The World Bank Ulaanbaatar Clean Air Project (P122320) REPORT NO: RES47491 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ULAANBAATAR CLEAN AIR PROJECT APPROVED ON APRIL 3, 2012 TO MONGOLIA ENERGY AND EXTRACTIVES GLOBAL PRACTICE EAST ASIA AND PACIFIC REGION Regional Vice President: Manuela V. Ferro Country Director: Martin Raiser Regional Director: Ranjit J. Lamech Practice Manager/Manager: Jie Tang Task Team Leader(s): Yanqin Song The World Bank Ulaanbaatar Clean Air Project (P122320) ABBREVIATIONS AND ACRONYMS AF Additional Financing EIRR Economic Internal Rate of Return ETS Electric Thermal Storage ESMP Environmental and Social Management Plan FM Financial Management GHG Greenhouse Gas GoM Government of Mongolia HOB Heat-Only Boiler IFR Interim Financial Report IPF Investment Project Financing M&E Monitoring and Evaluation MOE Ministry of Energy MUB Municipality of Ulaanbaatar NAMA Nationally Appropriate Mitigation Actions NPV Net Present Value PDO Project Development Objective PMU Project Management Unit UBCAP Ulaanbaatar Clean Air Project UBEDN Ulaanbaatar Electricity Distribution Network The World Bank Ulaanbaatar Clean Air Project (P122320) BASIC DATA Product Information Project ID Financing Instrument P122320 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 03-Apr-2012 31-Dec-2021 Organizations Borrower Responsible Agency Mongolia UBCAP Project Management Unit Project Development Objective (PDO) Original PDO The development objective (PDO) is to enable consumers in ger areas to access heating appliances producing less particulate matter emissions and to further develop selected medium-term particulate matter abatement measures in Ulaanbaatar in coordination with development partners. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-64930 30-Sep-2019 13-Dec-2019 27-Apr-2020 31-Dec-2021 12.00 3.50 8.63 IDA-50390 03-Apr-2012 04-Apr-2012 18-Dec-2012 31-Dec-2019 14.91 14.13 0 The World Bank Ulaanbaatar Clean Air Project (P122320) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Ulaanbaatar Clean Air Project (P122320) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING BACKGROUND 1. The restructuring paper seeks approval to restructure the Ulaanbaatar Clean Air Project (UBCAP) (P122320). The Government, in its letter dated June 2, 2021, has requested (a) include additional activities under the Project, (b) reallocate the proceeds of the Credit, and (c) extend its Closing Date. The following changes will be made to accommodate the request: (a) revise the Project Development Objective (PDO) by changing the words “in ger areas” after “consumers” to “in selected areas” and adding the words “and services” after “heating appliances” to capture the revised scope of activities—the revised PDO will be “The development objective (PDO) is to enable consumers in selected areas to access heating appliances and services producing less particulate matter emissions and to further develop selected medium-term particulate matter abatement measures in Ulaanbaatar in coordination with development partners;” (b) reduce the cost allocated to Component D Electricity for Heating Targeted Ger Areas and reallocate the respective proceeds to finance new and existing activities in other components with no impact on total project cost; (c) extend the project closing date by 24 months from December 31, 2021, to December 31, 2023, to allow time to complete the implementation of the remaining and newly proposed activities; (d) revise baselines and end targets of the PDO Indicator 2 (Number of households provided with access to clean heating appliances) to reflect the proposed changes; and (e) add a new PDO indicator to reflect the new activities in the proposed restructuring (Number of buildings completed energy efficiency renovation or provided with access to clean heating services). The technical, economic and financial analyses have been carried out and safeguards assessment has been completed. The above changes constitute Level 2 restructuring of the project. 2. UBCAP supports the Government of Mongolia (GoM) in identifying and implementing the measures to reduce air pollution by enabling consumers in ger areas to access heating appliances producing less particulate matter emissions and to further develop selected medium-term particulate matter abatement measures in Ulaanbaatar in coordination with development partners. This objective is to be achieved through implementation of four components: (a) Ger Area Particulate Matter Mitigation, (b) Particulate Matter Mitigation in Central Ulaanbaatar, (c) Project Management and Monitoring and Evaluation, and (d) Electricity for Heating in Targeted Ger Areas. 3. The original IDA financed project of US$14.91 million (IDA-50390) was approved on April 3, 2012, and became effective on December 18, 2012. IDA financing was fully disbursed and closed on December 31, 2019. 4. The Additional Financing (AF) of US$12 million (IDA-64930) was approved on September 30, 2019, and became effective on April 27, 2020. The AF was set up to finance activities of the then newly added Component D to support scaled-up efforts on short- and medium-term clean heating solutions and included some revisions to the existing project components. The current project closing date is December 31, 2021. 5. The project has been restructured five times including restructuring that accompanied the AF. (a) The first restructuring was approved in 2014 to trigger an additional social safeguard policy - OP 4.11 (Physical Cultural Resources) under Component B of the project. The Environmental Management Plan was prepared to safeguard the Tsaganii Ovoo1 which has a high religious significance, reflecting stakeholder consultations undertaken by the client. 1 A shamanistic cairn found in Mongolia, usually made from rocks or wood and found on or around mountains. 5 The World Bank Ulaanbaatar Clean Air Project (P122320) (b) The second restructuring in 2017 extended the closing date of the project by 12 months from the original closing date of June 30, 2017, to June 30, 2018. It also reallocated funds among disbursement categories and added new intermediate indicators in the Results Framework. (c) The third restructuring in 2018 extended the project closing date by additional 12 months from June 30, 2018, to June 30, 2019, to provide additional time to complete implementation of the remaining activities. The extension was also needed to allow additional time for the preparation of the AF which was requested by the GoM in April 2018. (d) The fourth restructuring in 2019 extended the project by 6 months from June 30, 2019, to December 31, 2019, to provide additional time to finalize processing of the AF. (e) The fifth restructuring, as part of the AF in 2019, extended the project by 24 months from December 31, 2019, to December 31, 2021, to allow implementation of scaled-up activities through the addition of a new Component D which aims to provide electric heating in targeted ger areas. This was the fourth extension of the closing date—cumulatively reaching 54 months of extension. The AF revised Component A to scale up activities and revised Component C to strengthen support for project management and project-level monitoring and evaluation (M&E) activities. In addition, other related revisions were introduced: (a) Results Framework was revised to reflect the above changes to the project activities; (b) costs of components were adjusted accordingly; (c) one safeguards policy OP/BP 4.11 - Physical Cultural Resources was not triggered for the AF activities; and (d) implementation schedule and disbursement estimates were revised to align with the new closing date and AF. PROJECT STATUS 6. The project has been rated Satisfactory or Moderately Satisfactory throughout its implementation. UBCAP has demonstrated success through promoting low emissions heating appliances and services, developing medium-term abatement measures, and facilitating coordination among stakeholders on air pollution abatement. The project distributed more than 40,000 clean stoves between 2013 and 2015 alone. A pilot program on residential energy efficiency improvement financed under UBCAP supported 472 residential houses in ger neighborhoods and 12 government buildings. 7. The project complies with Investment Project Financing (IPF) policy requirements for the proposed extension as part of this restructuring. The latest supervision mission carried out in April 2021 confirmed that the PDO continues to be highly relevant to the priorities of the country and the World Bank and remains achievable. Project counterparts are highly committed and perform satisfactorily. They have prepared and are ready to follow a revised project implementation schedule provided this restructuring is granted. Although implementation of activities added through the AF has experienced significant delays due to disruptions caused by COVID-19 and some technical constraints, the project implementation progress and likelihood of achieving the PDO remain rated Moderately Satisfactory. 8. The project is in full compliance with legal, safeguard, and fiduciary requirements. There are no outstanding audit reports and they have consistently been unqualified. Project procurement, financial management (FM), and safeguard performance have consistently been rated Satisfactory or Moderately Satisfactory throughout the project lifetime. Status by Component Component A: Ger Area Particulate Matter Mitigation 6 The World Bank Ulaanbaatar Clean Air Project (P122320) 9. The objective of Component A is to implement a stove replacement program by providing subsidies and technical assistance. Most of the activities in this component were completed. These include the following: (a) more than 40,000 clean stoves were distributed between 2012 and 2015, exceeding the end target of 80 percent of targeted ger households; (b) new standards for stoves and low-pressure boilers were developed and subsequently issued by the Government in early 2017—the national standard for electric thermal storage (ETS) heaters and building code for detached houses in ger areas were drafted and submitted for approval; (c) the testing laboratory, supported by the project, carried out tests of 70 different stove models from 22 stove manufacturing companies; (d) more than 400 residential houses in targeted ger neighborhoods and 12 government buildings participated in the insulation improvement program; (e) nine sets of monitoring and analysis equipment have been supplied; and (f) a pilot program on electricity for heating was carried out to inform the design of Component D (Electricity for Heating in Targeted Ger Areas) of the AF. 10. There are three ongoing activities: (a) replacement of high emitting heat-only boiler (HOB) introduced through the AF, (b) house insulation improvement in ger areas or service centers, and (c) support to the Government in strengthening regulations and its enforcement on clean heating. 11. The main challenge for completing the remaining activities is the difficulty in identifying and contracting enough households for insulation, which will make the houses ready for the installation and effective operation of ETS systems. A total of 400 ETS systems have already been procured and delivered to the sites under Component D. By early April 2021, only 94 households signed contracts and 15 houses were insulated and have the ETS systems installed. According to the design of the project, insulation of gers and detached houses (in Component A) goes hand in hand with the installation of ETS (in Component D). Component B: Particulate Matter Mitigation in Central Ulaanbaatar 12. The objective of this component is to help the Government accelerate approval of action plans for large-scale, medium-term pollution reduction measures such as city greening, district heating feasibility study, affordable housing study, and ash pond and power plant emission monitoring. The activities planned under the original project component have been completed and have achieved their objectives. Specifically, four studies were completed and endorsed by the municipal government: (a) City greening preparatory study, (b) Power plant emissions control feasibility study, (c) Housing policy study, and (d) District heating preparatory study. More importantly, the key institutional recommendations developed under these studies were adopted leading to significant reduction of fragmentation of the district heating market especially in the distribution subsector. For example, 19 public housing companies have been consolidated into one public entity to provide heating and water services to urban households. Following the recommendations by the affordable housing study, the city government created a city housing institution to guide the creation of housing policy and act as the key coordinator. Component C: Project Management and Monitoring and Evaluation 13. The objective of this component is to build capacity in the Municipality of Ulaanbaatar (MUB) to more systematically collect information on air pollution programs and use that information to strengthen coordination efforts and for dissemination of public information through the enhanced program monitoring capability. Activities in this component have all been completed. Component D: Electricity for Heating in Targeted Ger Areas 14. The objective of this component is to support 5,000 households in targeted ger areas to access ETS heaters as heating appliances producing less particulate matter emissions. It was envisioned that these activities will be 7 The World Bank Ulaanbaatar Clean Air Project (P122320) implemented in two years. The target for the first year of implementation was to install 1,000 ETS, which, however, was lowered to 400 due to the difficulties in registering and contracting households to install ETS. The contract for supply and installation of 820 ETS has been signed in two tranches, 400 and 420, in late 2020. However, by April 2021, only 94 out of 702 registered households signed the contracts and just 15 households have actually got ETS installed. The two main reasons for slow progress relate to COVID-19-induced disruptions and challenges of design of said activities. 15. COVID-19 Impact - Procurement Delay and Weak ETS Demand. Due to the COVID-19-induced multiple lockdowns since November 2020, the procurement activities were delayed. The pandemic has also significantly exacerbated financial hardships for low- and medium-income households in ger areas, thereby reducing their financial capability to participate in the ETS program which requires initial payment from households. In addition, a recent government policy (introduced on December 12, 2020) providing heavy discount for heating coal and exempting all households from paying electricity bills from December 1, 2020, to July 1, 2021, has also led to weaker demand for ETS. The discount policy, unfortunately, provided incentives to the residents in ger areas to return to using coal stoves and other low-cost and high electricity consuming heaters rather than using high-cost modern ETS heaters. Some of the registered households terminated the contract. 16. Technical design challenges. In 2019, the National standard (MNS 6780:2019) ‘General technical requirements for thermal storage electric heaters’ was developed under the original project as requested by the Ministry of Energy (MOE). One of the key issues raised by Ulaanbaatar Electricity Distribution Network (UBEDN) and the MOE during the appraisal was that ETS capacity should be limited to 4 kW, as otherwise it would be beyond the current (upgraded) technical capacity of power distribution network and substations. The 4 kW ETS is only sufficient to heat up insulated houses with the space of 30 m2 to 40 m2. It is also noted that traditional gers below 30m2 normally were not able to participate in the program due to several reasons: (a) there is a high chance that these households had moved or would move to other areas or bigger premises, which might create challenges in monitoring and collection of ETS refunding and (b) many ger households do not have permanent residency, land permission, and electricity code and thus there might be more than one ger registered in the same plot, which is another challenge for UBEDN to issue bills and monitor and collect ETS refunds. Only after the AF became effective, the Project Management Unit (PMU) contacted households in target ger areas and conducted an assessment of their eligibility to participate in the ETS program. Among the total 3,336 households that the PMU contacted in target ger area, 42.73 percent of the households met the ger size requirement, but after field inspection, 50.7 percent of these households were dropped due to poor physical conditions that were not suitable to install the ETS. Moreover, 89.3 percent of the households who passed the technical criteria could not afford the ETS and insulation cost under the rent-to-own financial scheme. Although the PMU continued communicating with UBEDN to try solving the issue with support from the MUB, the issue has not been successfully addressed. Therefore, the MUB decided to terminate this activity after completing the installation of the already delivered ETS systems and pursue the reallocation of the funds to more suitable and more urgently needed alternative activities. A. Rationale for Restructuring 17. As mentioned earlier, on June 2, 2021, the World Bank had received a formal request to restructure the project and use unutilized proceeds from Component D. The savings constitute about 34 percent of the total IDA financing. The GoM did not want to lose this beneficial financing source and identified some new activities which not only strengthen the achievement of the PDO but also provide demonstration impact to future scaled-up investment in building energy efficiency and renewable energy for heating. The building energy activities will be implemented for 17 buildings developed in 1970’s with low energy efficiency to improve the living conditions of 14,000 people living in those buildings. Most of these people are poor with low income. The GoM continues to be fully committed to the project objectives through active engagement and has committed to continued high motivation to achieve project objectives. 8 The World Bank Ulaanbaatar Clean Air Project (P122320) 18. The project team has done a thorough analysis of the proposed activities together with the PMU and other relevant partners. Since the construction season in Mongolia is short (only 3 to 4 months each year is suitable for project implementation), the completion of these activities requires two years of closing date extension. 19. The performance and track record of the project have been sound. Over more than nine years of project implementation, the PMU has built strong institutional capacity and M&E framework and is fully equipped to implement the restructured activities. The PMU has prepared a detailed work plan and updated Procurement Plan under the guidance of the MOE and MUB, which provides reasonable assurance that the proposed activities will be completed within the extended project period. Based on the World Bank team and counterpart’s joint assessment of the newly proposed activities, they will not be exposed to the difficulties that were experienced during the installation of electric heating appliances under initial Component D. 20. The economic and financial analyses confirmed that the new project activities are financially feasible and economically viable, which can justify the financial sustainability of these activities and economic value of the World Bank financing. 21. Though the implementation of new activities will require 24 months of additional time (cumulative 78 months), it will allow strengthening the achievement of the PDO and provide demonstration impact for the future scaled-up projects of building energy efficiency and renewable energy for space heating. It will also provide social benefits to the vulnerable group of people living in buildings to be renovated through this proposed restructuring. II. DESCRIPTION OF PROPOSED CHANGES 22. The proposed restructuring includes the following changes. (a) Updating of cost estimate and financing plan. The total project cost estimate is unchanged (US$33.4 million) but the component costs will be revised to accommodate reprioritization of the activities by the recipient. Table 1 shows the revised cost and financing plan. Table 1. Changes in Component Cost Cost at Component Name at Component Cost at AF Proposed Proposed Cost Undisbursed Appraisal Appraisal Name at AF (US$, millions) Component Name (US$, millions) (US$, millions) (US$, millions) A. Ger Area A. Ger Area A. Ger Area Particulate Particulate Matter 16.10 21.70 Particulate Matter 23.20 6.00 Matter Mitigation Mitigation Mitigation B. Particulate B. Particulate Matter Matter Mitigation Mitigation in Central 2.30 — 2.30 5.35 3.05 in Central Ulaanbaatar Ulaanbaatar C. Public Awareness C. Project C. Project Raising, Program Management Management and 3.00 3.80 4.10 0.74 Coordination and and Monitoring and Project Management Monitoring Evaluation 9 The World Bank Ulaanbaatar Clean Air Project (P122320) Cost at Component Name at Component Cost at AF Proposed Proposed Cost Undisbursed Appraisal Appraisal Name at AF (US$, millions) Component Name (US$, millions) (US$, millions) (US$, millions) and Evaluation D. Electricity D. Electricity for for Heating Heating in 5.60 0.75 0.36 in Targeted Targeted Ger Areas Ger Areas Total 21.40 33.40 33.40 10.15 Note: a) The difference between the undisbursed figure in this table and that in the Summary Status of Financing - The difference between undisbursed amount (10.15 vs 8.63) is $1.52m. b) The DA outstanding per system record is $1.93m, due to FX fluctuation the cumulative DA outstanding in USD ($1.93m) can be different from that using spot rate ($1.52m). (b) Change of component activities. The component activities will be changed as follows: (i) Component A: Ger Area Particulate Matter Mitigation. The activities under this component will include scaling up the thermal renovation of schools and kindergartens in ger and central areas; adding a new activity to finance pilot projects on geothermal heat pump for schools and kindergartens that are unable to connect to the district heating system, and reducing the target of insulation of detached houses and gers from 5,000 to 340 households. (ii) Component B: Particulate Matter Mitigation in Central Ulaanbaatar. Two new activities will be financed for particulate matter mitigation in the city center: thermal renovation of precast concrete apartment buildings and establishment of green facilities2 in Ulaanbaatar city. (iii) Component C: Project Management and Monitoring and Evaluation. There are no new activities added under this component. But because of the ongoing nature of these activities, the cost of the component will be adjusted to accommodate funding of the component until the new closing date. (iv) Component D: Electricity for Heating in Targeted Ger Areas. The number of targeted households of the current ETS program will be reduced from 5,000 to 340 ETS. (c) Updating the PDO and Results Framework. The PDO will be updated to ensure its consistency with the revised scope of the activities. Accordingly, relevant PDO and other indicators and their targets will be revised in line with the new project closing date of December 31, 2023. More specifically, (i) The PDO will be changed by adding words “and services” after “heating appliances” and change the wording “in ger areas” after “consumers” to “in selected areas” and will read as “The development objective (PDO) is to enable consumers in selected areas to access heating appliances and services producing less particulate matter emissions and to further develop selected medium-term particulate matter abatement measures in Ulaanbaatar in coordination with development partners.” (ii) The target of PDO Indicator 2 (Additional number of households provided with access to clean heating appliances) will be reduced from 5,000 to 340 ETS heaters to targeted households. (iii) A new PDO indicator wil be added “Number of buildings completed energy efficiency renovation or provided with access to clean heating services”. The target is 31 (8 pre-cast buildings and 21 schools and kindergartens for building renovation and 2 kindergarten or schools for geothermal heat pump). 10 The World Bank Ulaanbaatar Clean Air Project (P122320) (iv) New intermediate indicators will be added and the target values of four existing ones will be modified to reflect the new activities and expanded scope of existing activities, respectively. The said revisions are reflected in the Results Framework further in this paper. The changes in intermediate indicators are summarized as follows: Component A: Ger Area Particulate Matter Mitigation  Indicator: Persons/local producers trained in clean stove development, ceramic molding and production (Number, Custom), end target is revised from 50 to 28 (due to the impact of COVID-19)  Indicator: Number of geothermal heat pump systems installed at school/kindergartens (Number), a new indicator added under new activity  Indicator: Number of HOBs replaced by distric heating or renewable energy heating sources, end target is revised from 1 to 7  Indicator: Number of air quality monitoring stations supplied to government agenices of air quality (Number, Custom), a new indicator added under new activity  Indicator: Number of complementary activities piloted at selected service center, will be deleted since the complentary activities have been dropped. Component B. Particulate Matter Mitigation in Central Ulaanbaatar  Indicator: Additional city greening facility built (Number), a new indicator added under new activity3  Indicator: Number of precast concrete apartment buildings insulated, a new indicator added under new activity Component D. Electricity for Heating in Targeted Ger Areas  Indicator: Additional capacity of clean heating appliances provided to targeted households under Component D (Megawatt, Custom), end target is revised from 25 to 1.36 to reflect reduced target of ETS installation  Indicator: Estimated GHG emissions reduction has been reformulated by including Component A, B and D (Tones/year), instead of Component D, and the end target is revised from 22,615 to 165,005 to reflect the addition of GHG emission reduction under Component A and B and reduced target of ETS installation in Component D. The baseline is the estimated GHG emissions reduction as of end of November 2021. The revised results framework will be incorporated in the updated Operations Manual to be adopted by MUB. (d) A new disbursement category has been added in the withdraw table attached to the Amendment to the Financing Agreement. (e) Updating disbursement estimates. The disbursement schedule is updated to reflect the new implementation schedule in line with the new closing date. 3 One city greening facility was established under the original project, this new indicator is to track the number of additional city greening facilities established under this restructuring e. 11 The World Bank Ulaanbaatar Clean Air Project (P122320) Table 2. Expected Disbursements (US$) Fiscal Year Annual Cumulative 2012 0.00 0.00 2013 500,000.00 500,000.00 2014 5,107,559.50 5,607,559.50 2015 3,243,607.54 8,851,167.04 2016 1,947,111.27 10,798,278.31 2017 375,044.91 11,173,323.22 2018 1,756,365.89 12,929,689.11 2019 1,164,663.91 14,094,353.02 2020 2,033,901.17 16,128,254.19 2021 2,000,000.00 18,128,254.19 2022 4,000,000.00 22,128,254.19 2023 3,000,000.00 25,128,254.19 2024 1,000,000.00 26,128,254.19 (f) Technical assessment Technical assessment was carried out for the new activities proposed under the restructuring and concluded that they are technically justified and aligned with the revised PDO. Specifically, (i) Pilot project on geothermal heat pump for schools and kindergartens. There are many schools and kindergartens in Ulaanbaatar that are supplied by coal burning HOBs because of their distant location from centralized heating systems. Connecting these schools and kindergartens to a non-coal heating system (such as gas, electricity, and solar panels) has been discussed for many years. Geothermal heat pump connection system is a proven technology that has been successfully implemented in some commercial buildings in Ulaanbaatar. The MUB is committed to piloting this technology for remote schools and kindergartens. (ii) Thermal renovation of precast concrete apartment buildings. In the six districts of Ulaanbaatar city, around 50,000 households live in old precast concrete multi-apartment buildings with insufficient thermal insulation of walls and roofs and single glazed windows. Reducing heat losses through thermal renovation has been one of the top priorities of the GoM and the MUB. In 2019 and 2020, a total of 127 building blocks have been insulated by the city, but there are still 950 blocks uninsulated. Thermal renovation programs of public and residential buildings would support improving energy efficiency and reducing energy consumption in Ulaanbaatar. The Ulaanbaatar Mayor’s office, in close cooperation with the Nationally Appropriate Mitigation Actions (NAMA) Facility,4 conducted a cost-effectiveness analysis and concluded the selection of 375 building blocks for building renovation. The assessment has been carried out for the following three options: Option 1. Insulation of the whole building envelopes - to insulate external walls, roofs/attics, basements and replace windows; Option 2. Exterior insulation with windows to be done by residents - to insulate external walls, roof/attics, basements but not windows; and Option 3. Only exterior insulation - to insulate only external walls. The second option has been selected, based on the experience of insulation programs under the NAMA facility, as it does not require access to individual households. Residents would be required to do the windows improvement. 4A facility that supports developing countries and emerging economies that aspire to play a leading role in the field of climate protection. The donors include Germany, the United Kingdom, Denmark, and the European Commission. 12 The World Bank Ulaanbaatar Clean Air Project (P122320) Table 3. Estimated Investment Costs and Energy Savings for Thermal Renovation of Precast Apartment Buildings Total Annual Heat Total Annual Heat Type of Building Number of Total investment Consumptions after Thermal Energy Savings Blocks Blocks5 Cost (Euro) Renovation (MWh) (MWh) 5 floors 171 66,006 54,011 14,484,546 9 floors 192 101,126 79,462 17,883,630 12 floors 12 9,326 6,754 1,759,663 Total 375 176,458 140,227 34,127,839 Source: NAMA facility preparation document shared by the MUB. (g) Economic and financial analysis The economic and financial analyses of the project were updated to evaluate the flow of economic and financial benefits and costs associated with the restructuring of the project. The key economic benefits of energy efficiency investments in schools and kindergartens are quantifiable value of energy savings and CO2 emission reductions. Sample economic and financial analysis of the investments was conducted in 49th School of Ulaanbaatar, Chingeltei. The energy savings are calculated from the walk-trough energy audit, conducted in May 2021. The energy audit was normalized to consider comfort levels, and the economic value of the energy savings was calculated using the willingness to pay (price of electricity). Additional economic benefits such as improved building condition, lower maintenance costs, and better quality of indoor room conditions for building users were not quantified in this analysis. The economic costs considered for the analysis were the capital investment costs which include energy saving interventions on the building envelop, such as insulation of walls and roof ceilings. The analysis assumed a 15-year economic life of the investments,6 and a low and a high shadow price of carbon as per Word Bank guidelines.7 The project’s estimated economic internal rate of return (EIRR) is 8.8 percent, and its estimated economic net present value (NPV) is US$64,577, using a low shadow price of carbon. EIRR is 9.7 percent and NPV is US$87,280, using a high shadow price of carbon. The economic NPVs are positive, and the EIRRs are higher than the economic discount rate of 6 percent.8 The financial internal rate of return is 7.9 percent and financial NPV is US$41,787. Sensitivity analysis carried out indicated that the investments are robust with a 10 percent increase in costs or 10 percent reduction in estimated energy savings. However, it should be noted that under a scenario of both 10 percent increase in costs and 10 percent reduction in energy savings, or 20 percent increase in costs or 20 percent reduction in energy savings, the NPVs became negative. (h) Fiduciary The proposed restructuring does not affect the project’s FM arrangements. The project continues to comply with the World Bank’s FM requirements as the latest interim financial reports (IFRs) and audit reports have 5 One building unit may consist of blocks. It depends on floors and the number of entrances. For example, a five-floor building with two entrances may count as one building, and in case of a nine-floor building, each entrance may count as one block. 6 In most cases, the lifetime of the projects goes far beyond 15 years; therefore, the internal rate of return results are conservative. 7 The World Bank Guidance Note on Shadow Price of Carbon in Economic Analysis (2017). 8 World Bank Guidelines advise teams to use an economic discount rate equal to two times the expected real gross domestic product (GDP) per capita growth rate over the next five years, which is about 3 percent for Mongolia. 13 The World Bank Ulaanbaatar Clean Air Project (P122320) been received on time. There are no changes in procurement arrangements. The project procurement is rated Satisfactory for compliance with the World Bank’s requirements. (i) Environmental and Social The proposed restructuring will neither trigger additional safeguard policies nor change the environmental category of the project. The proposed new activities are thermal renovation for buildings, insulation of buildings, establishment of green facilities, and piloting of soil source heat pumps in the ger area and the central urban area of Ulaanbaatar within the current geographical areas of the project. These activities will cause moderate and site-specific environmental impacts that can be readily mitigated by mitigation measures. No displacement impacts are anticipated as all the proposed new activities will be undertaken on land already owned by government agencies (schools, kindergartens, and green facilities). Given that proposed new activities are located in Ulaanbaatar, no specific ethnic minority groups are known to reside in these areas, nor will the proposed new activities be sited on any traditional customary land. The project Environment and Social Management Plan (ESMP) includes a grievance redress mechanism and public engagement plan to ensure active engagement of project-affected people, particularly women and vulnerable groups. The ESMP has been updated by the PMU and disclosed at the local website on August 20, 2021. The project is in full compliance with safeguard requirements. Project safeguard performance have consistently been rated satisfactory throughout the project lifetimeimplementation. A competent E&S consultant has been hired by the PMU to strengthen its capacity of E&S management. The capacity of the PMU is assessed as adequate to manage safeguards requirements. A project-level Grievance Redress Mechanism (GRM) has been set up and operational. (j) Systematic Operations Risk-Rating Tool (SORT). The risk ratings will remain unchanged. (k) Closing date. To complete the new subprojects, the closing date for the project will be extended by 24 months from December 31, 2021, until December 31, 2023. This will be the fifth extension of the project cumulatively reaching 78 months (6.5 years) of extension. III. SUMMARY OF CHANGES Changed Not Changed Project's Development Objectives ✔ Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ 14 The World Bank Ulaanbaatar Clean Air Project (P122320) Social Analysis ✔ Environmental Analysis ✔ Implementing Agency ✔ DDO Status ✔ PBCs ✔ Cancellations Proposed ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_PDO_TABLE PROJECT DEVELOPMENT OBJECTIVE Current PDO The development objective (PDO) is to enable consumers in ger areas to access heating appliances producing less particulate matter emissions and to further develop selected medium-term particulate matter abatement measures in Ulaanbaatar in coordination with development partners. Proposed New PDO The development objective (PDO) is to enable consumers in selected areas to access heating appliances and services producing less particulate matter emissions and to further develop selected medium-term particulate matter abatement measures in Ulaanbaatar in coordination with development partners. OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) A. Ger Area Particulate Matter A. Ger Area Particulate Matter 21.70 Revised 23.20 Mitigation Mitigation 15 The World Bank Ulaanbaatar Clean Air Project (P122320) B. Central Ulaanbaatar B. Central Ulaanbaatar 2.30 Revised 5.35 Particulate Matter Mitigation Particulate Matter Mitigation C. Project Management and C. Project Management and 3.80 Revised 4.10 Monitoring and Evaluation Monitoring and Evaluation D. Electricity for heating in D. Electricity for heating in 5.60 Revised 0.75 targeted ger areas targeted ger areas TOTAL 33.40 33.40 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications 30-Jun-2018, 30-Jun- IDA-50390 Closed 30-Jun-2017 2019, 31-Dec-2019, 26-May-2020 IDA-64930 Effective 31-Dec-2021 31-Dec-2023 30-Apr-2024 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-64930-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: Subsidies/GDs/WKs/nCS/CS/TRN-Pt.A 4,050,000.00 1,537,656.94 5,147,500.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: GDs/WKs/nCS/CS/TN-Pt.D 4,050,000.00 282,808.39 543,750.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: nCS/CS/IOC-Pt.C 600,000.00 273,421.28 797,500.00 100.00 100.00 Current Expenditure Category: Goods, works, non-consulting services, consulting iLap Category Sequence No: 4 services, and Training for Part B of the Project 16 The World Bank Ulaanbaatar Clean Air Project (P122320) 0.00 0.00 2,211,250.00 100 Total 8,700,000.00 2,093,886.61 8,700,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2012 0.00 0.00 2013 500,000.00 500,000.00 2014 5,107,559.50 5,107,559.50 2015 3,243,607.54 3,243,607.54 2016 1,947,111.27 1,947,111.27 2017 375,044.91 375,044.91 2018 1,756,365.89 1,756,365.89 2019 1,164,663.91 1,164,663.91 2020 2,000,000.00 2,033,901.17 2021 6,000,000.00 2,000,000.00 2022 4,000,000.00 4,000,000.00 2023 0.00 3,000,000.00 2024 0.00 1,000,000.00 . 17 The World Bank Ulaanbaatar Clean Air Project (P122320) . Results framework COUNTRY: Mongolia Ulaanbaatar Clean Air Project Project Development Objectives(s) The development objective (PDO) is to enable consumers in ger areas to access heating appliances producing less particulate matter emissions and to further develop selected medium-term particulate matter abatement measures in Ulaanbaatar in coordination with development partners. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 Enable consumers in ger areas to access heating appliances and services producing less particulate (Action: This Objective has been Revised) Coverage of targeted households with 0.00 40.00 60.00 80.00 eligible services (Percentage) Additional number of households provided with access to clean heating 0.00 100.00 300.00 340.00 appliances (Number) Action: This indicator has been Revised Percentage of Project beneficiaries reporting an improvement in quality of 0.00 60.00 75.00 85.00 heating (Percentage) Action: This indicator has been Revised Number of buildings completed energy efficiency renovation or provided with 0.00 31.00 access to clean heating services (Number) Rationale: Action: This indicator is New measure the contribution of the newly added activities to the achievements of the PDO 18 The World Bank Ulaanbaatar Clean Air Project (P122320) RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 Develop selected medium-term particulate matter abatement measures in Ulaanbaatar Approval by relevant counterparts of principle recommendations and action plans developed by the Project for 0.00 0.00 4.00 4.00 selected medium term abatement measures (no. of action plans approved) (Number) Inter-agency and donor coordination framework for air pollution abatement 1.00 3.00 6.00 6.00 measures developed and functioning (cumulative no. of years) (Number) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 A. Ger Area Particulate Matter Mitigation Laboratory tests supported by UBCAP 0.00 75.00 125.00 155.00 (Number) Subsidy mechanism disbursing (% of 0.00 40.00 60.00 100.00 available funds) (Percentage) Number of stoves declared eligible for 0.00 3.00 4.00 5.00 UBCAP support (Number) 19 The World Bank Ulaanbaatar Clean Air Project (P122320) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 Number of stove models proposed for 0.00 6.00 8.00 10.00 participation (Number) Persons/ local producers trained in clean stove development, ceramic molding and 0.00 10.00 20.00 28.00 production (Number) Action: This indicator has been Revised Number of kindergartens that receive high-efficiency particulate (HEPA) filters 0.00 400.00 700.00 950.00 (Number) Number of public buildings in ger area benefitted from energy efficiency and 0.00 12.00 16.00 21.00 retrofitting work (Number) Action: This indicator has been Revised Number of households benefited from energy efficiency demonstration work 0.00 570.00 770.00 970.00 and retrofitted their detached houses (Number) Action: This indicator has been Revised Number of HOBs replaced by district heating or renewable energy heating 0.00 3.00 5.00 7.00 appliances (Number) Action: This indicator has been Revised Number of complementary activities piloted at selected service center 0.00 1.00 2.00 3.00 (Number) 20 The World Bank Ulaanbaatar Clean Air Project (P122320) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 Action: This indicator has been Marked for Deletion Number of female trained on clean heating options and air quality 0.00 50.00 75.00 100.00 monitoring and analysis (Number) Action: This indicator has been Revised Number of geothermal heat pump systems installed at school/kindergartens 0.00 1.00 2.00 2.00 (Number) Action: This indicator is New Number of air quality monitoring stations supplied to government agencies of air 1.00 3.00 3.00 3.00 quality (Number) Action: This indicator is New B. Central Ulaanbaatar Particulate Matter Mitigation City greening preparatory study prepared Not started In progress In draft Final report submitted (Text) City greening pilot implemented (Text) Not started Not started In progress Pilot implemented Power plant emissions control feasibility Not started In progress Draft completed Final report submitted study prepared (Text) Housing policy study prepared (Text) Not started In progress In draft Final report submitted District heating preparatory study Not started In progress In draft Final report submitted prepared (Text) Additional city greening facility built 0.00 0.00 1.00 2.00 (Number) 21 The World Bank Ulaanbaatar Clean Air Project (P122320) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 Action: This indicator is New Number of precast concrete apartment 0.00 4.00 8.00 8.00 buildings insulated (Number) Action: This indicator is New C. Project Management, Monitoring and Evaluation Monitoring and analysis equipment supplied (cumulative number of bid 0.00 1.00 2.00 3.00 packages) (Number) Effective project management and reporting established (No. of project 0.00 2.00 2.00 2.00 progress reports per year) (Number) Persons trained in air quality monitoring, analysis and management (cumulative 0.00 5.00 15.00 15.00 number) (Number) Quarterly reports on coordination activities prepaed by the municipality 0.00 4.00 4.00 4.00 (No. of reports annually) (Number) Consultants for supporting coordination 0.00 2.00 2.00 2.00 hired (cumulative number) (Number) Communications plan for collecting air quality program information across donors and agencies, satisfactory to the 0.00 1.00 1.00 1.00 PMU, is preparedby the municipality (No. annual plans) (Number) Share of communications targets (e.g., 0.00 100.00 100.00 100.00 meetings with agencies and donors, 22 The World Bank Ulaanbaatar Clean Air Project (P122320) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 2 information collected) in approved communications plan achieved by the municipality (% share of target) (Percentage) D. Electricity for Heating in Targeted Ger Area Additional capacity of clean heating appliances provided to targeted 0.00 1.04 1.36 1.36 households under Component D (Megawatt) Action: This indicator has been Revised Estimated GHG emission reduction under 153,965.00 165,005.00 Component A, B and D (Tones/year) Action: This indicator has been Revised IO Table SPACE 23