PUBLIC

DOCUMENT OF THE INTER-AMERICAN DEVELOPMENT BANK

TRINIDAD AND TOBAGO

SUSTAINABLE ENERGY PROGRAM

(TT-L1023)

LOAN PROPOSAL

This document was prepared by the project team consisting of: Natacha Marzolf, Project Team Leader (INE/ENE); Christiaan Gischler (INE/ENE), Jesus Tejeda (ENE/CGY); Gerard Alleng (INE/ECC); Carlos Echeverra (INE/ENE); Javier Jimenez (LEG/SGO); Denise Salabie (PDP/CTT) and Dales James (CCB/CTT) under the supervision of Leandro Alves, Energy Division Chief (INE/ENE), and Iwan Sewberath Misser, IDB Representative in Trinidad and Tobago (CCB/CTT).

This document is being released to the public and distributed to the Banks Board of Executive Directors simultaneously. The Board may or may not approve the document, or may approve it with modifications. If the document is subsequently updated, the updated document will be made publicly available in accordance with the Banks Access to Information Policy.

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CONTENT

I.

DESCRIPTION AND RESULTS MONITORING .................................................................... 2 A. B. C. Background, Problem Addressed, Justification................................................. 2 Objective, Components and Cost .................................................................... 10 Key Results Indicators ..................................................................................... 13

II.

FINANCING STRUCTURE AND MAIN RISKS .................................................................. 13 A. B. C. Financial Instruments and Contractual Conditions ......................................... 13 Environmental and Social Safeguard Risks .................................................... 13 Other Key Issues and Risks ............................................................................. 14

III.

IMPLEMENTATION AND MANAGEMENT PLAN ............................................................. 15 A. B. Summary Implementation Arrangements........................................................ 15 Summary of Arrangements for Monitoring Results ........................................ 15

IV. POLICY LETTER........................................................................................................... 15

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ANNEXES
ANNEX I: ANNEX II: Development Effectiveness Matrix (DEM) - Summary Policy Matrix

REQUIRED ELECTRONIC LINKS

1. 2. 3. Policy Letter http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=36473857 Means of Verification http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=36384719 Results Matrix http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=36384718

OPTIONAL ELECTRONIC LINKS

1. 2. 3. Monitoring and Evaluation Methodology http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=36318794 Economic Analysis Annex http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=36318924 Technical Assistance to Support the Government of Trinidad and Tobago in the Energy Policy Public Consultation http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=36318699 Sustainable Energy Program Framework for T&T http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=36318698 Extractive Industry Transparency Initiative (EITI) Implementation Work Plan for T&T http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=36318691 EITI and Sustainability in the Extractive Sectors http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=36318694 GoRTT 2010 Prosperity for All Manifesto http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=36318695 Budget Statement 2011 http://idbdocs.iadb.org/wsdocs/getDocument.aspx?DOCNUM=36318693

4. 5. 6. 7. 8.

- iv ABBREVIATIONS bbl/d bcf CBA CCS CFL CNG CPD CREC CRSTF EA ECPA EE EITI EOR ESMR Fund FY GCI-9 GDP GHG GJ GoRTT GWh IDB IPP KCP km kVA kWh LNG MBtu MEEA MOF MW MWh Barrels per day Billion cubic feet Cost Benefit Analysis Carbon Capture and Sequestration Compact Fluorescent Lamps Compressed Natural Gas Country Programming Document Caribbean Renewable Energy Center Carbon Reduction Strategy Task Force Executing Agency Energy and Climate Partnership of the Americas Energy Efficiency Extractive Industry Transparency Initiative Enhanced Oil Recovery Environmental and Social Management Report Heritage and Stabilization Fund Fiscal Year Ninth General Capital Increase Gross Domestic Product GreenHouse Gas Gigajoules Government of the Republic of Trinidad and Tobago GigaWatt hour Inter-American Development Bank Independent Power Producer Knowledge and Capacity Building Product Kilometers kiloVolt-Ampere Kilo Watt hour Liquefied Natural Gas Million British Thermal Units Ministry of Energy and Energy Affairs Ministry of Finance MegaWatt MegaWatt hour

-vNG NGC OI PBP PBL PCR Petrotrin PowerGen PPT PV RE REC RIC R/P SWH TJ T&T T&TEC Trinity VAT Natural Gas National Gas Company Operational Input Policy-Based Programmatic Policy-Based Loan Project Completion Report Petroleum Company of Trinidad and Tobago Power Generation Company Petroleum Profit Tax PhotoVoltaic Renewable Energy Renewable Energy Committee Regulated Industries Commission Reserve to Production Solar Water Heaters Terajoules Trinidad and Tobago Trinidad and Tobago Electricity Commission Trinity Power Limited Value Added Tax

PROJECT SUMMARY TRINIDAD AND TOBAGO SUSTAINABLE ENERGY PROGRAM (TT-L1023) Financial Terms and Conditions Borrower: Republic of Trinidad and Tobago (GoRTT) Amortization Period: Grace Period: Executing Agency: The Ministry of Finance (MOF) Disbursement Period: Source Amount Supervision and US$60 million Inspection Fee: IDB (OC) Interest Rate: Other/Cofinancing Credit Fee: Local

20 years 5 years 12 months * Libor-based * US$ from the Single Currency Facility of the Ordinary Capital

Total Project Objective/Description:

US$60 million Currency: Project at a Glance

The general objective of the Program is to support the transition of Trinidad and Tobago (T&T) to a more efficient, sustainable and clean energy matrix. The Program will: (i) strengthen the regulatory and legal framework to contribute to a more sustainable energy sector (focus on Renewable Energy) with increased efficiency, transparency and accountability; (ii) support the preparation of new policy and legislation for Energy Efficiency (EE); (iii) support environmental sustainability of alternative energy fuels in the energy matrix; (iv) promote efficient and rational production and use of fossil fuels; and (v) strengthen institutional capabilities for sustainable energy and public education awareness.
Special contractual clauses:

The disbursement of the single tranche is subject to the presentation by the GoRTT of evidence satisfactory to the IDB that: (i) the policy conditions described in Annex II (Policy Matrix) have been duly fulfilled; and (ii) submission by the GoRTT of a Policy Letter referred to in paragraph 4.1.
Exceptions to Bank policies: None Project qualifies for: SEQ[ ] PTI [ ] Sector [ ] Geographic[ ] Headcount [ ]

(*) The credit fee and inspection and supervision fee will be established periodically by the Board of Executive Directors as part of its review of the Banks lending charges, in accordance with the applicable provision of the Banks policy on lending rate methodology for ordinary capital loans. In no case will the credit fee exceed 0.75% or the inspection and supervision fee exceed, in a given six-month period, the amount that would result from applying 1% to the loan amount divided by the number of six-month periods included in the original disbursement period.

2 I. A. 1.1 DESCRIPTION AND RESULTS MONITORING

Background, Problem Addressed, Justification Macroeconomic Outlook. Trinidad and Tobago (T&T) is a twin-island state covering an area of 5,128 square kilometers (km2) with a total population of 1.3 million people, mostly located in Trinidad, the larger of the twin isles with 4,820km2 of area and 95 percent (%) of the total population. Trinidad is heavily industrialized, while Tobago is economically dependent on tourism and agriculture. T&T is still recovering from the consequences of the global financial crisis and its implications for the country. After growing more than 7% on average for more than 15 years, economic activity decreased by 3.5% in 2009 and growth is yet expected to resume, after remaining flat in 2010. The substantial contraction in economic activity of 2009 was triggered by an unfavorable context for the energy sector (low gas and oil commodity prices and sustained decrease in oil and gas production) together with increase in uncertainty caused by the failure of an indigenous financial holding, CL Financial. The nonenergy sector of the economy is suffering the impact of the economic crisis and its recovery is highly dependent on fiscal stimuli, whose magnitude and scope are now limited by the worsening fiscal situation. Growth expectations are much more modest than the rates observed in previous years due to challenges in the energy sector and the limited growth potential of the non-energy sector. The fiscal situation deteriorated substantially with the onset of the economic crisis. After several years of fiscal surpluses, owing to both high hydrocarbons prices and levels of production, the Government of the Republic of Trinidad and Tobago (GoRTT) started running fiscal deficits. Fiscal deficits were around 5% and 0.4% of Gross Domestic Product (GDP) in Fiscal Year (FY) 2008/09 and FY 2009/10, respectively. Moreover, the fiscal deficit for FY 2010/11 is expected to be approximately 3% of GDP (net of the fiscal cost of the bailout of the financial sector). The deterioration in the fiscal accounts highlights the rigidity of public expenditure and the decision to maintain a substantial level of public expenditure regardless of the substantial decrease in energy revenues (42% between FY 2007/08 to FY 2009/09). The fiscal deterioration is also observed for the public entities, generating further contingent liabilities to the GoRTT. The GoRTT has stressed its commitment to regain fiscal discipline in the medium term. The financing needs for FY 2011/12 are around US$960 million, excluding the bailout of the financial sector, and the proposed program will contribute toward the financing of the fiscal gap. T&T is in a relatively strong position in terms of its public debt and its external position. The debt level was below 40% by the end of FY 2009/10 and is expected to remain in sustainable levels in the medium-term under moderate scenarios, even after including the fiscal cost of the bailout to the financial sector. The debt profile is also beneficial for T&T, as only 10% of the debt is maturing in the next 5 years. T&T is a net creditor of foreign assets due to the reserves levels of over US$9 billion (around 11 months of

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3 imports) and the Heritage and Stabilization Fund1 that amounts more than US$3 billion. 1.5 The Energy Sector. Gas and oil are the two leading industries in T&T, accounting for 40% of GDP, 80% of exports and over 50% of the GoRTTs revenues. T&T has a long history in the exploitation of energy resources. Its oil industry is one of the oldest in the world and T&T continues to be a major provider of gas and Liquefied Natural Gas (LNG). Throughout the decade of the 1990s, the GoRTT divested its holdings in the oil and gas sector, giving wider access to private firms to carry out activities in different segments of the value chain. Oil sector. T&T began commercial production of oil in 1908.2 In 1978, production peaked at approximately 230,000 barrels per day (bbl/d) and has since steadily declined to an estimated 100,602-bbl/d in 2010 of which, the state-owned Petroleum Company of Trinidad and Tobago (Petrotrin) produces 38% (jet fuel, kerosene, diesel, liquefied petroleum gas, gasoline, and fuel oil), BP produces 20%, and BHP Billinton produces 26%. The remaining 16% is produced by Repsol, Primera and EOG Resources, amongst others. A small portion is transformed in diesel fuel, and used for stand-by electricity generation in the medium-speed diesel plant and the gas turbine on Tobago. Gas Sector. T&T has proven gas reserves of 14,416-billion cubic feet (bcf) (2009 figures). Additionally, T&T has probable reserves of 7,837-bcf and 5,893bcf of possible reserves. T&T produced 1,439-bcf in 2009, which left the country with a reserve-to-production ratio (R/P ratio) of 9.6. Total proven reserves have declined since 2002 from over 20,000-bcf to under 15,000-bcf. About 58% of T&Ts Natural Gas (NG) production in 2010 was exported as LNG; 35% was used for petrochemical manufacturing (mainly methanol, ammonia, iron, and steel), and the remaining 7% of NG produced was used to generate electricity.3 The total volume of NG used for electricity generation in T&T was 116,449Terajoules (TJ) in 2010, generating 98% of T&Ts electricity in gas turbines and one combined cycle turbine, representing 236-MegaWatt (MW).4 As a measure to address the decline in both oil and gas production, the GoRTT has adopted the following measures, namely: (i) reduction of the Petroleum Profit Tax (PPT) from 50% to 35%, for deepwater blocks; (ii) investment tax credit of 20% on qualifying expenditures; and (iii) tax reduction for mature marine and small marine fields. Electricity Sector. T&T currently has an installed capacity of 1,761-MW. The islands of T&T are connected via a 33- kiloVolt-Ampere (kVA) transmission line, which effectively allows Tobago to call on an additional 40-MW of capacity from Trinidad. Between 2003 and 2008, T&T experienced an average annual growth
The objectives of the Heritage and Stabilization Fund (Fund) are to smooth public expenditure given the variation in energy prices as well as to save resources for future generations. The Fund is regulated by specific rules for deposits and withdrawal. The 1969 Petroleum Act establishes a framework for the grant of licenses and contracts of petroleum operations which includes on-shore and off-shore activities. Ministry of Energy and Energy Affairs (January 2011). Framework for Development of a Renewable Energy Policy for Trinidad and Tobago. Regulated Industries Commission (RIC) (2008). http://www.ric.org.tt.

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4 in electricity demand of 4.4%. Consumption increased from 6,088-GigaWatt hours (GWh) to 7,544-GWh, during the five year period. The industrial sector consumes the majority of electricity with 60% of total demand, followed by the residential sector with 29% and 10% for the commercial sector (2010 data). T&T has the lowest retail electricity price in the region (average tariff of approximately US$0.05/kWh in 2010); and at the wholesale price, renewable energy cannot compete against Trinidad and Tobago Electricity Commissions (T&TEC) avoided cost, which is approximately US$0.04/kWh. 1.9 Retail electricity prices in T&T are low because gas prices for electricity generation are subsidized. T&TEC, the transmission and distribution utility, currently pays about US$1.18 per Million British Thermal Units (MBtu)5. In contrast, it is estimated that the opportunity cost of NG in T&T would be about US$3.00/MBtu. This estimate is based on using the average netback price at the wellhead for 2010 (representing the price of gas exported, net of costs incurred in transportation to destination, liquefaction, storage, and gasification), which was US$2.66/MBtu;6 and adding the transportation cost of NG within T&T, which is estimated at about US$0.30/MBtu.7 The total (rounded to US$3.00/MBtu) represents the price of NG in T&T, without subsidies. Using this price and the price that T&TEC currently pays (US$1.18/MBtu), it could be estimated that in 2010 the total implicit subsidy paid by the GoRTT on gas prices for electricity generation amounted to about US$195.7 million.8 Electricity losses accounted for about 7% of the electricity provided in 2010, and about 1% of the electricity was used for street lighting. Peak demand in 2010 was 1,222-MW. T&TEC has projected peak demand to grow from 1,287-MW in 2011 to approximately 1,817-MW in 2020, at an average growth rate of 4% per year. Total electricity consumption grew steadily at a rate of 5% per year from 1988 to 2010 (from about 3,000-GWh to almost 8,000-GWh), and industrial and residential customers accounted for most of this growth. Table 1 illustrates customer numbers, total consumption, and average consumption for each category in 2010.

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Price for January 2011, provided by the Regulated Industries Commission. Ministry of Energy and Energy Affairs (June 2011). The National Gas Company (NGC) advises that, although there is no explicit gas transportation tariff (since this is rolled into the delivered price of gas), an implicit one for non-LNG gas may be estimated. Preliminary estimates are in the range of US$0.08/MBtu to US$0.30/MBtu, based on the cost of operating the pipeline and the throughput. Estimated by converting the total volume of gas used for electricity generation in 2010 (116,449 TJ) to MBtu, using a conversion factor of 0.9478 MBtu per Gigajoules (GJ), and then multiplying this number (110,393,747-MBtu) by the difference between the subsidized price of gas (US$1.18/MBtu) and nonsubsidized price (US$3.00/MBtu).

5 Table 1. Customer Number and Average Consumption by Customer Class (2010)

Number of Customers Total Consumption (kWh) 2,263,010,176 766,235,027 4,765,272,280 110,495,243 7,905,012,726 Average Monthly Consumption per Customer (kWh) 505 1,673 127,318 187,917

Customer Class

Residential Commercial (B and B1) Industrial Street lighting Total

373,451 38,177 3,119 49 414,796

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As of July 2011, the estimated reserve capacity margin in T&T was approximately 37% (assuming a peak demand of 1,287-MW and a total capacity of 1,761-MW). Once the new combined cycle plant becomes operational in 2012 and Power Generation Company (PowerGen) decommissions 77-MW of its existing plant, the reserve capacity margin will increase to 75%, assuming a peak demand of 1,317-MW in 2012; and decrease to 53% in 2014 once PowerGen decommissions a further 108-MW. Based on T&TECs objective of maintaining a 25% reserve margin, there would be no need for new generation capacity until 2020. Alternative Energy Sources. T&T does not have utility scale Renewable Energy (RE) generation capacity. RE generation is limited to a few small solar PhotoVoltaic (PV) and wind systems installed by households and small businesses and not connected to the grid. Energy Efficiency (EE) is similarly marginally developed given the low energy prices. Alternative fuels, such as Compressed Natural Gas (CNG)9 and NG are slowly being introduced in T&T but are still facing significant regulatory challenges coupled with an inadequate infrastructure environment to make CNG available to all end users. Energy Sector Key Players. The Ministry of Energy and Energy Affairs (MEEA) is responsible for formulating energy policy, determining areas to be made available for petroleum operations and managing all oil, gas and RE sources, amongst others. T&TEC is the state-owned utility responsible for the design, construction, operation, and maintenance of T&Ts transmission and distribution network.10 T&TEC is also in charge of power system planning for
CNG is one of the most viable alternatives to traditional liquid fuels for vehicles in T&T given that CNG is approximately 1/3 of the price of Super gasoline and is more environmentally friendly since harmful emissions such as CO2 can be reduced by close to 35% and Nitrogen Oxides by close to 30% compared to traditional liquid fuels. T&TEC was a vertically integrated utility with a monopoly on generation, transmission and distribution electricity assets in the country. In 1998, T&TEC divested its generation assets to PowerGen, an Independent Power Producer (IPP) owned by Marubeni TAQA Caribbean (39% of shares) and Amoco Trinidad Power Resources Corporation (10% of the shares), with T&TEC retaining 51% of the shares. T&TEC buys all electricity generated by PowerGen, as well as all electricity generated by another IPP, Trinity Power Limited (Trinity). A third IPP company, Trinidad Generation Unlimited (a joint venture between AES Corporation and T&Ts Natural Gas Company) is completing the installation of a 720-MW

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6 the country and generates all of the electricity on the island of Tobago. The Regulated Industries Commission (RIC), the regulator, is responsible for regulating T&TECs electricity tariffs and cost recovery. The National Gas Company (NGC), a state-owned company, is the owner of the NG transmission system in T&T (except for the system that delivers gas to the Atlantic LNG plant, which is owned by Atlantic LNG), and is responsible for operating the system, pricing NG, and implementing gas-related projects. NGC purchases all of the gas produced in Trinidad that is not exported, under take-or-pay contracts with the different producers. 1.15 Tariffs. Every five years the RIC sets the maximum tariffs, and the methodology for determining the maximum prices that T&TEC can charge for its services. The RIC is also responsible for carrying out studies of efficiency of operation, performance by service providers, and taking these studies into account when setting the maximum tariffs. The RIC issued its last tariff determination in 2006 for the period from June 1st, 2006 to May 31st, 2011, and is currently working on another determination, which is expected to be issued in October 2011. T&TECs tariffs consist of three components: (i) customer (fixed) charge (applicable to residential and small commercial customers only); (ii) energy rate per kWh; and (iii) maximum demand charge (for industrial customers only). Energy Sector Challenges. The T&T energy sector faces a number of important challenges that the proposed operation is expected to contribute to overcome: Absence of energy sector policies to promote diversification of energy sources. To date, there is no formal articulated comprehensive energy policy that policymakers and investors can reference to and one that would craft the regulatory framework for fostering a more sustainable, efficient and clean energy sector. This absence of a formal energy policy has made T&T unprepared to face potential challenges that could arise in the future, in particular with respect to their gas and oil dependency and without sufficient capacity and institutional development to support new solutions for demand and supply of energy. In recent years, the GoRTT has shown greater attention to the economic cost of ignoring such sustainable energy opportunities and in 2010, the GoRTT highlighted the following priorities in its Peoples Manifesto: (i) development of alternative energy sources (such as RE, EE and alternative energy fuels) with a view to the establishment of an alternative energy industry; (ii) promotion of investments in the third and fourth generation of RE alternatives (including research and development); and (iii) increased transparency and accountability in the energy sector. Notwithstanding the above, these efforts have not yet translated in a complete and coherent energy policy. As a result, this absence of sector policies to promote diversification of energy sources and thus transition T&T to a more sustainable energy sector constitutes one of the main restrictions to T&T energy sector.

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combined cycle plant. This plant was intended to provide power for an aluminum smelter project (Alutrint), which has now been cancelled, providing T&T with excess capacity to the system.

7 1.19 Electricity price distortion not reflecting opportunity cost of gas as fuel, preventing efficiency. As mentioned above, T&T has the lowest retail electricity price in the region and even without subsidies, T&T would enjoy such low costs and prices of energy. This economic distortion constitutes another main restriction to the sustainability of the energy sector given that electricity prices are not cost recovery and as such, do not reflect the opportunity cost of gas as fuel, preventing efficiency. This situation is further exacerbated by the subsidies to oil and NG which have made costs and prices even lower, below an economically efficient level. Limited knowledge on sustainable energy options. T&T does not have solid technical information to realistically assess the real economic costs and benefits of potentially viable sustainable technologies that could be implemented in T&T. Technicians in charge of assessing and installing sustainable energy technologies are limited to operate in the market and within the economic parameters mentioned above. Solar water heaters (SWH), as well as a few EE technologies (efficient air conditioners, efficient motors, efficient lighting) could be commercially viable if electricity tariffs reflected the true economic cost of service but tariffs that customers currently face do not provide the necessary economic incentives (as an example, T&T building codes do not mandate using EE and efficient design, resulting in a perverse incentive of carrying lower upfront costs leading to higher operating costs). A few key technologies that could start to be assessed include waste-to-energy technologies (which would not be based on the avoided cost of power generation but rather on a more comprehensive waste management plan), wind power in order to gain experience for the future with projects of a limited size, and, in the transport sector, the development of NG and/or CNG technologies for vehicles to obtain increased efficiency and contribute to a greener environment. This assessment would be timely given the current pricing scenarios, the high excess capacity and the fact that no further power plants are expected to be constructed in the medium-term. Declining trend in production of hydrocarbons. As mentioned above, gas and oil production in T&T has also been declining gradually. This trend constitutes another issue that characterizes the energy sector and impacts the sustainability of the sector while contributing to both a decline in fiscal revenues for the GoRTT, since economic planning and budgeting is highly dependent on fossil fuel price and volatility of the latter impacts the fiscal revenues for the GoRTT 11 and in a reduction of T&Ts export capacity. In addition, the gas market in T&T has also been affected by lower world-wide gas prices resulting from (i) decreased demand of the United States for NG following their recent shale gas discovery and production; (ii) world-wide economic recession; (iii) NGC currently being locked into take-or-pay contracts with its suppliers; (iv) discovery of world-wide NG resources in the Middle East, Africa and Russia resulting from more costly extraction technologies; (v)
The 2009 budget was crafted based on assumptions that oil prices would average US$70/barrel, when oil prices were in fact lower than this, which has led to budget shortfalls.

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8 depletion of stocks of T&T NG reserves projected to be exhausted within the next 10 to 15 years at current extraction rates;12 and (vi) steeper extraction costs for untapped NG potential (such as deep water exploration). 1.24 Lack of education and awareness. Key players in the energy sector such as the MEEA have realized that the transition to a more sustainable, efficient and clean energy matrix requires the participation, commitment and buying-in of all stakeholders. Such process requires reaching out publicly (such as consultation process), building institutional capacity and providing avenues to position T&T at the regional level as a model island low- carbon economy. Efforts in this direction have been initiated but remain scattered and in need of stronger institutional support. Lastly, the current administration has highlighted climate change as a key driver for action on alternative energy strategies. However, it has not yet fully identified the priority options that might be cost-benefit justified from the perspective of a small island state. Some options being considered (such as Carbon Capture and Sequestration (CCS), which is not yet a commercially viable technology) would carry a high cost of abatement to T&T, and with limited climate change mitigation benefits. Other options such as EE and SWHs and increased efficiency in generation through combined cycle plants) would be cheaper, easier, and quicker to implement and reduce GreenHouse Gas (GHG) while also maintaining a low cost for consumers. Justification. Given the above and in particular the background of a slow decline in the oil and gas sectors and the NG prices decreasing, the GoRTT has prioritized initiatives to foster alternative energy sources (such as RE, EE and alternative energy fuels),13 optimize fossil fuels use and production and as a consequence of the latter, contribute to reduce GHG emissions.14It is within this window of opportunity that the Bank will accompany and support the smooth transition of the country to a post hydrocarbon-based economy. In this context, the GoRTT, through the Ministry of Finance (MOF), has requested financing of the InterAmerican Development Bank (IDB) to develop a Sustainable Energy Program (the Program) which has been designed taking into account the needs of the
According to the Ryder-Scott (2010), the stock of proven reserves amounts to 10 years of gas extraction at the current activity level. While most RE technologies are not economically viable in T&T under current market conditions, the Program would help the GoRTT create a framework and a process of continuous assessment that would allow identifying which options become viable under certain conditions; and promoting such options when they are indeed viable. Studies carried out during the preparation of the operation indicate that SWHs are viable, but their penetration is minimal. Other RE options may be viable if considered under a broader economic perspective (e.g., while a waste-to-energy plant may not be cost-effective in itself but could be economically viable if additional benefits of waste management were factored in). Some other key RE options (such as wind) may become viable in the future if market conditions change (particularly if the opportunity cost of NG increases due to increases in the export parity price of NG; and capital costs of RE decrease) and thus would make sense to pilot them on a small scale to gain experience in integrating them in the mix. The Program has been structured to help the GoRTT support RE options that are already viable; assess RE options that may be viable from a broader economic country perspective; and identify under which conditions other RE options may become viable. During the period 1990-2006, it was estimated that the carbon emissions from the energy sector increased by 278% (63,456 gigagrams of carbon emissions).

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9 country to move towards a less dependent fossil fuel scheme. The GoRTT started to take steps in this direction, demonstrated by its efforts to engage in public consultations on energy policy and the initial blue print work on a Framework for Energy and Minerals Policy in Trinidad and Tobago, which will provide the basis for the Green Paper on National Energy and Minerals Policy together with crafting fiscal incentives15 to promote RE, EE, alternative energy fuel use and fossil fuel optimization. These steps have been structured to be implemented over the course of the next few years (2011-2015) where the Framework for Energy and Minerals Policy in Trinidad and Tobago will become the Green Paper, which after discussion and revision will be transformed into a White Paper, and then be subject to approval by Parliament. Upon approval by Parliament, such White Paper will constitute T&T National Energy and Minerals Policy. It is within the context of this three-year time frame policy reform that the Bank intervention and Program is being proposed. 1.27 The Program is structured as a Policy-Based Loan under a programmatic modality (programmatic policy-based loan or PBP) and in support of policy reform in the energy sector. It will consist of three individual operations, each with specific institutional and policy goals to be met in 2011, 2012/13 and 2013/14, respectively. The policy conditions for the second and third operations represent the substantial actions and measures required by the GoRTT to meet the 2012/13 and 2013/14 conditionalities. The three operations will be independent of one another though technically interlinked. The objective of this first operation is to initiate the process of policy and legislation formulation that will then be consolidated and implemented in reform commitments during the subsequent operations. The specific objectives and targets for each of the components of the Program are defined in the Policy Matrix, means of verification in the Verification Matrix and results to be achieved in the Result Framework Matrix, together supported by the GoRTTs Policy Letter. The Program also includes a package of complementary technical assistance in the form of an Operational Input (OI) TT-T1027 that will support the development of the three individual operations and with particular focus, for sustainable energy use in Tobago. The Program has also benefited from a Knowledge and Capacity Building Product (KCP) RG-K1002 Fiscal and NonFiscal Incentives to promote Renewable Energy, which carried out a study on the energy sector in T&T reviewing: (i) energy sector overview and key institutions; (ii) obstacles and drivers for the development of a new energy policy; and (iii) sustainable energy initiatives. Lastly, the IDB together with the GoRTT is exploring the possibility to structure a complementary investment loan16 that would further expand the use and penetration of alternative sources of energy, with a strong emphasis on greening Tobago.
Incentives include: (i) no import duty in the import of wind and solar equipment; (ii) zero rating for Value Added Tax (VAT) purposes on wind and solar equipment; (iii) wear and tear allowance on 150% of expenditures in acquiring wind and solar equipment and (iv) tax allowance of 25% of the value on SWH equipment. The inclusion of an Energy Investment Loan will be contingent upon the lending envelope identified for T&T for 2012-2013.

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16

10 1.29 The PBP structure was selected given its flexibility to design and implement the measures required to reach the targets envisioned. The Program will focus on supporting and enhancing a sustainable energy framework that will guide exploration, exploitation, utilization and monetization of T&T energy resources where EE, RE, alternative energy fuels and carbon reduction and innovation play a strategic role. A separate Policy-Based Programmatic loan operation targeting climate change policy reform (TT-L1022) is being prepared by the IDB focusing on: (i) the climate change policy and institutional policy framework; (ii) adaptation agenda to reduce vulnerability and risks associated with the impacts of climate change; and (iii) mitigation agenda to develop a low-carbon economy through the promotion of carbon market and policies to reduce GHG emissions.17 The climate change PBP and this operation have been structured to complement each other in the area of GHG emissions reduction as evidenced in the Result Framework Matrix. Coordination with Country Strategy/Programming objectives/IDB policies. The Country Strategy with T&T for 2004-2007 (GN-2335) was approved on September 28, 2004, later updated in 2008 (GN-2477) and updated again in 2010 (GN-2570 approved on May 4th, 2010 by the IDB Board of Executive Directors). Although the energy sector is not included in the current Country Strategy 20042007, this Program stands by itself as a very important and strategic operation to support the GoRTTs efforts to transition to an efficient, sustainable and clean energy matrix. The Program is also included in the 2011 Country Programming Document (CPD) and is in line with the corresponding energy sector target. The operation also reflects the IDBs institutional priorities as outlined in the Report on the Ninth General Capital Increase for the Inter-American Development Bank (GCI-9) (AB-2764), as it contributes to the goal of supporting development in small and vulnerable countries (such as T&T) and to that of assisting borrowers in dealing with climate change, sustainable energy (including renewable) and environmental sustainability. Lastly, the Program is also consistent with the Public Utility Policy (OP-708) given the following: (i) separation of policy formulation, regulatory regime and energy service providers functions; (ii) unbundling of generation, distribution and transmission assets to separate key players; (iii) strong private sector involvement; and (iv) adequate regulatory regime regarding conventional energy sources. Objective, Components and Cost Program Objectives and Expected Results. The general objective of the Program is to support the transition of T&T to a more efficient, sustainable and clean energy matrix. The Program will: (i) strengthen the regulatory and legal framework to contribute to a more sustainable energy sector (focus on RE) with increased efficiency, transparency and accountability; (ii) support the preparation
In order to ensure proper coordination and avoid overlapping of areas of policy interventions, project team leaders of both operations are included as team members in the other operation (where they are not team leaders) and separate areas of intervention have been agreed to amongst both teams.

1.30

1.31

B. 1.32

17

11 of new policy and legislation for EE; (iii) support environmental sustainability of alternative energy fuels in the energy matrix; (iv) promote efficient and rational production and use of fossil fuels; and (v) strengthen institutional capabilities for sustainable energy and public education awareness. 1.33 1.34 Components. The Program will have the following components: Component 1 - Development of a Sustainable Energy Framework. Component 1, policy reform, will focus on: (a) Strengthening the policy, regulatory and legislative framework to contribute to a more effective and clean energy sector with increased efficiency, transparency and accountability through: (i) the holding of country-wide consultations; (ii) the development of a Framework for Energy and Minerals Policy in Trinidad and Tobago which will provide the basis for the Green Paper on National Energy and Minerals Policy18 and introduce RE and EE; (iii) a Renewable Energy Committee (REC)19 that is fully operational and incorporates representation of cross-sector of ministries such as the Ministry of Housing and Environment, which oversees climate change policy and regulation; (iv) specific fiscal incentives to promote RE and EE; and (v) support T&T in achieving Extractive Industry Transparency Initiative (EITI) Status;20 (b) Supporting the environmental sustainability of alternative energy fuels in the energy matrix through: (i) fiscal incentives to promote CNG and NG as alternate fuels; 21 (ii) creation and implementation of a Compressed Natural Gas Task Force (i.e. a working group within the MEEA responsible for assessing options to introduce NG as a transportation fuel in T&T; determining associated infrastructure requirements, costs and benefits and proposing policy tools for implementation) that is operational; (iii) preliminary validated assessment of NG as an alternative transportation fuel; and (iv) establishment of low sulfur diesel standards sector-wide;
18

19

20

21

The purpose of the policy is to: (i) define clearly the vision and goals of the energy and minerals sectors, in supporting national development; (ii) establish the framework by which industries in the oil, NG, RE, and mining sector will be sustainable for the current and future generations; and (iii) systematize actions by the GoRTT, by providing a comprehensive approach that harmonizes national policy and development across various sectors. The REC primary function is to develop a Framework for the Development of a RE Policy for T&T; assess current RE applications and research activities; identify viable RE technologies; and set targets and timeframes for introducing RE in T&Ts energy mix. The REC is chaired by a member of the MEEA (currently the Director of the Energy Research and Planning Division), and includes eight other members from various government departments, sector stakeholders, and academics. EITI is an internationally standard for fiscal transparency in the oil, gas and mining sectors. The EITI standard requires governments to sign up to a set of rules and procedures that require full publication and an independent audit of company payments and government revenues from extractive industry activities. The process is overseen in-country by participants from civil society, the private sector and government and the EITI Board and Secretariat are guardians of the methodology internationally. As the EITI focuses on transparency and accountability of revenues, the successful implementation of the standard sends a clear signal to investors and citizens that the government is committed to improving governance in the extractive industries. The fiscal cost of the tax incentives to promote CNG and NG as alternative fuels represents US$146 million for the next 5 years. On the other hand, the replacement of gasoline by NG and CNG for vehicles will represent a fiscal savings of US$725 million for the same 5-year period.

12 (c) Promoting efficient and rational production and use of fossil fuels through: (i) a set of fiscal and targeted incentives; (ii) initiation of assessment of opportunities for Enhanced Oil Recovery (EOR) which consists in one or more processes that seek to improve the recovery of hydrocarbons from a reservoir after extraction using natural reservoir pressure; and (iii) a Framework for Energy and Minerals Policy in Trinidad and Tobago to become the Green Paper on National Energy and Minerals Policy supporting combined cycle power generation (using NG) as one of the energy efficient low carbon technologies; and (d) GHG emissions reduction, as a result of the areas of intervention above through the establishment of a Carbon Reduction Strategy Task Force (CRSTF) appointed for the energy sector for coordination regarding draft national climate change policy and initiatives, in particular with the Ministry of Housing and Environment. 1.35 The goal by the end of the third PBP is: (i) a fully-enforceable National Energy and Minerals Policy, which promotes RE, EE, NG and CNG as alternate fuel transportation and corresponding equipment retrofitting installed (i.e., CNG conversion kits, NG storage tanks on vehicles and CNG refueling stations) and combined cycle as one of the industry standards for NG power generation; (ii) strategy and guidelines to implement such policy; (iii) pilot project for EOR under implementation and (iv) advancement in the EITI process. For the proposed operation, the following conditions are being met: (i) realization of country-wide consultations and Cabinet approval to develop the Framework for Energy and Minerals Policy in Trinidad and Tobago to become the Green Paper on National Energy and Minerals Policy introducing RE, EE, CNG and NG as alternate transportation fuel and combined cycle for NG new power generation; (ii) REC 2011 work plan completed and REC operational; (iii) approval of set of fiscal incentives by Parliament; (iv) EITI Candidate Status achieved; (v) publication of low-sulfur diesel standards; (vi) process for assessment of opportunities for EOR initiated; and (vii) CRTSF that is operational. Component 2 Institutional Strengthening and Capacity Building. Component 2 will focus on strengthening the institutional capabilities for sustainable energy and public education and awareness including: (a) Recommendations for capacity building of the energy sector for key entities (such as the MEEA) to promote awareness of alternative energy sources; and (b) Draft work plan for the Caribbean Renewable Energy Center (CREC) under the Energy and Climate Partnership of the Americas (ECPA). 1.38 For the proposed operation, the following conditions are being met: (i) approval of recommendations for capacity building for key entities; and (ii) draft work plan approved and initiated by the MEEA.

1.36

1.37

13 C. 1.39 Key Results Indicators The Program is expected to lead to: (i) potential for key utility scale RE options assessed; (ii) increased uptake of viable distributed scale RE22; (iii) support for financing distributed scale RE; (iv) key sectors and end-uses for EE identified; (v) retrofit of public facilities; (vi) new EE standards for building codes; (vii) support for financing EE; (viii) increased transparency of private companies in extractive industries; (ix) increased availability and use of CNG and NG as alternative transportation fuel; (x) availability of low sulfur diesel; (xi) improved efficiency in NG power generation and increased EOR; (xii) carbon abatement cost curve analysis completed and validated; and (xiii) increased awareness of sustainable energy for all key stakeholders and regional integration through the establishment of the CREC. The result matrix (see electronic link) presents the expected outcomes and result indicators linked to the Program with their corresponding baselines and targets. The indicators have been analyzed with the GoRTT and respective ministries involved in the Program and the implementation of the policy measures will be further accompanied by technical assistance to attain such results. II. FINANCING STRUCTURE AND MAIN RISKS A. 2.1 Financial Instruments and Contractual Conditions This Program is the first of three PBP operations. The subsequent operations are planned for 2012/13 and 2013/14. This first Program will draw upon the resources of the IDB Ordinary Capital in the amount of US$60 million (amounts for the two subsequent PBP operations have not yet been defined), with disbursement scheduled for the 4th quarter of 2011, upon execution of the respective contract and fulfillment of the policy matrix conditions agreed upon with the GoRTT and included in the Policy Matrix, Result Framework Matrix and Verification Matrix. Environmental and Social Safeguard Risks Environmental Aspects. In accordance with Directive B. 13 on Environmental Policy and Safeguard Compliance (OP-703), PBPs are not classified. The Program involves sector policy and institutional strengthening activities, hence, no direct environmental and social impacts are expected as a result. The policy reforms and institutional changes will generate a framework towards a sustainable energy matrix that is socially and environmentally friendly. Additional benefits to the environment are expected as a result of the Program such as GHG emissions reduction, close coordination amongst the MEEA and Ministry of Housing and Environment regarding the mainstreaming of the climate change policy into the National Energy and Minerals Policy and development of alternative clean sources of energy.

B. 2.2

22

Distributed scale RE is defined as electricity generation, which is connected to the distribution network, rather than to the high voltage transmission network and is generated from renewable energy resources.

14 C. 2.3 Other Key Issues and Risks Fiduciary Risk. The fiduciary risk is considered low given the sound financial management framework of the GoRTT. Being structured as a PBP operation, funds will be disbursed in one tranche upon the approval and signature of the loan contract and the fulfillment of the conditions prior to the first and only disbursement established therein. Execution Risk. Due to the nature of this Program, policy conditions are all expected to be fulfilled prior to the presentation of the PBP for approval by the IDBs Board of Executive Directors. Given the above, the full amount of this loan is expected to be disbursed shortly following Board approval. In addition, there could be a risk that the GoRTT does not move forward with the sustainable energy reform process as rapidly as envisioned. This risk is mitigated by the commitment that the GoRTT has taken on behalf of the T&T population to make the energy sector a more efficient, sustainable and clean sector per the Peoples Manifesto 2010 that the GoRTT was elected on in May 2010. Cost Benefit Analysis (CBA). A Cost-Benefit Analysis (CBA) for the Program was carried out utilizing the following parameters: (i) increased use of economically viable EE technology defined as those that can save electricity at a lower cost than the average electricity tariff such as Compact Fluorescent Lamps (CFLs), efficient air conditioners, premium efficiency motors, variable frequency drives, and magnetic induction street lights and efficient generation with combined cycle plants. Such EE technologies were adjusted for three factors to reflect actual economic cost: (i) opportunity cost of in T&T (instead of the current subsidized price); (ii) full recovery of cost of service of electricity (instead of current tariff levels, below full cost recovery); and (iii) increased use of economically viable RE technologies defined as those that can generate electricity at a cost that is competitive with that of conventional generation technologies, adjusted for the opportunity cost of NG in T&T (instead of the current subsidized price). The only current economically viable RE technology in T&T are SWHs. The CBAs results indicate that, supporting increased uptake of viable EE and SWHs in T&T would generate net benefits estimated at US$53 million over a twenty-year period comprised between 2010 to 2030, compared to a business as usual scenario that would involve no additional investments in EE or SWHs. The benefits of the Program would stem from savings of electricity from reduced consumption of electricity (estimated at 23,053-GWh of electricity and 17.4 million tons of CO2), which would more than outweigh the capital costs of implementing T&Ts economically viable EE and SWH potential. In addition, a sensitivity analysis was carried out utilizing the following key assumptions: (i) 10% increase and 10% decrease in the capital cost of viable EE technologies and SWHs; and (ii) lower and higher uptake of EE technologies and SWHs. In both scenarios, net benefits yielded results between US$20 million and US$69 million. Other Risks. Potential risks for the policy reforms envisioned under this operation include: (i) the GoRTTs continued commitment to advance in the

2.4

2.5

2.6

2.7

2.8

15 transition to a sustainable energy economy, irrespective of oil/NG price fluctuations; (ii) inter-institutional coordination between by the MEEA and the MOF in undertaking the policy and regulatory changes in a timely fashion and (iii) fossil fuel subsidy mechanism that hinders T&T from optimizing its indigenous gas resources efficiently. These risks are to be mitigated by the OI that will further enhance this proposed operation and the close collaboration between the IDB and the MOF and MEEA to ensure fluid coordination and timely performance as set forth in the Policy Matrix. III. IMPLEMENTATION AND MANAGEMENT PLAN A. 3.1 Summary Implementation Arrangements Borrower and Executing Agency (EA). The Borrower is the GoRTT while the Executing Agency (EA) will be the Ministry of Finance (MOF). The policy matrix has been agreed and will be monitored through the MOF. The EA will work together with the MEEA to accomplish the conditions agreed in the Policy Matrix. The MOF will: (i) provide evidence that the conditions have been met and any other reports that the IDB may need to approve the disbursement; (ii) support the actions required to fulfill the second operation; and (iii) once the disbursement of the Program is completed, gather and prepare the required information and performance indicators so that the IDB and the GoRTT can follow up, measure and evaluate the results of the Program. Summary of Arrangements for Monitoring Results The IDB Project Team will be from the Energy Division based in Washington, DC (INE/ENE) and in Trinidad and Tobago (VPC/CTT), which will be responsible for the follow-up of the Program. The main indicators for the monitoring of the Program are those presented in the result matrix and the Evaluation and Monitoring Annex. Once each operation has been completed and disbursed, the IDB Project Team and the MOF will prepare a progress report, showing the evolution of results, with the objective of identifying progress and required additional support to fulfill the conditions. In compliance with IDB policies, a Project Completion Report (PCR) funded by the IDB, will be prepared six months after the last phase of the Program has been fully disbursed. The PCR will evaluate the impact and results obtained by the Program. The Borrower is responsible for the gathering of information and data required for monitoring and evaluation. IV. POLICY LETTER 4.1 The IDB has agreed with the GoRTT on the macroeconomic and sector policies included in the Policy Letter that was presented by the MOF on October 17th, 2011, describing the main components of the GoRTTs strategy for the Program and reaffirming its commitment to implement the agreed activities with the IDB.

3.2

B. 3.3

3.4

&

This is a policy-based operation which aims to support Trinidad and Tobago's transition to a sustainable energy use, with three focal areas: optimal exploitation of oil and gas resources; increased energy efficiency; and increased reliance on renewable energy sources, where these are economically viable.
. y r a s s e c e n m e e d f i s e r u s a e m g n i t s u j d a s a l l e w s a , s e r u s a e m d e t n e m e l p m i e h t f o s s e n e v i t c e f f e . n a l p n o i t a u l a v e e h t n i r o / d n a t n e m u c o d t c e j o r p e h t n i d e i f i t n e d i e r e w t a h t r o t c e s e h t n i s p a g g n i d r a g e r e g d e l w o n k e h t e d i v o r p l l i w n o i t a u l a v e s t l u s e r s e Y e g d e l w o n k e s o l c o t e c n e d i v e e c u d o r p l l i w t c e j o r p e h t f o n o i t a u l a v e t c a p m i t s o p 5 x e e h T E . T & T n i x i r t a m y g r e n e e l b a n i a t s u s a s d r a w o t s e r u s a e m o p t n e m e l p m i o t s i t c e j o r P e h t f o s r a l l i p n i a m e h t f o e n O . s e v i t a i t i n i y g r e n e e l b a n i a t s u s ) i i i ( d n a y c i l o p e n e w e n a f o t n e m p o l e v e d e h t r o f s r e v i r d d n a s e l c a t s b o s n o i t u t i t s n i y e k d n a w e i v r e v o r o t c e s y g r e n e ) i ( g n i w e i v e r i r o t c e s y g r e n e e h t n o y d u t s a t u o d e i r r a c h c i h w y g r e n E t e l b a w e n e R e t o m o r p o t s e v i t n e c n I l a c s i F n o N d n a l a c s i F c e j o r p e h t f o s s e c c u s f o d o o h i l e k i l e h t e s a e r c n i o t l a v o r p p a o t r o i r p y t i t n e s e Y r R T T o t c e s c i l b u p e h t o t d e d i v o r p s a w e c n a t s i s s a l a c i n h c e t ) n o i t a r a p e r p t c e j o r p o t ( l a n o i t i d d A G P C K m o r f d e t i f e n e b o s l a s a h m a r g o r P e h . o g a b o n i e n e e l b a n i a t s u s r o f , s u c o f r a l u c i t r a p h t i w d n a s n o i t a r e p o a u d i v i d n i e e r h t e h t f o t n e m p o l e v e d e h t t r o p p u s l l i w t a h t 1 T 5 T T ) I O ( t u p n i l a n o i t a r e p o n a f o m r o f e h t n i e c n a t s i s s a h c e t y r a t n e m e l p m o c f o e g a k c a p a s e d u l c n i P B P t s r i f s i h T t n e m n o r i v n E r o b a L y t i l a u q E r e d n e G : s n o i s n e m i d g n i w o l l o f e h t n i y t i t n e r o t c e s c i l b u p r o / d n a s e i r a i c i f e n e b d e d n e t n i e h t f o s t n e m e v o r p m i s e t o m o r p t n e m e v l o v n i s B D I e h T m a r g o r p e h t g n i t n e m e l p m i r o f e v o b a s e n o e h t m o r f t n e r e f f i d m e t s y s y r t n u o c r e h t o n a s e s u t c e j o r p e h T s T e Y ) a i r e t i r c P D P / C P V ( s m e t s y s y r t n u o c f o e s u e h t n o s e i l e r t c e j o r p e h T s t n e m e g a n a m l a i c n a n i f y r t n u o c e h t e s u l l i w t c e j o r p e h w o L % 5 2 0 . 0 1 % 5 2 0 . 6 % 5 2 0 . 0 1 % 5 2 3 . 8 y r t n u o c o t d e n g i l a t o n f I ( s e g n e l l a h c t n e m p . t n e m u c o D 7 1 6 2 5 N G m a r g o r P y r t n u o C 1 1 0 2 e h t n i d e d u l c n I s i m a r g o r p e h T . 7 0 0 2 5 4 0 0 2 y g e t a r t S 5 3 3 2 5 N G y r t n u o C t n e r r u c e h t n i d e d u l c n i t o n s i r o t c e S y g r e n E e h T d e n g i l A . g n i s u o h d n a n a r t , n o i t a t i n a s d n a r e t a w , h t l a e h , y g r e n e , e r u t l u c i r g a n i s t c e j o r p t o l i p e g n a h c e t a m i l C ) i i i ( ) 9 5 B D I f o k r o w e m a r F s t l u e t r o p p u s n o i t a g i t i m e g n a h c e t a m i l c r o f s k r o w e m a r f l a n o i t a N ) i i ( , B D I y b d e d n u f y t i c a p a c i t a r e n e g l a t o t r e v o s e c r u o s n o b r a c 5 w o l m o r f y t i c a p a c n o i t a r e n e g r e w o p f o e g a t n e c r e P ) i ( . e g n a h c e t a m i l c f o n o i t a t p a d a d n a n o i t a g i t i m n i y t i c a p a c g n i n n a l p s e i r t n u o C ) i i ( d n a , ) t n a t i b a h r e p s n o t c i r t e m ( s n o i s s i m e t n e l a v i u q e 2 O C f o n o i t a z i l i b a t S ) i ( . n o i t a r g e t n i d n a n o i t a r e p o o c l a n o i g e r o p p u s o t g n i d n e L ) i i i ( d n a , y t i l i b a n i a t s u s l a t n e m n o r i v n e d n a y g r e n e e l b a w e n e r , s e v i t a i t i n i n a h c e t a m i l c t r o p p u s o t g n i d n e L ) i i ( ; s e i r t n u o c e l b a r e n l u v d n a l l a m s t r o p p u s o t g n i d n e L ) i ( d e n g i l A

II. Development Outcomes - Evaluability

I. Strategic Alignment

Overall risks rate = magnitude of risks*likelihood Environmental & social risk classification

III. IDBs Role - Additionality

The diagnosis identifies the main policy constraints and is based on empirical evidence. The logic of the intervention is clear and addresses the problems identified. All outputs and outcomes have SMART indicators to track progress towards achieving expected results. The ex ante cost benefit analysis provides a thorough analysis of one set of proposed activities under expanding renewables in the energy mix. An ex post cost benefit analysis is foreseen as part of the evaluation of the program. The monitoring and evaluation plan complies with Bank requirements. Risks are spelled out and addressed with mitigation measures.
g n i r o t i n o M n o i t a g i t i M & s k s i R . 6 n o i t a u l a v E d n a g n i r o t i n o M . 5 s i s y l a n A c i m o n o c E e t n a x E . 4 & t n e m s s e s s A d e s a b 5 e c n e d i v E . 3

Development Effectiveness Matrix

Summary

Highly Evaluable

8.6 Weight
) m a r g o r p y r t n u o c r o y g e t a r t s o c o t t c e j o r p s i h t f o e c n a v e l e R r t a M s t l u s e R m a r g o r P y r t n u o C r t a M s t l u s e R y g e t a r t S y r t n u o C n e m p o l e v e D y g e t a r t S y r t n u o C . 2 s a ( n o i t u b i r t n o C t u p t u O k n a B s l a o G t n e m p o l e v e D l a n o i g e R m a r g o r P g n i d n e L b O t n e m p o l e v e D c i g e t a r t S B D I . 1

Maximum Score

Annex I - TT-L1023 Page 1 of 1

10

Annex II TT-L1023 Page 1 of 5

TRINIDAD AND TOBAGO SUSTAINABLE ENERGY PROGRAM (TT-L1023) POLICY MATRIX Objective: The general objective of the Program is to support the transition of Trinidad and Tobago to a more efficient, sustainable and clean energy matrix.
Objectives Institution/ responsibility First Programmatic PBL (October 2011) Second Programmatic PBL (October 2012) Third Programmatic PBL (October 2013)

I. Macroeconomic Stability General MOF 1. Macroeconomic framework is 1. Macroeconomic framework is consistent with Macroeconomic consistent with the objectives of the the objectives of the program and with policy Framework is program and with policy letter. letter. stable II. Development of a Sustainable Energy Framework in Trinidad and Tobago II.1. Strengthen the regulatory and legal framework to contribute to a more sustainable energy sector with increased efficiency, transparency and accountability. MEEA 2. Hold country-wide consultations to 2. develop a Framework for Energy and Minerals Policy in Trinidad and Tobago which introduces renewable energy (RE) and will provide the basis 3. for the Green Paper on National Energy and Minerals Policy. Approval by Cabinet of Framework for Energy and Minerals Policy in 4. Trinidad and Tobago which introduces renewable energy (RE) and will provide the basis for the Green Paper on National Energy and Minerals Policy. Renewable Energy Committee (REC) with representation of cross-sectorial ministries such as the Ministry of Housing and Environment (MoHE) is operational. 1. Macroeconomic framework is consistent with the objectives of the program and with policy letter.

Approval by Cabinet of White Paper on 2. National Energy and Minerals Policy for RE to be laid in Parliament. Approval by Cabinet of recommendations on strategy and guidelines to implement White Paper on National Energy and Minerals Policy for RE. EITI validation process for GoRTT initiated. 3.

Submission to Parliament of White Paper on National Energy and Minerals Policy for RE. Approval by Cabinet of strategy and guidelines to implement White Paper on National Energy and Minerals Policy for RE. EITI validation process for GoRTT completed.

3.

4.

4.

Annex II TT-L1023 Page 2 of 5

Objectives

Institution/ responsibility 5.

First Programmatic PBL (October 2011) Approval of fiscal incentives to promote RE for fiscal year 2011 such as (i) 0% import duty on extra regional imports of wind turbines and supporting equipment; (ii) zero-rating for value added tax (VAT) purposes on solar water heaters and wind turbines; (iii) tax credit of 25% of the cost of the solar water heating equipment up to a maximum of TT$10,000, and (iv) wear and tear allowance on a 150% of costs of acquisition of solar water heaters and wind turbines. Achieve Extractive Industry Transparency Initiative (EITI) Candidate Status. Hold country-wide consultations to 5. develop a Framework for Energy and Minerals Policy in Trinidad and Tobago which introduces energy efficiency (EE) and will provide the 6. basis for the Green Paper on National Energy and Minerals Policy. Approval by Cabinet of Framework for Energy and Minerals Policy in Trinidad and Tobago which introduces energy efficiency (EE) and will provide the basis for the Green Paper on National Energy and Minerals Policy. Approval of fiscal incentives to promote EE for fiscal year 2011 such as: (i) tax allowance on 150% on the

Second Programmatic PBL (October 2012)

Third Programmatic PBL (October 2013)

6.

II.2. Support the preparation of new policy and legislation for Energy Efficiency (EE).

MEEA

7.

Approval by Cabinet of White Paper on National Energy and Minerals Policy for EE to be laid in Parliament. Approval by Cabinet of recommendations on strategy and guidelines to implement White Paper on National Energy and Minerals Policy for EE.

5.

Submission to Parliament of White Paper on National Energy and Minerals Policy for EE. Approval by Cabinet of strategy and guidelines to implement White Paper on National Energy and Minerals Policy for EE.

6.

8.

9.

Annex II TT-L1023 Page 3 of 5

Objectives

Institution/ responsibility

First Programmatic PBL (October 2011) cost incurred by companies for the purposes of carrying out energy audits, and (ii) tax allowance of 75% of the cost of acquisition of plants and machinery for the purpose of conducting energy audits. 10. Approval of fiscal incentives to promote Compressed Natural Gas (CNG) for fiscal year 2011 such as: (i) 130% wear and tear allowance on the cost of kits and cylinders utilized in the conversion of vehicles; (ii) removal of customs import duty on both the CNG conversion kits and the CNG cylinders required to convert a vehicle to use CNG; (iii) 25% tax credit to individuals on the cost of CNG kits and cylinders used in the conversion of motor vehicles valued at a maximum of TT$10,000; (iv) no motor vehicle tax for vehicles manufactured to use CNG, and (v) zero rating for VAT for vehicles manufactured to use CNG.

Second Programmatic PBL (October 2012)

Third Programmatic PBL (October 2013)

II.3. Environmental sustainability of alternative energy fuels in the energy matrix.

MEEA

7.

Implementation of 2011 recommendations of NG preliminary assessment initiated.

7.

Completion of 2011 recommendations implementation of NG assessment. NTI sites (multi-fuel), stand alone (CNG exclusively) and incremental service stations operational. Installation of CNG conversion kits and NG storage tanks on vehicles.

8.

Granting of CNG marketing licenses to the NTI 8. sites (multi-fuel), stand alone (CNG exclusively) and incremental service stations based on technical and financial requirements to 9. conduct this business initiated.

Granting of CNG service licenses to private sector companies for installing CNG conversion 10. Installation of private sector companies kits and NG storage tanks on vehicles initiated. CNG refueling stations for own use vehicles. 10. Granting of CNG refueling licenses to private sector companies for own use vehicles initiated. 11. Low sulfur diesel plant completed and low sulfur diesel available. 11. Regulation approved for obligatory compliance with Low Sulfur Diesel Standards.

9.

11. Compressed Natural Gas Task Force is operational. 12. Approval by Cabinet of additional fiscal incentives to encourage purchase of original 12. Preliminary assessment of Compressed equipment manufactured (OEM) NG vehicles Natural Gas (CNG) as alternate and conversion of liquid fuel vehicles to use transportation fuel completed and NG. approved by Compressed Natural Gas Task Force. 13. Low sulfur diesel plant under construction. 13. Approval and publication of Low Sulfur Diesel Standards for voluntary

Annex II TT-L1023 Page 4 of 5

Objectives

Institution/ responsibility

First Programmatic PBL (October 2011) compliance.

Second Programmatic PBL (October 2012)

Third Programmatic PBL (October 2013)

II.4. Efficient and rational production and use of fossil fuels

MEEA

14. Approval of fiscal incentives to 14. Pilot project for EOR approved by MEEA. 12. Implementation of pilot project for EOR promote efficient and rational initiated. production and use of fossil fuels for 15. Approval by Cabinet of White Paper on fiscal year 2011 such as: (i) reduction National Energy and Minerals Policy to be laid 13. Submission to Parliament of White Paper of 20% on Supplemental Petroleum in Parliament supporting new combined cycle on National Energy and Minerals Policy Tax Rates for mature or small marines power generation (using NG) as one of the supporting new combined cycle power oil fields, and (ii) tax credit of 20% on energy efficient low carbon technologies. generation (using NG) as one of the energy qualifying capital expenditures in efficient low carbon technologies. respect of the Supplemental Petroleum Tax for mature oil fields, both land and marine. 15. Process for assessment of opportunities for enhanced oil recovery (EOR)1 initiated. 16. Approval by Cabinet of Framework for Energy and Minerals Policy in Trinidad and Tobago supporting combined cycle power generation (using NG) as one of the energy efficient low carbon technologies and which will provide the basis for the Green Paper on National Energy and Minerals Policy.

II.5. GHG emissions reduction potential by sector

1

MEEA

17. Carbon Reduction Strategy Task Force (CRSTF) appointed for the energy sector including representatives of Ministry of Housing and Environment

16. CO2 abatement cost curve for RE, EE and efficient generation completed and priorities identified. 17. Approval and publication by CRSTF of

14. Action plan to implement the options identified as priorities under the CO2 abatement cost curve for RE, EE and efficient generation.

Enhanced Oil Recovery (or EOR) consists in one or more processes that seek to improve recovery of hydrocarbons from a reservoir after extraction using natural reservoir pressure.

Annex II TT-L1023 Page 5 of 5

Objectives

Institution/ responsibility

First Programmatic PBL (October 2011) for coordination regarding draft national climate change policy and initiatives is operational.

Second Programmatic PBL (October 2012)

Third Programmatic PBL (October 2013)

recommendations on GHG emissions reduction 15. Approval by Cabinet and/or MEEA of consistent with the National Climate Change strategy and guidelines to implement the Policy and White Paper on National Energy and CRSTF recommendations on GHG Minerals Policy. emissions reduction. III. Institutional strengthening, capacity building and public education and awareness for sustainable energy. III.1. Strengthen MEEA/REC 18. Approval of capacity-building recommendations by the MEEA and institutional capabilities for the REC for the energy sector. sustainable energy and public 19. Draft work plan prepared for the education and Caribbean Renewable Energy Center awareness. under the Energy and Climate Partnership of the Americas (ECPA). 18. Approval by Cabinet of Strategy and Action 16. Implementation of Strategy and Action Plan for institutional strengthening and Plan for institutional strengthening and capacity building for key entities of the energy sector. capacity building for key entities of the energy sector. 19. Work plan for the establishment of the 17. Caribbean Renewable Energy Center is Caribbean Renewable Energy Center completed. operational. 20. Signing of the MOU for the Caribbean Renewable Energy Center under the Energy and Climate Partnership of the Americas (ECPA).

DOCUMENT OF THE INTER-AMERICAN DEVELOPMENT BANK

PROPOSED RESOLUTION DE-___/11

Trinidad and Tobago. Loan ____/OC-TT to the Republic of Trinidad and Tobago Sustainable Energy Program

The Board of Executive Directors RESOLVES: That the President of the Bank, or such representative as he shall designate, is authorized, in the name and on behalf of the Bank, to enter into such contract or contracts as may be necessary with the Republic of Trinidad and Tobago, as Borrower, for the purpose of granting it a financing to cooperate in the execution of a sustainable energy program. Such financing will be for an amount of up to US$60,000,000 from the Single Currency Facility of the Ordinary Capital resources of the Bank, and will be subject to the Financial Terms and Conditions and the Special Contractual Conditions of the Project Summary of the Loan Proposal.

(Adopted on __ ______ 2011)

LEG/SGO/CCB/IDBDOCS#36388124-11 TT-L1023