PROPOSAL FOR REVIEW

PROJECT TITLE: SYRIA: SUPPLY-SIDE EFFICIENCY AND

ENERGY CONSERVATION AND PLANNING

GEF FOCAL AREA: Climate Change

GEF ELIGIBILITY: Under financial mechanism of Convention.

Convention ratified 4 January 1996

TOTAL PROJECT COSTS: $ 29.855 million

GEF FINANCING: $ 4.070 million

GOVERNMENT COUNTERPART FINANCING OF GEF COMPONENT: £S 36 million (in-kind)

$ 25.1 million (investment for the rehabilitation of Banias power plant)

CO-FINANCING $ 0.685 million (UNDP)

ASSOCIATED PROJECT: UNDP Energy Programme

GEF OPERATIONAL FOCAL POINT: Ministry of Planning

GEF IMPLEMENTING AGENCY: UNDP

EXECUTING AGENCY: Government of Syria

LOCAL COUNTERPART AGENCIES: Ministry of Electricity

Public Establishment of Electricity for

Generation and Transmission (PEEGT)

Public Establishment for Distribution and

Exploitation of Electrical Energy (PEDEEE)

ESTIMATED APPROVAL DATE: January 1997

PROJECT DURATION: Three years

GEF PREPARATION COSTS: $ 540,000 (PRIF)

COUNTRY AND SECTOR BACKGROUND

Operational Programme

1. This proposal is formulated in line with the Operational Strategy approved by the GEF Executive Council in October 1996. The project brief is therefore elaborated in response to the Climate Change Operational Programme number 5, "Removing barriers to energy conservation and energy efficiency". The proposal represents an attempt to remove existing barriers to the effective adoption of energy efficient measures in the Syrian power sector and energy conservation in the private and public sectors and thus facilitate the "implementation of Win-Win projects following the removal of barriers".

Background Information

Economic Framework

2. Syria is a middle-income developing country with a planned economy background and institutional tradition. Its economic base is diversified between agriculture, industry, and an expanding energy sector. In terms of social development, Syria compares favorably with other developing countries of the same category and ranks 81st among 173 countries worldwide according to UN sources.

3. Syria's development is hampered by a rapidly growing population which is expected to reach 32.3 million in 2025, up from an estimated 13.8 million in 1995. The annual population growth rate has risen to 3.4% in 1995.

4. The agricultural sector in particular and the economy in general is heavily influenced by low annual rainfall and the geographic distribution of rainfall. The Government recognizes this problem and has therefore given high priority to irrigation programs in development efforts.

5. Due to the rapid population growth, the country has experienced chronic foreign-exchange shortages. However, increases in oil exports, in addition to increased foreign assistance during the last three years, have reduced the Country's short-term foreign-exchange difficulties.

6. Pervasive controls on economic activity, including a multiple exchange-rate system, and negative real interest rates, have constrained the economy. However, the Government has taken a number of steps since 1986 to improve private-sector confidence, contain demand pressures, and bring about an effective depreciation of the Syrian pound.

Energy Sector

7. Syria's natural resources in terms of energy sources are modest compared to those of neighboring countries. Proved oil resources are 400 Mtoe while natural gas resources are 224 billion m3, which is equivalent to 200 Mtoe. Oil and natural gas fields are concentrated in northeastern Syria, in the Omar Basin, and in the Deir Al-Zor Basin in the mid-eastern part of the country. Hydro-electric resources are potentially 5000 GWh but the exploitable part is limited for economical and technical reasons to about 4500 GWh annually, which is equivalent to 1.2 Mtoe assuming that power is produced in a conventional condensing power plant. Most of the hydro-electric resources are from the Euphrates and Tigris rivers.

8. In 1995, the annual production of crude oil in Syria was some 29.5 Mtoe. About 42% of the crude oil was processed in own refineries. The rest of the annual production, amounting to some 18 Mtoe, was exported. Annual production of natural gas was some 2.85 Mtoe in 1995. Direct power production in Syria's hydropower stations in 1995 was some 0.7 Mtoe

9. In 1995, Syrian annual energy consumption was some 13.3 Mtoe, consisting of fluid fuels (liquids and gases) about 12.2 Mtoe, primary energy about 0.5 Mtoe and hydro about 0.5 Mtoe, and others about 0.1 Mtoe. About 0.2 Mtoe of the fluid fuels was used in the refineries for own needs. The remaining 12.0 Mtoe represented the end use of fossil fuels in Syria. Some 32% of this energy was used for electric power generation, 20% was used by the transport sector, 22% by the household, commercial and public sector, 22% by the industrial sector and 4% by agriculture.

10. The annual GHG emissions of the entire fuel chain comes to about now 37 million tons.

Electricity Sector

11. Syria's annual electricity production was 16.7 TWh in 1995, equivalent to some 4.1 Mtoe. The technical power losses of the electric network were about 13%. The remaining available electricity of 14.5 TWh was allocated to different sectors as follows: household, commercial and public sector 59%, industry 35% and agriculture 6%.

12. In July 1994, the Ministry of Electricity (MoE) was reorganized into two separate utility entities. The Public Establishment of Electricity for Generation and Transmission (PEEGT) that is, as the name indicates, responsible for power generation and transmission of electric power. The Public Establishment for Distribution and Exploitation of Electrical Energy (PEDEEE) is responsible for distribution, exploitation and demand side. Power plants are administered under the PEEGT as separate companies and distribution is now the responsibility of separate, regional distribution companies under the PEDEEE. Each power plant and distribution company is required to recover its costs and implement its own investment projects. The new organizational structure is a central underpinning factor that supports the wide range of activities of this project, from power generation and transmission to efficient utilization by end-users of fuel energy and electricity.

13. The PEEGT is currently constructing two major power plants, the 300 MW Zezon Gas Turbine plant and the 1000 MW Aleppo Condensing power plant. Plans are also ready for starting the construction of a 600 MW Condensing power plant in AL-Zara. In 1994, the PEEGT brought the 400 MW Tishreen condensing power plant into operation, while in the beginning of 1995 two 120 MW Gas Turbine plants have been commissioned together with the high efficiency 600 MW Jandar Combined Cycle plant that followed later in the year. At the moment, the 300 MW Al-Nasiryah Gas Turbine plant is under guarantee testing.

14. The value of the new supply-side installations that have been commissioned since 1994 is US$1.28 billion. Of this figure, about 75% (amounting to US $960 million) has been financed through the following loans:

(a) Zezon, Naseriyah and Zezon Gas Turbines: US $320 million loan from the Kuwait Development Fund.

(b) Aleppo Condensing plant: US $ 320 million grant from Saudi Arabia together with a $200 million loan also from Saudi Arabia.

(c) Jandar Combined Cycle plant: US $440 million loan from Japan.

(d) Al-Zara Condensing power plant will also be financed by credit financing, but through an undetermined source.

15. Despite the excessive investments on the supply side, it is estimated that electric power generation will not meet demand in the year 2002. With the annual power demand growing at a rate of 8.2%, it is estimated that the power demand will increase from the current 16.3 TWh to 29.1 TWh by the year 2002. The country has developed its electricity supply relying almost exclusively on expansion by constructing new power plants and transmission and distribution systems. Although increasing attention has lately been devoted at the Government policy level to end-use efficiency, practical efforts to promote energy conservation, demand side management, and better utilization of existing capacity have been minimal.

16. Due to inefficiencies in the power supply and subsidized pricing of electricity, the marginal cost of electricity supplied to customers is high and above tariff rates. These boost the viability of various capacity building projects and demand side management programs management and increase the motivation to promote power generation efficiency and end-use efficiency from the utilities' perspective.

17. The Ministry of Electricity has shown increasing interest in energy efficiency improvement and energy conservation activities in the past decade. A joint UNDP/World Bank study "Energy Sector Assessment Report" identified electricity loss reduction in transmission and distribution, along with improvement in power plant efficiency and availability, as high priority issues in Syria. This was followed up by the UNDP/World Bank Energy Sector Management Assistance Programme -ESMAP primarily financed from UNDP Syria country funds, with additional financial assistance provided by the World Bank. In September 1988, ESMAP published a study on Electric Power Efficiency. Also the European Union (EU) is preparing an "Electricity Sector Support Programme in Syria," assisting the MoE in raising its management capacity by providing support and expertise in the MoE's transition towards a market-oriented electrical utility.

18. The Banias Power Utility, with its potential generating capacity of 710 MW, is one of the largest in the country. The Plant is presently operating at thermal efficiency of 32% which, on average, is about six percentage points under desired operation conditions when taking into consideration the age and circumstances of the plant. The present project will focus on the Banias plant for capacity building specifically in the fields of efficiency management and maintenance management for efficiency improvements.

Existing Environmental Policy

19. Syria is committed to the protection of its environment. An environmental committee led to the enactment of environmental legislation which resulted in the adoption of the Presidential Degree of 1991. This decree established the General Commission for Environmental Affairs (GCEA), the Supreme Council for Environmental Safety, and the preparation of a Draft Environmental Protection Act. Under the direction of the Environment Minister, the GCEA is a Ministry-level agency that has the direction and authority to transcend all other operating ministries in order to fulfill its mandate.

20. The Ministry has adopted Environmental Impact Assessment procedures for evaluating large industrial and energy projects. The Ministry has applied World Bank guidelines in defining emissions limits in new investment projects.

21. With Capacity 21 resources, UNDP is funding a project entitled "Strengthening National Capacity for Environmental Affairs in Syria." This project is being executed by the World Bank. The project aims at building up the institutional and technical capacities of the General Commission for Environmental Affairs to enable it effectively to fulfill its functions and responsibilities according its mandate. Additionally, the project aims to formulate a national strategy and an environmental action plan (EAP) to address the country's pressing environmental concerns as well as to promote the integration of environmental considerations into all development activities and the preparation of a sustainable development strategy.

22. The European Union (EU) is financing an "Electricity Sector Support Programme - ESSP" in order to assist the Syrian Government in its effort to modernize the economy by helping the MoE to deliver electricity in required quantities and quality for all types of consumers. It will assist the MoE in raising its management capacity by providing support and expertise in preparing and formulating an electricity sector master plan with a marked emphasis on adjusting the Syrian tariff structure. It will contribute to the implementation of a permanent training program. It will set up local trained staff in the fields of planning and daily operation, providing them with the expertise and the required computer tools to plan and optimize the use of available power generation sources. It will also study and define the requirements for the future management information system and the future energy management system. The project will also focus on the transmission and distribution areas of the energy system and will provide the MoE with updated transmission and distribution standards, define the optimal means of operating and modernizing the whole transmission system, and provide training to that effect.

23. Other ongoing projects related to environmental activities in Syria are:

(a) The METAP project aimed at establishing an Environmental Impact Assessment Unit at the GCEA.

(b) Support for strengthening the GCEA to help it implement Montreal Protocol-related activities.

24. The contribution of the other donor programs has been either to enforce the institutional structure in the environmental and energy fields or to provide guidelines for environmental policy. The EU project is also concentrating on the development of power transmission and distribution systems by providing training and tools for the MoE. The proposed GEF project will complement this effort by concentrating on the supply side development to achieve acceptable efficiency levels, end-use management through energy-efficient and environmentally sound measures and long term planning through investigation of optimal energy mix options.

PROJECT OBJECTIVES

Strategic Goals

25. The first strategic goal of the project is to improve the efficiency of electric power generation in Syria's power plants on a sustainable basis. This project is intended to provide an alternative to the past approach which has focused only on increasing supply to meet demand and will therefore result in significant reductions in greenhouse gas emissions.

26. The second strategic goal of is to increase the independent capability of the Syrian entities to evaluate and implement energy conservation activities. These efforts will initially focus on improving the efficiency of industrial end-use, but will also promote the use of Integrated Resource Planning into Syrian power sector planning. These actions will also lead to long term reductions in greenhouse gas emissions.

Overall Objectives

27. The overall objective of this project is to assist the Syrian Arab Republic in its efforts to reduce the growth of GHG emissions that result from electric power generation and the inefficient consumption of carbon based fuels. In the long run, the project will promote the self-sustaining capability of energy sector authorities and utilities to implement strategies of integrated energy utilization to improve power supplies with minimum environmental and economic cost.

28. The project goals will be accomplished through pursuing the following objectives:

(a) supporting efficiency improvements and loss reduction in power generation through advanced efficiency control measures and maintenance management systems. Although Banias power plant will be the pilot plant for these activities, the government of Syria has committed itself to replication of these systems in all other Syrian power plants, using Banias as a training laboratory.

(b) supporting energy conservation and efficiency through adopting a National Efficiency Programme.

(c) facilitating the adoption and implementation of energy conservation measures in the industrial, commercial, and public sectors though the establishment of an Energy Services Center, (Syrian Energy Services Center - SESC), human resource development and awareness campaigning;

(d) stimulating and guiding the industrial sector in the field of energy auditing, optimal operation and better house-keeping;

(e) promoting Integrated Resource Planning in the electricity sector through introduction of advanced planning tools and training (funded by the UNDP);

(f) assisting in the international and regional transfer of experience and technology instrumental in GHG emissions reduction; and

(g) promoting public and private sector investments in energy projects beneficial to the global environment.

Improvement Targets

29. Measurable targets to be achieved by the year 2012, include

(a) reduction of the annual fuel consumption of Banias power plant by 9.5% through implementation of efficiency management systems and 3.5% through implementation of maintenance management systems. It is expected that, through dissemination of these technologies to other existing old condensing power plants (specifically Mehardet power plant and Kattenh unit (6), similar reductions in fuel consumption will be achieved. The Government of Syria has committed itself to replicate the supply side component of this project to encompass ALL existing Syrian power plants.

(b) reduction of CO2 emissions by 4.69 million tons from the supply-side component of the project.

(c) increase the annual power production at Banias power plant through increased availability. Maintenance Management Systems will increase the availability of units 1 & 2 from the current 72-75% to 85% and the availability of units 3 & 4 from the current 82-86% to 90%, thereby increasing the annual power production of Banias power plant by 16%.

(d) annual savings of 234 GWh of electricity from four specific industries (about a 5.5% reduction in total consumption).

(e) reduction of CO2 emission by 8.82 million tons from the energy conservation component of the project.

PROJECT DESCRIPTION AND OUTPUTS

Project and Related Programme Context

30. The project will be located within the Syrian Arab Republic. The project office will be at the Ministry of Electricity in Damascus, and be readily accessible to the national UNDP Office. The project office for the Supply Side Efficiency component will be located on the premises of the Banias Power Plant.

31. The project will primarily focus on the Syrian public power system plus fuel and electricity consumption in the industrial, commercial and public sectors.

32. Energy conservation and efficiency measures are largely unknown in all sectors of the Syrian society. There has, however, been a growing awareness on the subject on the part of the Government. In recognition of the importance of these concepts on the environment and on the sustainable development of Syria, there is now a willingness to actively participate and invest in this field.

33. This project is designed to build on the experiences made in transitional economies with respect to energy efficiency centers. In these documented experiences from Poland, Czech Republic, Russia and China, a number of conclusions were made with respect to the energy efficiency center concept. While the activities conducted by the four centers varied, all concentrated on (i) policy research, (ii) private sector assistance, (iii) demonstration and training, and (iv) public education and information. It should be noted that the present project focuses on activities such as these through the UNDP funded component National Energy Efficiency Programme, which will form an integral part of the present project. The EPA experience also documented that after 3 years of support, the centers in the four countries were able to raise 70 - 90% of their own funding without outside assistance.

Feasibility Study

34. A Feasibility Study was funded using GEF PRIF (Pilot Phase) resources. Through competitive bidding a Finnish utility company, Ekono Energy Ltd., was selected to carry out this work. The preparatory work was carried out during a six months period in the first half of 1994. During the PRIF phase, five energy audits were completed as was a capacity assessment programme.

35. The PRIF study produced a total of four reports all of which are available.

36. During the preparation of the Feasibility Study for the present project, extensive briefings were provided to the MoE staff in the areas of efficient power-plant operation and preventive maintenance. This briefing and exposure have enabled a broader understanding of the concepts of energy conservation and energy efficiency and thus a policy level willingness to invest in this field. Exposure was also given to MoE engineers in energy audits in the industrial sector, consumer behavior investigations and appliance studies in the household, commercial and public sector. The MoE already has computers and software to deal with optimization of power production and load leveling, and the staff has begun to utilize these tools and skills in their daily tasks. At present, the MoE is well prepared to proceed with the next step of the process.

37. As part of the Feasibility Study for the present project, an energy audit was performed on Banias power plant. The main objectives of the audit was to determine how efficiently the primary energy (heavy fuel oil) is being used for electric power generation and to compare the situation with guarantee conditions. The audit was performed on site by four members of the Ekono Energy team. Load factors and fuel consumption statistics were studied, maintenance procedures were examined and a complete investigation of the cycle process with emphasis on the boiler was undertaken. Results show that fuel consumption has increased dramatically from guarantee conditions in units 1 & 2 (apparent in a 15-20% increase in specific heat consumption) and that there is a rising tendency for the same effect in units 3 & 4 where a 6% rise in specific heat consumption can be seen. It was estimated by the Ekono team that operational reasons make up for 20-35% of the increase while maintenance aspects contribute about 65-80% of the increase in fuel consumption.

38. Short energy audits were also undertaken in four industrial enterprises as part of the Feasibility Study. Each of the four sectors represent one of the major energy intensive branches of Syrian industry. Due to the time span available for these audits, the analysis is rather general. The audits were performed on a cement plant, a fertilizer plant, a steel plant and a textile factory. Energy balances were calculated for the plants and for the major production units. Specific consumption and production figures were also calculated and compared to previous figures of the plant itself and to design performance values and reference values of other similar plants. Over and above the estimated potential for energy conservation and efficiency listed in paragraph 56, the main conclusion to be drawn from the audits is that before any attempts to improve the energy efficiency of the production processes are undertaken, an extensive human resource development programme should be implemented which includes, but is not limited, to courses and on-the-job training in energy use, conservation and efficiency measures.

39. The Feasibility Study recommended a programme of modernization of the existing instrumentation of the four Banias units before any investments in efficiency and maintenance management systems is undertaken. This modernization is valued at about $5.1 million. Moreover, about $20 million are needed for immediate mechanical repairs to upgrade the technical reliability of the units to an acceptable level that would justify the implementation of the above mentioned management systems.

Project Description

40. The Banias Power Utility is, with its potential generating capacity of 710 MW, one of the largest in the country. The plant is presently operating at thermal efficiency of 32% (average of the four units). In 1995, units 1 & 2 (commissioned in 1983) were operating at a thermal efficiency 9 percentage points below the desired level while units 3 & 4 (commissioned in 1989) were operating at a thermal efficiency 3.2 percentage points below desired levels. The supply-side component of the present project will focus on the Banias power plant for capacity building and implementation of the Efficiency Management System (EMS) and Maintenance Management System (MMS) for improvements in the plants efficiency and availability. These activities will ultimately result in substantial reduction in CO2 emissions.

41. The Government has already committed itself fully to rehabilitate the four units of the Banias Power Utility to ensure a standard of operation that is as close as possible to commissioning conditions taking into account the age of the plant. This level of operation will justify the implementation of Efficiency Management and Maintenance Management Systems. It is estimated that the above mentioned rehabilitation would cost US $25.1 million. This figure would (among others) renew heat exchangers (superheaters reheaters, and economizers), perform detailed inspection and repairs on boiler parts, inspect and repair pressure parts, adjust and repair burners, repair rotating air heaters, renew instrumentation and control systems, and inspection (repair if necessary) of condenser and steam generator. This equipment will facilitate that the plant greatly improves its efficiency. In this connection, the Government has requested a GEF grant to help improve the capacity of the utility staff to better manage the planning and management of the utility based on modern utility management principles. The management and planning tools and principles introduced in Banias will be subsequently replicated in other utilities throughout Syria. On the other hand, if a GEF grant is not secured, it is likely that the Government will resort to its past practice of partially rehabilitating plants when their condition is near that of collapse. In this way the utilities can keep Banias on line and increase its performance and power output without heavy investments until a more sustainable solution can be found. This kind of rehabilitation, which nearly resembles crisis maintenance has been standard practice in the past. Just last year, such a low cost rehabilitation was performed on Banias' Units 1 & 2. The improved state of these units is unsustainable and rapid deterioration has already begun.

42. The proposed supply-side component is expected to have a significant demonstration value that is immediately replicable in other power plants. The goal is that efficiency monitoring and preventive maintenance systems is installed in the country's other existing power plants and in capacity expansion projects that are already at the design stage.

43. Within the proposed energy conservation and planning component, an Energy Services Center - SESC will be established. The Center will be active within the field of public and private sector assistance especially performing audits and retrofits. The SESC will undertake detailed audits of the four industries initially audited by Ekono as part of the feasibility study. The SESC will identify methods of better housekeeping, investment opportunities for energy savings, opportunities for co-generation and would receive a percentage of the clients savings. This will ultimately lead to considerable reductions in CO2 emissions in the industrial sector from both electric power consumption and from fuel consumption. The Government of Syria has, within the scope of the activities to be performed by the SESC, committed itself to make available credit to activities and investments in the area of energy conservation and efficiency within the industrial and commercial sectors. Once established, the SESC will facilitate credit access to its costumers, and will eventually move towards being able to supply partial or total credit to the customers itself.

44. A National Energy Efficiency Program will undertake activities in policy research and advice, create and implement information programs on energy efficiency, introduce Integrated Resource Planning, establish energy savings targets, and evaluate energy savings potential and energy savings results. It should be noted that these activities will be funded through non-GEF resources.

45. By introducing Integrated Resources Planning tools to the MoE in general and the two electricity establishments in particular, by establishing a permanent organization (the SESC) for promotion of energy services and by establishing a National Energy Efficiency Programme to promote conservation in the country, the continuity of the process towards sustainable improvements in energy efficiency, conservation and environment quality can be guaranteed. Demonstration of an integrated methodology for managing developments of the supply side and demand side of the electricity sector in parallel will provide a model for adaptation in the other developing countries

BARRIERS THAT HINDER ENERGY CONSERVATION AND ENERGY EFFICIENCY ACTIVITIES FROM BEING SELF-LAUNCHING

46. The project contains two components. The first addresses the supply side of the Syrian power sector and the barriers to the efficient generation of power. The second addresses the demand side of the Syrian power sector and the barriers that render energy conservation unknown and unfeasible in all Syrian sectors and society. In this section, these barriers, and the activities proposed to overcome them, will be presented and discussed for the projects two components.

Barriers to the Implementation of supply side efficiency and maintenance

47. In the past, the Syrian power sector has made no use of efficiency control and maintenance management systems. For example, the concepts of preventive maintenance and practices of efficiency monitoring are virtually non-existent. Instead, the prevailing maintenance attitude has been to undertake maintenance activities on a "as-needed" basis or a "crisis management" basis. At the same time, efficiency control has been minimal due to the lack of incentives for such practices. These factors have led to a practice of partially rehabilitating the plants as being the standard method to attempt to improve the inevitable resulting unacceptably low levels of efficiency. The inertia created by such practices, is now one of the overall barriers to the initiation of the this component.

48. The specific barriers which have prevented this activity from taking place on its own fall into three categories, as listed below:

(a) Information and awareness: Neither decisionmakers nor the staff of the MoE have adequate awareness of and information about preventive maintenance, efficiency control and the operation of market oriented utilities.

(b) Human resources: Technicians and engineers are accustomed to relying upon corrective action and have never been trained in preventive maintenance or efficiency control measures. They are currently familiar with the concepts only at the most general level, and have never worked in a utility which operates as a self sustaining and profit making entity where such systems are standard practice. There is therefore insufficient capacity among MoE engineers & technicians to undertake the task of implementing and enforcing Energy Efficiency measures at the supply side of the Syrian power sector.

(c) Access to technology: There exist no Efficiency Management Systems or Maintenance Management Systems in Syria at present. In addition there is a need for more awareness of higher efficiency options for future system expansion

49. As a result of these three barriers, the Syrian authorities see the initiation of these practices by implementing EMS and MMS systems as embodying considerable risk, and are unwilling to initiate this programme without catalytic help and support. If the EMS and MMS provided as part of this pilot activity achieve the anticipated savings, the Syrian Government has committed itself to expanding the programme throughout the Syrian power sector.

50. In order to overcome these barriers the project will:

(a) Information and awareness:

(i) Expose high level MoE officials (managers and policy/decision makers) to established self-sustaining utilities, including in-depth exposure to the following components of a market oriented/self sustaining utilities company:

a. Modern utilities Management concepts.

b. Economic and financial methodologies/strategies and outcomes.

c. Maintenance Management system (MMS), the concept of Preventive Maintenance and, most important, their implications on availability, efficiency and the economics of the utility.

d. Efficiency Management System (EMS) and other efficiency control technologies and their implications on economic return/profit and sustainability through self financing.

(ii) Undertake a training programme for selected officials through subcontracting a modern and efficient utility. This training will be both on and off site. Utility employees from all levels will be actively involved in this process.

(iii) The training will be further complemented by the establishment of twinning arrangements for middle level managers from the MoE (two from PEEGT and two from PEDEEE) with an established and comparable power plant in Europe or the US. Here exposure will be given to the above mentioned concepts through rotation between all departments of the utility.

(b) Human resources:

(i) Evaluate the level of education and experience of the personnel, selecting personnel to be trained, completion of training.

(ii) Design, prepare and coordinate the courses and selecting the personnel to be trained.

(iii) Train power plant personnel through participation in EMS and MMS engineering projects under the supervision of equipment and software suppliers.

(iv) Select the personnel from the Banias power plant capable of training staff of other power plants in the future.

(c) Access to technology

Generally

(i) Expose MoE technicians, from the level of engineer to foreman, to modern power plants where efficiency control systems are in use.

(ii) Expose MoE officials to already commissioned high-efficiency advanced power plant concepts, and drawing board versions of future power plant concepts such as advanced Gas Turbine technologies, and familiarize them with the associated benefits.

(iii) Introduce of EMS and MMS as referenced above.

On Efficiency Management System (EMS)

(i) Select and link the participating personnel from the Banias power plant to the EMS activities.

(ii) Allocate the mobilized Government resources for implementing the needed instrumentation modernization project.

(iii) Implement an Efficiency Management System at the Banias power plant aiming to keep the efficiency at an acceptable level in view of the age and other circumstances at the plant.

(iv) Follow up and monitor the EMS activities and the results achieved in fuel savings and emissions reductions.

(v) Pursue the replication of efficiency monitoring concepts in other condensing power plants.

(vi) Provide the conceptual framework and specifications for an efficiency monitoring system to be replicable in capacity expansion projects already at the design stage.

On Maintenance Management System (MMS)

(i) Select and link the participating personnel from the Banias power plant to the MMS activities.

(ii) Allocate the mobilized Government resources for investments necessary to implement mechanical overhauls and repairs.

(iii) Train the selected personnel to code and input data to the MMS system and operate the system.

(iv) Implement a Maintenance Management System at the Banias power plant by using sophisticated planning and condition-based predictive maintenance techniques.

(v) Follow-up and monitor the implementation of the MMS system activities and the results achieved in increased output, improved efficiency and decreased emissions.

(vi) Pursue the replication of maintenance management concepts in other condensing power plants.

(vii) Provide the conceptual framework and specifications for a preventive and predictive maintenance system to be replicable in capacity expansion projects already at the design stage.

Barriers to Energy Conservation and Planning in Syria

51. In the past, the Syrian energy and power sectors have made no efforts to combine Demand Side Management, renewable energy and conventional options, to rationally plan the Syrian power system to meet demand. The predominant energy and electric power supply policy pursued in Syria is based on meeting demand through the expansion of conventional electric production capacity, distribution and transmission system and not through the promotion of Integrated Resource Planning and energy conservation and energy efficiency measures. As a result, and as in the Supply-side efficiency component, there is considerable inertia to be overcome in initiating these tools and concepts. This inertia or attitudinal barrier represents the overall barrier to the initiation of this component. Again this past practice has resulted in several more specific deficiencies in Syria that manifest themselves as barriers which have prevented this work from being self-launching.

52. The specific barriers which have prevented this activity from self-launching fall into three categories, as listed below:

(a) Information and awareness:

(i) Lack of exposure of decision makers and other staff at the MoE and the Ministry of Planning to concepts of integrated energy planning and its potential impact on development and sustainability of power services, energy conservation, and power supply security and availability.

(ii) Lack of knowledge on energy conservation and its economic and environmental potential among decision makers, managers and operators in the commercial and industrial sectors.

(iii) Insufficient in-depth knowledge in MoE of consumption habits and consumer behavior coupled with insufficient data and information on the specific areas where energy conservation measures will have the greatest impact.

(b) Institutional and human capacity:

(i) Insufficient capabilities among the MoE technicians to undertake tasks of implementing and marketing energy conservation measures in the industrial and commercial sectors and energy planning in the power sectors.

(ii) Inadequate institutional capacity to undertake the task of promoting energy conservation in the commercial and industrial sectors.

(c) Access to technology: Lack of familiarity with and the demonstration of technological options for the promotion of energy conservation in commercial and industrial sectors.

53. As a result of these barriers, Syrian authorities see the initiation of these practices as embodying considerable risk and are therefore unwilling to initiate this programme without catalytic help and support. If that support is given, the government has committed itself to the financing of cost-effective projects in the field of energy conservation.

54. In order to overcome these barriers the project will:

(a) Information and awareness:

(i) Hold seminars in energy economics, energy efficiency measures and energy usage, monitoring and control for managers and operators from 20 large industrial companies.

(ii) Create data bases in MoE on electricity consumption of different consumer groups, load patterns, and saturation and ownership of electric appliances.

(iii) Hold seminars for senior MoE officials and senior officials from the Ministry of Finance on energy planning strategies in general and Integrated Resource Planning in particular.

(iv) A local evaluation institute will collect information and feedback from consumer groups, with respect to energy conservation attitudes, recent information campaigns, practical experience of household appliances and the MoE's operations in general.

(v) Involve Syrian university departments in outreach work to promote conservation and energy awareness in commercial, private and public sectors. This will include seminars for managers and professionals university students.

(b) Institutional and human capacity

Activities related to the establishment of an Energy Services Center

(i) Establish a Syrian Energy Services Center (SESC) associated with the MoE. The center will provide Private and Public sector assistance such as energy auditing and identification of investment opportunities in energy efficient technologies and service areas.

(ii) Recruit personnel and evaluating the level of education and experience of the personnel selected for the SESC and arranging for training.

(iii) Train the SESC professional staff, including on-the-job and overseas training, seminar participation. Specific training will be carried out in energy auditing.

(iv) Undertake technical assistance and on the job training of the SESC staff for development of building code to promote energy-efficient solutions, for creation of standards, rules and guidelines for local compensation of reactive power.

Activities related to the establishment of a National Energy Efficiency Program (funded by non-GEF resources)

(i) Undertake policy research and provide policy advice plus model legislation to energy policy makers in general and MoE policy makers in specific to create incentives for energy conservation.

(ii) Create and implement information programs on energy efficiency to help consumers and enterprises to develop energy-efficient practices, and to promote overall awareness of the benefits of energy conservation. Initially, this activity will complement the efforts of the SESC and concentrate on the industrial sector.

(iii) Carry out a comprehensive Integrated Resources Planning exercise combining least-cost studies of both supply and demand side options. This will be done by PEEGT, the PEDEEE and the SESC and results will be presented to senior management at MoE and senior governmental policy makers specially at the Ministry of Finance.

(iv) Establish energy savings targets, and evaluate energy savings potential and energy savings results.

(v) Undertake technical assistance for:

a. establishing a country-wide system for utility load measurements and resources planning.

b. establishing systematic procedures for computerized DSM planning, data collection and creation of necessary data banks.

c. planning and implementation of awareness campaigns for promotion of energy efficiency.

d. use of IRP software and DSM planning programs.

(c) Access to technology

(i) Ensure that the SESC is fully equipped for industrial and commercial energy audit services.

(ii) Establish a testing laboratory within the Industrial Training and Research Center; specifications of equipment and test room construction, and testing methods.

(iii) Introduction of low-investment energy-saving improvements and housekeeping improvements will be carried out in 20 industrial companies.

Outputs

55. The general output of the project will be an increased capability of Syrian authorities in the electricity sector to reduce the dependence on the centralized governmental decision-making procedures inherited from the past. This capability will be embodied in institutions of the Syrian energy sector which are adequately equipped and trained to ensure maximum efficiency on the power supply side and on the demand side of the power and energy sector.

56. The outputs will result in an overall reduction in energy consumption per capita and per unit GDP. The outputs will also result in decreased demand for electric power leading to deferring capacity expansion.

57. The quantitative outputs listed below are based on estimates for the year 2012, calculated by assuming a life time of the investment of fifteen years which includes 18 months of installation and training.

(a) As an immediate result of the project, the output of the Banias power plant will increase by 16%. Combined specific fuel consumption will decrease 14%, thus leading to a 14% decrease in GHG gases per produced kWh.

(b) The availability of power solely at Banias power plant will be increased 16% through a smooth operation and maintenance system. The cumulative power output of the Banias power plant will be raised by 7,695 GWh. This will help to defer capacity expansion.

(c) A saving of 1.5 Mtoe of fossil fuel energy from the resulting rise in efficiency will lead to a 4.69 million ton reduction in CO2 emissions by year 2012. The expected immediate replication of the supply-side component of this project (implementation of EMS & MMS) in Mehardet power plant and Kattenh Unit 6 will result in an additional reduction in CO2 emissions of 4.085 million-tons.

(d) Better housekeeping in the industrial sector will lead to sustainable saving of 234 GWh of electricity in the four audited industries (equivalent to 70,000 toe annually). This will by year 2012 amount to a reduction of 2.94 million tons of CO2. Conservation of 140,000 tons of fuel energy annually will amount to a reduction of 5.88 million tons of CO2 by year 2012.

Use of Outputs

58. The project will provide the MoE and its staff with an institutional framework for increasing the efficiency of the energy chain, from power production to the end-use level, in an environmentally sound manner.

59. The MoE will, through the services of the SESC, be furnished with an Integrated Resources Planning System to supply least-cost planning tools for the analysis of both supply and demand side options in formulating power-utility strategies. Utilization of the IRP system will ensure that similar feasibility and success criteria can be applied in the planning, implementation and evaluation of supply and demand side measures.

60. The operational staff of the PEEGT will be equipped with an on-the-job training package supported by two demonstration projects entitled Efficiency Management System and Maintenance Management System.

61. The project will serve as demonstration of modalities for energy-efficiency and greenhouse gas reduction for the other Syrian power plants. The trained staff will be employed as further trainers of the PEEGT operational staff in other power plants.

62. An Energy Service Conservation Center will be established to function as an institutional framework and to consolidate ongoing energy conservation activities in Syria.

RATIONALE FOR GEF FINANCING

63. The project aims to strengthen the Syrian Government's capacity to implement a long-term and environmentally sound energy policy. The ultimate goal of the project is to curb GHG emissions and thus contribute to the ongoing effort to mitigate climate change. Although the project is economically viable, the project cannot be self-launching due to the shortage of skilled personnel, attitudinal barriers and inappropriate institutional setting. Through the mechanism of GEF funding, however, the project will act as a catalyst of beneficial effects in Syria, resulting in higher energy efficiency in power supply and in lower energy intensity on the demand side.

64. In line with the Operational Strategy, the present project seeks to overcome specifically identified barriers which will lead to the adoption of energy efficiency measures in the electric energy sector in Syria. Specifically, the project will "facilitate the learning process required for widespread application of energy conservation and energy efficiency projects in developing countries" (GEF Operational Strategy, page 35).

65. The project will achieve reductions in GHG emissions (CO2) of 4.69 million tons in power generation and of 8.82 million tons on the industrial demand side of energy consumption over the lifetime of the investments (by the year 2012) thereby producing a total reduction of 13.51 million tons of C02 by year 2012.

66. The project aims at reducing emissions of greenhouse gases and other pollutants by improving energy end-use efficiency and decreasing fuel consumption of power plants. It will provide a policy and action framework for meeting climate change mitigation objectives with the existing energy system in a cost-effective way. The GEF funding will reduce the transaction cost of energy conservation, so that the invisible transaction cost for reduction of CO2 emissions is US$ 0.51 per ton of CO2 in the power plant efficiency component and US$ 0.19 per ton of CO2 in the DSM component. The Unit Abatement Cost of CO2 is calculated on the basis of a GEF contribution of 2.4 million on the supply side and 1.670 million on the industrial demand side.

SUSTAINABILITY AND PARTICIPATION

Government commitment

67. The Government of Syria puts a great emphasis on ensuring the modernization of its electric energy sector. Moreover, largely through the Feasibility Study for the present project, the Government has seen demonstrated the large inefficiencies which are currently present in the system. The Government is committed to ensuring an upgrading of the equipment, management and maintenance system in the power sector and is willing to allocate a $25.1 million for equipment upgrading, etc. However, aware that much of the problem is related to human resources, inadequate training and inefficient services and management, the Government has requested GEF assistance to address those aspects and only then will the Government commit its funding the equipment upgrade.

68. The present project was prepared jointly by the Government of the Syrian Arab Republic and UNDP. It has the full support of the Government of the Syrian Arab Republic. As mentioned above, the Syrian Ministry of Electricity has committed itself to the mechanical and instrumental rehabilitation of Banias power plant to facilitate the leverage of GEF funding in the power plant efficiency project. The Government will also allocate some £S 36 million for other project-related activities.

69. In recognition of the importance of the establishment of a self-sustaining SESC, the Government of Syria has agreed to establish an entity which is independent from an economic, financial and an administrative point of view and which will successfully and without hindrance be able to perform the activities that are listed in this proposal. In addition the Government has, within the scope of the activities to be performed by the SESC, committed itself to make available credit to activities and investments in the area of energy conservation and efficiency within the industrial and commercial sectors. Once established, the SESC will facilitate credit access to its costumers, and will eventually move towards being able to supply partial or total credit to its customers itself.

70. Syria's increased energy related environmental awareness is evidenced in the energy policy launched in 1994. The policy was supported by reforms in the institutional setting of the energy sector administration and in energy pricing targeted at reducing energy consumption and increasing cost effectiveness. The Government is also formulating a support program together with the European Union in the area of transmission and distribution with a high priority of environmental aspects and tariff policy.

71. To emphasize its commitment to policy reform and the restructuring of tariffs, the Government of Syria, has taken the first step in that direction. In June of 1995 the Higher Council for Investment, chaired by the Chairman of the Council of Ministers, approved a proposal from the Ministry of Electricity that all establishments erected under the auspices of Investment Law number 10 of 1991, are to pay unsubsidized prices for consumed electricity. The new tariffs, suggested by the Ministry of Electricity, are at the moment being reviewed for acceptance. The suggested tariffs for electricity consumption reach nearly 14 US cents per kWh in peak hours.

Stakeholder Involvement

72. This project is the outcome of the GEF funded PRIF which was conducted in 1994 by the two Syrian electricity establishments (PEEGT & PEDEEE), Ministry of Electricity with technical assistance and support by Ekono Energy Ltd. of Finland. The PRIF was implemented through the Ministry of Electricity.

73. During the Feasibility Study, monthly coordination meetings were held in Damascus with the participation of all involved parties. A number of energy audits were performed, including an audit for the Banias Power Plant to find out how effectively primary energy (heavy fuel oil) has been used for power generation and to compare the present situation to the guarantee condition of the units. A second set of audits were performed for the following four industries: the Cement, Fertilizer, Steel and Textile Industries. These industrial audits helped give an introductory idea to present use of energy in Syrian industries and the possibilities for savings and improving efficiency of energy use. Monthly Progress Reports were published during the duration of the PRIF.

Incentive and Regulatory System

74. The Government of Syria still subsidizes electricity tariffs but serious steps are being taken to remove these subsidies as explained in paragraph 69.

75. There is therefore a very large and very clear incentive for the two electricity establishments the PEDEEE and the PEGTEE to generate, transmit and distribute electricity as efficiently and as cheaply as possible to minimize their losses and get closer to removing subsidy. This is especially the case after the MoE was restructured and the separate companies were required to recover their costs and implement their own investment programmes. For the same reason, there is a large incentive to reduce consumption and successfully implement energy conservation measures and planning tools for long-term cost effective solutions. Moreover, the amount of fuel oil conserved can be profitably exported thereby creating an other incentive which encourages the Government to support the concepts and activities of this project.

LESSONS LEARNED AND TECHNICAL REVIEWS

76. At present, there are no other projects in the GEF portfolio that combine both supply and demand side measures to address energy efficiency and conservation in a country. However, information sharing will clearly be set up with similar initiatives in Eastern Europe and China and Peru (both GEF and non-GEF funded), in order to ensure that experiences can be exchanged with respect to the energy conservation side of the project.

77. As also stated in paragraph 33, some important lessons can be learnt from the EPA experiences in the economies in transition (see also footnote 1), and the energy conservation component of this project has been designed based on the experiences made in these countries.

78. As already stated above, the present project was prepared with GEF Pilot Phase funding (PRIF funds). The first project brief was prepared in December 1994. This project was reviewed by three STAP reviewers, who recommended substantial changes in the project. Among the recommendations were: a decreased emphasis on the production of energy efficient appliances; the support to policy and regulatory aspects and additional work on efficiency standards.

79. Based on the above and the many other recommendations in the initial technical review, extensive discussions were held with the Syrian counterparts to assess how best to re-cast and strengthen the proposal.

80. Following the approval of the new GEF Operational Strategy and following the Syrian ratification of the UNFCCC (January 1996), two missions were undertaken to finalize the present proposal. The new proposal was thus reviewed by STAP independent reviewers in May and June 1996 and the proposal was strengthened accordingly.

81. One of the recommendations of the review was that the activities of the SESC be focused to concentrate on audits, efficiency and retrofits, while the "softer" activities such as training, education, promotion, IRP, legislation, energy targets, etc., be re-cast in a National Energy Efficiency programme. As this recommendation goes entirely in line with the UNDP plans for support to the Syrian energy sector, the project brief was adapted accordingly. The present proposal has therefore narrowed down the scope of the SESC, while introduced the national energy programme which will be funded from UNDP resources.

82. A reviewer also expressed concern as to whether the SESC would only focus on electricity savings, as opposed to fuel savings. However, in view of the fact that the SESC will be established as an independent entity, with its own operating budget and management structure, and moreover, as the majority of the large industries in Syria are producing their own energy and thus not direct buyers of electric energy from MoE, the emphasis of the project will indeed be on both fuel and electricity savings.

83. All reviewers recommended that a motor systems specialist and a commercial building design specialist be added to the project. The project brief has been updated to include these consultancies.

84. The reviewer also found that the initial budget set aside for the industrial audits was inadequate. The reviewer made specific recommendations, based on his experience, regarding the costing of these items, and a slight increased in the budget was therefore introduced.

85. All appraisers of the project found that the initial project period of two years would be too short and the project period has thus been extended to three years.

PROJECT FINANCING AND BUDGET

86. The total project cost is US $ 29.855 million with the following sources of financing: GEF: US $4.070 million and UNDP: US $0.685. Over and above these figures, the rehabilitation of the Banias power plant, which is necessary to implement the supply-side component of this project, is valued at another US $25.1 million to which the Government is committed. In addition, the Government has committed an in-kind contribution of £S: 36 million equivalent to US $ 857,143 million.

87. This rehabilitation, is a pre-requisite for the GEF and UNDP funding.

88. The project will be implemented over the period 1997 - 2000.

INCREMENTAL COSTS

89. Detailed incremental cost analysis, in accordance with the GEF guidelines is attached in Annex 1 to the present project brief.

ISSUES, ACTIONS AND RISKS

Potential Risks and Possible Corrective Measures

90. Potential Problem: No immediate interest in the services of the SESC from public sectors other that Electricity and the private and commercial sectors. Solution: The SESC will be working under contracts for the two electricity establishments. Through this income the SESC will be able to sustain itself till it has been able to market its services in the other sectors.

91. Moreover, this problem is not very likely. Government has shown increasing interest in utilizing the activities of an SESC specially in energy auditing of the public sector industries where there is potential for large amounts of savings in energy consumption over and above the savings achieved through this project. This initial interest will be strengthened when further steps are taken to adjust the tariffs structure. The first step has already been taken in that direction by approving the proposal of the Ministry of Electricity to remove subsidies of establishments created under investment law number 10 of 1991

92. Potential problem: Trained staff do not remain in their posts. Solution: All trainees will be required to sign contracts to work on the plant for specific periods of time. A combination of salary packages and prestige of being involved with the present project should not make it very difficult to retain staff in the country where the number of well trained people is very high.

Actions

93. Since the rehabilitation of the Banias power plant is of vital importance to the success of the project, this rehabilitation is a pre-requisite for funding. Therefore, the Government of Syria should prepare a detailed plan for the rehabilitation of Banias and start these efforts as soon as the GEF project is approved for funding or at the very latest at the same time as the capacity building part of the supply side project component.

Issues

94. The issue of tariffs is very important. The Government of Syria has taken the first step to end subsidies by approving the end of subsidy of all establishments created under investment Law number 10 of 1991. UNDP will work closely with other partners (notably the EU and JAICA) to continue to encourage the Government to follow the reform path with respect to the tariff structure.

INSTITUTIONAL FRAMEWORK AND PROJECT IMPLEMENTATION

95. The Ministry of Electricity will be the overall Government partner responsible for the implementation of the present project. The PEEGT will be responsible for the supply-side component of the project while the PEDEEE will be responsible for the industrial demand side and energy conservation component of the project.

96. Banias power plant is administered as a financially independent utility under the PEEGT and the MoE. The plant staff consists of 800 employees. However, the skillful and capable technical staff lack knowledge on modern efficiency control maintenance measures due to weak management of human resources.

97. It is planned that the Syrian Energy Services and Conservation Company - SESC will operate as a independent company affiliated with the Ministry of Electricity. The Government of Syria has supported the marked emphasis on independence of the company in recognition of the need to establish a self-sustaining company. UNDP has secured a written agreement from the Government stressing that the SESC will have an independent identity from a financial and an administrative point of view. The SESC will initially be contracted by the two Syrian electricity establishments to perform services in return for payment. In this way the SESC will be assured of an income until it is able to market itself and expand its activities to include services to other public sectors and the private and commercial sectors.

98. In order to coordinate the implementation of the project, a Project Coordinating Committee (PCC) will be established to guide project and to ensure coordination between the involved Government agencies as well as with external agencies. The PCC will include a representative from UNDP, the Ministries of Electricity, the two public establishments of electricity (PEEGT & PEDEEE), Environment, Industry, Petroleum and Mineral Resources, Information, the Planning Commission as well as business and consumer groups and the local academia.

99. The wide range of Syrian ministries and authorities represented in the Project Coordinating Committee will facilitate favorable political, economic and administrative conditions for the implementation of the project. Close cooperation with the EU's Electricity Sector Support Programme will support the common goals of the two projects and help transform the electricity sector into a market-oriented company.

MONITORING AND EVALUATION

100. The project will be closely monitored in accordance with UNDP's established monitoring procedures. As such, therefore, ongoing performance monitoring will be provided by the UNDP Office with the backstopping from UNDP technical staff from HQs. In addition, annual project reviews (tripartite reviews) will also be held with the participation of all project participants. During the TPRs, the project performance will be measured against established workplans, expenditures will be reviewed and overall technical performance will be assessed. In addition, a final evaluation will be carried out at the end of the project.


List of Annexes

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