Financing Heating Sector Improvement Project

ADB’s Experience

International Conference

20 - 21 October 2005, Baku20 - 21 October 2005, Baku

Ashok BhargavaAshok Bhargava

East and Central Asia Energy DivisionEast and Central Asia Energy Division

Asian Development BankAsian Development Bank

Heating sector projects - an environmental Heating sector projects - an environmental improvement priority of ADB improvement priority of ADB

• The 2004 Review of the Asian Development The 2004 Review of the Asian Development Bank’s Poverty Reduction Strategy listsBank’s Poverty Reduction Strategy lists

• Three Pillars:Three Pillars: pro-poor sustainable pro-poor sustainable development, social development, and good development, social development, and good governance; andgovernance; and

• Five Thematic Priorities:Five Thematic Priorities: private sector private sector development, gender, development, gender, environmentenvironment, regional , regional cooperation, and capacity developmentcooperation, and capacity development

Dysfunctional and inadequate district heating Dysfunctional and inadequate district heating and gas distribution is a priority and gas distribution is a priority

• Impact on poorImpact on poor : is disproportionately high – : is disproportionately high –

exposure to more pollutants and risk of accidents; exposure to more pollutants and risk of accidents; particularly affecting women and children particularly affecting women and children

• Environmental impactsEnvironmental impacts : emissions from coal : emissions from coal based system causes air pollution and gas based based system causes air pollution and gas based system leads to greenhouse effects.system leads to greenhouse effects.

Rationale for Heating Sector Rationale for Heating Sector Projects Projects

Financing Heating Sector Projects - Financing Heating Sector Projects -

An integrated approach by ADB An integrated approach by ADB

• Efficiency ImprovementEfficiency Improvement : promote more : promote more efficient technology - circulating fluidized efficient technology - circulating fluidized bed boilers, Combined Heat and Power bed boilers, Combined Heat and Power plants, consolidation of small in-efficient plants, consolidation of small in-efficient boilers.boilers.

• Energy ConservationEnergy Conservation: Introduce heating : Introduce heating control equipment, 100% metering and control equipment, 100% metering and consumption based billingconsumption based billing

An integrated approach by ADB ….(ii)An integrated approach by ADB ….(ii)

3.3. Institutional DevelopmentInstitutional Development: gradual transition : gradual transition from a “welfare” measure to commercial from a “welfare” measure to commercial operation based on market principles; operation based on market principles; improve financial performance of heating improve financial performance of heating companiescompanies

4.4. Reforms:Reforms: promote pricing and tariff reforms- promote pricing and tariff reforms- encourage full cost recovery principles and encourage full cost recovery principles and transparency in tariff formulation, transparency in tariff formulation, concurrently provide social safety net for concurrently provide social safety net for vulnerable groupsvulnerable groups

5.5. Promote Private Sector Participation:Promote Private Sector Participation: Remove key barriersRemove key barriers-- lack of transparency and lack of transparency and low tariffs, institutional uncertainties, public low tariffs, institutional uncertainties, public and utility perception of welfare, and transfer and utility perception of welfare, and transfer operations to private sector through IPO operations to private sector through IPO

An integrated approach by ADB ….(iii)An integrated approach by ADB ….(iii)

ADB Heating Sector Assistance ADB Heating Sector Assistance

• Heating is a necessity only in a small number of Heating is a necessity only in a small number of DMCs - central asian republics; PRC; Mongolia DMCs - central asian republics; PRC; Mongolia and, Republic of Korea (KOR)and, Republic of Korea (KOR)

• ADB lending amounts to about $700 millionADB lending amounts to about $700 million

• Most of the project have been rated as Most of the project have been rated as “successful” , and led to (i) significant efficiency “successful” , and led to (i) significant efficiency gains; (ii) air quality improvement and, (iii) gains; (ii) air quality improvement and, (iii) supported sector reforms. supported sector reforms.

ADB Energy Sector Strategy in ADB Energy Sector Strategy in

Azerbaijan and HeatingAzerbaijan and Heating

Energy will be a strategic priority in the Energy will be a strategic priority in the program (2006 – 08) and the assistance will program (2006 – 08) and the assistance will aim for balanced regional development through aim for balanced regional development through restoration, rehabilitation and modernization of restoration, rehabilitation and modernization of energy infrastructure – power, gas and heating. energy infrastructure – power, gas and heating.

Heating Sector in AzerbaijanHeating Sector in Azerbaijanand ADB Assistance and ADB Assistance

Restoration in regional area is a daunting task. Restoration in regional area is a daunting task. ADB with more than 35 years of unique experience ADB with more than 35 years of unique experience and strengths in the Asia Pacific region, and in-and strengths in the Asia Pacific region, and in-depth understanding of the sector can be a partner. depth understanding of the sector can be a partner.

ADB’s integrated approach successfully ADB’s integrated approach successfully implemented in the region can be tailored to the implemented in the region can be tailored to the specific conditions in Azerbaijan. specific conditions in Azerbaijan.

Overview of ADB AssistanceOverview of ADB Assistance … (i) … (i)

Funds :Funds : ADB provides loan and equity ADB provides loan and equity investment to its DMCs for their economic and investment to its DMCs for their economic and social development. It has provided public social development. It has provided public sector loans amounting to more than $110 sector loans amounting to more than $110 billion across 39 DMCs of the region billion across 39 DMCs of the region

Technical Assistance Grants :Technical Assistance Grants : Provides grant Provides grant for the planning and implementation of for the planning and implementation of development projects and programs, and for development projects and programs, and for advisory services. TA grants of over $2 billion advisory services. TA grants of over $2 billion have been provided.have been provided.

• Private Sector Development and Finance :Private Sector Development and Finance :

creates enabling conditions for private sector creates enabling conditions for private sector participation, promotes public-private partnerships, participation, promotes public-private partnerships, and provides loans, equity, cofinancing, and and provides loans, equity, cofinancing, and guarantees. guarantees.

Private sector operation of more than $4 billionPrivate sector operation of more than $4 billion

Overview of ADB AssistanceOverview of ADB Assistance… (ii)… (ii)

Thank YouThank You

For Further InformationFor Further Information

aterway@adb.orgaterway@adb.org

mwestfall@adb.orgmwestfall@adb.org

abhargava@adb.orgabhargava@adb.org

www.adb.orgwww.adb.org

International ConferenceInternational Conference 20 - 21 October 2005, Baku20 - 21 October 2005, Baku

Ashok BhargavaAshok Bhargava

East and Central Asia Energy DivisionEast and Central Asia Energy Division

Asian Development BankAsian Development Bank

Financing Heating Sector Improvement Project

ADB’s Experience