means of reducing sulfur dioxide emissions, If required, may be more cost effective (e.g. using low-sulfur coal, even if at a premium price) or using circulating fluidized-bed boilers. o. Improvement can be and are being implemented to reduce emissions-for example, through the const monitoring of burner performance and of the stat operation of the plant. Such monitoring, however, can have no effect on emission of sulfur dioxide. Retirement of exising plant solely for environmental reasons would be prohibitive. For example, retirement in 1993 of one of the 60 MW units at Hunt's Bay or at Old Harbour would requin replacement investment of US$60 to 80 million and increase the Net Pre Value of the LCEP by some US$30 to 40 million. p. The use of Orimusion will further exaceat emission problems, since k is high in sulfur (3 percent) and is equivalent to a high-sulfur coal and worse than the typical heavy fuel oil now used. q. The exit stons contribute to the discharge of dirty water, oil, and some chemicals Into the sea. This problem could be virtually eliminatd by reconstructng the station drainage systm and - 65 - collecdng and treating effluents before dibarge to the sea. Such a system should be a design feature for all new stations. The rehabilitation of the plant should result in combustion Improvemens and reducion in the emisson of smoke caused by icomplete combustion. r. The dischrge of NO, can be reduced somewhat by carefil burner management, but substantial reducton at existing stations would require new low-NO, burners on both steam and gas turbine plants; the extent to which tbis would be possible requires detailed examination. The discharge of NOQ can be minimized in new plant by specifyt low-NOQ burners to mcet the required standads. s. For the assessment of eonmena Impat of the various stations in the LCEP, it is neasaary to have measurements of existg (b) air and water quality and to identify the main sources of polution. Modeling of the effects of exsing pollution-to which can be added the effluents and emissions of proposed projects of all types, not just power stations-should be undertake in the study. Nwate Sector Pelicpon t. There are no significan technical problems with private BOO power stations. However, it is essetal that JPS thoroughly eino the design of all proposais to assure that they will be desied and built to a reliable technical and environmental standard. JPS will not be excused by the public if a private station causes or environmental pollution. u. JPS should assess proposals for private power stations with regard to their impact on LCEP. The inraction of a proposed plant with existing and future plants as an iegrated system may revea a proposed plant to be less attractivethan it would be if analyzed in isolation. V. The contract terms for purchasing the output of a private power station will require special and careful aention to protect IPS from poor availability, to ensure that the cost of energy reflects the best fuel prices, and to allow JPS to purchase power as and when it requires so as to minimize total system running cost. w. The contract will be pardcularly important for the coal/oil station, where the benefits of using the cheapest fuel should also accrue to JPS and their consumers and not entirely to the private owner. The possibility that the owner of the first stage of the coal/oil station will not wish to contue with later stages also should be covered. - 66- V. ENERGY CONSERVATION AND EFFICIENCY Introduction 5.1 The terms energy consenron and energy efflcency are used interchangeably to describe the supply of energy at lower cost without changing the end-use benefit of the service pro;.ded. In this retrd, fuel substitution is also considered as being a form of energy conservation/efficiency, as the end- use benefit is the same regardless of the fuel used. 5.2 As Jamaica places greater reliance on market pricing for the allocation of resources within the economy, it is important to ensure a consistency of pricing, policy and expectations regarding consumer behavior. Consumers should be free to make consumption decisions based on prices that reflect costs. 'The choice of adopting energy-saving equipment shold similarly be left to the consumers, based on their valuation of the costs and benefits of both the end-u service provided and the cost of acquiring and installing the energy conservation equipment. Consumers can be expected to adopt energy efficiency measures that clearly result in a het cost saving, provided they have sufficient information to make rational choices. The government should focus on acting as a catalyst to ensure that consumers and potential suppliers of energy efficiency equipment and services are well informed concerning energy conservation opporunities and to assist in overcoming barriers and constraints. Barriers and Constraints to Ener Conservation 5.3 One of the biggest barriers to energy conservation is the lack of information regarding energy conservation techniques, energy savings, equipment costs, and their payback period. Many energy conservation mesures are achievable at low cost or no cost with almost instantaneous paybacks but are not implemented because consumers are unaware of the opportunities. The lack of information also extends to lack of skills, data, and tools to assess either current expenditures or the benefits of conservation. 5.4 Istitutional impediments within the building professions frequently inhibitthe introduction of cost-effective energy efficiency measures at the architect's conceptual design stage, since lighting and air conditioning engineers are normally employed later in the design process. 5.5 Like consumers in other countries, Jamaican consumers recognize the long-term benefits of energy conservation both for themselves and as a desirable national goal. For many industries and commercial firms, however, energy costs are a relatively small percentage of total costs, often on the order of S to 10 percent. As a result, a 10 percent saving in energy cost does not have a major Impact on overall profitability, and consequently managers direct their attention to other priorities. Moreover, even for firms that recognize the potentia net benefits, the high first cost of energy efficient equipment and the cost of audits and retrofits and the associated disruption to business opeations have consistently been cited as the principal barrier to implementing energy conservation measures. The high anscion -67 - costs and high implicit discount rate applied by industrialists to energy conservation projects are frequent barTiers despite the advantage of energy conservation to the economy. 5.6 Previously, the high rates of import duties and taxes on energy efficient equipment rangn from 10 percent on construction materials to more than 100 percent for electrical goods were major contibuitors to the high first cost of energy consevation measures. These rates will be reduced under the CET (45 percent) and GCT (12.5 percent) revisions, except for fluorescent lamps and solar water heaters, which have been zero rated. These new tax rates, however, still contrast sharply with the virtu tax free stus (5 percent Import duty and 0 percent general consumption tax) on power supply equipment In effect, there is a general financial bias against energy conservation and a comparative bias in favor of expanding electricity supply. Tbe lower taxes and duties on generating equipment and access to foreign exchange at lower interest rates than obtainable by local industries (for conservation equipment) act to keep power tariffs lower than othierwise would obtain. The cost to the consumer of saving energy is thus artificially higher than the cost of purchasing electricity at what is effectively a subsidized rate. Consistency in macro pricing policies is required to put supply and demand side prices on an equal basis. 5.7 In addition, industrialists and building owners who are ready to install energy conservaton equipment often face difficulties in obtaining financing for equipment that is not seen by banks and other financing agencies as direcdy productive. If paybacks are less than one year, consevation measures could be financed out of cash flow, but, in other cases, loans would likely be required. 5.8 Last, in many cases, the energy efficiency infrastructure is inadequate. Experienced engie, audibts, and reliable equipment suppliers and contractors are needed as part of the delivery mechansm to identify and implement DSM measures. Although a small core of expertise exists in Jamaica, it must be expanded. I 5.9 The availability of information, technical services, and finance, however, may not be sifficient in themselves to susin an energy efficiency program, a problem experienced with previous programs in Jamaica. Policy options that can help overcome these barriers are discussed below, and recommended strategies are more fully developed in later sections of this report. Previous and Ongoing Enera Conservation Programs USA D Prgm. 5.10 Since the oil price shocks of the 1970s, the government of Jamaica has stressed energy consevation as a maor component of its national energy policy but has had difficulty in achieving lasting results. The largest program, supported by USAID in the period 1983-87, had four main elements: a. bstitution building in the Ministry of Mining, Energy, and Tourism, including the training of staff and energy auditors, development of information and monitoring systems, publication of tecnical d, and policy development - 68 - b. Energy conservation in the public sector, Including energy audits and 52 demonstration retrofits in public sector buildings In government-owned industries and hotels C. Alterative energy in the public sector, including the installation of 27 solar water heaters in goverment hospitals and health centers, and assessment of other renewable technologies d. Establishment of a US$10 million energy credit fund through the National Development Bank of Jamaica and the commercial banking system to support private sector investment. 5.11 Overall, success was mixed because the project was too large (US$30 million) and was perceived as a stand-alone project out of the mainstream of government. Much of the infrastructure and momentum was quickly lost upon completion, particularly because of lack of government budgetary support. The Energy Credit Fund was canceled after disbursing only about US$0.4 million for about 50 audits and 20 projects. Ihe Fund failed primarily because of unatractive financing terms, excessive bureaucratic requirements by loan officers who were not sufficiendy familiar with energy conservation, and undue restrictions on equipment sourcing. 5.12 The final report of the USAID program made a number of recommendations supported by other intrational agencies, particularly regarding the need to raise energy prices. Recommendations for offering energy efficiency incentives through tax credits and technical support systems, however, were not taken up because of lack of government resources, lack of commitment to the recommendations, or both. Likewise, recommendations to achieve energy savings in transportation through the establishment of efficiency standards, infrastructure improvements, and emissions testing were not adopted. Ene'r Sector Management AssAuae Progmme 5.13 Following on from recommendations in the World Bank Energy Assessment report (1985), ESMAP launched an energy efficiency project in mid-1987 with CIDA funding. Two components are directy concerned with energy conservation activities and one with an institution-building component for an energy management information system in MME (now MPUTE) in addition to this ESSIP Study. 5.14 The ESMAP energy conservation activities were designed to work closely with the private sector primaily through committees established with the Jamaica Bureau of Standards (JBS). An Energy Efficiency Building Code (EEBC) has been developed for new construction and retrofits in commercial and institutional buildings and is now mandatory for public buildings. The technology transfer phase is ongoing, and engineers and architect are being trained in the application of the code through a series of workshops. Several architect and engineers have reported making significant design changes in current projects compared with normal pracdoe in order to comply with the code. Design handbooks incorporating Jamaican construction practice are being prepared by teams of Jamaican architects and engineers with hiputs from internaional specialists. 5.15 JBS with about J$640,000 (US$80,000) in funding from MPUTE is providing ongoing support for EEBC implementation over the next year. The work program includes design workshops, -69 - ene audits for about six government buildings, and compliance reviews of about five buildings. This level of support indicates the commitment of the Jamaican government to a rapid Implementation of the EEBC and the early realization of benefits. 5.16 Total energy savings of about 30 percent (compared with existing energy use) In new constuction of office buildings over the next 10 years would be costeffectlve under the standards of the EEBC. Those energy savings have a net present value of US$18 million; a futher net saving in avoided capital expenditure of roughly US$4 million on generating plant capacity is possible. An additional saving of capital and recurrent expenditures from retrofits over the next 10 years with an NPV of about US$15 million would also be achievable under the DSM program through the application of the EEBC. 5.17 The Appliance Testing and Labeling Program has been established to provide information to consumers on energy consumption in major appliances. An energy efficiency test laboratory for refigerators and freezers has been installed at JBS.1 A public information and labeling program will be undertaken later in 1992, on completion of the initial round of appliance testing. Additional appliances recommended for addition to subsequent phases will include air conditioners, gas ranges, and water heaters. JPS E:ner Conservadon Unit 5.18 Major work is now under way in the area of Demand Side Management (DSM) in the power sector. An Energy Conservation Unit (ECU) has been established in JPS with additional support from Rockefeller Foundation and is carrying out pilot and demonstration projects in commercial and residenta premises with a total budget of US$3.5 to 7.0 million, depending on the feasibility of certain cogeneratdon technologies. These activities aim to quantify and demonstrate to consumers the possible savings and help to design and test the effectiveness of insitutional arrangements that will be effectiwve in DSM program implementation. The program is exected to be cofinanced as a project under the Global Environment Facility (GEF). 5.19 The ECU has been supported by international and local consultants in carrying out a study (Power by Efficiency) to estimate the potential savings from DSM.2 Tbis study has been used as the basis of the ESSIP team's assessment of priorities and implementation plans for DSM programs (described in detal in Vol. m, Part B). 1. tle* coepton by rfigeras alo h 1990 Is esdated to be 152 M EerV savtgs on he oudr of 10 to 15 percn cl be achieved wih more d n n. 2. Powe by Efficliay-An Asseumet of bmpron EBal Efficieny to Mee Jamai's Power Needs, Jxw 1990, Com Law Fondi of Nw Ehga, aqip v by BlIoe Uselrs' Netwr and R"oce Develop FunA -70- Energy Conservation Jsues and StrateIes 5.20 Although the technologies, magnitude of savings, costs, and benefits are readily identifiable, particularly for energy conservation opportuaides in the commercial and industrial sectors, the mechanism for program delivery are less apparent. lhe recommended strategy presented below emphaWszes the dewlopment ofprograms that can be Iplemented as much as possible through the private sector and can be fnanced out of the savings that wil accrue to consumers. To the greatest extent possible, energy conservadon as an industry should be motivaWt by an entrepreneurial desire to develop a business opporunity. uere Pdla 5.21 The government has already taken the most important first steps in overcoming the barriers and constras to energy conservation by setting a sound macroeconomic framework to give correct price signas to consumers. Petroleum prices are based on import parity and have been deregulated at the retail level. Electricity tariffs largely reflect long-run marginal costs in structure and level following an increase of 37 percent on average in April 1990. Previously, tariffs were based on a declinng block stucture and had low maximum-demand chages that did not reflect the cost of expanding generating capacity. Tariffs are now adjusted monthly to reflect fluctuations in the price of fael and foreign exchange. 5.22 However, because of the low taxes and duties applied to electrical supply equipment as opposed to appliances and end-use equipment, the cost of supply is artificially low relative to the cost of consumption, which effectively underprices electricity. This Is a policy issue best handled on a uacro basis by reducing price distortions caused by uneven duties and taxes. Regulation 5.23 Despite the incentives given to consumers through the operation of the market system, some foms of regulation will be required to ensure minimum standards of product safety, as in the case of kerosene stoves, or to ensure the application of best industry practice, as in the case of building design. As a generl rule, however, reglations and sandards, unless vital to the public interest, as with consumer safety, should be imposed judiciously, as they diminish the functioning of the market system and reduce the opportuniy of consumers to make their own purchasing decisions. iNwte Sector Inwolveent 5.24 As a corollary to preferring more information and less regulation as a means of promoting energy efficiency, encouragement should be given to the private sector as the delivery mechanism for achieving energy savings. The opportnity for the development of a specialized energy conservation service industry has become apparent, paticularly with the increase in electricity tariffs in Jamaica. Forunately, one of the most enduring benefits of the USAID-sponsored energy conservation program has -71 - been the development of a cadre of energy auditors and efficiency specialists, many of whom continue to operate electromechanical equipmoint service flrms. In early 1991, about 40 engineers attenaded a two-week series of seminars sponsored by the Jamaica Instituto of Engineers on energy conservation, and considerable interest was expressed in the concept of developing energy efficiency service companies. Cost Recovey 5.25 Much consumer reluctance to adopt energy efficient measures, however, arises from a difficulty in their financing rather than a lack of appreciation of the economic benefits. Consumer financing is often provided by supplier for a number of goods including electrical appliances through lease options and hire-purchase arrangements. To overcome financing problem for DSM programs, power utilities in the United States in many cases have been permitted by their regulating authorities to finance such measures on behalf of customers as a power company investment to be included in the fixed-asset rate base for tariff setting purposes. 5.26 As with other power sector investments, investments in DSM measures shou d first be economically justified as part of the overall least-cost end-use strategy. The financing and cost recovery then become the key issues to be resolved. Recovery through general tariffs of the costs of DSM programs that direcdy benefit individual customers would not be justified on either economic or social grounds. Low-income customers would most ceraly and quite rightly object to paying for measures that provide the greatest savings to high-income consumers. It is important, therefore, to link the cost recovery mechanism as direcdy as possible to the beneficiary to avoid objections from nonbeneficiaries. The ability of JPS to identify potential customers for DSM programs through its billing records, the avalab*iity of a credit history, and the direct means of cost recovery through monthly bills, provides a major opportuity for devising the financing programs best suited to the DSM measure and the consumer cateory. EAergy Coesenton PsiedoMes 5.27 Based on their technical and economic potential, priority programs in energy conservation should focus on demand side management in electric power, combustion efficiency improvements in industry, and road transporation. Each area offers potential savings on the order of 20 percent, but they differ markedly in the degree of difficulty in realizing these savings. Experience elsewhere with DSM and industril efficiency projects is encouraging; however, programs for road transportation efficiency improvements have been less successful. Strategies for DSM and industrial energy conservation are discussed in detail in Vol. M-B. -72 - Demand Side agement Concp 5.28 Until receatly, attenion in the power sector in general has focused on the expansion of power supply with litle attention to the net benefits of reducing consumption on the demand side. Through regulatory reform In North America, in particular, public utilities are recognizing that it Is often cheaper to invest In energy conservation equipment on the demand side rather than to expand supply to meet the same end-use need. To this end, they have etablished demand side management programs. Similarly, energy service companies have been created to carry out energy audits, install equipment, and pay the Invesment costs out of the savings, which are hared with the consumer. Given the relatively small and untried market In Jamaica for DSM programs and the experience to date (paras. 5.10-5.11) with energy conervation projects, it is apparent that JPS will need to play a major role in implementing and demonstg the feasibility and bendits of DSM. It is unlikely that a purely private venture could be established until the energy service company and shared savings concepts have been adequately demonstrated and proven. DSM Potena 5.29 Benefits to be attained from DSM measures include energy savings through an absolute reduction in energy consumptin through improved efficiency, energy savings through shifting to off-peak peiods when fuel costs of generation are lower, and generatng capacity savings through load reduction or peak shifting. Some measures provide both energy and capacity benefits (e.g. substituting compact uorescent lamps for incandescent lights used during the peak period, whereas other measures provide ney savings alone, such as air-conditioner efficiency improvements used only in off-peak periods. 5.30 Eight programs were proposed and initial estimates of savings potential were made in the CLF report, Power by Efficiency. The ESSIP study has examined each of the CLF programs in terms of energy savings potential, delivery mecaism, costs and benefits, and cost recovery. CLF has proposed the direct payments and rebates be provided by JPS, the government, or both to consumers to promote energy conservation. In the ESSIP anaysis, however, it has been assumed that incentives would be limited and that costs should be recovered (para. 5.35). Cost-Ben alnyss of DSM Programs 5.31 To provide an initial screening of potential programs, cost benefit anayses of DSM programs were caried excluding duties and taxes on both supply and demand sides. In this manner, the effect of price distortions has been removed to assess the economic potential. If price distortions caused by differentIs In taxes and duties included in the power tariff and the purchase price of appliances is not reduced, the pay-back periods to consumers would be increased and the adoption of DSM measures could be reduced by about one-third with a corresponding reduction in power and energy savings. -73 - 5.32 Potential DSM benefits were analyzed in terms of energy and capacity cost savings as part of the power sector least-cst expansion program analysis (paras. 3.3-3.4). Capacity benefits were determined as the avoided costs between the LCEP with and without DSM, based on the long-ter expansion program to 2010. Energy costs on-peak and off-peak were assessed on an annual basis. Estmated avoided capacity and energy costs associated with DSM are shown in Table S. 1. The difference in energy costs post-1997 is caused by the introduction of base-load coal-fired plant. TABLE 5.1: AvoWded Costs wish Demand Side Managemnt Capacity Cost On-pek Energy Off-peak Energy Year U.S. cts/kUh U.S. cts/kWih U.S. cts/kWh 1991-97 1S7 7.0 4.0 1998-2010 157 6.0 1.8 oge: Capacity and energy costs are measured at the high-vottage tevel on an as-sent basis, allowing for 1 percent loss at WV. Further losses of 2 percent and 8 percent increase She avoided capacity costs to USS175 and USS200/kV-yr at the AV and LV levels, respectively. 5.33 DSM ProgA Costs. Cost estimates for each DSM program were prepared for each technology for the level of savings to be achieved. In the absence of more detailed infomation, pending the results of pilot programs now under way in Jamaica, the costs and bnft associated with retrofit programs were based on the assumption that consumers Would adopt conservation neasures with a maximum two-year payback. With marketing through JPS and with greater acceptance of DSM measur as an investment, it may be possible to include programs with paybacks in the 3 to 5 year range, as done in other countries. Aggregat DSM Sains 5.34 The two DSM programs, both high- and low-implementation rate cases, yield energy (GWh) and peak capacity (MW) savings. The average of the high and low, the "mid case, was used in analyzing the power sector LCEP. The energy and peak load capacity benefits of the DSM programs are summarized in Table 5.2. -74 - Table 5.2: Potental DSM Power and Energy Savings High cm -a _ Low case ld case Year Saving of Fcst Saving X of Fcst Saving X of Fest 1995 Energy (GOh) 156 6% 56 2% 106 4% Peak (WU) 28 6% 12 3% 20 S% 2000 Energy 418 13% 140 4X 279 8% Peak (NW02 67 13% 26 5X 47 9% 2010 Energy 631 14% 224 S% 428 10% Peak (N)2 93 14% 36 5% 65 9% Note: 1. Percentage reduction from SUECO base demand forecast Table 7.2. 2. Based on an assuaed evening peek, 6-10 P.N. 5.35 Details of the DSM costs and benefits are presented in Vol. M-B and summarized in T&ole 5.2. Both the high and low cases indicate a strong economic justification for DSM individual progms having a range of 12 to 70 percent for the high case (overall average 35 percent) and 9 to 45 percent for the low case (.verall [ERR 31 percent) and benefit-ost ratios of 1.4 and 1.3, respectively. The inal rates of return are significant in comparison with the 12 percent discount rate (opportunity cost of capital; OCC), which is used to assess the economic feasibility of public sector investment programs in Jamaica. The economic merit of a DSM program in comparison to a supply project is thus apparent, having a rate of return nearly three times that of the public sector OCC. MSM PNorIes 5.36 Because the pilot programs for DSM are in their early stages, and JPS has not yet geared up to implement more extensive projects, it is difficult to set firm priorities for the various components of the overall DSM program. However, based on the results of the initial cost-benefit analysis, the potential IERR and benefit-cost ratio, and experience with DSM projects elsewhere, It Is recommended thaDSM proram priorites be placed as follows: a. New commercial and industrial buildings with a benefit-cost ratio of about 1.8, since the EEBC is in place, and benefits from initial design will be long lasting b. Residental lighting programs, since the benefit-cost ratio is on the order of 2, and various markeng strategies can be used to increase penetration c. Commercial and industrial lighting programs with benefit-cost ratio comparable to, if not better than, that for residentia lighting d. Commercial and industrl retrofit programs other than lighting, requiring detailed energy audits, engineering design, and financial intmdiation (benefit-cost ratio about 2) -75 - e. Sodar water beating, which requires further cost reduction and financial intermediation to make it sumffciendy attractive to most consumers. Reshdeadl DS Progran 5.37 In the residential sector, where individual savings opportunities may be high in percentage terms but relatively small in absolute terms per household, it may be necessay to promote DSM programs heavily. Taken as a whole, the residential sector offers a large potential for energy savings, particularly In lighting and the recent zero rating of the GCT for fluorescent lamps will Improve the attractiveness of lighting programs. Some power companies in the United States offer rebates for the installation of compact fluorescent lamps or undertake direct installation programs at nominal cost to consumer to increase the rate of penetration and ensure the most effective installation of the lamps. This approach is not recommended for JPS unless costs can be recovered from the consumer through monthly billing. Refrigeration and air-conditioning programs are to be covered primarily through public information campaigns as part of the appliance testing and labeling program. 5.38 Following a review of the various options for involving the private sector, it was recogpized that it was necessary to build and strengthen the capabilities of JPS and government agencies to implement a long-term DSM progrm. GEP funding totaling US$3.8 million is expected in addition to funds from Rockefeller Fund (US$1.5 million), IDB (US$2.0 million) and JPS (US$0.3 million euvalent) to carry out a DSM Demonstration Project (a) to develop instiutions and mechanisms to assess end-use eJfficiency potential, (b) design specific programs to capture this potential, (c) evaluate the fcveness of these programs, and (d) develop capabilities to implement these programs on a larger scale. 5.39 In addition to the institution building component, the project would provide (a) technical assismce in evaluation of DSM potential, program design, and evaluation; (b) energy audits and retrofit investments in proven tecmnologies for lighting, air-conditioning, energy management systems, and water headtg in offices, industries, hotels, and residences; and (c) technology transfer relating to policy development from experienced power utilities and DSM specialists? An investigation would also be carried out through field installations of absorption air-conditioning systems in solardriven, engin-driven, or cogeneration-riven modes. 5.40 Tbe project would be implented by JPS with technical services provided by Jamaican pivate sector energy efficienc specialists trained dunng preious projects. 3.4 X*mbh awrauge* WiM New Engid Elecic SYtm, a leade DSMproW am, hw been eWMNhddwrh8 t prpwtlo tfth Power by Effioeuy SO. -76- Industrial Enwg Conservation 5.41 Oil-fired boilers are used in heavy industry (particularly bauxite) to generate electricity and process steam. In lighter industry (particularly food processing plants), boilers are used to generate process steam, and in the institutional sector (hotels, h ospitals, etc.) to provide steam and domestic hot water. The boilers are fired by heavy fuel oil (especially in large industry), and by kerosene and diesel oil in smaller installations. LPG may also be used for domestic water heating. 5.42 Under the USAID program in the mid-1980s, more than 100 energy audits were undertaken in public and private sector facilities. Many of these involved boiler efficiency testing and the identification of a range of corrections, including tuning for maximum combustion efficiency; no-cost/low-cost measures involving boiler cleaning and maintenance, steam trap and steamn line repair; fuel switching from diesel to heavy fuel oil; and higher-cost measures such as insulation, combustion air preheating, heat recovery, and boiler replacement. 5.43 Overall, it was found that efficiency testing, tuning, and no-cost/low-cost measures alone could reduce fuel use by about 10 percent at very little cost, and a considerable amount of this was performed during the program. The higher-cost retrofit measures were also financially attractive but relatively few were carried out, because of the high first cost and poor financing. Energy auditors report litte follow-up activity. 5.44 Currently, in Jamaica, all boiler owners are required to have annual safety inspections on their equipment in order to satis the licensing regulations of the Factories Inspectorate, Ministry of Labour. In addition, such safety inspections may be required for insurance purposes and by food industry inpectors. These annual inspections, which do not include an efficiency component, are carried out by private sector boiler inspectors, who each have a clientele and are paid directly by the boiler owners for this inspection service. 5.45 There is an opportunity to 'piggyback a renewed boiler efficiency testing service on the annu safety inspection program through closer coordination of MPU1E with the Ministry of Labour. This service would involve training the boiler inspectors, where necessary, to carry out a combustion efficiency test, combustion tuning for optimum efficiency, and a maintenance review and identification of no cost/low cost measures. Energy Conseraion In the Tasport Sector 5.46 Ihe transport sector is the major consumer of oil in Jamaica, projected to consume about 5.2 mIllion bbl of fuel in 1995, which represent about 27 percent of total petroleum products. Within the transport sector, about two-thirds is consumed by the road subseor, and the remaining one-third is cosumed mosdy by air and marine domestic and interational transport. The focus of the energy saegy should be on road transport, since it is the major consumer of transport fuels. -77- Mejor ChaAterics of fRed ThASpOl 5.47 A recent survey of vehicle registrations in Jamaica indicates that there are about 144,000 vehicles; the motorization rate of about 65 cms per 1,000 population (Annex 5. 1).4 Motorcars make up about 55 pacent of the fleet; trucks, 18 percant; motorcycles, 16 percent; and the remauinng 11 percent consists of vans, buses, tractors, and trailers. About 84 percent of the fleet consumes gasoline; the remainder consumes automotive diesel. Typical of developing countries are the large number of old vehicles-about 53 percent of the fleet is more than 10 years old. The slow rate of scrapping of vehicles is caused by low disposable incomes and the high cost of new vehicles with duty and taxes that can add 100 percent to the import price. The large number of older vehicles that still require leaded gasoline will also slow the pace at which unleaded fuels can be introduced. 5.48 Most vehicles are fairly small because of government restrictions on imports of cars over 2.6 litre engine displacement and the higher duties on cars over 2.0 litre engine displacement. Many vehicles are poorly maintained and badly tuned because preventive maintenance is not carried out; the high cost of spare parts resulting from high duties and taxes also deters regular preventive maintenance. The standard of maintenance is often inadequate because of poorly trained mechanics and the lack of a certification program; however, GTZ is currently supporting a training program for auto mechanics. 5.49 Although detaed figures are not available, the majority of vehicle-miles are by private car, about half of them in urban areas.5 Tne public transit system consists of a large number of old minibuses and a smaller number of new, larger diesel buses. Most buses are owned, operated (and poorly maintained) by individuals licensed by the government for specific routes. Transport Energy Conservation Options and Strategy Oons 5.50 In theory, many measures could be taken to conserve energy in road transport. In practice, however, these measures are difficult to implement, not only in developing countries but also in developed countries. Two of the generally successful sategies for conserving energy in the transport sector are to improve the fuel efficiency of the vehicle fleet, and to improve the use of the transport fleet through urban traffic management. Improving }&et Fad E lency 5.51 Vehicle fleet fuiel efficiency will increase as newer, more efficient vehicles are brought into the fleet. Reductions in the tax structure as expected under macro policy adjustments (para. 2.1) and 4. the survq was carrd ot by Peatrah to asses motor octae requirements. 5. These es,a re m baed on a J983 s*, sce rrentores are no amauabl. -78 - maintenance of high tax levels on transport fuels will encourage vehicle maintenance. MPUTE should continue to provide consumer information on possibilities for unergy savings. 5.52 The Jamaican government bas introduced a policy to permit the importation of second- hand vehicles. Given the high depreciation rates for vehicles during the first two to three years of their lives, such a policy will result in substantially lower costs for Imported vehicles, and, over time, it will help to improve the average fleet fuel efficiency, since newer vehicles are more fuel efficient. It is not expected that the scrapping rate for old vehicles will decrease significantly, since there is a high unsatisfied demand for vehicles. Urba& Thfic UnMagement 5.53 Given the high level of traffic congestion in Kingston (and to a lesser extent, Montego Bay), substatial energy savings in the 5 to 20 percent range can be achieved through a traffic management program. Such measures as one-way street systems, coordination of traffic signals, widening of busy intersections, bus bays, turning movement restrictions, and greater enforcement of parking restrictions and traffic regulation could significantly reduce fuel consumption by reducing idling time and increasing the average speed of traffic. The overall economic rate of return on such programs Is usualy quite high because of the substantial time savings in addition to the fuel savings. Road widening also may be economically justified for some routes, but there will generally be lower returns because of the high capital costs involved. 5.54 Although of significant economic and social worth, improved public transport will generally not result in fuel savings given the great difficulties in persuading people to switch from cars to buses, no matter how much the bus service is improved. Improvements in public transport, however, are needed in their own right for genera transport and busing of school children. 5.55 A traffic management program would require detailed traffic surveys in peak and off-peak hours to identify the most heavily congested road sections and intersections in Kingston. The design of the program obviously will have to take into account the capacity of the local goverment to Implement such programs. Many such programs have failed in other countries because of weak local instiutons, lack of experienL d staff, and lack of political support. Even with the assistance of external lending agencies, the local government will still have to raise additional local resources to finance traffic management programs, involving an increase in both capital ad recurrent budgets. It Is recommended dha these are legftbnate user costs dt shoudd be rewoered through generalfuel taxes or as fent#Ud road user diarges. 5.56 The implementation of a trffic management program will therefore depend on (a) the political support, both central and local, for such a program; (b) the financial situation of Kingston local council and the scope for revising the taxation system; and (c) the institutional capacity to design, implement, and monitor programs. The fst phase of a traffic management program should concentrate on development of measures that can be designed and implemented by consultants without putting a heavy burden on local manpower resources. Such measures would include the development of one-way traffic systems and widening of busy intersections, both of which should give high reuns. Other measues such -79 - as coordination of traffic signals and traffic regulation enforcement will require the development of local insitutions over a longer period. It Is recommended that MPUME, the Misniy of Transport and Kingston/St. Anne's Parish Council collaborate In studying the potentialfjr tr4ffic management. -so- VI. HOUSEHOLD, BIOMASS, AND RENEWABLE ENERGIES Overview of the Household Energy Sector 6.1 As In most developing countries, the primary household energy requirement in Jamaica is for cooking. Puel use for cooking is not confined to a single energy source, however, as revealed by an ongoing socioeconomic survey of charcoal.' This survey shows that 46 percent of households already Ue subsetution fuels (of which 56 percent use LPG in addition to charcoal, 31 percent use kerosene, and 16 percent also use wood). These results thus indicate that almost half the households have invested in the equipment to use either LPG or kerosene but prefer to use charcoal as their main cooking fuel. Subsitution fuels are used when speed is required (such as for breakfast), but charcoal is preferred becae of the taste It imparts to food. The fuel use distribution among households was estimated as shown in Table 6.1, based on the Survey of Living Conditions (1989). Eleticity and LPG are the principal fuels for roughly one half of the population who make up the middle- and upper-class households, and the remaining predominantly lower-income households use woodfuels and kerosene as as primary fuels. TABLE 6.1: Overview of EwW Use in the ResWontkd Secdor (1990) Pr1mry Prlmary End-use cooking fuel werov Lsed ___A2S Total yaIl. Po2u.alm.lo PJ Pi X mIlltonJS '000 X Charcoal 7.7 56 1.5 21 103.0 22 268 12 Firewood collected 2.0 15 2.0 29 0 0 280 13 LPG 1.7 12 1.7 24 225.3 47 939 43 Kerosen 1.6 12 1.6 22 74.5 16 558 25 Electricity 0.6 5 0.2 3 71.9 15 131 6 fIreWood -rhased -Li I 0 0 14.3 i Total 13.7 100 7.1 100 474.6 100 2,190 100 6.2 In rank order of primary energy use, woodfuels (wood used for charcoal making plus wood burned directly) accout for approximately 75 percent of total, petroleum fuels for 21 percent, and electricity for 4 percent.2 In terms of monetary value, LPG accounts for 47 percent of the total worth of J$475 million, charcoal for 22 percent, kerosene for 16 percent, and electricity for 15 percent. In terms of end-use L hprovd Carcol and erowsm os Project (1CWSP, 1991, MMET/UNDPISAP), a srvy of 240 howehok In f2 Imakan paroishe. - 81 - energy, wood (collected free of charge) accounts for 29 percent, LPG for 24 percent, kerosene for 22 pecent, charcoal for 21 percet, and electricity for 3 percent.3 Ad hiig 6.3 For consumers, kerosene is the most attractive fuel at subsidized prices, as shown in Table 6.2, with a cost 0.13 J$/Mi of end-use energy compared with 0.23 I$/MJ for charcoal, 0.30 J$/Mj for LPG, and 0.50 J$/MJ for eecticity, including annualized costs of stoves. Electricity i delivered at its approximate economic cost, but deregulated LPG retail prices are high compared with markets of simlar size In other countries. The LPG price is high in large measure because of wholesale and retail margins that account for about 40 percent of retail price. Kerosene is cross-subsidized within the ex-refinery pricing structure by approximately 35 percent of economic cost. In the medium term, this subsidy is justifiable on environmental gounds, as it provides an incentive not to switch to charcoal for the 25 percent of the population using kerosene as a primary cooking fuel. Initial indications in ongoing survey work show that kerosene is used inefficiently. Removal of the kerosene subsidy would encourage the use of more fuel-efficient stoves so that there would be some offsetting of the higher kerosene prices. On the other band, consumers could switch to charcoal as a primary cooking iel.4 TABLE 6.2: Comparve Costs of Household Fid (March 1991) Fuel Cost of Fuel Cost of Delivered J$INJ Energy, nct. Amstized Stove costs, JS/NJ.,U Wood 0 Kerosene 0.05 0.13 Charcoal 0.08 0.23 LPG 0.13 0.30 Electricity 0.33 0.50 Not: By March 1992 rel primes of all fuels had inreased subsantialy in nominal terms but only the price of clectrcity had inreased in real tems. Retil prices for fuels incrsed in thX perod Manrh 1991-March 1992 as follows: LPG, 110 percent; kerosene, 9 peent; charcoal, 60 percent; eectricity, 154 percent. The consmer pdoe indexes increased by 110 percent. In real terms, price changes for the sme period wre: LPG, no change; kerosene, -48 percent; charcoal, -24 perent, electicity, +19 peroet Relai price changes would then encourag a swuith to lowerco fAels, pa touauly since real houehold incomes declined n the period. Sot.rcw MME, mision eatimates 3. ThL doe not tak b ount the thernal kckn of convmion fom petroklem and woodjkel to eecrcity and dhmo4 reawetIwy. 4. 1Wa are der w toitr koenweos t woud be lOto 20percentmore fent tan dosepreseb yn WE. -82 - Woodfuels Wood Use asd Resourcss 6.4 Despite the fact that woodfuels account for roughly three-quarters of the primary energy use, half of enrg end-use, and one-ffth of household expenditures on energy, they have largely been neglected both for energy accounting and planning purposes. Their importance in the economy Is thus clear, and woodfuels should figure more prominendy in energy sector policy. At the same time, it is equally clear that the woodfuels sector Is considerably more difficult to manage than the petroleum or power sectors because of the large number of independent operators working in an unregulated market. 6.5 Commercial woodcutting for all uses takes place on government lands, whereas woodcutting for charcoal production takes place on either government or private lands, mainly in dry woodland areas on the fringes of remaining productive forest areas. As a result of the growth in charcoal consumption-estimated by the Department of Forests to have increased 2.6 times in the last decade- serious degradation of soils is now occurring where cutting is concentrated, often In fragile watershed areas, and the additional environmental pressure caused by charcoaling is apparent.s 6.6 The total volume of wood harvested for all purposes can only be estimated, as no reliable data are available. The two current estimates show the order of magnitude, which is approximately 750,000 rA' per year." Of the total amount, some 64 percent is used to make chareoal, 16 percent for construction purpose and in commerce, and the remainder for firewood 7. 6.7 The actual extent of woody biomass resources also remains largely unknown. Several estimates have been made, mostly based on a 1971 aerlal survey.' In terms of area, a total of 2,280 km1 of forest now rean, of which 17 percent is well stocked and the remainder ruinate. The total standing stock was estimated at 21 mIllion tonnes, of which 25 percent Is well-stocked areas.9 The NFAP estimated that 3,000 to 5,500 kml2 with tree cover exist, with less than 700 km2 undisturbed forest and 2,670 kai of forest with commercW potential. Although these latter figures are much higher, the total annual increment is the same order of magnitude as estimated by Agrocane: 1.06 million tonnes. ESMAP, 5. Frm , 19O0 toe n 1980 to 49,000 toe 190 for residnl use. Commercal e In resaurants ccow, is eated at an azd 20 to 30pen. 6. De Natond Foreay Ac Plan (19O) esdmate ta te toal ana wood harvested in 1989 was 725,000 in, 84 prcen of wch wa wedfor ery prposes and de remaderfor contrcon etc. Baed on data obtainedfrmn e Sv qf Lii Condii (19) it was estiaed dW totlI 1989 amo of woauel wedfor aU purposes is abou 780,00 n, or 65,00 MIAT. 7. Colld by houwhosfree /fcharge. a Foresty hivey cJmalca, iwson, Jamaic, UVDPIFAO Proectam 5, Techncal Rpot 8. 9. U&SD/govrnn /Jamaka oretResoturcAssessm Project,* Agrocane La, gston, Sp. 1983. -83 - based on field data obtalned from FIDCO, estimated the annual increment more conservatively at 0.7 mfllion tonnes.' Although the annual increment is tual or larger than the total demand, deforattation problems occur regionally. Thus, the likelihood that wood can be a sustainable source of energy is high If these regional problems can be solved, particularly if tree outside the forest (i.e., on farmers' lands) are taken ito account. Tlis would include a total of approximately 8,000 km2 of scattered trees that could yield an additional 1.2 million tons annually. 6.8 A National Forestry Action Plan (NFAP) was designed to highlight priority activities in the forestry sector. Potential funding agencies have expressed concern that the plan should be more tightly focused and that Institutional strengtening is required before the NFAP could be effective. The matter has not yet been resolved, however, and, at minimum, an inventory of forest resources should be carried out immediately. 6.9 Charcoal is not the cheapest fuel available to Jamaican households, as it is in many countries (Table 6.2). For urban households, charcoal thus appears to be a fuel of choice instead of the fuel by default. Both wood (which is collected freely and has no real negative environmental impact)'l and keoene (which is subsidized) are considerably cheaper to consumers on the basis of delivered cost per MJ of end-use wtergy.12 The preference for charcoal has quite evident environmental implications, as charcoaling accounts for approximately 64 percent of total wood use. 6.10 Charcoal users pay litde if at all for the resource value of the wood component in the cost of charcoal produced from wood harvested on public lands, and they do not pay for a provision to alleviate the environmental damage caused by clear cutting in fragile areas for the production of charcoal. Even though, In monety terms, the chacoal market is larger than that of kerosene or electricity, there Is neither government inervention nor regulation to capture the economic resource cost including the cost of envIronmenl protection. 6.11 Stumpage fees are frequently levied on woodcutting in other countries and are designed capture the resource cost on behalf of the state. For example, if a tax equivalent to 20 percent of the retail value of charcoal were levied and fully collected in Jamaica, the proceeds would be in excess of J$20 mfllion per year. This level of taxation would make charcoal equally expensive as LPG, the next-best fuel. Experience In other countries with the collection of stumpage fees or other forms of taxation, however, ha been mixed, and it is uncertain that the government would have any greater success in collecdng stumpage fees direcdy. 10. ImaIca.m arcoal Plcton Pwoect, Septber 1988, Report Ao. 090/88. 11. Fad wod & xab coleed as dead wod or by 1rmna brace rather an cWng dow the *ole tree. 12* Woe *a ; K ene: 1*O.13/MA; C0.rL I23/MJt LPG 0. 140AMJ; Ecriciy: J$0. SO/I. - 84 6.12 Perhaps more important than capturing the economic value of the harvested wood is the need to ensure that replanting occurs. As an alternative to attempting to collect stumpage fees from individual woodcutters, It is recommended that a study be carried out to assess the options to improve forest management, including replanting. The feasibility of auctioning timber rights on public lands should be cowsidered for investigation with incentives and penalties for performance for replanting.,, In this manner, the concessionaire would be responsible for managing the forest and would ensure the collection of stumpage fees from woodcutters; this cost then would be passed on to final consumers. Stumpage fees are preferable to a tax on charcoal because they encourage higher efficiency in kiln operation. Petroleum Fuels 6.13 Both LPG and kerosene are used by households for cooking. LPG is used by 43 percent and kerosene by 25 percent of the population. LPG is economically a more expensive fuel than kerosene when costs of fuel supply, distribution, and appliances are taken into account. To the consumer, LPG costs are disproportionately high compared with kerosene, even if the subsidy on kerosene is abolished (Table 6.2 ), as the margins for LPG distribution and retail are unusually high. Economically, and to the consumer, kerosene is the cheapest household energy source (apart from wood, which is little used). The recommened energy strategy, therefore, focuses on kerosene as the primary fuel of choice for lower- income groups, not only because of economic priorities but also because of its social and environmental implications. LPG 6.14 LPG at the retail level is more expensive than it should be. It is not subsidized and is within 10 percent of the ex-refinery cost of kerosene. The LPG price structure shows an unusually high component for marketing, distribution, and retail margins.14 Ex-refinery, LPG costs J$0.054/MJ (including refinery margins and costs, taxes), and retail/distribution adds J$0.82/MJ. For comparison, for kerosene, these figures are respectively J$0.049 and J$0.014 per MI. The distribution and retafl of LPG requires more specialized and expensive equipment than kerosene; however, even if one assumes that distribution/retail costs of LPG are limited to twice those of kerosene, the approxhnate economic LPG price woud be J$0.083/MJ (J$1.68/IG), compared with J$0.058/MJ (J$9.22/IG) for kerosene. From an economic view-point, kerosene would still remain a more attractive fuel than LPG. Kerosene 6.15 Household kerosene is retailed at a controlled price J$7.5f1G, compared with the deregulated retail industrial kerosene price of J$11.3/IG. The subsidy reduces the incentive for lower 13. 7lhuer con ol of charoalg on public ladi may be pouible; however, trespass and theft s a chronic problem in JW*41a fior prite lad owmer. 14. The sorce k ME da, iuch, woruately, camt be brok dowm Ino cosm and margins. - 85 - income households to use charcoal by virtue of a price differential. Indeed, if all kerosene-using households opted for charcoal as a result of a diminished price differential, the total wood consumption would roughly double. It is clear that such charcoal use could even further aggravate regional evironmental degradation and would not be sustainable on a long-term basis. 6.16 Until April 1990, domestic kerosene was distributed in bulk through service stations and by kerose peddlars. The large price differential created a strong incentive for adulteration of gasoline and diesel fuels for transportation. Indeed, it was esumated that total consumption of kerosene decreased by 38 percent over the same period in 1989, wh keosee sales through service stations were suspended to discourage adulteration of gasoline and diesel fue. The kerosene consumption was estimated at 1.441 million barrels per year (1989-90, of which 28 percent was attributed to residential use, or 405,000 barrels); projections for 1990-91 show a total consumption of 1.491 million barrels (with 15 percent for the residential sector, or 220,000 barrels). The present solution of controlling the supply of kerosene by distribution in small drums and through small retailers rather in bulk through service stations has been effective in reducing the apparent amount of adulteration although at considerable cost in management time and transportation inefficiencies. 6.17 Introducing kerosene stamps and efficient kerosene stoves are alternatives to maintaining the present household kerosene subsidy. The use of kerosene stamps as a means of targeting the subsidy to low-income groups would permit the setting of the refinery billing price (ex-refinery price plus consumption taxes) for both industrial and domestic kerosene. It would be less costly to distribute stamps than to package and distribute kerosene in small drums. The essential difficulty lies in identifying the target beneficiaries; however, the existing food stamp program managed by the Ministry of Labor, Welfare, and Sport covers about 15 to 20 percent of the total population, comprising low-income households." Coverage of the program is being broadened and the administration strengthened through the addition of about one hundred additional staff. Further studies are to determine the feasibility of removing the kero subsidy and replacing it with a kero stamp program. 6.18 Pressurized kerosene stoves, which are about 10 to 20 percent more efficient and considerably safer than existing stoves, are readily available on the world market. Testing of kerosene stoves is under way, and preliminary results indicate that models currendy available in Jamaica are low power (i.e., slow in heating) or higher power but cumbersome to use. As with other household appliances, it is important to provide both consumer protection and to ensure energy efficiency in the national iterest. It Is reconmended, therefore, that an ongoing program for certing the stfety and effkky of kerosene stoves shoudd also be incorporated In the appliance labeling and testng program ta has been established at the Jamaica Bureau of Standardsfor electric and LPG appliances. 15 Howhofds with chilSen underfive years, pregan or lacftkg modters, and houwides qaal*bWg on the basis of a eas te are eible fOJrfdas. Coverage of the progra has been assessed hrogh dhe Living Condkons Swy. -86 - Renewable Energ 6.19 MPUTE, with GTZ support, has receny completed an evaluation of all renewable energy options, assessing their potential In the medium and long term. Options of obvious economic interest include solar water heaters; micro-hydro In some locations; solar drying; and, for limited applications, photovoltaics. Options not of economic interest from the energy point of view, but possibly justifiable on other grounds, are windpower (small-scale applications) and biogas. Options not likely to have an immediate economic justification such as solar cooking, geothermal, and peat (not strictly a renewable energy source), will be addressed also. In addition to evaluating the different options and determining their rdevance to Jamaica, the MPUTE/G7Z study will also propose an action plan for implementation and commercialization of the most interesting options. 6.20 A demonstration project now under way at the Bernard Lodge sugar factory has shown the technical feasibility of producing charcoal briquettes (biocoal) from bagasse using retorts that also provide fuel gas for sugar processing. It Is estimated that with this process in multiple plants, conversion of 10 percent of total bagasse could supply 10 to 15 percent of the total charcoal demand. The plant is about to go into commercial production. Further evaluation of economic feasibility is required after about 12 months of actual production and considering the transport cost to market."' 6.21 Investigations are currently under way to establish a 20 MW windpower generating facility as a private BOO scheme and study results are expected in mid 1992. The feasibility of the project will be determined on the basis of the buy-back tariff to be established by JPS. The avoided costs assocated applicable to the DSM program (rable 5.1) are relevant as well for wind power and other renewable energy conversion projects. Policy Options and Strategies 6.22 On the basis of the foregoing analysis, the recommended strategy in the household fuel area is as follows: a. Carry out a wood resources inventory as quickly as possible under the NFAP; estimated cost, US$250,000. b. Use the invernory project as an institution-building vehicle for the Forest Department with furither data collection in wood use (commercW lumber, land clearing, charcoaling); estimated cost, US$125,000.17 16. in md-W1992, Natwl Cane Puas Ltd. aoew to er t maket to seU carbonled bagasse briquenes at a prce -7. wMh weod charcoaL 17. CIDA hujinaced aerWplwogrqh, usJkh we mdertaken in lte991. -87- c. Conduct household energy surveys every three to five years, to be carried out by consultants for MPUTE as the basis for reviewing pricing (including taxation policies) on household fuels; estimated cost, US$85,000 per survey. d. Investigate options for collecting stumpage, such as the auctioning of timber rights on public lands with a condition that replanting must be carried out; estimated cost, US$150,000. e. Test and certify kerosene and LPG stoves for safety and fuel consumption as part of the lBS appliance testing and labeling program; estimated cost, US$50,000 for laboratory and initial tests. f. Carry out a study to seek means of reducing the cost of LPG to consumers covering all aspects of c.i.f. cost, and bulk and retail distribution; estimated cost, US$35,000. g. Carry out a feasibility study to apply consumption taxes to domestic kerosene to raise the refinery billing price to that of industrial kerosene and provide an equivalent subsidy through the food stamp program. - 88 - VII, ENERGY AND THE ENVIRONMENT Introductlon 7.1 The govarnment of Jamaica is filly aware of the importance of the environment to Jamaica's economic and socW development and is takiing essential steps to address these issues. In addition to the obvious need to mainn the quality of the environment in support of key economic sectors such as agriculture and tourism, popular concern is strong and growing for environmental protecdon and clean-up as the basis for sustainable development, and many people are aware that without proper mJangeme, maica could suffer irreversible environmental degradation, as has already occurred on other Caribbean islands. 7.2 Inevitably, however, trade-offs must be made between environmental protection and economic growth. Where the costs of environmental damage and protection can be quantified, they can be intemalized in the economic evaluation of projects, thereby influencing the technology choices and ultimately the prices charged for petroleum and electricity. Where it is not possible to quantify and internalize emironmental costs, It is necessary to set standards for emissions and effluents to reduce the Impacts to tolerable and consistent levels. Intenational organizations such as UNEP and the World Bank have developed guidelines that continue to evolve. Countries may themselves wish to apply more ingent environmental standards; however, World Bank guidelines bave been accepted by many development ageniles as a miimm requirement for project design and are recommended as interim standards for Jamaica (applicable standards for energy projects are shown in Annex 7.1). Environmental Istitutions Mar of Fiance, Deveopment axd Pwdng 7.3 The Ministry of Finance, Development and Planning (MFDP) was responsible for environmental affairs and was instrumental in setting up a secretariat for the development of a National Conservation Strategy (NCS). The Secretariat, with support from UNDP and CIDA, organized a consultation workshop in April 1990 to guide the process of developing a national conservation strategy with the goal of establishing *a framework for sustainable development." Ibis workshop involved government, the private sector, NGOs, and international agencies concerned with environmental issues. Recommendations were made by the conference for the continued Involvement of public and private organizations at all levels in the process of devloping the NCS and an action plan for its implementation. - 89 - Naonal Raesous Conervatin Authodly 7.4 The government of Jamaica, through the Ministry of Tourism and Environment, is setting up the National Resources Conservation Authority (NRCA) as the principal agency responsible for 'the effective management of the physical environment' fllowing passage of the enabling legidation, the National Resource Conservation Authority Act, in early 1991. Of particular relevance to the energy sector, NRCA has the responsibility to (a) develop, implement, and monitor envirornental protection programs; (b) formulate standards and codes of practice including those relating to emissions and effluents; (c)investigate the effect on the environment of polluting activities and take appropriate action; (d) undertake studies and promote relevant research; (e) carry out training programs of a general nature; and (f) do anything that In the opinion of NRCA is necessay to perform its functions. 7.5 Under section 10 of the Act, NRCA has the authority to request Environmental Impact Asssments (EIAs) and construction permits for new projects, although they are not mandatory. I Is recomnended ta a schedule ofproject types should be drawn sp by NRCA wih the assistance of the Energy/Inironment Steering Committee para. 7.9) to determine the nature and size of energy projects for *hEs andpems wld be mandatory and the dmetablejforndingsby NRCA. At a minimum, power generation projects over, say, 10 MW; petroleum refining and bulk storage, and mining and mineral processing projects should be subject to environmental assessments before construction. It is esential that a firm timetable be followed by NRCA so that private sector investors would not face unceranty or incur undue expense in fulfilling environmental requirements. 7.6 NRCA also has the power to require industries to monitor the pollutants they discharge and to impose fines and imprisonment on offenders. As part of its broad power for natural resource protection, NRCA can order cessation of harmfil activities and require restoration to original condition. Its powers also could presumably include forest management and regulation of the charcoal industry. Other Government Agencies 7.7 The Natural Resource Conservation Division (NRCD), under the Ministry of Agriculture, has been responsible for much of Jamaica's environmental management work until now. Its functions cover management and policy aspects rlating to wildlife, watersheds, coastal zone protection, and national parks, including survey and investigative work. Its present resources are inadequate, and it wfll become part of the newly created NRCA. 7.8 The Environmenal Control Division of the Ministry of Health is responsible for monitoring pollution sources, setting standards, and carrying out assessments of waer quality, effluents, and emissions. A recent ECD paper has identified the principal sources of air pollution in the Kingston area para 7.20).' L Air PolNaioe, Wwwr; IM Paper prewnd a the NCS Co*ah WWWo. -90- ae,rUEavIswmeat Steew CoedatWee 7.9 The recendy established Energy/Environment Steering Committee is headed by the Pemanent Secretay and includes representatives from NRCA, JPS, and MPUTE. This committee is an outgowth of the. committee established to guide the work of the siting studies and environmental impact assessment of the proposed coal-fired power station. It has now been recognized, however, that the committee should address energy and environment issues more broadly rather than focusing narrowly on a single power project site and technology. Under the Act, NRCA would retain final authority to give rligs. Oher Agencies 7.10 Various nongovemmental organizations (NGOs) have been formed or have become involved in environmental issues as activists and focal points for public concern. Institutions such as the University of the West Indies (UW) are undertaking environmental research, and the Environmental Control Division of the Ministry of Health has carried out some air-quality monitoring studies. It is understood that one community service club is using moald suasion to encourage its members, many of whom are industry and business executives, to deal with pollution problems created by their firms. Petoleum Corporation of Jamaica and the Petrojam refinery have established a monitoring program and are now maing budget provisions to clean up oil leaks and cut emissions (para. 7.14). Energy and Environmental Issues Grneml 7.11 Two key issues hinder environmental protection and cleanup: the weakness of institutions to deal with the problems and the lack of baseline data concerning water and air quality. A major step has been taken by establishing NRCA as the focal point for these issues and by giving it broad powers to deal with the complex interdiscipUmary problems. Progress has been slow, however, in finalizing the national conservation policy, physically seting up and staffing the NRCA, and providing the funds needed to carry out the work program that has been identified so far. A proposal for a technical assistance project has been prepared, but finding has not been fully obtained. 7.12 Environmental issues by fuel type are readily apparent in Jamaica and are summarized below. Details are provided in the subsector chapters together with recommendations for specific actions. -91-- hIues y Fad Type 7.13 Chmar . The clearcutting of forests for land clearing, charcoal production, and other uses is estimated at about 37 acres per day and is a significant contributor to soil erosion and water runoff in river basin catcbments.2 7.14 Petrkwlu. Petroleum supplies 90 percent of the commercial energy in Jamaica. In the supply, refiing, and distribution of petroleum the principal problems relate to oil spills, deliberate disbcharge into harbors, and seepage from storage tanks into groundwater as well as atmospheric emissions from combustion. The possibility of major oil spills from ships off the coast of Jamaica also exists. Such spills may not necessarily be related to national energy use, but provision must be made to deal with them. The refinety itself is a source of pollution and steps can be taken quicldy and at relatively low cost to reduce effluents and oil leakage from entering Kingston Harbor or seeping into the ground water (para. 3.59). 7.15 The cleanup of Kingston Harbor is a priority, and action is being taken under the direction of an Interminial Steering Committee. Provision for cleanup of effluent discharges into Kingston Harbor from power plants and the refinery have been made in subsector planning (paras.3.71 and 4.26, respectively). 7.16 The combustion of petroleum is the main source of pollution in the form of SO1, NO, and particulates. The control of SO, at the point of combustion is expensive, however, involving the use of flue gs desuiatio equipment that is not cost-efective for existing equipment and expensive for now plat. The present sufur specification in heavy fuel oil as used by JPS and the bauxite companies is 3 pert by weight. Although it is well known that SO, is the primary cause of acid rain, the extent to which acid rain is a significant problem in Jamaica is not known. C1DA intends to fund an emissions inventory and impact assessment to determine in particular if the sulfur specification for HFO should be reduced. The stdy will be based on the Draft Terms of Reference given in Annex 7.2. The most cost- effective means of control will be through the restriction on the crudes processed by the Petrojam refinery. A requirement for lower-sulfur fuels would raise the cost of all petroleum products refined locally because lower cost, high-sulfur Venezuelan crude provides the cheapest petroleum products. 7.17 Control at source is the primary means of dealing with NO,, and particulate emissions. The major sources are power production, industrW boilers, and vehicles. The recent introduction of lead-free gasoline and a phase-out of leaded gasoline recommended by the year 2000 would eliminate the health hazard asociatd with leaded gasoline.3 2. Fora*y an WaAed Margagn, L Aln Eyre, UKI; I9Stpapewprnsetd at th Natna Con*ervatlo &rsa 3. La k xsed as ax octane enhancer; hover, a_iufrou lade gasowin are tavio and ca retd th mead devepwm of yog dle -92 - 7.18 Power and lndwa Sectors. The principal emissions are NO, and particulate. In addition to SQ.. Particulate emissions are a result of incomplet combustion resulting from poor boiler tuning and mait_ece. Effluents and boiler blowdown contaminan will enter the sea or groundwater unless collected and treated. In the case of electric power production, a thermal plume will be created by seawater cooling that will affect the ecology of the surrounding body of water. These problems can and should be handled through proper design in conjunction with environmental impact assessments of proposed projects. 7.19 Road Transport Vehkkes. Vehicles are responsible for emission of NO,,, particulatew (mainly from diesel engines), and lead (from leaded gasoline). Old design and badly tuned vehicles are the primary soutces. A phase-out to unleaded gasoline by 2000 is recommended and can be achieved by importing increasing quantities of unleaded gasoline or by upgrading the refinery (para. ). Vehicle tuneups and fleet upgrading will be the principal means of reducing NO. and particulate but will be achieved only in the longer term. 7.20 Other Sources. Other sources of particulate emissions, notably the cement plant and the buring of garbage at dump sites and throughout Kingston, are major contributors to the smoke haze problem, which develops particularly during tempertue inversions. There is an obvious need to Improve waste management and reduce or eliminate these emissions. Treatment of the municipal waste problem will have an immediate and greater impact and be more cost-effective per unit reduction of pollution than placing stringent controls on power plants and industries. Energy/EnvIronmental Strategy and Action Plan 7.21 The recommended environmental strateg and action plan for the energy sector consists of six elements: a. Coring out Environmental Impact Assessments for new energy supply projects b. Cleaning up existing sources of pollution c. Pollution abatement dtrugh conservation and energy efficiency improvements d. Strengtening institutions responsible for environmental mangagement notably NRCA e. Establishing baseline data for air quality and forest coverage f. Identifying enviromental zones and setting standards according to the particular requirements of the zone (e.g., Kingston metropolitan area, tourist areas, bauxite mining areas, etc.). 7.22 Eavwuneual Impadt Assessments. EIAs are now mandatory for all energy projects begining with the 3 x 20 MW low-speed diesels to be financed under the PSED project. The baseline - 93 - uviromnental studies are expected to be started by late 1992 or early 1993 for the proposed coal-fired power plant at the Salt River site to verify the suitability of the site before calling for proposals from private sector developers. This study is on the cridcal path for project preparation. The Energy/Environment Steering Committee Is responsible for approving the terms of reference and for supervising the execution of the ETA according to authority delegated from NRCA. 7.23 The private sector developer would be responsible for submitting an EIA for the technology and plant layout, infrastructure and waste disposal proposed and should be assured of a ruling from the EESC within a specified time period-say, 8 to 10 weeks. TORs for the EIA would form part of the RFP package. 7:24 CleanW of Rx&stg Soures of Pol uton. Environmental improvements should be carried out at JPS power stations and the refinery as soon as possible to reduce effluents to Kingston Harbor and atmospheric emissiois.4 Capital expenditures to clean up the refinery should be carried out befbre selling it to a private operator to remove any concern for liability the buyer may have. Provision has been made in the government of Jamaica's Public Sector Investment Program, which includes funds for meeting environmental standards at the refinery based on an environmental audit being carried out as part of the privatization studies. 7.25 Further baseline studies are required to set appropriate standards for other industries, including the mining sector (para. 7.29). 7.26 Polution Abatement omgh Conservation. Energy conservation and efficiency improvements are necessary components of an environmental protection program and should be pursued on both economic and environmental grounds as a matter of national concern. At a macro level, energy pricing including the setting of axes must reflect economic costs including environmental costs. This policy will be most difficult to implement with respect to charcoal, both socially and adminstratively; however, pricing is a key element in promoting energy efficiency improvements and reducing demand. 7.27 kt the international level, energy conservation and efficiency improvements are among the principal means of reducing emissions of NO, and C02, which are associated with the greenhouse effect and global warming. To that end, the Global Environment Facility is expected to provide financing for JPS's Demand Side Management Demonstration Project. 7.28 In onal StrengthenIng. As quickly as possible, NRCA should be staffed with sufficient expienced personnel to carry out its mandate. CIDA is presently planning an environmental program that will include assistance to NRCA for training and the development of regulations. A recommended work program to gather the necesary baseline data for the energy sector and serve as a vehicle for institutional development is set out below. 4. repcraV s of an eImronmntagadow s*t Is a condo of fectivensfor the World BDak E P tam -94. 7.29 Bselw Data CoUection. In addition to the need for specific environmenal impact assessments (para. 7.22), there is an immediate requirement for the following studies: a. Mapping of emissions sources and essment of effects of acid rain on an Island-wide basis (Annex 7.2). b. Monitoring of ambient air quality in the Kingston area c. Mapping of forest resources under the National Forest Action Plan. 7.30 Seltng Ennmentd Stanas. Where environmental stndards have not yet been establsW, It Is recmmendu that World Bank guidelines be accepted as the basis ibr energy sector planning. Based on costs and benefit evaluations using the baseline data to be collected, the need for revising the interim standrds should be assessed according to the requirement of each eavironment zone. 7.31 Ongoing Monitoring. Provision must be made In staffing and budgeti for NRCA for ongoing monitoring of air and water quality throughout the island. The need for monitoring will be greest in the Kingston metropolitan area, where population and industrial concentions are the highest The benefits of establishing the NRCA and giving it authority under the Act will be realized only if an ongoing monitoring and enforcement process can be put in place. AnnexU- Jamaca Energy Balance, 1990 (000 barrels of fuel oil ezuivalent) 1- 1 ! 31 X t a 3 ~~~~~~~ ~~ ~-- - 1-- - -1- - --11 ~~ --- - -]-----ill-- bil -ilx t ii ; i t l-l--'-§-1--- -- - --- -- - --- - - -- - - - - - -l-- l- -- 31 1~~~~~~~~~~~~~ V--- i l- w i -!-----. -1- - -- - - - , - -.--- t 1 9! 1 ! ! ! ! U ! I ! ! ! ! ! I ! I I S§ ! ! I ! ! I S i ! ! ! !^ SF W 'i I I IJ_Ii 2f Ji,, ,- I-IT== HI -|- - 1- --1 lllq--- ---- -----u5x-ill*-l 1M- 1 -- 11 - -1t- - [1- 1-1 ----I1-ll - ! i l a - l- l l-l-- -- JiL ui- L -…- …~*1 t ----l0q05a-~t ~~IlZll0jl I1'I ! -~--1 -!-! ---I--!---li j~~~l 21| -!| I-I-9-- -ir -;~;~ Saj ;~1 ----- ----tl-03---:----;-;-l----I ' -'-- F ifL ll l , ,X ll, 1l l! Illlllils: a MISTRY OF PM & m Oftoe o the Mhs te 36 TrfulguRO4id Khngto 5, janfce Telphone, 9496170.9 January 15, 1992 Mr. Joseph Gilling, ESMAP Strategy and Programs Division The World Bank 1818 H Street N.W. Washington DC 20433 Dear Mr. Gilling: Jamaica: Energy Sector Strategy and Investment Study - Review and Comments I thank you for the signed version of the Aide Memoire, a draft of which was distributed at the wrap-up meeting held on September 27, 1991. I take this opportunity to commend you and your team for good work on the preparation of the ESSIPS report which should serve as a background document in drafting our energy sector policy and strategy. 2. The analyses and suggestions contained in the draft report and discussed at the wrap-up meeting on all but the refining sub-sector were accepted as presented. However, PCJ and Petrojam had raised queries with regard to the accu- racy of information and disagreed with some of the recomnnda- tions contained in the pertoleum and refining sections of the report. 3. My Ministry has now received a formal response from Petrojam to your draft Aide Memoire of september 27, 1991. x am enclosing these comments and ask that you review them and wherever there are errors of facts or figures, you make the necessary corrections in the report. 4. Further, regarding the petroleum and refining sector, your report concludes that the continued operation of the refinery forms a part of the least cost petroleum supply option for Jamaica. However, in the past the refinery has not run at optimum operational capacity. Within the context of the general privatization and liberalization policy of the Government of Jamaica, we need a short to medium term strategy to deal with the issue of bringing the refinery to its optimum operational capacity (irrespective of its ownership status) while ensuring its continued operation during the transition period. Mr. Joseph Gilling The World Bank January 15, 1992 5. I suggest that your report outline such a strategy and that you recommend a course of action which may be considered under the proposed refinery privatization study to be commissioned by the World Bank. 6. With these amendments to the petroleum/refining section, I suggest that you finalize the report and submit 500 copies to my Ministry. Thank you and best regards. Yours sincerely, Robert Pickers ill, M.P. Minister I' Encl. c.c. Messrs. Graham Smith (LA3IE); Ibrahim Elwan (CFSPS); & Denis Benn (UNDP) PEFROJAM UM TED * 94 MAR=CU ABYI aavt UL BOX 241, IDW(G~. MAMArCA September 27, 1991. The Hon. Horace Clarke Minister of MInIng and Energy 36 Trafaigar Road Kingston 10 Oear Mlnlster, We have received a copy of the September 23 letter seat to you by Mr. GliIng of the World Bank, and would like to add thelfol low- Ing coennts to his letter (a coPy of which Is attached). 1) The Table Indlcating the net TOTAL cost to Jamaica, Wherein some US$5 millon per year In additional co3tS has been Incurred due to underutilizatlon of the Refinory over the past fIve years, underscores the Importance of Refining versus finished product Importa- tIon. The recommendations as. presented In the reaort for carte blanche Import liberalization can only lead to decreased Refinery utilizatlon, and attendant Increased cost to the Country. We are In principle In agreement with deregulation. However, In this particular cir- cumstance, we clearly see the mochanism (Import llberalization), and the cost, but cannot see what gain or objective Is $o be accomplIshed by It. 2) Refinery utilizatlon, partlcularly over the last five years, has been less than desirable for a varlety of reasons detailed In our orlginal response to the Bank's Working Draft. However, presenting the average only Is misleading. Attached Is the historical utilIzatIon abstracted from the Bank's own report, and updated for the first five ; months of fiscal 1991. The data shows a continuous and - consistent Increase In utilizatlon from a nadir of 38% In 1987 to a current utilization of 68%. This compares to the.average of 48%, and the Ideal sItuatIon of 83%. Additionally, the Bank had confirmed the Identification of one of the Ref Inery processing units, the Reformer, as being the major bottleneck In utilization. Our Reformer Upgrade Project, to eliminate this handicap, will be completed by year end. D3W C& L Ca_s (Oa_W CuII CMpbd DaCOa ILL pmsm (MumgIa D& Vama Lawumt_ om. 3i Umi.mW And= Nw4wA C-0- P00w4 IVIIWU P1 0 . ,PAG WV 3) The letter suggests that since the US$3-4 million San Jose Accord benefits are applicable to finished products, this savings Is Immaterial to total petroleum costs..' i However, this saving accrues to the GOJ only. Under the recommended Import liberalizatlon, there Is no Incen- .tive for Importers to source product from Venezuela I, * versus other supply options. It Is therefore probable that the bUlk of this saving would be lost to the country. 4) We note thr.t neither the Letter nor the Report disputes the signiflcant foreign.exchange savings tncurred by Petrojam. The World Bank letter charactertstically omits to mention that - even at the underutilized level Indicated In the Letter, the 45% of the US$13.9 million that Is local costs, or approximately US$6 mllIlon per year, In additlon to the Accord benefits of USS3-4 million, still add up to a significant US$9-10 millilon per year of foreign exchange savings. 6) It also ought to be polnted out that the World Bank In this latest aspect of Its study and report Is using current prices of feedstock and products at a time when margins are much lower than they would be on a year average basis. However, despite this, as mentioned In 4) above, there are appreclable savings Involved, as even USS9-10 million per year of forelgn exchange savings Is substantial for our country. As a final note, we wlsh to state that we have no dispute with deregulation or the Bank. Our only Interests are that whatever Report Is fInally Issued should be totally accurate, and that the recommendatlons therein should pragmatically be In the best Interests of the nation. H. .J. Fenton Managlng Olrector Copy to; Hon. Ell Matalon Petroleum Corporatlon of Jamaica Mr. Godfrey Perkins Ministry of Mining & Energy Mr. Arthur Geddes U a Mrs. Andree Nembhard Petroleum Corporation of Jamalca Mr. C. Chin Fatt Petrojam Dr. K. C. Peart Mr. M. A. Hewett Mr. R. S. Jones Mr. Tony Hylton Prime Minister's Office FAX: (8091929.2409 June 7. lS91 Hon. Horace Clarke Minisrer of Mining a Etergy Ministry of Mining & Energy 36 Trafalgar Road Kingsron 10 Oear Minister: RE INITIAL ORAfr Of WORLD BANK/UNOP ENEROY SECTOR ASSISTANCE PROGRAMME - JAMAICA ENERGY SECTOR STRATEGY ANO INVEsrMENr PLANNING STUOY - VOLUME 1I. PETROLEUM SECrOR Enclosed pIease find.a ccoy of the PJ'Petrojam comments :n the referenced dcument. The report needs to clearly distinguish between matters of national policy aud mat',ers related to the business oPerarions of the cil refinery. Apoendix r provides commenrs mainly on matters relatea to Governmenr Pinancial Regularcry and Fiscal Policies and the need for unaerstanding of their effect on the nation. The Petrojam critique, attached as Appendix rI. sDecificaily addresess matters related to the operaticn of the oil refinery. You may notice that some comments may be duolicared, however in the interest of time. we will not be able to fully eliminate their ocourrence. These comments are being made in t.':e cntaet that any assvumnoricns and cr ccnclusions of this study should not necessardiy be regarded Is bindinc cn the Government of Jamaica but should te trettred as a basis fcr an itorf-c'.'eo ;jecision by the Government of Jamaica. We feel thfat it is imperative that tnis point is full), understood in order to ensure that the Government of Jamaica will not ba bcund by the findings of the Report in furthtier discussions with the bank. A" wculd reccmmend that you immediately ma6e this A.nown to the bank. Yours faithfully PETIROLEU M CORPORA TIOWN OF JAMAICA OR. VINCENr LA WREMCE DEPury CHAIRMAN Attch. (Appendix I S ;J [C 1 PETROLEUM CORPORATION Of JAMAICA l\bI * 36 TRAfALGAR ROAD, 80X 579, KINGSTON 10, JAMAICA. Appendix I COMMENTS ON THE WORLD BANK/UNDP ENERGY SECTOR ASSISTANCE PROGRAMME PETROLEUM SECrOR REPORT INITIAL DRAFT - VOLUME rI - g.__---__-=-=_-==== == _= S__-…===== = = =__ 1. SAN JOSE ACCORD AND CRUDE SELECTION - PAGE il PARAGRAPHS 12 & 14 WOULD THE CONCLUSICN ARRIVED Ar BE TRUE EVEN IN AN UPGRADED REFINERY? 2 RECOMMENDATIONS - PAg iii (PARAGRAPH 19) THE STUDY RECOGNIZES A NUMBER CF CRITICAL POSrT.CNS: 1. WE WLl OPERATE IN A DEREGULA rED ENVIRONMENT. (SEE PAGE (iv) PARAGRAPHS 22 (a) & (b). 2. THE DEMAND FOR rHE LOCAL ECONOMY INCLUOING BAUXIrE REQUIREMENT IS 43KBD A T PRESENr, 54 KOD IN THE YEAR 2000 PLUS 64 KBO IN THE YEAR 2010. (PAGE i, PARAGRAPH 1) 3 EXPANSION AND UPGRADING TO 50 KBD IS ECoNOMICALLY VIABLE Ar AN EIRR OF (25%) A SLIGHT DECLINE FROM 27S IN A 35 KOD. (PAGE II, PARAGRAPH 8) YET rHE STUDY RECOMMENDED rHAr THE INVESTMENr IN THE REFINERY SHOULD SE ON rHE BASIS OF UPGRADING AND MAINrAINING rHE EXISTING CAPACITY OF 35.500 SPCP. (PAGE iii. P.4RAGRAPH 19) 3. THE EX-REFINERY PRIONa THE srUDY NDIGA -ES rHA r A rOrAL SA VtNG OF US$15 MILLION CCULD SE AVAILABLE BY ADJUSTMENT ro rHE EX-REFzNERY PRICING FORMULA. (FAGE 7 - SECTION 4.6) GOES ON rO POINT rO A SA VING OF US$5.7 MILLION RESULrTING FROM ADJUSTMENr IN PRODUCT QUALITY. ALL OTHER ADJUSTMENTS IN THE PRICING FORMULA rO ACHIEVE THE US$15 MILLION SAVINGS WILL BE ACHIEVED BY 'REDUCING CHARGE-S rO THF j. CoNSUMER'. NEW CHARGES BY PETRoJAM WILL NOT RESULr IN ANY cosr REDuCTrON TO PETROJAM NOR THE COUNTRY (USS9.3 MILLION). ~~~~~~. ._. ........... .._.. .. .... .._. .........,.__._ DOES THIS HAVE IMPLICA TrION FOR OIL REFINERY vIABILIry ? NEEDS 1 CLARIFICA TION AND COMMENTS. P 4. OEREGULA TION OF PMODUCT IMPORTS: [PAGE 1t (SECTION 4.2 7/4.28)j (a) WHA r IS THE IMPLICA rtON FOR rHE REFINERY ? vIAerILITY BEFORE UPGRADE - AS A RESULr OF rHE RECOMMENDATION IN 4.28 (a) To DEREGULATE PRODUCT IMPORTS FOR WHICH THE REFINERY CANNOT MEET FULL DEMAND BASED ON OPTIMAL USE OF EXISTING REFINERY . CAPACITY SHOULD BE INTRODUCED AS SOON AS PRACTICABLE ? (b) THE NEED FOR UNDERSTANDING THE IMPLICA TION IS EVEN MORE CRITICAL IN LIGHT OF rHE RECCMMENOArTONS REGARDING 'PRICING. FORMULA' ABOVE. s. CRUDE AND PRQOUCT PRrCE FORECAST rHE FORECASr TRENDS IN MARGINS (FIGURE 6.2. rO 6.4 INCL'uSIVE) ARE SOAIEWHATrDlIFFICULT TO UNDERSTANo. FIGURE 6.4 SHOWS. THE TREND LINE WHICH LEVELS A T $5.37. YET STILL $4.5'8 IS USED IN THE ANAL YSIS A T THE." "SINGLE MOST IMPORTANT BODY OF INPUT DA TA': EVEN THOUGH Ir IS STA rED THA r A SENSITIV1TY ANAL YSIS BE DONE BASED ON FIGURE 6.5 THE TREND IS NEVERrHELESS VERY CLEAR. TREND LINES SHOULD POSStSL Y BE INCL UDED IN FIGURE 6.5 SHOWING AVERAGE (BASE), HIGH AND LOW MARGINS. AooITIONALLY, PLEASE G;'VE LOW ' MARGIN VALUES USED IN THE ANALYSIS. 6. FINANCAL EYAL UA TrON RESUL TS SECTION 7.8 TO 7.12 (PAGES 43 - 4,7) THE CONCLUSIONS ARE: (JJ NET FOREIGN EXCHANGE COST PER BARREL FOR TOTAl. JAMAICAN DEMAND IS LOWER FOR REFINERY THAN FOR TERMINALL Y. ,fiJ THE CRACKING CASE IS rHE LCWEST ccs r ro rHE COUNrRY. .(II/) .75% FOREIGN PARTNER OWNERSHIP IS REQUIRED IN ORDER TO A TTRACT INVESTORS. (Iv) 10ox GOVERNMENT OF JAMAICA OWNERSHIP WITH CRACKING IS THE BEST FROM A LEAST COST SUPPLY STANDPOINT. THESE ARE ARRIVED Ar BY ANALYSIS OF THE KEY PARAMETERS IN SECTION 7.6. PLEASE DISCUSS IN MORE DETAIL THE POSITION OF NET FOREIGN EXCHANGE FLCWS. THE PER SARREL FOREIGN EXCHANGE COST. THE PRESENT VALUE OF MINISTRY CF FINANCE FISCAL FLOWS. FOR EACH OF THE BUSINESS A r USUAL AND THE CRACKING CASES Ai5SUMING SEPARA TELY - (i) 1oox GOVERNMENT OF JAMAICA OWNERSHIP AND. (lt) 75S FOREIGN PARTNER OWNERSHIP. THIS ANALYSIS AND DISCUSSION SHOULD BE FOR PERIODS OF 5 YEARS. 10 YEARS. 15 YEARS AND 20 YEARS, ESPECIALLY IF PAY-BACK OF 6.2 YEARS FOR FOREIGN PARTNER IS BEING RECOMMENDED. 7. RE: ANALYSIS OF FISCAL CASH FLOWS - (PAGE 2 OF ANNEX 7.1 THE ASSUMPTION IN THE MODEL THA r THE ELIMINA TION OF IMPORr DUTIES ON IMPORTED PRODUCTS WOULD APPLY IN DEREGULATION SHOULD NOT BE CONFUSED AS NECESSA RIL Y BEING A POLICY POSITION OF THE GOVERNMENT. ZN FACT rHE AL TERNA rIVE OF A BALANCING DUTY IMPOSITION ON THE REF.NERY SIDE IS A POSITION rHAT rHE GOVERNMENT OF JAMAIcA WOULD MOST LIKELY WANT TO G.VE DUE CONSIDERA rICN. 8. THE ANNEXES PROVIDED ARE INADEQUA TE AS ONL Y THE BUSINESS AS USUAL FINANCIAL ANAL YSIS DA rE IS GIVEN. rHE DA A FOR CRACKING IS REQUIRED. Response to Energy Sector Strategy and Investment Planninmg Study A. EXECUTIVE SUMMARY 1. Introduction In October 1990 the Government of Jamaica (GOJ) requested 'Energy Sector Management Assistance Program' (ESMAP) assistance In carry- Ing out an Energy Sector Strategy and Investment Program Study (ESSIPS). The terms of reference of this study were jointly agreed to following extensive discussions between representatives of World Bank, Mlnistry of Mlning & Energy (MME) and a joint com- mittee comprising representatives of GOJ, Petroleum Corporatlon of Jamalca and the Jamaica Pubilc Service. The GOJ macro obJectives for the sector were Identified and dls- cussed with the Bank's representatives and Included In the Sank's final terms of reference as follows: a to maximize the net economic benefit to the national economy by meetin'g end use energy needs at least cost and by optimizing the participation of Jamaica In the International energy trade; o to further deregulate the power and petroleum sectors In order to encourage greater private sector participatlon In the operatlon and financing of sector facilities; The Identificatlon. and prioritlzatlon of these maco-ec;jncmic objectives by the GOJ are easily ratlonalized In the context of the fundamental weakness of the Jamaican economy; the deficit between foreign currency demand and supoly. It ;s therefore of paramount Importance to the GOJ that any assessment of the energy sector has a bias to the fundamental Issues of: a) mimimizing the foreign currency requirements of this sector, b) ensuring that maximum efficiency levels In the refining, distribution and end usage of petroleum In the Jamaican economy Is achieved. 2. E5IPS Working Draft - May 1991 Since the completion of the World Bank's working activitles In Jamaica, two reports have been circulated for comments; a working draft released In May 1991 and the *Green-second draft report. The 'working draft* concluded as Its main findings - the under-utilizatlon of refinery capacity due to a comPlex mix of factors Including powerformer capacity and technology limitations, planned and unforseen outages and foreign exchange limitations; - adJustments to the existing ex-refinery pricing formulae through market eff.iclency Improvements, changes In product specificatlons coud yleld significant savings; - refining of crude oil Is the most economic supply option for petroleum supplies to the Jamaican economy; the Implementation of the Fluld Catalytic Cracking project was an extremely attractive Investment. The report went on to highlight as Its main conclusion that the GOJ should proceed with plans to attract private sectoroparticipa- tion In the ownership and operation of the refinery. In addition, the report recommended a two-phase approach to deregulation of petroleum Imports as a mechanism to Improving the efficlency of the sector: Short term: Maintain the present structure of Import parity pricing for products where there Is a surplus refining capacity, until upgrading of the refinery Is complete. Revision of product specs. and reductions In the price build up components should be initlated. Deregulatlon of product Imports for which the refinery cannot meet full demand based on optimal use of existing refinery capacity should be Intro- duced. Medium Term: After completion of upgrading, complete deregulation of product lmnports and pricing. 2.1 Brief Summary of GOJ's Response To Working Draft Reoort Following the release of the 'working draft' a comprehensive response was made on the various studies, Issues and recommenda- tlons of this draft report. : A number of Inaccuracies and mis-conce A ons were Identified for correction however In essence the GOJ was of the opinion that the majority of the recommendations; except for some of the proposals relating to the price formulae and aspects of the product Importa- tion liberalization, were reasonable and could be easily accomodated provided cortaln key provisos' were Included In the development of the detailed Implementation plan. ,3. ESIPS 'Green -Second Oraft Reoort^%t 3.1 Overview Since the Initlal release of the draft report a second 'Green, - draft report has been released. A detailed reading of this second document Indicates no signlficant changes In the database and analyses contained In the first draft document however the recom- mendations now being proposed have shifted In 'emphasis and effect' 'and are predlcated on the 'Macro Policy Issue, of 'trade lberalizatlon*. No attempt appears to have been made to justify 'this change of emphasis In the report away from the guldelines which were agreed to with the World Bank representatives and which have been summarized In Section 1. of this response. 3.2 Resconse to Second Oraft Reoort .The net effect of the shlft In emphasis of the 'Green ' or draft report Is to arrive at recommendatlons that are confilcting with the basic pollcy objectives of the GOJ and paradoxically the World Bank s own detalled technical studies. In some Instances, the Bank's recommendations can be exoected to result In the Ineffl- clent use of scarce foreign exchange and caoital assets and more *criticailly result In Increased foreign currency costs for petroleum suopIles. A rellable supply of petroleum products to the Jamalcan economy Is critical to the smooth functioning of the economy as this fuel provides over 94% of the energy. needs of Jamaica. In essence this sector Is Important to the national economic securlty of the country. This reqlres that any proposed changes have to be consis- tent with maintaining reliable supplies and of necessity be evolutlonary rather than be revolutionary In nature. It Is the GOJ's considered opinlon that the first draft report emphasis on the maxlmiz2tlon of crude oil refining (least cosz supply) was more consistent wlth a balanced approach to, the many Issues Involved and GOJ*s concerns. However, the Bank needs to give more consideration to any schemes for Import liberalIzatlon, ensuring adequate s feguIards agalnst unfair ces such as are discussed later In this resonse. 4. Macro Pollcy - Trade Regime 4.1 Product Imoortatlon The draft report now recommends the liberalization of petroleum Imports to Induce competitlon to lower supply costs. This recom- mendation Is compared to the removal of JCTC monopolies on traded goods. Thls Is at best an unfortunate comparlson as goods Imported by JCTC are not In the category of commoditles as crude oil and petroleum fuels. Imports of petroleum Involves two categorIes of commoditles; crude oil and petroleum fuels. These can be con- sidered as mutualy exclusive substitutable commoditIes; In a fixed demand market an Increase In suoply of one reduces the need for the other. The second aspect of the duality nature of crude oil and petroleum product In the Jamaican economy Is there Is no requirement for -crude oil Imports If there were no refinery. Consequently, the merit of Importing and refining crude oil Is Intimately con- nected with product Imports and cannot be easily separated as the World Bank appears to make out In Its trade liberalization scenario. The only reasonable and logical course of action in economically evaluating crude oil refining and pptroleum imports activitIes Is an analysis based on a least cost lInear programming model; as the World Bank has extensively studied. The results of that study would then be heavily weighted In determining any future course of action. The Bank 's own. analysis IndIcates that the maxImum benefit to the Jamaican economy Is realized when crude oil processing to petroleum fuels Is maximized. The foreign currency savings being of the order of USS 1.40/barrel. The Implicatlon of product Import liberalization, If only 25% on non-bauxite-netroleum volumes were a i verted from crude oIl refining wourd5-W anr.pase In foreIgn currency costs to the country of USS 4,700.000/ye Other Issues that the Bank's report ought to place more emphasis on Is the role that the smooth operatlon of the petroleum sector plays In the national economic security of the country. Any proposed changes should not result In any reduction of the security of supply or reduce the real benefits that Jamaica real- izes under the San Jose Accord. 4.2 Petroleum Pricing to Reflect Least Cost Suooly optIon. The Sank recommends actlon on petroleum product standards to-meet Jamaican requirements and which may have a posltive spin-off In reducing petroleum product prices. The GOJ has no problem In going along with this speclfic recommendatIon except to Indicate that the effects of any proposed change In specificatlons has to be properly evaluated with agreement between the various marketing companies and major end users. In regards however to other World Bank proposals relating to the Import parity price formulae, our own evaluation Is that they are a number of Inaccuracies as outlined In our detailed response to the 'working draft' report. 5. Concluslons 5.1 The draft report adequately covers the various study objec- tives outlIned In the 'Terms of Reference' for the ESSIPS and contalns enough pertinent Information to allow for long term startegies to be adopted by the GOJ for this sector. However, based on the presentations In the 'working draft', Zla Mlan's Back to Office Report and the 'draft' reports we have a concern that some of the prlncipal recommendations in the final 'draft' report are Inconsistent and often contradictory wlth the Bank's own analyses and recommendations In previous- Bank draft.reports. Specifically, the recommendation for an open Import policy for petroleum products Is Inconsistent with the results of the least cost stUdy. In addition, the Implicit assumtIon made by the Bank that petroleum product Imports can be divorced from crude oil purchases and refining cannot be supported by technical or economic criterla. 5.2 The G04 notes the Bank's analysis support-the..con¢lusion that the refinery remalns the least cost source of supply for the country (of the order of US$ 14 mlll .'year) In addition to earning additional foreign '-currency cash flow- benefIts under the San Jose Accord. 6.3 The GOJ also concurs with the Bank's recommendation on ex- aminat'ion of product quality specification changes to bring them In llne with Jamaican requirements. The OJ notes however the necessity that consensus on the proposed changes wlll be required of the prlncipal )arties involved in the sector; marketing companies and con umwrs. 8.4 The GOJ will pursue Its plans for enacting a Competitlon and Fair Trade Practices Act as noted by the Bank. 5.8 The Issues raised by the Bank for adjustments to the Import parity price formulae are not conclusive and need to be further discussed between the relevant Government agencies and the World Bank consultants. r S. IMPLICATIONS OF WORLD BANK PROPOSED PRODUCT IMPORT LIBERALIZATION PLAN S. Product Imoort LiberaIlIzatIon The Bank has recommended the immedlate liberalizatlon of petroleum finished product Imports as the primary mechanism to achieve the petroleum sector objectives of the GOJ. While the GOJ Is comItted to the principle of deregulation to achleve Its objectives, we are concerned that this recommendation, as presented, would not meet the Particular objectives set for the petroleum sector. These objectives, as Included In the ESSIP Terms of Reference, aret "a) to maximize the net economic benefit to the natlonal economy by meeting end use energy needs at the least cost, and by optimizing the partlclpati.on of Jamaica In the International energy trade. b) to further deregulate the power and petroleum sector to encourage greater private sector participation in the operatlon and financing of sector facilities." Our concerns are as follows: 6.1.1 Least Cost Imollcations The Report has concluded that refining of crude oil 1*r the least cost petroleum procurement mode for the country, earning a NPV of U3S34 mililon versus Importing finished products (even using the questionably low product Import cost developed by the Bank). The Green Draft Report's recommendatlon, as presented, would . resutt In finished product Imports at the expense of crude oiT refining. Product Importatlon would therefore lead to an Increase1 In the overall cost of petroleum to the country. This directly contradicts the original objectives of least cost petroleum procurement to the country. The Report also finds tnat refining results In a foreign exchange savings of US$1.40/Sbl (approx. US$11 mililon per year), since some 46% of the refining costs are Jamaican Inputs. We note these savings do not Include any benefits derived from the San Jose t Accord, estimated In ttie Report to be worth an additional USS0.30 \ per Bbi., or approximately US$3 million per year. The current recommendation therefore Is counter to the original objectives of maximizing the net economic benefit to the national economy via least cost procurement-of Its energy needs. 6.1.2 Potential Refinery Closure |In the May 30 Sank/Zia Mian meeting, It was suggested that GOJ sehould be precared for the possibillty that the Refinery could be c10osed as a result of this recommended pollcy. In llght of the Report's findings on the vlability of the Refinery, we would regard closure of the RefInery as a regressive move, as:- 1) Closure of the Refinery would shift the sector from a viable manafacturlng one, saving scarce foreign ex- change, to an Import oriented one. 11) A closed Refinery would severely Impact the GOJ's ability to divest it, or to divest It at the best pos- sible price. 111) Closure df the Refinery would handlcap the country In Its meeting Its objective of participating In the Inter- national energy trade. Iv) The Refinery does generate significant direct and In- direct employment, wlth associated social and political benefits. All other things belng equal, the objective of maximizing net benefits to the country would be better met using local labour and Inputs than, In effect, using U.S. Gulf Coast labour and Inputs to provlde the same prodUCt. 6.2 Other Impllcatlons The above concerns are predlcated on the Report's conclusion that refining Is the least cost supply option. However, If unrestricted finished product Imports were the philosophically desired objec- tive, regardless of the original objectives of the Study, there are some additlonal concerns with the Import llberalization mechanism as recommended In the Report. These concerns are as follows: 8.2.1 Oumoing / Unfair Trade Practice Petrojam has expressed concern that the proposed Import liberalization would allow the marketing companies to drive It out of business through unfair trade practices. The GOJ has followed a pollcy of restricting Petrojam from direct marketing (GOJ segregated the marketing arm, Petcom, from Petrojam In 1989), except In a few special areas. Petrojam therefore cur- rently has virtually no market outlets of Its own to dispose of Its production. The marketing companies however, have the market outlets, and under the Import liberalization pollcy, would also have unrestricted access to supplies. Under an Immediate liberalizatIon of Imports, the marketing com- panles could bankrupt the refinery by Intentionally Importing finisned products for a few months, Irrespective of whether the Refinery prices are competitive with the Import prices. The products would not necessarily have to be Imported at less than falr market value, le, dumped. Also, as the marketing companies would be purchasing from their overseas affillates, they would have flexibillty In setting the transfer price at which the product enters Jamaica. Under these circumstances, a fledgling Anti-Trust unit would have great difficulty In proving unfair trade practices. In any event, In as complex a case as this hypothetical one , by the time any finding could be determined, the result would be purely academic to the ,by then defunct, Refinery. For the sake of providing a level playing field, It may be more approplate to provide an Interim perlod durlng which Petrojam couId attempt to develop alternative marketing outlets. A real situatlon Incidentally currently exists which highlights the potentlal for Intrinsically unfair practices. The marketing companies have long shown their propensity for acting as a cartel In the Jamaican market. Since decontrol of prices, they have virtually quadrupled their marketing margins, going from JS0.53/IG to about J$2.00/1G. Such a large (and remittable In foreign exchange) margin, and which the Bank's Study has Ignored, could certainly support a low transfer price from the marketing com- pany's overseas affiliate, thus masking the true foreign exchange cost to Jamaica. 6.2.2 Comoetitlon at Product Import Level We are concerned that, under the Import liberalizatlon policy as proposed by the Report, there would be lnsuf.ficlent competition at the Import level to ensure that the maximum benefits of this deregulation accrues to the country. If the petroleum marketing companies were totally local companies purchasing products from an unaffillated seller, market forces would dictate that they Import at the lowest achievable price In order to maximize their local profIts. In Jamalca, the petroleum market Is almost entirely dominated by Shell, Esso, and Texaco. These companies are Integrated refining and marketing companies, and would In all probability purchase product from their overseas affiliates. Thelr corporate profit Is determined by this purchase price and the final sales price, In this case, at the retail level In Jamaica. The transfer price Imputed upon entry Into the country does not affect their overall profit, but only affects the distribution of the proflt between the overseas affiliate and the local marketing arm. Unlike a purely local marketing company, the Integrated company's corporate Interests do not necessarily coincide wlth the country's national Interest. To achieve the obJective of maximizing benefits to the economy, a more competitive arena would be required 6.2.3 Securlty of Suooiies. The Report falls to address the Issue of ensurlng reliable petroleum supp)les. As product runouts would wreak havoc on most sectlons of the economy, this objective must be addressed before any new petroleum regime can be considered. It should be noted there currently exists an arrangement with the Venezuelan national petroleum company, POVSA, where deficit products can be accessed as necessary at competitive prlces, and, addittonally, with the full benefits of the San Jose Accord. C. ADDITIONAL COMMENTS - PRICING FORMULA 7. Summary Petrojam strongly disagrees wlth some of the comments made In the Report on the elements In the pricing formula. Their previous detailed response addresses those Included In the original working draft. Following Is a summary of some of these responses as well as resposes to additional comments made In the Green Draft Report. The numbers refer to the paragraph In which they appear In Vol. I of the Report 2.5 ¾... the formula pricing arrangement should be based on Platt's spot price quotes for U.S. Gulf Coast or Caribbean market .... whichever Is lower." The Report contradicts Itself as It also states: "The Caribbean spot market, though quoted In Platts, Is presently too thin to serve as a rellable prIce reference; .... It Is seldom used .. * 4.5 "The ex-refinery pricing formula was established In November 1988 ....." The Pricing formula was established In 1962 when Esso built the refinery and has been modified periodically, the last revlew being November, 1988. 4.9 "Some of the current spcifications ... have been established to compensate for Inadequete quality control outside the refinery as In the case of octane rating for gasoline." Not true. 4.11 "PetroJam produces a 95 RON gasolIne, required by only a small percentage of cars" While this Is true In N. America, we are unsure the same Is true In Jamaica where a significant proportlon of cars are older models or European, both of which require higher octane. This Is why Petrojam initlated a motor car populatlon survey prior to the ESSIP study to determine the optimum octane for Jamaica. 4.14 Automotive dlesel quallty: "the present specifica- tion Is 45 cetane Index for which no Justification can be found." The 45 cetane specificatlon has been In place since the Refinery Inception and was an Esso specificatlon. The Jamaican fleet con- tains a high proportion of older, European and Japaneese diesel engines, which require higher cetane. See comment on motor vehicle survey above. 4.16 Jet fuel quality. "'... one Intli airline requires the stringent DERD sPecification .... costs about US$0.30/Sbl more than the standard ASTM USA grade ,... recommended that the standard ASTM grade be adopted ... The previous World Bank Consultant Insisted on DERO. if the marketing companies agree, Petrojam will supply this grade only. 4.18 Heavy fuel oll n ... the price of the fuel Is deter- mined by Its value as a catalytic cracker feedstock . .. Not true. Price Is based on U.S. Gulf Coast price adjusted from the 300-380 viscosty U.S.G, quality to the 200 viscosity reqld by JPS. 4.21 *The acqulsItlon differential Includes a parcel size adjustment for all products In the acqulsitlon Cost. On a planned Import basis of fully fungible materlal readlly obtainaable In th USGC market, mixed cargo vessels of 200-300Kbbl would be used and should not Incurr a premium." NO parcel size adjustment Is made for HFO or LPG. The FREIGHT RATE (NOT the parcel size adjustment) for gasolIne, kerosene, and diesel was based on 25OKbbl vessels, and'two port loading because the products are currently not fungibie. The parcel size adjust- ment Is Intended to reflect the premium charged by suppilers for small (70-75KBbis) Instead of the more normal 200-300Kbbis single product sale. 4.23-8 Ocean Frelght: "These (formula freight rates) are $12.25 per long ton for clean products and $7.18 for dirty products. These (freight) rates are equlvalent to some 390% of WORLOSCALE (WS) for clean and 230% WS for dirty (products), using a 1991 WS rate of $3.10 per MT for USAC to Kingston." "An analysis of the average dirty vessel market rates during 1989 and 1990 ... the average SPOT rate for 30,000 OWT size was 220 WS ... a maximum clean vessel rate of 250 WS would have applied ... The 1991 WS rate for- USAC to Kingston Is $3.56 per metric ton. The assessed freight rates as computed by the Bank Is not consistent wlth the ACTUAL frelght fixtures experience of the various charterers In the region, as reported in varlous shipping publicatlons. The frelght rate for clean products In the formula contalns an adjustment as previously noted for two port loading, because the Jamaica quality Is currently not fungible. 4.28 Terminal and Rack Fees This has been addressed at lenght In the original response. However, the Green Oraft additionally contains a comparison of the ESSO/Shell Mobay terminal charges. :"The total charge In the present price structure for the terminal/rack combination Is US$1.12/Bb1 ...... The much smaller ESSO and Shell operation In Montego Bay charge USS1.00 to USS1.08/Bbl for total terminal and rack fees." The ESSO/Shell charges cited cover tankage faclilties only,le, the user procures his own product, shipping, accepts product losses, risk of contamination, Insurance, Inventory carrying costs etc. The Petrojam fee Includes Includes these factors. For the service comparable to that provided by Petrojam, Shell charges US$2.80/8b[. * - - . - * .-.*~*0 Ministry of Mining and Energy 36 'rnifalgar Roadi Kingstons 1*O 3;inini:i: *'W.t. Telephone: (809) 9 6-91 1/09 Fax: (8091 929-6005S FACSIMILE Date :8th November. I99i - To Ron. E1l Matalon Company : Petroleum Corporation of Jamaica Fax no. * 929-2685 From _ non. Horace Clarke Brief Message: Re: Aide Memoir - Against the background rosponsfe _q fl;y_&t A response to the Aide Msemoir, indicatinSA the changes needed based oa inaccuracies a "Lease Cost" acceptance of the Refinery. This message consists of page(s) including this shoet. r - ---- -- --- ---- Do it now! EnergyConservation Can't Wait. gg*3S0U8O8ewZ ADZN3/ONU4 Nt ;O ."tuS NdootH b:5 te-90 PEIOJAM UOVd7 1961 , i7 i s ff~MARCUS COVECY ORB.P.O.O21KNSt,X '] CM. Addw PONu2119. T:(09=)6119234744814 0 S November 8, 1991 Hon. Horace Clarke MInIstry of Mining and Energy 36 Trafaigar Road Kingston 10 Please note attached draft of the petroleum section of the World Bank's draft Aide Memoir that Includes _responses by Petrojam. For easy rfeorence, the relevant sect16ns-orf-rJ-Wraft ty the World pank Is also attached. t > J.Fenton /'Managing Oirector CCF:mp Copy to: Hon. Ell Matalon. - Petroleum Corporation of Jamaica Mr. Noel DaCosta - Oesnoes & Geddes Mr. Artnur Geddes - Mlnlstry of Mlning & Energy Mr. C. Chin Fatt - Petrojam Or. K. C. Peart - Mr. M. Hewett - Mr. R. S. Jones - Mrs. A. Nembhard - Petroleum Corporatlon Of Jamaica Mr. Tony HyIton - Prime Minister's Office bS 1mi_UM(IMA. Cob C_ILdu 0=iWWu Dw t DsL lam LM n.Aar HbiuD, ofe eds idW W~ Petroleum Sector S. PCJ/Petrojam presented written comments to the Mission which were discussed at both the Sept. -17 meeting and subsequently. Factual technical points were noted for correction In the final report. The fundamental policy Issue, concerning the apparent contradictlon between least cost petroleum procurement (refining) and liberalization of petroleum imports, could not be resolved during discussions. The analysls In the ESSIPS report shows refining In Jamaica under conditions of maximum efficiency and optimum utilization of caPaclty to be part of the least cost solution but vulnerable to loss of domestic market. Upgrading through the additlon of a catalytic cracking unit would make It competitive In export markets. 6a PCJ/Petrojam contends that Immedlate removal of the protec- tion to the refinery would permit International petroleum companies to engage In predatory Imports (regardless of whether refinery prices were competitlve), that could not be detpcted under the Anti-Oumping Act or the forthcoming Competitlon and Fair Trade Practices legislatlon because of vertical Integration of the marketing companies and could lead to the closure of the refinery. Petrojam contends that structural defIclencIes In the Jamaican petroleum marketplace,eg., oligopolistic tendencies and small size need to be addressed In any recommendations seeking to further liberalize petroleum Imports. Specific proposals were made by Petrojam Including a 'phase-in perlod of 36 months to allow Petrojam time to develop local market outlets and thus be able to compete on an even footing with the international Petroleum marketing companies. The Idea of a decreased protective tariff on product Imports during the phase-In period was also discussed. 7. The Introduction of the legislated common carrier termlnall- ing was also considered by PCJ/PetroJam to be prejudicial to the refInery, and would require yet another Governmental Interven- tion, and institutlon, In the marketplace. PCJ/Petrojam felt that such arrangements should be left to negotiation between the marketing companies and themselves. The Mission responded that based on growing worldwide experience, the Bank has found the common carrier approach as a viable means of Increasing competi- tion. Terminalling fees would be set to recover investment costs Including a return on capital. 8. In response to polnts raised by PCJ/PetroJam (I) that the refinery has been very efficient in Its operations and (11) that savings of US$20 millilon would be lost If the refinery were closed, the Mis8ion prepared a letter to the Minister MME (dated September 23,1991) which presented the results of an analysis of the refinery operation In the business as usual case (minor upgrading, no new Investments) at oPtimum and historical levels of capacity utilizatlon. Based on current volumes and prices, there would be little savings In the (In the order of 2.5% of total product supply cost or US$4.7 millon) between optimum refining (at 83% capacity utilization) and 100% product Imports. More sIgnificantly, refining XT the business as usual case, If' based on the average historical level of utilization (48%) would: be more expensive by US$1.1 million than full product Importa-. tion. Benefits under the San Jose Accord would be USS3-4 mllilon In each case and would accrue to GOJ regardless of refInery ownership or product Importer. Furthermore It should be notedi that with liberalization of the petroleum sector, Petrojam would. be free to expand Into downstream distribution particularly In transportation fuels. At present It has access to over half the non-bauxite market to JPS and bulk supply customers other than the marketing companies for which no retail network Is reqalred. -~ PCJ/Petrojam subsequently responded to the Mission's letter by writing to the Minister of Mlning and Energy Indicating: (I) A steadily Increasing historical trend In refinery utilization to a current 68%; (11) that under liberalized Importatlon, Importers would _not necessarily Import from Venezuela and therefore the bulk of the San Jose Accord benefits would be lost. Nor Is It certaln that Venezuela could supply the full fTnTlaed prroaucts requirements given that country's other committments; (ill) emphasizing the additlonal foreign exchange saved due to the local content In the oll refining process, and Indicating a total foreign exchange savings In the region of US$9-10 million even under the underutillzed (48%) capacity scenario. (lv) The only slgnificant bulk customer apart from JPS Is Kaiser Bauxite using a smalil amount of fuel oil. 9. PCJ/PetroJam undertook to prepare a paper to MME concerning the issue of liberalization of petroleum Imports. MME, on behalf of GOJ, will Inform the Bank concerning the GOJ's position. The Bank agreed to be guided by these comments In the final report following revlew within the Bank. WORLD BANK/UNDP ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) ENERGY SECTOR STRATEGY AND INVESTMENT PLANNING STUDY MISSION September 16 . 27, 1991 AIDE MEMOIRE 1. A World Bank mission consisting of Messrs. Joseph GlUing, Sr. Energy Economist and William Matthews, Petroleum Specialist, (consultant) visited Kingston during the period September 16-20, 1991 to present the green cover draft ESMAP report of the ESSIP Study and to receive the comments from GOJ officials. Dunrng de week of 23-27 September, Mr. Gilling worked with MME and JBS staff concerning ongoing and proposed energy efficiency projects to be included in future ESMAP assistance. The mission wishes to express its gratituOe for the close collaboration and assistance provided by officials of rOJ and the sector entities. 2. A ministers Steering Committee (MSC) meeting chaired by the Minister Mining and Energy was held September 17, 1991 to present the report to officials of GOJ and subsector entities (MME, BOJ, NIBJ, PIOJ, PCJ, Petrojam) and LTNDP. Additional meetings were held to discuss specific subsectors and claify factual points. Messrs. Abderramane Megateli, Sr. Financial Analyst PSED project (LA3IE) and Graeme Thompson, Country Officer (LA3C2) of the Bank's Regional Opertions Department attended the MSC meeting and participated in several meetings of the mission. A list of MSC meeting participants is attached. 3. The Mssion pointed out that the report had been prepared as an ESMAP report and reviewed in the worldng draft stage in Washington with the Banlks Regional staff and the Energy Advisor MME following circulation for comment by GOJ and sector officials This procedure had been established at the request of GOJ in the Terms of Reference for the study but was not the norm for the preparation of Bank reports which, as a general rule, are not presented to Government until they have been reviewed internaly by the Bank and reach the green cover stage. Shifts in recommendations, particularly regarding the pace of liberalizaton of importation in the petroleum sector, were therefore evident in moving from the working draft to the green cover report. The emphasis on liberalization reflects the thrust of the phased program of economic reforms which bas been established between GOJ, IMF, and World Bank. 4. Key elements of the reform program outlined by the Bank's Countrv Officer include liberaliation of foreign exchange (recently undertaken) and rade policy (reduction in Common External Tariff), tax reform (introduction of GCI), acceleration of the privatiation process through the divestment of public sector enterprises, and deregulation with improvements in the legal framework to ensure transparency of the proces The commitment of G01 to divestment of energy sector enterprises was confirmed during a meeting with NIBJ. Technical assistance funds for the preparation of the PSED project will be made available for the detailed work required for the privatization of energy sector corporations. Petrleum Sector 5. PCJ/Petrojam presented written comments to the iMission which were discussed at both the September 17 meeting and subsequently. Factual technical points were noted for correction in the final report The fundamental policy issue concerning the liberalization of petroleum imports could not be resolved during discussions. The analysis in the ESSIPS report shows refining in Jamaica under conditions of maximum efficiency and optimum utilization of capacity to be part of the least cost solution but vulnerable to loss of domestic market. Upgrading through the addition of a catalytic cracker would make it competitive in export markets. 6. PCJ/Petrojam contend that removal of the protection now provided to the refinery before upgrading would permit intemnational petroleum companies to engage in predatory pricing that could not be detected under the Anti-Dumping Act or the forthcoming Competition and Fair Trade Practices legislation because of vertical integration of the marketing companies and could lead to the closure of the refinery. Petrojam, however, could protect itself against this possibility by securing long term sales contracts with its bulk supply customers including the marketing companies. 7. The introduction of common carrier terminalling was also considered by PCI/Petrojam to be prejudicial to the viability the refinery because it would remove the necessity for the marketing companies or other importers to invest in tankage. The Mission responded that based on growing worldwide experience, the Bank has found the common camer approach as a viable means of increasing competition. Terminalling fees would be set to recover -=iv7es Cos ii ing a return on pl-7 8. In response to points raised by PCJ/Petrojam (i) that the refimery has been very efficient in its operations and (ii) that savings of US$ 20 million would be lost if the refinery were closed, the Mission prepared a letter to the Minister MME (dated September 23, 1991) which presented the results of an analysis of the refinery operation in the business as usual case (minor upgrading, no new investments) at optimum and historical levels of capacity utlization. Based on current volumes and prices, there would be little saving in the (in the order of 2.5%i of total product supply cost or USS4.7 miliion) between optimum refning (at 839o capacity utilization) and 100% product imports. More significantly, refining in the business as usual case, if based on the average historical level of utilization (489o) would be more expensive by USS1.1 million than full product imporation. Benefits under the San Jose Accord would be US$3 - 4 million in each case and would accrue to GOJ regardless of refinery ownership or product importer. Furthermore it should be noted that with iberalization of the petroleum sector, Petrojam would be free to expand into downstream distribution particularly in transportation fuels. At present it has access to over half the total non-bauxite market to JPS and bulk supply customers other than the marketing companies for which no retail network is required. 9. PCJ/Petrojam undertook to prepare a paper before the departure of the mission outlining its recommendations to MME concerning the issue of the liberalizauon of petroleum product imports. MME on behalf of GOJ will then inform the Bank conceming the Governent's position which will be noted in the final report following review within the Bank. Power Sector 10. The Mission met with MME and JPS officials to receive comments on the power sector chapter of the Report. A minor correction will be made to note that while rebabilitation work is now underway, the life extension studies will be deferred as the units must be returned to service as soon as possible. The JPS representative sated that JPS' Board had directed management to assess the options for reducing fuel supply costs. The issues of petroleum product specifications and the direct import of fuel oil by JPS were therefore of particular concern. 11. JPS agreed with the recommendation and requested ESMAP assistance to proceed with the technical studies to assess the feasibilitv of buming lower qualitv fuel oil to be followed in a second phase by a review of the possible fuel purchasing arrangements. In addition, JPS supported the recommendation to carryout studies for (i) the Environmental Impact Assessment (EIA) of the proposed coal fired power plant, (ii) a site inventory for other power stations and (iii) the environmental clean-up at existing power staions. While CIDA intends to finance the EIA for the coal station, it has not expressed firm support for the other environmental studies. 12. Concerning the power tariff, JPS noted that fuel cost.adjustments were being passed through as required; however, foreign exchange adjustments were not being made and, as a result, the tariff has eroded in real terms since the last major adjustment in Mav 1990. Approval of the pending tariff application is therefore needed to reestablish tariff that would improve JPS financial performance and, in addition, encourage energy conservation. Also to suDport energy conservation, a further submission to CARICOM is planned by G(3J to reduce the CET on fluorescent lighting and solar water heating equipment from 45% to 5%. This equipment has already been zero rated in the GCT schedule. Energy and Environment 13. A meeting was held with MME, NRCA, Forest Department, NRCD and the mission concerning environmental issues. The Advisor NRCA confirmed that the assignmeat of institutional responsibilities for energy and environmental issues is correctly outined in the Report but that a timetable for action remains to be worked out. NRCA intends to put initial environmental standards in place by early 1992 with technical assistance provided by UNDP. A review of the draft Jamaica National Environment Action Plan prepared by iNRCA shows that the recommended energy/environment strategy is consistent with the Plan. Financial support and institution building for NRCA remain the key to its implementation and additional assistance is being sought 14. In connection with biomass fuels, the recommended wood resources inventory is being carried out with CIDA financing and PCI is also carrying out a biomass survey. This latter activity is being coordinated with MME and other agencies; however, attention is needed to ensure that there is no duplication of effort. 15. With regard to stumpage fees and mechanisms for managing charcoaling and other forest uses, it was noted that studies had been proposed under the National Forest Action Plan (NPAP). The implementation of the bridging project to prepare NFAP for start up is thus essential to addressing the fuelwood related issues. The bridging project is to be funded by UNDP but is still under discussion. Follow-up Actions on Strategy Recommendations 16. A meeting was held with the MME policy group and World Bank PSED mission to plan follow-up actions on the strategy recommendations. Planning of follow-up action relating to the petroleum import liberalization await agreement on the basic policy. Product specifications can be established, however, without delay as there is agreement on this matter. ESMAP assistance to MME and Jamaica Bureau of Standards (JBS) is proposed as has been provided for the Energy Efficiencv Building Code and Appliance Testing programs. 17. Technical assistance to be provided under the PSED project is being identifed (para. 4). 18. As twelve months have passed since the liberatizaton of the distribudon an retail trade in petroleum products, it is opportune to review the impact of deregulation on prices and other aspects of the trade in all fuels. It was agreed that MME with ESMAP support should carry out a study in this area 19. With regard to demand side management in the power sector and the estblishment of ENERCO as an energy conservation entity, a joint JPS/MME working group has been appointed to prepare a project proposal for submittal to the Global Environmental Facility (GEF) through the appropriate channels for funding. Before this document can be fully completed, policy decisions are required by JPS and GOJ concerning the nature of tax or other incentives to be given to consumers beyond those already scheduled (para. 12). ESMAP would continue to support the DSM activities concerning the Building Code and Appliance Testing programs currently underway. 20. Follow-up on conservation in transportation will be carried out by MME in conjunction with Minstry of Transport and Town Planning Department. 21. In the household fuels area, it was agreed with the MME policy group that the critical issue relates to ensuring that low income groups have access to basic energy needs at affordable prices. Recommended follow-up actions as presented in the draft ESSIPS report would therefore be combined to address this problem. As part of the study on the retil trade in petroleum products, particular attention would be paid to the distribution and pricing of kerosene and LPG as being done for charcoaL Alternative methods of targetting the kerosene subsidy would be reviewed as well as the level of the subsidy to meet socia and environmental objectves. 22. Concerning enronMental follow-up action. preparations for establishing NRCA are in progress (paa 13). A formal submission to CIDA is in preparation by JPS concesning the Environmental Impact Assessment for the coal fired power plant. A similar submiion based on terms of reference provided in the ESSIPS report concerning island wide baseline atmospheric emissons and power generation site inventory is also needed and should be made along with the request for funding for the coal plant EIA. 23. Egineering studies for the environmental clean-up at JPS power plants and the refinery are proposed for ESMAP suppom Finalizadon of ESSIPS Report 24. After the report is revised to reflect the comments of GOJ as received during these discussions and has been cleared by the Bank, the report will be finalized and published. Four hundred copies will be sent to MME and 100 to UNDP. ESMAP Counr Program for Jamaica 25. Funding for the ESMAP program in Jamaica for the next two years will be obtined following submission of the Country Program Paper to the annual donors meeting in November. 'he Program Paper is being prepared for review within the Bank and by GOJ based on the agreements outlined above. Hon. Horace Clarke Joseph Gilhing Miier of Mining and Energy Sr. Energy Economist Government of Jamaica World Bank 27 September, 1991. Attachment mINlSTER'S ENERGY STRATEGY STEERING COMMITTEE - PtEET I NG SEPTEMBER 17, 1991 List o2 Parti;c^.ants Minister Horace Clarke H.M.M.E. Hon. Eli Matalon. O.J. P.C.J. Mr. Gocfre, Perkins M.M.E Mr. Peter alack P.C.3. Mrs. Anoree Nembhard P.C.J. Mr. Pete Fenton Petroj am Dr. Keith Peart Petroj am Mr. Mic?nael Hewitt Petrojam Mr. Tony Hylton Policy Review Unit 0.P.M. Mr. Clifton Brown P.I.O.J. Miss Bevon Morrison M.M.E. Mr. Fernando DePeralto 3.0.J. Mr. 3asil Sutherland J.P.S.Co. Ltd. Dr. Ted AldrLdqe M.F.D.P. Env.r.onmen Mr. Abderrahmane Megateli World Bank Mr. Grasme Thomoson World Bank Mr. Josech Gilling World Bank Mr. Zia Mian Energy F'olLcy Adviser M.M.E. Mr. William Matthews Consultant. World Bar Ms. Angela TormLn U.N.D.P. Mr. Amir Dossal U.N.D*.: Mrs. Joan McCalla M.F.D. & R. Mr. Chris Chin-Fatt Petroa am Ms. Patricia Shako N. I.o.3. Mr. Alwyn Brown P.C.J. Mrs. D. Whitely M.M.E. Dr. Arthur Geddes M.M.E. I7J 96 MARC3 GARY! DlY. P.A BOX 241. IN. IAMCA C" AddMbS_P_Ohq 3119. Tbk 00 9461.S23474O 4B4814.W. 1w (809)V-SM September 27, 1991. The Hon. Horace ClaIrke Minister of MInIng and Energy 36 Trafalgar Road Kingston 10 Dear Minister, We have roeelved a copy.of the September 23 letter sent to you by Mr. GluiIng of the World Bank. and would Ilke to add the#follow-. Ing comments to his letter (a copy of which Is attachqd). 1) The Table Indicating the net TOTAL cost to Jamaica. wherein some US$5 million per year In additlonal costs has been Incurred due to underutliizatlon of the Refinery over the past five years, underscores the Importance of Refining versus finished product Importa- tion. The recommendations as presented In the report for carte blanche import liberal ization can only lead to decreased Refinery utilization. and attendant Increased cost to the Country. We are In prlnclple In agreement with deregulation. However, In this particular cir- cumstance, we clearly see the mecnanlism (Import llberalization), and the cost, but cannot see what gain or objective Is to be accomplished by It. 2) Refinery utilization, particularly over the last five years, has been less than desirable for a variety of reasons detailed In our original resconse to the Bank's Working Draft. However, prosenting the average only.is misleading. Attached Is the historical utilizatlon abstracted from the Sank's own report, and updated for the fIrst fIve months of fiscal 1991. The data shows a continuous and consistent Increase in utilization from a nadir of 38% In 1987 to a current utilizatlon of 88%. This compares to the average of 48%, and the Ideal situation of 83%. Additionally., the Sank had confirmed the Identificatlon of one of the Refinery processing units, the Reformer, as being the major bottleneck In utilization. Our Reformer Upgrade Project, to eliminate this handicap, will bC comploted by year end. D5IU am"L Cmugm EOai). CebC_l6 Nd Dom"_u 1 NJ. F aqia ox Vhbm Law a Im8uIAs Mk HmA_m? . W, PuUW OS608" WiMs P1R1AOM SW7. 3) The letter suggests that since the US$3-4 million San Jose Accord benefits are appHicable to finished products; this savings is Immaterial to total petroleum costs. However, this saving accrues to the GOJ only. Under the recommended Import liberalization, there Is no Incen- tive for ImPorters to source product from Venezuela versus other supPly options. It is therefore probable that the bulk of this saving would be lost to the country. 4) We note that neither the Letter nor the Report disputes the significant foreign exchange savings Incurred by Petrojam. The World Bank letter characteristically omits to mention that - even at the underutilized level Indlcated In the Letter, the 45% of the US$13.9 million that Is local costs, or approximately USS6 mililon per year, In additlon to the Accord benefits of US$3-4 miillon, still add up to a significant US$9-10 millon per year of foreign exchange savings. 6) It also ought to be pointed out that the World Bank In this latest aspect of Its StUdy and report Is usIng current prices of feedstock and products at a time when margins are much lower than they would be on a year average basis. However, despite this, as mentioned In 4) above, there are appreclable savings Involved, as even US$9-10 million per year of forelgn exchange savings is substantial for our country. As a final note, we wish to state that we have no dispute wi'.n deregulatlon or the Bank. Our only Interests are that whatever Report Is finally Issued should be totally accurate, and that the recommendations therein should pragmatically be In the best Interests of the nation. H. J. fenton Managing Director Copy to: Hon. Ell Matalon Petroleum Corporation of Jamalca Mr. Godfrey Perkins Ministry of Mining & Energy Mr. Arthur Geddes U " U U U Mrs. Andree Nembhard Petroleum Corporation of Jamaica Mr. C. Chin Fatt Petrojam Dr. K. C. Peart Mr. M. A. Hewett Mr. R. S. Jones P Mr. Tony Hylton Prime Minister's Office Anne,x 2.2 Page 1 of8 IAM PTV=C.Q;MC I. BI ckwn 1. The petroleum sector in Jamaica is divided at present between private markeedng companies (affiliates of multnaonail companies) and the government-owned Petroleum Corporion of Jamaica (PCJ). The mareting companies own a number of storage and distributon facilities and domestic retail sales of petroleum products. PCJ, through its subsidiary Petrojam Limted, owns and operates the sole refinery and has a d foa monopoly on te import of cnide oil, while PCJ has a & fiu monopoly on the import of refined petroleum products. This monopoly is due to prohibitive import tariffs applicable only to private ihportnrs (i, marketing companies) while imports of Petrojam are exempt. 2. Petrojam operates a 36,000 brls per day refinery located adjacent to Kingston Habour. It was established in 1982, when the refinery was acquired from Esso by the overnment. Petoam, while 100% Goverment owned, operates as an independent organion, itelf having several subsdiries and opeting and service divisions. It is a simple hydrosklmming unit built in 1963 in Kings 3. As part of its ongoing liberaiIzaion and p-ivatization programs, the Government has decided to frther deregulate the sector and has approved Petrojam as an entity to be privadzed. The proposed privatizadon of Petrojam and deregulation of the petroleum subsector are consistent with the G which promotes a grter role for the private sector, effecdve management of energy sector entides and derepuladon of the sector. The objective of the Consultants' work is to help define the specifics of this stgy and org the pepy steps towards its implemen 4. Pzixatizadon. The Govaenent of Jamaica has sustained a successful vatizadon program since the early 1980s. Puvatnion of the remaining public entities and assets has a high priority in the Manley Government's agenda. In early 1990, the Government announced its deion to undertke a farreaching accelate privadzadon program to (i) reduce the sze d role of the public sect, paticulai in commroaly oriented activides (i) increa private sector pariciaton and competition in the economy; (iii) improve efficincy, (iv) reduce the financialdn on the budget; (v) encourge forein capital and technoiopy inflow; (vi) ensur high quality of service and (vii) widen the base of private ownership. The Prime Minister Paper issued in July 1991, spelled out the strategy, obectives, and instuioanal arranpments to implement the new pnvaition program e Ministry Paper also contains a hst of 67 public entities/assets, approved by Cainet for privatzation over the next few years. Petrojam has been specifically identified by the Iovernment as one of the public sctor entiDes to be privatized. Ann 2.2 Page 2 of 8 5. In the new privafzation process, the Cabinet has overall responsibility for the approval and review of the privadzation program and policy. A comnittee of the Cabinet, called the "Privatizadon Committee" has been established to propose modalities to be employed for privatization and final acceptance of rejection of offes. The National Investment Bank of Jatmaica (NIBJ) is delegated as the central ilementing agency for piivatizaton by a cabinet decision. New procedures also allow for the establishment of "special enterprse teams" involving concerned ministries to work on large and complex pnvatizaton cases. In the case of Petrojam, there is a special steering committee established which coordinates energy sector strategy. lhe committee is called the Ministers Steering Committee and is comprised of representatives from the Ministry of Public Utilities, Transport and Energy (MPUTE), NIBJ, the Ministry of Planning and Fmance, Planning Insitute of Jamaica, Bank of Jamaica, Office of the Prime Minister, the Office of the Attorney General, PCI, Petrojam and Jamaica Public Service Co., and chaired by the Minister of MPUTE. 6. .2_ _ Parallel with its privadzadon program the Government has been deregulating the economy to create an environment conducive to private sector development and increase competition. The Government has already taken a number of significant steps to dismande import monopolies, remove price, investment and import controls and reduce import duties and taxes. In the petroleum subsector previous steps included the deregulation of distribution and retail margins, allowing distribution companies to set their own wholesale and retail prices. However, Petrojam continues to fix ex-refiney prices. 7. Thre monopoly position of the PCJ derives from legislationI which provides PCJ and Petrojam certain privileges and tax exemptions. Under the present regime, while Petrojam enjoys exeWtions firm impor taxes and duties, all other importers are subject to prohibitive taxes and duties. Petrojam sets ex-refinery prices on all products using pricing formulae based on USGC pices, which are at present adjusted on a weekly basis. 8. Moreover, despite the dereguladon of domestic margins, there may still be other regulatory and legal baniers to entry and competidon downstream i.e., tankage/storage, tansporttion and distibution wholesale and realing stages. Increased competiton among suppliers is an important aspect of the deregulaon process. 9. Another important issue to be considered in the context of deregulation/privatization is an assessment of benefits from existing 5 for crude oil refined products imported from Venezuela and Mexico and the potential for the continuation of such benefits after taking into account alternative supply soces in the itnational market. 10. ESSPS Study and Other Back=ound Infomation. A recendy completed Energy Sector Strtegy and Investment Planning Study (ESSIPS - September 1991), commissioned by the Government to the World Bank's ESMAP group shiould serve as reference and provide substantial background material for the present study. Moreover, audited financial statements of Petrojam for past years and other relevant documents will be made available to the consultants for the privadzadon sategy part of this work 1 Including the Petoleum Act of 1979, the Petoleum Refining Industry (Encouagement) Act of 1963 and the Petroleum Refining and Industry (Reoized Refiner, Petrojam Ltd.) Onier of 1991, which is made under the 1963 Act Annex Page 3 of 8 II. and Scon_ at the Study. 11. Obiectives. In response to the Govemment's request, the present study will be underten with the support of the Bank in preparation of the privatization of Petrojam and liberazation/deregulaton of the petroleum sector. The results of the study will also serve as input for two proposed Bank operation (Energ Sector Deregulation and Privatization Project and the Private Sector Development Adjustment Loan), both of which will be presented to the Board mid-1992. 12. There are three main objectives for the study. First, to detemine the steps necessary to eliminate Petrojam's import monopoly and establish a compedtive, non-protected petroleum products sector at the import, refining, tansport, distribution, wholesale and retailing stages. Second, to detemine appropriate, tansparent market-based pricing principles which do not compromise 3GO3's curent fiscal objectives. Third, to develop a privatization strategy for Peutjam consistent with its efficient operation in a compeidve environment. 13. The sidy will consist of two parts (which require differnt types of skills), dealing respectively with: (I) the Regulatory Framework for the petroleum sector and Pricing Policy an (II) Privazation Stategy for the rfinery. Since there is some degree of inendence between Part I and Part II of the study, while the prparations could begin simultaneously, the results wiLl have to be integrated (a) to assess altemative privazation strategies in the deregulation context and (b) to review specific deregulation steps in light of their impac on the pr pocess. RegyUJr=Eamzk The objective is to promote compedtion in the petroleum sector by estaWishing a sound regulatory amework and avoiding any ac fg or d imp moopolies, pro to the privadzadon of Petrojam. This is impot SO that te pivazation takes place with the new regulatory framework and thus avoids creating a protected private monopoly. TIansparency in the policy, legal and regulatory environment in the petroleum sector is essential to avoid a loss of benefits to the economy. A clear, well- defined legal/egulatory environment as well as pricing pnnciples, are also needed to provide assurance both to the new owners of Ptojam and the private distribution companies that their future investments will not be subject to discrtionary ratment in the fiue. rtlzadnn Stratgy: The objective is to develop within the reformed regulaty framork a sttegy for the privatizon of the refinery including the necessary preparatory work (e.g., valuation and preparation of a draft prospectus) and eplong various options with respect to the modalities and methods of pnvativauon, as well as an implementaton schedule for the 14. O= The actual transaction of offerng the refinery for sale through a bidding process wAi1 not be a part of this assignment, but will be managed by consultant(s) selectd through a competitive, rsparent process supervised by the Bank. In addition, an environmental Audit will be done in parallel as praratory work for privatization under separae TOR, whic will be finalized by March 1S,1992. Annex 2,2 Page4of8 Part ! Rqlatw Ermework Task A: Concening the ImmzLandddigumg for crude oil and perlumpucts the coslat wiLlk (a) a the existing reglations anlegislatioand other agreemes (such as San Jose, and CARICOM- Common Extenal Tariff, CB1) concerning imprs of crude oil and petroleum products to identify the g regtoy prin ons wich led to the & fa monopoly of Perojam, and other impediments to free impurts of petrolem products and e oil on te competiive bai (b) determine steps/modificadons/amendments needed to implement the following importpolicy difyin existing iport tes and dutis such all u,Ieum products and crude oil are subject to a single uniform import taiff Msay, thi range of 5%-20%) while all other restridons to petroleum Imports are eliminat. d and all potential importe including Petrojam become subject to the same import tnff level, el atig any room for discretion. Examine the impact of such a tariff structure and import regime on the competveness of a privadzed inery, consumer prices and the level of coeton in the importing and distibuton sages of petrole products Also deterineadjustmentneeded in other domesc e and other spec taxes to semce reves for the C}0J as consisten with its fcal objectives (c) review existing pricing formulae for detemining ex-refinery pric of petroleum products and the implications of introducing a fully-market demined price rei in line with inteInationl marnkets Based on this rview, eabish and propoe te basic principles for a new pricing nmchanism (d) asse the likelihood and possibility of dgming of petoleum product by reviewing trade prctces in the petroleum subsecor and legal safety-net prided by te Anti-Dumping Act e) dtaftnew lto existng legiaon to implement the new libezlzed imt (and expo) policies applying to peteum products and to revise priing cipE (f) eamine in deil the San Jose Agrments and to assess dtei benefts for the 00J and th economy as a whole and potendal for continuation of such benefs and ftoult specinfic arrngements for the Government to maintin acs to the advages offerd while m ng a competive inprt regime andprkci polc. Tak B: Concering the review of Ou m the consultats will: O review legislaton/egulations and other factos (such as capacity of exisng /docks, anport other facilites and market strucure) which may cause baieto com on in the industry at dte tran production, stag,distribution and whosale and r maW sge Annex 22 Page 5 of 8 (ii) in particular, assess the possibility of unfai cnnin prctices (price collusion) in domesdc distribution under a free t regime, exaining the maiket structe and provisions under the new prosed Competiton Act (Mii) draft reulations and modifications to the relevant legisltion to eliinate other remaining baniers to competition at all stages mentioned above. PartJJ dPriatizto Strtg Concerning the ndratiz &at= of the refinery, the consultants will: (a) analyze options, pfivatizon strategies and modalities for privatization (public share offers, sale as a going concern, ESOPs etc.) of Petrojam. Among other things, the consultnts should consider the advantages and disadvantages of selling Petrojam as a unit or in parts (e.g., separating the refinery from other ssets such as storage facilities), a public offerng of shars vs. sale to a single buyer, and sale ugh negoiion vs sale tugh action; (b) in particular, study the merits of the following option and come it to other privatation alternatives from the pont of view of (i) increased competition in the sector; (ii) efficient use of existng facilities; (iii) prospec for privadzaion; (iv) sale c s: Estbli t of an dent stoage company assets which would serve all new entrants in the suppliers maret (similar to a common carier status). (c) based on Petrojarm's financial and other relevant audits pepare a valuation of Petrojam. The valuation should assume a completely liberaized trade regime, no new investments by the Government before privadzation, and no specfic conditions placed on the new owners other than meeting ennmental and other reguaor standards. Valuation should be done employing various methods, including future business potential (fute ince sreams), liquidain and recent sales of sila facilities. Results of the valuation exercse will be used solely as a "reference" in seting bidding parameter (d) In additon, again assuming a deregulated enronment as in (c), assess the net value (if any) of the upgding scenaos considered for the refinery under the ESMAP study (using future income streams method), which the private investors may find wothwhile. Results should be provided in a form dot can be used by GOJ to adverisee as appopriate in dth sale prospectus. (e) on the basis of this andysis, recommend the most appropriate stratgy, among the availale opons, for proceeding with the priaiaon program; () recommend a dmetable, specifying all required activities to be completed and policy decisions that need to be tae to bring the refinery to the point of sale and prepe a drat prspects as well as drft Request For Proposal (RFP) and a bid doument that would include criteria for evaluao Il Q _anzao ADDnex 2. Page 6 of 8 15. The sudy shoud be conducted by a major accounting/managemen consultig firm with exten , prac epeie in the regulaion of the peroleum subseco, and the pivaton of steowned enterpris, including oil reining comanies. If the firm does not have all the relat exrienc and/or expertise to sasfactily complete either Part I or Part II of the study, te firm could associate with one or e s and/or individu&ls who havthe t expeince d exet to undke the asigment. I lead fim should have aces t% iml_a. the following areas of subsative experdse either in-house or dnugh sucor associate: - petroleum sectorregulation - petroleum accounting and auditmg - ~~~~~~~andps g - perefiney n n inern - refinngopiaton models o onnd mgent _envIronmen assess t of oil reiny options wcoomics and financial andaluadon modeling in petroleum - s , a n~~~~adrebcLig *j leilcojmsel with experience in pvate refinery operations and accounting and lega r 16. C should idicate bow they plan to organe the wor in order to reach the objecives and to complete the s listed in sacdon 2. In particular, an orgnizon cbar indicating the basic structe, the pemanent and temporary staff required and the extn techncal, legal and financl support needed from the fim or from other firms or consultants wil be required. 17. In the procs, consultant should submit a master tmetable for the priva process indicatng k steps to be tukn by the Goverment and conced entites. In the prcess ol assemble copies of all docum evidencing: - Right of a teure to the propery occupied - Ihde Unio Ag sin *~~~~~~t laP leo subsector - and Artce of Incorporation - Docume wlated to eistg t stus of the endty - Ex-refiny pding fa 18. In pefo g these tas, GOJ, PCI and Petrojam would provide the consulans as much In iIon as ble oncning the lea ownership of Petro3am, qt and types of svie cumndy povided and the c of the wok for 19. it is expected that the consltants would work closly with the Permnt Setmry, Mistry of Public Udtties, Transport and Energy WM ) or its desge person Tbe Penanet Secretary will be asked to provide a local team co g of !I of the Natoal nvesm t Bank of Jamaica (NIBJ), Ptrleumorpoon Annex 2- Page 7 WS of Jamica PCJ/Petroiam. the Attorney General's Office, and other relet OJ agencies which will be responsible for implementig the enery strtegy adopted by 0O0. 20. Throughout the sudy, the consultant should repot to Mr. Abderrahmawe Megatell of the World Bank in Wahigton, D.C., U.SA., Tel. (202) 473-8631. The o n of the acdvites i aica will be curied out by Dr. Athur eaddes, Technical Director, MUTE, 36 Tflgar Road, Kingston 10, Jamaica Tel: (809) 926-9170-9, Fax: (809) 926.2835. 21. Dring the consultant's visit to Jamaica, MIUT will provde all the requied information to undetake the study and will alsoprovide office spac d secretaria supot. IV. _ Dinb1usad llemAa 22. The sudy should be perfmed in the followig sae (i) The consultant(s) should prpae a report that addms concering the ;mp6rt and pricig regime for crde oil and perleum products ad its This rpo should be _Iap maly 40 to 50 pages in length not including ah , but Include an executive summary of not more ta 10 pages. ThIs report should be completed within the following number of days from the date of Su.mkdmftrepartwithieca mendatiop 20 days - Review by and the Wod Bank 35 days - Sub6ffidnporepoan 4S days - ApwvalbyGOJof l0onan in dy and view Wodd Bo* 60 d ays WorlddBank 80 days () e consultant(s) should prepare a pot that s i e dew v of odter deregaon Imes ad draft g admoicain to the reeat lelsllao to einaeote raing bAiers to enty, exit and compettion in the industy at the level of *production oge, transpoge distributon ad wholesale and reil martina Thisreposhouldbe approimately 40to0 Spages in length, not Inc but include an eecadve smmay of not than 10 Pame This report shod be completed wih th flowing number o dys fium te dat of a p - Submit draft remWo 35day - Review by GOlanddWalBank SOdays - Submtfin mo " --- 65day sidreviwbydkoWeddBmk 80 days Anmwx2.2 Page 8 of 8 Approvl by GOJ of detaie urements and deregrBadon framework and view by 105 d Pad ~ WatBn lOdy (iii) The consultant(s) should peparoe a report on the detailed privaion strategy of Ptodjam in a deregulated environment and lementaton (with a tmable) stategy, as well as a daft Request For Proosal and bid docment that would iclude itia for evaluaton. The ret should be about 50 pages in length not including attachments and iclude an executive su y of not more than 10 page. The repor should be completed within the following number of days frm the date of aponunent: - Submit drft report on proposed stratep and a detailed 110 days ins l, st and implemen n program and timetable to impIment pIvaFion - ;Review by 0O1 and the Wid Bank 125 days - Submit fial report on stgy andimplementaton program for the privaition 140 days - Approval by G0 of detiled requ*ments, and n staegy and implemention plan 190 days Consultants should submit fifteen (15) copies of the daft report and thirty (30) copies of the final report to GOJ and five (S) copies of the draft repo and ton (10) copies of the final r to the Wad Bank V. 23. The consultants should pride a firm fee quote indicadng a man-month rme for each category of personnel for each part of the study with a cciling. Details should be provided tor each grade of staff, of the hours and rates on which the quota is based. The split between the local Jamaican and foreign components should also be given. The pposals should include intonal t ; pp on of int presentaons and por; legal documents, and the final report; equipment; insurance; office supplie; subsistence allowances; transportadon in Jamaica (beyond that provided by PCJ/Petrojam the Government); and relatd expenses Anncx.Z Page 1 of 8 Ansltafi SAvics fgzbr oe R0gatLM hamewsk on o 2Sad C& I. Backsrand 1. Public supply of power in Jamaica is dominated by the Jamaica Public Servce Company, Ltd. (JPS). Tbe bauxite, cement and sugar industries all have inslled genetion capacity for self- consumpdon, and although some of these units are connected to the traission gid, JPS purchases or minimal amounts from these units. With the excepdon of this private generation capacity, JPSr monopoly is complete with respect to generaon, t ission and distibution sysms. The total generating capacity of JPS amounts to 523 MW; includinp four hemal power staions, with a total capacity of 499 MW (96%), and nine hydro staions, with a total capacitY of 24 MW (4%), with minor contributions made by bagasse, peat and fuel wood. In 1990, JPS'net geertion and purchases amounted to 1,944 OWh, of which sales weo 1,569 OWh. Reddential customers accounted for 32% of JPS' total sales, small commercial and industral consumers. accounted for 48%, large commercial and industrial consumers accounted for 11% and other onsumers 9%. Losses were approximately 19%, of wb4ch non-technica losses C'unaccopad for) were about 9%. Technical losses include losr,s in transmission Lines, substadons, distribution and distribution oimes. Non-technical losses include deftve mers, inoict mtering, and unregistered consumption. JPS has recently inidated programs to reduce both tochnical and non-tehnical losses. 2. JPS was incorporated by foreign investors as a private company In 1923. In 1971, dte Govenment of Jamaica (GOJ) acquired a controlling intest in JPS, and sub ntly comletd te acqusiton of 99% of the issued odnary capita in 1975. The basic leslato going th power scto conssts of the Electric Lighting Act of 1890 and the Electicity elopment Act of 1974. The Electric Lighting Act empowers the Minister to license any au oity r coany to supply electricity under the Act's provisions within any aea on the island, subject to the tms of the license and regulations made under the Act. The Electricity Develo t Act eablshed the lectricity Authority wich under the Act, would funcdon as the audtrity responsible for power sector development. In additio, the Electricity Authority is authodxized to e the licence- holding utilities, tUnder the lectric Lighting Act GOJ grnted to JPS, in 1978, a 39-year 'All IslandE ic Lcse", which gives JPS exclusive rights to provide eleicity pbicly and obligates JPS to supply eectiit t all par of the land. 3. Originally, JPS was regulated by an independent PubLic Utlity Commission. That Commission was supeeded by the Electricity Authority in 1975 folowing enactment of the Electicity Development Act ehe acqisidto of the Company by GOJ. Alhugh the Electrity Authodty technically sdll has jisdiction over JPS, in padcte the Compay reports dicy to GOJ, through the Minsy of Public Utlties, Transport and Eneg (MPUT). JPS p d monthly finanial rport to the Ministry, and it is closely involvedn fincial ad invesment planning for JPS. JPS fies a request for a rate adjustment with MPUTE which then aalyzes the request and submits it to the fll Cabnet for approval. From 198441990, howr, dth wore no t.& increases This, combined with inc g inla an devalua of the Jamaica dollar, rted in a detioron of JPS' financial codiion by 1989 and in 1989I90,th e ny had a negate rate of retn The situation ime In 1990/91 folowing a nominal ra ie of Page 2 f8 37% in April of 1990 and the rate of return increased to about 6%, while the debt service cover ratio also improved from 1.75 to 2.10. Recently, another rate increase of about 17% was appedin Decemb 1991. 4. Over the next 20 years, electicity demand in Jamaica is expected to incs at an aveage annual rate of approximately 4% per year. In order to meet that demand, substnal investmentI the power sector will be required The public sector, however, cannot meet these expansion needs. Accordingly, GQ0 has opted to encourage the introduction of the private sector ino the psovidion of electricity, and in 1990, GO established a Steeing Committee for Private Sect Pardcton in the Energy Sector in order to coordinae and promote private sector pa.icipaion in energy development. in the short term, GOJ has already undetaken steps to promote the development of private power plants in Jamaica on a build-own-operate ('BOO") basis. Private investors would establish a project company in Jamaica which would own, finance and opeme these projects, and enter into a long-term power purchase agment with JPS for the supply of power. The purchase of power would be based on a two-part tariff, including a capacity charge and an ener charge, the details of which would be oudined in the power p se areemet. In order to attract investors, a prequalification notice for the developer of the first such plant, a 60 MW slow-speed diesel plant, was issued in May 1991, and a shor list of qualified investors has been fnalized. A Request for Proposals will be issued to the prequdinvestors srdy and the selection of the dvelope is exptd to be completed by April 1992, d the lant o come on lne by 1994. 003 expes to conduct silar solicitation or a 60 MW uon uine plant and a 180 MW cool-fired plant during 1992 and 1993. 5. In paallel with GOJ's solicitation of private investors to develop additional capacity, GO0 has declared its intendon to privadtze JPS. The proposed privadzaion of JPS, and induction of pivate power producdon would require regulation of the sector to ensure economic and efficient opation of the sector, reliable power supply to the consumer, and consistent and independent tariff policy. Indeendent rgulatory oversight will give private investors' confidence and, dtereore, help to incrase pivate investment. At the sam time, the eliminadon of the diect link between JPS and GO will require effective regulation to protect Jamaican consumers and investor 6. In an effort to further the initial steps taken by 003, this study, consisting of thre phases, would be commissoned by GOJ and administred by the World Bai first phase of the study would recommend the brad strucue and ownerip of the power sector and an ap reguatoy framework for the piivatzed power sector. The seond phase of the std would adress te detailed implicatons of the recommended structre, Including the or ons equihd for the new stucture, including te regulatory institutions(s) allocation of asses in the sectr, requiredtriffadjustment mechanism, etc. The thd phase of the study would address the imDplementation progam, including the required legislative and regulatory changes, and a detailed strategy, program, and inmplemaii-son schedule for the privaizaon Annex 1.1 Page 3 of 8 7. The objectives of this study are: (i) recommend an institutional structure for privately-owned power sector and regulatory regime, which would promote the following objectives: 1. attract foreign and local pnvate capital and broaden local ownership 2. provide efficient and reliable supply of electricity at least cost 3. promote environmentally acceptable operation of the power sector (ii) define ownership of constituent utility(ies) as well as a regulatory framework consistent with the recommended ownership structure and required institutions to regulate the sector. (iii) prepare a privatization strategy to implement the insdtutional, regulatory and ownership changes recommended. III. c hase I - Brad Structue and Ownrit of Power Seo 8. For Phase I of the study, the consultant(s) will be expected to perform the following tasks: (i) Review existing studies and any other information sources required to analyze the power sector, including the following aspects: 1. Funcdons and operational performance of JPS, including its legal status and orgaition. 2. Financial position and performance of nPS, including condition of the company's assets. 3. Human resources and management of JPS. 4. Tbe crent laws and intutional aangements for reguation and operation of the power sector. (ii) Undertake an environmental screening of the existing geneion trasmission and distibution facilities of JPS to detemune potential problem areas, and provide cost estimates associated with the most critical pollution mitigation and clean up activities. The recommendations should be based on World Bank environmental guidelines and should take into account studies being caried out under ongoing Inta-American Development Bank loans which will be available for reference upon completion. (ii) Analyze and evaluathe xpee3ience of other counties for alternative organizadonal struct and regulaion of privately owned power sector Partcular emphasis ALU2.1 Page 4 of 8 should be placed on the models ad exeieces of developing countries with power secos of simala size and econoeme at m lvels of developmente The o ascng ta shoulpbxd be e 1. ean of vetcal and horzont inte. 2. feadbilt and naue of potenti competion In genadon and sWly. 3. ownebIp options for geneaton, trnsmisson and distribution. 4. bwadt regulaty arangeens treq for each alt ve insdtuonal and ownesmp stuctre (IV) R ei and ownship sucture for e power sector and propose opons and rmmend an appropria regulatory framework for the recomendedstucture. 9. For Phase I of the study, ie tants) wi be rqred to perorm th folowin task gi) Based onl the MP C Drnmded, j ScUCt pwposed In Phase I, if mo an one entity is conidered in the reommended structue, develop a plan for creating the new entit with public ownesip, ad defin the following aspec: 1 . the structu and funcdons of the enddes in the power sector. 2. the alcation of exsti physical assets and Ilbltes to each entity and the need for additional phyc asses 3. the separadon of fines and accon and the need for addit fanc resources 4. devlop deiled s ior x new commercial iagemes for the sector. 5. the allocion of £eisting human resources to each eantity. Idef isses aising in respect of hma resources (eg., pay and conditions, pensuio arngements, redudacy provions, union repesntaon) d make (ii) Based on the Irecmmended stuct for the power sector, provde a detailed outline of the reqired reguatoy regim In doing so the folowing should be addressed 1. Iden the (s) andonl suc necessy to adminst 2. Define dte fuct of the rglatoy ittuton(s), igts role In ramnt sysom amDt cmg_x dig AnnexILI Page 5 of 8 maintenance of quait of svice, safety, protcdon of the aw ionment, and disput oution. 3. Explain the relationship of the regulatory institution(s) and existing governmental enties, and power seor entdes Including BOO projects. 4. Define the rights and obligadons of the power sectr or pordons thereof (e.g., geneating companies, tansmission companies, and distribution companies) vis-a-vis the new regulatory institution(s), and other governmental enties, to BOO pirjects, and to the public. 5. Determine dtailed guidelines and procedures for perforing each of the functions of the reguatozy insdtution(s). n rcul, identf the criteria, prodicyt, cipants and procedures to b involin mand mvestnint approvals. (iHi) Determine the need for and Pose modificons to existing legislation and proceduesM to implement the I regulatoy framewo. (Ov) Prepre deed 10 yea financial projections for the entities included in the sce. Inclde the following 1. detiled calculation of revenues expectd from each source based on historcd data and all available load growth studies, least cost plans and wiffstudies 2. projections of requred investment in existing and new facilties based on histomical data and all available planning dies for genat, transmission and distribuion. 3. proecions of opeting and ntenance costs based on historical data and planning studies 4. proected balance sheets, income statm t and cash flOW stmnt 5. fnancing sgyt to meet resources requred. (v) umndetk an opeional efficcy vew to idenf te scp for iIm meI , e.g., dispatchig, fuel proanent, plant maenanc local ment and consevton, etc. (VI) review tariff levels to Idenfy the ex of variation fiom efficiency levels, and the nature of any tariff justmn sMS. 10. For Phase m of the study, h ctat(s) would be rqur to perform the following tad AM"xe 2-3 Page 60of8 (i) Identfy the steps that must be taken to impleme the eommended structre, including any changes to eising laws and eu , other than ths included in nase Ht of the study, which conceas the reuaty amewr Assit In dafting of new legiion and replatio (i) Evaluate briefly the feability of the differat methods of implementing the recommended altenadve for prvatizaton of JPSCo.(eg., sale of shares to the public, ESOP, trade sale of companies or assets, or a combination.) and recommend one or more methods. Tls should include prlminary esiadons of the value of the entity. (lii) Identify the eedp ntegutry staff and prepare the job desipan for Ov) In the event more dtan one endty is ppsd for the sector, pre a development plan for each new entiy, including ransfer of assets, lalities and emloyees, conttual arrangements or other commercial arangements, management deelpmnrmning eed,ec. iv. 11. The lead fum d fvme access to the following areas of substantive epertse eit in. house or dtugh sub-contactrs or associates: - power sector regltion futlity accointing and auditing - power engineering - environmentalasessment of power sysms uftilt forecastinig e 0ecnomists with expience in pria of the pow sector - legal consel w eith experie n prvate power and pivation - investme bankex with exeriee in pivae pow and pi - local accoutng and lels 12. It Is expctethat the coslants will work closely with th Pemanent Secret. MMlf Mm Ptenm Sqy wil be askd to p & alocal aOm codssng of I o Natonal INesmet Bank of Jamaica, JP, the Atony G 8enrs Offloe, and other eev 00 6paies which wi be _pmdlile for the strt adopted by 001. 3 Am xl2. Page 7 of 8 13. Tbroughout the study, the consultant should report to Mr. David Baughman of the World Bank, Tel.: (202) 473-2085. me coofination of the acdvides in Jamaica wil be carried out by Dr. Arthur Geddes, Ministry of Public Utlities, Tansport and Energy, 36 Trafalgar Road, Kingston 10, Jamaica, Tel.: (809) 926-9170-9; Fax: (809) 926-2835. VO; Delieabls and Tlme Table 14. Tem study should be performed in the following stages: (i) The consultant(s) should pepar a report that analyzes the current status of the power sector, the models and experience in other countries and recommend an institutional and ownership stucture and an appropriate reglatory framework for th power ector. The rport should include an execuive mmay of not more than 10 pages. This eport should be completed within the following number of daysfrmth date ofIppoiftment: - Submit draft report with recommendatons on an organiton structure and reguatoy frmework for thie power sect. 45 days - Review by GOJ and the Wodd Bank. 60 days - Submit final report on reoenda 75 days - Appra by GOJ of reo ns in study, revw by World Bank. 90 days (I) The consulnt(s) should prepare a detailed rpo that examines the functions, organlizaton guidelines and procedures necessay to implement the faework recommended in Phase L This report should be about 50 pages in length, not including attac ts and include an executive summary of not more than 10 pages. Organizational charts and tables smmarig the materal should be Included. Any financialmodels used for financial projectons would be subject to review by 00J d the Bank. Ths report should be complet within the following number of days from the date of apontm - Submit draft report on the dtailed inttutonal, orgiatioa requi ts for the rconded powersecto tructue md the appror reguatoy 120 days regime. - Review by G0 and the Wodd Bank. 135 days Page 8 of 8 Submit final report on detailed requirements for propoed srucr. S0 days - Approval by GO of detailed requirements and regulatory regime for recommended structure. Review by World BanL 165 days Em~ (iii) The consultant(s) should prpare a report oh the detailed privadtdon stmategy and implementation strategy including idendfying the required sting and assisting in the drafting of the legislaton to implement the proposed stucte. The report should include an execuve summary of not moe 10 pages. The report should be completed within the following number of days from the date of Submit draft ron prosed privazatin stegy and a detailed institutonal, strategy and implem nation program to implement pon, staufing requWe and necessary legsatin 180 days - Revie by GOJ and the Wold Bankc 195 days - Submit final port oan straegy and implemeaton program for thepaizaton. 210 days Consltants should submit fiftn (15) of the draft reprt and thirty (30) copies of the final rp to GOJ and fie () copies of the draft ept and ten (10) opies of the final report to tie Wrd Banl. VI. dgd _d F_ 15. The consu d pvide a firm fee quo. Details should be provided for each grade of staff, of the hours and rats on which the quote is based. The split between the local Jamaican and foreign components should also be given. The proposal should include Intnatonl tavel; preparation of Inthn~sen eadons and eports; legal ts, and the final repom eipment; muance; office isubstece allowancs; an ain in Jamaica (bey that pod by JPSCo. or the Gon and lated expes 1F Annex 4.1 Page 1 of S SALT RIVER BASZLINE STUDY - JPS ENERGY zXPANSION PROJECT DRAFT TERMS OF REFERENCE In order to meet its growing electrical energy needs, Jamaica must construct additional power generation stations, using a mix of power station types and fuels. Some potential sites for such stations have been identified. Baseline studies of the terrestrial, marine, atmospheric and socio-economic environments of each site will provide the government of Jamaica with a better understanding of the environmental and socio-economic sensitivity of the sites so that appropriate protective measures can be taken before and after the decision to build on a site has been made. It will also help to identify a site best suited to a particular power station type. The information will, as well, provide a firm basis for an eventual EIS, once a proponent has been identified and the kind of power plant determined. The following are general terms of reference only for the proposed Salt River site. They could be applicable to any power site, with site specific modifications as necessary. Detailed terms of reference are to follow. Purpose This document sets out terms of reference for baseline studies whose completion will provide information needed as a basis to conduct an EZIA at a selected electric power generation site. Scope of Work To achieve that purpose, environmental and socio-economic baseline studies will be undertaken in relation to the pofential power site identified. The specific extent of tne areas to be studied will be determined by the power plant design and transmission line routes. Environmental baseline data are those data required to determine the nature of, and the biological and socio-economic significance of the biota in the area likely to be impacted by the development. It involves a description of the physical environment as well. Ecological linkages and habitats. need definition. It must be emphasized that it is not a complete biological and physical inventory, but must focus on the elements which have scientific, economic and/or social significance. Socio-economic baseline data gathering would focus on those people likely to be adversely impacted by the construction aiLd operation of the plant. Annex 4.1 Page 2 of S Because of the seasonal variability of much of the data, the study will need to be conducted over a period of at least one year and will be confined to a pre-determined area of possible impact. In undertaking the baseline studies, the consultants will: 1. Describe the marine environment, its physical and biological components, including the identification of nurseries, of scientifically or economically important species and functional ecosystem linkages; 2. Describe the terrestrial environment, its physical and biological components, with emphasis on those plants and animals and their interactions of* social, scientific and/or economic importance; 3. Obtain meteorological information, for purposes of modelling at a later period, the nature and extent of possible emissions impacts, ground level ambient concentration and wet deposition, such information to include daily average wind speeds and directions (diurnal and nocturnal), ambient levels of SOx, NOx, and particulate matter, daily rainfall and prevalence, duration, and dates of occurrence of inversions, and a record of the frequency and severity of hurricanes, seismic activity, or other natural events that could seriously impact the installation. 4. Undertake an assessment of the availability and quality of fresh water required for plant operations. 5. Identify the numbers and distribution, and economic activity of people who could be affected by emissions, or interference with fishing activities or by construction and operations of the plant (construction traffic, influx of workers to qommunities adjacent to the plant, etc.) 6. Identify other proposed uses of the area which may place constraints on the plant location and design (i.e. proposed park or eco-tourism area). 1. WMIlRE NWVIRONNEST STUDIES Physical Environment Sedimentation and shoreline dynamics studies, wave climate studies (over one year, periodically), current patterns (full tidal cycle). Salinity, density and temperature measurements, mangrove flushing parameters of salt water. Annex 4.1 Page 3 of 5 Biological environment - Identify ecologically, economically or socially important species of invertebrates and vertebrates, and of marine plants; - For the above species, provide habitat descriptions and important ecological relationships, including spawning and nursery grounds; - Summarize current and available knowledge about temperature tolerances of the above species, including such tolerances of their important food species. 2. TURRSSTRIAL STUDIES Botanical Studies on Site (i.e., access roads, plant site, ash disposal site, etc.) General site description - Plant cover distribution (cover maps) Species composition - Habitat descriptions - Identification of ecologically, economically orsocially important species - Important ecological relationships described Note: much of the proposed site, particularly the ash disposal area, is a dead mangrove stand). Botanical Studies Off-site (i.e., power line route, possible area of emissions impact) 0 - List major plant communities, with components and dominants, including agricultural crops which could be impacted by emissions. Determine ground ambient concentrations of SOx NOx and total suspended particulates (TSP). -Determine relative vulnerability of soils to acidification. Note: Determinations of ground ambient concentrations and of soil acidification vulnerability should proceed only if the technology of the power plant at the site has been determined and an early date for its construction has been set. Faunal Studies Invertebrates - rare or endangered species. Annex 4.1 Pag40fS 2. T!RUASTRAL STUDXZS COWT' D Vetebrates - Amtphibians, reptiles, and mammals, including rare or endangered species. For the above species lists, estimated abundance and importance, habitat descriptions and important ecological relationships. 3. CIL STUDZNS Meteorological Studies over iand area within the radius of emission influence of the plant. By establishing a number of automatic weather stations, or by other means determine:" - Daily average wind speeds and directions (diurnal and nocturnal) - Average ambient levels of SOx, NOx, and particulates - Daily average rainfall - Prevalence, duration, and dates of occurrence of inversions. Through literature research, provide a record of the frequency and severity of hurricanes, storm surges, sei.smic activities or other natural events that could seriously impact the plant installation. 4. tRISE AMTER STUDIS To determine whether or not a desalinization plant will be needed at the power station site, assess: - Surface and ground water availability and quality - The relationship of projected plant requirements to current and future water demand figures, to be obtained from the appropriate water authorities. S. SOCIO-COOMwIC STUDIES Assess the numbers, distribution, and general economic activity of people who could be affected by emissions, or by thermal plume or other impacts on fishing activities, or by construction and operation of the plant. Annex 4.1 Page 5 of S Factors to consider include not only emission and effluent impacts, but those having to do with heavy construction traffic through communities and/or rural roads, the feeding, accommodation and recreation requirements of construction workers, etc. Economic activity assessment should include a statement about the commercial or subsistence value of, and number of people involved in any fishery conducted within the area likely to be affected by the thermal water plume and ship traffic. 6. PEYSXCAL PL&NNING COCWLIANMC STUDY Determine if other proposed uses of the area, such as national parks, or eco-tourism development purposes, would pi ace constraints on the plant location, design or operation. ANNEX 5.1I Page I of 1 JAMAICA TOTAL VEHCLE FLEET (FALL 1990 REGISTRATIONSO) Number % TYPE Moto Cmus 78,678 5S% Vans S,97 4% Trucks 2S,642 18% Bus 8,681 6% Trailer 796 1 % Tractor 1,121 1% Motor Cycle 23i60S la 144,220 100% AGE 10 yrs & older 76,651 53% 6 to 9 yrs old 22,574 23% 3 to 5 yrs old 12,399 9% 1 to 2 ys old 22.nfi la 144,220 100% FUEL TYPE Gasoline 121,250 84% Dieo 22.seQ 16Z 144,220 100% e Note: A smalU addidonal nwber of registratons in the Temporary or Substitte category ma exit. This number is not more than 9% of the abow total. Annex 7.1 Page 1 of 12 ENVIRONMENTAL GUIDELINES The following material is taken from the World Bank's 'Environmental Guidelines," September 1988, and covers standards applicable io (a) petroleum refineries, and (b) sulphur dioxide ambient levels. Peirolem Rtefining Table 1. Potential Sources of Oil Refirery Edssicns Bllissicn Picipa Potential Sourcss Su4fur Oxides Boilers, prEcmess eaters, catalytic cracldng uit regenerators, H2S flares, decocing cperaticns. Hydrocarbons Storage tanks, wastewater separators, catalyst re- enerators, pumps and valves, cooling towers, volatile hydrocarbon handling equipment, process heaters, ompressor engines. Nitrogen Oxides Process heaters, oompressor engines, catalyst re- generators, flares. Particulate Matter Regenerators, boilers, decoking, incinerators. Aldebydes Catalyst regenerators hnlTunia Catalyst regenerators Odors Treating units, drains, tank vents, wastewater separators. Carbon Monoxide Catalyst regenerators, decoking, oipressor engine incinerators. The categories used are patterned after the Anerican Petroleam Institute (API) classification system. Tse categories and the refinery Ceratio'w included in eadh are as follows: -Tpping: Tcpiing, catalytic reformndg, asphalt roduaction, cr lube oil nunufacturing but no craddng or thenal cperatios. -Crad s bTcgpng and craddng - Petroderlicals: Tcping, adCking ad ecals pera- ticns (firvt geration and isanerizatios products or second goneratimn products). Annex 7.1 Page 2 of 12 - Lube: Topping, Cracking and lube oil nanufactu- ring processes. - negrated: lToping, cracking, lube oil mnnufacturing processes, and petrochaicals perations. The pollution paramters of najor significance in tise industry are as follows: 5-5day Biochemical Oxygen Demand (BOD5) -- Chemical Oxygen Dead (COD) Total Organic Carbon (TOC) -Total Suspdd Solids (TSS) -- oils and Greases (O/G) = henolic Ccpounds -An° nia Nitrogen (NH3-N) Sulfides - Total Chraium (Tot.Cr.) - Hexavalent Chranium (Crr6) - ydrogen Ion Caoentration (pH) The wastewater flow and ofatics of refinery effluents can vary consideraby according to the type of ratins. Table 2 lists the median (50% of ocrences less than cr eual to the values shown) raw waste flcws and ladings, represeting the oil sparator effluents for each of the processing categories cited above. In geneal, all wastewaters frau processing units disdarge to large basim or ponds (API sepaators) which function as ail and water separators. The oil is usually recovered as a valuable by-product. Hexavalent dcraium is present in refinery effluents. due to the additicn of durmates to cooling waters in order to irtdbit corrosicn. Table 2. uid Effluent Liita for Petroleum Refinery Mates. 4a xim Daily Discharge - Kg wer 1000 M3 of Feedstock a/ _jb Proceos - . Category 0105 COD TOC TSS 0IC PIlEN. N13-N SUL- TOTAL CR+6 Topping 6.3 32 8.2 4.0 1.9 0.04 1.3 0.04 0.10 0.002 Crackitg 8.7 61 11. 5.R 2.6 0.06 8.6 0.05 0.14 0.002 Petrochcals 12 69 15. .7 3.5 0.08 11 0.06 0.19 0.003 Lube 18 126 24. 12. 5.6 0.12 11 0.10 0.31 0.005 Integrated 22 152 29. 14. 6.7 0.14 11 0.12 0.37 0.006 Runoff e/ 0.03 0.19 0.03 0.02 0.01 - - - - - Ballast tl 0.03 0.24 0.03 0.02 0.01 - _ - a/ Fe&'stock - Crude Oil-and/or ratural gas liquids throughout. b/ Fbr all effluents pH = 6 to 9. c Applies only to process area runoff treated in main treatment system. All runoff frcm tank fields and non-process areas shall not exceed > 35 rg/L of TOC or 15 mg/L of O/G when discharged. d/ Applies only to ballast -waters treated at refinery. Annex 7.1 Page 4 of 12 OCM~TC~L AND TFagaWf OF WAST~ES mhe gaseous eissions and the liquid effluents are of e1ml im- portance in the refinery cperation and t* disdc-arges must be controlled sin order to avoid environmental dmage. A ccnbination of process control, in-plant housekeeping, and treatment tedmlogy can usually be effective in achieving reducticn of these discharges to acceptablelevels. Gaseous Effluents It is difficult to categorize anission sources on the basis of refinery cperaticns, since many of then are coxnuon tbroughout the plant. For purposes of amissions omtrol the refinery should be considered as an integated systems of storage facilities, process heaters, cooling equip- ment, pumps, valves and other units and operations. Hydrocarbon emissions criginate principally fSnm storage facili- ties, valves, pztps, caxpressors, wastwater sqparators, and loading facil- ities. These emissicns can, in nmst instances be collected by vapor reoov- ery systems or ventilating systers and eliminated by burning. Disposal is most frequently tbrough elevated flares, using steam ejection. Flares nust be so located as to avoid proximity to ccsbustible materials, tanks and processinig equipment. other measures for reducing emission discharges include high ef- ficiency dust raival equipTent on catalytic cradcing units, waste heat boilers on catalyst regenerators, snkeless flares, and sulfur recovery systems. Iproved housekeeping, coupled with intenance and eiplayee edu- cation can also ontribute significantly. Liquid Effluents Tecloqzy for control and reduction of effluent loadings falls into three categoriL - . in-plant control, at source pretreatment, and end- of-pipe tecnology. Two types of in-plant measures can greatly reduce the volume of final effluents. Tbe first of these utilizes the reuse of water fron one prooess to another, such as using blawons fran higher pressure boilers a feed to lcw pressure boilers cr using treated effluent as makeup water whenever possible. The second approach is to utilize recycle system3 that use water more than once for the same purpose, such as using steam conden- sate as boiler feed water or using cooling towers. Good housekeeping will further reduce wasrte flows. Exauples are mndimizing waste whmn sanpling product lines, using vacuum trucks or dry cleaning methods to clean up cil spills, applying effective naintenance and inspection in order to keep the refinery equipxnent as leakproof as possi- ble, and providing individual disposal for waste streams having special characteristics, (such as spent cleardig solutions). Annex 7.1 Page 5 of 12 Process modification, in most cases applicable to both existing and new installations, could include: -Sbstitutin of inproved catalysts having longer life ard requiring less regeneration. -Replacet of bar}netric condensers with surface con- densers or air fan coolers to reduce a major oil-water enulsicn source. Substitution of air fan cooler for water cooling to re- duce blowdn discharges. - Installation of bydrocracding and hydrotreating processes designed to generate the lowest possible waste loadings. - Provision of autamatic monitoring equipr&nt,, such as for TOC, to assure early detection of process upsets and avoid- ing excessive discharges to sewers. - Maximzn use of inproved drying, sweetening, and finishing procedures to ndnimize volumes of spent caustics, filter solids and other materials requiring dixpsal. Major at-souroe pretreatment measures include stripping of sour waters, neutralization and oxidation of spent caustics, ballast water sepa- ration, and slcp oil recovery. Gravity separtors rense the major portion of the free oil found in refinery waste waters. Most of these oils can be reproessed, and hence the separator is considered an integral part cf the refinery cperations. End-of-pipe'control technology relies nmost heavily on a cmbina- ticn of flnw equalization and biological treatment methods. Equalization, whic'h eliminates surges in flows and loadings, is particularly ixportant for a biological treatment systen since, for exuple, sudden discharges containing bigh c t tns of oertain raterials can upset or omapletely kill the in the system. Amng the biological tedmiques most comonly applied are dis- solved air flotation, oidation pds, aerated lagc.n, tricdling filters, activated sludge, pfsical-dhemical metds, grular media filters, and activated carbon. These may be applied singly or in na n, d ding upo the volume and characteritics of the wastes to be treated, availabil- ity of land areas and other factors. The most frtquently used methods for disposal of dinium bearing wastes are by reduction of the hexavalent to the trivalent form (with sul- fur dioxide, sulfites, ferrous sulfate, or other reducing agents), fxollowed by neutralization and precipitation of the reduced ctruxaium with alkali. Ame 7.1 Page 6 of 12 Sludgs produced frm bolcal tre nt be dispoe cf by land-filling, land farming cr c t :B Jones, HArold R. "Pollutin Cntrol in the Petroleum Indlty N Data Crpation. Pak Rge N.J. and Iadon (1973). Poars, Phli W. "How to Dispose of Toxic anxes and Indus- trial Waste.". N Data Co ati. Park Ridge, N.J. and London (1976). U.S. Etvi o ml Protecticn Agency. "Develcpwt D am*. for Ef- fuent iittis Guidelines and Now So Pro -- Standards for the Petroleum Refining Point Sor Categcy". Doc. EA-440/2-74-014a (April 1974). UTN Eaviwraunt Prograa. "Saminar on Envirommuntal Corservation in the Petroleum Infdstry - 29 Mardh to 1 April, .1977". Doc. UAEP/lss 5/10 (Final). United Nations. Ne Ycrk (Jue 10, 1977). U.S. Federal Register. U.S. Go nt Printing Office, 1 ,bington, D. C., -as foflls: (a) Vol. 39 (39F9308), March 8, 1974 (b) Vol. 40 (40FR46250), October, 1975 (c) Vol. 41 (411R36600), ALgut 30, 1976 (d) Vol. 41 (41FR43866), Octobr 4, 1976 (e) Vol. 43 (43R1066), March 15 1978 (f) Vol. 43 (43F2616), My 18, 1978 Annex 7.1 Page 7 of 12 Sulphur Diode AmWin Leels - udelines Nn-mde emissiona of sulfur dioxide originate frcm a variety of SCes dischrging to the atmosphere. Ihe major source is frcs the cczt*4sto of fosil fuels sudh as coal and oil. Same 90 to 95 percent of polluticn-related sulfur oxide emissions are in the form of sulfur diox- ide. Another source of sulfur dioxide is auto exhaust gases, although it accounts for a relatively small portion of such disdharges to the at- mosphere. This guideline will concorn itself with statiCnary sources only, particularly those resulting fran stion of fuels soutainin sulfur. Sulfur dioxide oxidizes in the athere to form sulfates, a particulate fom of sulfur cpods. mese nds ay have adverse ef- fects on hunan health and prcperty, depending upon particle sizes, the par- ticulate form of sulfur present, dispersian as affected by weather condit- ions, and the presence of other pollutants which may Aagnify the effects. 80tRE AND EFDTIS Sulfur dioxide, bas a sbarp and chdCing odor, and is considered to be one of the am dangerous gases to man. It is one of several forms in Oft sulfur circulates globally. The sulfur cycle also includes hydrogen sulfide gas, sulfuric acid aerosol, and several sulfate salts in aerosol form. Ebr purposes of this discussion, an aerosol is defined as a suspension of liquid drcplets or solid particles in a gas. The ntration of platios into large metrcpolitan areas, with the resulting enerw needs and industrial activity, causes the emsls- i-n to a over these areas and disperse slawly. A US study, made in 1968, sd ati ideof sulfur oxide emission sources to be as follas: Fuel is 73.5% Coal 60.5% Residual fuel oil 11.8% Distillate fuel oil 1.2% Industrial Processes 22.0% TransEportato 2.4% oala Refuse 1.8% SDoid Wste Disposal 0.3% Annex 7.1 Page 8 of 12 Electric pwer plants, the bulk of whid£ utilize coal and oils as fuel, are the leadirng sources of wlfur dioxide emissicis, as soWn above. Except for sources (wihid include motor Vehicles, vessels, and railoads), over 97% of the nan-made sources are stationary. The de- gre of salfur dioxide production frcn any individual source depends not mnly on the amomt, but also an the type of fuel burned. Sulfur, in a free or ombined stata, occurs in practically all fossil fuels. When freed to the at esphe, usually by cabustion, the sulfur or its rounds react with the oxygen present in the air to forn oxides. These can combine with moisture to fom sulfiuous acid, followed by formaticn of sulfuric acid, as follows: S02 + 1120 - 12S03 502 +. 1/202_ S03 SO3 + 1120 12S4 Acids formed in the atOsphere fall with rain and can affect crops and plants, and surface waters (particularly lakes). S90te lichens, for exaple, stce acid in eir roots then die, and thy are saetimes used as indicators of sulfur dioxide fallout. Sulfur dioxide emissions* throigh the formation of acids and other salts in the atmere, can cause damges to human health and prop- erty. H}4h levels of sulfate concentrations will aggravate asthm, lung and heart disease., Sulfur dioxide in the presence of photocbemical oxi- dants and by-products such as sulfuric acid and bydrogen sulfide has been snx to affect the respiratory tract. It is als widely believed that long term exose to sulfates my increase the lkelibood of respiratory illness such as brnhitis, emphysem and asthma. This effect is nnre pro- bable uhe high o:xicedtraticns of particulates are present. Senitive vegetation can be severely damged by 1w levels of sulfur dioxide, levels even lwer than those said to cause distress to lung diseased patieats. Such effects result from the synergistic action of sulfr dioxide with low levels of ozone or nitrogen oxide which may be present. Mheat, barley, cats, white pine, cotton, alfalfa, bucwheat, sugar beets, and other crmp plants have beem reported killed by relatively lw levels of sulfur dioxide fallout. Studies made in the USSR during the past decade ihowed that pine trees grpAang in an atn*sphere having S02 con- centaltions of 500 pg/rn had a growth loss of 48 percent in conparison with pine trees groaing in an atmosphere free of S02. Sulfur oxides and their acid by-proiucts will attadc any exposed metal suface, inluding steel rail tracks. Peacticr will also occur on other ssuch as brick, stnaeorkc and even granite, (such as statUes and Aumts). Plastics, nter, pper, and many other simdlar nmterials will tem lord and brittle when exposed. Bdings, bridge", ste girdrs, autonebiles and highways are all affected by Annex 7.1 Page 9 of 12 EKESSIA SAMPLIN AND MSUREM1 Althoug several units have been used in the past to express the cocentratios of sulfur dioxide in the air, the unit in nost occ use today is in te of weiht per unit volume of air-cicrograns of 902 per cubic meter of air (pg/n3). 'flis unit should be used by' the Bank's staff in their r s dealg with this pollutant. Where analytical results are givenl in ptes per millin (Epm) of S2, the data can be onverted to ~g/m3 ao follaws: 1 ppm S02 - 2620 pg/m3 It is inportant to note that this conversicn factor applies to 502 only, and will not apply to any other sustance having a different molecular weight. Becas 6industrial operatics nmy involve frequent cyclic changes, the tiring of testing or msnitoring mt be properly coordinated. i l polluibg sbstancs ould be identified and fluctuatiorS of peak lkadings ide ined in advance. All the variables associated with source testing dhoud be considered so that the sapling and analytical re- sults wil be representative of the entire source process. woedures Zfor the collection and analysis of both stationary anx abient source saples, for detening sulfur dioxide levels, are Contain- ad in the gpidelxna titled "Sulfur Dioxide SanpLing and Aalyses", avail- ble fram the Bank's OEfice of iavircnnwntal Affairs. ACCPTABLE STANDAD Standrds are generally of t£ types - emissicn and anbient. Uuissim standards apply to alloable x nentrations at the source, such as stack, ventilating system ard other disdharge points. Antient standards apply to the allowable coenraton of a antainat in the air surround- ing an indstrial area or aomamity. imissicn levels are necessary for identifiCation of ecific pollutin sources and design of remedial wrks. hinbiet levels are essential for dete ing posible ei m al danages and fcr aiding adverse owsical, health and other effects upon the sur- ronding area and its ihabitan. he standards presented belw represent the nentations of 502 Uhidh nay be permdtted in the area surrounding t emission source. Annex 7.1 Page 10 of 12 Er all Dank projects ambient air a-ientrations of sulfur axides should not exceed the follwing for ne plants: Iside plant fence Annual Arith. mean: 100 pg/m3 Max. 24-br. peak 1000 9/m3 Outside plant fence Annal Arith. mean: 100 pg/m3 Max. 24-br. peak 500 Ig/rn3 In spcial situations strict adherence to these standards mya be difficult. All such ses are to be carefully documented by the Bank miss- ions. Factors wich may affect the ability to meet these stardards in- clude: -=fpnsion of exdsting plant - The anmual arith- metic mean and the Max. 24-br pek resulting frcu the ofatin o the old units with the raw nes bould' be no greater than the values obtained for the old units alone. More sinply, erdssion plumes frm rnw and existing sources uld not mix to the extent that cambined ibient concentrations exceed n'xidum aubient concen- tratio aind fran the existing source alone. This may be abcyplishd b (a) increasing the stack height of the new source, (b) changing the stack locaticn of the new source, or (c) reducing new source emission levels. Furthermore,, if pluie mixing is not a problem, the new sore units shold by theuelves meet the above standards. - eig of einglts - Every effort sbuld be rde to decease existing pollution levels and provide measures wbic will minimize conentrations without placing rea le oac brdens on the industry. 8Inversions - When the S02 source location eir in-ailley or surrounded by nmtains. invesion layers which may occur during certain seasons of the year, oould trap the stack emissions. These emissions can drcp back to ground level, stagnate there, and damage crops sensitive to S02 and NOx. In som pro- jects# it my be knposible to hange the site locaton (i.e. in case of an expsion of an existing plant). In this cae, to potect crops, th peakconcentratin will be decreased fram 0 pg/r3 during 24 haours dwn bD 350 pg/m3 during 4 hors, unless itcan be sbown that the effluent will not be trapped by the iwvrsion layer. Annex 7.1 Page 11 of 12 - Non-ferrous metal selters - Substitutions of flash or electric furnaces nmy be necessary to meet guideline requirements. The Iexisting US national ambient air quality standards are given below for caparison with the above figures. - I i - based on health effects n humlns Annual arith. mean: 80 pig/m3 Max. 24-hr. - once yearly: 365pg/m3 - &dary - based m enviroamental effects Annul arith. mean: 60 pg/m3 Max. 24-hr. - once yearly: 260 pg/rm3 Max. 3-hr. - cncs yearly: 1300 4g/m3 CONTROL TEa=aLGY Technology to be applied for control of emissions must be designed for each individual case since, in most instances, the system used must be capable of remving or reducing more than one pollutant at the same tise. Since SO2 emdssicns are due principally to the ontent of sulfur and its oipounds in the coal and oil used for fuel, the first measure to be considered is the substitution of low sulfur fuels or natural gas. Any increase in fuel Costs should be balanced against the cost of treating the gaseous wastes. Fnissions may be reduced through process changes. In-plant meas- ures oould include changing raw materials, modifying process cperations, or recovering and reusing materials otherwise being wasted through the stack. Raising the point of discharge above the ground, by increasing the stack height, will reduoe contaminant concentrations at ground level. When measures such as those outlined above cannot be applied, dhemical or physical processes should be utilized. Sulfur dioxide nay be remved by adsorption, absorption, or a chemical prcess such as catalytic eonversion. In sane of these processes, the S02 can be removed and serve as the raw material for sulfuric acid production. One of the Erxrising methods for flue gas desulfuxization utiliz- cs the reaction of magnesium oxide with 502 to form magnesium sulfite. The nagnesium sulfite solids are separated by centrifuging, dried to remove the moisture, and then calcined to regenerate the magnesium xide for recy- cling, and generate concentrated S02 to be used for sulfuric acMd produc- tion. Annex 7.1 Page 12 of 12 Limestone scrubbers have bem used successfully for desulfuriza- ticn of flue gases. Injecticn of liTe cr magnesium into the fuel contbust- ion chamber has also been effective in reducing sulfur dioxide emissions. Haever, it should be noted that these processes produce calcium sulfate wastes, wbich can present a disposal problem. They are therefore recom- mended in areas where land is both available ared inexpensive. AnmEnia scrubbing system have been in successful operation in sulfuric acid plants since the nid 1930's The miain drawback has been the disposal of the amrnium sulfate by-product. Any World Bank financed sul- furic acid plant where the sponsor insists on a single absorption design should be equiwped with ammonia scrubbing. BRIBIOGRAPHY U.S. 1vironm tal Protection Agency. "Health Effects of Air Pollu- t on". Washington (June 1976). "Environmental Considerations for the Industrial Develcpmnt Sector". The Wbrld Bank. Washington (August 1978). Pasztor, L., Selmeezi, J. G., and Labovitz. C. "Stack Gas Desulfuri- zation Residue Management". Presented at National Conference on Man- agement and Disposal of Residues fron Treatment of Industrial Waste- waters. Washingtcn (February 3-5, 1975). U.S. Environmental Protection Agency. "Capsule Report-Flue Gas Desul- furization and Sulfuric Acid Production Via Magnesia Scrubbing". Doc. EPA-625/2-75-007. Washington, (1975). "Air Quality Criteria and Guides for Urban Air Pollutants". Report of a MHD Expert Cbmmittee. WHO Technical Report Series No. 506. World Health Organization. Gemeva (1972). - Anirews, W.A. Mbore, D.K., and LeRoy, A.C. "A Guide to the Study of Ehvironmental Pollution". Prentice-Hall, Inc. Englewood Cliffs, New Jersey (1971). "Manual cn Urban Air Quality Management". European Series No. 1 World Health Organization, Regional Office for Europe. Copenhagen (1976). Ismerov, N.F. "Control of Air Pollution in the USSR". Public Health Paper No. 54. World Health Organization. Geneva (1973). Proceeding - "Seminar on Desul z of Fuels and Comtbustion Gases". UN EcXncmic Cmnmissicrn for Europe, Held in Geneva, 16-20 Novuztr 1970. Doc. Sr/ECE/AIR PFI/l. United Nations, New York. (1971). ANNE 7.2 Page 1 of 2 DRAFT TERMS OF REFERENCE ENVIRONMENTAL EMISSIONS INVENTORY Objectives A regional and national emission guideline program should be based on (a) emission Inventories, (b) enhanced monitoring, (c) impact assessments covering health, soils, vegetation and marine biota, (d) cost/benefit evaluation of alternate constrints, and (e) definition of appropriate emission standards, fuels, vehicles, etc. Such a program will evolve with time approaching the most critical Jamaican needs first and maturing into a fully comprehensive program, interlinked with international commitments. An emission inventory is an essential precursor and must cover air, land and water related emissions. Such an inventory will also start on these emissions - compounds and rates - considered most critical in the short term - many on a regional basis only and evolve into a regulatory updated comprehensive national and regional inventory. At first many "standard' factors could be used in lieu of actual measurements to save time and expense, but being replaced with actual measurement or Jamaican bource specific factors with time. Inventorying is not a one time effort. The proposed inventory would assess air pollutants related to ril refining, electricity generation and the use of fuels and electricity by Jamaican industry, commercial establishments and the populace generally. Dispersion modelling taking into account wind, rainfall, and topographic features would be carried out to identify areas particularly susceptible to acid rain. Iitial Air Emission Inventory The Jamaican inventory would first center on the primary pollutants from industrial and people related sources - SO2, NO,, CO, particulates, hydrocarbons, other organic compounds and any other special chemical species identified as being of local importance. The inventory would plot point sources with inventories for each where these exceed certain percentages of the regional or national emissions, as apropriate. Pseudo point sources would be used for groups of small point sources and area emissions - e.g. from vehicles. Area emissions and small point sources will always be the most difficult to defmae. The initial effort would Wdentify as many sources as possible and apply regional/parish rates for each, using for example, fuel consumption estimates with factors for various pollutants. Initial Inventorying Activities The following activities are envisaged: (a) overall data base and model development (b) mapping base - national grid ANNEX 7.2 Page 2 of 2 (c) industry inventories - who, what size, where, contacts (d) fuel use distribution - type, where, sulphur, etc (e) industry sector by sector review* (f) dumps and other waste combustion reviews* (g) vehicle emissions - fleet data (Petrojam) - review* (h) commercial, institutional sector review* (i) agriculture and residential sector review* G) marine and miscellaneous sectors review* (k) input data into overall model The data base would provide emissions by geographic region down to major point sources for input into dispersion models and for direct use in analyzing geographic emission profiles. Initially, time of day factors may be omitted but the model must allow for those to be employed at a later date. Those reviews starred * would initially use "standard" U.S. or other factors to be Improved over time, except for coal and liquid fuel related emissions. The U.S. EPA's Mobile 4 program might be considered at a later date for the vehicle emissions if ihey turn out to be significant. Standard data base programs are available for such inventorying but some effort will be needed to select the most appropriate one. Inventory Team For the initial survey approximately six man months of effort over a three month period is foreseen but there may already be appreciable data to reduce that level of effort. However, other parallel activities in the environmental control area should be considered in the organization and staffing. For example, dispersion models and meterological bases are essential for the use of the inventory data. ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME COMPLETED ACTIVITIES Coenty Adiviy Date Numner SUB-SAHIARAN AFRICA (AFR) Africa Regional Anglophone Africa Houswhold Euey Worksp (English) 07/88 085/88 Regional Power Seminar, on Reducing Electric Power System Losses in Africa (English) 08/88 087/88 Intitutional 3Evaluation of EGL (English) 02/89 098/89 Biomass Mapping Regional Workhops (English - Out of Print) 05/89 - Francophone Household Energy Workshop (French) 08/89 103/89 nteraffican Electrical Engineeing College: Proposals for Short- and Long-Term Development (Eaglish) 03/90 112/90 Biomass A_nt and Mapping (English - Out of Print) 03/90 - Angola Energy Asment (nglih and Portuguese) 05/89 4708-ANG Power Rehabilitaion and Technical Assistance (English) 10/91 142/91 Benin Energy t (English and French) 06/85 52-BEN Botswana EnergyAsssment (EngliSh) 09/84 4998-BT Pump Electrification Prefeasibility Study (English) 01/86 047/86 Review of Electricity Service Connection Policy (English) 07/87 071/87 Tuli Block Farms Electrification Study (English) 07/87 072/87 Household Energy Isues Study (English - Out of Print) 02/88 - Urban Household Energy Strategy Study (English) 05/91 132/91 Burkina Faso Energy A(Et nglisgh and French) 01/86 5730-BUR Technica Assistance Ptogam (English) 03/86 052/86 Urban Houehold Eny Stratgy Study Eglsh and French) 06/91 134/91 Bunmdi Energy Aet nglis) 06/82 3778-BU Petroleum Supply Manaemet (English) 01/84 012/84 Stas Report (English and French) 02/84 011/84 Presentation of Energy Projects for the Fourth Five-Year Plan (1983-1987) (English and French) 05/85 036/85 Improved Charcoal Cookstove Strategy (English and French) 09/85 042/85 Peat Utilization Project (English) 11/85 046/85 Energy Aosment (Enlish and French) 01/92 9215-BU Cape Verde Eer A t (Engls and Portuguese) 08/84 5073-CV Household Energy Strategy Study (English) 02/90 110/90 Comoros Energ Asessment san French) 01/88 7104-COM Congo EnerV A t (Bugis) 01/88 6420-COB Power Development Plan (English and French) 03/90 106/90 C8te d'Ivoire Energy At (English and French) 04/85 5250-IVC Improved Biomas Utilization (EnUlish and French) 04/87 069/87 Power System Efficiency Study (Out of Print) 12/87 - Power Sectr Efficiency Study (French) 02/92 140/91 Ethiopia EnergyA et(E gsh) 07/84 4741-ET Power System Efficiency Study (English) 10/85 045/85 Agricultural Residue Briqueting Pilot Project (English) 12/86 062/86 Bsse Study (English) 12/86 063/86 Cookng Efficiency Project (English) 12/87 - -2- Counthy Acdl DaIm Nmber Gabon Energy AuessDet (English) 07/88 6915-GA The Gambia Energy Asesst (Englih) 11/83 4743-GM Solar Water Heating Retrofit Prject (Engish) 02/85 030/85 Solar Photovoltaic Applicadons (English) 03/85 032/85 Petroleum Supply Maagement Assisance (English) 04/85 035/85 othna Enwrgy AEess t (English) 11/86 6234-GH Energy Rationaization in the Industrial Sector (English) 06/88 084/88 SawmiU Residues Utilizaion Study (English) 11/88 074/87 Guinea Enery Assement (Out of Print) 11/86 6137-GU3I Guinea-Bissau Energy A_nt (English and Portuguese) 08/84 S083-OUB Recommended Technical Assistance Projects (English & Portuguese) 04/85 033/85 Management Options for the Electric Power and Water Supply Subsectors (English) 02/90 100/90 Power and Water Ititutional Restructuring (French) 04/91 118/91 Kenya Enery Asses t (english) 05/82 3800-KB Power System Efficiency Study (English) 03/84 014/84 Stas Report (English) 05/84 016/84 Coal Conversion Action Plan (English - Out of Print) 02/87 - Solar Water Heatin Study (English) 02/87 066/87 Peri-Urban Woodfuel Development (English) 10/87 076/87 Power Master Plan (English - Out of Print) 11/87 - Lesotho Energy As t(English) 01/84 4676-LSO Liberia Energy ss (English) 12/84 5279-LER Rcommended Tecbnical Asstance Projects (English) 06/85 038/85 Power System Efficieny Study (English) 12/87 081/87 Madagasc Energy Ams_tM (nglish) 01/87 S700-MAG Power Sydem Efficiency Study (English and French) 12/87 075/87 Malawi Enr As ( ) 08/82 3903-MAL Technicld Assistmce to Improve the Efficiency of Fuelwood Use in the Tobacco lIdusty (English) 11/83 009/83 Status Report (English) 01/84 013/84 Mali Energy A_nt (Elih and French) 11/91 8423-MLI Household Energy Strategy (English and Frch) 03/92 147/92 Islamic Republic of Mauritania Energy A t (English and French) 04/85 5224-MAU Household Energy Strategy Study (English and French) 07/90 123/90 Mauritius Eierg Asessnt MnOW,,h 12/81 3510-MAS Stts Report (English) 10/83 008/83 Power System Effiiency Audit (English) 05/87 070/87 Bagsse Power Potential (English) 10/87 077/87 Mozambique Energy A m (English) 01/87 6128-MOZ Household Electricity Utilization Study (English) 03/90 113/90 Niger ly A _t (Pch) 05/84 4642-NIP; Status Report (English and French) 02/86 051/86 Improved Stoves Project (Enlish and French) 12/87 080/87 Household Energy Conservation and Sbstitution (English and French) 01/88 082/88 Nigeria E!a (sns ish) 08/83 4440-UNI -3- Coali AcdWvy Date Nwmber Rwanda Energy Ase t ([EngUsh) 06/82 3779-RW Energy Aset (English and French) 07/91 8017-RW Status Report (Enish and French) 05184 017/84 Improved Chatcoal Cookstove Strategy (English and French) 08/86 059/86 Improved Charcoal Production Techniques (English and French) 02/87 06S/87 Commrcialization of Improved Carcoal Stoves and Carbonization Techniques Mid-Term Progress Report (English and French) 12/91 141/91 SADCC SADCC Regional Sector. Regional Capacity-Building Program for Bnergy Surveys and Policy Analysis (English) 11/91 - Sao Tome and Principe Energy Asemet (English) 10/85 5803-STP Senegd lEnergy Assessmmt (13njish) (07/83 4182-SE Status Report (Engish and French) 10/84 025/84 Industial Energy Conservation Study (English) 05/85 037/85 Prpaty Asistac for Donor Meefing (English and French) 04/86 056/86 Urban Household Energy Strategy (English) 02/89 096/89 Seychelles Energy At (English) 01/84 4693-SEY Blectric Power System Efficiency Study (English) 08/84 021/84 Sierra Leone Eergy At (English) 10/87 6597-SL Somalia lnerg Asessment ngis) 12/85 5796-SO Sudan Management Asstance to the Ministry of Energy and Mining 05/83 003/83 Energy Assessment Obish) 07/83 4511-SU Power System Efficiency Study (English) 06/84 018/84 Stats Report (English) 11/84 026/84 Wood Ery/Foresty Feasibility (English - Out of Print) 07/87 073/87 Swaziland Energy Assesst (English) 02/87 6262-SW Tanzania Ene A _ ngih) 11/84 4969-TA Peni-Urban Woodfiles Feasibility Study (English) 08/88 086/88 Tobacco Curing Efficiency Study (English) 05/89 102/89 Remote Sensing and Mapping of Woodlands (English) 06/90 - dusital Enery Efficiency Technical A6sistnce (Engish - Out of Print) 08/90 122/90 Togo Energy Assessment (English) 06/85 5221-TO Wood Recovery in the Nangbeto Lake (English and French) 04/86 055/86 Power Efficiency Improvement (English and French) 12/87 078/87 Upnda Energy A _tssmM (Etglishh) 07/83 4453-UG stau Report (English) 08/84 020/84 Insttutional Review of the Energy Sector (English) 01/85 029/85 Enetr Efficiency in Tobacco Curing Industry (Enl ) 02/86 049/86 Fuelwood/Foresky Feasibility Study (Englis) 03/86 053/86 Power System Efficiency Study (English) 12/88 092/88 Energy Efficiency Impovement in the Brick and Tile Industry (English) 02/89 097/89 Tobaco Cuing Pilot Project (English - Out of Print) 03/89 UNDP Terminal Report Zaire Energy A _mmmt (luhM) 05/86 5837-ZR Zanibia Energjy A _ h ) .01/83 4110-ZA Stts Report (English) 08/85 039/85 Energy Sector Institutional Review (English) 11/86 060/86 -4 - Cow, Acdv DMte Namur Zambia Power Subsector Efficiency Study (English) 02/89 093/88 Energy Strategy Study (English) 02/89 094/88 Urban Household Energy Stategy Study (English) 08/90 121/90 Zimbabwe Energy Assment (English) 06/82 3765-ZIM Power Systen Efficiency Study (Engish) 06/83 005/83 Staus Report (Engish) 08/84 019/84 Power Sector Magement Assistance Project (English) 04/85 034/85 Petroleum Management Assistance (English) 12/89 109/89 Power Sector Ma_gement Ibstitution Building nglish - Out of Print) 09/89 - Cbarcod Utilization Prefeasibility Study (English) 06190 119/90 Iltegrated Energy Strategy Evaluation (Eglish) 01/92 8768-ZNM EAST ASIA AND PACIIC (EAP) Asia Regional Pacific Houehold end Rural Energy Seminar (English) 11/90 - China County-Level Rural Energy Aswssmets kEnglish) 05/89 101/89 Fuelwood Forestry Preinvestment Study (English) 12/89 105/89 Fiji Energy s t (English) 06/83 4462-FIX Indonesia Ener Agy ssmen (English) 11/81 3543-IND Status Report (English) 09/84 022/84 Power Genertion Efficiency Study (EngLish) 02/86 050/86 Energy Efficiency in the Brick, Tile and Lime Industries (English) 04/87 067/87 Diesel Geneating Plant Efficiency Study (English) 12/88 095/88 Urban Household Energy Stratgy Study (EngSih) 02/90 107/90 Biomass Gasifier Preinvestment Study Vols. I & II (English) 12/90 124/90 Malaysia Sabah Power System Efficiency Study (English) 03/87 068/87 Gas Utiizaion Study (English) 09/91 9645-MA Myanmar Energy A ment (English) 06/85 5416-BA Papua New Guinea EnergAssent (Entsh) 06/82 3882-PNG Status Report (English) 07/83 006/83 Energy Strategy Paper (English - Out of Print) - - institutional Review in the Energy Sector (Englsh) 10/84 023/84 Power Taiff Study (E3nglish) 10184 024184 Solomon Islands Energy Assessnt (Englih) 06/83 4404-SOL Energy _A s hssment (ngI) 01/92 979/SOL South Pacific Petroleum Trnsport in the South Pacific (English-Out of Print) 05/86 - Thailand EnergAy es mt (Englih) 09/85 5793-TH Rurd Energy Issues and Optio (Einglsh - Out of Prit) 09/85 044/85 Acodelated Dissemination of Improved Stoves and Charcoal Kilns (Englsh - Out of Print) 09/87 079/87 Northeast Region Village Fstry and Woodfiues Preinvestment Study (Engih) 02/88 083/88 Thailand Impact of Lower Oil Pnces (English) 08/88 - Coal Development and Utiliation Study (Engis) 10/89 - Coaby AcI& Dote Nuxber Tonga Engy Ammad EBuSh) 06/8S S498-TON Vanuatu Ene5 Aeat (Eqglih) 06/85 5577-VA Weern Samoa Energy Asse (mEnglish) 06/85 S497-WSO SOUTHE ASIA (SAS) Bagladesh Energy unsnit Oglish) 10/82 3873-BD Priorty Investment Program 05/83 002183 Stadu Report English) 04/84 015/84 Power System Efficincy Study (Engl"h) 02/85 031/8S SmalU Scale Uses of Gas Prefasility Study (English - (out of Print) 12/88 - India Oppornities for Comercalization of Nonconventional Energy Systems (En"gsh) 11/88 091/88 Mahrashtra Bagae Energy Efficiency PrMoj (Englsh) 05/91 120/91 Mini-Hydro Development on Inigation Dams and Cana Drops VoL8. I, and m (Engish) 07/91 139191 Nepd Eneg A(ent (Eng"h) 08/83 4474-NEP Saus Report (Eng) 01/85 028/84 Pakidstan Hshold Energy (Eegnlit sh - Out of PAint) 05/88 - _mmwmt of Photovoltic Prorams, Applicaions, and }{^iket8 (lEn"Ei6) 10/89 103/89 Sri Lnks Enegy e m (English) 05/82 3792-CE Power System Loss Reducion Study (Englih) 07/83 007/83 Stabus Report (English) 01/84 010/84 Industril Enegy Conrvation Study (Englih) 03/86 054/86 EUROPE AND CENTRAL ASIA (ECA) Porual Energy (EAninglih) 04/84 4824-PO Turbey Energy A es n (B ) 03/83 3877-TU MIDDLE EAST AND NORTH AUNCA MONA) Morocco Energy (esn English and Frnch) 03/84 4157-MOR Status Report (Englih and French) 01/86 048/86 Syria Energy Ame (nEngtish) 05186 58224YSR Electric Power Effiieny Study (Englih) 09/88 089/88 Energy Efficieny Imuprovement in the Centu Sector (English) 04/89 099/89 Energy Effiuciny Improvement in the PFertilier Sct(English) 06/90 115/90 Tnisia Fuel Substitution (Engih and French) 03/90 - Power Efficiacy Study (Englsh and French) 02192 136/91 Enuqgy IMfan4gement Sb&qgy in tho Redddnt16 and Tofiary Sbcam (En"Eb) 04/l92 146/92 -6- Counw Acd1* Dae Nunber Yemen EneAgy (English) 12184 4892-YAR Energy Investmnt Priotities (English - Out of Print) 02/87 6376-YAR HousholdEnergy Strategy Study Pbase I (English) 03/91 126/91 LATIN AMERICA AND THE CARIEAN (LAC) LAC Regional Regonal Semnar on Electi Power System Loss Reduction in the Caribben (English) 07/89 - Bolivia Eung Ammanr (English) 04/83 4213-BO Nadonal Energy Plan (Englsh) 12/87 - National Energy Plan (Spanish) 08/91 131/91 LA Paz Priv3te Power Tecnoi Al u (English) 11/90 111/90 Nuhral Gas Distrbtin: Economics and Reguation (English) 03/92 125/92 Prefodbility Evaluation Rurld Eectrificadon and Demnand AkEesmnent (En"bih and Spanish) 04/91 129/91 Private Power Geeration and Tnmion (Engih) 01/92 137/91 Chile Energy Sector Review (English - Out of Prnt) 08/88 7129-CR Colombia Ener Straegy Paper (EnEgsh) 12/86 - Costa Rica Energyu A mnt r kEq M andSni) 01/84 4655-CR Rcom TdedTohnical Pmi race Pjects (Englih) 11/84 027/84 Forest Residues Utilizaion Study (Egsh and Spanish) 02/90 108/90 Dominican Republic Enery ASs t (Engdh) 05/91 8234-DO Ecuador Eneg A _ (Spaiih) 12/85 5S865-ECC Eneqgy Sualdeg MMsfie I (SPOUani) 07/88 - Energy Shnaegy (English) 04/91 - Haiti Energy OWO& and French) 06/82 3672-HA Staus Report (English ad French) 08/85 041/85 Household Energy Strdegy (Englsh and Frnch) 12/91 143/91 Honduras Energy A(eent (Engsh) 08/87 6476-HO Pweroleum Supply Management (Englsh) 03/91 128/91 Jamaica E=V Amssmmt (En") 04/85 5466-JM paoem Prorment Refining, and Distribton Study glis 11/86 061/86 Ener Efficiency Buildig Code Phase I (English-Out of Print) 03/88 - Energy Efficiency Standards and Labes Phase I (English - Out of Print) 03/88 - Informati System Phas I (English - Out of PRint) 03/88 - Carcoad Production ect (engish) 09/88 090/88 FIDCO SawmiU Residus Utilization Study (English) 09/88 088/88 Eneg Sector Strategy and nvemnt Plning Study (English) 07/92 135/92 Mexico Improved Charcoal Production Within Forest Management for to State of Veacuz gih and Spanish) 08/91 138/91 Panama Powr System Effcncy Study nglish - Out of Pit) 06/83 004/83 Paraguy Eanerg Ayt (English) 10/84 5145-PA Recomm ed Technicd Al i ProjectB (Enh- (Out of Pit) 09/85 - Stats Report (isuh and Spaish) 09/85 043/85 Cowaby Acivi Date NuIeber Per Eergy A _t (English) 01/84 4677-PB Status Report (English - Out of Print) 08/85 040/85 Propos for a Stove eton Proam i1n IhoSeum(English and Spunsh) 02/87 064/87 E=V SftateV (Sp - k) 12/90 - Saint Lucia 1 A _t E 09/84 5111-SLU St. Vincent and Xw Grmidinw ymW A _wmmt (8 gH h) 09/84 5103-STy Trinidad and Tobago Energy A (Enlish - Out of PNt) 12/85 5930-TR GLOBAL Evy End Use Efficiency: Resach and Staegy (Eglish - Out of Print) 11/89 - OGidelines for Utility Cfsomer Magment and Metering (Engih and Spaish) 07/91 - Women and Ener-A Resouce Guide Mme ntaonl Netwok: Police and Experience (Enlish) 04/90 - Ammment of Persond Computer Modes for Energy Planning in Developing Caounties (English) 10/91 - 073192 MotEwcoi 07-30 wtlo 18RD 18111t ,,.,,._ s ,,, ;,^' 5 " , , _ ,CSllOIOi 8 i / 8 fe e t _ L k is h t o n O tN 4,90 lntm,otIM tJA A C --- Con477uoot4504 1 L91 n O S 10 15 P- i -7'AgA ,,'70' 77-L10' 7t7s' AW. modal ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~O