Croatia: World Bank Supports Efficient District Heating

Contacts:

In Zagreb: Mirjana Milic (385) 1 235 72 74

mmilic@worldbank.org  

In Washington:   Miriam Van Dyck (202) 458-2931
mvandyck@worldbank.org

WASHINGTON, June 20, 2006 - The World Bank today approved a loan of Euro 24million (US$29.8 million)for the District Heating Project for the Republic of Croatia. The District Heating Project seeks to promote the operational efficiency of HEP Toplinarstvo (HEP T), the subsidiary of the national energy company Hrvatska Elektroprivreda that provides services in the cities of Zagreb and Osijek, by reducing energy and water losses; strengthening the financial position of the company; and increasing the level of customer satisfaction. 

The District Heating Project has two components:

·            The Infrastructure Rehabilitation component includes investments in Zagreb and Osijek. In Zagreb, network rehabilitation will entail the replacement of a dual pipe trench (35 km), transmission pipes (20 km), and distribution pipes (15 km). These investments were identified as priority rehabilitation investments where energy and water losses are high.  In Osijek, network rehabilitation will include the replacement of distribution pipes (15 km) and replacement of inefficient local “heat-only” boilers with a combined heat and power plant.

·            The Consulting Services component includes the development of a “Demand-Side Management” (DSM) Program, with which HEP T will look at options to promote voluntary installation of DSM equipment. The component also includes the completion of two surveys in Zagreb and Osijek seeking the views of consumers on the quality of service provided by HEP T; the preparation of bidding documents; construction supervision; and preparation of annual audits.

Over the last 15 years, a lack of funds has led to a maintenance and replacement backlog, as district heating companies were not in a position to properly maintain and replace their networks in a timely manner. This has lead to frequent breakdowns, which affect the quality of services and also result in heat and hot water losses.  In Zagreb, the average number of breakdowns per kilometer of the network is around 4, which is eight times higher than the average number of breakdowns in Western European countries. Similarly, heat losses across the networks total around 15-25%, compared to a figure of around 5-10% in EU-15 countries.

At present, most consumers are not able to control their consumption and their bills are based on the surface area of their apartment rather than actual consumption. Experience in other countries in the region has shown that introduction of a Demand Side Management system through the use of regulators to control consumption, along with cost allocators to distribute the costs among apartments in a building, lead to savings in household energy consumption and increased comfort of consumers.

”Replacement and modernization of the distribution network will reduce energy and water losses, benefiting the economy,” said Anand K. Seth, World Bank Regional Director for Croatia, Romania and Bulgaria.    “The Demand-Side Management Program supported by the project will lower energy consumption in apartments and allow consumers to have greater control over their heat consumption, as well as to be billed on actual usage of district heating services.  Improvements in HEP T will have a significant impact on the district heating sector, as the project will serve about 80% of the district heating consumers in the country.”

The Government intends to strengthen the Croatian district heating sector, as it is the most economical way to provide heat to densely populated areas where district heating networks exist. To this end, in March 2005, the Law on Production, Distribution and Supply of Thermal Energy (DH Law) was adopted.  Also in early 2005, the Croatian Energy Regulatory Agency (HERA) was also formed with the mandate to regulate the entire energy sector, including the district heating segment.

On May 5, 2006, the Government adopted an approach which sets up the framework for the development and implementation of the District Heating Strategy (DH Strategy).  In parallel to the implementation of this project, the Government, through the Ministry of Economy, Labor, and Entrepreneurship will implement the DH Strategy to strengthen the sector through policy and institutional measures.

Since the Republic of Croatia became a member of the World Bank in 1993, the Bank has actively offered its financial and technical assistance and counsel pertaining to policies in various fields, as well as analytical services. To date, the Bank has offered support for 31 projects with a total value of US$1.7 billion and it has approved 47 grants with a total value of US$51 million.