PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: Project Name. 1. Key development issues and rationale for Bank involvement

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: Project Name Jamaica Energy Investments and TA Region LATIN AMERICA AND CARIBBEAN Sector Sustainable development, climate change, energy sector (100%) Project ID P Borrower(s) Republic of Jamaica Implementing Agency Ministry of Energy and Mining PCJ Building, 36 Trafalgar Road Kingston 10 Jamaica Tel: (876) Environment Category [ ] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared November 11, 2009 Estimated Date of August 2, 2010 Appraisal Authorization Estimated Date of Board September 30, 2010 Approval 1. Key development issues and rationale for Bank involvement 1. Jamaica, the largest English-speaking Island in the Caribbean Sea, boast 2.7 million inhabitants with a GDP per capita of $5,196 in The country enjoys close proximity to key trading partners and substantial bauxite and tourism industries (the country s natural beauty attracts close to 3 million tourists a year) but its development has been lagging behind that of other Caribbean nations. Despite advantages of location, language, time zone and natural resource endowments, annual growth has stagnated at roughly 0.8 percent for thirty years, while labor productivity declined by 1.5 percent annually from In addition, public investment has been constrained by the servicing of a debt stock, which stood at 128 percent of GDP end Achieving higher growth and greater prosperity, reducing economic volatility, and providing greater social stability is urgent for Jamaica. However these objectives have become more elusive in the face of the global economic crisis, which has led to a contraction in foreign direct investment from OECD countries including, but not limited to, a collapse of the bauxite industry as demand and prices fell, an estimated 18% decline in remittances for 2008 from the 5 million Jamaicans living abroad an essential source of foreign exchange, and a decline in the tourism industry which has remained stagnant. The economy contracted by 1.2 % in 2008 and is projected to decline by 2.6 percent in With a high debt overhang, the country is severely constrained as it seeks to address the crisis, protect past social gains, and pay for damages from three recent storms which exceeded US$1 billion.

2 3. Poverty in Jamaica has fallen substantially over the last two decades to roughly 10% in 2007 and the country has made significant progress towards the MDGs. However, high unemployment (approximately 35% of potential workers remain outside the labor force) the rise of violent crime, and corruption, have eroded trust in public institutions. 4. The Jamaican Labour Party government under Prime Minister Bruce Golding, which was elected in September 2007 after 18 years in the opposition, has deepened its engagement with International Development Partners (IDPs). With their support, the government has developed Vision 2030, a 25 year strategy for Jamaica, and a Medium-Term Socioeconomic Policy Framework for The latter is organized around six Pillars: (1): a stable macroeconomy; (2) greater security and safety; (3) effective governance; (4) world class education; (5) strong economics; and (6) energy security through energy diversification and the promotion of energy efficiency. The IDPs support selected high priority programs towards achieving objectives under the six pillars and discussions with the IMF on a medium-term macroeconomic framework are at an advanced stage. In January 2009, the Bank approved US$100 million in support of a fiscal and debt sustainability reform program. 5. A Joint WBG Country Partnership Strategy (CPS) for FY10-13 is being finalized and aims to support government efforts to improve economic and social stability, and to achieve inclusive and accelerated growth within stronger governance and environment frameworks. The CPS is aligned with the government s medium-term framework, which remains broadly valid in the current global crisis. Pillar II of the CPS aims at promoting inclusive and sustained growth by, among others initiatives, strengthening non-labor competitiveness. In this context it supports analytical and lending activities in the energy sector financed by IBRD and IFC and carried out in close collaboration. Board consideration of the project proposed here is foreseen for FY11. The CPS is mindful of the limited volume of WBG support provided to Jamaica. It therefore seeks to continue to leverage the World Bank Group s comparative advantage in knowledge and technical support as well as the coordination between its various institutions, an approach which has been effective and highly valued in the past. 6. The key challenges for the Jamaican Electricity Sector are: To reduce the cost of electricity and eventually lower prices. This will require diversifying the sources of electricity generation away from expensive diesel to gas and HFP, accelerating the replacement of highly inefficient plants, and, addressing transmission and distribution losses. To lower the sector s vulnerability to oil price fluctuations by reducing its reliance on imported fuels through the development of renewable energy, diversification toward fuels with more stable prices, such as natural gas, and energy efficiency efforts. To reduce GHG Emissions, per Jamaica s international commitments through switching to less polluting fuel (such as gas), developing renewable energy, and curbing electricity consumption through energy efficiency measures. Rationale for Bank Involvement 7. The rationale for Bank Group (IBRD, GEF/MP and IFC) involvement in Jamaica s energy sector is as follow:

3 First, working to reduce high energy costs will improve the country s competitiveness and, ultimately reduce the high cost of energy for individual consumers. Second, assistance from the World Bank Group will be necessary to adequately mitigate the risk for the private sector to invest in the Jamaican market by: (i) defining targets regarding the renewable capacity and mapping renewable resource potential; (ii) establishing a new set of regulations to implement the government s energy strategy; and (iii) providing financing, alongside the private sector. Third, the GOJ has emphasized its need for the Bank s international experience and strategic support to the energy sector. In addition, this operation will provide an opportunity to use the synergies of several World Bank Group institutions and instruments in support of fundamental improvements in the structure of Jamaica s energy sector. These synergies between IBRD, IFC, GEF and MP can be very profitable to Jamaica. Finally, the proposed operation will help reduce Jamaica s carbon footprint and emissions by supporting RE and EE, and the implementation of the natural gas option. 2. Proposed objective(s) 8. The Project s overarching objective is to support the implementation of the Government Energy Policy in particular the goals of enhancing Jamaica s energy security and efficiency by: (i) reducing energy costs; and (ii) managing the country high dependence on imported petroleum products. Specific Project Development Objectives. To reduce energy costs and Jamaica s dependence on imported fossil fuels the proposed project focus on: (1) increasing the contribution of renewable energies in electricity generation; (2) improving energy efficiency in key economic sectors; and (3) effecting fuel diversification through development of the gas strategy that should decrease the reliance on imported liquid fuels. In doing so, the project will strengthen institutional capacity in energy policy and strategy formulation, planning and implementation. The project will also lead to a reduction in emissions of GHG and other gases and ensure that Jamaica s efforts are consistent with its global environmental commitments including the Montreal Protocol on Ozone Depleting Substances, the UN Framework of Climate Change Convention and others. 3. Preliminary description 9. Lending Instrument. The Project is proposed as a Specific Investment Loan (SIL) in the amount of a US$25 million loan from IBRD, and a US$ 2 million grant from the Multilateral Fund of the Montreal Protocol Grant. The operation is structured around three axes: (i) strengthening the regulatory and incentive frameworks to improve energy efficiency, developing renewable energy, developing the natural gas strategy, strengthening institutions and building capacity; (ii) financing and implementing energy efficiency investments; and (iii) financing and implementing renewable energy investments. The proposed project comprises four components:

4 4. Safeguard policies that might apply 10. Component 1: Strengthening the regulatory frameworks, developing the Natural Gas Strategy and Strengthening Institutions. This component would be implemented by the Ministry of Energy and Mining, the Center of Excellence, the Gas Task Force and OUR: It includes 4 sub-components: Regulatory Framework for Energy Efficiency (EE), covering preparation of EE legislation and regulations integrating work already done for the current Building Code and other sub-sectoral regulations, development of energy and environment performance standards for appliances, refrigeration and air-conditioning equipment, and strengthening of the planning and implementing institutions. It would be implemented by the Ministry of Energy and Mining, the Center of Excellence and OUR; Regulatory Framework for Renewable Energy (RE) covering preparation of primary and secondary legislation for sustainable development of RE (wind, hydro, solar, biomass and waste-based electricity generation), incentives for private sector development of renewable energy, and strengthening of the planning and implementing institutions. The legislation will include an overarching RE law and detailed implementing regulations including rules for the allocation of licenses, access to the grid, tariffs (such as feed-in tariffs), purchase regulation for the power utility, incentives for private sector to drive renewable energy development; Development of the Natural Gas Strategy to be implemented by the recently setup Gas Task Force and comprising four sub-components: (i) Financing for international expertise in the gas sector and interaction with IFC advisors, private investors and operators for the preparation and implementation of a detailed road map for the Government s long term fuel strategy (diversification away from gas oil, imports of LNG, etc.). In particular, support for activities of the Gas Task-Force pertaining to the strategic, planning, regulatory, commercial, financial, and environmental/social aspects of the gas strategy (LNG); (ii) Preparation of a natural gas/fuel switching action plan including agreements with the bauxite industry; (iii) Preparation of legislation/regulations for the gas sector based on private-sector driven development under PPP and the establishment of a regulated gas sector market. The legislation will cover potential imports of various forms of gas (LNG, CNG), their transport and distribution; and (iv) Preparation of a full feasibility study for a Floating Storage and Regasification Unit (FSRU) for the LNG terminal and other gas related investments; and Strengthening of the planning, implementation and oversight functions of the Ministry of Energy, the Center of Excellence, OUR and Ministry of Health and Environment including also a review of the incentive framework required to reduce costs while ensuring the development of the electricity sector. This could include twinning with EE and RE institutions with strong EE and RE development track record; and financing of a communication plan targeting (i) government/public institutions; (ii) private sector entities; and (iii) the energy consumers/public, with an emphasis on large electricity consumers and potential investors, as well as sector planning and accelerated replacement of costly electricity generation capacity, development of new generating

5 capacity under PPP, and monitoring of implementation of license and concession agreements with private partners (JPSCo, IPPs, etc). 11. Component 2: Developing the Energy Efficiency (EE) Potential will finance Government support to the EE program to be carried out with the largest electricity consumers in the public and private sectors over the implementation period (2010 to 2014). It will be implemented by the Center of Excellence in collaboration with other financial institutions (commercial banks, Development Bank of Jamaica, etc.), and the private sector (for example through Energy Service Companies, ESCOs). It will comprise three subcomponents: a. Developing a portfolio of technically, economically and financially feasible EE investments both in the public and in the private sector by financing the undertaking of energy audits, sample contracts, etc.; b. Financing energy efficiency measures in the public sector (street lighting, public buildings such as hospitals, schools, water company, etc.); and c. Providing an initial endowment for a pilot EE revolving facility aimed at testing the market for a re-designed EE support facility. In addition to grant funding from the Multilateral Fund (MLF) for Implementation of the Montreal Protocol, mobilization of Carbon Finance will be sought, as appropriate, to support the proposed facility and the investments to ensure sustainable penetration of EE equipment. 12. Component 3: Developing the Renewable Energy Potential would comprise three subcomponents. It will be implemented by the Center of Excellence, OUR and by the Private Sector. a. Completing resources assessments, notably of the wind and small hydro potentials; b. Developing the portfolio of technically, economically and financially feasible RE investments to be carried out by the private sector, by financing the preparation of stateof-the-art requests for proposals (RFPs), etc. ; and c. Financing for public sector investment undertakings in renewable energy projects developed under PPP frameworks. 13. Component 4: Project Management to support the overall management of the proposed Project. It comprises three sub-components: a. Support to the Project Implementation Unit within the Ministry of Energy (including the Project Steering Committee; b. Implementation of the information and communication program; and c. Monitoring and evaluation (M&E) including annual external audits of project finances.

6 IV. Safeguard Policies that Might Apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [ ] [ ] X Pest Management (OP 4.09) [ ] [X] Physical Cultural Resources (OP/BP 4.11) [ ] [ ] X Involuntary Resettlement (OP/BP 4.12) [ ] [ ] X Indigenous Peoples ( OP/BP 4.10) [ ] [ X] Forests (OP/BP 4.36) [ ] [ ] X Safety of Dams (OP/BP 4.37) [ ] [X] Projects in Disputed Areas (OP/BP 7.60)* [ ] [X] Projects on International Waterways (OP/BP 7.50) [ ] [X] Piloting the Use of Borrower Systems to Address Environmental and Social Issues in Bank-Supported Projects (OP/BP 4.00) [ ] [ ] X 5. Tentative financing Source: Borrower International Bank for Reconstruction and Development Multilateral Fund of Montreal Protocol (US$m.) TBD (In Kind) Total Contact point Contact: Michel E. Layec Title: Lead Energy Economist Tel: (202) Fax:(202) Mlayec@worldbank.org Location: Washington, DC