Document of The World Bank FOR OFFICL& USE ONLY Report No: 28943-BR PROJECT APPRAISAL DOCUMENT ONA PROPOSED PURCHASE OF EMISSIONS REDUCTIONS BY THE NETHERLANDS CLEAN DEVELOPMENT MECHANISM FACILITY IN THE AMOUNT OF EURO 8.5 MILLION FROM THE NOVA GERAR ECO-ENERGIA LTDA. (FEDERATIVE REPUBLIC OF BRAZIL) FOR THE NOVA GERAR LANDFILL RIO DE JANEIRO IN THE METROPOLITAN AREA OF RIO DE JANEIRO MAY 7, 2004 Finance, Private Sector and Infrastructure Unit Brazil Country Management Unit Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit - Real (R$) EXCHANGE RATE December 31, 2001 - R$ 2.65= US$ I December 31, 2002 - R$ 3.52= US$ I December 31, 2003 - R$ 2.90= US$ I WEIGHTS AND MEASURES Metric System FISCAL YEAR: 04 Vice President: David de Ferranti Country Manager/Director: Vinod Thomas Sector Manager/Director: Susan Goldmark Task Team Leader/Task Manager: Werner Kornexl ii FOR OFFICIAL USE ONLY ABBREVIATIONS AND ACRONYMS Aneel National Agency of Electrical Energy BAU Business as usual BL Baseline C Carbon CAS Country Assistance Strategy CDM Clean Development Mechanism CEMPRE Managerial Commitment for Recycling CER Certified Emission Reduction CH4 Methane C02 Carbon dioxide DNV Det Norske Veritas EIA Environmental Impact Assessment EIRR Economic Internal Rate of Retum EIT Economies in Transition EMLURB Municipal Cleaning Urban Company of Nova Igua,u EMP Environmental Management Plan ER Emissions Reduction ERPA Emissions Reduction Purchase Agreement FEEMA Statewide Foundation of Engineering and Environment FENIG Educational and Cultural Foundation of Nova lgua,u FIRR Internal Rate of Retum FY03 Fiscal Year 2003 GHG Greenhouse Gas IBAMA Brazilian Institute of Environment and Renewable Natural Resources IBGE Brazilian Institute of Geography and Statistics ICR Implementation Completion Report IMCCC Inter-ministerial Commission on Climate Change IPI Tax on industrial products KP Kyoto Protocol LAC Latin America and Caribbean LFG Landfill Gas LFG Landfill Gas LoA Letter of Approval MP Monitoring Protocol MW Mega Watt MWh Mega Watt hour N20 Nitrous Oxide NCDMF Netherlands Clean Development Mechanism Facility NGO Non Governmental Organization NPV Net Present Value OECD Organization for Economic Co-operation and Development PAD Project Appraisal Document PCF Prototype Carbon Fund PDBG Development Program of Baia da Guanabara PIN Project Idea Note PPA Power Purchase Agreement PROINFA Incentive Program for Alternative Sources SCS Scientific Certification Systems SEMPS Municipal Secretariat for Social Promotion SEMTE Municipal Secretariat of Work and Employment SEMUAN Municipal Secretariat of Urbanization and Environment SEMUS Municipal Secretariat for Health SPC Special Purpose Company tCO2 Tons of Carbon Dioxide UNFCCC United Nations Framework Convention on Climate Change UNICEF The United Nations Children's Fund VROM Netherlands' Ministry of Environment, Housing and Spatial Planning WHO World Health Organization This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. I Brazil Nova Gerar Landfill Rio De Janeiro Table of Contents A. PROJECT DEVELOPMENT OBJECTIVE .............................................................. 2 1. PROJECT DEVELOPMENT OBJECTIVE ............................................................. 2 2. KEY PERFORMANCE INDICATORS .............................................................3 B. STRATEGIC CONTEXT ..............................................................5 1. SECTOR-RELATED COUNTRY ASSISTANCE STRATEGY (CAS) GOAL SUPPORTED BY THE PROJECT ............................................................5 2. MAIN SECTOR ISSUES AND GOVERNMENT STRATEGY: .........................................................5 3. SECTOR ISSUES TO BE ADDRESSED BY THE PROJECT AND STRATEGIC CHOICES .............. 8 C. PROJECT DESCRIPTION SUMMARY .............................................................9 1. PROJECT COMPONENTS .............................................................9 2. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS .................................................... 12 3. BENEFITS AND TARGET POPULATION ............................................................ 20 D. PROJECT RATIONALE ............................................................ 22 1. PROJECT ALTERNATIVES CONSIDERED AND REASONS FOR REJECTION ............ ............... 22 3. LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN ..................... ..................... 26 4. INDICATIONS OF BORROWER COMMITMENT AND OWNERSHIP ............................................ 26 5. VALUE ADDED OF THE BANK AND GLOBAL SUPPORT IN THIS PROJECT ............ ............... 26 E. SUMMARY PROJECT ANALYSIS ............................................................ 27 1. ECONOMIC ............................................................ 27 2. FINANCIAL ............................................................ 28 3. TECHNICAL ............................................................ 31 4. INSTITUTIONAL ............................................................ 35 5. ENVIRONMENTAL ............................................................ 35 6. SOCIAL ............................................................ 39 7. SAFEGUARD POLICIES ............................................................ 41 F. SUSTAINABILITY AND RISKS ............................................................ 41 1. SUSTAINABILITY ............................................................ 41 2. CRITICAL RISKS ............................................................ 42 3. POSSIBLE CONTROVERSIAL ASPECTS ..................... ....................................... 43 G. MAIN ERPA CONDITIONS ............................................................ 43 1. EFFECTIVENESS CONDITION ............................................................ 43 2. OTHER ............................................................ 43 H. READINESS FOR IMPLEMENTATION ............................................................ 44 I. COMPLIANCE WITH BANK POLICIES ............................................................ 44 ANNEX 1: PROJECT DESIGN SUMMARY ............................................................ 45 ANNEX 2: ESTIMATED PROJECT COSTS ............................................................ 47 iv ANNEX 3: ENVIRONMENTAL AND SOCIAL ASSESSMENT .......................................... 48 ANNEX 4: PROJECT PROCESSING SCHEDULE ........................................................ 57 ANNEX 5: FINANCIAL ANALYSIS ........................................................ 58 ANNEX 6: ECONOMIC ANALYSIS OF THE NOVAGERAR PROJECT .......................... 70 ANNEX 7: LANDFILL GAS ASSESSMENT ........................................................ 71 ANNEX 8: THE LANDFILL GAS COLLECTION SYSTEM .................................................. 77 ANNEX 9: RISK ANALYSIS ........................................................ 84 ANNEX 10: STATUS OF BANK GROUP OPERATIONS ................................................... 88 ANNEX 11: STATEMENT OF IFC HELD AND DISBURSED PORTFOLIO .................... 90 ANNEX 12: BRAZIL AT A GLANCE ........................................................ 93 v Netherlands Clean Development Fund BRAZILIAN LANDFILL GAS TO ENERGY GENERATION PROJECT PROJECT APPRAISAL DOCUMENT Latin American and Caribbean Regional Office Date: May 7, 2004 Team Leader: Werner L. Komexl Sector Manager/Director: Vinod Thomas Sector: Power (50%), Solid waste Country Manager/Director: Vinod Thomas management (50%) Project ID: P079182 Theme(s): Climate change (P), Other urban development (S) Project Financing Data [ ] Loan [ ] Credit [] Grant [] Guarantee [x] Other [NCDF] For Loans/Credits/Others: Amount (Euro): 8.5 million Financing pl.an, n.Ezp4:!- Source Borrower 12.39 0 12.39 Prototype Carbon Fund 8.52 0 8.52 Total: 20.91 0 20.91 Sponsor: Nova Gerar S.A. Address: Avenida President Wilson, 231, sala 502-503 Rio de Janeiro, Brazil Contact Name,Telephone/Fax: Pedro Moura Costa - Tel: 55 - 21 - 2222 8019 Fax: 55 - 21 - 2222 8019 Estimated disbursements (NCDF disbursement, Million Euros): Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 Annual 0.4 0.5 0.7 0.8 0.9 1.1 1.2 1.3 1.6 Cumulative 0.4 0.9 1.6 2.4 3.3 4.4 5.6 6.9 8.5 Project implementation period: 9 years Expected effectiveness date: September 2004 Expected closing date: 2012 vi A. PROJECT DEVELOPMENT OBJECTIVE 1. Project development objective The overarching objective of the NovaGerar Project is to demonstrate that carbon finance can catalyze profitable waste management with appropriate gas collection systems and electricity generation under the highest environmental and social standards. The specific objectives of the Project will encompass maximizing the reduction of greenhouse gases and social and environmental benefits by investing in a gas collection system and in a modular electricity generation plant at the landfill sites and further upgrading the waste management disposal system. The Project will start with two solid waste management sites in the municipality of Nova Igua9c: the former open dump located in Marambaia and the sanitary landfill located in Adrian6polis. The Project is designed as an umbrella project and can be expanded to other sites in the metropolitan area of Rio de Janeiro under the condition that (i) all parties agree to the inclusion of additional projects, (ii) the additional projects qualify as CDM projects, (iii) the additional projects satisfy the World Bank's safeguard policies, and (iv) the same sponsor will execute the additional projects. Final generation capacity installed in the two sites is 11.4 MW in total. The generators will bum the methane contained in the landfill gas to produce electricity for export to the electric grid, to which they will be connected. It is expected that combustion of the methane will reduce emissions of 11.8 million tons of C02e over the next 21 years and 2.5 million until 2012. To a minor extent, it is also expected that the project will lead to emission reductions attributable to the displacement of thermal generation in the interconnected grid. These benefits will not be taken into account in the analysis of this project. The NovaGerar Project will sell energy on a commercial basis and will also receive Certified Emission Reduction (CERs), often referred as carbon credits. In the context of the Clean Development Mechanism (CDM), those carbon credits are based on the difference in greenhouse gas (GHG) emissions between the most likely practices in the foreseeable future (known as baseline scenario) and practice occurring due to project activities (known as project scenario). The positive difference in GHG emissions between the project scenario and the baseline scenario is called additionality. By burning methane (which is a more potent GHG) and producing C02 (which is a less potent GHG), the Project is contributing to reduce the impact on climate change and is therefore eligible to receive the carbon credits. The carbon credit component of the NovaGerar Project will be funded by the Netherlands Clean Development Mechanism Facility (NCDMF), which is managed by the World Bank. The NCDMF supports projects which are expected to generate GHG emission reductions (ER) while complying with requirements of the CDM of the Kyoto Protocol (KP), Art. 12. la. Relevance of the Project: * The NovaGerar Project will create a show-case for best practices in waste management and landfill gas collection in Brazil and thus serve as an example to many other metropolitan areas, currently facing multiple problems related to improper handling of waste disposal. These lessons learned are currently being disseminated in seminars and workshops organized by the World Bank. * The NovaGerar Project created a first-of-a kind Clean Development Project in Brazil which is now ready to be replicated. The Project sponsor and the World Bank worked together on 2 setting up and having approved a specific baseline methodology for CDM projects that is now available to the public. Furthermore, the Project documents relevant to the Kyoto Protocol framework, such as the Project Design Document, the Monitoring Protocol and the Baseline Study serve as a model for other municipalities. * The NovaGerar Project was also the first project presented to the National Designated Authority and could help stimulate the national debate on CDM and on the creation of national procedures for project approvals. * By virtue of its umbrella concept, the Project can be easily expanded to other open dump sites in the metropolitan area of Rio de Janeiro. * The Project also represents a model for a Public Private Partnership, as it associates the municipality of Nova Iguacu and its waste management company, EMLURB to the private company S.A. Paulista. Further partners are the state environmental agency FEEMA, the federal environmental agency IBAMA, the Ministry of the Environment, and the General Attorney Office (Ministerio Publico). 2. Key performance indicators 2.a. The NovaGerar Project has two key performance indicators and corresponding goals: * Maximize generation of C02 ER - project is expected to generate at least 11.8 million t of C02e in ER over 21 years, which may be achieved by an adequate gas collection system and burning of the generated methane; * Maximize generation of MWh to be injected into the interconnected grid and minimize flaring - the Project is expected to operate at baseload capacity, burning all available methane produced and 90% plant availability, for a total plant capacity of 11.4 MW, out of which 7.6 MW by 2012, to be installed according to gas availability and to a pre-agreed installation schedule. The probability of reaching the second objective (power generation) will depend on the project sponsor's ability to negotiate a PPA with a unit price of US$ $48/MWh, which is the threshold price agreed by NovaGerar and it's leasing partner EnerG for installation of the engines. The financial analysis demonstrates that $51/MWh reflects the break-even point and that the loss between the threshold price and breakeven price will be covered by the revenues from the Emission Reductions. The Emission Reductions Purchase Agreement foresees an implementation schedule for the energy generation component, and includes a default in the case of noncompliance. The project sponsor is only obliged to implement energy generator, if a long- term PPA with a feasible price is negotiated. Otherwise, a fine will have to be paid, that equals the revenues the project sponsor would get from ERs when replacing C02 by generating renewable energy. As this fine is very low, it would not jeopardize the project and hence the generation of emission reductions. The probability for being able to negotiate a long-term PPA under the required conditions, is relatively high, due to Eletrobras' recent launch of it's renewable energy program "Proinfa" that would fulfill the contractual conditions indicated. But even if energy will not be generated (only methane gas flared), the project is still as being a contribution to sustainable development, due to its environmental and social excellence in the waste management sector and due to it's learning, demonstration and replication effect, and because the global benefits related to climate change will be guaranteed by only flaring methane (the Brazilian grid is dominated by hydropower with very little fossil fuel content). 3 2.b. A separate Monitoring Protocol (MP) includes the following additional indicators * Measurement of flow of landfill gas to the combustion engines and flares, and gross electricity produced; * Calculation of ER based on the above; * Sustainable Development Indicators such as: o job creation (during construction and operation); o integration of former scavengers; o ground water quality; o native forest restoration (30 ha restored and 10 enriched); o biodiversity (bird population); o workers health care; and o working conditions certification. Payments by NCDF for ER achieved during the project cycle, are to be made in accordance to the Emissions Reduction Purchase Agreement (ERPA). Such payments typically follow annual certification of ER. 2a. Quality Assurance Mechanisms A specialized World Bank team will supervise the Project activities through twice a year field visits to verify progress on i) project implementation, including the outcomes of environmental and social due diligence, and ii) achievement of the development indicators. Additionally, CDM projects foresee a number of quality assurance mechanisms during the preparation and implementation of the project, as indicated below. As the Project sponsor is paid only after verification of annual performance, the sponsor has a genuine interest in complying with the ERPA. * The Kyoto Protocol CDM project cycle requires independent validation of a detailed Project Design Document, including the Baseline Study and the Monitoring Protocol. This validation process guarantees that the documentation and the project are prepared in compliance with the CDM. The validation is important for assuring the quality of the project and gives comfort to the parties involved that the CERs to be created throughout the project implementation phase are valid under the Kyoto Protocol and will represent a carbon asset. The Validator guarantees the correctness of all data presented . The project was already validated by Det Norske Veritias (DNV), one of the leading validation companies for CDM projects worldwide. * The Project documentation is made available for public opinion for one month before the Emissions Reduction Purchase Agreement is signed. This provides another important control mechanism for CDM projects. * The Host Country provides a Letter of Approval (LoA) after the validation process has been concluded. The LoA will guarantee that the project is in compliance with the Host Country's strategy and sustainable development policies. * During the implementation process, the ER achieved by the Project will be verified by an external consultant on an annual basis. The CER will only be emitted if the project sponsor's activities are in compliance with the MP and the ERPA. 4 * The annual verification reports are made available to the World Bank and only after the receipt of the verification report, the payment to the Project sponsor will be effected B. STRATEGIC CONTEXT 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project Link to the CAS Document or Pro2ress Report CAS document number: 27043-BR Date of latest CAS: November 10, 2003 The Project would address the sustainability and competitiveness objectives outlined in the CAS, specifically regarding the issues of reducing poverty and achieving a higher quality of life in rural areas and urban centers. The basic strategy in the CAS related to this project is to encourage environmental protection with actions to (a) strengthen private sector involvement by contracting out delivery of special services to private sector, local communities and NGOs; (b) promote laws, regulations and policies for tradable pollution and conservation permits; (c) improve urban services and develop and implement strategies to improve sewage collection, solid waste management, air pollution in the biggest metropolitan areas, and water pollution in rivers, lakes and ocean beaches in and around major cities; and (d) improve activities related to energy efficiency and use of renewable energy. The importance of the World Bank's carbon finance instruments is highlighted in the CAS to assist Brazil to develop its world-scale carbon trading market by further project development, capacity building, and replication of best practices. la. Global Operational strategy/Program objective addressed by the project In addition to the CAS issues, the NovaGerar project supports the global objectives of the World Bank Carbon Finance operations for: 1. Achieving High-Quality ERs The NCDF supports funding of projects that produce high quality greenhouse gas ER which could be registered with the United Nations Framework Convention on Climate Change (UNFCCC) for the purposes of the KP. 2. Generating Knowledge to support carbon market development through learning-by-doing: By transacting the business of reducing greenhouse gas emissions, the NCDF is developing an increased knowledge base of business processes and sound practices to facilitate investments in GHG ER and inform the ongoing UNFCCC negotiations on project-based CDM. 2. Main sector issues and Government strategy: The NovaGerar Project attempts to seize an opportunity created by a novel Carbon Market. It also addresses issues in two main sectors: . Waste management & the environment * Power generation The strategic significance of the Carbon Market for Brazil and each one of those sector issues will be discussed separately. 5 2a. The Carbon Market The CDM, as defined in the Kyoto Protocol, represents the first global environmental trading scheme. Brazil's private sector is prepared for taking advantage for this market, which is estimated to generate several billion dollars per year to development countries. This is the reason why several market analysts evaluate that Brazil will be able to take a significant share of this market. Although the Kyoto Protocol has not entered into force yet, significant market transactions are already under way. But even without the Kyoto Protocol entering into force, it is expected that the market will accept the CDM as a project based emission reduction mechanism for countries and companies that have voluntarily adopted a policy to reduce GHG emissions. More importantly, it is expected that the credits generated by the CDM can be used by European companies covered by the European Emissions Trading Scheme. Several countries have already set up funds that will purchase Emissions Reductions through the CDM and the Chicago Climate Exchange has expressly permitted trading of CDM projects from Brazil. It is expected that the carbon market is here to stay, although it is yet too early to estimate the exact overall volume of carbon credits to be traded. The host countries in the developing world obtain a form of economic rent through the carbon finance flow, without having an emission reduction objective such as OECD countries and EIT. The Latin America region, and Brazil in particular, has been among the most aggressive in pursuing the CDM opportunity. Private sector and civil society see carbon finance as a suitable instrument to help attract foreign investment flows and technology transfer. Brazil was an early advocate of including the CDM within the Kyoto Protocol structure, and is basing a significant part of its national sustainable development strategy on the country's ability to attract external financing through the provision of global environmental services for biodiversity protection and climate change mitigation. Currently, there is a carbon finance projects in the Bank's Brazil portfolio: the Plantar Project in Minas Gerais, which replaces coal/coke with sustainably produced charcoal for the pig iron sector. Under development is a number of landfill projects, as well as cogeneration projects that aim to use wood residues and bagasse to generate power,and reforestation and afforestation projects. Further potential has been identified in the iron and steel, forestry, waste management, sugar cane, petrochemical, renewable energy (mainly wind energy) and transport sectors. 2b. Waste Management & the Environment The CAS states that improvements in environmental management are ongoing. However, the improvement of environmental problems and waste management in particular still represents a huge challenge. According to the latest survey published by IBGE in 2000 (National Sanitation Research 2000), 47,1% of all waste collected in Brazil is dumped in sanitary landfills, 22,3 % in controlled landfills and 30,5% in open dumps (lix6es). That would mean that more than 69% of all the collected household waste is disposed of in a sanitary or controlled landfill. But if this analysis is based on the number of municipalities, the result is much less positive: 63,6% of the total of 5.507 municipalities informed that their waste was disposed of in open dumps and only 32,2% declare that operate adequate final disposal sites (Sanitary and controlled landfills). According to the same survey, Brazil maintains 817 sanitary landfills, compared to a total number of 3,834 open dumps. According to parallel surveys in some States, the amount of open dumps might be even higher. According to UNICEF (1999), more than 43,000 children live in and from garbage, most of them in the Northeast of Brazil. Within the last 10 years, collected waste increased from 100 thousand tons to 154 thousand, an increase of 54%. In the same period, the population increased by only 15,6% (IBGE, 2000). 6 These numbers clearly indicate that waste management solutions will become increasingly important in the near future. In Brazil, as well as in other developing countries, municipalities invest first in waste collection and then in waste disposal. Nearly all municipalities collect their waste in a way or another, but only 8,2% have a selective collection system (IBGE 2000). The economic burden of waste disposal is not necessarily on the construction of waste disposal sites, but on their maintenance. It is thus essential to have an appropriate cost recovery system. But more than half of all municipalities in Brazil do not charge for their collection and disposal services. And most of those that recover costs, do not charge sufficiently. About 90% of cost recovery systems are linked to the property tax. Only recently, the private sector has started to get more interested in long-term concessions, which will probably help introduce best practices in major cities. While in many cases private concessionaires would not be able to generate profits with the low tipping fees paid by municipalities for their solid waste, additional high-priced businesses such as recycling, hospital waste and special waste from private suppliers can turn these waste disposal operations very attractive financially. Waste avoidance and recycling are other important activities to mitigate the waste problem and in turn they create job and income opportunities. According to the Association CEMPRE (Compromisso Empresarial para a Reciclagem), recycling activities generated roughly US$ Ibi in 2002. IBGE indicates that more than 200,000 people in Brazil live from recycling and waste collection in general but more than half of them are not organized and are working under dangerous conditions. This number is being challenged by several waste collection associations for being too low. At the federal level, responsibility is shared between three Ministries (Health, Environment and Cities). Coordination among them is still required. Recently the Forum de Lixo e Cidadania (Trash and Citizenship Forum) was created to coordinate the agenda between the Ministries and relevant governmental and non-governmental organizations. There is no specific federal legislation in place. At a state level, the situation varies a lot. Only 8 states have a specific solid waste legislation (CE, GO, MS, PE, PR, RS, BA and MT). Other 14 are currently preparing their legislation, including the state of Rio de Janeiro while 7 have not started with this process. Although, a significant increase of funds were made available by the Federal Government to the solid waste management sector, especially to the eradication of open dumps (in January 2004, two major public banks, Caixa Econ6mica Federal and BNDES, have made available more than US$lbi to sanitation and solid waste management) the resources are still insignificant compared to the huge requirements. The Ministry of Cities has indicated that the priority for investments should consider the (i) reduction of open dumps by 50% within 5 years; (ii) unification and coordination of existing financing lines and programs; (iii) capacity building with focus on the elaboration of integrated solid waste management plans for municipalities and states, as well as on research and support to NGOs and other technical assistance programs; and (iv) promotion of programs with social- economic objectives linked to waste collection, such as creation and enhancement of solid waste collection cooperatives, recycling programs, selective collection programs, capacity building programs, etc. In the case of the metropolitan area of Rio de Janeiro, that generates more than 14,000 tons of solid waste per day, the situation is more than precarious. Current waste disposal sites that receive 90% of the municipal waste of the region will close down and have to be replaced, which will probably create a disposal bottleneck very shortly. 7 A special program (Programa de Despolui,ao da Baia da Guanabara - PDBG) aims to address the issue of the pollution of the Guanabara Bay which surrounds the Rio de Janeiro metropolitan area. The municipality of Nova Iguacu receives about R$3.7 million from this program through a partnership with IBAMA, the Federal Government environmental agency, established in the year 2000. These funds come from a penalty imposed by the Brazilian Justice Ministry on PETROBRAS for a large oil leak from one of its cargo-ships in that region. As per the terms of the concession for its new landfill, the municipality agreed to transfer that amount to the new concessionaire to help defray investment (R$1 million) and operational (R$2.7 million in twenty monthly quotas) costs. Furthermore, the State of Rio de Janeiro created a program called "Pr6-Lixo" which aims to promote sustainable waste management practices by investing in waste disposal sites, recycling facilities, and environmental education in the "Baixada Fluminense", which comprises several poor municipalities in the Rio de Janeiro metropolitan area. At the municipal level, the Project is part of a large program managed by the Municipality of Nova Iguacu, focusing on the collection of urban waste in the city. A selective waste collection system was initiated with community support, which covers 450 collection sites within the city of Nova Igua9c. The second phase of this program is based on the construction of a state-of-the-art Waste Treatment Plant, of which Adrian6polis and the revamped Marambaia landfills are a central component, together with units to treat hospital and construction waste, as well as a wastewater treatment plant. 2c. Power Generation The Government of Brazil (GOB) has been fostering the expansion of generation capacity and the diversification of energy sources. After the rationing crisis in 2001-2002, it became conspicuous that the electric sector in Brazil could not rely solely on large hydro-based generation plants, which will make power supply vulnerable in years of low rainfall. In addition to the reliability aspects, Brazil wants to diversify its energy matrix by introducing renewable sources of energy. Law 10.438, enacted in early 2002, established a special program, named PROINFA (Programa de Incentivo a Fontes Alternativas) to provide specific incentives to renewable sources of power generation, such as wind, solar and biomass. ELETROBRAS will act as a single buyer, and will contract up to 3,300 MW until 2006. From those, 1,100 MW are earmarked for initiatives like co-generation and power produced in landfills. The government expects to have the first call for bids in the month of February 2004. The price to be paid for this energy is still under discussion. Currently, there is a public hearing, where both government and potential investors are trying to agree on a price, differentiated by each source, which is satisfactory for both parties. 3. Sector issues to be addressed by the project and strategic choices The NovaGerar Project is aligned both with the Waste Management & Environment and with the Power Generation sectors' objectives, as described in the previous section. In terms of Waste Disposal & the Environment, the NovaGerar Project will be an enabler to the consolidation of Adrian6polis, sanitary landfill both in terms of waste management and in terms of methane collection and its use to produce electricity. Therefore, the Project expects to demonstrate that carbon finance can catalyze environmentally sustainable, profitable waste management with appropriate gas collection systems under strict environmental standards. The NovaGerar Project, in conjunction with the Adrian6polis landfill initiative, will help establish a real scale model for a new paradigm of waste management and gas utilization. It will help build capacity in the private sector and governmental institutions. Adrian6polis is the first landfill that received an environmental license in the State of Rio de Janeiro and could set new benchmarks for the waste management sector in the State. 8 In terms of Power Generation, the NovaGerar Project is aligned with GOB intention to diversify sources of power generation, fostering non-conventional, renewable sources of energy. The proximity to the load centers is also a positive aspect of landfill gas power generation, as it contributes to alleviate existing constraints in the transmission, particularly in the metropolitan area of Rio de Janeiro. Finally, a carbon credit finance mechanism will provide badly needed foreign currency revenues, which are required to finance a large percentage of the hard-currency denominated investment or leasing costs. The great majority of the power projects under construction in Brazil have their revenues denominated in local currency, while a significant portion of their costs is indexed to the US$ (e.g. financing, and in some cases fuel). So far, no adequate hedge mechanism has been found for the exchange risk faced by those projects. This has been a significant factor which has inhibited the expansion of the power system in Brazil. In that sense, the NovaGerar project is unique, and opens up a wide range of possibilities for the power generation business. The Project will involve the use of a new financial source (Clean Development Mechanism) for the funding of power sector, in particular for renewable generation. C. PROJECT DESCRIPTION SUMMARY 1. Project components The Project components include investments in a gas collection system and in modular electricity generation plants at the former open dump in Marambaia and a new sanitary landfill in Adrian6polis. The understanding of the Project components can be enhanced by looking first at the landfill operations. Although the Project has not directly invested in the construction and operation of the landfill, the World Bank analyzed the design and operational practices related to the waste management and will monitor them very closely during the project cycle. The Adrian6polis landfill is divided in four sections, for which the operator has received an operational environmental license for one section only. If the operator does not receive a renewal of this operational license or is unable to obtain licenses for the other sections, the Project targets for emission reduction will not be achieved and the contract between the Bank and the project sponsor (ERPA) will enter into default. The NovaGerar Project can be seen in association with a large program of rationalization of urban waste collection and management, initiated by the Municipality of Nova Igua,u, a city of 800,000 inhabitants with more than 600 industries and 2,400 commercial establishments. When the program was initiated, the situation was critical. Some 100,000 t of waste were found in over 1,200 sites within the city. In a few months, the program managed to raise the waste collection rate to 90% of waste generated in the city. A selective waste collection was initiated with community support, which covers 450 collection sites. The program also included an environmental education project. The second phase of the program focuses on adequate waste treatment in Adrian6polis, which started to receive solid waste on February 2003. At the same time, Marambaia, which is adjacent to Adrian6polis, was deactivated Marambaia covers an area of 20 ha and has been in operation since May 1987. It received an average of 450 tons of waste per day from the Municipality Nova Igua,u, leading to an accumulation of some 250,000 t of waste. It operated without an environmental license. Marambaia was poorly managed and the environmental damage it caused is conspicuous. The enterprise which operated the illegal dumpsite until recently, was ordered by the General Attomey Office (MinisterioPziblico) to close the dumpsite. In practice, this order only came into effect when Adrian6polis provided a feasible alternative to the municipality. A plan to implement appropriate measures to minimize environmental impacts was designed and fully executed by Paulista S.A., a partner in Nova Gerar and owner of the Adrian6polis landfill, which took over 9 Marambaia in 2003 to carry out a proper closure of the dump site. This executive plan included the re-shaping of the external parts of the dump site, the construction of a leachate collection system, closure and re-forestation of the site. Differently from Marambaia, the design and executive plan for the construction of the Adrian6polis landfill measures up to the quality and environmental standards as applied in Europe. Licensing for Adrian6polis was granted by FEEMA, the state Environmental authority, and authorized a maximum waste disposal of 200,000 m2. The ultimate receiving capacity of the landfill is expected to be some 4,000 - 5,000 t/day. For the Project projections, it is envisaged that Adrian6polis will be able to capture around 2,000 t/day from Nova Iguacu and other municipalities. This scenario is very likely to happen due to the precarious waste disposal situation in and around Rio de Janeiro, where most of the current sites will have to be closed by 2005 and only a few alternatives can be practically considered. The main Project components for both the Marambaia and Adrian6polis sites include: * Gas collection system * Flares * Power generators The gas collection system will use state-of-the-art technology. The landfill uses cells coated with an impermeable high-density polyethylene membrane; water residues will be channeled and treated in a waste water treatment plant. Landfill gas will be collected and channeled to the power generation units; excess gas will be flared. Vertical wells will be used to extract gas, and their spacing is optimized, aiming at maximizing gas collection and minimizing costs. Gas headers will be designed as a looping system in order to allow for partial or total loss of header function in one direction without losing gas system functionality. Condensate extraction and storage systems will be designed at strategic low points throughout the gas system. Efforts will be made to minimize condensate handling.. The flares, to be installed in parallel with the generator sets, will be 2000 m3/hour Modular Ground Gas Flares. The flares employ a biogas technology design and will be skid or base frame mounted ground flares. Ground flare stacks enable higher burning temperature to ensure low emissions, in accordance with current best practice guidelines in the UK. The burner unit is fully adjustable to enable high temperature flaring of the landfill gas, which will vary in both quality and quantity from site to site, and over time. The unit is comprised of multiple stainless steel burner nozzles mounted onto a pedestal which supports the flare stack and houses the primary and secondary air supply ductwork. Manual and actuated louvers are provided to control the air supply and manual valves in the pipe work to control the gas supply. 10 -4 - Fig. 1.: Gas collection system and flare, leachate collection and treatment systems In terms of power generatrs British landfill-gas-to-power company EnerG has recommended the use of modular engines, such as the Caterpillar G 351I6TA LE spark ignition engines. A modular reciprocating engine facility requires considerably less initial capital expenditure, but does incur higher maintenance costs. Given the inherent uncertainty of gas supply, the smaller modular reciprocating engine generators units offer a significant advantage to adapt the equipment to the site-specific gas volumes. This flexibility enables a small pilot plant to be established at a relatively low cost. As gas volume decreases over time, the modules can be relocated to other sites. Each generating set is rated 0.95 MW. The generation installation schedule for each of the sites during the ERPA period is indicated in Fig. 2. It is phased to provide a gradually increasing production capability. In Marambaia, the installation will be carried out as a single deployment of one 0.95 MW generation set. Methane gas will be captured by drilling 21 gas domes or gas collection drains to be used for the generation of energy. Because of Marambaia's character as an original open dump site, monitoring activities will be implemented to carefully observe groundwater quality, final covering and stability of the topsoil and operators' health and safety. As the amount of gas in this site decreases, the engine will be transferred to Adrian6polis. ______ N of generab __ N' gPWTiWs TOTAL YU Maim,j3b1j N1V1Yr4F Adnan6oIis MWWYwa 2005 1 7,184 1 7,884 15,768 2006 I 7.884 2 1 5,768 23.631 2007 I 7,884 3 23,652 31,536. 2001 I 7,884 4 31.536 39,420 2009 I 7,884 5' 39,420) 47,304 2010 I 7.884 6. 47,304 55~3. 2011 0.7* 55.I1A9 55i I 9 2Q12 0 _ _ _ _ _ _8 63.072 _ _ _ _ _ _ Fig. 2: Installation Schedule of Generators in Marambaia and Adrian6polis In termsof powe generatrs, Briish landill-gasto-powercompanyEnerG ha recommnded th 2. Institutional and implementation arrangements 2a. The Project Sponsor NovaGerar Eco-Energia Ltda. (NovaGerar) is a Special Purpose Company (SPC) representing a 50-50 joint venture between EcoSecurities Brasil Ltda (EcoSecurities) and S.A. Paulista de Construcoes e Comercio (S.A. Paulista). Ecosecurities is an environmental finance company which specializes in the GHG mitigation business; its parent company has headquarters in the UK. Ecosecurities' contribution to the project was initially the preparation of the CDM-relevant documents, such as the Project Idea Note and the Project Concept Note. Furthermore, Ecosecurities decisively contributed to the elaboration of the Monitoring Protocol, the Baseline Study and the Project Design Document (in close cooperation with the World Bank). Additionally, it led the technical feasibility study for gas collection and power generation. NovaGerar Eco-Energia Ltda. (NovaGerar) is a Special Purpose Company (SPC) representing a 50-50 joint venture between EcoSecurities Brasil Ltda (EcoSecurities) and S.A. Paulista de Constru,6es e Comercio (S.A. Paulista). Ecosecurities is an environmental finance company which specializes in GHG mitigation issues; its mother company has offices in the UK, USA, the Netherlands and Australia. S.A. Paulista is a Brazilian civil engineering and construction firm based in the city of Sao Paulo, with branches in several other Brazilian states and counties. S.A. Paulista's core business is in traditional heavy construction sectors such as highways, railways, airports, ports, industries and sanitation. In the area of waste management, S.A. Paulista manages the largest domestic waste transfer station in South America (Transbordo Ponte Pequena), responsible for 60% of all domestic waste from Sao Paulo, a city with a population of more than 10 million people and is operating the Gramacho landfill in Rio de Janeiro, the largest landfill in Latin America receiving 7,000 tons of waste/day. S.A. Paulista is in charge of landfill operations, while NovaGerar will explore all businesses related to the use of the GHG and hold all the assets related to gas collection and power generation. It is therefore the legal contractual partner of the NCDMF. Through an agreement with S.A. Paulista, NovaGerar will have access and full priority to all the gas produced by Marambaia and Adrian6polis, at no cost. In 2001, S.A. Paulista was granted a 20-year concession license by the Empresa Municipal de Limpeza Urbana of Nova Iguacu-EMLURB (the municipal-government owned company responsible for waste collection and disposal) to manage the Marambaia and the Adrian6polis landfills. This was the result of a competitive and transparent bidding process. The clean up of the Marambaia dump is part of a contractual obligation between S.A Paulista and EMLURB S.A.. Following protracted negotiations with the owner of the Marambaia dump site, in April 2003 S.A. Paulista rented the dump site for 20 years with rights to exploit the landfill gas. All licenses required by environmental control agencies have been issued, including the installation license for the power generation plants by FEEMA in March 2003. For the future power generation, NovaGerar will have to obtain an authorization from ANEEL, the national regulatory agency for electricity, to operate as an independent power producer. NovaGerar will sign an agreement with EnerG for leasing and operation of the gas collection devices and the power plants. Section 2.4 provides the key features of these arrangements. Funding for the Project will come in its majority from two major sources. First, EnerG will facilitate the deployment of the energy generation equipment, which accounts for a significant part of the Project investments, through a leasing arrangement. Second, a long-term ERPA will 12 provide the carbon credits through the NCDMF, which can also be used as financial guarantees for the leasing contract between NovaGerar and EnerG. 2b. The Netherlands Carbon Development Mechanism Fund - NCDMF The NCDMF was established in May 2002 between the IBRD and the State of the Netherlands as a facility to purchase GHG ER credits. The agreement, signed with the Netherlands' Ministry of Environment, Housing and Spatial Planning (VROM), supports projects in developing countries in exchange for ER credits under the CDM established by the Kyoto Protocol. NCDF purchases high quality GHG ER which could be registered with the UNFCCC for the purposes of the Kyoto Protocol. NCDF enters into Emissions Reduction Purchase Agreements (ERPA) with "project sponsors", defining the quantity, price and other delivery conditions of ER to be purchased by NCDF, including the monitoring and verification protocols to enable quantification, verification and certification of ER actually achieved. To increase the likelihood that the ER will be recognized by the Parties to the UJNFCCC, independent experts from the engineering and economic consulting industry and the global certification and audit industry provide baseline validation and verification/certification services for ER transactions that respond to UJNFCCC rules as they develop. The NCDF has a target of placing up to 70 million Euros in projects over the first two years of its agreement, leading to emission reductions of approximately 16 million metric tons of C02 equivalent. equivalent until the end of 2012. Over the next two years, the NCDF will enter into purchase agreements to purchase ER credits from renewable energy, energy efficiency, and fuel switching CDM project activities. Despite not being directly related to NovaGerar, another important source of funding for the overall venture under which the Project is framed, will come from the Brazilian Federal Government. IBAMA has agreed with the Nova Iguacu City Govemment to contribute R$ I million to S.A. Paulista to the financing of the Adrian6polis landfill (see B2.a). NCDF retains services of internationally-recognized, fully independent third parties to verify and certify the actual ER produced. The NCDF will only disburse against delivery of verified and certified ER. In the event that the project sponsor fails to deliver the quantity of ER for any given calendar year as set forth in the ERPA, remedies against the project sponsor will apply as agreed in the ERPA. The ER reporting and financial flows between NovaGerar and NCDMF/The World Bank are shown in Figure 3: 13 / /~~~~~ Government of Goverment Legal, Netherikands Goernment regulatory jA IMCCC and institutional . framework Reporting Payment & ERs NovaGerar - -. \ t (Project Sponsor) Figure 3: Direct Financial and Reporting Flows between NCDMF and the Project Sponsor (NovaGerar) 2c. The Brazilian Government The role of the Brazilian Government in supporting the CDM and the Kyoto Protocol acquires vital importance for the Project. The Government of Brazil has created two important arrangements to deal with global climate change: a) the Inter-ministerial Commission on Global Climate Change (IMCCC); and (b) the Brazilian Forum on Climate Changes. The IMCCC was created by presidential decree on July 7, 1999, with representatives from eight Ministries, the Presidency and the Extraordinary Ministry of Special Projects. The head of the Commission is the Minister of Science and Technology and its attributions are to give advice and technical support to the Government on the issues related to the national and international scenario of ongoing climate change activities, including inter alia the CDM and the Kyoto Protocol. The NCDMF management unit and the World Bank have liaised with and informed the Government focal point for the UNFCCC on all major steps in the Project development. The Executive Secretariat for the CDM Brazilian will be supported through a Technical Assistance Loan to the Federal Government within the context of the Competitiveness Adjustment Loan. The Federative Republic of Brazil has ratified the UNFCCC on February 28, 1994, and the Kyoto Protocol (that was adopted at the Third Conference of the Parties to the UNFCCC in Kyoto, Japan on December 11, 1997) on July 23, 2002. At the end of the Project preparation, after validation, the project needs to be approved by the IMCCC. Only after the Government has provided a Letter of Approval (LoA), certifying that the CDM project is contributing effectively to sustainable development in the host country, the CER may become valid under the Kyoto Protocol and registered at the UNFCCC. The IMCCC issued Resolution no. 1, on December 2, 2003, outlining the approval process of CDM projects in Brazil. The Nova Gerar project is expected to be the first approved CDM project in Brazil. In fact, the project was presented at the IMCCC meeting on February 11, 2003. The ICCC has 60 days to issue the approval letter. 14 2d. Deal Structure 2d.1 Main actors and arrangements The roles of the key stakeholders as well as the main commercial and regulatory interfaces are shown in Figure 4. The Parties to the Project MAe r'1T' j-V AGREEEH wa'- Len.." ~ ~ ~ ~ ~ _ 0EMf __ - i ! 11G R . w 7 y~~~~~~~P' L~~~~~~TAor MA G3SA Gas SupplIy * Pg8PGTER TUOSA a Trrnsbnmk-i, Use OF System Agbesnw? * ElmFIKtATION . DLJOSA aDtinbub Use d System A.riW1t . -i io 50.00% -0.0% 70.0% order to start installing . 60X0% -. the engines the 0 000% 0~ ~ ~ ~ ~~~~~~~~~~~~00 electricity component 3o *.%. 400 systematically 2000%/ 300% produces yearly _ 0 . .. . . 20.0% losses. The following iu 10.00% - graph illustrates the s2 0.00% - 0.0% impact of carbon credits on the Project. Even considering a Ž _ _ _ favorable electricity tariff of US$ 48/MWh, it would be necessary to resort to 22% of the ER revenues to avert losses in the energy generation. The significant amount of ER revenues until 2013 not only offsets the financial losses due to the electricity production, but also lead to considerable profits, thus assuring a sizable FIRR for the whole Project during its entire lifetime. Alternatively, with no ER revenues, a tariff increase to US$ 51 /MWh would be required to enable the generation component to breakeven. Main results from the sensitivity analysis are described below and portrayed in the annexes. As expected, the Project feasibility is extremely dependent on the amount of ERs, which in turn are a direct consequence of the incremental landfill gas production. Therefore, in order to have a safety cushion on evaluating that feasibility, the ERs are estimated very conservatively. This notwithstanding, reducing the ER payments by only 10% causes a drop in the FIRR from 45% to 35% and in the NPV of some 40% to a level of US$ 240K. The generation output goes in opposite direction to the FIRR. For instance, a reduction of the electricity output by 50%, increases the FIRR further to 57%, and correspondingly the NPV to over US$ 560K. If however the generation installation and output are kept as in the base case scenario, a 16% tariff reduction to US$ 40/MWh would cause the FIRR to of the tariff to. Finally, keeping the same amount of engines and assuring the same electricity generation, further reductions in the energy tariffs would materially jeopardize the project, who would keep the same level of obligations with EnerG, and need more ERs to subsidize the electricity losses. By reducing the energy tariffs to US$ 40 / MWh (i.e. about 16% reduction over the US$ 48 / MWh in the base scenario), the Project FIRR to become negative and the NPV fall to less than -US$ 1.5 million. 2.c Conclusions * The overall financial evaluation of the Project is deemed positive * The profitability of the land filling activity and the healthy situation of S.A. Paulista guarantee the continuity of the gas supply for the methane flaring and electricity generation. * The administration of the flaring and energy systems is being done by an experienced international company (EnerG). The risk and profit sharing taken by this company results in a higher commitment to the success of the Project. Even at an extreme scenario, the project profitability clause of step in rights provided by NovaGerar in case of commercial default, assures the continuity of the project and the generation of ERs. 29 * The electricity generation component is not financially sustainable due to the high costs involved in this operation (i.e. mainly charged by EnerG, plus royalties and land rent for the Marambaia site). This component would require an unlikely electricity tariff of US$51/MWh to breakeven. The electricity tariff of $48/MWh, required by EnerG for the installation of the engines, will generate financial losses for this component seen in isolation, which will be however fully covered by some 20% of the ER revenues. * Due to a reasonably conservative ER projection used in the Project analysis, it is likely that additional ERs will be generated during the Project life. Since the agreement with NCDMF considers the acquisition of all additional ERs generated until 2012, the Project has a reasonable chance of resulting much more profitable than projected here. 2.d Comparison between the economic and financial analyses The table below shows the differences between the key parameters used in the two analyses. Financial Analysis Economic Analysis Electricity price 48 45 US$/MWh Taxes - % 18.65 on revenues No 34 on net income Royalties - % 10 on revenues No O&M (EnerG) 18 15 US$/MWh Investment (Capital) Cost US$ 18/MWh (*) US$ 745,800 per generator (EnerG) installed (*) For purposes of direct comparison, this remuneration of capital based on production can be translated in an equivalent plant investment for a certain production, life duration and capital recovery factor (discount factor). For 7884 MWh/year per generator, 15-year life and 12% factor, the equivalent plant investment (per generator) would be US$ 966,500 per generator installed. The total cost charged by EnerG (US$36/MWh) can be broken down in two equal amounts of US 1 8/MWh for O&M and capital cost. If the O&M were assumed as US$15/MWh (benchmark used in the economic analysis), the resulting capital cost for the same total charge would be US$21/MWh. This value would translate using the same assumptions indicated in the previous paragraph in an equivalent plant investment of US$1,128,000 per installed generator. This value will be used in the simulations presented in the table below. The table below seeks to show how the differences in the rates of return indicated in the preceding sections for the economic and financial analyses can be explained. This is done by introducing in the computation of EIRR some concepts that apply to the financial analysis but have not been (rightfully) considered in the economic analysis, e.g. taxes and royalties, as they are internal transfers. Additionally some cases have been simulated with capital costs (plant investments) that attempt to reflect values used by EnerG. 30 Cases simulated excluding carbon benefits EIRR FIRR (%) (%) Base Case Scenario 28 Negative Including Taxes 18 Including Royalties 23 Considering Capital Cost at U$1,128,000 per 18 installed generator Including Taxes and Royalties 12 Including Taxes and Royalties and Considering 6 Capital Cost at U$1,128,000 per installed generator The table above shows for the base case scenario that when carbon benefits are excluded, the EIRR is still very high at 28%, whereas the FIRR drops to negative values. The latter result has been pointed out in the discussion of the financial analysis as an indication that the generation component produces financial losses. It is the purpose of this section to explain this apparent contradiction. Part of the conciliation is given by the consideration of taxes and royalties. This would make the modified EIRR drop to 12%. When in addition, the higher capital costs are considered, the modified EIRR drops further to a small value. This approximation is enough to resolve the contradiction. There are many other costs in the financial analysis, e.g. working capital, that if reflected in the modified EIRR computations would further reduce the modified EIRR. 3. Technical Combustion of the landfill gas to produce electricity will convert the highly potent methane content to less potent carbon dioxide, thus resulting in significant greenhouse gas emission reductions. The methane content of the landfill gas from the NovaGerar landfill is approximately 54%. About 4.6 million tons of C02 will be emitted in the project scenario during the period 2003-2023. The project scenario also displaces some thermal generated electricity from the interconnected system, despite the Brazilian power system being predominantly hydro based. That means that, in most cases, hydro generation will be meeting the incremental needs of the system. However, thermal generation (gas-fired or diesel fired) are becoming increasingly important, particularly in peaking generation. Therefore electricity generated by NovaGerar will indeed replace thermal generation and therefore displacing non-renewable thermal electricity from the grid. The chart presented below illustrates the baseline methane emissions, the equivalent Project methane emission and the cumulative ER as the Project is carried out. For the computation of ER, methane is transformed into C02 equivalent according to its climate change potential, which is 23 times higher than C02. 31 Year Baseline Baseline Project methane Project methane Uncertainty Total grid Total Emission Cumulative methane methane emissions from emissions from (25%) adjusted electricity Reductions emission emissions from emissions from Marambaia Adrianopolis emission displacement (tCO2 reductions Marambaia Adrianopolis (tCO2 (tCO2 reductions emission thousand) (tCO2 (tC02 (tCO2 thousand) thousand) (tCO2 reduction (tCO2 thousand) thousand) thousand) thousand) thousand) 2004 179.5 140.5 33.7 26.3 195.0 0.0 195.0 195.0 2005 162.4 267.5 30.5 50.2 262.0 0.0 262.0 457.0 2006 147.0 382.5 27.6 71.7 322.7 19.1 341.8 798.8 2007 133.0 486.6 24.9 91.2 377.6 23.2 400.7 1,199.6 2008 120.3 580.7 22.6 108.9 427.2 . 23.4 450.6 1,650.2 2009 108.9 665.9 20.4 124.9 472.2 23.3 495.4 2,145.6 2010 98.5 743.0 18.5 139.3 512.8 23.3 536.1 2,681.7 2011 89.2 812.8 16.7 152.4 549.6 21.2 570.8 3,252.5 2012 80.7 875.9 15.1 164.2 582.9 21.2 604.1 3,856.5 2013 73.0 933.0 13.7 174.9 613.0 21.2 634.2 4,490.7 2014 66.0 984.6 12.4 184.6 640.3 21.2 661.4 5,152.1 2015 59.8 1,031.4 11.2 193.4 664.9 21.2 686.1 5,838.2 2016 54.1 1,073.7 10.1 201.3 687.2 21.2 708.4 6,546.6 2017 48.9 1,112.0 9.2 208.5 707.4 21.2 728.6 7,275.2 2018 44.3 1,146.6 8.3 215.0 725.7 21.2 746.9 8,022.1 2019 40.1 1,178.0 7.5 220.9 742.2 21.2 763.4 8,785.5 2020 36.2 1,206.3 6.8 226.2 757.2 21.2 778.4 9,563.8 2021 32.8 1,232.0 6.1 231.0 770.7 21.2 791.9 10,355.7 2022 29.7 1,255.2 5.6 235.3 783.0 21.2 804.1 11,159.9 2023 26.9 1,135.7 5.0 213.0 708.5 0.0 708.5 11,868.3 Fig 7: Total Emission Reductions for the NovaGerar Project - Tons of C02 Equivalent For the purpose of the ERPA, the followin values of ER are considered: Annual ERPA Cumulative Minimum Value ERPA Value Minimum Annual Cumulative ERs (t C02 equiv.) (t C02 equiv.) Year ERs (t C02equiv.) t C02 equiv.) 2004 80,000 80,000 268,000 268,000 2005 185,000 265,000 619,750 887,750 2006 200,000 465,000 670,000 1,557,750 2007 250,000 715,000 837,500 2,395,250 2008 280,000 995,000 938,000 3,333,250 2009 330,000 1,325,000 1,105,500 4,438,750 2010 360,000 1,685,000 1,206,000 5,644,750 2011 400,000 2,085,000 1,340,000 6,984,750 2012 450,000 2,535,000 1,507,500 8,492,250 Fig. 8: Emission Reduction Values Considered in the ERPA 3b. The Landfill Gas Collection System Landfill gas (LFG) will be collected and channeled to the power generation units; excess gas will be flared. Vertical wells will be used to extract gas, and their spacing is optimized, aiming at maximizing gas collection and minimizing costs. Gas headers will be designed as a looping system in order to allow for partial or total loss of header function in one direction without losing gas system functionality. Condensate extraction and storage systems will be designed at strategic low points throughout the gas system. Efforts will be made to minimize condensate handling. State-of-the-art gas collection technology will be employed in the Project. The scope of work covered by the system specifications includes the installation of: * 34 gas wells and wellheads * New connecting pipework to join the wells to the manifolds 32 * 4 manifolds * Gas main to connect the manifolds to the flare * 4 pumped knockout pots * Pneumatic condensate pumping system, comprising pneumatic pumps, air line, discharge lines and compressor. * Condensate pumping system, comprising pneumatic pumps, air line, discharge lines and compressor * Secure housing for compressor and refrigerator unit. * Ground flare and flare compound In Marambaia, a total of 34 vertical wells will be installed, in addition to those already necessary for and planned in the closure process of the dump. The destruction and utilization of methane for power generation is expected to end in 2011 in Marambaia . In Adrian6polis, the landfill is divided in four sections. The first landfill section started receiving waste in February 2003. According to the executive plan the life time of this section is expected to be 5 years. After this period, waste will be deposited in the next section. Vertical wells are constructed already during the filling of the sections, as planned in the executive plans and expanded according to the height of the waste levels. It was estimated that enough gas would be accumulated to start extraction and flaring after 200 operational days. The sections are divided in three sub-sections. After one year, the first subsection will be closed and waste will go the next subsection. When the first subsection is closed, gas extraction can begin. The distance between the wells will depend on the shape, volume, quality and height, and will be determined by cost-benefit evaluations. The flares, to be installed in parallel with the generator sets (or even before, according to the feasibility of power generation) will be 2000 m3/hour Modular Ground Gas Flares. The flares employ a biogas technology design and will be skid or base frame mounted ground flares. The burner unit is fully adjustable to enable high temperature flaring of the landfill gas, which will vary in both quality and quantity from site to site, and over time. The unit is comprised of multiple stainless steel burner nozzles mounted onto a pedestal which supports the flare stack and houses the primary and secondary air supply ductwork. Manual and actuated louvers are provided to control the air supply and manual valves in the pipe work to control the gas supply. 3c. Power generation In addition to the benefits derived from ER by burning methane in its power plants, the Project also displaces grid electricity from the Southeastern Brazilian grid. Given the uncertainty about the evolution of the Brazilian generation system, these benefits cannot be predicted with a high degree of confidence. This notwithstanding, and to have an order of magnitude estimate, it is considered that over the Project period of 21 years, such electricity replacement would yield ER of approximately 400,000 tCO2. This compares with nearly 12 million tCO2 from ER generated by burning the methane in Marambaia and Adrian6polis. The Project will be connected to the grid, but because of its size, (< 50MW) it will likely be self- dispatched by NovaGerar. Physical interconnection to the grid will be discussed with ONS and Light, in terms of cost-effectiveness. British specialist landfill gas to energy company EnerG, the partner of NovaGerar for the energy component, has recommended the use of modular engines. A modular reciprocating engine facility requires considerably less initial capital expenditure, but does incur higher maintenance 33 costs. Given the inherent uncertainty of gas supply, the smaller modular reciprocating engine generator units may offer a significant advantage to adapt the equipment to the site-specific gas volumes. This is because it allows for a small pilot plant to be established at a relatively low cost and then, if economics and gas volumes support it, a plant expansion can be accomplished with minimal difficulty. Furthermore, as the gas volumes decrease over time, the modules can be relocated to other sites. The overall capacity installed will be 12MW with a maximum energy output of 65,000 MWh/year. Power generation in Marambaia can start from the first year on, because methane gas is already available for power generation (estimated between 13,000 - 6,000 MWh/year output, decreasing over seven years). It is expected that Adrian6polis will be able to start generating energy from the second year on with an electricity output of 25,445MWh/year rising over the years to 63,613 MWh/year. 3d. Landfill operation The Marambaia site covers 200,000 m2 and has been operated by a company, other than Paulista S.A., since 1986. It ceased operation in August 2002. Over 2 million tons of waste are already deposited in the site, but no waste management, gas collection or wastewater treatment system were installed by the previous operator. Paulista S.A. will rehabilitate the site, while the NovaGerar project will install a landfill gas collection system and a drainage system to collect and treat effluents. The Adrian6polis site has replaced Marambaia. It occupies an area of 1,200,000 m2, and commenced operation in February 2003. It is anticipated that it will receive an average of 2,000 tons of municipal waste per day for at least 20 years. This figure may rise to 3,000 to 4,000 tons per day, but in the interest of conservatism a figure of 2,000 tons per day has been used in the analyses related to the CDM project. This landfill is being managed according to the latest technology, which has been sought from specialist American and European waste management companies, with additional advice provided by EnerG. The bottom of the landfill will be coated with an impermeable high-density polyethylene membrane and the water residues will be channeled and treated in a wastewater treatment plant. Landfill gas will be collected by a gas collection system, and channeled to the electricity generation units. Excess gas will be flared. The project has already secured all the necessary environmental permits required by the Brazilian law. Capture and combustion of the landfill gas will effectively result in the avoidance of approximately 11.6 million tons of C02 emissions over 21 yeas. The Adrian6polis design comprises all necessary elements for a well managed and protected landfill and include: * bottom liner for underground protection; * compartmentalization of disposed refuse with covering of completed sections; * construction of leachate drains; * vertical domes for biogas collection; * water drains in slopes; * final covering; * leachate collection basin; * monitoring plan. 34 4. Institutional S.A. Paulista, a Brazilian civil engineering and construction firm, has a 20-year concession from the Municipality of Nova Iguacu for the operation of Marambaia and Adrian6polis landfills. This company and Ecosecurities, an environmental finance company, created a 50-50 joint venture under the name of NovaGerar to explore businesses related to the use of the GHG, specially for power generation. NovaGerar, which is the Project sponsor, has full access to gas produced by these landfills, whose ownership rights were awarded to Paulista S.A. by the Municipality. The Municipality of Nova Iguacu receives 10% of all revenues generated by the businesses developed by the Project and the landfills, other than those related to Paulista's handling and depositing of the Nova Iguacu solid waste. NovaGerar will sign an agreement with EnerG, a power generation company from UK that provides clean energy initiatives, for leasing and operation of the power plants. Therefore, both S.A. Paulista and Ecosecurities will avoid using their own resources to fund NovaGerar's investment requirements. The NCDMF, a fund created by the State of the Netherlands, will purchase GHG ER from NovaGerar. For this purpose, NovaGerar will sign an ERPA with the World Bank, which acts as the Trustee for the NCDMF, which will permit disbursement against verified and certified ER generated by the Project. After the Project's validation by the World Bank and NCDMF, the Brazilian government must provide a Letter of Approval, certifying that the CDM project contributes to sustainable development in the country, so that the project will be valid under the Kyoto protocol. 4.1 Executing Agencies NovaGerar, a Special Purpose Company, composed of S.A Paulista and Ecosecurities 4.2 Project Management NovaGerar 4.3 Procurement Issues N/A 4.4 Financial Management Issues N/A 5. Environmental 5.1 Summarize significant environmental issues and objectives and identify key stakeholders. If the issues are still to be determined, describe current or planned efforts to do so. The primary focus of the Project is the efficient collection of biogas and power generation using methane. The Project is expected to (i) reduce methane, a greenhouse gas, by generation of electricity from landfill gas, and to (ii) improve the management of municipal waste in the municipality and is expected to have significant positive benefits notably the protection of the environment and human beings through the mitigation of potential risks associated with improper waste disposal. The municipality of Nova Iguacu located in the Baixada Fluminense, is one of the most highly populated areas in Brazil, with a population of approximately 3 million people. Continued population growth as a result of migration, has contributed to social tension in the area, and 35 significant environmental degradation from sustained, inappropriate municipal solid waste disposal practices in the area. Of particular relevance is the significant environmental degradation of the Guanabara Bay (Baia de Guanabara) over several years. Solid waste disposal in the area has been largely by uncontrolled, open dumping at the Marambaia dumpsite which received approximately 600tonnes waste/day over the past 15 years, until its closure in January 2003. Leachate from the site pollutes the local soil and the adjacent river (Rio Igua,u) which empties into the Guanabara bay. To address the problem of inadequate solid waste disposal, the municipality in cooperation with the Ministry of the Environment, FEEMA and IBAMA (state and federal environmental agencies respectively) promoted the decommissioning of the Marambaia dumpsite and the construction of an engineered sanitary landfill at Adrian6polis. The site of the proposed Adrian6polis landfill is located in the Vila da Cava district, about 1Okm from the city's urban center. A total area of 20ha of land has been assigned for the construction of the landfill and the energy component. The areas to be filled are spread out over four main areas in the site and can receive up to 4000-5000 tonnes of waste/day at full capacity. The vegetation in the site and its immediate vicinity is secondary forest with low biodiversity value. The underlying soil on the site is clayey soil of low permeability. The site is located within a lOkm radius of the Federal Biological Reserve of Tingua. Both the Marambaia and Adrian6polis sites have roads leading to them, as such there is no need for construction of access roads that may interrupt the activities of residents of the nearby community. Potential adverse impacts from the energy generation component are noise from the operation of generators, generation of waste residues (lubricant oils, spent coolant liquid, condensates), accidents (fires, gas leakages), electric discharges along transmission lines. Although a decision is yet to be made as to the mode of transmission of energy that will be generated from Adrian6polis and Marambaia, no resettlement is envisaged as a result of installation of transmission lines. In the case of Adrian6polis landfill, the site shares a border with a FURNAS 500 kV power substation, and as such any environmental impacts associated with the installation of the lines are expected to be minor. In the case of the Marambaia site, there is some 600-800 meters between the power substation and the point of connection at Marambaia. In order to ensure that adequate measures are taken to safeguard people and the environment, the client will submit any plans, work programs and environmental assessments to the Bank for approval prior to implementation. The main impacts associated with the construction of the Adrian6polis landfill have been identified in a report of study of altematives Estudo Ambiental de Alternativas Locacionais carried out under the project by the municipal entity responsible for waste management, EMLURB. Project impacts are associated with construction activities at the sites of the Adrian6polis sanitary landfill and the Marambaia dump. Main impacts during the construction phase include (i) loss of vegetation and fauna from clearing of secondary forests for site preparation; (ii) reduced replenishment of the underlying aquifer; and (iii) other potential impacts such as construction nuisance including disposal of construction waste, noise, increased traffic, dust, impacts on other road users. Potential impacts during operations include increased traffic, odor, noise, litter, visual impacts, health and safety of workers on the site (dealing with healthcare and municipal waste, operation of sensitive and/or heavy equipment), disposal of solid and liquid waste streams generated on site. All these impacts are being addressed through environmental guidelines and targeted mitigation activities. With respect to the Marambaia dumpsite closure, the environmental impacts are expected to be largely positive given the deplorable conditions - presence of disease causing vectors, visual impact, soil and water contamination by leachate, associated with the practice of uncontrolled open dumping and exposure to risks thereof by scavengers. 36 As with all landfill construction and dump closure projects, potential impacts after site closure include: (i) fires; (ii) methane migration from the site which if not adequately mitigated could have severe consequences. Both possibilities are being avoided to the extent possible through proper planning and targeted mitigation measures. 5.2 What are the main features of the EMP and are they adequate? Determine whether an environmental management plan (EMP) will be required and its overall scope, relationship to the legal documents, and implementation responsibilities. For Category B projects for IDA funding, determine whether a separate EA report is required. What institutional arrangements are proposed for developing and handling the EMP. The EA reports incorporate EMPs for the Adrian6polis landfill site, the Marambaia dumpsite closure and the energy component at both sites. The EA reports identify the responsible entities for the various mitigation measures. Some of the key features of the EMP are described briefly below: Engineering Design To mitigate the negative environmental impacts of inadequate solid waste disposal, the engineering designs for the dumpsite closure and construction of the Adrianopolis landfill have been carried out according to intemationally accepted standards to ensure adequate provision for waste disposal and protection of the environment. The construction at Marambaia will feature: (i) Re-shaping of the extemal parts of the landfill to improve slopes and create terraces, (ii) Construction of a leachate collection and recirculation system, (iii) Construction of gas collection and flaring system, (iv) Low-permeability engineered final cover, (v) Surface runoff drainage, (vi) Monitoring provision for gas, groundwater, leachate. The construction of the Adrian6polis landfill features: (i) Low-permeability basal liner, using high density polyethylene PEAD (ii) Compartmentalization of disposed refuse with covering of completed sections, (iii) Leachate collection and treatment system (iv) Gas collection system, (v) Surface runoff drainage, (vi) Low-permeability engineered final cover, (vii) Monitoring plan Vegetation Enrichment Plan To address the loss of vegetation as a result of clearing for construction purposes, the project sponsor has prepared a vegetation enrichment plan which will involve the reforestation with native species, of areas cleared during construction activities; restoration of 30ha of degraded land in the Federal Biological Reserve of Tingua; and planting of a green belt to reduce any visual impacts of the landfill. A similar vegetation enrichment plan will be embarked upon at the Marambaia site. At Adrianopolis landfill, the reforestation will also serve to improve water 37 retention around the water spring area. No use of pesticides is envisaged for reforestation activities. Control of ants (formigas cortadeiras) will be carried out by (i) mechanical methods involving excavation until nests of fungus housing the queen are encountered, for small areas; (ii) cultural methods that involve use of plant species such as Sesamum indicum, Ruta spp and Vandalia spp., that possess pest control properties. Energy generation component The mitigation plan for the energy generation components will feature measures to address the following: (i) Waste management including waste from equipment packaging, waste oils, lubricants, spent coolant, gas condensate (ii) Noise reduction from the engines (iii) Safety and security controls to reduce risk of accidents (iv) Worker protection and safety (v) Equipment maintenance plan (vi) Monitoring plan including measurements and documentation of emissions including methane; oily wastes, liquid wastes, leaks, accidents Environmental education program An auditorium with classrooms will be constructed on-site for the purpose of providing education by way of lectures and classes to members of the community on environmental protection and management as well as training to site workers. 5.3 For Category A and B projects, timeline and status of EA Date of receipt of final draft: April 6, 2003 5.4 How have stakeholders benn consulted at the stage of (a) environmental screening and (b) draft EA report on environmental impacts and proposed environment management plan? Describe mechanisms of consultations that were used and which groups were consulted. How will stakeholders be consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed EMP? Public consultation with stakeholders was conducted in three distinct stages: (i) Prior to the issuance of environmental licences, stakeholder consultation was conducted by the municipality and the landfill operator, which culminated in an official public hearing in June 2001. The concerns of the stakeholders are recorded in the official minutes of the hearing (Ata de Audiencia Pzuhlica) kept by FEEMA; (ii) An opinion survey on the remediation of the dumpsite and implementation of the Adrian6polis landfill with energy generation; and (iii) Interviews and specific questionnaires for the scavengers (catadores). Key stakeholders in the consultation process include: * Municipalities and local institutions (Nova Iguagu and Rio de Janeiro) * Local NGOs and community groups * Climate change communities (NGOs, Government institutions) * Catadores at the Marambaia dumpsite 38 It is important to note that in response to stakeholder concerns the project sponsors among other actions, agreed to remediate and close the highly polluting Marambaia dumpsite. A detailed study of alternative locations, Estudo Ambiental de Alternativas Locacionais was carried out by the municipality prior to selection of the Adrian6polis landfill site. This study was submitted to IBAMA, the Federal Environmental Agency, in order to obtain an environmental license because the site is located in the vicinity (under lOkm) of the Federal Biological Reserve of Tingua. The selection of the site was made according to the following criteria: (i) availability of sufficient space to locate the project; (ii) existence of adequate roads; (iii) proximity to points of waste generation; (iv) distance from areas of dense population; (v) compatibility with municipal urban legislation and environmental legislation; and (vi) appropriate physical and geographic characteristics for the undertaking. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? The project will monitor and measure the following project impacts on the environment consistent with the EMPs: * Monitoring of groundwater quality in the Marambaia and Adrian6polis sites * Restoration with native species of 30ha of land with vegetation; and enrichment of 1Oha of land with native species to form green belt. * Monitoring of bird population in Adrian6polis * Monitoring of air emissions from energy generation component * Monitoring of emission reductions to achieve 120,700 tons of methane reduction by 2012. 6. Social 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. Summarize key social issues arising out of project objectives, and the project's planned social development outcomes. If the issues are still to be determined, describe current or planned efforts to do so. The main social issue arising out of the project development objectives results from prohibition of scavengers at the dumpsite and the cessation of scavenging activities. A Social Plan, was developed by the municipality in November 2002, to address the compensation of scavengers displaced from their activities at Marambaia dumpsite and is summarized in a report with the environmental assessment. Some of the elements of this plan include: * Registration of families for inclusion in Federal government records. This registration was completed in February 2003. * Individual service to obtain access to community resources such as documentation, photos, legal services and so on. * Assisting catadores in entering the job market, by building capacity through literacy courses. 39 * Creation of 30 job vacancies for scavengers in companies linked to the municipal administration * Establishment of waste recovery units that will be operated by a cooperative of catadores that will be created. The units will be located in two or three areas of the municipality and will receive waste destined for Adrian6polis landfill. * Provision of food baskets by the municipality, to all the catadores until they are established in the job market. 6.2 Participatory Approach: How will key stakeholders participate in the project? The Social Plan embodies an intersectoral approach for the proposed social interventions and identifies responsibilities and actions of different stakeholders including the Secretariat for Social Promotion (SEMPS), Municipal Secretariat for Health (SEMUS), Foundation of Education of Nova Iguacu (FENIG), Municipal Secretariat of Work and Employment (SEMTE), Municipal Secretariat of Urbanization and Environment (SEMUAM) and Municipal Schools near the region. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? Public consultation was conducted with stakeholders including NGOs and community groups. in three distinct stages, as described in section 5. It is important to note that in response to stakeholder concerns the project sponsors among other actions, agreed to remediate and close the highly polluting Marambaia dumpsite. 6.4 What institutional arrangements are planned to ensure the project achieves its social development outcomes? The project sponsor is Nova Gerar, a 50:50 joint venture between EcoSecurities, an environmental finance company and SA Paulista, a Brazilian civil engineering and construction firm. SA Paulista was granted a 20 year concessional licence by the Empresa Municipal de Limpeza Urbana (EMLURB - Municipal Waste Collection company linked to the municipality of Nova Iguacu) to manage the Marambaia and Adrian6polis sites. As part of this concessional agreement, S.A. Paulista is responsible for operating the new landfill, and decommissioning and rehabilitating the dumpsite. As mentioned above, responsibilities for the proposed social interventions have been detailed in the Social Plan. 6.5 How will the project monitor performance in terms of social development outcomes? Benchmarks to monitor and measure project performance in terms of social development outcomes include: * Creation of 200 jobs during the construction phase. Job vacancies for 10 scavengers will be created in the office of the landfill operator, S.A. Paulista. * Creation of 70 jobs during project operation including 10 jobs for former scavengers at the Adrian6polis and Marambaia sites. * Improvements in health conditions of former scavengers Does this project include any Community-Driven Development component? No 40 7. Safeguard Policies 7.1 Do any of the following safeguard policies apply to the project? Yes Policy Applicability Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) Yes Natural Habitats (OP 4.04, BP 4.04, GP 4.04) No Forestry (OP 4.36, GP 4.36) No Pest Management (OP 4.09) No Cultural Property (OPN 11.03) No Indigenous Peoples (OD 4.20) No Involuntary Resettlement (OP/BP 4.12) No Safety of Dams (OP 4.37, BP 4.37) No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. The Project has taken measures to comply with OP4.01 on Environmental Assessment. The Project has carried out an Environmental Assessment including an analysis of alternatives. The EA identifies potential environmental impacts of the Project and details measures to mitigate them. The EA has been publicly consulted with stakeholders and disclosed in-country and in the Infoshop in Washington. F. SUSTAINABILITY AND RISKS 1. Sustainability The Project is expected to be sustainable. In its Carbon Finance operations, one of the Bank's main concerns is that the Project be technically and financially sound, and therefore be able to generate environmentally credible GHG ER. Both, the landfill operation and the gas collection and power generation are deemed financially feasible and are expected to be sustainable until the closing date of the Project, 2012. The Project has satisfactorily complied with the Bank's Safeguard Policy and it expected to continue doing so. It is deemed that in Brazil the stability of the regulatory and policy environment, the solidity of the Project sponsor, and the capacity of the Government to play its role in adding value to the emissions reductions achieved by the Project through ratifying and following its obligations under the UNFCCC and its Protocols, enhance the sustainability prospects. la. Replicability: According to the National Statistic Office, IBGE, there is an overall replication potential of above 100 municipalities in over 150 landfills. According to the total waste amount available and generated, methane production and transformed in Emission Reductions, the overall potential in Brazilian Landfills would be almost I billion tons of C02 of Emission Reductions. 41 2. Critical Risks The Project risks and the corresponding mitigation measures are provided in the annexes. No unusual or high-risk issues have been identified. Most of the risks identified during the early preparation phase of the Project were fully addressed. At appraisal, there is no remaining risk that could seriously jeopardize the Project activities. Regarding the risk assurance for carbon finance projects, the NCDF only pays for the CERs after satisfactory performance has been validated. For the technical implementation of the project, there are some remaining risks: i) Availability of waste/gas for the project. The availability of gas for fully achieving the ultimate Project target will depend on the issuance of an operational license for the expansion of Adrian6polis. This process is already under way and it is expected that the operational license will be issued for all three remaining areas in Adrian6polis. The high technical standards for these follow the same level of the existing, licensed area in Adrian6polis, which is the only sanitary landfill in the state of Rio de Janeiro. ii) Commercial arrangements for the sale of electricity. The electric sector in Brazil is currently facing an energy supply glut, after almost a year of an imposed 20% rationing across the board. Those up and downs in energy availability are intrinsic to a predominantly hydro system like Brazil. Furthermore, demand has declined, partly because of the economic crisis, but mainly because customers learned how to use energy rationally, as a positive spillover of the energy crisis. Due to those factors, energy prices in the wholesale market (MAE), particularly in the Southern Region, have been at very low levels. There are no buyers at this moment willing to acquire energy under long term contracts at prices that make NovaGerar an attractive venture. However, it is probable that in 2-3 years there will be a market for long term energy contracts reaching the US$ 35-40/MWh plateau. This limits NovaGerar options for selling energy at the outset, and may reduce its profitability in the first years of operation. Other possibilities being explored include sale under the PROINFA arrangement. There will be a call for bids in February 2004, for energy delivery in late 2006. NovaGerar would certainly qualify to bid. Prices will be set by the government, and will be significantly higher than the long term marginal cost of expansion. This is a deliberate intention to diversify the energy balance. ELETROBRAS has the legal obligation to sign 20 year PPAs. There are a few risks associated with PROINFA. First, despite the government intention to have the first call for bids soon, there may be delays in the procurement and contracting process. The second risk has to do with the total amount of energy to be offered in the biogas category and the process by which the plants will be selected. Third, there is a risk that the government may force producers to share part of their ER revenues with ELETROBRAS. Nothing has been regulated on this matter, but MME is internally considering this possibility. iii) Issuance of the Government's Letter of Approval (LOA). At appraisal, the Government has not yet issued the LOA for the Project, which is necessary for trading the CERs. The Project is already in the agenda for a forthcoming IMCCC meeting, and the expectation is that the Project will be approved. iv) Eligibility of Emission Reductions. Since the baseline and monitoring methodology used were approved by the CDM methodology panel, the eligibility of ERs from the project baseline appears to be less of a risk. The ERs have been examined in detail in a formal baseline study prepared for the NovaGerar Project and the validation will be formally completed shortly. 42 3. Possible Controversial Aspects No controversial Aspects were identified G. MAIN ERPA CONDITIONS 1. Effectiveness Condition 1.1. Signature of a contract between NovaGerar and EnerG for the deployment and operation of the power generation plant. 1.2. Issuance of a Letter of Approval through the GOB, satisfactory to the Bank. 2. Other Disbursement Condition: Approval of the ERPA conditions by the NCDMF 43 H. READINESS FOR IMPLEMENTATION [X] 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [ ]1. b) Not applicable. ] 2. a) The procurement documents for the first year's activities are complete and ready for the start of project implementation. [X] 2. b) Not applicable [X ] 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. [ ] 4. The following items are lacking and are discussed under loan conditions (Section G): I. COMPLIANCE WITH BANK POLICIES [X 31. This project complies with all applicable Bank policies. [ ] 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. We r Korexl Susan dmark Vinod Thomas Task Manager Sector anager Country Director 44 ANNEX 1: PROJECT DESIGN SUMMARY BRAZIL: Nova Gerar Landfill Rio de Janeiro Monitoring, Recording and Reporting of Sustainable Development Indicators The table below shows the worksheet for recording and reporting on sustainable development impacts. The first part records the expected developmental impacts during the construction phase of the project. It is expected that these targets for development impact will be met by the time of the initial verification for the project. The second part of the worksheet tries to document the impacts that sustain beyond the project construction phase. Sustainable Development Performance - Summary Sheet Performance Description Data Measurement/ Project Net indicator collection observation expectations perform- responsibility method or (unit) ance and unit (unit)icompliance (unit, yes/no) During project construction phase Environmental Marambaia Marambaia site NovaGerar Desciptive N/A Remediation will be remediated Socio-Economic Job creation Number ofjobs NovaGerar Numbers 200 created in the construction of Adrianapolis and remediation of Marambaia Job creation Number of former NovaGerar Numbers Up to 10 scavengers absorbed and formal employment provided AS A RESULT OF OPERATION OF THE PROJECT Environmental Ground water Water quality NovaGerar Water quality Significant quality in improved due to monitoring improvement Marambaia and leachate collection data provided of water Adrianopolis and treatment by NovaGerar quality in Marambaia, 45 no pollution in Adrianopolis Native Forest Reforestation of NovaGerar Reforestation 30 ha restoration degraded land and plans restored and forest enrichment 10 ha in secondary forests (Adr.) and enriched reforestation of Marambaia site Biodiversity Restoration of NovaGerar Fauna Bird native forests monitoring population around monitored in Adrianopolis with Adrianopolis positive impacts on fauna Socio-economic Job creation Number ofjobs NovaGerar Numbers 70 created at the two landfill sites Job creation Number of former NovaGerar Numbers At least 10 scavengers absorbed Improvement of NovaGerar Annual health Improvement Health care of health conditions controls of health of workers by better working former conditions scavengers Working conditions Abrinq NovaGerar Abrinq Annual certification for certification renewal Novalguacu waste maintained disposal sites 46 ANNEX 2: ESTIMATED PROJECT COSTS BRAZIL: Nova Gerar Landfill Rio de Janeiro Local Foreign Total Project Cost By Component US $million US $million US $million O&M 0.00 15.96 15.96 Royalties 2.11 0.66 2.77 Others 1.21 0.97 2.18 Total Baseline Cost 3.32 17.59 20.91 Physical Contingencies 0.00 0.00 0.00 Price Contingencies 0.00 0.00 0.00 Total Project Costs1 3.32 17.59 20.91 Total Financing Required 3.32 17.59 20.91 Identifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes, is 20.91 (US$m). Therefore, the project cost sharing ratio is 0% of total project cost net of taxes. 47 ANNEX 3: ENVIRONMENTAL AND SOCIAL ASSESSMENT BRAZIL: Nova Gerar Landfill Rio de Janeiro Environmental and Social Impact Assessments of the NovaGerar Landfill Gas to Power Generation Project at Adrian6polis and Marambaia, Nova Iguagu, Rio de Janeiro. 1. Purpose The purpose of this Annex is to list the key environmental and social impacts identified in connection with development of a new sanitary landfill at Adrian6polis: the installation of a Solid Waste Treatment and Disposal Plant, the closure of the open dump, Marambaia, and the power generation plant using the landfill gas from both solid waste sites. The primary focus of the Project is the efficient collection of biogas and power generation using methane. The Project is expected to (i) reduce methane, a greenhouse gas, by generation of electricity from landfill gas, and to (ii) improve the management of municipal waste in the municipality. It is expected to have significant positive benefits notably the protection of the environment and human beings through the mitigation of potential risks associated with improper waste disposal. In economic terms, the development can bring a number of benefits like attracting foreign investment to Brazil; reducing fossil fuel imports; encouraging more clean development projects in the country; and enhancing the safety and diversity of electric power generation systems. 2. Introduction In Brazil, as in most developed as well as developing countries, sanitary landfills are extensively used for final disposal of solid urban wastes. The municipality is responsible for waste disposal and management. The municipality of Nova Igua,u located in the Baixada Fluminense, is one of the most highly populated areas in Brazil, with a population of approximately 3 million people. Continued population growth as a result of migration, has contributed to social tension in the area, and significant environmental degradation from sustained, inappropriate municipal solid waste disposal practices in the area. Of particular relevance is the significant environmental degradation of the Guanabara Bay (Baia de Guanabara) over several years. Given its proximity to the city of Rio de Janeiro, the Nova Igua,u Municipality has attracted several industrial plants, with the resulting growth in the number of housing developments and other related business sectors. The solid urban wastes produced by Nova Iguacu were disposed of at the site known as Marambaia dump site (lixdo). However, refuse disposal in the region was severely affected by various negative factors such as local topography (lowlands conducive to leachate buildup); waste exposure attracting animals to the garbage dump; and lack of landfill cover, which increases leachate production, with severe impacts on groundwater and the Baia de Guanabara. In response to the need to improve final disposal procedures for the solid urban wastes generated in Nova Igua,u, its City Hall called on its Urban Sanitation Company (EMLURB) to develop a project contemplating a Waste Treatment Plant including construction of a sanitary landfill. The site selected for the undertaking was Adrian6polis, a location surveyed and licensed by the State Environmental Engineering Foundation (FEEMA) for the implementation of a solid urban waste disposal system. The reason for the selection of this site was that it is easy to access, close to 48 waste source areas, far from major urban centers, and boasts unique topographic features (land and soil suitable for a landfill). The areas to be filled are spread out over four main areas in the site and can receive up to 4000-5000 tons of waste/day at full capacity. The vegetation in the site and in its immediate vicinity is secondary forest with low biodiversity value. The underlying soil on the site is clay of low permeability. The site is located within a 10km radius of the Federal Biological Reserve of Tingua. With the start of the operation in Adrian6polis, the Marambaia open dump was closed down. 3. Institutional Considerations All licenses required by environmental control agencies have been issued (attached to this annex) except for the operational licenses for the power generation which will follow when it is decided on the configuration of the power equipment to be installed. This in turn hinges upon a fine tune on the economics of the LFG use for electricity generation. Environmental licensing for the waste disposal and management involved public consultation. CECA - the State Environmental Control Commission - held a public hearing with all stakeholders of the areas surrounding the new landfill. Discussions are tape-recorded and support the final decision to issue the license. For the CDM project separate EAs were prepared for the Marambaia close down operation and the Adrianapolis landfill, and subsequently published and adequately disclosed. IBAMA signed an agreement with the Nova Igua,u City Government in 2000, which foresees a disbursement of R$1,000,000 to S.A. Paulista to contribute to the financing of the sanitary landfill. The amount is part of the fines for environmental damages caused by PETROBRAS to the Guanabara Bay. The involvement of the Federal Government, through its environmental agency, IBAMA, is perceived as critical to support the process. A second contract rider stipulates October 2004 as the deadline for actual disbursement of the amount due and foresees fines in case of non-compliance. Phase one of the sanitary landfill does not include specific steps for composting or waste recycling. These stages are scheduled for review in the near future as soon as waste management procedures are in place and tested. On an institutional level, the Nova Iguacu Municipality issued a call for bids in May 2000 to select a private company to manage the Adrian6polis sanitary landfill and conduct the shutdown of the old Marambaia dump site. The winning bidder, S.A. Paulista, entered into agreement with EMLURB to perform all required jobs specified in the biding documents. Environmental licensing and other government requirements are monitored by the proper authorities, particularly the State General Attorney's Office, via a Performance Compliance Agreement signed by the Nova Iguacu City Hall, EMLURB and S.A. Paulista. 4. Identification of environmental and social impacts Potential adverse impacts from the energy generation component are noise from the operation of generators, generation of waste residues (lubricant oils, spent coolant liquid, and condensates), accidents (fires and gas leakages), and electric discharges along transmission lines. Although a decision is yet to be made as to the mode of transmission of energy that will be generated from Adrian6polis and Marambaia, no resettlement is envisaged as a result of installation of transmission lines. In the case of Adrian6polis landfill, the site shares a border with a FURNAS 500 kV power substation, and as such any environmental impacts associated with the installation of the lines are expected to be minor. In the case of the Marambaia site, there is some 600-800 49 meters between the power substation and the point of connection at Marambaia. In order to ensure that adequate measures are taken to safeguard people and the environment, the client will submit any plans, work programs and environmental assessments to the Bank for approval prior to implementation. The lower flow rate, i.e., reduced replenishment of the water spring area is another negative impact of the Adrianapolis waste site. Mitigation is achieved by planting a forest tract around the spring with native tree species to improve water retention for the spring, and by adding the drainage system. The following section contains a summary of other impacts. a) Adrian6polis landfill: General Technical Aspects: The site selected for the landfill covers a total of 20 hectares of land and consists of a valley surrounded by hills approximately 90 meters high covered by secondary vegetation and showing varying rates of rehabilitation along its different slopes. The area abuts the Adrian6polis Road on its northeastern side. There are two water springs, one surfacing on the northern slope and the other on the western valley wall, the latter drained by pipes since the site was originally filled in 1994. The Adrian6polis landfill was newly constructed and started operation in February 2003. The underground is basically rocky with clay formations on top. The projected area of the landfill amounts to 120,000 m2. Future extension of the landfill is possible up to 60 hectares. The maximum height of the refuse body will be approximately 63 meters. However, for the extension of the landfill, IBAMA will have to issue a separate approval, because the landfill is near a federal environmental conservation unit. The original executive plan, prepared by S.A.Paulista, indicates that the waste disposal rate will be some 1,000 tons/day with maximum of 1,500 tons/day. At present date, contracts up to 1,200 tons/day have been negotiated. The receiving capacity of the landfill is about 4,000 - 5,000 tons/day. The envisaged period of operation was calculated at 5.1 years with a total volume of refuse disposed amounting to 1,588,600 m3. The Plan also indicates a specific weight of the waste equalling tol.3 ton/m3, however an independent consultant estimates this value at 1.0 ton/m3, resulting in a total mass of 1,588,600 tons instead of 1,845,000 tons as projected The actual breakdown of solid wastes currently disposed of at the Marambaia garbage dump is not available because no formal survey has been performed to date. In the absence of more accurate data, the utility is working on the basis of the following figures recorded in the Greater Rio de Janeiro area: Type of waste Percentage of total (base year:1998) Paper and cardboard 18.8 Rags and leather 3.0 Plastics 22.9 Glass 1.5 Metal and tin 3.0 Organic matter 69.5 Note: data required to calculate potential biogas generation are available in the engineering design documentation. 50 The Executive Plan for the construction of the Adrian6polis landfill measures up to the quality and environmental standards as applied in Europe: - bottom liner for underground protection; - compartmentalization of disposed refuse with covering of completed sections; - construction of leachate drains; - vertical domes for biogas collection; - water drains in slopes; - final covering and afforestation with native species; - leachate collection basin; - monitoring plan. The main impacts associated with the construction of the Adrian6polis landfill have been identified in a report of study of alternatives Estudo Ambiental de Alternativas Locacionais carried out under the project by the municipal entity responsible for waste management, EMLURB and in a separate EA for the purpose of the CDM project. Project impacts are associated with construction activities at the sites of the Adrian6polis sanitary landfill and the Marambaia dump. Main impacts during the construction phase include: i) loss of vegetation and fauna from clearing of secondary forests for site preparation; ii) reduced replenishment of the underlying aquifer; and(iii) other potential impacts such as construction nuisance including disposal of construction waste, noise, increased traffic, dust, impacts on other road users. Potential impacts during operations include increased traffic, odor, noise, litter, visual impacts, health and safety of workers on the site (dealing with healthcare and municipal waste, operation of sensitive and/or heavy equipment), disposal of solid and liquid waste streams generated on site. All these impacts are being addressed through environmental guidelines and targeted mitigation activities. The impacts noted on wildlife and plants are closely interrelated. The landfill lies in a valley and was cleared on a permanent basis. IBAMA has issued the Vegetation Removal Permit No. 046/02, authorizing the clearing of 15 ha, of which 1.57 ha were set aside as a permanently preserved area. The total estimated volume of biomass - secondary vegetation - to be removed is 84.6 m3. The native fauna will be resettled to the surrounding vegetation. To address the loss of vegetation as a result of clearing for construction purposes, the project sponsor has prepared a vegetation enrichment plan which will involve the reforestation with native species of areas cleared during construction activities; restoration of 30 ha of degraded land in the Federal Biological Reserve of Tingua, and planting of a green belt to reduce any visual impacts of the landfill. A similar vegetation enrichment plan will be embarked upon at the Marambaia site. At the Adrian6polis landfill, the reforestation will also serve to improve water retention around the water spring area. No use of pesticides is envisaged for reforestation activities. Control of ants (formigas cortadeiras) will be carried out by: i) mechanical methods involving excavation until nests of fungus housing the queen are encountered, for small areas, and ii) cultural methods that involve use of plant species such as Sesamum indicum, Ruta spp and Vandalia spp., that possess pest control properties. The plan also requires soil waterproofing, which will reduce the aquifer replenishment rate and affect flow rate volumes. To lessen this impact, native species will be planted around the spring headwaters to help improve water retention about the spring. Drainpipes will be built also to channel the water for use by the development. 51 With respect to the Marambaia dumpsite closure, the environmental impacts are expected to be largely positive given its deplorable conditions - presence of disease-causing vectors, visual impact, soil and water contamination by leachate, associated with the practice of uncontrolled open dumping and exposure by scavengers to risks thereof. As with all landfill construction and dump closure projects, potential impacts after site closure include: i) fires; and ii) methane migration from the site which if not adequately mitigated could have severe consequences. Both possibilities are being avoided to the extent possible through proper planning and targeted mitigation measures. Some other potential hazards minimized by this project include the risk of explosion or fire, gas leaks, dust and bad odors typically associated with open-air dumps and controlled landfills. Engineering Design of the landfill operations To mitigate the negative environmental impacts of inadequate solid waste disposal, the engineering designs for the dumpsite closure and construction of the Adrianopolis landfill have been carried out according to intemationally accepted standards to ensure adequate provision for waste disposal and protection of the environment. The intervention at Marambaia features: (i) Re-shaping of the external parts of the landfill to improve slopes and create terraces, (ii) Construction of a leachate collection and recirculation system, iii) Construction of gas collection and flaring system, iv) Low-permeability engineered final cover, v) Surface runoff drainage, vi) Monitoring provision for gas, groundwater, leachate. The construction of the Adrian6polis landfill features: (i) Low-permeability basal liner, (ii) Compartmentalization of disposed refuse with covering of completed sections, (iii) Leachate collection and treatment system (iv) Gas collection system, (v) Surface runoff drainage, (vi) Low-permeability engineered final cover, (vii) Monitoring plan Energy generation component The mitigation plan for the energy generation components features measures to address the following: (i) Waste management including waste from equipment packaging, waste oils, lubricants, spent coolant, gas condensate (ii) Noise reduction from the engines 52 (iii) Safety and security controls to reduce risk of accidents (iv) Worker protection and safety (v) Equipment maintenance plan (vi) Monitoring plan including measurements and documentation of emissions including methane; oily wastes, liquid wastes, leaks, accidents Public Consultation: Public consultation with stakeholders was conducted in three distinct stages: (i) Prior to the issuance of environmental licences, stakeholder consultation was conducted by the municipality and the landfill operator, which culminated in an official public hearing in June 2001. The concerns of the stakeholders are recorded in the official minutes of the hearing (Ata de Audincia Puiblica) kept by FEEMA; (ii) An opinion survey on the remediation of the dumpsite and implementation of the Adrian6polis landfill with energy generation; and (iii) Interviews and specific questionnaires for the catadores. Key stakeholders in the consultation process include: * Municipalities and local institutions (Nova Iguacu and Rio de Janeiro) * Local NGOs and community groups * Climate change communities (NGOs, Government institutions) * Catadores at the Marambaia dumpsite It is important to note that in response to stakeholder concerns the project sponsors among other actions, agreed to remediate and close the highly polluting Marambaia dumpsite. Social Impacts Since this is a large-scale project, its announcement initially drew a negative response among the local population and some NGOs. Arguments against it have been both political and technical in nature, chiefly because there is no similar undertaking for waste disposal in the state. An Environmental Education Program will be offered to overcome the problem. The program will cover approximately 12 municipalities and includes courses and lectures on environmental education held in an Environmental Education Hall seating 50 people to be built at the Nova Iguacu Treatment Station premises. The hall will be equipped with audiovisual aids and a library and will also be used to train company employees in occupational safety and environmental issues. An auditorium with classrooms was constructed on-site for the purpose of providing education by way of lectures and classes to members of the community on environmental protection and management as well as training to site workers. The main social issue arising out of the project development objectives results from prohibition of scavengers at the dumpsite and the cessation of scavenging activities. A Social Plan was developed by the municipality in November 2002 to address the compensation of scavengers displaced from their activities at Marambaia dumpsite and is summarized in a report with the environmental assessment. Some of the elements of this plan include: 53 Registration of families for inclusion in Federal govemment records. This registration was completed in February 2003. * Individual service to obtain access to community resources such as documentation, photos, legal services and so on. Assisting catadores in entering the job market, by building capacity through literacy courses. Creation of 30 job vacancies for scavengers in companies linked to the municipal administration * Establishment of waste recovery units that will be operated by a cooperative of catadores that will be created. The units will be located in two or three areas of the municipality and will receive waste destined for Adrian6polis landfill. * Provision of food baskets by the municipality, to all the catadores until they are established in the job market. The Social Plan embodies an intersectoral approach for the proposed social interventions and identifies responsibilities and actions of different stakeholders including the Secretariat for Social Promotion (SEMPS), Municipal Secretariat for Health (SEMUS), Foundation of Education of Nova Iguacu (FENIG), Municipal Secretariat of Work and Employment (SEMTE), Municipal Secretariat of Urbanization and Environment (SEMUAM) and Municipal Schools near the region. Transportation of materials for disposal is a key activity under this type of development. Waste must be collected at source for disposal on the landfill. All wastes will be collected by compactor trucks from households and removed to the Solid Waste Treatment and Disposal Plant. Though such trucks already drive around the city, they pose an additional risk of accidents both in public thoroughfares and within the plant premises. Another negative impact is deterioration of street and road surfaces due to the truck flow. Both impacts already exist. The only difference will be an increase in traffic as service coverage expands. 5. Reclamation Plan for the Marambaia Garbage Dump The Marambaia landfill is an existing site located at Vila de Cava and in operation since May 1987. It consists of 6 sub-areas covering a total area of 200.000 m2. Some 136,000 tonnes of waste was disposed over the 14 years of operation (1987-2001), which equals to some 450 tonnes/day at 300 operational days/year (table 1). The current waste disposal procedure in Marambaia is technically, socially and environmentally inadequate. It allows the spread of disease-carrying vectors among the population and cause discomfort due to noxious odors, visual impact, soil and groundwater pollution by leachate. The new undertaking will eliminate these problems. In addition, the gateway into the new landfill will have a Medical Waste Treatment and Disinfecting System prior to final disposal at the sanitary landfill, thus reducing the hazard of infecting the people via medical and hospital waste contamination. The closure of the site was thought to be in October 2002 but it was delayed due to the delay in the construction of Adrianopolis (started to receive waste February, 2003). 54 Table 1: Overview of disposed wastes at Marambaia landfill Section no. Area (m2) Thickness (m) Volume (m3) Weight (1) Weight (2) (tonnes) (tonnes) 1 26.800 35,0 938.000 1.219.400 938.000 2 12.940 16,0 207.040 269.152 207.040 3 20.220 20,0 404.400 525.720 404.400 4 7.210 14,5 104.545 135.909 104.545 5 8.410 21,7 182.497 237.246 182.497 6 4.240 18,4 78.016 101.421 78.016 Total 1.914.498 2.488.847 1.914.498 NB. data as per April 2001 (1) according to S.A.Paulista (2) according to BGP expert's estimate The site was in highly precarious and improper condition. The leachate ran off and polluted the local soil and occasionally neighboring areas as well, depending on the volume of waste dumped. Today, the leachate recycling system was installed Already before the construction of Adrianopolis, some actions have been initiated to shut down the Marambaia garbage dump and reclaim the environment around Vila de Cava. Such actions were part of the plan submitted by S.A. Paulista to EMLURB, and included certain key measures contemplated in the development. The entire disposal site now received a sanitary cap to avoid open air exposure of refuse and protect the area. Properly compacted soil is provided for that purpose. The required material is harvested either from surrounding soil beds or outside the perimeter. The soil used must be clayey, spread in 20-cm layers and then compacted to build a soil cap at least 60 cm thick. The garbage dump geometry had to be redesigned to include slopes consistent with the geometric shape of a sanitary landfill to ensure embankment stability vis-a-vis potential refuse landslides. To solve the leachate problem, a percolate and gas collection and drainage system was built with gravel drains, in line with local conditions. The gases generated by the landfills will be burned to ensure air polluting emissions control. Surface protection is being provided by the grass planted along all slopes and by a tree barrier to isolate the site of a new rainwater drainage system. The surface drainage system will trap run-off caused by rain at the garbage dump site and carry it effectively to discharge points, thus avoiding the risk of erosion and flooding and preventing seepage of the run-off into the landfill embankment. Based on the results of emergency actions performed and on the preliminary findings of previous surveys, additional interventions are scheduled as part of the overall project to be implemented by S.A. Paulista. The planned interventions include building gas wells in the upper layer, where the solid waste cover is already quite advanced, for relief of the landfill embankment gases. Drainage pipelines will be available to recirculate the leachate that now runs directly into a pond located at the eastern end of the garbage dump where it abuts on a neighboring ranch. The drain 55 pipes will be laid in ditches dug by backhoes and the leachate will be recirculated with the aid of two 5-1/s flow pumps at a head of 20 m. Synthetic fiber reservoirs will be installed on top of the landfill for better distribution of the leachate into drainpipes, as well as to measure piezometric levels in the refuse embankment via gas meters placed in the gas wells. 60 waste collectors who were working for the administrator of the Marambaia dump site (but did not live on the site) are now being trained and a great part have been hired by SA Paulista during the construction of Adrianopolis and continue working in the maintenance of the site. Others are working for the municipality in the waste collection and transfer stations. 6. Power Generation Development at Adrian6polis and Marambaia Some additional positive environmental and social impacts were identified as a result of the power generation development both for Adrian6polis and Marambaia. A relevant social impact is the fact that NovaGerar, through S.A. Paulista, has agreed to a contractual provision whereby it will apportion 10% of its royalties earnings to EMLURB, benefiting the entire community. A relevant environmental impact is the fact that the forced gas drainage scheduled along with other future actions will be an improvement over the natural drainage foreseen in the original design. This measure will significantly reduce methane (CH4) emissions. The drainage will be performed both at the Marambaia garbage dump shutdown and during construction of the new sanitary landfill. Licenses on NovaGerar Project: (09/12/02) Waste Disposal Status: Comments: Installation license from FEEMA Ok. EWVEIR is being drafted for - LI planned capacity expansion. Performance Compliance Ok. Agreement with the Attorney General's Office - TAC Authorization from Local Ok Environment Agency for vegetation clearing Authorization from IBAMA for Ok. vegetation clearing Approval of development by Ok. IBAMA Authorization from DNPM and Ok DRM 56 ANNEX 4: PROJECT PROCESSING SCHEDULE BRAZIL: Nova Gerar Landfill Rio de Janeiro Project Schedule Planned Actual Time taken to prepare the project 12 18 (months) First Bank mission (identification) 09/01/2002 09/01/2002 Appraisal mission departure 10/01/2003 11/01/2003 Negotiations 10/01/2003 11/01/2003 Planned Date of Effectiveness 06/01/2004 Prepared by: Werner Kornexl, TTL Preparation assistance: Nelson de Franco - currently consultant, forner TTL Patrick Kann Bank staff who worked on the project included: Name Speciality Yewande Awe Environmental Safeguard Specialist Alexandre Kossoy Financial Specialist Jari Vayrynen Environmental Specialist Patrick Kann YPA - energy specialist Luiz Maurer Lead Energy Specialist 57 ANNEX 5: FINANCIAL ANALYSIS BRAZIL: Nova Gerar Landfill Rio de Janeiro 1. Purpose. This Annex provides the background information and analysis for the conclusions contained in Section E.2 Financial Analysis in the main text of this report 2. S.A Paulista de Construq6es e Comercio: summary of the analysis of the company's financial statements The following table shows the Company's main financial figures based on audited financial statements. All financial statements and figures were independently audited with no relevant comments (i.e. unqualified opinion), assuring the Company conforms to the best practices on auditing standards. S.A Paulista de Construcoes e Com ercio (R$ 1,000) 2002 2001 2000 1999 Net Revenues R$ 121 208.00 R$ 87.721.00 R$ 66.205 00 R$ 62,102 00 EBT R$ 1,090 00 R$ 4,084 00 R$ 277 00 R$ 1,558 00 EBT Margin 0.9% 4.7% 0.4% 2 5% Net Profit R$ 6,658 00 R$ 2,984.00 R$ 48.00 R$ 183 00 Net Profit Margin 5.5% 3.4% 0.1% 0.3% Total Assets R$ 215,164 00 R$ 204,812.00 R$ 203.305 00 R$ 204.052 00 Net Worth R$ 187,622 00 R$ 184,912.00 R$ 183,617.00 R$ 182,553 00 Current Assets R$ 137,012.00 R$ 134,275 00 R$ 159,757 00 R$ 154,446 00 Current Liabilities R$ 16,235.00 R$ 11,963.00 R$ 15,733.30 R$ 16 960 00 Current Ratio 8 44 11.22 10.15 911 Net Worth / Assets 0.87 0.90 0.90 0.89 The P&L Statement shows a sound and consistent increase in the Company's revenues. Since the increase in sales was not followed by the same proportional increase in the CGS (Costs of Goods Sold), S.A. Paulista's profitability boosted over the period. It may be interpreted as a successful maximization of results by reaching the most suitable business scale to face existing fixed costs. Profit margins in 2002 were also positively affected by extraordinary incomes of S.A. Paulista's participations in other local companies (i.e. raised from 3.4% in FYOI to 5.2% in FY02). S.A. Paulista's cashflow has also shown stand positive results in the 4-year period under analysis. By eliminating the non-cash items in the S.A. Paulista's financial statements as depreciation and part of monetary costs, the Company has presented satisfactory operational cash generation in the last years. The very low onerous liabilities and long-term debt in the Company's business has led to almost no financial expenses (as per the Company's P&L statements) and allowed S.A. Paulista to concentrate its efforts on the large investments in the NovaGerar The isolated landfill gas project requires investments of about US$ 2.2 million and additional implementation expenses of about US$ 18.6 million, in 20 years. Project without jeopardizing its still very solid current liquidity. S.A. Paulista's Current Ratio was reduced by 2.8% in the last two years (i.e. from 11.22% in FY01 to 8.44 in FY02). Finally, the expected profits in the coming years from the NovaGerar landfill gas project will contribute to the Company's maintenance of its solid capital structure (i.e. current Net Worth / Total Assets of 0.9) and enssure the sponsor's capacity to remain as a solid player in the market. 58 3. Cashflow of the landfilling activity The landfill's cashflow shows a sustainable project with a reasonable FIRR. All the assumptions used in the projections were validated by the sponsors and represent the best estimate of the business future. Please refer to Table 1: NovaGerar Landfill Cashflow for a summary of the projections. The main assumptions used in the projections are as follows: IBAMA penalty payment: As already mentioned in the body of this document, an agreement between the municipality of Nova Iguacu and IBAMA (the Brazilian Government agency for environmental matters) was signed in 2000, passing a part of the environmental penalty, imposed by the Brazilian Justice Ministry to PETROBRAS PETROBRAS is a Brazilian public oil company, responsible for the great majority of oil extraction in Brazil and its conversion into gasoline and diesel. , to the Nova Iguacu municipality. This penalty on PETROBRAS was consequence of a large oil leak of one of its oil cargo-ships in that region. While the R$ I million penalty was originally agreed to be used for the implementation of a new treatment and solid waste disposal unit in the municipality of Nova Iguacu, it was actually transferred to S.A. Paulista by the end of 2002, as per the concession for the landfill gas project. Daily waste disposal: Adrian6polis is the only site in the State of Rio de Janeiro with official license to operate waste disposal. It occupies an area of 1.2 million m2. Nevertheless, the current operating license allows S.A. Paulista to operate only 200,000 m2, which would limit the Company's operations for 5 years only (i.e. assuming 1,500 tons of average daily waste). Therefore, an extension for the operating license was already requested to FEEMA (Fundacao Estadual de Engenharia do Meio Ambiente) and its grant may take between 1 and 2 years (i.e. the same time required for the current license to be granted). Its issuance is very likely to occur, with no evidence that it may represent any risk for the landfill operation. Based on the two issues above, very conservative assumptions on the daily waste disposal have been used for the projections (S.A. Paulista is using the same conservative assumption in their own business plan). Daily waste is assumed to grow from 900 tons in 2003 to 2,300 tons in 2020, corresponding to an average increase of 6% per year. In fact, this growth rate may become much larger in the coming years if the existing plan to transfer 1,500 tons of daily waste from another site (Gramacho) to Adrian6polis becomes true. Gramacho is a dump site, currently under high pressure from environmental authorities, as it receives the totality of waste from the municipality of Rio de Janeiro and others in the metropolitan area (8,000 tons / day) and has no license to be operated. Since the investments already made in Adrian6polis may support such incremental disposal with few changes only, this additional waste disposal would result in a financial boost for the landfill operation projections. The current estimated FIRR of 15.9% would increase to 23.5% and the NPV would reach US$ 1.93 million at a 15% discount rate. However, keeping the analysis on conservative grounds, this assumption was not considered in the project's cashflow. Waste Disposal Fees: Fees collected for all municipality waste disposals were kept fixed at the current local rates over the period analyzed, assuming that no significant inflation will happen to justify price adjustments. As the agreement between the concessionaire and the Municipality foresees inflation adjustments, this particular issue is not deemed to be sensitive for the landfill cashflow's projections. On the other hand, large private users such as large supermarket chains, are already paying tariffs much higher than the tariffs assumed in the original cashflow analysis. By updating the tariffs, originally estimated at R$30/ton in the projection (please refer to the next table), to the current tariffs in different landfill sites (R$100/ton), the FIRR in the waste management project increases by 600 base points (from 15.9% to 21.9%). The table below shows the level of tariffs considered for each one of the landfill users: 59 As already stated above, the high profitability expected in the landfill, the Sponsor's long track record and its existing competitive advantages are arguments strong enough to expect that the project will remain solid and generating the gas required for the Carbon Finance project (the Project ERs are based exclusively on the methane combustion). While not considered in the final review of the assumptions used for the projections, S.A. Paulista informed at that time that the tariff with the Municipality of Nova Igua,u (the main customer of the landfill) had already been increased by 34%, to R$ 16.9/ton of waste. The FY03 financial results of S.A. Paulista were not published yet, but they are expected to show better results than initially estimated. This mentioned change in the tariff would increase the landfill activity FIRR by 6.3% to 22.2%. 4. EnerG PLC: brief comments on its financial statements The following table shows the Group's main figures in the last three audited financial statements 2002 figures were not available at the time of this report.. All figures were independently audited with no relevant comments (i.e. unqualified opinion). Sales increase in FY00 resulted in a substantial enhancement of the Company's profitability, illustrated by both EBT and Net Profit Margins, which increased by 10.6% and 11.2%, respectively. This improved result was a direct consequence of the reduction in the costs of sales and distribution by more than 50%. The Group's good financial management also yielded sound interest earnings (i.e. financial investments) in all periods. Ener.G PLC (L 1,000) 2001 2000 1999 Net Revenues £9,823.85 £7.272 83 £10.513 16 EBT £2,511.88 £1,607.60 £1.213 75 EBT Margin 256% 22 1% 11.5% Profit (before taxes) £2,668.39 £1,818.29 £1,451.67 Net Profit Margin 27.2% 25 0% 13 8% Total Assets £23.043.84 £18,225 73 £15,644.17 Net Worth £14,605.59 £11,860.10 £9,951 31 Current Assets £6,666 36 £6,952 25 £8,383.62 Current Liabilities £5,840 94 £4,158 04 £3,501 43 Current Ratio 1.14 1.67 2 39 Net Worth I Assets 0 63 0.65 0 64 EnerG's Current Ratio (i.e. current assets / current liabilities) was substantially reduced over the 1999-2001 period, mainly due to liabilities of related parties consolidated in the Group's current liabilities, even though it remained above I in all statements. The figures also show low levels of third party onerous liabilities and a consequent solid Capital structure in the EnerG Group (i.e. Net worth of 0.63). The board of directors' recommendation for no distribution of dividends (based on Group's net profit) in all of the analyzed years and the placement of profits on reserve by EnerG's shareholders are deem as positive and conservative decisions. 5. Power generation activity cashflow According to the final negotiations between NovaGerar and EnerG, the latter, through a subsidiary called Biogas Technology Limited, will be responsible for the design, supply, installation and commissioning of the gas collection system, gas transmission system and flaring equipment. The contract between the parties will have the same duration as the ERPA agreement 60 with the World Bank (i.e. December 2012). The power generation plants in the sites of Marambaia and Adrian6polis will also be designed, supplied, installed and operated by EnerG, through another subsidiary called Natural Power Limited. For the gas and flaring systems, EnerG will charge NovaGerar a fixed sum of £4,250 per calendar month commencing 2005 plus a percentage share of the gross Emission Reductions income due under the World Bank contract, according to the schedule in the table below. Amounts are exclusive of taxes (i.e. the above amounts will be paid grossed up to add allowance for all applicable taxes). Please refer to the following table for the breakdown of the payments relative to the flaring system. ER Year Nominal ER (tonnes C02) Share of Gross ER income Fixed monthly charge 2003 10,000 28% 2004 110,000 28% 2005 155,000 28% £4,250 2006 205,000 28% £4,250 2007 245,000 26% £4,250 2008 285,000 24% £4,250 2009 320,000 22% £4,250 2010 355,000 20% £4,250 2011 390,000 18% £4,250 2012 425,000 16% £4,250 Biogas has also requested NovaGerar that under the ERPA it be named as a beneficiary and be granted the right to a charge over NovaGerar's income. The percentage of ERs charged by EnerG was calculated to match E 19.67 / ton of methane flared from the 1st. month of operations until the 38th month of operations (2006) E 19.67/tCH4 = E 19.67/21 tCO2 (or E 0.938/tCO2) = E 0.938/E 3.35 (ER price in the ERPA) = 28%. In the following years this price is reduced to E 18.29 / ton CH4 (2007), E 16.88 / ton CH4 (2008), E 15.48 / ton CH4 (2009), E 14.07 / ton CH4 (2010), E 12.66 / ton CH4 (2011), and E 11.26 / ton CH4 (2012). As to the NovaGerar payments for the electricity production, the contract between the parties will be based on the leasing of the equipments to NovaGerar and the power generation at the sites will be initiated when the following initial conditions have been met: * Sufficient gas is available at the sites to fuel a total of not less than 4.5 MW of generation capacity, including 3.6 MW at the Adrian6polis site (it will commence with the installation of at least 2.7 MW generation capacity). * A power purchase agreement is available with a term of at least 12 years and a base load electricity tariff of US$ 48 / MWh. * Electrical connections are available with at least 2.6 MW capacity in the case of the Marambaia site and 10.2 MW in the case of Adrian6polis for the export of power generated at the sites, and with total capital cost to the operator (EnerG) of not more than £30,000 and £90,000, respectively. * All necessary permits and licenses have been obtained for the import, installation and operation of the power generation systems and for the sale of electricity produced. The power equipments include 12 engines of 950 kW each to be distributed between the two sites (Adrian6polis and Marambaia) and are expected to cost about US$ 8.3 million. The conditions agreed between both companies include: I. From the net proceeds of the sale of the electricity, EnerG will retain a Base Cost amounting to £24 for each MWh generated and sold. Based on the former agreement between the 61 parties and projecting the initial figures to the new conditions, the above-mentioned cost may be tentatively split in the following proportions (to be confirmed by the contract between NovaGerar and EnerG): 1. The Costs of Generating Plant Maintenance and administration incurred by EnerG, including, but not limited to, services, spare parts, overhaul and refurbishment when necessary to maintain the power station in full condition to operate. These costs amount to US$7.50 per MWh output sold from the site (equivalent to UK£5.00, converted at the prevailing US$/UK£ exchange rate at the date of the execution of the contract and adjusted annually in line with a relevant US retail price index). 2. The Costs of Gas Plant Maintenance and administration incurred by EnerG, including, but not limited to, services, spare parts, overhaul and refurbishment when necessary to maintain the gas plant in full condition to operate, however excluding construction of the gas collection system (that will be done by the Concessionaire). These costs amount to R$33.6 per MWh output sold from the sites (equivalent to UK£7.00, converted at the prevailing UK£ /R$ exchange rate at the date of the execution of the contract and adjusted annually in line with a relevant Brazilian retail price index.). 3. Recovery of capital costs, incurred by EnerG in equipment, construction and connection of the Power Station(s) and Gas Collection Systems (if any) to be recovered in 15 years from the start of operation of each engine, set at UK£12.00 per MWh output sold from the sites. These costs are based on the taxes being limited to: a) Import Tax = 3% b) IPI- Tax on industrial products = 5% c) ICMS- VAT = 18% d)FRMM = 0,25% on freight e)Warehouse= 1% of CIF value for 10 days f) Other= 1,5% Note: a), b), and c) apply in cascade As per the former agreement, these costs will be adjusted annually in line with the relevant UK retail price index until it has been agreed by both parties that full capacity has been installed on the site. Also, the above rate will also be adjusted to take account of any variation in the tax rates listed above or the inclusion or removal of any new duties. II. In addition to the above-mentioned base cost, EnerG will also charge 25% of the P&L Net Income from the sale of electricity after deduction of any direct cost of selling / exploring the electricity (e.g. network connection or use of system charges, etc.) and EnerG base cost. The former agreement also considered that: * The Owner will name EnerG as one of beneficiaries of the contract in the agreement with the Carbon Credits buyer (the World Bank, on behalf of the Dutch Government) to effect directly to EnerG the payments in UK£ related to Capital Recovery. * These payments should not exceed the combined amount raised through the sale of Carbon Credits and the Net Revenue from electricity sales in a given year. Summarizing the above conditions, NovaGerar will be paying about US$36 per MWh of electricity output sold from the sites, plus 25% of the project gross margin (EBITDA) to EnerG. 62 While this is deemed to be at high price levels, it may still considered reasonable for such complex scope of responsibilities. Most of the business risks are being shared between the Companies, since (i) the payments related to the electricity production are linked to the electricity sale and the sum of the payments cannot exceed the annual net revenues of the project; (ii) for the flaring activity, the payments include a share in the carbon revenues and business profitability. Table 2 shows the projected cash flow for this project. Some among the main assumptions considered in the projections are as follows: Daily waste collection and disposal: the Marambaia site, which corresponds to the already mentioned "lixao" will be placed out of operation and substituted by the Adrian6polis site. The waste amount in Marambaia is therefore already in place, totaling 2.1 Mtons of waste for generating landfill gas to be further converted into electricity. For the Adrian6polis site, the daily amount of waste to be disposed and converted into energy grows from 900 tons of daily waste disposal in 2003 to 2,300 tons / day in 2022 This assumption is consistent with the data provided by Paulista in its business plan.. Energy tariff: For the base case scenario, the tariff is as in the initial conditions to be achieved before any energy system will be installed in the site (i.e. US$ 48.00 / MWh). Since the PPA with this tariff is defined as a precedent condition for electricity generation, the project does not face the risk of facing financial losses due to lower electricity tariffs. However, independently of the tariff used in the projection, some references of the electricity price in Brazil were taken to define the likelihood of the project to obtain a PPA with the above mentioned level of prices for the electricity generated: * The tariffs currently negotiated in the spot market in Brazil (i.e. set up based on the short run marginal cost in the specific region) are as low as US$ 15.00 / MWh in the spot market in the Southeast region (i.e. mainly due to an uncommon unbalance in the energy offer / demand ratio). On another extreme scenario, the current drought in the Northeast region is leading the spot electricity tariff to reach up to US$ 115.00 / MWh in that region. Therefore, the highly floating prices in the spot market cannot be used as a basis for estimating future contract tariffs. * The benchmark value of the electricity, as indicated by the Brazilian government over the last 6 years has ranged from US$ 31.2 to US$ 38.9 / MWh, mainly changing due to the exchange rate over the period. * A RECENT ATTEMPT BY THE GOVERNMENTI SET AN ELECTRICITY BENCHMARK AT US$ 39.6 / MWH. THE UNDERLINING STUDY TOOK INTO ACCOUNT A MORE REALISTIC HIGH COST OF EQUITY IN BRAZIL (18%). * ABRAGET (the Brazilian association of thermoelectricity generators) have also recently proposed US$ 45.7 / MWh as a reasonable benchmark. * Alternative energy sources may also be benefited with higher tariffs by the Government, through the Governmental Incentive Program for Alternative Energy Sources (PROINFA) launched on April of 2002, but still not in operation. It is still premature to predict whether the program will start operations, and if so when, at which prices the electricity will be sold, and which generators will be considered. The current unbalance in the electricity market in Brazil is unlikely to be solved until 2005. Energy tariffs in the long term should reach the marginal cost in the Brazilian national system (i.e. between US$ 40.00 to 45.00 / MWh)., values also predicted by Government officials. Therefore, it is unlikely in the short term for NovaGerar to sign a PPA at the levels required by 63 EnerG for starting the electricity generation. This would temporarily lead NovaGerar to flare the methane generated in the field, just reducing it to C02 without generating electricity. Energy generation: please refer to Table 2 for the factors and calculation used to predict the electricity generation based on the number of engines being installed in each of the sites and the engines' energy capacity. Effect of the amount of ERs in the project: while the maximum energy installed capacity and electricity generation are achieved in 2008, the cumulative gas being generated in the Adrian6polis site remains increasing for a longer period. Therefore, the methane flaring, and consequently NovaGerar's revenues from the emission reductions, also grows beyond 2008. The amount of C02 generated is part of the project's sensitivity analysis. The baseline study shows a total production of 0.74 MtCO2 and 2.13 MtCO2e in Marambaia and Adrianopolis, respectively until 2012, the last contracting year under the ERPA. However, the ERPA is assuming a minimum amount of 2.53 MtCO2 to be negotiated, for both sites together. The amounts adopted were estimated using conversion ratios for ton of Methane / ton of waste and ton of Methane / ton of C02 that had already been validated by an independent auditor ( DNV). It is important to mention that the estimate for ER generation and the ER impact in the NovaGerar project's cashflow were extremely conservative, since the following assumptions have been considered: * a 20% reduction in the emission reductions as a safety margin for the uncertainties related to the baseline and carbon generation; * a 25% reduction in the estimated amounts of landfill gas generation due to uncertainties of the EPA landfill gas generation model used; * an 85% efficiency factor for the methane collection system; * only 12 years of ER sales (i.e. assuming no further sales in the subsequent years of the 21-year crediting period); and * ERs only accounted in the methane reduction to C02 (i.e. no ERs accounted for the electricity sale to the Brazilian grid). Therefore, there is a reasonable chance that the project will end up generating a higher amount of ERs than originally considered. In this case, it has been agreed that the World Bank, through the NCDMF administrated by its the Carbon Finance Unit, will also acquire the additional ERs generated until 2012, therefore increasing the project profitability. The project's NPV was verified at different discount rates (10%, 12%, 15%, 18% and 20%), with and without sale of ER, to compensate for the omission of currency fluctuation and inflation in the projection assumptions. These percentages comfortably cover the range for cash opportunity costs and base interest rates in Brazil. In order to analyze the project's sensitivity to key variables, the following was considered: i. Energy tariff: two scenarios: (i) tariff at US$ 48 / MWh and (ii) tariff reduced to US$ 40/MWh, but assuming the maintenance of the same levels of costs and expenses6. As already explained, this situation is hypothetical, since the contract between NovaGerar and EnerG only enters into force after the signature of a PPA at US$48/MWh.. ii. Energy production: a 50% reduction, simulating the reduction in the number of engines installed by EnerG and the consequent reduction in the NovaGerar obligations with EnerG. iii. ER generation: a 10% reduction (an unlikely scenario as the ER generation projections were rather conservative). 64 Table 1: Landfill Activity Cash flow Exch. rate =R$ 3.20 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-1i Dec-12 Dec-13 GROSS SALES REVENUES (I Nova lguacu 0 725,718 753.255 778 784 805.162 832,451 860.586 889.691 919,768 950.848 980,097 1010.235 (21 IBAMA 312 500 t3t Large Producers 0 151.854 205.406 322,781 387,338 419 616 603.601 674,613 710,119 781,131 781.131 781.131 (4) BrIa 0 0 10790 11.152 11,527 11,914 12,314 12.727 13.155 13.597 14,012 14.441 (Si Mesquina 0 187 691 194.261 200.283 206.491 212.893 219.492 226,297 233.312 240.545 247,280 254,204 t6) Other Municipalities 0 0 0 272,281 272.281 363.041 453.801 467,869 482 373 497 326 512.744 528.639 t7t Medical wasle 0 215 188 322.781 322.781 322 781 322.781 376,578 430,375 484,172 537 969 559.488 591,766 TOTAL GROSS REVENUES 312,500 1 280.451 1,486,493 1,908 062 2.005,580 2162,696 2526,372 2,101,572 2,842.898 3,021,415 3094,751 3 180,414 Gro*ih 16% 28s. 5%. E'% 17'. 74. 5. 6'. 2%. 3% ?oial aaily waste mandgemenr 0 89( 1.058 1.275 1329 1.426 1.555 1,621 1678 1.727 1,774 1.822 (-) Deducions (sales taxes) 9.03% NET SALES REVENUES 284,281 1,164.826 1,352,263 1,735 764 1,824,476 1,967,404 2,298,241 2.457,620 2,586.184 2,748,581 2,815.295 2 893.222 I-)CGS (. DiD/A) 1.642.500 802,804 931.019 2,285,204 1,126,029 1.197.438 1,305,301 2.464,904 1,431,587 1,486 654 1,531,955 2675.404 Growth l6 145%b -515 68. 9%. 89%. 4Pi 4% 3'. 75. (1) Alerro 781 25CI 60. 86 641 75A 1 724 66') 821 j331 84 440 668 596 2 10450S6 1 046 139 1 07e 126 1 104 837 2 2.8 168 (2) Brita 0 L 40 500 42 525 44 651 46 884 4d 228 S" 68i 54 274?a dc8 5 837 62926 t3( Medical 0 5J6 69.953 as 993 69 953 89 953 104 945 119 937 134 929 149 92 15 918 164 914 (4) Chorume I leakage 0 0 18500 20475 21 493 22574 23 702 24887 26 132 2 7438 d6810 302 31 (5) Olhers 765 625 48 750 48 750 312 500 46 750 48 75. 48 750 48 750 48 750 48.7S0 48 750 48 7o (6) Adminislral-ve 95625 8e2W0 90.5e3 95091 99645 104 837 1100,9 115583 121 362 127 431 133 802 t4 '490 GROSS MARGIN (EBITDA) 1 358 219i 362,023 421.244 (549 440) 698,447 769.966 992,940 (7 2831 1,154,597 1,261.927 1.283.340 217.819 %orfNET REVENUES) 31 1. 31 2'& 31 7-. 3834 39 1". 43.2% 4-34. 446,: 45 9% 4566% 7.5%, (-) Depreciation 60.344 62,129 106,726 106,726 106,726 162,961 163,853 164,746 164,746 164.746 106.636 105,744 (-) Interests 0 67,760 50,820 59,547 29,773 67,760 50,820 33,880 16,940 0 0 0 GROSS INCOME t1.418.563I 232,134 263.698 (715 713) 561,948 539,246 778,267 (205.909) 972,912 1,097,182 1,176.704 112,075 (-) Income tax 3- 78,926 89,657 (243.342) 191.062 183.34 264,611 (70 0091 330.790 373.042 400,079 38.106 NET INCOME t1,418.5631 153,208 174,041 (472.310) 370.886 355,902 513,656 (135,900) 642.122 724.140 776,625 73,970 (4) Depreciation 60,344 62,129 106,726 106,726 106,726 162,961 163 853 164,746 164,746 164 746 106,636 105,744 (I) InvesLmenls 163,441 144,776 375,768 265.160 305,966 122,346 135,852 155.386 169.002 195.010 22,346 8,924 FREE CASH FLOW III 521,660) 70,561 (95 001) (630,804) 171,645 396,517 541,657 (126,540) 637,866 693,875 860,915 170,789 XIRR 15 9% NPV 12% 1790 538 15% $151 724 18% i,5262.5951 Table 2: NovaGerar Power Cashflow I Dec-03 Dec404 Dec405 Dec-06 Dec-07 Dec408 Dec409 Dec-10 Electricity Component | Installed capacity 0.00 0.00 1.80 2.70 3.60 4.50 5.40 6.30 Electrcity production 24 hours 0 0 15,768 23,652 31,536 39,420 47,304 55,188 365 days Tariff $ 48.00 / MWMh Gross Revenues $0 $0 $756,864 $1,135,296 $1,513,728 $1,892,160 $2,270,592 $2,649,024 -Royalty Munic. 10% 1 $0 $0 $681,178 $1,021,766 $1,362,355 $1,702,944 $2,043,533 $2,384,122 -Taxes 18.65% $0 $0 $554,138 $831,207 $1,108,276 $1,385,345 $1,662,414 $1,939,483 -Royalty owner Marambaia 7884MWh $0 $0 $526,431 $803,500 $1,080,569 $1,357,638 $1,634,707 $1,911,776 10% 1 -RentlandMarambaia $1,333/month $0 ($16,000) $510,431 $787,500 $1,064,569 $1,341,638 $1,618,707 $1,895,776 -NPL's Base Cost $36.00/MWhj $0 ($16,000) ($57,217) ($63,972) ($70,727) ($77,482) ($84,237) ($90,992) - % NPL 25% $0 ($16,000) ($57,217) ($63,972) ($70,727) ($77,482) ($84,237) ($90,992) ERs Component Total ER production 15,000 125,000 155,000 200,000 235,000 275,000 320,000 360,000 % BioGas 28% 28% 28% 28% 26% 24% 22% 20% Net ER production 10,800 90,000 111,600 144,000 173,900 209,000 249,600 288,000 Price $3.35 ] Gross Revenues $0 $36,180 $301,500 $373,860 $482,400 $582,565 $700,150 $836,160 - Royalty Munic. 10% $0 $32,562 $271,350 $336,474 $434,160 $524,309 $630,135 $752,544 - Taxes 18.65% $0 $26,489 $220,743 $273,722 $353,189 $426,525 $512,615 $612,195 - EB Fee 2% $0 $25,766 $214,713 $266,244 $343,541 $414,874 $498,612 $595,471 -Biogas fixed monthly charge $6,375 $0 ($50,734) $138,213 $189,744 $267,041 $338,374 $422,112 $518,971 - ER verification costs $20,000 $0 ($70,734) $118,213 $169,744 $247,041 $318,374 $402,112 $498,971 Consolidation Taxable Income to NovaGerar $0 ($86,734) $60,996 $105,772 $176,314 $240,892 $317,875 $407,979 Net Income (- Income tax) 34% $0 ($86,734) $40,258 $69,810 $116,367 $158,989 $209,797 $269,266 Cashflow - Working Capital $0 ($91,029) ($78,972) $15,043 $57,306 $100,922 $149,663 $206,945 NPV Total 12% $399,186 IRR 44.92% NPV Electricity only ($587,644) #NUMi NPV Carbon only $1,863,882 207.74% 66 Table 2: NovaGerar Power Cash flow (cont.) Dec-1l Dec-12 Dec-13 Dec-14 Dec-16 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 6.30 7.20 8.10 9.00 9.90 10.80 10.80 10.80 10.80 10.80 10.80 10.80 10.80 55,188 63,072 70,956 78,840 86,724 94,608 94,608 94,608 94,608 94,608 94,608 94,608 94,608 $2,649,024 $3,027,456 $3,405,888 $3,784,320 $4,162,752 $4,641,184 $4,641,184 $4,641,184 $4,641,184 $4,541,184 $4,541,184 $4,641,184 $4,541,184 $2,384,122 $2,724,710 $3,065.299 $3,405,888 $3,746,477 $4,087,066 $4,087,066 $4,087,066 $4,087,066 $4,087,066 $4,087,066 $4,087,066 $4,087,066 $1,939,483 $2,216,552 $2,493,621 $2,770,690 $3,047,759 $3,324,828 $3,324,828 $3,324,828 $3,324,828 $3,324,828 $3,324,828 $3,324,828 $3,324,828 $1,939,483 $2,216,552 $2,493,621 $2,770,690 $3,047,759 $3,324,828 $3,324,828 $3,324,828 $3,324,828 $3,324,828 $3,324,828 $3,324,828 $3,324,828 $1,923,483 $2,200,552 $2,477,621 $2,754,690 $3,031,759 $3,308,828 $3,308,828 $3,308,828 $3,308,828 $3,308,828 $3,308,828 $3,308,828 $3,308,828 ($63,285) ($70,040) ($76,795) ($83,550) ($90,305) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($63,285) ($70,040) ($76,798) ($83,550) ($90,305) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) 400,000 450,000 18% 16% 328,000 378,000 $964,800 $1,098,800 $1,266,300 $0 $0 $0 $0 $0 $0 S0 $0 $0 $0 $868,320 $988,920 $1,139,670 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $706,378 $804,486 $927,122 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $687,082 $782,510 $901,796 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $610,582 $706,010 $825,296 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $590,582 $686,010 $805,296 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $527,297 $615,970 $728,500 ($83,550) ($90,305) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) $348,016 $406,640 $480,810 ($83,550) (S90,305) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) $328,130 $344,468 $414,751 $20,571 ($136,483) ($143,238) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) ($97,060) 67 Table 3: Sensitivity analysis of the main variables in the project BASE CASE SCENARIO B 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jet Re.enues - 26 741 1070 1424 1773 2133 2507 2627 2999 3395 2771 30048 33251 ESiTDA 187,1 61 106 176 241 318 408 527 616 729 M84i t90, 1971 EST i87i 61 106 176 241 318 408 527 616 729 1841 1901 i97i Niel ncome - i87i 40 70 116 159 21u 269 348 407 481 841 901 19. Gross Operating Cash Flow (A) (87) 40 70 116 159 210 269 348 407 481 (84) (90) ig; FreeCashFlow - (91) (79) 15 57 101 150 207 328 344 415 21 (136) (143) Changes in Cash - (91) (79) 15 57 101 150 207 328 344 415 21 (136) 1 14311 Cash&MarketableSecurities - - - 15 .i 173 323 530 858 I 202 I 617 I 638 I 501 1 358 Dividends (B) 1 + Interest income (C) ) + Interest expenses +CPLTD(D) | DSCR * (A-B+C) I D #DIVIO0 #DiVIO! #DIVI0! #DiVIOI #DIV10I #DIVIO/ #DIVIO! #DIVIO #DIVIOI #DIV/0I #DIVIO! #DIV/Of1 Current Ratio 2.1 2.2 2.5 2.8 3.0 2.9 2.9 2.9 2.8 2.5 2.2 2.0 Net Worth I Total Assets 52% 55% 60% 65% 69% 73% 79% 81% 83% 82% 79% 77% NPV $399 IRR 44.92% BAD SCENARIO 1: 10% reduction on ERs revenues I______________________* 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Net Revenues - 23 720 1,043 1,390 1,731 2,083 2,448 2,558 2,921 3,305 2,771 3,046 3,325 EBITDA (89) 40 79 142 199 268 348 459 538 638 (84) (90) (97) EBT - (89) 40 79 142 199 268 348 459 538 638 (84) (90) (97) Ne ,Income * ,d8 26 2 91 I'32 17? i30 303 355 421 841 190I ,9 Gross Operating Cash Flow (A) (89) 26 52 94 132 177 230 303 355 421 (84) (90) (97) Free Cash Flow (93) (90) (2) 36 75 118 169 284 294 357 6 (136) ,143, Changes in Cash (93) (90) (2) 36 75 118 169 284 294 357 6 (136) (143) Cash & Marketable Securities - - - - 36 111 229 232 232 232 232 232 96 - - Dividends (B) 1 + Interest income (C) j- Interest expenses + CPLTD (D) | DSCR =(A-B+C) I 1 #DIV/0! #DIVtOI #DIV/OI #DIV/01 #DIV/0I #DIVIO! #DIVIO! #DIVW0I #DIVIO! #DIV101 #DIV/01 #DIV/O! Current Ratio 2 1 2 1 2 3 2.6 2.9 2.8 2.9 2.8 2.8 2.5 2.2 2.0 Nel Worth ITotal Assets | 51 % 52a. 56%. 61% 66% 70% 76%. 79% 81% 79% 77% 74% NPV | S239 IRR 35 11i. 68 Table 3: Sensitivity analysis of the main variables in the project (cont.) BAD SCENARIO 2: 50% reduction on electricity generation | 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Net Revenues - 23 456 641 849 1,052 1,266 1,492 1,588 1,813 2,058 1,385 1,524 1,662 EBITDA (89) 60 103 169 230 302 386 482 565 669 (50) (53) (57) EBT (89) 60 103 169 230 302 386 482 565 669 ,'0G (53) (57) Net Income - (89) 40 68 112 152 199 255 318 373 441 (50) (53) (57) GrossOperatingCashFioeilA) 180 40 64 112 152 199 256 318 373 441 1501 k531 657, FreeCashFlow I93. . 33) 3. 77 118 lf4 217 302 3?5 400 62 .76J t80) |Changes in Cash - (93) (33) 37 77 118 1C4 217 302 335 400 62 I761 (80) Casr S Make13tl,e Securl. - 37 114 1J4 144 144 141 144 144 144 68 - - Dividends (B) I . . . .. Interest expenses + CPLTD (D) DSCR = (A-B+C) / D #DIVI0! #DIV/0i #DIV/OI O DIV/0! #DIVI0! #DIVI/0! #DIVW0! #DIV/OI #DIV/O! #DIVIG DIVD0! #DIV/O! Current Ratio 2.2 2.6 3.3 3.3 3.2 3.1 3.2 3.1 3.1 2.6 2.2 2.0 Net Worth I Total Assets 54% 62% 69% 751% 79°. 82% 86%. 88% 90% 89% 88°. 86%U NPV $668 IRR 57.10% BAD SCENARIO 3: Electricity tariff at US$ 40/ MWh (16% reduction) I ______________________1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 NetRevenues - 26 657 941 125' 1655 1872 2201 2316 2644 2996 232, 2e60 2793 EBITDA - t'i 23; I2i'J 3 24 56 102 217 261 330) 52.1 1576, tt,' EBT - t8J t23) ( 23J 3 24 ¶6 102 217, 261 33U0 ,27. 15781 ,6.9, Net income . 7; ! 23; t23! 2 16 37 6' 143 172 21 7 527 ! 57'8! i62'9, Gross OPeFat.ng Cas' Filvl Ai -I 1231 1231 2 16 37 6' 143 172 217 t5271 15781 i62'i IreeCasn Flow 911 1128, 1701 4J91 t351 116 12 124 118 159 1:151 16171 1664,j Changes,nCash IYII 1128 I G) tj9; 131) N16) 12 124 118 159 4 16 16171 1668, C35ah & Marle3Dtle SecuriI, . . . . . . 12 137 210 210 - Dividends iBi + Interest income ;C lInterest expenses * CPLTD iD | DSCR = (A-B+Cj I D #DIVI0l #DIVIO! #DIVIOI #DIVIO! #DIVIOI #DIV/OI #DIVIOf #DIV#01 #DIVIOI #DIViO! #DIVI0I #DIV/0! Cuffent Ratio 2.0 2.0 2.0 2.0 2.0 2.1 2.5 2.6 2.6 1.8 1.8 1 8 Net Worth I Total Assets 49% 49% 50% 50% 51% 52% 60% 64% 67% 45% 45% 45% NPV (S 1,380) IRR 0.00% 69 ANNEX 6: ECONOMIC ANALYSIS OF THE NOVAGERAR PROJECT BRAZIL: Nova Gerar Landfill Rio de Janeiro (US$ thousand) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Energy Produced 0.0 708 5 1.062.7 1.4169 1,771 2 2 1254 2,479 7 2,479 7 2.833 9 3.188 1 O&M Cost -16.0 -252.5 -370.8 -489.0 -607 3 -725 6 -843 8 -843.8 -9621 -1.080 3 Captal Expenditures -1.808 3 -745 8 -745.8 -745.8 -745 8 -745 8 0 0 -745 8 -745 8 -745 8 Economic Value of Energy Generation Component -1,824.3 -289.9 -53.9 182.1 418.1 654.0 1,635.8 890.0 1,126.0 1,362,0 CER 418.8 519.3 670.0 787.3 921.3 1,072.0 1,206.0 1,340.0 1,507.5 1,507.5 Operational Costs of ER -219.8 -249.4 -293.7 -328.3 -331.6 -349.1 -357.0 -359.7 -363.0 -363.0 Economic Value of ER Component 199.0 269.9 376.3 459.0 589.6 722.9 849.0 980.3 1,144.5 1,144.5 Total Economic Value -1,625.3 -20.0 322.4 641.1 1,007.7 1,377.0 2,484.8 1,870.3 2,270.5 2,506.4 (US$ thousand) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Energy Produced 3,542.4 3,896.6 4,250.8 4,250.8 4,250.8 4,250 8 4.250 8 4.250 8 4,250 8 4250.8 O&M Cost -1,198.6 -1,316.9 -1,435.1 -1,435.1 -1,435.1 -1,435.1 -1,435 1 -1.435 1 -1.435 1 -1,435 1 Capital Expenditures -745.8 -745.8 0.0 0.0 0.0 0.0 0 0 0 0 0 0 0.0 Economic Value of Energy Generation Component 1,597.9 1,833.9 2,815.7 2,815.7 2,815.7 2,815.7 2,815.7 2,815.7 2,815.7 2,815.7 CER 1,507.5 1,507.5 1,507.5 1,507.5 1,507.5 1,507.5 1,507.5 1,507.5 1,507.5 1,507.5 Operational Costs of ER -363.0 -363.0 -363.0 -363.0 -363.0 -363.0 -363.0 -363.0 -363.0 -363.0 Economic Value of ER Component 1,144.5 1,144.5 1,144.5 1,144.5 1,144.5 1,144.5 1,144.5 1,144.5 1,144.5 1,144.5 Total Economic Value 2,742.4 2,978.4 3,960.2 3,960.2 3,960.2 3,960.2 3,960.2 3,960.2 3,960.2 3,960.2 EIRR: 45.5% ANNEX 7: LANDFILL GAS ASSESSMENT BRAZIL: Nova Gerar Landfill Rio de Janeiro 1. Purpose: This Annex presents the calculation of methane recovery potential at Marambaia and Adrian6polis, based on the baseline study prepared for the Nova Gerar Project. 2. Gas Calculation Assumptions: The US EPA first order decay model equation from the US EPA manual 'Turning a Liability into an Asset: A Landfill Gas to Energy Handbook for Landfill Owners and Operators' (December 1994), as described in Section II, is as follows: LFG=2LoR(e-kc-e-kt) Where LFG = total landfill gas generated in current year (cf) Lo = theoretical potential amount of landfill gas generated (cf/lb) R = waste disposal rate (lb/year) t = time since landfill opened (years) c = time since landfill closed (years) k= rate of landfill gas generation (1/year) The inputs used were: Waste disposal rate (R): The waste placement volumes are based on historical waste disposal tonnage from contracts with various municipalities through 6 months of 2000. Future waste volumes are based on current waste receipts and contracts which are in place for future waste streams. The fact that waste disposal at Marambaia ceased in late 2002, and disposal would commence in early 2003 at Adrianopolis, has also been taken into account. These data forms the foundation of the gas volume projection and is subject to change over the active lifetime of the landfill as refuse acceptance volumes vary. This implies that the gas volume projection will vary accordingly. Therefore, even though gas volumes may fluctuate over a period of time because of varying disposal rates, the ultimate total volume of gas projected for the site will remain constant. The values used for R are shown in Table 1. Table 1: Waste projections for Adrianopolis Year Adrianopolis Daily Waste Placement Rate (t/day) 2002 0 2003 896 2004 1,058 2005 1,271 2006 1,375 2007 1,470 2008 1,597 2009 1,755 2010 1,904 2011 2,045 2012 2,183 2013 2,322 2014 2,472 2015 2,614 2016 2,756 2017 2,889 2018 3,082 2019 3,165 2020 3,250 2021 3,335 2022 3,367 Gas Generation Rate (k): The gas generation rate for this site was determined based on specific ranges given for Brazilian landfills. The gas generation rate is influenced by the temperature, humidity and composition of the waste. A figure of 0.1 was used as recommended by SCS Engineers in a presentation on behalf of the US EPA in Sao Paulo, Brazil (Part 5: Evaluating Landfill Gas Potential, June 26 2001, Training Workshop for the US EPA Landfill Methane Outreach Program, Sao Paulo Brazil). Theoretical Yield (Lo): Another input into the computer model is theoretical maximum yield i.e. the total amount of landfill gas that one pound of waste is expected to generate over its lifetime (cubic feet per pound of refuse). Lo is a variable dependent on the type of waste deposited and its organic content. Again estimates recommended by SCS Engineers in a presentation on behalf of the US EPA in Sao Paulo, Brazil (Part 5: Evaluating Landfill Gas Potential, June 26 2001, Training Workshop for the US EPA Landfill Methane Outreach Program, Sao Paulo Brazil) were used, and the value chosen was 2.63 cf/lb. Time since landfill opened (t): These values varied depending on which site was being investigated. For example the site at Marambaia opened in 1987, the Adrianopolis site will only start receiving waste from 2003. Therefore the value used for t changed depending on which year landfill gas generation figures were being developed for. Time since landfill closed (c): Again this varies depending on which site was investigated, and in which year. Marambaia closed in late 2002; Adrianopolis will not stop receiving waste until 2022. Effectively the value used in the Adrianopolis calculations therefore was 0. Table 2 below displays the value of the variables used for both the Marambaia and Adrianopolis sites. Table 2: Variables used in the US EPA Model Variable Marambaia Adrianopolis R (tonnes per day) 329.9 Please refer to Table 8 Lo (cf/lb) 2.63 2.63 k (cf/lb/year) 0.1 0.1 Another factor influencing the yield of landfill gas, but not linked to the US EPA First Order Decay Model is described below: * Recoverability: This is defined as the quantity of landfill gas that can be expected to be successfully extracted from a landfill compared to the actual quantity that is generated. Since the total gas yield is theoretical and there is no technically feasible method to ensure the collection and measurement of 100 percent of the gas being generated, the recoverability value is a conservative estimate. The use of an 85% recoverability rate is the typical expected gas collection for this site given the current extraction methodology and potential modifications in support of a power generation facility. Specialist landfill-gas- to-energy company EnerG predict that recoverability may increase to over 90%, however the more conservative value of 85% was used for this analysis. The conversion factors utilised in this analysis are listed below: - I cubic foot= 0.0283 m3 - Ikg= 2.205 lbs - Density of methane = 0.04237 lbm/cf @ 60 deg. F and 14.696 psia - Density of methane = 0.00067899 t/m3 @ 60 deg. F and 14.696 psia 3. Global Warming Potential of Methane Gas from Landfill Gas: In the baseline scenario, all these landfill gases will be emitted to the atmosphere. Methane, the main energy component of landfill gas, is a particularly potent "greenhouse" gas, having roughly 23 times the global warming effects of carbon dioxide. The chemical reaction for the combustion of methane to carbon dioxide is: CH4 + 202 (via combustion) = C02 + 2H20 The stoichiometry of the equation is 1:1, that is, one molecule of methane will result in the production of one molecule of carbon dioxide upon combustion. Global Warming Potential (GWP) is measured in units of tonnes of C02 equivalent. The IPCC sanctioned GWP of methane is 23 (i.e. one tonne of methane is equivalent to the effect of 23 tonnes of C02). The GWP of carbon dioxide is I (I tonne C02 is the base unit). Upon the combustion of methane the global warning potential of the gas is reduced, but not totally mitigated, therefore we must account for the effects of the residual greenhouse gases. For example, one tonne of methane, if left to vent to atmosphere, would have the same effect as releasing 23 tonnes of C02 to atmosphere. The molecular weight of methane is 16, comprised of one molecule of carbon, with a molecular weight of 12, and 4 hydrogen molecules, each with a mass of 1. Therefore every tonne of methane contains 0.75 tonnes of carbon. According to the stoichiometry of the equation above the combustion of 0.75 tonnes of carbon produces 2.75 tonnes of C02, therefore the effect of combustion of methane is to reduce the GWP from 23 tonnes C02 equivalent to 20.25 tonnes C02 equivalent. This leads to a GWP reduction of 23 - 2.75 = 20.25. However, the application of a carbon emissions factor for methane related emission reduction activities might be affected by one of two different scenarios: 1. The methane mitigated is mineral in nature (for example, coal mine methane). Where the methane is mineral in nature a CEF of 20.25 must be applied, as there is a net flow of carbon to the atmosphere. 2. The methane is organic in nature (for example, anaerobically degraded biomass). Where the methane is organic in nature, a CEF of 23 may be applied. The assumption here is that the residual C02 emitted to atmosphere was originally fixed via biomass, and hence, there is no net flow of carbon to atmosphere. Waste in Brazilian landfills is highly organic in nature. A landfill is a mixed situation (although the waste in Brazil is predominantly organic. The IPCC estimates that the organic component of waste from developing countries is 77%). Three approaches may be taken: 1. Most conservative: Apply a carbon emissions factor of 20.25, and assume all methane emissions are mineral in origin (not representative, approximately 77% of Brazilian waste is organic in nature). 2. Practical: Apply a carbon emissions factor of 23, and assume all methane emissions are organic in nature (under the UK Renewables Obligation legislation, the UK Government assumes that all landfill emissions are essentially organic in nature, and classifies all landfill gas as being from a 'renewable' source). The added complexity of the degradation profiles of the materials in the mix must also be considered, as the plastic may not degrade for many years, perhaps well after the project intervention has ceased, so an assumption may be made that all CH4 emissions during the lifetime of a project may be organic in origin. 3. Most Complex: Determine the proportion of mineral and organic waste, and apply the relevant carbon emissions factor to the proportions of each emissions stream (not practical). NovaGerar has adopted the use of Option 2. This option is also currently applied by the UK Government, where all landfill gas projects under the UK Renewable Obligation legislation are considered renewable energy projects. Therefore a GWP of 23 has been used in the baseline calculations. This option, however, has to be confirmed by the executive board of the UNFCCC. 4. Methane Content of Landfill Gas: Measurements conducted on behalf of NovaGerar by consultant engineers from the Environment and Waste department of EarthTech, an environmental engineering company from Oak Brook, USA, determined that the landfill gas of a similar site located in Sao Paulo is typically comprised of 54% methane (see Table 10). Because of the similarities in waste composition and climate, which are the main factors in determining landfill gas generation, it can be reasonably assumed that the methane content of landfill gas produced at the Marambaia and Adrianopolis sites would be similar. However, based on an expert opinion received and in the interest of conservatism, 50% methane content has been assumed in the ER estimations. Table 3: Typical landfill gas analysis of a similar site in Brazil. Typical Landfill Gas Analysis Methane4O% to 60% Carbon Dioxide 25% to 40% Oxygen <1% Nitrogen 5% Hydrogen <0. 1% Carbon Monoxide <0.01% Ethane/Propane/Butane<0.0 1 % Halogenated Compounds Trace Hydrogen Sulphide Trace Organosulphers Trace 5. Results of Gas Calculation Model According to the analysis, the Adrianopolis site has the capacity to generate approximately 535 million cubic metres of landfill gas over the next 10 years, and 2.9 billion cubic metres over the next 21 years. This dramatic rise is due to an exponential increase in landfill gas production once a core volume of waste has been placed. Conversely, the Marambaia site will only generate approximately 250 million cubic metres of landfill gas over the next 10 years. Landfill gas at this site will decrease exponentially now that waste placement has ceased, this is highlighted by the fact that over the next 20 years the landfill gas generated only increases to 332 million cubic metres. - Methane production 14,000 12,000 ___.*- 10,000 8,000 4,000 - - - ,- ,, .'; 2,000 _ _-_-__ _ 0 N t (O 0D 0 N st (0 C0 0 N t C 1D0 0 N t (0 C0 0 O 0 0 0 N N N N N CO CO CO CO ) C - O 0 0 0 O 0 0 0 0O C0 0 0 O 0D 0 0 O N N N N N N N N N NN N N N N N N N N N N Time (yrs) Methane production 80,000 - ------ -- - - - _ _ -_ __ - 70,000 60,000 50,000 - :__- 40,000 - ----- _ 30,000 -------- 20,000 10,000 0 . ' N T (o 0 o N a N 0 C 0 N IT co C 0 O 0 0 0 O- O O O O N N N N N ) ) ) ) o 0000 0 0 0 0 0 0 0 0 0 0 0 0 0 0) 0 N (N N N N N N N N N N N N CN N N N 0N Time (yrs) Figure 4: Methane gas generation volumes at Marambaia landfill site based on the US EPA first order decay model. Figure 5: Methane gas generation volumes at the Adrianopolis landfill site based on the US EPA first order decay model. ANNEX 8: THE LANDFILL GAS COLLECTION SYSTEM BRAZIL: Nova Gerar Landfill Rio de Janeiro 1. Installation of LFG collection system in Marambaia This specification describes the installation of a gas collection system that will enhance the control of landfill gas migration and provide further gas for prospective power generation at Marambaia Landfill Site. Marambaia Scope of Work The scope of work covered by this specification is as follows: * The installation of 34 gas wells and wellheads * The installation of new connecting pipework to join the wells to the manifolds * The installation of 4 manifolds * The installation of a gas main to connect the manifolds to the flare * The installation of 4 pumped knockout pots * The installation of a pneumatic condensate pumping system, comprising pneumatic pumps, air line, discharge lines and compressor. * Supply and install secure housing for compressor and refrigerator unit. Supply and installation of a ground flare and flare compound All work will be carried out under the contract to be signed between Nova Gerar and EnerG and will be carried out in accordance with the Construction Quality Assurance Plan by EnerG Design and Standardisation The Collections system will be designed to a high standard and to facilitate inspection, cleaning and repair to ensure continuity of satisfactory operation under all working conditions for a period of at least fifteen years. During the excavation of any part of the site any vertical soil structures will be observed and separate materials as these are removed accordingly. Excavations are planned to be back filled in layers to match the original vertical structure. No excavations will be left un-attended and all areas will be made secure at the end of each working day. Marker tape will be installed 300mm above the crown of all buried pipework. All reasonable precautions will be taken to prevent The silting or erosion of the banks of rivers, streams, waterways and the like Adverse effects of the chemical or visual quality of all surface water bodies Injury or death to plant or animal life Interference with the supply or abstraction of underground water resources Adverse effects on the quality of groundwater Uncontrolled releases of landfill gas to air causing odour or hazard Risk of accumulations of gas in voids or structures likely to come into contact with a source of ignition. Health and Safety It will be ensured that proper safety controls and responsibilities are in place prior to commencing work on the Site. All workers employed by the Contractor will receive proper training In particular following specific safety requirements will be monitored: - (i) High visibility coats or jackets should be worn at all times within the Site. (ii) Proper protective clothing should be worn including boots with steel toe caps and mid soles and hard hats. (iii) Eating, drinking and smoking are not permitted on Site outside of any Site cabin or in the changing or washing area. (iv) Hands and face should be washed thoroughly before eating and drinking. (v) All persons employed by the Contractor will sign in and out of the Site daily. Precautions are being taken for: (i) The explosive and flammable dangers of landfill gas particularly in confined spaces. (ii) The danger of asphyxiation through reduced oxygen levels and high carbon dioxide levels in confined spaces. Personnel must not enter confined spaces. (iii) The dangers of excavations or trenches in excess of 1.5 metres depth. Deep excavations in soil will be properly shored. 2. Gas Collection System Gas Wells Thirty four vertical gas wells will be installed across the Site at typically 40 metre intervals. The Site shows the proposed layout of the gas wells. The location of each gas well will be marked out using surveying techniques, either XYZ information or a digital copy of the location plan can be obtained from the Engineer. The drilling and installation of the new gas extraction wells (GEWs) will be in accordance with the Site Investigation Steering Group, Guidelines for the safe Investigation of drilling of Landfills and contaminated land. The wells will be designed and installed in accordance with the following requirements:- 1. All GEWs will be drilled to a minimum diameter of 300mm, using appropriate drilling technique for drilling in landfill. This could be continuous flight auger, shell and auger, barrel augering or similar approved. 2. Each GEW will be drilled to a depth agreed with the clients' representative, typically to finish at least 4m above the base liner of the landfill. 3. GEWs will be lined with a 90mm diameter (minimum) High Density Polyethylene (HDPE) slotted pipe of 10 bar rating and supplied in standard 3 m lengths, with threaded male / female ends to form flush joints. The top three metre sections will be supplied plain (un-perforated) for capping purposes. The slotted liner will have 3mm horizontal slots to yield a minimum 15-20% surface area exposed for ingress. 4. The bottom section of slotted liner installed will be fitted with a protective end cap. 5. The annulus between the liner and waste will be backfilled with a single sized coarse washed non-calcareous gravel pack of approximately a 10-20mm diameter. Care will be taken during installation to ensure "bridging" of the gravel does not occur between the liner and the waste. Gravel will also be placed in the bottom of the borehole (approx 300-500mm) to protect the bottom cap before the liner is installed. 6. The top of the well will be sealed with at least 2.5m of soaked bentonite to prevent air and water ingress. The bentonite seal must coincide fully with the landfill cap and extend at least 1 metre below, to ensure the caps integrity due to future settlement of the site. The bentonite will be in a granular form and poses a swelling volume of 200-300%. The bentonite seal will be installed using the following method: A dry bag of bentonite will be placed to form a dry layer on top of the gravel pack. The gas well annulus will then be gradually filled with water from a bowser and the remaining bentonite emptied into this standing water until the annulus is full. The use of bentonite pellets is not acceptable. 7. Drilling logs will be kept for each GEW and copies will be supplied for record purposes. 8. The drilling operation will be carried out by competent persons and in a safe manner. 9. The use of water or air-flushing techniques will not be used. 10. Drilling Logs are required for all wells including aborted wells. Table A - Estimated Drilling Depths BH Ref Drilling BH Ref Drilling BH Ref Drilling Number Depth Number Depth Number Depth (m) (m) (m) I TBC 14 TBC 26 TBC 2 TBC 15 TBC 27 TBC 3 TBC 16 TBC 28 TBC 4 TBC 17 TBC 29 TBC 5 TBC 18 TBC 30 TBC 6 TBC 19 TBC 31 TBC 7 TBC 20 TBC 32 TBC 8 TBC 21 TBC 33 TBC 9 TBC 21A TBC 10 TBC 22 TBC 11 TBC 23 TBC 12 TBC 24 TBC 13 TBC 25 TBC The site is fully restored therefore, in all areas the gas wells will be installed as follows: * All well heads are to be buried lm below ground level or at the top of the cap, which ever comes first. Plain well casing from ground level to 3m below ground level. Perforated well casing from 3m below ground to the depth required. Gravel pack from 2.5m below ground level to well base Bentonite seal from ground level to 2.5m below ground level. Gas Wellheads Connection to the 34 gas wells will be made in solid MDPE pipe including a 90x63 reducer as shown in Figure 3. The wellheads will be buried with pipe laid and the excavation back filled to ensure a fall is maintained to the manifold. Connecting Pipework The connecting pipework will be constructed from 63mm black MDPE to SDR 11 and joined using electrofusion or fully automatic butt welding techniques. The pipe layout will be as shown in the Site plan attached (Figure 1). All lines will be buried lm below ground level or on top of the cap which ever comes first. Nominal pipe lengths are estimated to be 2,600m of 63mm pipe to connect the gas wells to their specific manifold. Pipes will be installed in shared trenches where appropriate to reduce cost. All connecting pipework will be laid to maximise the fall to the manifolds. Ideally falls should be 1:25 or greater. Where this is not achievable, connecting pipeline routes will be agreed on Site with the Engineer. The Contractor will be required to survey proposed connecting pipeline routes to determine levels and falls. Connecting pipework will connect each well individually to a control and isolating valve on one of the four new manifolds as described below and shown on the layout plan, figure 1. Manifolds Manifolds will be fabricated from 315mm diameter black MDPE to SDR 17.6 with a single 160mm valved outlet for connection to the gas main and a 160mm blank/drainage flange complete with 2" BSP socket for connection to an automatic drain Fig. 3. The manifold will include a number (described below) 2"BSP x 63mm compression Plasson valve inlets for each gas well connecting pipe. Three of the four manifolds will have inlets on both sides of the manifold barrel as described as follows. Manifold Ml - will have 15 valved inlets - 12 on one side and 3 on the opposite side Manifold M2 - will have 11 valved inlets - 8 on one side and 3 on the opposite side * Manifold M3 - will have 12 valved inlets - 9 on one side and 3 on the opposite side Manifold M4 - will have 5 valved inlets - 5 all on one side The manifolds will be laid to fall towards the drainage outlet as shown in Figure 4 to facilitate drainage of condensate. Isolating and control valves will be provided for each incoming gas line. The seal will be manufactured from nitrile rubber or other material resistant to landfill gases and condensate. Tefen gas sample points will be provided immediately upstream of each isolating and control valve. The dust cap on the Tefen will be attached by a non-perishable line, of a type and quality agreed by the Engineer, to the base of the Tefen. In addition, each incoming line will be marked with a non-perishable tag indicating to which gas well the line is connected e.g. MI-I refers to Manifold 1 / well 1. The outlet of the manifold will comprise a single 160mm MDPE pipe of SDR 17.6 and be fitted with a 6"butterfly valve for isolation and control as specified above. Tefen gas sample points will be provided immediately upstream and downstream of the manifold isolating and control valve. The dust cap on the Tefen will be attached by a non-perishable line, of a type and quality agreed by the Engineer, to the base of the Tefen. The Manifold will be factory tested to 1 bar gauge and supplied to Site with a pressure test certificate. Each manifold will sit on a base of 100mm well graded stone compacted on Terram or approved similar separation membrane. . Automatic Drainage Points Automatic dewatering points are designed to automatically return all condensate back to the landfill mass, via a liquid seal. To work efficiently they must be installed in dry waste in either excavated pits or within a dedicated bore hole. They incorporate the following features: - Be fully accessible for priming, pumping out, cleaning, monitoring etc. via a gas tight screw top. - Typically be offset from the manifold to mitigate the effects of local subsidence. - Access points for condensate level measurements. - Installed in lightweight lockable chambers. - Low maintenance. The dewatering points will meet the following requirements: - Manufactured from Black MDPE 6 bar pipe (min) and fittings - Pipe jointing will be by butt-fusion, electro-fusion or compression fittings. The number of joints will be kept to a minimum. - Unless specified otherwise the standard dewatering leg proposed is designed to cater for a maximum suction of-150mbar. Gas Main The gas mains will be constructed from 250mm and 160mm black MDPE pipe to SDR 17.6 and joined using electrofusion or fully automatic butt welding techniques. Only moulded fittings will be used, fabricated fittings will not be accepted. The Contractor will survey the proposed gas main routes, mark out the proposed routes and check the falls. The results of the survey and the proposed routes will be verified by the Engineer and the Contractor before installation. The final location and levels of the gas pipes will be surveyed by the Contractor at intervals of at least every 20 metres with the results included in the as built drawings. One road crossing is required and this will consist of an appropriately sized steel sleeve protected with lean mix concrete. It should be sized to not only accommodate the gas main but also the airmain and condensate discharge lines for possible future use. Pumped Knockout Pots Four pumped condensate knockout pots will be included in the new gas main. The pumped condensate knockout pots will aid the removal of liquid by altering the gas stream's velocity. The condensate knockout pot will be fabricated from MDPE/HDPE and constructed as shown in Figure 5. The pot will consist of an internal and external chamber (Figure 5). The internal chamber will be fabricated from 315mm SDR 17.6 MDPE and the external chamber from 500mm SDR 17.6 MDPE. The 315mm section will be brought through the top of the external chamber and finish at the appropriate level in a blank flange. The top blanking flange will also include monitoring facilities that will comprise of an isolation valve for atmospheric balancing, pipe glands for the pneumatic pump and a 1" BSP dipping point with a threaded cap, which must be removable by hand. During commissioning, but after pressure testing the 1" BSP dipping point will be opened to allow the internal chamber pressure to equalise with the barometric pressure. The base of the internal chamber will rest on the flat cap end of the external chamber and will have a spacer around the outside diameter of the pipe to support it within the external chamber. All joints on the inner chamber of the knockout pot will be internally debeaded. Condensate will drain into the external chamber because of the falls on either side of the pot and by virtue of a decrease in velocity through the pot. The condensate will be removed by means of a compressed air pump. The pot will be installed by excavation. Care will be taken to avoid over excavation. The hole will be backfilled with the excavated materials placed in layers of no more than 300 mm and compacted. Compressed Air Pumping System A compressed air pumping system will be installed to supply the all new knockout pots on site. This will consist of a compressor, compressed air driven pumps, a compressed air line and a condensate drainage line. Pneumatic Pump A short compressed air pump or suitable alternative such as a 'Bio-Pump' will be used to pump condensate from the knockout pot. The specific pump type is to be agreed with the Engineer prior to purchase. The pump will be installed in the internal chamber after the pressure test of the gas main is successful and after the pot has been primed to at least the level indicated by the equilibrium level. Glands will be fitted to the access flange of the knockout pots to allow any supply or return lines to pass to the pump from external connections. The glands will be of a type approved by the Engineer. Compressed Air Line A compressed air line will be constructed from 63mm black MDPE to SDR 11. All pipework will be joined using electrofusion or fully automatic butt welding techniques. At the knockout pot, the air line will terminate with an isolation valve, pressure regulator, counter auto drain all housed in an appropriate housing. This will be supported on a galvanised steel or MDPE plate attached to the external side of the access flange of the knockout pot. The support plate will not hinder removal of the access flange or contents of the knockout pots. The complete system will be pressure tested upon commissioning. Compressed air lines will be pressure tested to 10 bar gauge for a period of one hour. The pressure tests will be witnessed and approved by the Engineer. Condensate Drainage Line A condensate discharge line will be constructed from 63mm blue MDPE to SDR 11. All buried pipework will be joined using electrofusion or fully automatic butt welding techniques. Surface laid pipework may be joined using suitable compression type mechanical fittings but not push fit fittings. The condensate discharge line will run from the pumped condensate knockout pot to a suitable disposal point such as leachate lagoon. This will be decided upon on site to by the Engineer. The condensate lines will be buried for their full length. At the knockout pot the lines will be fitted with a non return valve and an isolation valve and be secured to the plate attached to the knockout pot. Nominal total pipe lengths are estimated to be 500m. Compressor The compressor will be capable of generating 18 Nm3/hr (10 cfm) FAD of compressed air flow and a pressure of up to 7-10 bar gauge. The compressor should be of an industrial duty standard preferably a screw type. A refrigeration dryer unit will be installed to take the dew point of the compressed air to two degrees Celsius. The compressor will be fitted with a receiver with a volume of at least 250 litres capacity and be fitted with an automatic drain. The compressor and dryer will be powered by electricity from the flare distribution panel and will include the controls necessary to permit continuous automatic operation. The compressor will have an appropriate starter and automatically restart after a power failure. The compressor will be located in the proposed gas compound. When operating under full load conditions the compressor and dryer should not emit noise exceeding 70 dBA at one metre. The compressor will be housed in a suitable secure weather and dust proof housing which will be suitably ventilated to prevent overheating. The proposed design is to be approved by the Engineer. Removal of Redundant Gas Vents Typically any redundant gas vents etc will be removed by excavating to IM below ground level, cutting and sealing the vent, then back filling with clay or bentonite compacted at 300mm levels. ANNEX 9: RISK ANALYSIS BRAZIL: Nova Gerar Landfill Rio de Janeiro Identification and Mitigation of the NovaGerar Proiect Potential Risks Risks/Factors Potential Impact on IBRD/NCDF Mitigation IBRD/NCDF The capture of methane and Project does not generate RISK: FULLY MITIGATED generation of emission reduction emission reduction and the revenue is not explicitly LFG capture and utilization addressed in the management component of the project is Contractual arrangements with the contract by the municipality to delayed or aborted. municipality give full rights to ER S.A Paulista. The contract does revenue to NovaGerar (municipality will have provision for the receive 10% of the revenue). municipality to receive 10% of additional revenues generated from any additional activities. All legal permits and licenses are in There is a risk that the project place for both Marambaia and sponsor does not receive legal Adrian6polis sites. permit from municipality authorities to capture and utilize the landfill gas to generate GHG emission reduction at Adrian6polis site. Marambaia dump site: Project Remediation of the RISK: FULLY MITIGATED sponsor does not achieve an Marambaia landfill will be agreement with current (private) excluded from the project. landowner ERs will be reduced, NovaGerar has negotiated and agreement especially during the first 5 with the landowner including a monthly years since this is an existing lease payment. site which can begin generating ERs immediately. Adrian6polis landfill continues Project fails to comply with IBRD/NCDF to monitor: compliance with criteria of environmental regulations. ->Environmental licenses from environmental licensing IBAMA/FEEMA authorities (IBAMA); Currently landfill has Failure to conform with authorization for 1 500t of environmental and social requirements, waste/day, landfill foresees permits, or local environmental law is an 4,000 t/day. Event of default RISK: VERY LOW The Project is in full compliance with IBAMA/FEEMA regulations and licenses and is expected to continue to do so. The project is considered by FEEMA best environmental practice Contracted ERs assume an average of 1555 t/day during the first ten years at the Adrian6polis site, i.e. extension to 4000t/day not necessary for delivering Contracted ERs. Pro-active attitude in terms of environmental additionalities (reforestation, recycling), institutional relations and community relations Marambaia dumpsite: Waste Possible non-compliance S.A. Paulista has already collectors will not be able to be with World Bank safeguards concluded a public hearing on the overall incorporated or will not policies or CDM policies landfill administration and bidding. cooperate with the project IBRD/IBRD to evaluate and sponsor monitor =>social due diligence has been completed and a comprehensive Social Program prepared by the Municipality and S.A. Paulista is prepared and already being implemented. RISK FULLY MITIGATED NovaGerar and the Municipality have hired most of the waste collectors to work on the Adrian6polis site. Financial stability of Project Delay or non -performance Corporate financial analysis Sponsor would delay or reduce indicates that Paulista, S.A has a strong volume of ERs delivered to balance sheet and consistently strong IBRD annual net income Management audit revealed no significant issues IBRD/NCDF to monitor S.A. Paulista's and NovaGerar's annual audited financial statements RISK: LOW Technical design for the gas Project may be unable to Project sponsors have contracted collection system is not optimal generate ERs or creates less competent European technical design or does not function properly. ERs than foreseen firm with international experience for the design of the gas collection system. IBRD has conducted extensive due-diligence to verify technical design (dumpsite recuperation, energy generation) IBRD is paying only on delivery of ERs RISK: VERY LOW Energy Generation Risk Project may not generate Project sponsor still negotiating energy using the Landfill Gas several power sales options due to little favorable Federal Government still to economic conditions or define their renewable energy Prolnfa negotiations of PPA program. It is expected that this program will offer favorable conditions for energy generation at Marambaia and Adrianopolis. RISK: MEDIUM, HIGH Macro-economic Risk Financial stability of Project Brazil offers a relatively stable Sponsor could be affected by investment climate; fiscal and economic Company has excellent credit instability; delay or non - ratin performance would delay or g reduce volume of ERs Company has low production delivered to IBRD costs that are expected to enable it to continue to compete in the market, even if it continues to decline IBRD is paying only on delivery of ERs RISK: VERY LOW War and civil disturbances, Project may be unable to IBRD is paying only on delivery expropriation, currency generate ERs of ERs convertibility, change in law and regulations RISK: VERY LOW Letter of Approval (LoA) not ERs not convertible to CERs GOB has now in place a process signed or has unsatisfactory for issuance of LoA wording All indications are that given the high quality of the Project it will receive an LoA without problems Wording of LoA is expected to be in line with the Marrakech Accords RISK: LOW/MEDIUM Baseline Study Confirmation Project generates fewer ERs Baseline methodology was than expected approved by the Executive Board Adrian6polis site likely to receive waste from other municipalities in the metropolitan area. It is expected that waste amount will be much higher than 15OOt/day IBRD is paying only on delivery of ERs RISK: VERY LOW ANNEX 10: STATUS OF BANK GROUP OPERATIONS CAS Annex B8 - Brazil Operations Portfolio (IBRD/IDA and Grants) As Of Date 0110612004 Closed Projects 236 IBRDIIDA I Total Disbursed (Active) 1,533.33 of which has been repaid 220.68 Total Disbursed (Closed) 25,671.52 of which has been repaid 21,695.60 Total Disbursed (Active + Closed) 27,204,846,905.91 of which has been repaid 21,916,276,925.91 Total Undisbursed (Active) 2,295.57 Total Undisbursed (Closed) 94.15 Total Undisbursed (Active + Closed) 2,389,720,327.28 Active Proiects Difference Between Last PSR Expected and Actual Supervision Rating Oriqinal Amount In US$ Millions Disbursements Project ID Project Name DeveloDment Implementation Fiscal IBRD IDA GRANT Cancel. Undisb. Orig. Frm Rev'd Obiectives Procaress Year P006559 (BF-R)SP.TSP S S 1998 45 3.87858885 3,87858885 P054119 BAHIA DEVT (HEALTH) S S 2003 30 29.6181063 0.11810628 P006562 BAHIAMUN.DV S S 1997 100 169949113 16.9949113 16.9949113 P006564 BELO H M.TSP S S 1995 99 11.6369016 11.6369016 P037828 BR (PR)R.POVERTY S S 1996 175 55.9765328 55.9765328 55.9765328 P043873 BR AG TECH DEV. S S 1997 60 18.1910033 18.1910033 18.1910033 P035728 BR BAHIA WTR RESOURCES S S 1998 51 12.149294 12.149294 -1.650706 P057649 BR Bahia Rural Poverty Reducton Project S S 2001 54.35 29 2298561 11.4965228 P006449 BR CEARA WTR MGT PROGERIRH SIM S S 2000 136 83,6962421 44.4462421 P050875 BR Ceara Rural Poverty Reduction Project S S 2001 37.5 21.81679 9.06679 P058129 BR EMER. FIRE PREVENTION (ERL) S S 1999 15 6.01191315 6.01191315 3.14982309 P047309 BR ENERGY EFFICIENCY (GEF) S S 2000 15 15.5195871 13.4842467 7.4521611 P073294 BR Fiscal & Fin. Mgmt. TAL S U 2001 8.88 6.74365039 5.51698372 P062619 BR INSS REF LIL S S 2000 5.05 0.35853042 -0 1364696 0.66753042 P006474 BR LAND MGT 3 (SAO PAULO) S S 1998 55 49.4157 46.5857 6.99742249 P050772 BR LAND-BASED POVRTY ALLEVIATION I (SIM) S S 2001 202.1 208.531011 172.301125 P051701 BR MARANHAO R.POVERTY S S 1998 80 0.63709252 0.63709252 P035741 BR NATL ENV 2 HS S 2000 15 2.3185 6.37552512 8.69402512 8,28146304 P050776 BR NE Microfinance Development S S 2000 50 33.1144985 -16.885475 P042565 BR PARAIBA R.POVERTY S S 1998 60 17.420645 17.420645 88 P057910 BR PENSION REFORM LIL HS S 1998 5 2.0437827 2 0437827 0.03671603 P050881 BR PIAUI RURAL POVERTY REDUCTION PROJECT S S 2001 22.5 14.6577491 9 57441575 P039199 BR PROSANEAR 2 U U 2000 30.3 28.9551789 28.9551789 P050880 BR Pernambuco Rural Poverty Reduction S S 2001 30.1 23.1168578 13.4668578 P038882 BR RECIFE M.TSP S S 1995 102 9.22836912 9.22836912 P034578 BR RGS Highway MGT S S 1997 70 46.4267277 464267277 464267277 P043868 BR RGS LAND MGT/POVERTY S S 1997 100 30.1791289 30.1791289 30.1791289 P043421 BR RJ M.TRANSIT PRJ S S 1998 186 17.172089 118.249095 135.421184 P048869 BR SALVADOR URBAN TRANS S S 1999 150 94.2329031 94.2329031 P043869 BR SANTA CATARINA NATURAL RESOURC & POV. HS S 2002 62.8 60.5274072 11.0473405 P074085 BR Sergipe Rural Poverty Reduction S S 2002 20.8 15.0054116 5.33041161 P073192 BR TA Financial Sector S S 2002 14.46 9.30052345 -0.2178099 P060573 BR Tocantins Sustainable Regional Dev 2004 60 60 P043420 BR WATER S.MOD.2 S S 1998 150 125 20.8558747 145.825875 1.13505807 P043874 BR- DISEASE SURVEILLANCE - VIGISUS S S 1999 100 25 21.7143277 46 7143277 P050763 BR- Fundescola 2 S U 1999 202.03 17.5797106 13.4197106 P038947 BR- SC. & TECH 3 S S 1998 155 88.8 6.72680656 95.5268066 P059566 BR- CEARA BASIC EDUCATION S S 2001 90 79.0081105 -10.991816 P057653 BR- FUNDESCOLA IIIA S U 2002 160 197.341316 -22.778235 P070827 BR-2nd APL BAHIA DEV. EDUCATION PROJECT S HS 2003 60 60 0.00002047 P080400 BR-AIDS & STD Control 3 S S 2003 100 99 0.71666667 P078310 BR-CAIXA Water U U 2003 75 75 4.83333333 P076977 BR-Energy SectorTA Project S S 2003 12.12 12.12 1.47 P057665 BR-FAMILY HEALTH EXTENSION PROJECT S S 2002 68 59.2246001 33.6412668 P074777 BR-Municipal Pension Reform TAL S S 2003 5 4.7 1.93333333 P049265 BR-RECIFE URBAN UPGRADING PROJECT S S 2003 46 45.54 1.87333333 P066170 BR-RGN 2ND Rural Poverty Reduction S S 2002 22.5 18.5382312 4.93823122 P039200 ENERGY EFFICIENCY (ELETROBRAS) S S 2000 43.4 41.4 1.56598 42.96598 1.32198 P006532 FED HWY DECENTR S S 1997 300 30 90.4106408 120.410641 87.3969603 P060221 FORTALEZA METROPOLITAN TRANSPORT PROJECT S S 2002 85 111.470307 38.3501434 P058503 GEF BR Amazon Region Prot Areas (ARPA) S S 2003 30 27.5 -2.4999892 P070552 GEF BR PARANA BIODIVERSITY PROJECT S S 2002 8 8.72496837 2.73166669 P044597 GEF BR-BIODIVERSITY FUND (FUNBIO) S S 1996 20 1.95579406 1.92579406 P006210 GEF BR-NAT'L BIODIVERSITY s s 1996 10 2.45646763 3 23929621 0.4 P055954 GOIAS STATE HIGHWAY MANAGEMENT S S 2002 65 44.6777058 37.0110392 P051696 sAo PAULO METRO LINE 4 PROJECT S 5 2002 209 206.377646 130.144313 Overall Result 4080.89 83 329.69059 2351.728 1514.87491 282,956713 89 ANNEX 11: STATEMENT OF IFC HELD AND DISBURSED PORTFOLIO CAS Annex B8 (IFC) for Brazil Brazil Statement of IFC's Held and Disbursed Portfolio As of 9/30/2003 (In US Dollars Millions) Held Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1997/98 Guilman-Amorim 0 0 0 0 0 0 0 0 1998 Icatu Equity 0 19.6 0 0 0 12.48 0 0 1999 Innova SA 16.25 5 0 45 16.25 5 0 45 1980/871piranga 0 0 0 0 0 0 0 0 1999 Itaberaba 0 5.34 0 0 0 5.34 0 0 0/00/01tau-BBA 40 0 0 0 30 0 0 0 1999 JOSAPAR 7.57 0 7 0 2.57 0 7 0 1995 LojasAmericana 8 0 5 0 8 0 5 0 1987/92/96/99 MBR 20 0 0 0 20 0 0 0 2002 Macae 68.61 0 0 0 68 61 0 0 0 0 Macedo Nordeste 1.58 0 5 0 1.58 0 5 0 2002 Microinvest 0 1.25 0 0 0 0 0 0 0/02 Net Servicos 0 5 0 0 0 4.65 0 0 1975/96 Oxiteno NE 2.5 5 0 0 2.5 0 0 0 1994 Para Pigmentos 15.05 0 9 0 15.05 0 9 0 1987/96 Perdigao 8.75 0 0 0 8.75 0 0 0 1989/95 Politeno Ind. 1.46 0 0 0 1.46 0 0 0 1994/00/02 Portobello 0 1.15 0 0 0 1.15 0 0 2000 Puras 3.67 0 0 0 3.67 0 0 0 2003 Queiroz Galvao 40 0 0 0 10 0 0 0 1998 Randon 5.13 0 3 0 5.13 0 3 0 1990 Ripasa 0 5 0 0 0 5 0 0 1997 Rodovia 0 0 0 0 0 0 0 0 1983 SOCOCO 0 0 0 0 0 0 0 0 1987/97/03 SP Alpargatas 30 0 0 0 5 0 0 0 1994/95/97 Sadia 8.23 0 5.17 89.93 8.23 0 5.17 89.93 1997 Samarco 8.1 0 0 1.33 8.1 0 0 1.33 1998 Saraiva 6.92 3 0 0 6.92 3 0 0 2003 Satipel 25 0 0 0 25 0 0 0 0 Seara Alimentos 0 3.88 0 0 0 3.88 0 0 2000 Sepetiba 27 0 5 8 12 0 5 8 1997 Sucorrico 3 0 0 0 3 0 0 0 1999 Sudamerica 0 15 0 0 0 15 0 0 0 Suzano 0 1.27 0 0 0 1.27 0 0 2001 Synteko 18 0 0 0 18 0 0 0 1996 TIGRE 7.69 0 5 0 7.69 0 5 0 0/92 TRIKEM 0 0 0 0 0 0 0 0 1998 Tecon Rio Grande 5.41 0 5.5 9.89 5.41 0 5.5 9 89 2001/03 Tecon Salvador 0 0.56 0 0 0 0.55 0 0 2002 UPOffshore 11.6 10 0 30 0 0 0 0 0/88/02/03 Unibanco 0 0 0 0 0 0 0 0 1999 Vulcabras 11.67 0 0 0 11.67 0 0 0 1999 Wiest 0 0 8 0 0 0 8 0 2001 AG Concession 0 15 15 0 0 4.29 0 0 1996/97 Algar Telecom 0 8.17 0 0 0 8.17 0 0 2002 Amaggi 30 0 0 0 30 0 0 0 2002 Andrade G. SA 40 0 0 20 40 0 0 20 2001 Apolo 8 0 0 0 5,5 0 0 0 1998 Arteb 20 7 0 18.33 20 7 0 18.33 1999 AutoBAn 27.6 0 0 23.72 27.6 0 0 23.72 1993/94/96 BACELL 0 0 0 0 0 0 0 0 1998 BSC 6.59 0 0 3.53 6.59 0 0 3.53 1993/96 BUNGE CEVAL 0 8.06 0 0 0 8.06 0 0 1990/91/92 Bahia Sul 0 0 0 0 0 0 0 0 1996/03 Banco Bradesco 10 0 0 60 10 0 0 60 1988/03 Banco Itau 25 0 0 175 25 0 0 175 1997 Bompreco 10.42 0 5 0 10.42 0 5 0 0 Bradesco-Hering 7.5 0 0 0 7.5 0 0 0 0 Bradesco-Petrofl 7.5 0 0 0 7.5 0 0 0 1994/96 CHAPECO 17.85 0 0 5.26 17.85 0 0 5.26 2002 CNOdebrecht 51.78 0 20 113.57 51.78 0 20 113.57 1973/78/83 CODEMIN 0 0.4 0 0 0 0.4 0 0 2003 CPFL Energia 40 0 0 0 0 0 0 0 1992 CRP-Caderi 0 0.51 0 0 0 0.51 0 0 1995 Cambuhy/MC 1.88 0 0 0 1.88 0 0 0 1997 Copesul 0 0 0 0 0 0 0 0 0/97/00 Coteminas 0 0.53 0 0 0 0.53 0 0 1980/92/93 DENPASA 0 0 0 0 0 0 0 0 1995/96/98/02 Distel Holding 0 0 0 0 0 0 0 0 1998 Dixie Toga 0 15 0 0 0 15 0 0 1987/96/97 Duratex 8.33 0 0 25.67 8.33 0 0 25.67 1999 Eliane 25.6 0 13 0 25.6 0 13 0 1998 Empesca 5 0 10 0 5 0 10 0 2001/02 Escola 0 0.28 0 0 0 0.25 0 0 2000 Fleury 7.71 0 6 0 7.71 0 6 0 1998 Fosfertil 6.82 0 0 30.68 6.82 0 0 30.68 1998 Fras-le 8 0 10 0 8 0 6.7 0 1994 GAVEA 3.75 0 5.5 0 3,75 0 5.5 0 0 GP Cptl Rstrctd 0 9.67 0 0 0 9.51 0 0 2001 GPC 9 0 0 0 9 0 0 0 Total Portfolio: 779.52 145.67 142.17 659.91 640.42 III 04 123.87 62991 Approvals Pending Commitment Loan Equity Quasi Partic 2003 Amazonas Water 15 0 0 0 2002 Andrade 0 0 0 100 2000 BBA 10 0 0 0 2002 Banco ltau-BBA 0 0 0 100 2001 Brazil CGFund 0 20 0 0 1999 Cibrasec 0 7.5 0 0 2003 Duratex IV 0 0 0 5 2002 Macae 0 0 0 275 2002 Net Servicos 2 50 0 0 0 2002 Suape ICT 6 0 0 0 2004 TermoFortaleza 55.5 0 7 112.5 2004 UBB Swap Gte 20 0 0 0 2002 Unibanco-CL 0 0 0 150 Total Pending Commitment: 156.5 27.5 7 742.5 ANNEX 12: BRAZIL AT A GLANCE Brazil at a glance 93/03 Latin Lower- POVERTY and SOCIAL America middle- Brazil & Carib. income Develomentd ciamnd- 2002 Population, mid-year (nilions) 174.5 527 2,411 Life expectancy GNI per capita (Atlas nethod, USS) 2,830 3,280 1,390 GNM (Atlas method, USS bmiions) 494.5 1,727 3,352 T Average annual growth, 1996-02 Population (96) 1.3 1.5 1.0 1 Labor force (I) 1.7 2.2 1.2 GI p primary Most recent estimate (latest year available, 1996802) capita erriert Poverty (% of populadlon below nabnal poverty line) 22 Urban population (X of total population) 82 76 49 I Ufe expectancy at birth (years) 69 71 69 Infant mortality (per 1,000 live births) 30 27 30 Child malnutrition (X of childlen under5) 6 9 11 Access to improved water source Access to an improved water source (96 of population) 87 86 81 Illiteracy (% ofpopulation age 15+) 12 11 13 Gross primary enrollment (96 ofschool-age population) 162 130 111 i 0-Bazi Male 166 131 111 I Lower-middle-income gro Female 159 128 110 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 EEconomic ratos, GDP (USS billions) 281.7 390.6 509.0 452.4 1 Gross domestic investment/GOP 21.1 18.9 21.2 19.3 Trade Exports of goods and services/GDP 7.6 10.9 13.2 15.8 T Gross domestc savings/GDP 20.4 21.4 20.2 21.5 I Gross national savings/GDP 15.3 20.1 16.6 18.0 Current account balance/GDP -5.8 1.6 -4.6 -1.7 |Does tic Interest payments/GDP 3.4 0.7 3.0 3.0 s g Investment Totat debVGDP 33.3 33.0 48.3 51.3 savings Total debt servicetexports 81.9 21.1 76.4 70.2 Present value of debtVGDP .. .. 52.6 58.4 Present vatue cf debVexports .. ,. 334.2 ..Ide8tedness 1982-92 1992-02 2001 2002 2002-06 (average annual growh) GDP 2.6 2.7 1.4 1.5 3,4 Brazi GDP per capita 0.7 1.4 0.1 0.2 2.2 I oer-miqde-incane g,op Exports of goods and services 6.9 6.5 11.2 7.8 5.4 STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of inrestment and GOP (%) (9 of GDP 9 Agriculture 9.0 7.7 226.1 6.0 1 e Industry 45.6 38.7 22.3 21.0 Manufacturng 34.6 24.7 14.0 13.2 | Services 45.4 53.6 71.6 72.9 ya Prvate consumption 69.6 61.5 60.6 59.3 -10 General govemment consumption 10.0 17.1 19.2 193 |_ D t-GDP Importsofgoodsandservices 8.3 8.4 14.2 13.6 1982-92 1992402 2001 2002 Growthofexportsandimports(%) (avarage anua growth) Agriculture 2.5 3.5 5.7 5.8 2T Industry 1.6 2.3 -0.7 1.5 10 Manufactunng 0.5 1.8 1.4 1.4 Services 3.2 2.8 1.9 1.5 0 Private consumption 0.7 3.9 0.8 0.4 General govemment consumption 7.1 0.9 1.0 1.0 -201 Gross domestc investment 4.1 2.1 -1.1 -5.2 |E- ot Imports of goods and services 3.9 7.6 1.2 -12.8 Note: 2002 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incDmplate. Brazil PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Inflaton (%) Domestic prices 20 (% change) Consumer prices 100.5 951.6 7.7 7.7 is, Implicit GDP deflator 104.8 968.5 7.5 8.5 1> Government finance s j (% of GDP, includes current grants) o Current revenue .. .. 22.7 24.1 97 9a 99 00 01 Current budget balance .. .. 3.0 3.1 -G OP deflator CPI Overall surplus/deficit .. .. 3.8 TRADE (US$ n-a/lions) 1982 1992 2001 2002 Export and import levels (USS mill.) Total exporls (fob) .. 35,793 58,223 60,362 75,000 Coffee .. 2,534 2,932 3,049 Soybeans .. 2,896 2,728 2,199 900 Manufactures 23,787 32,901 33,001 T Total imports (cit) . 20,554 55,572 47,219 Food .. 850 1,169 1,085 25,000 Fuel and energy .. 3,069 6,276 6.281 Capital goods . 6,335 14,808 11,593 Export price index (1995=100) 73 92 94 95 Importpriceindex(1995=100) 65 63 114 115 MExports mImports TemTsoftrade(1995=100) 112 147 82 82 BALANCE of PAYMENTS 1982 1992 2001 2002 Current account balance to GDP C%) (USS milb/ons) Exports of goods and services 21,967 38,999 67,545 69,968 0 Imports of goods and services 24,761 25,717 72,653 61,863 U Resource balance -2,794 13,282 -5,108 8,105 - *- Net income -13,510 -9,382 -19,743 -18,191 -2 - Net current transfers 2 2,243 1,638 2,390 1-3 Current account balance -16,302 6,143 -23.213 -7,696 -4 Financing items (net) 11,101 8,926 19,795 -3,570 Changes in net reserves 5,201 -15,069 3,418 11,266 5 Memo: Reserves including gold (US$ rnillions) 3,994 23,754 35,866 37,823 Conversion rate (DEC, localWUSS) 6.52E-1 1 1.64E-3 2.4 2.9 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (USS nillions) I Composition of 2002 debt (USS mill.) Total debt outstanding and disbursed 93,932 129,060 245,844 232,075 A: 7,710 IBRD 2,694 7,238 7.963 7,710 G: 23,395 c: 20.827 IDA 0 0 0 0 c2,2 Total debt service 19,215 8,647 54,322 51,636 D: 17.722 IBRD 411 1,913 1,362 1,518 I IDA 0 0 0 0 E E: 10.094 Composition of net resource flows Official grants 24 38 81 0 Official creditors 966 -936 2,742 916 Private creditors 7,580 5,888 -1,781 -9,541 Foreign direct investment 2,910 2,061 22,636 0 | Portfolio equity 0 1,704 2,482 0 F' 152.327 Worid Bank program Commitments 1,090 1,344 1,624 1,276 A - IBRO E - Bilateral Disbursements 623 581 1,639 1,384 - BIDA 0 - Other multilateral F - Private Prncipalrepayrments 215 1,266 828 1,063 C- IMF G-SShort-term Netflows 408 -685 810 322 Interest payments 196 647 533 456 Net transfers 212 -1,332 277 -134 Development Economics 9/3/03