Common use of Background and Necessity of the Project Clause in Contracts

Background and Necessity of the Project. (1) Current State and Issues of the Electricity Sector in Uzbekistan Uzbekistan's peak power demand reached 8,020 MW in 2012. The nation has a total rated power generation capacity of 12,033 MW, but power generation facilities throughout the country are aging, and the peak generation capacity of facilities within Uzbekistan is only around 7,400 MW. The power supply is extremely unreliable, with planned power outages even in the capital city of Tashkent during winter (the peak demand season). Thermal plants generate approximately 90% of all power, but many of these facilities were put into operation 40 to 50 years ago or earlier, and are now deteriorating. The nationwide average peak supply capacity has fallen by approximately 30%, and there is an urgent need to update these facilities in order to secure an adequate power supply and improve reliability. The low average thermal efficiency of the country’s thermal power plants (around 30%) also causes a major environmental impact. Against such a background, there is demand for the installation of high-efficiency power generation facilities in order to reduce the nation’s CO2 emissions, which are the world’s highest per unit of GDP (among the 65 countries whose emissions figures were published in the 2010 World Development Report). Uzbekistan urgently needs to carry out energy efficiency improvements throughout its economic and societal systems. (2) Development Policies for the Electricity Sector in Uzbekistan and the Priority of the Project To secure safe, reliable and equal access to power for all users, the “Law on Electric Power Industry” in 2009 (which defines the basic structure and direction of Uzbekistan's power sector) stipulates that the government should prioritize the introduction of market principles in power generation, transmission and distribution, the attraction of overseas capital to enable the renovation and modernization of power generation facilities, and the improvement in fuel and power usage efficiency. The country’s five-year medium-term investment plan and individual annual investment plans define specific development approaches and critical requirements. The Navoi Thermal Power Station modernization project (hereinafter referred to as "the Project") is included within the 2012 and 2013 investment plans. (3) Japan and JICA’s Policy and Operations in the Electricity Sector Japan’s Country Assistance Policy for Uzbekistan (April 2012), defines the renovation and development of economic infrastructure (for transportation and energy) as a priority area, and JICA country analysis paper (July 2012) also highlights development of economic infrastructure especially for transportation and power sector as a priority area, which is consistent with the objective of the Project. As for the past Japanese ODA loan projects in the electricity sector, there were two projects; the Tashkent Thermal Power Plant Modernization Project (24,955 million yen) and the Talimarjan Thermal Power Station Extension Project (27,423 million yen). (4) Other Donors’ Activity The World Bank has been supporting the project related to the power sector efficiency such as the Talimarjan Transmission Project and Advanced Electricity Metering Project. The Asian Development Bank also sees the energy sector as a priority area, and has provided assistance for the Talimarjan Thermal Power Station Extension Project (with co-financing from JICA), Advanced Electricity Metering Projects, a power transmission line project and other initiatives. (5) Necessity of the Project

Background and Necessity of the Project. (1) Current State and Issues of the Electricity Electric Power Sector in Uzbekistan In the electric power sector in Uzbekistan's peak , many of thermal power demand reached 8,020 MW in 2012. The nation has a total rated power generation capacity of 12,033 MWplants, but power generation facilities throughout the country are aging, and the peak generation capacity of facilities within Uzbekistan is only around 7,400 MW. The power supply is extremely unreliable, with planned power outages even in the capital city of Tashkent during winter (the peak demand season). Thermal plants which generate approximately 90% of all power, but many are aging due to operation of these facilities were put into operation 40 to more than 40-50 years ago or earlieryears, and are now deterioratingtheir average generation capacity is only around 30% against the total rating capacity. The nationwide average peak This causes not only a short supply capacity has fallen by approximately 30%of electric power, but also over fuel consumption, and there is an urgent need to update these facilities in order to secure an adequate power supply and improve reliabilityCO2 emission. (The low average thermal efficiency country has one of the country’s thermal power plants (around 30%) also causes a major environmental impact. Against such a background, there is demand for the installation of high-efficiency power generation facilities in order to reduce the nation’s highest CO2 emissions, which are the world’s highest emission per unit of GDP (among per capita; ranked the 65 countries whose emissions figures were published worst in 2009 with 1.5kg; and the 5th in 2010 with 1.2kg, World Development ReportIndicators, World Bank). Uzbekistan urgently needs to carry out energy efficiency improvements throughout its economic and societal systems. (2) Development Policies for the Electricity Electric Power Sector in Uzbekistan and the Priority of the Project To secure safe, reliable Though the government of the Republic of Uzbekistan has promoted modernization of aged power generation facilities with assistance from international financial institutions and equal access to power for all usersJICA, the “Law on Electric Power Industry” in 2009 (which defines the basic structure country still faces challenges such as maximizing benefit from continued modernization, stabilizing and direction improving efficiency of Uzbekistan's long-term electric power sector) stipulates supply. For that the government should prioritize the introduction of market principles in power generationpurpose, transmission there are a lot to do besides building infrastructure, such as institutional and distribution, the attraction of overseas capital to enable the renovation human capacity development for proper operation and modernization maintenance of power generation facilitiesfacilities and capacity building of development planning. Regarding the planning of individual projects, and the improvement government of the Republic of Uzbekistan has formulated “the concept of producing electric power in fuel and power usage efficiencythe Republic of Uzbekistan by 2030”. The country’s five-year medium-term investment plan and individual annual investment plans define specific development approaches and critical requirements. The Navoi As the modernization of the Syrdarya Thermal Power Station modernization which is included as a priority project in the said concept, engineering service (hereinafter referred to as "E/S) will be conducted under the Project") is included within , in order to accelerate preparation of the 2012 and 2013 investment plansmodernization of the Power Station. (3) Japan and JICA’s Policy and Operations in the Electricity Sector Japan’s Country Assistance Policy for Uzbekistan (April 2012), defines the renovation and development of economic infrastructure (for transportation and energy) as a one of priority areaareas, and JICA country analysis paper (July 2012, updated in November, 2014) also highlights development of economic infrastructure especially for transportation and power sector as a priority area, which is consistent with the objective of the Project. As for the past Japanese ODA loan projects in the electricity sector, there were two projectsJICA has provided four lonastotaling 159,094 million yen to Uzbekistan. Also, JICA has been supporting improvement of electric power company’s management and enhancement of technical capacity related to thermal power plants thorough its training courses; the Tashkent “Training on management of electric company” and “Training for Thermal Power Plant Modernization Project Generation (24,955 million yen) and the Talimarjan Thermal Power Station Extension Project (27,423 million yenGas Turbine Combined Cycle).” (4) Other Donors’ Activity The World Bank has been supporting and the project related to the power sector efficiency such as the Talimarjan Transmission Project and Advanced Electricity Metering Project. The Asian Development Bank also sees are assisting in such areas as the energy sector as a priority areaintroduction of the smart meters, development transmission lines and has provided assistance for the Talimarjan Thermal Power Station Extension Project (with co-financing from JICA), Advanced Electricity Metering Projects, a power transmission line project and other initiativesextension of generation facilities. (5) Necessity of the Project

Background and Necessity of the Project. (1) Current State and Issues of the Electricity Agriculture and Irrigation Sector in Uzbekistan Agriculture is an important sector in Uzbekistan's peak power demand reached 8,020 MW , as approximately 40% of the population is engaged in 2012. The nation has a total rated power generation capacity of 12,033 MW, but power generation facilities throughout the country are agingthis sector, and agriculture accounts for about 20% of the peak generation capacity whole country’s GDP. Especially, one of facilities within the largest exporting items is cotton, of which production quantity is ranked the sixth in the world and export amount is ranked the third in the world (US Department of Agriculture, 2014). Vast majority of the land in Uzbekistan is only around 7,400 MWdry or semi-dry land, and most farmland heavily relies on irrigation water originated from neighbouring major rivers. The power supply is extremely unreliable, Agriculture in Uzbekistan and other former Soviet countries in Central Asia may be characterized with policies and activities largely dominated by governments within a transitional period from planned power outages even economy into market economy and with large-scale and less efficient irrigation infrastructures constructed by the Soviet government. Many of the irrigation pumping facilities in Uzbekistan were constructed in the capital city 1960’s to the 1980’s. Since then, no major rehabilitation work has been implemented, although facility life for irrigation pumping stations is usually 20 years. Therefore, water leakage problems and mechanical faults that frequently take place are causing decrease of Tashkent during winter (the peak demand season)amount of pumped-up water delivered to farms. Thermal plants generate Moreover, it has been more difficult to procure spare parts that comply with specifications of such outdated facilities, as manufacturers do not produce some of the parts anymore. This creates difficulty for the executing agency to maintain the facilities. On top of the above, those outdated and less efficient Soviet style pumping facilities are consuming massive amount of electricity for operation, which account for approximately 9020% of all power, but many total electricity consumption of these facilities were put into operation 40 to 50 years ago or earlier, and are now deterioratingthe entire country. The nationwide average peak supply capacity has fallen by approximately 30%, and there is an urgent need to update these facilities in order to secure an adequate power supply and improve reliability. The low average thermal Enhancing energy efficiency of the country’s thermal power plants (around 30%) also causes a major environmental impact. Against such a backgroundpumping facilities, there therefore, is demand for the installation of high-efficiency power generation facilities in order to reduce the nation’s CO2 emissions, which are the world’s highest per unit of GDP (among the 65 countries whose emissions figures were published in the 2010 World Development Report). Uzbekistan crucially and urgently needs to carry out energy efficiency improvements throughout its economic and societal systemsimportant. (2) Development Policies for the Electricity Agriculture and Irrigation Sector in Uzbekistan and the Priority of the Project To secure safe, reliable and equal access to power for all usersIn agricultural sector, the government of Uzbekistan establishes “Law on Electric Power IndustryWelfare Improvement Strategy (II) (2012-2015),” a national development plan of the government, which prioritizes to secure stable and sustainable production of cotton and other agricultural products and to lower the electricity consumption in 2009 (which defines order to achieve the basic structure and direction target of 5.9% of annual growth in agricultural sector by 2015, by rehabilitating outdated pumping facilities that were constructed during the Soviet time. In such circumstances, Amu-Bukhara Irrigation System in central-western part of Uzbekistan's power sector) stipulates that , which commenced its operation in the government should prioritize 1970’s, is one of the introduction largest irrigation system in Uzbekistan; it uses 4.58 billion m3 of market principles water, which is about a half of the amount to be able to take from Amudaria based on international agreement, and it consumes roughly 1,300 GWh although the entire consumption for agricultural sector in power generationUzbekistan is 7,000 GWh (Central Asia Power Sector Regional Master Plan, transmission and distributionADB, 2012). As Amu-Bukhara Irrigation System is such a large scale, its rehabilitation can have drastic impact on particularly saving electricity. Thus, the attraction of overseas capital to enable the renovation and modernization of power generation facilities, and the improvement presidential resolution in fuel and power usage efficiency2012 (No. The country’s five-year medium-term 1668) about investment plan for 2012 prioritizes rehabilitation and individual annual investment plans define specific development approaches and critical requirements. The Navoi Thermal Power Station modernization project (hereinafter referred to as "the Project") is included within the 2012 and 2013 investment plansreplacement of pumping stations for Amu-Bukhara Irrigation System. (3) Japan and JICA’s Policy and Operations in the Electricity Agriculture and Irrigation Sector Japan’s Country Assistance Policy for Uzbekistan highlights “Support for Reconstructing Social Sector (April 2012Agriculture and Regional Development and Health Sector), defines the renovation and development of economic infrastructure (for transportation and energy) ” as a priority area, and it stresses to strengthen Agricultural sector on which rural communities mainly rely, for mitigating economic and social disparity between urban and rural areas within Uzbekistan. Also, for Uzbekistan, JICA country analysis paper (July 2012) also highlights development Country Analytical Paper prioritizes income generation, improvement of economic infrastructure especially for transportation healthcare, and power sector enhancement of education in rural areas, and as a priority area, which is consistent with the objective one of the Projectways to achieve the goal, JICA highlights cooperation on rehabilitation of irrigation facilities and on more efficient water use. As For improving a capacity of water users associations in Uzbekistan, The Project for the past Japanese ODA loan projects in the electricity sectorWater Management Improvement was implemented (November, there were two projects; the Tashkent Thermal Power Plant Modernization Project (24,955 million yen) and the Talimarjan Thermal Power Station Extension Project (27,423 million yen2009 to December, 2013). (4) Other Donors’ Activity The Activities Asian Development Bank (ADB), co-financer of the Project, has implemented five projects on irrigation sector in Uzbekistan. Also, World Bank has been supporting implemented four projects in the project related to the power sector efficiency such as the Talimarjan Transmission Project and Advanced Electricity Metering Project. The Asian Development Bank also sees the energy sector as a priority area, and has provided assistance for the Talimarjan Thermal Power Station Extension Project (with co-financing from JICA), Advanced Electricity Metering Projects, a power transmission line project and other initiativessimilar sphere of cooperation. (5) Necessity of the Project

Background and Necessity of the Project. (1) Current State and Issues of the Electricity Electric Power Sector in Uzbekistan Uzbekistan's peak power demand reached 8,020 8,400 MW in 20122014. The nation has a total rated power generation capacity of 12,033 MW13,324 MW at the end of 2013, but power generation facilities throughout the country are aging, and the currently available peak generation capacity of facilities within Uzbekistan is only around 7,400 7,800 MW. The Thermal power supply is extremely unreliable, with planned power outages even in the capital city plants (out of Tashkent during winter (the peak demand season). Thermal plants which 90% uses natural gas as fuel) generate approximately 90% of all power, but many of these facilities were put into operation 40 to 50 years ago or earlier, and are now deteriorating. The nationwide average peak supply capacity has fallen by approximately 30%, and there is an urgent need to update these facilities in order to secure an adequate power supply and improve reliability. The their low average thermal efficiency of the country’s thermal power plants (around 30%) also causes a major environmental impact. Against such a background, there is demand for government of the installation Republic of high-efficiency Uzbekistan has formulated a plan to renew/newly install about 20 power generation facilities in units by 2030, mainly introducing the combined cycle gas turbine. And the government has repeatedly expressed strong desire to establish a long-term relationship for financial and technical cooperation. In order to reduce deal with the nation’s CO2 emissions, which are the world’s highest per unit of GDP (among the 65 countries whose emissions figures were published challenges in the 2010 World Development Reportelectric power sector in a comprehensive and efficient manner as well as responding to this expectation, the government of Japan has decided to conclude a comprehensive Exchange of Notes as “the Electric Power Sector Project Loan (SPL) composed of several projects, and then extend ODA loans to each infrastructure development project, at the same time combining formulation of a master plan or technical cooperation for human resource development. The implementation of this project has been defined by the Presidential Decree (PP-1943), and it is implemented as the first project in the SPL, taking into account the high priority in Uzbekistan. Uzbekistan urgently needs The Fergana region in the east part of the country, where about 30% of the population lives, has shortage of electricity, and further increase of electricity demand by about 8% year on year is expected in the region. In order to carry out energy efficiency improvements throughout its economic mitigate the shortage in electricity and societal systemsCO2 emission, the construction of highly efficient generation facility is an urgent issue with high priority. (2) Development Policies for the Electricity Sector in Uzbekistan and the Priority of the Project To secure safe, reliable and equal access to power for all users, the “Law on Electric Power Industry” in 2009 (which defines the basic structure and direction of Uzbekistan's power sector) stipulates that the government should prioritize the introduction of market principles in power generation, transmission and distribution, the attraction of overseas capital to enable the renovation and modernization of power generation facilities, and the improvement in fuel and power usage efficiency. The country’s five-year medium-term investment plan and individual annual investment plans define specific development approaches and critical requirements. The Navoi Thermal Power Station modernization project (hereinafter referred to as "the Project") is included within the 2012 and 2013 investment plans. (3) Japan and JICA’s Policy and Operations in the Electricity Sector Japan’s Country Assistance Policy for Uzbekistan (April 2012), defines the renovation and development of economic infrastructure (for transportation and energy) as a one of priority areaareas, and JICA country analysis paper (July 2012) also highlights development of economic infrastructure especially for transportation and power sector as a priority area, which is consistent with the objective of the Project. As for the past Japanese ODA loan projects in the electricity sector, there were two three projects; the Tashkent Thermal Power Plant Modernization Project (24,955 million yen) and the ), Talimarjan Thermal Power Station Extension Project (27,423 million yen) and Navoi Thermal Power Station Modernization Project (34,877 million yen). (43) Other Donors’ Activity The World Bank has been supporting and the project related to the power sector efficiency such as the Talimarjan Transmission Project and Advanced Electricity Metering Project. The Asian Development Bank also sees are assisting in such areas as the energy sector as a priority areaintroduction of the smart meters, development transmission lines and has provided assistance for the Talimarjan Thermal Power Station Extension Project (with co-financing from JICA), Advanced Electricity Metering Projects, a power transmission line project and other initiativesextension of generation facilities. (54) Necessity of the Project