41194 PROJECT INFORMATIONDOCUMENT (PID) CONCEPT STAGE Project Name Malaysia Kota Kinabalu CompostingProject Region East Asia and Pacific Sector Solid waste management Project ID PI06857 Borrower N/A Implementing Agency MS Smart Recycling (M) SDN.BHD Environment Category B Date PID Prepared October 12,2007 Date of Appraisal November 29,2007 Authorization Date of Board Not applicable. Approval A. Key development issues and rationalefor Bank involvement 1. Malaysia, as a party to the United Nations Framework on Climate Change Convention (UNFCCC), ratified the Kyoto Protocol (September 4, 2002), which entered into force on February 16, 2005. UNFCCC has set an overall framework for intergovernmental efforts to limit or reduce emissions of greenhouse gases (GHG) that affect the stability of the climate system, which is a shared global resource. The Kyoto Protocol then commits industrialized (Annex 1) countries to individual, legally-binding targets in curbing their GHG emissions. To meet these targets in the most cost-effective manner, the Kyoto Protocol has also established a clean development mechanism (CDM) that allows industrialized countries to implement projects in developing (host or non- Annex 1) countries permitting them to receive emission reductions (ERs). While this scheme helps the industrialized countries meet their own GHG ER commitments, host countries achieve their sustainable development goals through access to cleaner technology and financial resources for specific projects. The Bank, as a trustee of various Carbon Funds, aims to help developing countries contributeto climate change mitigation and sustainabledevelopment via market-based ER purchase transactionsunder CDM. 2. As a non-Annex 1Party to the Kyoto Protocol,Malaysia has been benefiting from investments in CDM projects that contribute to the country's sustainable development goals and environmental improvement, while earning additional financial flows to the country. The National Committee on CDM has formulated some preliminary national criteria for CDM implementation and has identified severalpriority areas, one of which is waste management. The Government of Malaysia has also agreed to collaboratewith the World Bank in the emerging market for GHG ER credits under CDM. As such, Malaysia has strong interests and is well positioned to undertake the subject project which is intended to avoid emissions of methane (a potent GHG) from municipal solid waste (MSW) disposal at a landfill. 3. As of 2007, Malaysia generates approximately 21,500 tpd of MSW based on an average generation rate of 0.8 kglpersodday. The average MSW consists of approximately63% food waste, 25% recyclables (plastics, paper, glass, ferrous and non- ferrous metals), and 12% other wastes. About 76% of MSW generated is collected. Of the collected MSW, approximately 5% is sent to incinerators, 4% is recycled and the remaining 91% is land disposed. Most land disposal sites are either controlled or uncontrolled open dumps that are mostly owned and operated by the respective local governments. Of the currently active 169 land disposal sites, about 50% will reach their full capacity before 2008. As such, solid waste has become a growing problem and has gained increasing attention from policy makers over the years. 4. To solve the shortages of land to accommodate landfills, alternative waste disposal schemes such as waste-to-energy are being demonstrated in Malaysia. Through this project, the Bank will support Malaysia to demonstrate another scheme that involves aerobic decomposition of the organic portion of MSW into reusable soil conditioner (compost). This scheme generates carbon dioxide instead of methane that would have been generated in the landfill as a result of the anaerobic decomposition process.' This project is the first commercial-scaleMSW composting initiative in Malaysia. 5. The threat climate change poses to long-term development and the ability of the poor to move out from poverty is of particular concern to the World Bank. Activities of the World Bank on carbon emission trading are a natural extension of the Bank's mission to reduce poverty. By acting as the leading organization in establishing the carbon market, the Bank makes every effort to ensure that poor countries can benefit fi-om international responses to climate change including the emerging carbon market for GHG emission reductions. The World Bank's carbon finance products have helped grow the market by extending the frontiers of carbon finance to new sectors or countries that have yet to benefit, and to reduce market entryrisks for other buyers. 6. This project is consistent with the Bank's Environmental Strategy and the Environment Strategy for the East Asia and Pacific Region (EAP), which have identified that support for client countries to address the objectives of international environmental conventions such as the Kyoto Protocol as a priority of the Bank. By avoiding methane production (a GHG 21 times more potent than C02) through composting of organic wastes, and producing C02 (a less potent GHG), this project will contribute to a reduction in the impact on climate change and is therefore eligible to receive carbon credits from the CFE. With the prior experience of developing other carbon finance projects in EAP and a similar compostingproject in Chile, the Bank is well positioned to facilitate the carbon finance transactions for the purchase of ERs from the Kota Kinabalu CompostingProject. 7. As the first CDM project that the Bank has been engaged in this country, the ER transactions from this project are expected to assist Malaysia in improving its MSW management practices. This project provides the Bank and Malaysia an opportunity to identify additional cooperation opportunitiesfor sustainable management of MSW in the country. IThe global warming potential of methane is 21 times to that of carbon dioxide. B. Proposed Objectives 8. The project objective is to avoid methane (a greenhouse gas) emissions from the Kayu Madang Sanitary Landfill in Telipok, Malaysia by diverting the MSW to a sorting and compostingplant, which will recover the recyclable portion of the waste and convert the highly biodegradable portion of the waste into a compost to be marketed as soil conditioner. 9. The project has benefits in terms of reduction of GHG emissions, contribution to sustainable development, and improving the local and global environment. More specifically: The project will be beneficial to the global environment as it avoids methane generation at the Kayu Madang Sanitary Landfill and reduce COD discharges from the landfill to South China Sea. The estimated annual GHG emission reduction through this project is about 105,000 tons of ~ 0 ~ - e . ~ The project will benefit the economy by recovering and recycling various grades of plastic materials, paper, and non-ferrous and ferrous metals; and producing compost as a by-product, which is to be marketed as soil conditioner. As the first commercial-scaleMSW composting initiativein Malaysia, this project has a good potential for setting a model to address the growing MSW problem for the rest of the country. The project will be beneficial to the local environment as it will extend the lifespan of the Kayu Madang Sanitary Landfill, and significantly reduce leachate generation as well as the risk of open burning at the landfill. As the landfill will receive only a fraction of the MSW, the Kota Kinabalu City Hall is expected to have savings in waste disposal costs. C. Preliminary Description 10. This proposed project will direct approximately 480 tpd of MSW~from the City of Kota Kinabalu and four nearby districts to a sorting and composting facility that is owned and operated by the project sponsor, SMART Recycling. As per agreement between SMART Recycling and the Kota Kinabalu City Hall, SMART Recycling has been provided approximately 7-acres of land to set up and operate a 500 tpd sorting and composting facility within the landfill site for a period of 10 years, from 2005 to 2015. Approximately 3.2 acres were designated for the sorting plant and administrative buildings, and the remaining 4 acres for the composting plant. The sorting plant started operation in April 2006, and the composting plant is expected to be constructed in early 2008. 2Based on the approvedbaseline methodology AM0025Nersion 07, "Avoided emissions from organic waste through alternativewaste treatment processes". MSW originatesfrom residential and commercial sources. No manure or sewage sludge is mixed with MSW. Collection and transportation of MSW to the project site is providedby the City Hall. 11. Sorting:Plant. The sorting plant includes waste receiving, waste feeding and pre- sorting, sorting, separation, and storage operations. In addition, the administration building is located at the sortingplant. Waste receiving. Incoming trucks are inspected for their content and weighed. MSW is then dumped on the tipping floor. Wastefeeding and presorting. Bobcats are used to feed MSW from the tipping floor to one of the three feeding conveyors, where manual presorting is employed to remove large components (e.g. cardboards, boxes, tires, batteries, large textiles such as carpets and blankets). In addition, the bags containing MSW are tom for sorting. The MSW is screened by a trommel screen to separate the fine organic material (less than 3 cm) from the remainder of the waste. The fine organic material (which is currently sent to the landfill) will be transferred to the compostingarea when the compostingplant is commissioned. Sorting. The oversize material from the trammel screen is processed manually to separate the following recyclable materials at each of the three conveyor lines: plastic bags, high-density plastic bottles,PET bottles, plastic boxes, plastic pieces, textiles, paper and cardboard, glass, aluminum, and non-ferrous metal cans. In addition, ferrous objects are removed with a magnetic separator. Separation and storage. The recovered materials from the sorting area are collected in bins, baled and stored for sale. Non-recyclable MSW from sorting is screened by a trommel screen to separate the rejects (larger than 10 cm) from the organic matter. The rejects are transported by truck to the landfill. The organic matter is transported by truck to the compostingplant. 12. Currently, the sorting plant has been receiving household MSW only.4 Although MSW is delivered on a daily basis, the sorting plant is operating only six days a week between 8am and 5pm, as it is shut down for maintenance on Sundays. From May 2006 to May 2007, the sorting plant processed an average of 360 MT of MSW per operating day. Recyclables recovered at the sorting plant make up approximately 10.6% of the received MSW. 13. compost in^ Plant. The composting plant will adopt the windrow technology. The composting plant will process the highly biodegradable organic material from the sorting plant as well as the commercial food waste, market waste and garden waste. The organic materials will be arranged into windrows. The windrows will be turned periodically by compost turning machines to provide the necessary oxygen for biodegradation, to maintain the desired temperature level within the piles, to mill and increase the homogeneity of the residues, and to expose more surface area for bacterial activity. While turning the windrows, water will be added to maintain the humidity within a desired level. The turning process will be carried out for a period of approximately60 days for complete maturation and transformationof organic material to compost. The compost will be screened to separate the fine compost which will be sold Currently, yard wastes, food wastes (from commercial facilities), and market waste are directly disposed of at the Kayu Madang Landfill. After commissioning of the compostingplant, these wastes will be also processed at the sorting plant. bulk or packages. Part of the oversizematerial will be added back to the fresh windrow as it works as an activator to start the composting process. The remainder of the oversize material will be transported to the landfill as rejects. Compostingprocess and the quality of the compost will be monitored through laboratory tests. The composting plant is expected to produce 45,000 tons of compost annually. D. Safeguards policies that might apply 14. Environmental Assesslnent. The project is proposed to be Category B as the potential environmental impacts are well defined and site-specific. The net global and local environmental impacts are expected to be positive. The potential environmental impacts associated with the sorting and composting facility include wastewater generation, airlodor emissions, industrial health and safety; and safety issues associated with the access road. 15. To identify and assess potential environmental impacts of the project and corresponding mitigation measures, the project sponsor has engaged a consultant to prepare an EA for the sorting and compostingplant. As part of the EA, an Environmental Management Plan (EMP) will be prepared to include specific provisions to be implemented during the construction and operation phases of the plant. The EA will also list mitigation measures and present a monitoring plan on adverse social impacts, and prescribe a grievance resolution mechanism. Bank procedures for public consultation will be used (twice with project-affected groups and local NGOs-the first time: before the TORfor the EA is finalized; and the second time: when the draft EA is prepared). The EA will be disclosed in Kota Kinabalu and at InfoShop prior to project appraisal. 16. Resettlement. The impacts of the sorting and composting plant on the residents of the City Hall staff quarters and the effectiveness of the associated mitigation measures will be assessed in the EA. If these mitigation measures are not practical or acceptable to the local residents, then these residents will be given an opportunity for resettlement in accordance with the Bank policy. The project will not acquire land as the project activities will take place on the existing Kayu Madang Landfill site. The project will not displace economic activities as local communities who depend on the landfill for their incomes and livelihoodswill be able to continue to do so as part of the project. E. Tentative Financing 17. There is no World Bank lending involved in this carbon finance transaction. The project sponsor will be self-financing and implementing the project. The World Bank- managed Carbon Fund for Europe will finance the purchase of ER credits resulting from avoided landfill gas production at the Kayu Madang SanitaryLandfill. F. Contact Point: Bekir Onursal SeniorEnvironmental Specialist World Bank 1818H Street,NW, Washington D.C., 20433 Tel: 202-473-8624, Fax 202-522-1666 email:bonursal@worldbank.org Location: Washington,DC., USA G. For more information contact: The Infoshop The World Bank 1818H Street,N.W. Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop Approved by: L a - - - Susan Shen SectorLeader