Management Response Detail

Biomass Energy

Commissioning Unit:	Belarus
Evaluation Plan:	2006-2010
Evaluation Type:	Project
Completion Date:	11/2008
Unit Responsible for providing Management Response:	Belarus
Documents Related to overall Management Response:

1. Recommendation: Demonstration sites completion In spite of the fact that PMU management is efficient and capable, only one demonstration project has been implemented (Volat 1) and a second one is underway and is at the beginning of its construction phase. A total of two financial agreements (loan agreements) were signed. One more is being prepared for signature. Since the project is expected to end in September 2007, the PMU must take action to surmount a number of administrative delays originating from outside the PMU and to speed up the demonstration project approval and implementation processes.

Management Response: [Added: 2010/02/05]

Management Response: Though once one demo site has been fully commissioned (Volat-1), 3 more (Vileika CHP, Vileika Forestry, Mostovdrev) are at different stages of development. The delay is caused by a number of reasons, which are mostly outside the PMU's immediate control, including complicated national competitive bidding procedures, new taxation rules between Belarus and Russia since 2005, foreign equipment certification procedures, lengthy engineering design planning, lack of local construction capacity. The Energy Efficiency Department and PMU staff will undertake necessary steps to manage the situation with bidding process and acceleration of project design by supervision of works progress on a daily basis and taking part in regular work meetings dedicated to demonstration sites implementation.

Key Actions:

Key Action	Responsible	DueDate	Status	Comments	Documents
1.1 - Attend regular site meetings (organized by enterprise management and local authorities) and report back to UNDP on progress 1.2 - Provide regular oversight demo sites' completion and provide necessary support (including financial) and lobbying at the regional and national level [Added: 2010/02/05] [Last Updated: 2011/04/15]	PMU EEDept	2007/12	Completed

2. Recommendation: Revolving Fund Since the RF has just been established, the PMU should consider establishing a partnership with a bank (BelinvestBank) aiming at ??selling?? the loans to that bank after a certain period of time following project commissioning. The GEF and the EE Dept funded the Biomass Project with the objective of overcoming the barrier related to financial issues. That barrier exists mainly because of the risk factor. For now, the financial sector is not willing to assume these risks. The RF should bear the technical and financial risks until the projects are fully operational and cost-effective. The total expected reimbursement period for demonstration projects is four or five years. A period of time such as 12 months after the projects are commissioned should be sufficient to mitigate the risks from the bank?s point of view. At the moment, when considering the whole payback period of the selected projects, the fund can theoretically be considered as a RF but is not so in practical terms. By implementing such ??Loans Repurchasing?? mechanism, the RF will have a reasonable funding turnover. One should take into consideration the gas pricing is always increasing and accordingly, the whole projects portfolio payback period should be shorter than expected making the ??Loan Repurchasing?? much more attractive for commercial banks.

Management Response: [Added: 2010/02/05]

The RF institutional arrangements have been settled, with the EE Dept authorizing its subsidiary enterprise BelInvestEnergoSaving (BIES) to run the RF. "Selling" the RF loans to a local bank could provide an option for faster replenishment of the RF, thus promote better replication of biomass technology across Belarus. However, specifics of the proposed arrangements will need to be analyzed and agreed with the bank. The project will look into the issue and make recommendations on feasibility.

Key Actions:

Key Action	Responsible	DueDate	Status	Comments	Documents
2.1 Discuss with BelInvestBank possibility of "selling" mature RF loans and come up with substantiated recommendations 2.2 Present the results of the analysis along with recommendations at the next Project Steering Committee meeting in December 2006 [Added: 2010/02/05]	PMU	2006/12	Completed	2.1 Conclusion ? impossible to implement the proposal due to regulatory limitations

3. Recommendation: Further replication depends a lot on the attractiveness of biomass boiler investments. Even if biomass projects are not the most attractive for investors because of their 5-year (or more) payback period, experience shows that, around the world, it is common for wood processing industries that produce wood waste to use biomass to generate heat ? even under conditions without subsidies. From a strictly accounting point of view, it should be understood that investments towards replacing equipment (burners and boilers) and sometimes entire boiler rooms are amortized as assets over a period of time that is much longer than the estimated payback period. Another benefit concerns biomass-fired heat and power plants that consume biofuels supplied by the local fuel market. In this case, the attractiveness of conversion projects depends a lot on the price of the biofuels. In this respect and in the context of Belarus, which purchased natural gas at relatively low costs, the UNDP/GEF project should trigger national debates on biofuel prices. Taking into consideration the fact the cost of natural gas is increasing to the point where it will reach international market costs, it can be concluded that biomass fuels will be more and more attractive from an economic point of view. The issue is to have access to biomass at relatively stable costs on a mid-term basis, at least during the estimated payback period (less than 5 years). It is recommended to prepare and widely discuss this issue during the project seminar on policy and replication issues scheduled for November 2006.

Management Response: [Added: 2010/02/05]

We agree with the proposed reasoning; wood biomass pricing will be included as a separate item on the agenda of the national seminar to be organized by the project in November 2006. Biofuel pricing will also be addressed in the project replication plan that is currently being drafted.

Key Actions:

Key Action	Responsible	DueDate	Status	Comments	Documents
3.1 Include wood biomass pricing in the program of the planned Dec 2007 national project workshop for discussion with key stakeholders 3.2 Incorporate biofuel pricing into the national biomass development strategy [Added: 2010/02/05] [Last Updated: 2011/04/15]	PMU, EE Dept	2006/12	Completed

4. Recommendation: The project team is now establishing arrangements to measure energy and CO2 savings resulting from project investments. The Evaluator recommends that the project team use approved CDM baseline methodologies in the monitoring process. It is also recommended that the PMU collect the data in accordance with CDM methodologies and file this data in a specific section of the database established for the purpose of this project. At the end of the project, this information will be essential for an effective final project evaluation.

Management Response: [Added: 2010/02/05]

We agree with the proposed recommendation, as using CDM-approved methodologies for monitoring CO2 emission reductions could enable the project partners to benefit from carbon financing under the Kyoto Protocol once Belarus is fully admitted to the process.

Key Actions:

Key Action	Responsible	DueDate	Status	Comments	Documents
4.1 Identify specific CDM methodologies applicable to the biomass project investments [Added: 2010/02/05]	UNDP PO	2006/04	Completed
4.2. Collect the monitoring data in line with the requirements of the corresponding CDM methodology (ies) to set up a project database [Added: 2010/02/05] [Last Updated: 2011/04/15]	PMU	2007/09	Completed

Management Response: [Added: 2010/02/05]

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