The World Bank Second Resilience and Green Development - DPL(P180679) @#&OPS~Doctype~OPS^blank@pidcondpfcoverpage#doctemplate Program Information Document (PID) Concept Stage | Date Prepared/Updated: 26-Apr-2024 | Report No: PIDIC00105 The World Bank Second Resilience and Green Development - DPL(P180679) @#&OPS~Doctype~OPS^dynamics@piddpfbasicinformation#doctemplate BASIC INFORMATION A. Basic Project Data Project Beneficiary(ies) Operation ID Operation Name Albania P180679 Second Resilience and Green Development - DPL Region Estimated Approval Date Practice Area (Lead) Financing Instrument EUROPE AND CENTRAL Macroeconomics, Trade Development Policy 10-Dec-2024 ASIA and Investment Financing (DPF) Borrower(s) Implementing Agency Republic of Albania Ministry of Finance Proposed Development Objective(s) The program development objective is to: (i) strengthen resilience of the government sector and households; (ii) strengthen the energy market framework and scale up renewable energy and energy efficiency; and (iii) protect the environment and reduce the country's carbon footprint. @#&OPS~Doctype~OPS^dynamics@pidpfrprojectfinancing#doctemplate Financing (US$, Millions) Maximizing Finance for Development Is this an MFD-Enabling Project (MFD-EP)? Yes Is this project Private Capital Enabling (PCE)? Yes SUMMARY Total Financing 80.00 DETAILS Total World Bank Group Financing 80.00 World Bank Lending 80.00 @#&OPS~Doctype~OPS^dynamics@piddpfdecision#doctemplate Decision The review did authorize the preparation to continue Page 1 The World Bank Second Resilience and Green Development - DPL(P180679) B. Introduction and Context Country Context Albania made significant progress in development outcomes prior the COVID-19 pandemic and has recovered strongly from the multiple shocks since 2019, but the country needs to build resilience to sustain inclusive growth. Albania’s poverty rate fell from 40 percent of the population in 2005 to 10 percent in 2019 (measured at US$5.5 per day in constant US dollars). Albania had also been narrowing its per capita income gap with the European Union (EU), albeit at a very modest pace. Turmoil in the global economy caused by the pandemic and Russia’s invasion of Ukraine struck Albania soon after it had sustained a devastating earthquake in 2019. Albania weathered these shocks with resolve and has since recovered, surpassing its pre-pandemic income level. A key factor behind this resilience has been its proximity to the EU, which facilitates investment, remittances, and exports. However, natural disasters, climate change and structural factors are holding Albania back from reaching its economic potential. Albania’s macroeconomic policy framework is assessed to be adequate for this operation. Despite the uncertainty surrounding the forecast, sustained GDP growth and prudent fiscal management are expected to keep public debt on a downward trajectory. The GoA is committed to its fiscal rule and to adjust to more adverse economic conditions without recurring to increases in the deficit. The monetary policy is oriented toward bringing inflation back on target, while preserving exchange rate flexibility and carefully monitoring adverse effects on banks’ balance sheets. The Bank of Albania (BoA) has demonstrated commitment by enhancing the regulation and supervision of the banking sector and promoting financial stability. The GoA has also increased vigilance in monitoring fiscal risks, through the publication of the annual Public-Private Partnerships (PPP) Monitoring Report since 2019, the periodic reports by the Ministry of Finance (MoF) on PPP budget payments as part of the fiscal risk statement (FRS), and the revised FRS as per 2022 Guidelines (supported with DPL1). Ongoing reforms in the water and energy sectors are expected to reduce fiscal risks related to state-owned enterprises (SOEs). Relationship to CPF The program supported by this operation is well-aligned with the WBG’s CPF for FY23–FY27 and coordinated with other World Bank engagements. The CPF FY23-FY27 supports Albania’s aspirations to achieve equitable growth and integration into the EU, by focusing on three key challenges: (i) more and better jobs (High-Level Objective-1, HLO-1); (ii) stronger and better use of human capital (HLO-2); and (iii) increased resilience to natural disasters and other shocks (HLO-3). Reforms under Pillar 1 contribute both to HLO-1 and HLO-3. The reforms under Pillars 2 and 3, instead, support greater resilience to shocks, HLO-3, while contributing in parallel to improving the foundation for private sector development, and key sectors’ competitiveness – HLO-1. Also, this DPL series is aligned with ongoing and in preparation World Bank operations: (i) Integrated Urban and Tourism Development Project (P155875); (ii) Employability, Inclusion and Investment in Human Capital Project in preparation (P178855); and (iii) Clean and Resilient Environment for Blue Sea Project (P176163). C. Proposed Development Objective(s) Page 2 The World Bank Second Resilience and Green Development - DPL(P180679) The program development objective is to: (i) strengthen resilience of the government sector and households; (ii) strengthen the energy market framework and scale up renewable energy and energy efficiency; and (iii) protect the environment and reduce the country's carbon footprint. Key Results In order to strengthen resilience and support green development in Albania, the program development objective is supported by a three-part theory of change reflected in the pillars of the operation. The operation strengthens resilience of the government sector and of households by broadening the tax base, better managing fiscal risk related to disasters (including climate change), increasing the climate resilience of public investments, and increasing the effectiveness of the social assistance system. The operation strengthens the energy market framework and scales up renewable energy and energy efficiency by promoting an organized wholesale market and introducing energy efficiency in the public sector. The operation helps protect the environment and reduce the country’s carbon footprint by preventing and reducing environmental degradation and reducing GHG emissions. D. Concept Description Pillar 1 supports reforms aimed at strengthening resilience of the government sector and households. Under Pillar 1, and in continuing the reforms supported with DPL1, DPL2 supports two policy actions aimed at strengthening tax compliance and broadening the tax base. First, DPL2 supports the adoption and implementation of bylaws from the new Income Tax Law. Second, DPL2 supports the amendment to the Tourism Law, which broadens the definition, and government’s oversight, of tourism activities including short-term rentals. To better manage fiscal risks related to disasters, including climate change, DPL2 supports the approval of a Law on Compulsory Earthquake Insurance for residential properties. To increase the resilience of the budget, DPL2 supports inclusion of climate mitigation and adaptation actions outlined in the climate strategy alongside climate-related performance indicators in the MTBP. Finally, to Increasing effectiveness of social assistance system, DPL2 aims to address the legal vacuum related to the lack of specific provisions that would enable the establishment of the Social Fund at the LGU level. Pillar 2 supports reforms aimed at strengthening the energy market framework and scale up renewable energy and energy efficiency. Under Pillar 2, and in continuing the reforms supported with DPL1, DPL2 supports the establishment of the Renewable Energy Operator, and rules of market and operation, as well as the regulatory package for prosumers. This is expected to promote the development of the renewable energy market. In addition, to further support the introduction of the energy trading through the Organized Wholesale market, DPL2 supports the approval of a decree mandating energy trade through ALPEX. Finally, to introduce energy efficiency in the public sector, DPL2 supports the adoption of public procurement provisions instructing public contractor authorities to ensure application of energy efficiency standards in public procurement procedures. Pillar 3 supports reforms aimed at protecting the environment and reducing the country's carbon footprint. Under Pillar 3, in order to prevent and reduce environmental degradation, DPL2 supports the approval of the Extended Producer Responsibility Law. With the objective to reduce GHG emissions, DPL2 supports the introduction of a carbon tax on coal, as well as the approval of the regulatory package implementing the Fluorinated-gases Law. Page 3 The World Bank Second Resilience and Green Development - DPL(P180679) E. Poverty and Social Impacts, and Environmental, Forests, and Other Natural Resource Aspects Poverty and Social Impacts Overall, the policy reforms supported by this operation are expected to predominantly benefit, or have neutral effects on, the well-being of households in Albania in the short term. During the preparation of the operation, the team will conduct a more in-depth Poverty and Social Impact Assessment (PSIA), building upon the latest income survey data (SILC 2021) and other relevant data sources. Environmental, Forests, and Other Natural Resource Aspects An environmental analysis will be performed pursuant to OP8.60 to determine whether the specific policies and prior actions supported by this operation are likely to have a significant effect on the environment, forests, or other natural resources. The environmental analysis conducted for DPL1 found that while the net direct and indirect environmental effects of the DPL reforms are neutral or positive, PA 5 may have potentially negative effects. The National Environmental Agency (NEA) under the MoTE is the responsible authority for issuing environmental permits and licensing construction of RE projects, based on the conditions and requirements under the Law on Environmental Impact Assessment, conducting the inspection, and control for compliance with legal requirements and environmental conditions. Nevertheless, as mandated by Albania’s Environmental Impact Assessment regulatory systems, these potentially negative impacts can be managed through adequate environmental impact assessment and appropriate mitigation strategy. @#&OPS~Doctype~OPS^dynamics@contactpoint#doctemplate CONTACT POINT World Bank Natasha Rovo Senior Economist Hilda Shijaku Senior Economist Borrower/Client/Recipient Republic of Albania Implementing Agencies Ministry of Finance Adela Xhemali Deputy MInister adela.xhemali@financa.gov.al FOR MORE INFORMATION CONTACT Page 4 The World Bank Second Resilience and Green Development - DPL(P180679) The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects @#&OPS~Doctype~OPS^dynamics@approval#doctemplate APPROVAL Task Team Leader(s): Natasha Rovo, Hilda Shijaku Approved By Practice Manager/Manager: Sanja Madzarevic-Sujster 25-Mar-2024 Country Director: Xiaoqing Yu 25-Apr-2024 Page 5