strategy

ENERGY STRATEGY PROFILE (DRAFT):

I. INTRODUCTION

1.0 This paper identifies the subject matters, supporting documents and procedures to be followed in the preparation of the Bank's new energy strategy. The strategy document is the logic consequence of an insight process identifying the challenges to be faced by the sector in the region within the next ten years and comparing them with the Bank's shortcomings and comparative advantages. This comparison helps in establishing the issues and actions which allow the maximization of the Bank's support to the countries. In addition to this introduction, chapter II contains a description of the main challenges which, in our opinion, would be faced by the countries; chapter III aims at identifying the types of challenges which, considering its assets and liabilities, the Bank will face when providing for the countries needs; based on these two chapters and on the Bank's experience, chapter IV identifies the subjects requiring the preparation of support documents and other related material for the formulation of the strategy; chapter V lists the tasks and procedures which have been foreseen for the preparation and discussion of the strategy; and chapter VI presents the present status of preparation.

1.1 A key element in economic development, the energy sector has always enjoyed a high priority in public investment and in the development strategy of the region’s governments. The region has abundant energy resources, although not always fairly distributed. The sector has characterized itself as one of the most dynamic and best organized; such attributes have allowed it to provide for the needs of its industry and to impressively expand its population coverage since the 1960s. However, no other sector as the energy sector and particularly the electric power sub-sector, has so definitively and universally suffered the impact of the crisis of the 1980s. The deterioration of energy tariffs and prices, the absence of efficiency incentives and the depletion of traditional financing sources led to a financial crisis in the sector forcing the search for restructuring alternatives unthinkable until then. Other factors contributing to spur reforms were the almost universal acceptance of the new paradigm of the State role in the economy, the eventuality of obtaining abundant resources for the public treasury from the sales of assets, an acceleration in the technical progress in energy production, transmission, measurement and use, and a new vision in international markets of hydrocarbon products reflected in the commercial policies of the countries which allow to consider them as commodities to be traded through the most efficient channels. As a result, during the last decade the region's energy sector underwent deep and striking changes in its institutional, organizational and regulatory framework. Such changes, together with a renewed interest in avoiding negative impacts upon the environment, led the sector, fairly rapidly, but at different paces according to the country, to a transition towards a cleaner and more competitive sector with high participation of the private sector, but still with major problems in need of solution.

1.2 Since its inception, the Bank has contributed to finance the region's energy sector with more than US$15 billion in loans and grants to projects and technical cooperation, always seeking to develop sound and efficient institutions. It is important to highlight that more than 90% of this activity has been concentrated in the power sector; that its participation in some major countries such as Mexico, Brazil and Venezuela which account for 75% of the region's market, has been only marginal; and that specially in small and medium-size countries, its participation has been essential to enable the power sector expansion, to develop the hydroelectric potential of the region and to possibilitate the current energy integration. However, the volume of loans has substantially decreased during the 1990s as a result of the crisis and of the utilization of new financing sources. As of the crisis of the 1980s the Bank has accommodated its strategy towards the sector to the new reality. For a while the Bank adapted its procedures informally and gradually until the new agenda of IDB-8 and the reorganization prompted by it precipitated a new approach. Although such approach has been formalized in policy and strategy documents, such as the new public utilities policy, the new financing of infrastructure and some activities of the central departments, it has not yet been casted into a formal strategy for the energy sector. Such situation makes urgent and necessary the undertaking of an analysis of the strategic options for the region and of the Bank's role, in order to formalize an energy strategy which harmonizes the Bank's multiple goals with the instruments and resources at hand.

1.3 The Eighth Replenishment of Resources (IDB-8) explicitly refers to the need of supporting the modernization process of the infrastructure sector(2.35 e); promoting the participation of the private sector (2.37d); supporting the development and establishment of regulatory frameworks (2.37g); helping the countries to develop plans and programs and of financing projects which incorporate clean energy and energy efficiency, and to promote integration of regional markets (2.44d). In addition, the major mandates of IDB8: poverty, environment and private sector, have clear implications in any future Bank action in the sector.

1.4 In complying with the mandates of the IDB-8, several sectoral strategies, policies, and organizational reforms have been or are being formulated, to which the energy strategy is necessarily related and with which such strategy must be coherent, particularly those related to the financing of infrastructure, public utilities, private sector, reduction of poverty, rural development, urban development and sustainable agriculture, forestry, and the new role of the Field Offices.

II THE CHALLENGES FOR THE REGION IN THE ENERGY SECTOR

2.1 In general terms it can be asserted that the fundamental challenge to be faced by most countries in the region in the energy sector during the next decade, will be to achieve economic, financial, environmental and political sustainability in order to answer the needs of a growing demand, to allow the access to energy to all population and thus to contribute to the improvement quality of life and to the development of their economies.

2.2 The sector will be sustainable as long as it can do without the continuous external intervention, whether from the government or from the multilateral banks, in the financing of its investments and in the daily management of supply and demand to provide the needs for energy without degrading the natural resources base. Particularly: (i) economic sustainability implies the convergence of energy prices and tariffs with its economic costs, as well as the expansion and operation of the systems at minimum cost; (ii) financial sustainability is achieved when the operating income of the energy companies enables the obtention of a profit which reimburses investment in market conditions in such a way that it can, together with other characteristics defining the investment climate in the country, attract financial capital and human resources as well as adequate technology to exploit the resource: (iii) environmental sustainability is obtained when the actions of energy consumers and producers do not have negative effects on the environment compromising its availability and/or quality for future development; (iv) social sustainability is obtained when all the inhabitants of a country have at their disposal alternative energy sources to satisfy their basic energy needs; and, (v) political sustainability is highly dependent on the transparency and equity with which the process of sector reforms has been carried out; on the acknowledgement by consumers and producers of the independence and competence of the regulatory entities; and on the satisfaction of consumers with the price and quality of energy services.

2.3 However, in spite of sharing some common traits such as the dynamism of its markets, the LAC region is characterized by the diversity in the size and relative development of its economies; in the availability of energy and human resources; in the use of energy; in the stage of modernization of the State and the institutional and legal frameworks; and in the degree of participation of private capital. Such diversity translates in a variety of individual challenges determining in turn the nature and effectiveness of the actions required to reach the goals that have been established for the sector.

2.4 Risking over-simplification the countries could be classified in three groups according to the needs or the type of problems to be faced by each during the next decade: (i) small countries with scarce or expensive energy resources and limited human resources, net importers of energy and technology and whose economies in most cases, are perceived as of high risk by foreign investors; (ii) countries with medium-size or large economies, not highly dependant on energy or technology imports and with energy sectors and economies of moderate investment risk; countries with small economies but highly dependent on energy exports..

2.5 The individual challenges to be faced by each country will depend to a large extent on their particular characteristics. These challenges however, share some common traits which allow them to be grouped around six main subjects and to define a series of priority tasks to focus the analysis of the strategy. Such challenges are: the consolidation of the structural and regulatory reforms accomplished during the first half of this decade; the attraction of foreign and domestic capital necessary to finance the sector; the development of patterns of energy production and use compatible with the environment; the extension of modern energy options to all the population; the integration of the regional energy markets; and the appropriate consideration given to inter-sectoral issues in the solution of problems of which energy is only a part.

A. Consolidation of Structural and Regulatory Reforms Undertaken During the 1990s.

2.6 The task of consolidating such reforms shall be the main challenge faced by the countries of the region in the energy sector during the next decade, even in those countries which today appear as pioneers in this field. It is easy to underestimate the complexity of simultaneously performing three innovative transformations almost unprecedented in the world, namely, restructuring of the sector, establishment of a new regulatory framework and privatization. The task is even more complex because, in many countries these transformations should be accomplished within a process of State modernization and structural adjustment, in order to lay the legal and institutional framework required for the adequate operation of a market economy.

2.7 Most small countries are in the process of selecting a new structure for their power sector. Such decision is a key element for the future of the sector's reform, since the type and possibility of competition depend on it. The exercise of direct competition in the market poses rigorous demands, not only of institutional type but also related to market size and number of participants. Such countries, which are only starting the reform process, require strong and continuous support in these tasks, commencing with the identification of the feasible options for the structure and the selection of the most adequate, and going beyond to the implantation and adjustment of the new structure and to the design and operation of the regulatory entities. 2.8 In countries with larger economies and reform experience, there are still important issues to sort out such as the definition of the subsidiary role of the State and of planning, the testing of the regulatory and control mechanisms under demanding situations, and the permanent challenge of finding adequate institutions facilitating the control of abuses of the market dominant position, which if not avoided, could lead to a delay in the process. The adequate risk management, particularly in countries using power pools is fundamental to define how to achieve the incentives for continuous investment in the sector.

2.9 The liberalization of the hydrocarbons market has experienced substantial progress in many countries of the region with the consequential benefits for consumers; however, it still finds resistance in some of them. This is particularly true in the sub-sector of hydrocarbons refinement in which some countries are reluctant to liberalize the market and to end monopolies which are based on the operation of obsolete refineries. There is a great need of consulting and advising for the countries which have not yet initiated their liberalization process.

2.10 Countries with significant energy exports face two different but related tasks. On the export side the challenge continues being how to provide enough reassurances to investors, how to decide the rate of exploitation and how to manage the income from exports in order to maximize the benefits, within the restrictions imposed by macroeconomic management. On the domestic consumption side the task is to carry on with the sector reforms, which are hindered by the pressures to transfer to domestic consumers, via low domestic prices, the income originated in exports.

2.11 The new role of the State as regulator and policy maker, leaving its entrepreneurial role to the private sector, requires that both, the State and the private sector, develop and use institutional mechanisms enabling them to complement each other, specially during the transition process. Particularly, for economies with fast growth of electricity demand, it is the State who in last resort has to be responsible for the availability of the service in order to avoid rationing, even in the cases when the market is in charge of supplying the demand. Another priority is the integrated analysis and treatment of interactions in the chain of production and transformation of energy, particularly those related to electric power generation and the supplying of fuel required as raw material.

2.12 The sector's restructuring and particularly the participation of the private sector, will influence the composition of the energy basket. Thus, it is very likely that the private sector does not have enough incentives to commit itself in hydroelectric projects and that its participation is concentrated on thermal projects with short maturity periods.

2.13 Finally, in many countries, including some that have come forward the reform road, the existence of policies hindering the reflection of economic opportunity costs by energy prices is still a problem since their management is highly dependent on political issues.

B. The Attraction of Foreign and Domestic Capital under Reasonable Conditions Enabling the Financing of the Sector's Expansion.

2.14 Small countries and even some large ones, which have reformed their sector have found that because of the risk perceived by investors, available foreign capital imposes terms and costs much higher than what was expected. On the other hand, large countries which have wanted to introduce competition, are frequently frustrated with the requirements that commercial and sometimes even multilateral banking require for their financing, in order to hedge against the higher risk imposed by the competitive system. Such financing is even scarcer for new energy sources or for investments in energy efficiency which for many constitute a new and exotic field. Finally, there are countries and sub-sectors where because of several reasons, the greatest part of investment should, for still a long time, be the responsibility of the State and who worriedly look to the way how the multilateral banks concentrate on other priorities. Adequate management and distribution of risks appear as a central element in the sector's attraction of capital, whether public or private, specially in the sub-sectors which are not internationally tradeable such as electricity. This problem is exacerbated because of the limited development of domestic capital markets which force the dependance, at least initially, on foreign investment.

C. Development of Energy Production and Consumption Patterns Compatible with Environment Preservation.

2.15 The main challenges in this field are the consolidation and adaptation to the sector's new order, of the environmental procedures and controls that the region has adopted; the emission of particles from the combustion of biomass used for cooking in the countryside; and the vehicular pollution in large cities. During the last decade a true revolution has taken place in the countries' attitude towards the pollution associated with the production and consumption of energy. The establishment of Environmental Entities, as well as the influence from multilateral banks and NGOs, have popularized the realization of Environmental Impact Assessments and the adoption, when necessary, of remedial measures incorporating its costs to the project's budget. Considering the new order in the sector, it is necessary to ensure that competition, private sector participation, and the diminishing influence of the multilateral banks do not translate in abandonment of such practices, and that their consolidation process is carried on. At the local level two major byproducts of energy consumption are deteriorating the environment's quality with unhealthy effects: emissions of particles from the use of biomasses in rural areas, and the vehicular emissions in the region's large cities.

2.16 However, there is a clear difference between local effects, such as the impacts of big dams and the emission of particulae, and the global impacts such as those caused by emissions of greenhouse gases. The contribution of the energy sector to the emission of greenhouse gases is substantially smaller than its equivalent in the industrialized countries, both in absolute as in relative terms. They are also smaller than in the rest of the developing countries due to the fact that the proportion of renewable energy in the LAC region's energy basket is the greatest in the world. While in the OECD countries, such proportion is only 1% or 2%, it is about 35% in the region. This is explained by the fact that 70% of electric power is generated with renewable resources. This explains why in the countries of the region, as opposed to the developed countries, the efficient use of energy and the utilization of renewable energy has an economical rather than environmental motivation. On the other hand, given that there still exists a hydroelectric potential economically and environmentally developable, the availability of abundant natural gas reserves in many countries in the region, and the relative highter costs per Kwh of small scale renewable technologies, as compared with new combined cycle, limit the economic potential of the former in the near future to special niches, such as isolated places with high costs of connection to the electrical grid.The former notwithstanding, and leaving aside the political aspects of the sharing of efforts in the control of emissions, the fact that urban transport is the largest contributor to both, local and global emissions, together with the proliferation of initiatives resulting from Agenda 21, point to the assertion that this subject deserves more attention each time.

2.17 The efficient use of energy is commonly considered as a more economic alternative than the expansion of the supply based on traditional sources. Likewise, the promoters of renewable energy at small scale insist that in many cases, theirs, is an economically attractive offer. However, in spite of past efforts by countries, the Bank and donors, to promote the efficient use of energy and alternative energies, successful results have not been abundant. The causes are multiple: the relative costs of technologies; the lack of information; the problem of the higher initial investment to the consumer as compared with the pay as you use of conventional energies; hindrances of institutional, regulatory, fiscal type; and specially, the distortions introduced by subsidies to commercial energies. However, during the past few years news have been encouraging, which like the reform of the energy sectors, the opening to the private sector, technological advances and other, ensure better luck in the future. In spite of the fact that many problems still persist, among them the lack of continuity between the donors' actions at the promotional level and the actions of the countries and the Bank to finance identified projects, and in spite of the fact that the experiences of the developed countries to promote such actions are rarely transferable and that the fluidity of the institutional framework obstructs action, current circumstances are fortunate to review the role of the government, of the market and of the Bank in the sector.

D. Extension of Modern Energy Options to all the Population

2.18 The challenge in this field is to materialize one of the goals shared by almost all countries: to extend the coverage of commercial energies to the population which currently has no access to them, mainly rural and marginal urban poor. In spite of the high degree of urbanization exhibited by the region as compared with other developing countries, there is still a significant sector of the population with no access to the modern forms of energy and, that using rather inefficiently the biomasses resources, contributes to the deforestation and to the aggravation of local environmental problems. This problem is more or less serious depending on each country. It can be appreciated by observing the coverage of the power grid which goes from 40% in Honduras and 60% in Peru to 95% in countries like Costa Rica and Chile. In the case of Brazil, in spite of having a rather high coverage, the size of the country and the spread of the population are such that there are more than twenty million people without access to electricity and for which the cost of fuel is very high. In the past, electricity networks were many times anti-economically laid forcing governments to provide substantial subsidies which in turn served to discourage the penetration of other forms of renewable energy, in these cases, probably, the most attractive from the economic point of view. On the other hand, a major effect of privatization of the power sector is the predictable lack of interest from the private sector to serve the marginal customers unless the incentives are radically changed.

2.19 A remarkable aspect of the energy balance of the countries in the region is the still high participation of biomasses, mainly because of wood consumption in rural areas and even in some urban ones. This is in turn due to a large extent to the high inefficiency in their use which in turn leads to a deterioration of natural resources and to increases in the morbidity and mortality rates caused by the emission of particles in places not adequately ventilated.

2.20 Recent research (World Bank 1996) has detected that the greatest barrier to the use of modern energies in the rural sector is not their price level but their limited access to them, which is obstructed by the high initial investment costs. There are then opportunities to counterbalance this situation by implementing policies seeking to increase the options available in the rural areas, liberalize the market, allow to defer the initial installation costs and promote the establishment of companies at the local level.

E. Integration of Regional Energy Markets.

2.21 Even though the power sector has pioneered the integration of infrastructures of neighboring countries, the integration of regional energy markets is a proposition ever more attractive considering the current trend to integrate regional economies. Significant advances have been achieved in the past years, particularly with the establishment of a grid of gas pipelines in the southern part of the region and the electrical interconnections of neighboring countries. Many countries nonetheless, face problems in the planning and organization of companies to undertake such kind of projects, and even more, to expand these initial advancements to the creation of an integrated energy market increasing the possibilities of competition with its consequential efficiency benefits. Although a great part of such difficulties lies in the lack of adequate harmonization of the regulatory regimes, the institutional organisms, the legal framework and the structure of the sector, as has been evidenced in the several attempts to create a Central American regional market, its root lies in a tendency to self sufficiency, heritage of the crisis which characterized the supply of hydrocarbons in the past. The successful development of these integration intents requires the continuous effort and dedication from the countries as well as from the multilateral organisms in order to provide the necessary assurances compatible with the development of the market.

2.22 The advantages of achieving such market integration are huge. As an example the commercialization of natural gas at the regional level opens the possibility that this relatively clean and low cost fuel, thanks to the significant technological advances of gas-fired and combined-cycle turbines, can act as bridge fuel until the low-cost renewable sources of the future are commercialized.

F. The Inclusion of Multi-sectoral Considerations when Dealing with the Energy Problems.

2.23 From the former considerations it is clear that, besides the obvious interrelations with the environment, there are important links between the energy sector and others such as the financial sector and the programs of poverty relief. In addition, the energy demand is a derived demand since in the end what is being demanded is power, heat and illumination. So, acting upon the consumption of energy implies to also act upon other sectors such as the industry, whose main motivations are productivity and positioning in the new international markets. Transport, particularly urban transport, uses a substantial part of the region's energy and is the cause of most greenhouse gas emissions. However, an adequate treatment of energy use cannot happen without simultaneously posing considerations related to urban development and organization of the transport sector. On the other hand the use of water for energy could eventually conflict with other uses. Until now these problems have not been totally dealt with due to the institutional type difficulties and to the definition of competencies. However, the integrated treatment is many times the only coherent and efficient way of fighting the problem. To continue ignoring this dimension might lead to a substantial waste of resources when these problems aggravate in the next decade

III. THE CHALLENGE FOR THE BANK

3.1 The challenge faced by the Bank in designing its strategy for the region's energy sector, is how to optimize the use of its resources to support the countries in achieving their sustainability goals and aims. During the period under consideration, this implies to support the process of transition to a sector ever more autonomous and clean, less dependent on the State and/or multilateral banking direct intervention, and with a larger private sector participation. A key consideration in the definition of the strategy is the maximization of the aggregate value of its global contribution, taking into account for each country, the degree of advancement of reforms, the capacity of effectively influencing policy, and the careful and objective analysis of the comparative advantages and limitations of the Bank. From the former it is clear that the specific strategy of the Bank could not only be different for each country, but could also consider which are the criteria for the Bank's participation in the energy sector of a given country.

3.2 The Bank has considerable general comparative advantages to effectively contribute to the region's energy sector and particularly to that of the weakest countries. Its leadership in the region, its convocatory capacity and influence through the country dialogues, its capacity of attracting complementary financing and of supplying guarantees against the sector's risks and its presence in all countries in the region, its history of support to the current reform and innovation processes are assets which allow it to place itself in an advantageous position to fight the problems identified in the former section. However, the Bank has significant limitations, among which the limited funds availability as compared with the needs of investment, and the lack of personnel with experience in the new disciplines necessary to successfully confront the challenge faced by the countries, stand out. Additionally, a characteristic common to the tasks to be undertaken by the countries is a process-type continuing action rather than disconnected projects, where a permanent, timely, adequate and flexible support is required, with disciplines which many times are in the development process and that differ significantly from the type of action to which the Bank has been used to. Finally, budgetary constraints and downsizing have led the Bank to lack a critical mass of professionals able to provide for these growing needs.

3.3 It is necessary therefore, when designing the strategy, to clearly identify to which extent the weaknesses pointed out before, or any other, limit or restrict the Bank's actions to help the countries in facing their challenges and to identify those that can be remedied within given organizational parameters. Also, to identify the most efficient ways to profit from the Bank's strengths.

3.4 The considerations made in this profile will allow to frame the task of preparing the Bank's strategy in the Energy sector and to provide guidelines for its implementation. It is important however, to point out some of the features which will characterize the future action in the sector as necessary result of the need of establishing priorities in order to make the best possible use of the scarce resources and of seeking the best effectiveness of the same. These are:

i) The necessity that the Bank's financial support acts primarily as catalyst to attract other financing from the private sector and that its instruments are targeted to ameliorate the risks perceived by investors. Thus, a large portion of the strategy for the sector is concentrated in identifying the new credit instruments and the PRI's role in the sector's financing. These issues, although approached within the wider framework of financing of infrastructure, still have special connotations for the energy sector.

ii) The advantage of concentrating actions in those sub-sectors or activities with greater additionality potential. This requires a classification, for purposes of selection, of sub-sectors and countries according to the type of challenge, to the Bank's capacity of providing for it, both financially as well as in terms of technical assistance and comparative advantages, and according to the availability of alternative assistance sources.

iii) The opportunity of seeking strategic alliances with other multilateral organizations and donors to achieve the goals. The type of such alliances could be co-financing of investments, technical assistance or simply, joint use of qualified personnel. To this respect it is specially important to analyze the activities of the World Bank in the energy sector in order to look for a joint action maximizing the synergetic gains in favor of the countries in the region.

3.8 During the development of the strategy it would help to analyze among other things, the following:

* What type of disciplines are required for the Bank's professionals, which could be acquired through consultants and which could be provided by akin organizations such as the World Bank.

* What type of limitations are imposed by the existing external organization. To what extent the existence of a critical mass of experts is necessary and where should they be located.

* How adequate are the Bank's technical cooperation mechanisms particularly in terms of the possibility of providing adequate and timely support in scarce skills and issues of vital importance to the sector.

* To what extent the Bank is capable of adequately providing continuous action during a country's change process.

* In which sub-sectors and countries is it possible to achieve the most effective impact.

IV. SUPPORTING DOCUMENTS

4.1 The validation and confrontation of the challenges for the region and the Bank will allow to identify the key elements of the Bank's new strategy for the sector. In this respect it will be first necessary to identify the information and to produce the support documents which will help to define the problems and would direct the application of the strategy. These documents must be mostly made by consultants under the guidance of SDS and their results should be discussed internally at the Bank, and eventually at a broader level. Much of this information already exists in a dispersed way and/or has been the subject of analysis carried out by the Bank or by other institutions, or is part of ongoing works (see References). The support documents would be: an information collection and database about the region's energy sector and the past action of the Bank; two analytic papers, one about the state of the sector's reform in the region and the other about the users perception of the Bank's action in the sector; five papers about strategic options of the Bank to answer the challenges faced by the countries; and an interdepartmental paper to identify the way how joint problems could be confronted.

a. Collection of information about the Energy sector in the region. Compilation of information sources and creation of a database useful in the preparation of the strategy. An attempt to quantify the financial challenge faced by the sector, discriminated by countries categories and by sub-sectors, so that the demand for the several financing sources for the next ten years could be identified, will be made in the parallel analysis.

b. Analysis of recent experiences about restructuring and reform in the region and of the role played by the Bank. Such study is fundamental to identify the strategic options for the task of consolidating the reforms. In spite of the fact that the reform process has been going on for more than five years, there is no updated comparative critical analysis about the outcomes of such efforts, particularly about those of small countries. Such paper would complement and update those of Covarruvias and Maia (1994); Moscote, Maia and Vietti (1995); and the one prepared as support document for the public utilities policy, Dussan (1996). None of such papers has examined the Bank's role in such processes.

c. Analysis of the Bank's limitations in its support to the sector. Without pretending to make an evaluation of the results of the Bank's reorganization, it would be very useful to know the opinion of the interested parties (users) about the quality and effectiveness of the support the Bank is providing to the countries in the energy sector. In this area, surveys with borrowers and other players, consultation with similar institutions, discussions and other activities are envisioned.

d. Strategic options for the sector's financing. This topic is currently being addressed by the IFM/SDS in the activities of infrastructure financing and particularly in "Fostering Infrastructure Development" (1995), and will be one of the subjects of the new technical cooperation "Financing Program". However, given the particular challenges of the energy sector such as the financing of efficiency measures, the risks of the several stages of a hydroelectric project, and others, it is necessary to coordinate with IFM the inclusion in its agenda of these subjects.

e. Strategic options for the integration of energy markets: the Bank's role. This task will be based on the on-going efforts of Region II to support the integration of the electricity and hydrocarbon sectors in Central America. In particular the harmonization of regulatory and institutional frameworks and others.

f. Strategic options for the development of sustainable energy. This document will be based on the preparatory work for the operations plan for the TC "Sustainable Markets for Energy Efficiency and Clean Energy Sources AT-1098, the evaluative report of the Bank's actions in this field, Bower et. al., (1996) and the forthcoming paper "Planning and Competition, Millán et. al., (1997).

g. Strategic options to expand coverage. A short consulting work would allow to profit from former studies carried out by the Bank about energy projects and poverty reduction, Pérez (1994); the studies performed by the World Bank for the document "Rural Energy and Development" (1996), the work currently being carried out about the Rural Development strategy; and the information currently being gathered for the activities of the Energy Hemispheric Summit.

h. Strategic options in the oil and gas sub-sectors. Even though the Bank has not had a high participation in this field the protagonist role of natural gas in the next decade and the on-going liberalization of the market suggest the preparation of a short strategic options paper.

i. Multi-sectoral considerations. The Urban Development strategy and the Integrated Management of Water Resources strategy are currently and simultaneously in the stage of preparation. The necessary links with them shall be established. However due to the special problem posed by the rational use of energy in urban transport in the region, it is necessary to explore the viability of taking joint actions among the several involved disciplines. For this purposes a cross-cutting committee should be formed.

V. TASKS TO BE PERFORMED TO DEVELOP THE STRATEGY

5.1 The preparation of the strategy requires the performance of a series of tasks demanding careful scheduling and help from personnel of the Bank, of the member countries and of other institutions. Such tasks could be grouped as follows:

1. Reviewing the existing information in the Bank and other multilateral institutions, identification of the work pending, preparation of the TOR for new studies and hiring of consultants.

2. Execution and supervision of studies. The coordination of the preparation of the strategy will be performed by SDS who in turn will be advised by a consulting group formed by representatives of the involved departments. Additionally, the documents will be subject to a "Peer Review" within and outside the Bank. The studies and surveys will be performed by consultants hired with SDS administrative budget.

3. Consultations with interested parties. In a consultation first stage, SDS personnel discussed the elements of this profile with a selected group of stakeholders. Based on the consultations carried out, and the suggestions of the Policy Committeethe the scope of the work e will be adjusted.

4. Drafting of the strategy proposal. It will be made based on the contribution of the studies and discussions, both internal and external.

5. Consultation of the strategy drafts. The team will take advantage of regional events to discuss with the interested parties the final drafts. A key aspect to consider is the balanced configuration of the several interest groups to take into account the opinions of donors, borrowers, entrepreneurs, consumers and activists, avoiding when possible, that the agenda would be monopolized by any particular interest. To achieve that, the creation of a focus group -different from the Peer Review- which, while preserving this balance, includes personalities from the region and from multilateral institutions, will be created.

6. Final editing and approval.

VI. WORK STATUS

6.1 At the time of writing this profile some of the base studies are already available as stated in section IV; an advisory committee has participated in the drafting of the profile; two studies have been contracted. It is expected that the strategy document will be ready for consultations with the Policy Committee of the Board by the fourth quarter of 1997.

REFERENCES

ADB, Bank Policy Initiatives for the Energy Sector, Feb. 1994.

BID, Fostering Infrastructure Development in LAC: A Strategy Proposal, Doc. GN-1884-1, August, 1995.

BID, Domiciliary Public Utilities Policy, Doc. GN-1869-3, September 1996.

BID, Sustainable Markets for Energy Efficiency and Clean Energies. Operations Plan. Doc. AT-1098, September, 1996.

BID, Infrastructure Financing, Management and Regulation Program. Operations Plan. Doc. AT-1097, September, 1996.

BID, Domiciliary Public Utilities Policy. Justification for Policy Change, Doc. GN-1869-2, September 1996.

BID, Perspectives and Bank's Action in the Energy Sector. Working Document, PRA, December, 1993.

Brower Michael and Michael Lazarus, Evaluation of the IDB's Policies and Practices in Support of Renewable Energy and Energy Efficiency. Consulting report prepared at the request of the Bank, December, 1995.

Covarrubias Alvaro and Suzanne B. Maia, 1994, Reforms and Private Participation in the Power Sector of Selected LAC and Industrialized Countries, LAC Technical Department Regional Studies Program, Report N. 33, WB.

Dussan Manuel, Electric Power Sector Reform in LAC. Working Papers Series IFM-104, June, 1996.

EBRD, Energy Operations Policy, March 7, 1996.

Echenique Jorge, Strategic Options for Rural Development in Latin America. Discussion Draft, August, 1996.

Millán Jaime, Connie Smyser and Manuel Dussan, Planning and Competition: Strategic Choices for LAC, Draft, September, 1996.

Moscote Rafael, Suzanne Maia and L. Vietti, The Power Sector in LAC: Current Status and Evolving Issues. Report 35 LAC Technical Department, WB, June, 1995.

OLADE, Energy in Figures. Version #7, SIEE, Quito, 1995.

Pérez Jorge, Energy Projects and their Impact on Poverty Reduction, PRA, Working Document, 1994.

World Bank, 1996, Sustainable Transport: Priorities for Policy Reform.

-----------1993 The World Bank's Role in the Electric Power Sector. A World Bank Policy Paper, WB.

------------1993, Energy Efficiency and Conservation in the Developing World, A World Bank Policy Paper.

------------1995 The World Bank Role in Oil and Gas: Review and Recommendations, Draft 5 Feb. 1995.

------------1996 Rural Energy and Development, Improving Energy Supplies for Two Billion People. A WB Best Practice Paper, IEND, September 1996.

............ and OLADE, 1991 The Evolution, Situation and Prospects of the Electric Power Sector in the LAC Countries.

............ and OLADE, 1991 Lecture: A Policy Challenge for the Nineties, Hacienda Cocoyoc Mexico, Sept 4-6, 1991

December 26, 1996