Background 1. Natural gas accounts for about 30 percent to total primary energy supply in Croatia. Most of the gas is produced in Croatia itself, but there are imports by pipeline from Russia. In 1993, of total gas supplies of 2.72 billion cubic meters (bcrn), 0.79 bcrn were imported. The gas is used in energy sector own use (0.20 bcrn); energy transformation (11.21 bcm, nearly all for power generation and heat production); non-energy use (0.50 bcm, mainly for unprofitable fertilizer production); industry (0.30 bcm); and other sectors including households, services and agriculture (0.45 bcrn). 2. The relatively small direct use of gas by households and services is due to the limited development of gas pipeline network between cities. City gas distribution is confined to some districts of Zagreb, the capital city, while the other cities still rely on oil products and coal. Given this situation, the Government of Croatia has asked for assistance to investigate the option of establishing natural gas distribution systems in other cities. In addition to the current scheme, several options can be considered to increase gas supply to the country while diversifying the sources of supply. Among them is the longstanding project of building an LNG regasification terminal on the Croatian or the Slovenian coast of the Adriatic Sea to supply these countries and, possibly, Austria and other countries downstream, thus creating a new gas hub in Southern Central Europe; another option would be to import gas from Algeria through the Trans-Med pipeline that reaches now Ljubljana in neighbouring Slovenia.
Objectives of the Study 3. Against the above background, the proposed study will establish a long-term gas distribution strategy for the residential and commercial market. This strategy will aim at (i) alleviating the energy constraints pressing on the country's economy, while ensuring a sound and economic use of natural gas; (ii) proposing alternatives to the current gas supply scheme in diversifying the sources of energy supply; and (iii) mitigating air pollution in those cities where coal and oil products are still largely in use because natural gas is not available. In addition to the above global objectives, particular attention will be paid to: (i) energy conservation, mainly through interfuel substitution; (ii) the security of supply of natural gas; (iii) the improvement of the environmental conditions of producing and operating energy sources; and (iv) the institutional and regulatory framework to be put in place to ensure a sustainable development of gas distribution. Scope of Work 4. To keep the cost and duration of the study at a reasonable level, the study will be conducted in a limited number of cities. The sample of cities will be selected in close cooperation with the Croatian Authorities, using a set of criteria that will be carefully established so that the results of the study can be easily transferred onto other cities. The main components of the study are as follows: (a) to evaluate the natural gas demand in the residential and commercial sector over the long term, tentatively 20 years; in addition to the standard types of buildings, such as schools, hospitals, hotels, etc., the commercial sub-sector includes the smallscale industrial units (mainly workshops) likely to be scattered across the urban framework; (b) to assess the current gas supply conditions and to evaluate additional gas supply options, which includes: (i) to review the technical conditions and capacity of the present gas network and related facilities, e.g. gas storage, etc.; (ii) to review the current and planned status of potential upside imports from Russia; (iii) to analyse other possible sources of supply, e.g., the project of an LNG terminal on the Adriatic sea; (iv) to determine and evaluate the cost of the upstream infrastructure (transmission, storage) to be improved andlor implemented to meet increasing domestic gas demand; and (v) to determine and estimate the cost the downstream infrastructure (distribution networks and sevice lines, conversion/replacement of appliances, gas piping inside apartment-blocks, etc.) required to develop the gas consumption; (c) based on the gas demand estimates and on the gas supply conditions, to establish supplyldemand scenarios likely to meet the expected demand. Particular attention will be paid to alternative sources of gas supply; this implies to check the consistency of the consumption forecasts with the expected gas supply and, based on the seasonal load variation of the gas demand, to assess the capability of the current and planned transmission and storage facilities to cope with the expected seasonal peak load (daily and hourly peak demand); (d) to discuss and recommend the optimum natural gas development strategy and to propose short-term solutions consistent with the long-term options included in the proposed development plan; (e) to establish the main technical characteristics of the gas networks, namely in terms of general architecture of the network, pressure level, material and equipment, and to estimate the cost of the overall infrastructure, from the city gate station up to the customer appliances;
(f) to assess the economic viability of the gas distribution networks in the selected cities, based on the economic cost and economic value of natural gas and of the competing energies; (g) to propose an institutional and regulatory framework which deals with the organization of the gas industry and the relationship between the sectoral institutionslcompanies and the government. Particular attention will be paid to recommendations for a gas pricing and tariff policy based on sound economic principles, taking into account the economic costs of natural gas and competing energies. The proposed policy will include recommendations for the optimal design of efficient tariffs at the main steps of the gas chain. (h) to assess the environmental benefits (in particular, with respect to air pollution, e,g., reduction of solid particulates, sulphur dioxide, carbon dioxide and nitrogen oxides) likely to be brought by the expansion of the use of natural gas, both on the production sites of currently used energy resources (e.g., coal production if any; transformation of primary energy into district heat) and in the main energy consuming areas. Work OrganizationIWork Programme 5. ESMAP will entrust an international consultant with an extensive experience in the realization of Gas Distribution studies with the carrying out of the core of the study. More specialized consultants might be hired to perform those sections of the study that relate to institutional matters and tariff policy. It is highly desirable that the international consultants be assisted by local consultants, both in the technical area and with respect to the institutional aspects. The work of the consultants will be thoroughly monitored by an ESMAP team under the supervision of an ad hoc Steering Committee. Tentatively, the latter would comprise (i) the local counterpart consisting of members of Croatian institutions/companies, (ii) representatives of the World Bank Operations Department, and (iii) the ESMAP core team. The whole project is expected to last about ten months, of which: three months are dedicated to the work preparation until consultant appointment; five months are required to the carrying out of the study; and two months to the drafting of the ESMAP report (the "Green Cover") and the presentation of the report to the Croatian Authorities. The tentative work schedule in given in Annex. Staffing 6. In addition to their participation in the Steering Committee to monitor the work, ESMAP staff will take an active part in performing, or bringing expertise in, selected components of the study; in particular, ESMAP staff will (i) help design the demand and supply study components; (ii) discuss the supplyldemand alternatives in light of previous studies performed with ESMAP assistance on Central and Eastern Europe; and (iii) prepare recommendations with respect to institutional and pricing matters. Budget 7. The tentative budget amounts to US$188,000. It includes the technical cost of the study (remuneration, travel expenses and living allowance of the international consultant, remuneration of the local consultants) as well as the contribution of the ESMAP team. It does not include the possible Agencies Support Costs. The breakdown of the budget along the standard ESMAP budget lines is given in Annex
