Joint UNDP/World BankEnergy Sector Management Assistance Program

Activity Completion Report

No. 008/83

Country: MrrTus

Activity: ENERY ASSESSENT STATuS REPORT

OCTOBER 1983

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Report of the oint UNDP/Wld Bank Eney Sector Management Assistance PrograThis document has a restricted distribution. Its contents may not be discosed withoutauthorization from the Government, the UNDP or the World Bank.

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Energy Sector Management Program

The Joint UNDP/World Bank Energy Sector Management Program isdesigned to provide a rapid and flexible response to governments whorequest assistance in implementing the policy, planning and institrtionalrecommendations of the Energy Assessment Reports produced under &notherJoint UNDP/World Bank Program, or in carrying out prefeasibility ttudiesfor energy investments identified in these reports.

The Energy Sector Management Program can provide the followingtypes of assistance for countries which have had asseasments:

o assistance to improve a government's ability to manage itsenergy sector, for example by defining staffing and workprograms, evaluating management information needs,identifying sources of public and private finance,developing a medium-term investment plan;

o prefeasibility work on priority investment plans,especially those which will impro:e the efficiency ofenergy use, bring about economic fuel substitution, orprovide enough affordable energy to rural areas;

o specific short-term assistance in institutional andmanpower development, both at the sectoral and agencylevetsb;

The Program aims to supplement, advance and strengthen theimpact of bilateral or multilateral resources already available fortechnical assistance in the energy sector.

Funding of the Program

The Program is a major '.nternational effort and, while the corefinance has been provided jointly by the UNDP and the World Bank,important financial contributions to the Program have been made by theGovernments of the United K'ngdom, the Netherlands, Denmark, Finland,Norway, Sweden, Australia and New Zealand.

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MAIURITIUS

ENERGY ASSESSMENT STATUS REPORT

October 1983

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TABLE OF CONTENTS

Page

I. SUMMARY AND INTRODUCTION ................................. 1

II. MAIN SECTOR DEVELOPMENTS, 1981-1983 ...................... 3

III. STATUS OF ASSESSMENT RECOMMENDATIONS ..................... 5Bagasse Development Program......................... 5Other Recommendations............................................ 7

a IV. ONGOING TECHNICAL ASSISTANCE ACTIVITIES .................. 11

V. PRIORITY AREAS FOR FURTHER TEC7iNICAL ASSISTANCE .......... 12

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MAURITIUS

ENERGY ASSESSMENT STATUS REPORT

I. SUMMARY AND INTRODUCTION

1.1 Mauritius' primary energy requirements are met in roughly equal partsfrom indigenous bagasse and imported petroleum products, but these two fuelsare used in very different ways. Bagasse, a by-product of the sugar industry,

OL is used almost exclusively to meet the energy needs of that industry, and itscontribution as a direct energy source to the rest of the economy is verysmall. The energy requirements of the economy, excluding the sugar sector,are met primarily (about 90 percent). from imported petroleum productssupplemented by a small amount of hydro electricity and coal.

1.2 The crux of Mauritius' energy problem and, thereforl, the principalfocus of the Energy Assessment Report pr3pared in 1981, 2 was on how tocontain the rising bill for oil imports, which had grown from $10 million in1973 to nearly $60 million in 1980. The key to achieving this objective layin a program to improve the very low efficiency with which the sugar industryutilized bagasse to generate steam and electricity. Through these improve-ments the sugar industry could become a major net supplier of electricity tothe rest of the economy, capable of producing a theoretical maximum surplus ofabout 250-300 GWh/annum which was roughly equal to the island's 1981 totaloil-based electricity generation and accounted for a third of the oil importbill in that year.

1.3 Based on these improvements in bagasse energy production and allowingfor the establishment of a small coal-fired power station in the second halfof the decade, as well as a modest but sustained effort to improve theefficiency of energy use in all sectors of the economy, the Assessment Reportoutlined an "Accelerated Energy Program" which would enable the country toreduce its dependence on oil imports from 90% of commercial energy in 1980 toabout 60% by 1990. Oil imports also wou'd decline in absolute terms and theenergy import bill (including the cost of imported coal) would be substan-tially lower under this scenario as compared with a "Business as Usual"scenario based on the extrapolation of past trends.

9 1.4 The report also emphasized that a prerequisite for the successfulimplementation of the "Accelerated Energy Program" was the immediatestrengthening of the Government's energy policy and management capability,

a which had previously been weak and fragmented. In particular, there was aneed to establish a small unit with engineering and economic expertise thatwould be charged wit. coordinating energy sector activities and which would

-/ This report was prepared by Masood Ahmed during a mission to Mauritius inSeptember, 1983.

2/ Mauritius: Issues and Options in the Energy Sector, December 1981,Report of the joint UNDP/World Bank Energy Assessment Program.

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analyze and recommend policy and investment options for decision by nationalpolicymakers. An outline of the technical assistance required to establishsuch a unit as well as to carry out other tasks in the sector was included inthe report.

1.5 The Government agreed with the principal thrust of the analysis inthe Energy Assessment Report and has subsequently acted quickly and broadly toimplement its major recommendations. As discussed in Section III below, anumber of steps have been taken to define more precisely the potentialcontribution of bagasse. Some projects have been started to expand bagasseelectricity production and to test the feasibility of pelletization. Inparallel, the institutional framevork of the sector has been strengthenad bythe creation of an Energy Policy and Projects Division (EPPD) in the Ministryof Energy which has begun to play a much more active role in sector policyformulation and investment programming. This division has also helped tocoordinate the technical and financial as* stance being provided for thesector by various donor agencies. However, because of staffing constraints(there is only one economist, on secondment, in the EPPD), there has only beenlimited progress on the demand management front and the existing staffing islikely to prove increasingly inadequate even for the management of the energysupply diversification program as this program enters into the next phase ofmajor implementation.

1.6 Mauritius is now entering into a critical phase of its energydevelopment program. Much of the preliminary groundwork for bagassedevelopment having been done, the need now is to ensure that the first pilotprojAects are carefully designed and monitored so that their relative technicaland economic merits can be considered in developing the full-scale program ofbagasse- and/or coal-based power generation which is likely to ultimatelyamount to over Rs 1 billion. In parallel, work on improving the efficiency ofenergy use by the large industrial and commercial users and in the publicsector also needs to begin. In short, the momentum that has been generated inthe energy sector over the past three years needs to be maintained so that bythe end of the decade the country can actually realize the benefits of lowercost energy. To achieve these objectives, the immediate requirements are thathuman and financial resources be focussed on the priority areas in thesector. In particular, the small amount of budgetary resources required toestablish an effective sector management capability in the Ministry of Energyshould be allocated as quickly as possible.

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II. MAIN SECTOR DEVELOPMENTS 1981 - 1983

2.1 Very slow iconomic growth and continued high energy costs have beenreflected in the stagnant demand for energy during 1981-82. As the followingtable shows, electriciiLy production and sales remained virtually unchangedsince 1980 (itself a year in which there was no growth over the previousyear). However, the pattern of electricity generation has altered, withproduction from the sugar factories increasing by more than 60% as a result ofnew plant and efficiency improvements and the signing of new contracts by theCEB for higher purchase volumes. At the same time, poor rainfall in 1981 led

p to a sharp drop in hydro generation which had to be offset by increased use ofdiesel plant, resulting in a 40% increase in the average cost of electricityproduction in that year. This higher cost has been a source of concern to theCEB, particularly because electricity tariffs have only incr.eAsed by 10% sinceApril, 1981. This situation should be alleviated by the 15% increase intariffs that has just been announced. On the supply side, no new CEB planthas been commissioned since the installation of the 2 x 12 MW diesel sets atPort Louis in September, 1981. Work on the Champagne Hydro-Electric scheme isproceeding and the project is expected to be completed by March, 1984.

Electricity Statistics, 1980-82

1980 1981 1982

Maximum demand (MW) 83.5 81.1 86.2Sales (GWh) 290 291 293Generation (GWh) 355 362 363- hydro 82.8 59.7 93.4- sugar industry purchases 26.7 30.9 43.3- oil thermal 245.4 271.3 226.1Average cost per kWhproduced (incl. purchases) 0.50 cs 0.72 cs 0.61 cs

Source: CEB

2.2 In the petroleum subsector, with the exception of fuel oil whosedemand is essentially determined by the need for thermal electricitygeneration, the consumption of all products has been stagnant or declining

9 since 1980. (See table below). The cost of oil imports rose from US$57.5million in 1980 to US$67.0 million in 1981, largely because of higher fuel oiluse in the power sector brt also because of higher unit prices. In 1982,however, lower demand and reduced prices caused the oil import bill to drop toUS$54.7 million.

2.3 In terms of petroleum supply, an important dsvelopment has been theintroduction, in April 1983, of direct Government purchases of about a quarterof the island's internal petroleum product requirements through a bilateralagreement with the Kuwait Petroleum Corporation. The Government is alsoinvestigating whether additional procurement on a Government-to-Governmentbasis from other oil producing states could help reduce the cost of thecountry's oil import requirements.

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Petroleum Statistics, 1980-82

ConsumptionProduct (000 barrels)

1980 1981 1982

Gasolines 336.1 310.6 259.7Gas oil 427.3 447.8 439.8Kerosene 161.2 132.8 128.7Fuel oil 448.5 533.8 409.1Others 42.0 38.2 41.5

Total 1415.1 1643.2 1278.8

a/ Excludes bunker sales.

Source: Shell (Mauritius) Ltd.

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III. STATUS OF ASSESSMENT RECOMMENDATIONS

Bagasse Developent Program

3.1 As indicated above, the major recommendation of the Energy AssessmentReport was to embark on a program to expand the use of bagasse for electricitygeneration. The steps that needed to be taken in this regard were (i) adetailed prefeasibility study which would define more precisely the potentialfor generating electricity from bagasse, identify any technical or economicobstacles, and make a preliminary estimate of the investments required; (ii)

P establish an institutional framework for monitoring and implementing theprogram and for defining the roles that the various agencies -- Government,CEB and sugar factories -- would play in this implementation; and (iii) carryout any pilot projects or other tests required to establish the technical andeconomic viability of pelletizing bagasse to store it for electricitygeneration in the intercrop period.

3.2 To address these questions the Government has taken the followingsteps. First, a prefeasibility study was carried out in 1981 with Frenchbilateral assistance. This study identified the potential for electricitysupply from the various factories, developed alternative scenarios for plantcommissioning based on a number of assumptions (including the viability ofbagasse pelletization) and prepared preliminary cost estimates and an economicevaluation. The study also recommended a pilot project for testing theviab lity of bagasse pelletization as the next step in developing an overallprogram. Subsequently, the Ministry of Energy set up a technical committeewith representatives from the various agencies concerned, to review thisreport and prepare a follow-up program. The committee agreed with the needfor a pilot pelletization project but, given the uncertainty about theeconomics of pelletization, it also recommended exploring the alternative ofdual-fired burners using bagasse in the crop season and coal in the intercropperiod.

3.3 In early 1983, a joint Government/private company was set up toestablish a 13,000 ton per year pelletization plant at the Deep River/BeauChamp sugar factory. This plant should be operational by early 1985, andtherefore, by the end of the 1985 crop season, it should be possible todetermine with some precision the technical and economic feasibility ofbagasse pelletization. In parallel, the FUEL sugar factory has embarked on amodernization/expansion project with French bilateral assistance, which willallow it to supply 17 MW of firm capacity to the CEB by mid-1984. Thisproject will produce 30 GWh of electricity from bagasse during the cropseason, but the burners are also designed to burn coal or pellets to producean additional 25-30 GWh in the intercrop period. To test the relativeeconomics of coal use in these boilers (as compared with bagasse pellets) CEBhas entered into an agreement with FUEL to supply it with the coal required torun the boilers for the 1984 and 1985 intercrop periods. The coal is to beimported for the CEB by private companies on a competitive tender basis.

3.4 Thus, given these two projects, the relative economics of the maintechnical options for using bagasse for power generation will be firmlyestablished by the end of 1985. As the economics of a coal-fired central

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power statiorn will also be easily determined at that time, the least-Lostelectric power expansion program could then be prepared for the 198S-1995period. It is also important to note that by then the preliminary results ofthe Sugar Commission's work on the ration, lization of the island's sugarindustry also will be available to allow firm decisions on plant siting to betaken.

3.5 Given these factors, the immediate tasks facing the Government are toensure that the two ongoing projects -- the pilot pelletization plant and thecoal/bagasse/pel.ets plant at FUEL -- proceed on schedule and that theirtechnical and economic aspects are carefully monitored. This will require notonly the continued working of the joint bagasse supervisory committee but alsothe allocation of the necessary resources within the Ministry of Energy tocarry out the monitoring and evaluation of these projects and to prepare a a

long-term investment plan based on their results.

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Other Recommendations Action Taken

Petroleum

(i) Reexamine the resumption of The Government has obtained theprivate hydrocarbon explora- data acquired by Texaco during itstion and reevaluate Texaco's earlier exploration efforts; partexploration results. of this data is currently being

reprocessed and evaluated by con-sultants under the supervision ofthe Bank. The results of thisanalysis will determine the nextsteps that the Government couldtake to promota the country'shydrocarbon prospects.

(ii) Delay any investment-in setting Following a careful examination ofup a refinery until the econo- refinery markets and economics,mic/financial feasibility of the Government has decided not tosuch a proposal has been care- embark on any refinery construc-fully evaluated. tion projects in Mauritius in the

foreseeable future.

Electric Power

(iii) Introduce a daylight savings Daylight savings time was intro-time scheme to even out peak duced in 1982. However, the re-demand during the summer. sulting savings in the summer of

1982/83 do not appear to have beenas large as anticipated and. therehas been considerable social oppo-sition to this measure. There-fore, this will be discontinued in1983.

(iv) Consider the potential effec- No action has been taken in thistiveness of extending the use regard.of peak power pricing to elec-tric cookers, and of staggeringworking hours of Government andindustrial workers.

Coal

(v) Study the possibility of The costs and feasibility ofinstalling a 29 MW coal- establishing such a plant havefired power plant. been updated through two studies.

However, stagnant electricity con-sumption in 1981/82 and the

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Recommendation Action Taken

possibility of using coal in dual-fired boilers in the sugarindustry mean that a central coalthermal station will not berequired until the late 1980s.

Renewables

(vi) Corsider investment in solar Provision has ncjw been made to in-water heaters for the hotel clude solar water heaters as devel-industry as development ex- opment investments for income taxpenditures for income tax pur- purposes. Import duties on solarposes similar to other water heater components also havedevelopment investments. been reduced.

(vii) Government should introduce No action has been taken so far,solar water heaters in its although this remains a highcommercial and service build- priority recommendation.ings - hospitals, schools, etc.

(viii) Defer investment in ethanol A 60 million litre/year ethanolproduction as a gasoline production project was reviewed bysubstitute until the the Government with Bank assist-relative economics become ance, but its economics were notmore favorable. found to be sufficiently attrac-

tive and investment in this areahas been deferred for the timebeing.

(ix) Investigate the potential of Some wind measurement equipmentwind energy for water pumping has been installed in Rodriguesand electricity generation. and in Mauritius as a first step

in evaluating the potential ofthis resource. However, the im-plementation of these projects hasbeen slo-ir than articipated be-cause of technical, institutionaland local financing problems.

(x) Evaluate the potential of mini A draft report of a study to eval-hydro sites for electricity uate and rank known mini hydrogeneration. sites on the island, carried out

with UNDP assistance, is beingreviewed by the Government.

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Recommendation Action Taken

Conaervation

(xi) Evaluate the potential for As part of its expansion and re-changing the composition of the habilitation program, the publicpublic vehicle fleet to more road transport corporation hasefficient vehicles. acquired new, more energy effi-

cient buses. However, the po-tential for improving the effi-ciency of the public bus fleet andof private bus companies throughbetter maintenance still needs to

e be evaluated.

(xii) Study of the traffic manage- Such a study is to be carried outment measures to improve shortly as part of an urban trans-vehicle flow in the Port Louis port project; in the mean time,area. some improved traffic management

measures already have been imple-mented.

(xiii) Conduct energy audits of No action has been taken in thislarge consumers in the in- regard. However, the Mauritiusdustrial and commercial Sugar Industry Research Institutesectors and of Government has begun a program if energybuildings and facilities. audits for the sugar factories.

Action in this area, as well aa indemand management more generally,remains a high priority in thesector.

Pricing

(xiv) Continue to enforce realistic Retail petroleum product pricespricing policy for energy pro- have continued to reflect importducts to complement energy costs and the Government's desireconservation. to encourage conservation.

However, in the case of electrici-ty tariffs, there has been no in-crease since December, 1981, lead-ing to considerable financialproblems for the Central Electri-city Board. To alleviate theseproblems the Government has in-creased electricity tariffs by anaverage of 15% as from October,1983. A further revision will bemade early next year when the re-sults of an ongoing marginal costpricing study for the power sectorbecome available.

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Recommendation Action Taken

(xv) Strengthen the institutional A small energy planning unit wa}framework for energy sector set up in the Ministry of Economicpolicy and management. Planning and Development in 1981.

In June 1982, as part of an over-all program of institutionalstrengthening, the new Governmentset up an Energy Policy and Pro-jects Division (EPPD) in the reor-ganized Ministry of Energy andInternal Communications and trans-ferred the responsibility forenergy sector management andcoordination to this Ministry.The one staff of the Energy Plan-ning Unit in the Ministry ofEconomic Planning and Developmentwas also transferred (on second-ment) to the EPPD. To help theEPPD develop into an effectivesector management body, the UNDPand t'e Bank, and the UK-ODA areproviding it with considerabletechnical assistance (See SectionIV below).However, to benefit from thisassistance and to carry out thesector management tasks outlinedabove, the Government urgentlyneeds to allocate budgetary re-sources to the EPPD so that a corestaff of three professionals (anEconomist, an Engineer and a Sta-tistician) can be put into place.If, as anticipated, these re-sources are provided for in the1983-84 budget to be approved inOctober 1983, the necessary staffcould be on board early next year ein time to ensure that the priori-ty activities planned for in thenext 12-18 months proceed asscheduled and that theirexperience is monitored andevaluated. Equally, any furtherdelays or uncertainty in terms ofallocating these resources couldwell result in a slackening of themomentum that has been built since1980.

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IV. ONGOING TECHNICAL ASSISTANCE ACTIVITIES

4.1 The World Bank/UNDP have followed up on the Energy Assessment Reportthrough a technical assistance project aimed at strengthening theinstitutional capacity of the Ministry of Energy for policy formulation andsector management. The project provides funds for a number of short-termconsultancy assignments in priority areas as well as for the training ofGovernment staff and for the provision of some basic data analysis and otherequipment. A third component of the project, which is being financed in

A parallel through UK bilateral assistance, is the provision of a residentenergy advisor for a 18-24 month period, expected to begin in early 1984. Theshort term assignments already carried out under the project are (i) a

* detailed review of the EPPD leading to the preparation of the Division's Yorkprogram, staffing requirements and job descriptions, equipment and trainingneeds, and (ii) the reinterpretation of seismic data originally gathered byTexaco and subsequent advice to the Government on a strategy for promotingexploration.

4.2 UK Bilateral As mentioned above, the UK ODA has agreed to provide aresident energy advisor (scheduled to arrive in early 1984) and possibly someshort term consultant services in association with the Bank UNDP Project.

4.3 French Bilateral assistance has been provided in developing thebagasse utilization program. In addition to the prefeasibility study carriedout in 1981-82, assistance also has been given for preparing the pilotpelletization plant; both this plant and the FUEL plant also are beingfinancially supported by the Caisse Centrale.

4.4 Indian Bilateral assistance is being sought for the provision ofshort term assistance in petroleum economics and engineering.

4.5 UNDP/IFSTD A technical assistance program has been started for theevaluation of Mauritius' wind energy potential. Monitoring and meteringequipment is being installed.

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V. PRIORITY AREAS FOR FURTHER TECHNICAL ASSISTANCE

5.1 Given the ongoing and proposed technical assistance activitiesdiscussed above, there are only a limited number of areas where furthertechnical assistance is required in the immediate future. These relate mainlyto support for programs to identify and implement energy efficiencyimprovements in the industrial, commercial and Government sectors.

5.2 Energy Audits of Hotels and Public Sector Buildings This exercisewill evaluate in detail the potential for reducing energy consumption inhotels, Government offices, hospitals etc. through both better management aswell as investments in improving boiler efficiency, insulation etc. The studyalso will cover the potential for installing solar water heating to replaceelectric/oil-fired heating where appropriate. About two staff months ofassistance will be required at a total cost of US$25-30,000.

5.3 Energy Audits of Large Industrial and Transport Sector EnergyConsumers This study will carry out a similar exercise as in (5.2) above forthe six to eight large industrial energy users (textile firms, the chemicaland fertilizer factory, etc.) as well as for the public transport corporationand other large transport agencies. The estimated cost of this study is threeman-months or about US$35,000-40,000.

5.4 Monitoring of Bagasse Development Projects Once the preliminaryresults of the FUEL project and the bagasse pelletization project becomeavailable, the Government and the CEB may require sorre short term specialistassistance to help evaluate these results and to develop a medium-term powersector investment program. It is difficult to estimate now what the scope ofthis assistance will need to be, but a preliminary allocation of about threeman-months in 1985-86 could be made for programming purposes.

5.5 Energy Efficiency Improvements in the Sugar Industry As mentioned inpara (xiii) above, the Mauritius Sugar Industry Research Institute (MSIRI) hasbegun a limited program of energy audits in the sugar factories to identifyhow they could improve the efficiency with which they use steam and electricpower. This program needs to be strengthened through the provision ofmonitoring and metering equipment, data processing facilities, and sometechnical expertise in areas where MSIRI lack trained staff. A detailedproposal of the assistance required is being prepared by the Government andMSIRI for consideration by interested donor agencies.

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