Documcnt of

The World Bank

FOR OFFICLAL USE ONLY

Report No. P-6467-UA

MEMORANDUM AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$114.0 MILLION

TO

ITKRAINE

FOR A

HYDROPOWER REHABILITATION AND SYSTEM CONTROL PROJECT

MARCH 23, 1995

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency unit = karbovanets. abbrev. KrbUSSI = 130.000 karbovaneEs (as of March 1995)

WEIGHTS AND MEASURES

atm atmosphere Mi Megajoule (l0'J)bcm billion cubic mcter mt million metric tonsGcal Gigacalorie (10' cal) MW Megawan (106W)GW Gigawatt MVA Megavolt Amnperekg kilogram PJ Petajoule (10'iJ)km- square kilometer psi pounds per square inchkoe kilograms of oil equivalent t metric tonkV kilovolt tce tons of coal equivalentkW kilowatt toe tons of oil equivalentkWh kilowatt hour TWh Terawatt hour (10"Wh)m'] cubic meter

CALORIFIC VALUES

I Unit of Fuel Gcal

Coal (ton) 5.0Wood (ton) 2.0Natural gas (000rn) 8.5Mazut (ton) 9.7Diesel (ton) 10.2Gasoline (ton) 10.5Kerosene (ton) 10.3Liquified Petroleum Gas (ton) 10.8Crude oil (ton) 10.0

CONVERSION FACTORS

I Gcal 4.187 GJ = 3.968 million Btu = 1.163 kWhI tce = 7 Gcal. and I toe = 10 GcalI kWh of hydro and nuclear energy output converted to primnary thermal equivalent at 250 grams of oil equivalent.

ABBREVIATIONS

DHE DniprohydroenergoEBRD European Bank for Reconstruction and DevelopmentEU European UnionGDP Gross Domestic ProductGEF Global Environment FacilityLAEA International Atomic Energy AgencyIDC Interest During ConstructionIDF Institutional Development FundIMF International Monetary FundLPG Liquid Petroleum GasNDC National Dispatch CenterNERC National Electricity Regulatory CommissionPIU Project Implementation UnitPMU Project Management UnitPSP Pump Storage PlantTACIS Technical Assistance for the Community of Independent StatesUCPTE Union for the Coordination of Production and Transport of Electricity (West European Grid)USAID United States Agency for International DevelopmentVAT Value-Added Tax

FISCAL YE.ARJanuary I - December 31

FOR OFFICIAL USE ONLY

UKRAINEHYDROPOWER REHABILITATION AND SYSTEMS CONTROL PROJECT

LOAN AND PROJECT SUMMIARY

Borrower: Ukraine.

Beneficiaries: Dniprohydroenergo and National Dispatch Center.

Poverty: Not Applicable.

Amount: US$ 114.0 million equivalent.

Loan Terms: Standard variable interest rate with a maturity of 17 years, including five yearsgrace period.

Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after signing, less anywaiver.

Onlending Terms: IBRD interest rate plus a mark-up of 1.5% for loan administration.

Financing Plan: See Schedule A.

Net Present Value: US$ 101.9 million (18.1 percent economic rate of return).

Staff AppraisalReport: Report No. 13663 - UA

Map: IBRD Map No. 26469

This document has a restricted distribution and may b: used by recipients only in the performance of theirlofficial duties. Its contents may not otherwise be disclosed w ithout World Bank authorization.

MEMORANDUM AND RECOMMENDA'TION OF T'HE PRESIDENTOF THE IBRD TO THE 4EXECUITIVE DIRECTORS

ON A PROPOSED LOAN TO UKRAINEFOR A HYDROPOWER REH,ABILITATION AND SYSTEMS CONTROL PROJECT

1. I submit for your approval the following memorandum and recommendation on aproposed loan to Ukraine for the equivalent of US$ 114.0 million to help finance a project for therehabilitation of hydropower plants and improvement of power system control. The loan would be at theBank's standard variable interest rate with a maturity of 17 years. including 5 years of grace. Theproceeds of the loan would be onlent to Dniprohydroenergo (DHE) and the National Dispatch Center(NDC) for 17 years, including 5 years of grace, with interest at the IBRD rate plus a mark-up of 1.5percent per annum. Cofinancing in the amount of US$ 12.9 million equivalent would be provided byother donors on a grant basis to support the implementation of the proposed project.

2. Country Context. Ukraine's economy, with a GDP per capita estimated at US$ 1,910in 1993, rests on industry and agriculture, which together accounted for about two thirds of GDP.Ukraine is also heavily dependent on trade, notably with the rest of the former Soviet Union (FSU). RealGDP contracted by 14 percent in 1993, bringing the cumulative fall in output since 1990 to 38 percent.This trend accelerated in 1994 as GDP declined by about 23 percent. Due to loose fiscal and monetarypolicies, the rate of inflation rose to an average of 4,735 percent in 1993 (up from 1,210 percent in1992), and, in addition, varied significantly from month to month. In the first half of 1994, the inflationrate came down to single digit levels, primarily on account of flagging demand, itself the result of a largedrop in real wages and a stringent credit policy. The external situation has become increasingly tenuous,reflecting a significant trade deficit with the FSU -- about US$ 3 billion in 1993 - which was onlypartially offset by a trade surplus with the rest of the world.

3. In October 1994, the Government adopted a comprehensive program of macroeconomicstabilization and structural reforms, supported by a purchase of US$ 365 million from the IMF's SystemicTransformation Facility and a Rehabilitation Loan (Ln. 3831-UA) of US$ 500 million from the Bank.The Govermnent's program calls for accelerating the transition to a mnarket-oriented economy. Withinthis framework, the economic package that the Goverrment has adopted aims to break inflationaryexpectations and promote a sustained recovery in economic growth. To this end, the program focuseson four key interdependent elements. First, a stable political and economic enmironment is required sothat producers and consumers can make sound decisions without fear of macroeconomic disruptions. Thestabilization of the economy will rest upon tight fiscal and monetary policies. Second, competition inmarkets is essential to an efficient allocation of resources. In an effort to promote free and open markets,the Govermnent will rely upon the liberalization of prices and domestic and foreign trade; the dismantlingof the state order system; demonopolization; and promotion of the private sector. Third, the hardeningof enterprise budget constraints through corporatization, privatization and the enforcement of bankruptcylaws will encourage enterprises to respond to the new market forces. The elimination of directed creditsand credits to settle inter-enterprise arrears and financial sector reform are expected to support behavioralchanges at the enterprise level. Finally, the social safety net is to be strengthened through improvedtargeting in order to protect the segments of the population most vulnerable to the adjustments associatedwith the structural transformnation of the economy.

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4. Sector Background. Energy denand in Ukrainc is characterized by high energy intensityin relation to industrial output and the high share of industry in final energy consumplion. Following adecline of 11 % betwecn 1985 and 1990, the cnergy intensity of GDP increased by 40% in the 1990-1993period reaching 2.5 kilogram oil equivalent per US$, a ratio that is several times higher than in the mostdeveloped countries. Domestic energy production, consisting of fossil fuels and primary electricity(hydro and nuclear power), represented 48% of consumption in 1993-94. The main import items werecrude oil and oil products, originating almost exclusively in Russia, and natural gas, originating in Russiaand Turkmenistan.

5. In 1993, installed electricity generation capacity was 52,122 MW, consisting of 12,818MW of nuclear (25%), 32,364 MW of thermal (62%), 4,700 MW of hydro (9%) and 2,240 MW ofindustrial (4%) power generation capacity. Most older fossil fuel plants (about 23,000 MW) use coal astheir primary fuel, but need gas or mazut for co-firing. About 5,520 MW of power generation capacityas well as about 3,500 MW combined heat-and-power plants run on gas and/or mazut as main fuels.Between 1990 and 1993, electricity generation decreased by about 23%, domestic consumption by 15%,and net exports by 96%. Both generation and consumption decreased by a further 14% in 1994. Theforced separation of the Ukrainian power system, in November 1993, from the hydro plants on the Volgariver that controlled system frequency, revealed serious structural and functiona' weaknesses with negativeconsequences on overall system operation, security, reliability and quality ot power supply. Inability ofthe system to maintain the balance of supply and demand in real time led to the separation of allneighboring systems, causing further deterioration of system performance and reduction in exportcapacity. The existing peaking capacity is provided by aging hydro plants that are in need ofrehabilitation.

6. Electricity demand is expected to drop even further during the next three to five years,due to a number of factors such as general economic downturn, electricity price increase and economicrestructuring. Assuming that three new nuclear units that are under construction are completed to replacethe Chemoby: plant, there is no need for additional base-load capacity in the next decade. Total powergeneration investment requirements are preliminarily estimated at US$ 3.5 billion in the 1995-2005period. Of this total. US$ 1.9 billion is needed for nuclear power, including US$ 0.6 billion for safetyupgrades, US$ 0.6 billion for deconmmissioning and other works at Chemobyl, and US$ 0.7 billion forthe completion of three new nuclear units. The rehabilitation of thermal and hydropower plants and thecompletion of the Dniester pump storage plant to provide additional peaking capacity requires about US$1.6 billion.

7. Gasoline, diesel oil and fuel oil prices are liberalized. Electricity, gas, and coal pricesare set by the central govermnent. Local govermnents set the price of district heating, LPG, heating oil,peat and wood. With the exception of electricity, household energy prices cover only a fraction of costs.The difference is covered by central and local govermnent budgets, and also by a non-transparentsurcharge on industrial consumers (for gas and district heat). Even for electricity, there are severalcategories of households who are entitled to discounts, and the cost of these discounts is borne by theindustrial consumers. During most of 1994, additional price distortions were caused by: (i) a subsidyto non-household consumers of coal; (ii) an artificial exchange rate that did not allow the passing of thefull cost of imported gas to consumers; and (iii) price adjustments for electricity and heat that laggedbehind fuel cost increases. Non-payment by customers became a major problem for electricity, gas andheat suppliers, further weakening the financial position of the utilities. In October 1994. the Government

3

started the implementation of a program of price adjustments that: (i) drastically reduces household energyprice subsidies; (ii) eliminates the explicit and implicit (through the exchange rate) subsidy to non-household consumers of coal and gas; and (iii) ensures the full recovery of increased fuel and other basicinput costs in the price of electricity and heat.

8. The Govermnent's long term investment program assumes that the remaining units of theChernobyl Nuclear Power Plant would be closed when their reactor channels reach the end of their lifein 1998-2003. During discussions with the G-7 Nuclear Safety Working Group, the Governmnent agreedto consider the possibility of the early closure of the Chernobyl plant provided that a solution was foundfor a set of related issues, such as the financing of replacement nuclear capacity, closure costs, and themitigation of social consequences. It was agreed that an international Task Force would be formed fromUkrainian and foreign experts with the task of developing a detailed, comprehensive Action Plan fornuclear safety in the context of a power sector development strategy. The joint international Task Forcewas set up in December 1994, and its work is underway.

9. On May 21, 1994, the President of UKraine signed Decree 244/94 on MarketTransformation Measures in the Electricity Sector of Ukraine. The Decree ordered a broad restructuringof the power industry based on the model of separating generation, transmission, and distributionfunctions, corporatizing and privatizing the generating and distribution companies, setting up acompetitive wholesale market for electricity, and establishing an independent agency to regulate theindustry (i.e., independent from the enterprises and not subordinated to any Ministry). After some initialdelay, the Government adopted an Action Plan to implement the Decree on November 2, 1994. As afirst step, a National Electricity Regulatory Commission was established in December 1994. Fullimplemi atation of the restructuring in the next couple of years is expected to increase the efficiezicy andreliability of electricity supply, restore the financial health of the industry, and create a favorableframework for private investment in power generation. The Bank, jointly with the Ministry of Power(Minenergo), organized a donor meeting in Kiev in July 1994. The purpose of the meeting was to ensurethe availability of technical assistance for the implementation of this important reform initiative in thepower subsector. The US Agency for International Development, British Know How Fund, EU TACIS,Government of Switzerland, Government of the Netherlands and the World Bank offered technicalassistance of about US$ 4 million equivalent for Lt!e first year of the reform (including US$ 450,000 fromthe Bank's Institutional Development Fund). The Government and the donors asked the Bank to assistthe Government in coordinating the implementation of the technical assistance program.

10. Project Objectives. The objectives of the project are to: (i) improve the efficiency,reliability, safety and environmental performance of hydropower plants; (ii) increase hydropowergeneration capacity; (iii) improve the quality of electricity supply by upgrading load and frequencycontrol, which would also improve the safety of nuclear plants; and (iv) reduce fuel costs by facilitatingthe economic dispatch of generating units. A decrease in hydropower capacity would lead to furtherdeterioration in the reliability and quality of electricity supply. In view of large frequency flucruationsand the high share of base-load plants, it is also necessary to enhance the system regulating capacity byincreasing load-following capability and improving system control and dispatch. The Goverrnent ofUkraine assigns a high priority to the improvement of the efficiency and quality of electricity supply.

4

11. Project Description. The project consists of the following components:

(a) The initial five years of the rehabilitation program for eight major hydropowerplants (57% of total project costs);

(b) Installation of dam safety monitoring systems at the main water reservoirs on theDnieper river (2% of total project costs);

(c) Upgrade of communications, dispatch, system control and protection, andgenerating unit control (38% of total project costs); and

(d) Technical assistance for project implementation, and optimization of the use ofthe reservoirs on the Dnieper river (3% of total project costs).

12. Intemnational Waterways. One of the hydropower plants is about 15 km upstream fromthe point where the Dniester river forns the borderline between Moldova and Ukraine. There is nodispute between the two countries conceming the operation of this plant. Upgrading of the dispatch andgeneration control equipment for this plant will not affect the reservoir nor any other water retainingstructure, and will have no effect on the flow of the river.

13. Project Cost and Financing. The total cost of the project is estimated at US$ 190.2million equivalent, of which US$ 106.7 million is in foreign exchange. The proposed World Bank loanof US$ 114.0 million would cover 50% of project costs, and also includes US$ 18.3 million out of a totalof US$ 24.1 million of interest during construction. Following a five year grace period, repayment ofthe principal and in:erest payments would commence and continue for 12 years. The borrower wouldbe Ukraine, whose Government would enter into subloan agreements with the beneficiaries. Thebeneficiaries would be Dniprohydroenergo (DHE) and the National Dispatch Center (NDC). Thesubloans would have a maturity of 17 years including five years of grace. The interest rate in the subloanagreements would be equal to the World Bank's standard variable interest rate plus a margin of 1.5% tocover the cost of loan administration. The foreign exchange risk will be bome by the beneficiaries. Thebeneficiaries would also reimburse the Government for the commitment fee. The Governments ofSwitzerland, Canada and Norway agreed to provide grants of US$ 12.9 million equivalent to finance partof the cost of the hydropower rehabilitation and technical assistance components. DHE and NDC willfinance the remaining costs, part of interest during construction, and the commitment fee, estimated atUS$ 88.3 million equivalent, from internally generated revenues. Schedule A presents the project costtable and the financing plan, and Schedule B presents procurement arrangements, disbursement categoriesand the disbursement timetable. A timetable of key processing events and the status of IBRD operationsare provided in Schedules C and D, respectively.

14. Project Implementation. The project would be implemented over a period of 5 yearsand is expected to be completed by June 30, 2000. Implementation of the project will be theresponsibility of the beneficiaries. i.e., DHE and NDC. A Project CoordJination Unit (PCU) inMinenergo will coordinate project preparation activities, technical assistance, scheduling, reporting,training, and other aspects of project implementation requiring coordination between the ProjectImplementation Units. Separate Project Implementation Units (PIUs) will be set up in DHE and NDCwith responsibilities to manage implementation of the hydropower rehabilitation (including dam safety)

5

and the system control components, respectively. The managers of the PlUs will be appointed by theDirectors of DHE and NDC, and will havc the title of Deputy Projcct Coordinators of the PCU.Installation of equipment will bc the responsibility of the respective facilities (hydro plants, dispatchcenters, thermal plants and substations), which will use their force account and specialized localconstruction and installation companies, under the guidance of the suppliers with additional assistancefrom internationally qualified project implementation advisors.

15. Project Sustainability. Following project completion, the life of the hydropower plantswill be extended by about 20 years. The operation of the rehabilitated plants is not expected to pose atechnical challenge for the well-educated, experienced staff working at the plants. The hydropower plantswill continue to be the lowest cosi electricity generators in Ukraine, and the cost recovery arrangementembedded in the contract with NDC is expected to ensure the long term financial viability of DHE.NDC, as the operator of the future wholesale market for electricity, will have a key role in the reformedpower industry. NDC, whose activities will be monitored by the National Electricity RegulatoryCommission, will recover its costs by adding a margin to the price of electricity it sells to local electricitydistributors/suppliers. The facilities installed by the project will be essential for the successful functioningof the wholesale market, including daily bidding, dispatching, metering, verification, and settlements.Under the project, technical training will be provided to NDC staff in the operation and maintenance ofthe modernized comnnunications, system control and dispatch facilities. The donor funded institutionalbuilding effort that has been mobilized in support of the power industry reform will provide the necessarytraining for NDC's commercial functions (para. 9).

16. Lessons Learned from Past Bank Experience. A review of several decades of theBank's worldwide lending for the power industry recommended that Bank lending for electric powershould focus on countries with a clear commitment to improving the performance of the power industryby commercialization, corporatization and the establishment of a transparent regulatory framework. Theproposed project meets these criteria. The Bank's experience in power rehabilitation is limited since therewere very few purely rehabilitation projects. To the extent that rehabilitation components can beevaluated separately, performance has been satisfactory. The first loan for US$ 27 million equivalentto Ukraine was approved in June 1993 (Ln. 3614-UA) to finance an Institution Building Project aimedat supporting enterprise reform, financial sector reform, and public economic and financial management.Initially, the implementation of the project suffered from the unstable policy environment, and the lackof coordination between the many implementing agencies. Institutional rearrangements and the improvedpolicy environment significantly improved the performance of the project in late 1994. Theirnplementation of the IDF grant (No. 28842) that supports the development of competition in the powerindustry is progressing satisfactorily. The implementation of the second Bank operation, a RehabilitationLoan (Ln. 3831-UA) of US$ 500 million equivalent approved in December 1994, has started onlyrecently.

17. Rationale for Bank Involvement. The Bank has been involved in the Ukrainian energysector since early 1992. An Energy Sector Review (Report No. 11646-UA) was issued in 1993, leadingto close cooperation between the Bank and the Govermnent in the area of power industry institutionalreforn. The proposed project demonstrates that the Bank is willing to step up assistance to those sectorsof the economy that are committed to reform. This is particularly important at this timne when the powerindustry is making the first bold reform steps. Also, the Bank's support is needed for the imnplementation

6

of high priority investmcnhs under the present conditions of sevcrc rcsource constraints. By increasingthe efficiency of electricity generation, (his project is conisistent with the limited Country AssistanccStrategy as discussed by the Board of Directors during the presentation of the Rehabilitation Loan (Ln.3831-UA) on December 22, 1994. A full Country Assistance Strategy presentation to thc Board isscheduled in FY96.

18. Agreed Actions. At negotiations, agreements were reached on the following: (a) on-lending arrangements between GoU and DHE, and GoU and NDC, including on-lending interest rate,maturity and repayment method; (b) power purchase contract between NDC and DHE, including the tariffformula ensuring the full recovery of investmrent and operating costs; (c) contract between NDC and itsdownstream customers, including the application of interest penalty and curtailment of deliveries in thecase of non-payment; (d) reduction of NDC's delay in paying its suppliers and reduction of NDC'saccounts receivable; (e) price setting mechanism for NDC that aliows it to recover an allowance for baddebt in its resale tariff; (f) commitment of DHE and NDC to maintain a self-financing ratio of at least40% and a debt service coverage ratio of at least 1.5 during the project period; (g) qualifications forProject Coordinator and Deputy Project Coordirnators; (h) signing of suitable contracts between DHE andthe turbine and generator manufacturers by November 30, 1995; (i) arrangements for establishing,operating, and auditing the Special Accounts; (j) auditing requirements of the accounts of DHE and NDC;(k) set of Project Performance Indicators; (I) mid-term review of project implementation; and (m)operation plans of DHE and NDC. Conditions for effectiveness include: (a) execution of subsidiary loanagreenents between the GoU and the two beneficiaries; (b) signing of power purchase contract bLtweenNDC and DHE; (c) resolution of NDC's arrears for previous hydropower purchases; (d) transfer ofowvnership of regional dispatch centers to NDC; and (e) establishment of PCU and PlUs, and appointmentof Project Coordinator and Deputy Project Coordinators.

19. Environmental Aspects. The project is expected to have a positive impact on theenvironnent. The rehabilitated turbines will have improved and longer-lasting sealing, significantlyreducing or eliminating the leakage of lubricating oil into the rivers. Improved turbine efficiency willlead to the production of more electricity from hydropower, replacing electricity generated in thermalpower plants. Inproved dam safet, monitoring will reduce the risks of accidents and allow for improvedwater management and control. Introduction of automatic generation control and economic dispatch willlead to a more efficient use of fossil fuel plants, resulting in commensurate reduction in fossil fuel useand the corresponding emission of pollutants. During implementation, there will be no activities thatwould result in a measurable impact on the existing patterns of water flows and water usage.

20. Program Objective Categories. By rehabilitating and upgrading facilities that utilize arenewable resource, the project is consistent with the objective of environmentally sustainabledevelopment.

21. Participatory Approach. Due to their close involvement in project preparation, thebeneficiaries are familiar with the details of the project, and are cormnitted to implementation.Specifically, the staff of the hydropower plants and NDC have been closely involved in the preparationof the feasibility studies. The results of the studies have been presented to and approved by the directorsof each hydropower plant and the management of NDC. As described above, project implementation willbe the responsibility of the beneficiaries.

7

22. Project Benelits. Thrc quantified henefi:s are improvemlcnts in the efficicncy andavailability of hydropower plants, and tile increased ef ficiency in thc loading ol hydro- and thennal powergeneration units. The expected economic rate of return is 18.1 percent. Additional, non-quantifiedbenefits are: (i) the increased security of the power system that will lead to fewer blackouts; (ii) theimproved stability of frequenicy that will enhance nuclear safety; (iii) the better environmentalperformance of the hydropower plants that will reduce the pollution of rivers; and (iv) the improvedmonitoring of dams and reservoirs that will reduce the risk of dam breaks.

23. Risks. The main risks for the project are that the Government would be unwilling to (i)adhere to the agreed pricing formula for the electricity produced by the hydropower plants; and (ii)implement a strict regulatory policy to prevent the further accumulation of payment arrears. These couldseriously undermine the financial position of DHE and NDC, and thereby endanger the implementationof the project. The reform of the power industry based on Decree 244/94 is expected to decrease theserisks, but cannot eliminate them. The implementation of the reform itself is subject to political risks.Risks arising from the pricing of electricity have been addressed under the project by requiring theadoption of a tariff formula that includes all operating costs, recovers investment costs, and allows forregular adjustment to reflect inflation. Risks arising from non-payment by NDC's customers (i.e. localelectricity companies and large industrial plants) have been addressed by requiring appropriate contractualarrangements, including the reduction/termination of service in the case of non-payment. Thebeneficiaries' inexperience in implementation of Bank projects poses additional risks. Inferiorperformance of domestic equipment and domestic supply constraints could also delay project executionand affect the quality of work. These risks have been addressed through the careful planning of activitiesthat are on the critical path, and by providing technical assistance tt' the PIUs in procurement, supervisionand quality control. Economic returns are very robust relative to variations in key project parameters.A switching value analysis suggests that project costs do not pose a significant risk because both majorcomponents remain economic even in the face of considerable overruns in investment costs. Thehydropower rehabilitation comporient remains economically viable even at 60% of the assumed economicvalue of electricity. The systenm control component retains economic viability even when fuel savingsamount to 41 % of the level assumed for the base case.

24. Recommendation. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank, and I recommend that the Executive Directors approve it.

Lewis T. PrestonPresident

by Sven Sandstrom, Acting President

Washington, D.C.[March 23, 19951

Attachments: Schedules A-D

8

SCHEDLULE A

UKRAINEHYDROPOWER REHABILITATION AND SYSTEM CONTROL PROJECT

Sununary of Project Cost Estimates

. | Bill. Krb Mill. US$ Foreign

___|Local_ Foreignl Total Locall Foreignl Total -iTotI ~ ~ ~ ~ ~ ~ ~~~~Ttl Total

|1 | Hydropower 2460.6 2131.2 4591.9 45.1 39.1 84.2 46%Rehabilitation

2. Dam Safety 48.5 88.3 136.9 0.9 1.6 2.5 65%3. System Control and 730.4 2277.1 3007.5 13.4 41.8 55.2 76%

Communication4. Technical Assistance 44.2 230.1 274.3 0.8 4.2 5.0 84%

Project Base Costs 3283.7 4726.8 8010.6 60.2 86.7 146.9 59%Physical Contingencies 485.9 674.5 1160.4 8.9 12.4 21.2 58%Price Contingencies 2757.1 1439.7 4196.8 14.4 7.6 22.1 35%Total Project Costs 6526.7 6841.0 13367.8 83.5 106.7 190.2 56%Interest During 819.0 3990.5 4809.5 4.2 20.7 24.9 83%Construction*

Total Financing 7345.7 10831.5 18177.3 87.7 127.4 215.1 59%Required .

- including commitment fee

Financing Plan

million US$_% of Total

Local Foreign Total

IBRD 0.0 114.0 114.0 53.0%

Government of Switzerland 0.0 10.5 10.5 4.9%Government of Canada 0.2 1.6 1.8 0.8%Government of Norway 0.1 0.5 0.6 0.3%Hydropower Company 66.5 0.4 66.9 31.1%National Dispatch Center 0.9 0.4 21.3 9.9%

|Total Financing Required 87.7 127.4 215.1 100.0%

9

SCHEDULE BPage I oC 2

UKRAINEHYDROPOWER REHABILITATION AND SYSTEM CONTROL PROJECT

Summary of Procurement Arrangements(in US$ million)

o Procuremcnt Method"' Total

Project Element XICB O7ther 1 Cost

1 Equipment and Goods 9;.4 2.5 '3 64.2 158.1

_____ (91.4) (2.5) (93.9)2 Works '4 26.8 26.8

3 Consulting Services 1.8 '5 3.5 5.3_____ ____ ____ ____ _____ ___ ____ ____ ____ (1.8 ) _ _ _ _ (1.8 )

Total | 91.4 4.3 94.5 190J.2

(91.4) (4.3) _ (95.7)

1/ Figures in parentheses are the amounts to be financed by the Bank loan. In addition, the loanwould finance interest during construction of US$18.3 million equivalent.

2/ Not Bank Financed.3/ To be precured through Inlernational Shopping (up to an aggregate amount of US$1.5 million)

and Direct Contracting (up to an aggregate amount of US$1.0 million).4/ Installation to be accomplished by Force Account and local companies, with training and

supervision provided by the supplier. who would also assume responsibility for theperformance of the equipment.

5/ Procurement under Bank's Guidelines for Use of Consultants by World Bank Borrowers and bythe World Bank as Executing Agency (August 1981).

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SCHEDULE BPage 2 Of 2

UKRAINEHYDROPOWER REHIABILITATION AND SYSTEM CONTROL PROJECT

Disbursement by Category

Category i Amount lPercentage of Expenditures to be Financed

1. DHE(a) Equipment and 42.4 100% of foreign expenditure

Goods 100% of local expenditure (ex-factory cost)80% of local expenditure for other items procuredlocally

(b) Consulting Services 0.9 100%B of expenditure2. NDC

(a) Equipment and 51.5 100% of foreign expenditureGoods 100% of local expenditure (ex-factory cost)

80% of local expenditure for other items procuredlocally

(c) Consulting Services 0.9 100% of expenditurel 3. Interest During 18.3 100% of foreign expenditure

ConstructionTOTAL 114.0

Disbursement Schedule

IBRD Fiscal Year

__ __ _19961 19971 19981 19991 20001 2001

Annual (%) 12 18 27 27 13 3(US$ million) 14.2 20.6 30.8 29.7 15.4 3.3Cumulative (%) 12 30 57 84 9, 100(US$ million) 14.2 34.8 65.6 95.3 110.7 114.0

I1

SCHEDULE C

UKRAINE

HYDROPOWER REHABILITATION AND SYSTEM CONTROL PROJECT

Timetable Of Key Project Processing Events

a. Time taken to prepare: 9 months (June'94-February'95)b. Prepared by: Government of Ukraine, Dniprohydroenergo,

National Dispatch Center, and SGI (consultants)c. First Bank Mission: July 1994d. Appraisal Mi'qinn Departure: September 25, 1994e. Negotiations: February 21, 1995f. Planned Date of Effectiveness: July 11, 1995

Bank Staff Responsible for Project Preparation

Laszlo Lovei Task ManagerIstvan Dobozi Energy EconomistBarbara Evans Energy EconomnistVladislav Vucetic Power EngineerThomas Kearney Operations OfficerBernard Baratz Environmental SpecialistDavid Craig Peer ReviewerAntanasije Kocic Peer ReviewerDominique Lallement Division ChiefBasil Kavalsky Department Director

12

SCHEDULE D

UKRAINE

HYDROPOWER REHABILITATION AND SYSTEM CONTROL PROJECT

Status of Bank Group Operations in Ukraine(as of January 31, 1995)

A. Status of IDA/IBRD Loans

Loan/Credit No. Fiscal Year Borrower Purpose Bank IDA UndisbursedL36140-UA 1993 Ukraine Institution 27.0 25.00

BuildingL38310-UA 1995 Ukraine Rehabilitation 500.0 400.12

B. Status of IFC Operations

Amount Undisbursed/R93-219* 1993 Ukraine Venture Capital 2.0 1.2

Fund Fund

Equity for financing the Ukraine Fund which is a venture capital fund for emerging privace companies in Ukraine.

13RD 264A9

20 21 11530 35 200

. ~~~~B E L A R U S " < ,:I,4s,1,,;, 0,,,

POLAND |RUSSIAN FEDERATIN9 a _,r, 4 ;_~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~II,W,

o 7Es D U rotv i /iZie

-50' 5

SLOVAK 'swi.) - 7= * ~ ~~~~ ~~ ~~~~~~~~~~~~~~~~~~~~~North Ukr

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RYOMANIA 2' MnLestVA

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HYDROPOWER REHABILITATION AND )\m Dn6.1,SYSTEM CONTROL PROJECT

MAIN POWER STATIONS AND ) ivkaTRANSMISSION LINES Sea

TRANSMISSION LINES oA2V RUSSIAN730-50 kV 0 \ ,2/ / < / % ; FEDERATION330-500 kV

Q SUBSTATIONS - 4 45 -HYDROELECTRIC POWER PLANTS

* THERMAL POWER PLANTS / haited) '-".-'i NUCLEAR POWER PLANTS I I'

REGIONAL ELECTRIC ASSOC ATIONS BOUNDARIES

* NATIONAL CAPITAL KILOMETERSINTERNATIONAL BOUNDARIES 0 s 0 ISO

A ~~ ~~~ ~~~ ~ ~~~~~~~~~~~~~~~0 so10 1500lIVERS -s-'' ~ B L A C K S EA I 3 MILES

BULGARIA 320 D05 50 TOOs10 150 0, i