IOFFlCKA ~ a DOCUMENTS Supplemental Letter No. 3.1 (IBRD) PUBLIC POWER-GENERATING UTILITY "CHERNIHIVSKA TEPLOELEKTROTCENTRAL" OF LIMITED LIABILITY COMPANY FIRM "TEHNOVA" August 21, 2014 International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Re: Loan No. 8387-UA (Ukraine District Heating Energy Efficiency Project) Performance Monitoring Indicators Dear Sirs and Mesdames: This refers to Section II.A of the Schedule to the Project Agreement of even date herewith between the International Bank for Reconstruction and Development (the Bank) and the Public Power-generating Utility "Chernihivska Teploelektrotcentral" of Limited Liability Company Firm "TehNova" (the Project Implementing Entity). The Project Implementing Entity hereby confirms to the Bank that the indicators set out in the attachment to this letter shall serve as a basis for the Project Implementing Entity to monitor and evaluate the progress of the Project and the achievement of the objectives Very truly yours, PUBLIC POWER-GE ERATING UTILITY "CHERNIHIVSKA TEP ELEKTROTCENTRAL" OF LIMITED LIABILITY C MPANY FIRM "TEHNOVA" By Auth ri d e e entative Attachment Attachment to the Supplemental Letter No. 3.1 (IBRD) District Heating Energy Efficiency Project Performance Monitoring Indicators Project Development Objective (PDO): To improve the energy efficiency and quality of service of selected Ukrainian DH companies, improve their financial viability and decrease their CO2 emissions. PDO Level Results Unit of Baselin Cumulative Target Values** Data Source/ Responsibility Dscrption PDOLevl esuts ~ Uit f aseinFrequency for Data (indicator Indicators U Measure e YR I YR 2 YR3 YR 4 YR 5 YR 6 Methodology Collection definition etc.) Indicator One: Project lifetime fuel savings, calculated as decreased gas X needs of participating generat by the utilities for heat production* prjctin tH State Municipal Utility cpaing GH "lvano- 350 950 1,550 2,150 2,750 3,400 savings are Fran kivskteplokomunenerho" estimated as (Ivano-Frankivsk) avoided gas-based Public Utility heat generation due "Miskteplovodenerhia" of Kamianets-Podilskyi City Thousand 550 1,550 2,550 3,600 4.600 5,600 Se n tof in imoved Thougress Council cubic reports of Participating eencytof heat (Kamyanets-Podolsky) meters 0 Annually DH companies, Public Utility "Kharkivskidecreased network Teplovi Merezhi" (tem) 1,250 3,500 5,750 8,000 10,200 12,500 DH companies losses; and (iii) Teparkv MeeL'120 ,0 ,5 and Minregion decreased (Kharkiv)residential heat Municipal Public Utility consumption. For "Khersonteploenerho" 150 500 800 1,150 1,450 1,800 (Kherson) savings are Oblast' Public Utility "Mykolaivoblteploenerho" 650 1,800 3,000 4,150 5,350 6,550 of gas savings (Mykolaiv) generated by each Public Utility of Vinnytsia component of their City Council investment "Vinnytsiamiskteploenerho" 750 2,150 3,500 4,900 6,300 7,650 programs. (Vinnytsia) . I I I .I___programs. * Indicators for the remaining four participating DH companies will be determined soon after Board approval, after their feasibility studies are completed. Preparation ofthe remaining feasibility studies is expected to commence in January 2014. -2- PDO Level Results W Unit of Baselin Cumulative Target Values** Data Source! Responsibility Description n Frequency for Data (indicator Indicators U Measure e YR I YR2 YR3 YR4 YR5 YR6 Methodology Collection definition etc The indic reports en savings/ reduc of CO2 emiss generated by Indicator Two: Project in Energy savings/ avoided participating CO2 emissions of companies. Eni participating DH savings and avo companies* CO2 emissions the companies estimated avoided gas-b heat generation I to impr( State Municipal Utility 10/ 15/ 25/ 30/ 35/ efficiency of "Ivano- 5 /ageneration, Frankivskteplokomunenerho" 850 2,350 3,900 5,400 6,700 8,500 progress decreased netv (Ivano-Frankivsk) GWh/ pr Participating losses and decre Public Utility Tons of 0 15 / 25 / 3 / 50 / 60 / Annually reparatin of DH companies, residential "Miskteplovodenerhia" of CO2 5 / 2 35 5. Minregion consumption) Kamianets-Podilskyi City DH companies well Council 1,600 4,400 7,250 10,100 12,950 15,750 and Minregion decreased/avoid( (Kamyanets-Podolsky) electricity use. Public Utility "Kharkivski 13 / 37 / 61 / 85 / 109 / 133 / avoided electr Teplovi Merezhi" 18,900 52,900 86,900 121,000 155,000 189,000 use is assumed t (Kharkiv) I coal-based b Municipal Public Utility 2/ 5/ 10/ 12/ 15/ 20/ load electricity. "Khersonteploenerho" 450 1,350 2,250 3,100 4,000 4,850 each comp (Kherson) energy savings Oblast' Public Utility 5/ 20/ 30/ 45/ 55/ 70/ reduction of "Mykolaivoblteploenerho" 1,050 3,000 5,000 6,950 8,900 10,800 emissions (Mykolaiv) estimated as a Public Utility of Vinnytsia 5 / 20/ 35 / 50 / 65 / 80 / of energy say City Council and reductions "Vinnytsiamiskteploenerho" emissions gener (Vinnytsia) 1,750 5,000 8,200 11,450 14,650 17,900 by each compo of their investr programs. * Indicators for the remaining four participating DH companies will be determined soon after Board approval, after their feasibility studies are completed. Preparation of the remaining feasibility studies is expected to commence in January 2014. -3- ' Unit of Cumulative Target Values** Data Source/ Responsibility Description PDO Level Results Indicators a Baseline Frequency for Data (indicator ,) Measure YR I YR 2 YR3 YR 4 YR 5 YR 6 Methodology Collection definition etc.) Indicator Three: Percentage of households that reported improved quality of service in buildings where IHSs were installed repots ho State Municipal Utility "Ivano- iprome in Frankivskteplokomunenerho" (Ivano- alt ofreve Frankivsk) households that live Public Utility "Miskteplovodenerhia" of FOR ONE FULL Kamianets-Podilskyi City Council (Kamyanets-Podolsky) HEATING Public Utility "Kharkivski Teplovi Merezhi" Ilis were (Kharkiv) a part of the project. Municipal Public Utility "Khersonteploenerho" Annual quality heating season with Oblast' Public Utility each participating DH company reports better "Mykolaivoblteploenerho" (Mykolaiv) 0 q f d h Annually survey Minregion notice better, more Public Utility of Vinnytsia City Council comfortable temperatures in their apartments Monrictemperaturesr withi "Vinnytsiamiskteploenerho" (Vinnytsia) their apartments as Public Power-generating Utility "Chernihivska Teploelektrotcentral" of domestic hot water Limited Liability Company Firm service. These "TehNova" qualitative measures Public Commercial Utility "Donetskmiskteplomerezha" annually as a part of the quality surveys, Public Utility "Dniproteploenerho" of included in the Dnipropetrovsk Oblast' Council Technical Subsidiary Enterprise "Kirovohradteplo" of Limited Liability poet Company "Center of Scientific and Technical Innovations of Ukrainian Oil and Gas Academy"0 A -4- PD Baseline Cumulative Target Values** Data S Responsibility Description e Frequency for Data (indicator definil Indicators C_) Measure forecast) YR I YR 2 YR3 YR 4 YR 5 YR 6 Methodology YRI Y2 Y3 R R R Collection etc.) This indic evaluates finar Indicator Four: viability Ratio of total revenues to participating total operating costs companies. It (including debt service estimated as a rati requirements)* total revenues c company to its 1 operating c( State Municipal Utility including I "Ivano- 0.8 > 1 >1 > service requirem Frankivskteplokomunenerho" Total revenues (Ivano-Frankivsk) defined as the sur Public Utility total opera "Miskteplovodenerhia" of revenues and Kamianets-Podilskyi City 0.8 > I > I I 1 Semi-annual non-operating Council progress Participating income. Net i (Kamyanets-Podolsky) - Number Annually reports of DH DH companies, operating incom( Public Utility "Kharkivski companies Minregion the differt Teplovi Merezhi" 0.8 > I > I > I and between revei (Kharkiv) Minregion from all sources o Municipal Public Utility than those relate< "Khersonteploenerho" 0.7 > I > I > I operations, (Kherson) expenses, inclu( Oblast' Public Utility taxes. Total opera "Mykolaivoblteploenerho" 0.8 > I > I > I expenses are def (Mykolaiv) as all expe Public Utility of Vinnytsia related to operat City Council and provision "Vinnytsiamiskteploenerho" depreciation. I (Vinnytsia) service requirem 0.8 >1 >1 > are defined as aggregate amoun repayments of d including interest other charges. * Indicators for the remaining four participating DH companies will be determined soon after Board approval, after their feasibility studies are completed. Preparation of the remaining feasibility studies is expected to commence in January 2014. ** Any possible compensations of difference between residential tariffs and incurred costs are not taken into account in the forecasts -5- PDO Level Results E Unit of Cumulative Target Values** Data Source/ Responsibility Description a Baseline Frequency for Data (indicator Indicators c Measure YR I YR 2 YR3 YR 4 VR 5 YR 6 Methodology Collection definition etc.) This indicator reports the number of people who gain access to more energy efficient Indicator Five: boiler houses. For Number of people who gain Kherson, the exact number of people- access to more energy- X efficient heat-generating beneficiaries has facilities* been provided by the company. For Ivano-Frankivsk, Kamyanets- Podilsky and Vinnytsia, the number of State Municipal Utility beneficiaries was Ivano-3,350 9.350 15,400 21,450 27,450 33,500 estimated as the Frankivskteplokomunenerho" Semi-annual number of (Ivano-Frankivsk) progress Participating households that will Public Utility Number 0 Annually reports of DH DH companies, be served by "Miskteplovodenerhia" of companies and Minregion rehabilitated boiler Kamianets-Podilskyi City 1,100 3,000 5,000 7,000 8,900 10,850 Minregion houses (provided by Council the companies) (Kamyanets-Podolsky) multiplied by the Public Utility "Kharkivski average household Teplovi Merezhi" 35,550 99,550 163,550 227,550 291,550 355,550 size in a city. For (Kharkiv) Mykolayv and Municipal Public Utility Kharkiv, the "Khersonteploenerho" 4,950 13,900 22,850 31,800 40,750 49,700 number of (Kherson) beneficiaries was Oblast' Public Utility estimated as a share "Mykolaivoblteploenerho" 8,900 24,900 40,950 57,000 73,000 89,050 of the total (Mykolaiv) consumers served Public Utility of Vinnytsia by the rehabilitated City Council boiler houses, "Vinnytsiamiskteploenerho" 2,550 7,250 11,900 16,600 21,250 25,950 determined by the (Vinnytsia) share of the connected heat load served by the -6- PDO Level Results 2 Unit of Cumulative Target Values** Data Source/ Responsibility Description a Baseline Frequency for Data (indicator Indicators U Measure YR I YR 2 YR3 YR 4 YR 5 YR 6 Methodology Collection definition etc rehabilitated facilities. Indicator Six: Direct Project beneficiaries X Number 1,960,700 All residential consumers of participating DH companies are d (for 6 appraised project beneficiaries. Hence, this indicator is estimated as the i companies)* number of residential consumers served by all participating of which female X % 50 companies. * Indicators for the remaining four participating DH companies will be determined soon after Board approval, after their feasibility studies are completed. Preparation of the remaining feasibility studies is expected to commence in January 2014. -7- INTERMEDIATE RESULTS Cumulative Target Values** Responsibility Description 8 Unit of Data Source/ o Baseline Frequency for Data (indicator definition Measure YRI VR2 YR3 YR4 YR5 YR6 Methodology Collection etc.) This indicator reports Efficiency of heat ipoeet i generation/ fuel saved due to X efficiency of efficiency gains* rehabilitated boiler houses in participating DH companies and State Municipal Utility 0/ 0.5%! 1.0%/ 1.5%/ 2.0%/ 2.3%/ consequent gas energy "lvano- savings. The change in Frankivskteplokomunenerho" 0 850 1,650 2,500 3,350 3,850 efficiency is estimated (Ivano-Frankivsk) as the average Public Utility "Kharkivski 0 / 0.1% / 0.2% / 0.3% / 0.4% / 0.5% / Semi-annual efficiency gains of all Public Utility progress boiler houses "Miskteplovodenerhia" of % / reports of Participating rehabilitated by a Kamianets-Podilskyi City Gcal 0 0 5 10 15 25 30 Annually participating DH companies, participating DH Council utilities and Minregion company in a (Kamyanets-Podolsky) Mintegion particular year as a Public Utility "Kharkivski 0 / 1.0%! 3.0%/ 5.0%/ 7.0%/ 8.0% / part of the project. Gas Teplovi Merezhi" 0 850 2,500 4,200 5,900 6,750 energy savings are (Kharkiv) _____ ____estimated as a Municipal Public Utility 0 / 1.0%/ 2.5%/ 4.0%/ 5.5%/ 6.4%/ reduction in heat nKesotpleero losses. Heat losses are Khersonteploenerho 0 1,450 3,600 5,750 7,900 9,200 estimated as the (Kherson) _____etmtd a h Oblast' Public Utility 0/ 0.5%/ 1.0%/ 2.0%/ 3.0%/ 4.0%/ difference between gas "Mykolaiv)obteploenerho" 0 1,300 2,600 5,200 7,800 10,400 r upatise co pan Public Utility of Vinnytsia 0/ 0.2%/ 0.4%/ 0.6%/ 0.8%/ 1.0%/ and its total heat sales City Cuncilin a particular year. City Council "Vinnytsiamiskteploenerho" 0 850 1,750 2,650 3,550 4,400 (Vinnytsia) R _L I * Indicators for the remaining four participating DH companies will be determined soon after Board approval, after their feasibility studies are completed. Preparation of the remaining feasibility studies is expected to commence in January 2014.  Unit of Cumulative Target Values** Data Source Responsibility Description a Baseline Frequency for Data (indicator definit Measure YR I YR2 YR3 VR4 YR5 YR6 Methodology Collection etc.) Reduction in network heat losses * This indicator tr reduction of State Municipal Utility losses due to net\ "Ivano- mu 1,250 3,500 5,750 8,000 10,250 12,500 rehabilitation Fran ki vsktep lokomunenerho" eniioe wihi envisioned within (lvano-Frankivsk) project. It is estim Public Utility as the diffen "Miskteplovodenerhia" of between losses in Kamianets-Podilskyi City 300 850 1,400 1,950 2,500 3,050 Semi-annual pipes (defined by Council progress technical (Kamyanets-Podolsky) reports of Participating characteristics) Public Utility "Kharkivski Gcal 0 Annually participating DH companies, losses in the Teplovi Merezhi" 250 750 1,250 1,750 2,200 2.700 utilities and Minregion replacement r (Kharkiv) Minregion (defined by Municipal Public Utility technical "Khersonteploenerho" 200 550 900 1,200 1,600 1,950 characteristics). (Kherson) indicator reports Ic Oblast' Public Utility only on repl; "Mykolaivoblteploenerho" 300 850 1,400 1,950 2,500 3,050 segments of (Mykolaiv) network, but not Public Utility of Vinnytsia the entire network City Council 4,100 11,500 18,900 26,300 33,700 41,050 by a company. "Vinnytsiamiskteploenerho" (Vinnytsia) _1 _1 1_1 * Indicators for the remaining four participating DH companies will be determined soon after Board approval, after their feasibility studies are completed. Preparation of the remaining feasibility studies is expected to commence in January 2014. -9- Cumulative Target Values** Responsibility Description SUnit of Data Source/ U o Baseline Frequency for Data (indicator definition 0 Measure YR I YR 2 YR3 YR 4 YR5 YR6 Methodology Collection etc.) Reduction in residential heat consumption in Gcal buildings where IHSs were installed * State Municipal Utility "lvano- 1,000 2,850 4,700 6,550 8.400 10.250 Frankivskteplokomunenerho This indicator reports "(lvano-Frankivsk) the reduction in heat Public Utility "Miskteplovodenerhia" of consumption of Kamianets-Podilskyi City 350 1.050 1,750 2,450 3,150 3.850 Semi-annual where IHSs are Council pors Coumnl Pdlsy p__ _rogrtss o Participating installed as a part of (Kamyanets-Podolsky) 0 Annually reot utilities, the project. It is Public Utility "Kharkivski Minregion estimated as the Teplovi Merezhi" 5,100 14,350 23,550 32.800 42,000 51,200 utilities and difference between (Kharkiv) Minregion billed consumption in Municipal Public Utility "Khersonteploenerho" 60 150 250 350 500 600 arutad yert± (Kherson) days Oblast' Public Utility "Mykolaivoblteploenerho" 750 2,100 3,500 4,850 6,250 7,600 (Mykolaiv) Public Utility of Vinnytsia City Council "Vinnytsiamiskteploenerho" 3,550 5,850 8,200 10,500 12800 (Vinnytsia) * Indicators for the remaining four participating DH companies will be determined soon after Board approval, after their feasibility studies are completed. Preparation ofthe remaining feasibility studies is expected to commence in January 2014. - 10- Cumulative Target Values"* Description E Unit of Responsibility (indicator defini MBaselineethodologycCollect Measure R R R Frequency for Data etc.) __ _ _2 4 5 6 Adoption of the new Methodologies Methodologies, Methodologies, Annually Semi-annual Utilities transitional (from "cost not developed/ regulatory regulatory progress Regulator plus" to "incentive- applied accounting forms accounting forms reports of the based") methodologies and auditing and auditing Utilities These indicators by the Utilities principles principles Regulator implementation ol Regulator developed approved and used SIDA-World I Methodologies Selection criteria Methodologies, Annually Semi-annual Utilities technical assistan( Applications of the new not developed/ for pilot regulatory progress Regulator the Utilities Regul transitional applied municipalities accounting forms reports of the Successful methodologies in pilot finalized; and auditing Utilities implementation ol municipalities by the potential pilot principles are Regulator technical assist Utilities Regulator municipalities are applied in selected will contribute to identified pilot municipalities ____ ______sustainability Sector-wide Benchmarking Standardized Country-wide Annually Semi-annual Utilities investments, fina benchmarking exercise has not been performance benchmarking progress Regulator by the project. completed by the done template exercise completed reports of the Utilities Regulator developed Utilities reg ulay I Regulator *Please indicate whether the indicator is a Core Sector Indicator (see further htt://coreindicators) "*Target values should be entered for the years data will be available, not necessarily annually - 11 -