Nepal: SREP- Extended Biogas Project (TF16552) Implementation Review and Support (September 21 to 25, 2020) Aide Memoire 1. During September 21-25, 2020, a World Bank (Bank) Team 1 led by Mr. Subodh Adhikari carried out Implementation Review of the Scaling-up Renewable Energy Program (SREP)- Extended Biogas Project (Project). The Task Team carried out the virtual review due to the travel restrictions imposed by COVID-19 pandemic. This Aide Memoire (AM) summarizes the findings on the status of project implementation, recommendations, and agreements reached with the relevant agencies. The list of officials met is provided in Annex 1. The contents of the AM were discussed in the wrap-up meeting on September 24, 2020 chaired by Joint Secretary, Mr. Madhu Prasad Bhetuwal, Ministry of Energy, Water Resources, and Irrigation (MoEWRI). The Team also briefed Under Secretary, Dr. Narayan Dhakal, International Economic Cooperation Coordination Division (IECCD), Ministry of Finance (MoF). As agreed during the meetings, this AM will be classified as public document under the Bank’s Access to Information Policy. OVERALL STATUS AND KEY PROJECT DATA 2. The Project Development Objective (PDO) is to promote large scale off-grid biogas generation in Nepal. This Project promotes private sector participation in the bio-gas generation and supports use of renewable energy. In addition, it also contributes towards the management of both agricultural and municipal waste. Currently, 175 Waste to Energy (WTE) sub-projects have completed construction and other 49 are under construction which are expected to complete the construction in the next few months. These sub-projects are scattered across different provinces throughout Nepal. Of the completed sub- projects, six are large and very large sized projects2 3 . These large sub-projects account for nearly 96.5% of total gas generation. The success of the large projects has increased interest from private sub-project developers and municipalities to invest in these types of project. 3. The key project data and ratings are described in Table 1 below. With the increase in the number of commissioned sub-projects, the Project has made significant progress towards achieving the PDO targets. Please see Annex 2 for the details. In addition, the Project has also developed a healthy sub- project pipeline of the larger sized project which are ready to move into the construction phase (please see Annex 5 for the details). However, these sub-projects are also facing construction delays primarily due to COVID-19 pandemic. This includes delay in preparation and site mobilization. At many of the sites, the activities are continuing, however, at a reduced scale. Table 1: Key Project Data and Ratings Project Data Summary Ratings Previous Current Trust Fund Approval: August 27, 2014 Progress towards achievement of PDO S S Effectiveness Date: November 24, 2014 Overall Implementation Progress MS MS Closing Date: August 31, 2021 Financial Management MS MS Grant amount: US$7.9 million Project Management MS MS Amount Disbursed Counterpart funding S S (as of September 25, 2020) - US$2.84 million (or Procurement MS MS 35.9% of the total committed amount) Safeguards MS MS Monitoring and Evaluation MS MS Notes: S-Satisfactory; MS-Moderately Satisfactory 1 The task team consisted of: Ms. Eriko Ichikawa (Energy Specialist); Ms. Barsha Pandey (Operations Analyst), Mr. Alidu Babatu Adam (Senior Social Development Specialist); Ms. Sanam Shanker (Team Assistant); Ms. Timila Shrestha (Financial Management Specialist), Mr. Chandra Kishore Mishra (Procurement Specialist), Ms. Anita Bohara Thapa (Energy Consultant), Mr. Prem Khanal (Social Development Consultant); Mr. Prakash Awasthi (Environment Consultant). 2 The large and very large sized sub-project include bio-gas plant generating more than 100 and more than 500 m3 per day of gas. 3 Of the six two projects have the average gas generation capacity of 200 m3 per day. The rest have the gas generation capacity ranging from 1500 m3 to 4500 m3 per day. 1 4. The Project was restructured on June 11, 2020 to the results-based disbursement arrangements (disbursement after achievement of pre-agreed milestones during the project construction); after the restructuring the disbursement has picked up. As per AEPC, despite the COVID 19 lockdown – and resultant reduction in project activities -- many of the sub-projects under construction have achieved some milestones. The disbursement amount is expected to increase further once the independent verifiers can travel to the sites for verification after the easing of COVID 19 related situation. 5. Due to continued success in achieving the gas and electricity generation target, the rating for progress towards achieving the PDO is retained as “Satisfactory.” The COVID 19 pandemic has significant adverse impact on project implementation. Project activities including technical assistance (TA) support, project identification, preparation, and construction have slowed down. Once the COVID 19 related restrictions are lifted, the Project is in the position to immediately ramp up its implementation. As such, the overall implementation progress rating is retained at “Moderately Satisfactory” in this review period. OVERVIEW OF IMPLEMENTATION PROGRESS BY COMPONENT 6. Component 1: Technical Assistance: The technical assistance has continued to focus on showcasing success of the larger sized biogas sub-projects in Nepal. “Demonstration effects” of a few very large sized projects and various outreach activities and promotion tools under this technical assistance have significantly increased the potential developers’ interest in these sub-projects. Similarly, the implementing agency (AEPC) is also working closely with the municipalities for Waste to Energy (WTE) sub-projects utilizing Municipal Solid Waste (MSW)4. So far, Memorandums of Understanding (MOUs) have been signed between AEPC and 50 municipalities to implement MSW sub-projects using Public Private Partnership (PPP) model. 7. The TA is also supporting on promotion and adoption of new technologies and developing technical standards for safe and reliable operation of the WTE sub-projects. Exposure visit to a WTE project in Delhi, India supplying gas through grid-based distribution system was coordinated and facilitated for the developers and staff from municipality to enhance learning and for replication. This has led to an increasing interest among developers to supply gas through the gas grid. Similarly, AEPC has been working with Nepal Bureau of Standards and Meteorology (NBSM) to develop technical standards for project components, project layout and the quality of generated gas. For this, exposure visit to various project sites was conducted for NBSM committee members to enhance their understanding of the project. The consultation in this regard is continuing. An international consultant has been retained by AEPC to monitor the selected project sites and recommend improvements on various technical aspect of the project to AEPC and the developers which further enhanced in developing the technical capacity of the concerned stakeholders of the sector. Detailed study report on waste mapping and waste to energy potential in Nepal was prepared and finalized. The report will support the concerned stakeholders in planning and strategic decision making for the sector. 8. Component 2: Financing of Investments: This component provides partial reimbursement of funds to the Government of Nepal (GoN) that has been paid as the subsidy to the sub-projects – both commercial and municipal, based on the achievement of defined milestone during project construction and commissioning. On the commercial side, applications of 469 sub-projects (out of 530 submitted) have already been approved (for both small and larger sized projects). This also includes 35 municipal sub-projects. On the implementation side, 175 sub-projects have been commissioned (9% increase from the last assessment). Among the commissioned 175 sub-projects, six are very large sized sub-projects (with the capacity of more than 500 m3 of gas generation per day) utilizing animal/agricultural waste, while the rest are sub-projects with less than 100 m3 of gas generation capacity. Further, 49 more sub- projects are under construction which are expected to be commissioned in the next few months. This include twelve very large sized projects (71% increase from the last assessment). Of these, seven 4 MSW sub-projects are also more than 500 m3/day of gas generation capacity and considered as very large sized sub projects 2 projects are in advance stage of construction and ready for verification – for disbursement -- which are pending due to COVID 19 related restriction. Please see Annex 3 for the trend in Project Implementation Progress (for the large sized project). Going forward, the pipeline of sub-projects including larger sized projects is expected to expand further. The Bank team has reiterated to the GoN and AEPC that it is important to expedite the construction and commissioning of all the pipeline. 9. Component 3 - Project Management Support: The Project Implementing Unit (PIU) which was facing the staffing and resource5 crunch has now been fully staffed as of July 2020. This staffing and resources expected to meet the growing requirement of the sub-project selection, development, and implementation support. However, recently PIU resources could not be fully mobilized and utilized due to COVID 19 impact/lockdown and restriction. 10. Potential measures to expedite the implementation: Following issues need to be followed through to enhance project implementation and resulting disbursement: a) Continue working with local banks, developers, construction companies, and service providers to develop their capacity and confidence on WTE technologies, project financing, operation and maintenance. b) Monitor constraints of sub-project progress including the construction activities at the site to facilitate and to address the bottlenecks and issues—such as contractual issues, coordination with local authorities/communities, facilitation of necessary construction related approvals etc. c) Work closely with NBSM to develop the standards for project components, layout and quality of gas. This will strengthen safety regulation of gas generation and handling process while supporting to create an enabling environment for further scale up of the technology. FIDUCIARY MANAGEMENT 11. Procurement Performance: Out of total 37 procurement activities, two activities are pending. AEPC is advised to commence procurement process of the pending activities and complete the procurement process of delayed activities as early as possible. Approved procurement activities should be updated in the first week of each calendar month by uploading bidding/proposal documents, evaluation reports and contract documents to Systematic Tracking of Exchanges in Procurement (STEP). Procurement documents of each activity should be uploaded to STEP irrespective of prior/post review requirements of the World Bank, and bids/proposals opening records should be uploaded to STEP soon after completion of the process. Further, evaluation reports, contracts and all other relevant documents must be uploaded to STEP on accomplishment of those procurement processes. Procurement related risks are assessed moderate as complexity and values of approved activities are small. Since only two activities are pending and all others are under implementation the procurement performance is retained as “Moderately Satisfactory”. 12. Financial Management (FM) Performance: The Team noted updated books of accounts and timely financial reporting with no overdue reports. The annual internal audit report of FY20 has not raised any issues for the Project. The review team emphasized the need for timely periodic internal audits for FY21 as per Government policy. The external audit of FY19 has unqualified opinion with recommendation to expedite project implementation and reimbursement from the World Bank for Project expenditures. As the Project has now been restructured to align with the Government Subsidy policy, the reimbursement from the Bank is expected to improve for sub-projects, which was only possible earlier after testing and commissioning. 5 After the closure of the Nepal Rural and Renewable Energy Program (NRREP) – funded by Danish International Development Agency (DANIDA) and Norwegian Agency for Development Cooperation (NORAD) in mid-2017, the technical, safeguard, and logistical support that the team was receiving from NRREP was no longer available to this Project. 3 13. As agreed during last review, bank guarantees through the private banks have been extended for extended sub-projects and contracts. The review team reminded not to make payments until all applicable clauses of sub-project/contract have been complied including for bank guarantees. As the Project is closing on August 31, 2021 and the retention money can be paid only after one year of sub- project operation, the review team also reminded that the retention money paid after the Project closing cannot be funded from the Project. Similarly, the main risk identified for the Project is in terms of advance not being settled on time for sub-projects potentially resulting in requirement of refund to the Bank, especially as the Project closing is approaching and sub-projects are impacted by COVID-19. It was thus agreed to only document sub-project payments with the World Bank after the advance has been settled by the beneficiaries with incurred expenditures. 14. The expenditure for FY20 was only NPR 103.50 million which was 53% of the budget of NPR 195 million. The planned training on construction and study on slurry management could not be conducted due to COVID-19, which is planned to be conducted in this FY. The sub-projects implementation and verification were also impacted and thus are extended. The approved budget for this FY21 is NPR 220 million, which is considered adequate. The expenditure incurred as of September 25, 2020 is US$3.18 million. Based on overall performance, the financial management rating is retained at “Moderately Satisfactory”. 15. Disbursement: As of September 25, 2020, the disbursement rate is 35.92 (US$2.84 million including advance to Designated Account of US$0.25 million) of the total commitment of US$7.90 million. Based on expenditures of last FY20, only total expenditures of NPR 0.2 million are outstanding to be reimbursed for sub-project, which has been agreed to be claimed by November 16, 2020. The projected disbursement by December 2020 is approximately US$6.12 million provided the COVID pandemic gets better, travelling is eased, and the verification team could be mobilized to the field. SAFEGUARD MANAGEMENT 16. Environmental Safeguards: So far, the Technical Review Committee (TRC) of AEPC has approved 304 Environmental and Social Management Plans (ESMPs) and 12 Environmental and Social Impact Assessments (ESIAs) (commercial-six and municipal-six). In addition, seven municipal subprojects have been provided conditional approvals. Currently there are nine municipal and three commercial subprojects in the pipeline. The Project team has been providing safety training to operators, engineers, and senior management and orientation workshops on various mitigation plans including Operational Health and Safety (OHS) Plan, Emergency Preparedness & Response Plan, Traffic Management Plan, Health & Safety Policy and Plan, Substrate Handling and Slurry Management Plan, Labor Management Plan & Gender Equality and Social Inclusion(GESI) Action Plan. Safeguard documents including ESMF and ESMPs have been disseminated to respective sub- project proponents and implementers. According to the project, these plans are being implemented in subprojects that are in the operational stage as well as in subprojects that are under construction. The Team emphasized the importance of compliance with workers/occupational as well as community health and safety measures. It has been noted that Project is in the process of finalizing, by incorporating the Bank’s suggestions, the COVID-19 Standard Operation Procedure/ Protocol (SOP) for resumption of works. The Team advised to further strengthen and ensure compliance with OHS and community safety & health when the construction resumes and increases monitoring to ascertain effective implementation. Project informed that some Environmental and Safety (E&S) issues noted during earlier Implementation Support and Review (ISR) and site visits have been improved. AEPC has been advised to scale up periodic E&S compliance monitoring and reporting to all sites, particularly those which are under construction. AEPC has been requested to share with the Bank E&S quarterly performance (compliance) monitoring report. Considering that there has been no construction works due to COVID-19 and status remains largely the same as in the previous review, the environmental performance is retained as “Moderately Satisfactory”. 17. Social Safeguards: The social safeguard rating remains “Satisfactory” with some progress in social safeguard planning and implementation. The dedicated safeguard unit established at the AEPC 4 is functioning and providing technical support to E&S staff at sub-project levels. Though Grievance Redress Mechanism (GRM) systems have been established in 13 sub-projects (6 in commercial and 7 in municipal) of over 100 m3/day of gas generation capacity, the uptake of complaints is quite minimal. This suggests the need to promote and make the GRMs easily accessible to local communities. In addition, it is recommended that the AEPC provides capacity building training on grievance handling to dedicated staff at sub-projects level. The review notes labor registry systems are now in place and advised that registries be updated regularly to ensure that the registry systems incorporate changes in contact details of existing workers and record details of newly recruited workers. In the light of COVID- 19, all sub-projects will adopt appropriate protocols and health and safety measures to prevent transmission of COVID among workers. There is also need for accelerating the pace of preparing mitigation plans, as envisaged by the approved Environment and Social Assessment reports. To enhance safeguards performance, the AEPC with technical support from the World Bank, will explore ways to support municipal and commercial sub-projects in the areas of environmental and social risks assessment and mitigation planning. AGREED ACTIONS AND NEXT STEPS 18. The status of actions agreed during last review is summarized in Annex 4. The agreed actions during this review are summarized in Table 2 below. Next implementation review is planned for March/April 2021. Table 2: Summary of Agreed Actions S. N Actions Timeline Responsibility Submission of a rapid hydrological assessment report for 1 Itahari and Bhimdutta municipal level sub-projects that are November 7, 2020 AEPC located at the bank of rivers. 2 Finalization of COVID-19 SOPs November 7, 2020 AEPC Commencements of uploading of pending activities and 3 November 7, 2020 AEPC updates of Procurement Plan (PP) on the STEP system Implementation of COVID-19 SOPs and GoN directives in all subprojects when construction resumes (ensuring to 4 December 15, 2020 AEPC mitigate/minimize possible risks of COVID-9 to the laborers and community health and safety). Implementation status report of corrective measures identified by the WB E&S team during the site visit in 4-6 5 December 31, 2020 AEPC Sept. 2019 Eastern Cluster and 12-16 Sept. 2019 Western Cluster. 6 Rapid E&S assessment of operating sites December 31, 2020 AEPC Work with NBSM to finalize the technical standards (technical components; layout; quality) and Formulation of Safety Guideline and Emergency Preparedness Plan for 7 February 15, 2021 AEPC Biogas project (guideline and safety code of practice for distributing biogas using pipeline) and updates of construction manual to incorporate these guidelines Annexes Annex 1: List of Officials Consulted Annex 2: Results Framework Annex 3: Project Status Annex 4: Sub-project Pipeline 5 Annex 1 List of Officials Consulted Ministry of Finance Dr. Narayan Dhakal, Under Secretary, IECCD Ministry of Energy, Water Resources and Irrigation Mr. Madhu Prasad Bhetuwal, Joint Secretary Alternative Energy Promotion Centre Mr. Madhusudhan Adhikari, Executive Director Mr. Nawa Raj Dhakal, Deputy Executive Director Mr. Mukesh Ghimire, Project Manager Mr. Laxman Khatiwada, Procurement Expert Mr. Lok Raj Pathak, Senior Monitoring and Evaluation expert Mr. Sushim Man Amatya, Senior Bioenergy Expert Mr. Anupam Bhusal, Program Officer Mr. Aazad Pudasaini, Financial Management Officer Mr. Rabindra Prasad Dhital, Municipal Waste to Energy Project Coordinator Mr. Shreejan Ram Shrestha, Environment Safeguard Expert Mr. Nabin Shrestha, Technical Officer Ms. Surina Kayastha, Social Safeguard Expert Mr. Ramesh Ranabhat, Provincial Project Coordinator (Including Focal Person of Bagmati Province) 6 Annex 2 Updated Results Framework Project Development Objective (PDO): To promote large off-grid biogas energy generation in Nepal. D=Dropped C=Continue Responsibility Core PDO Level Results Unit of Achievements Project Data Source/ N= New Baseline for Data Indicators Measure Target Methodology R=Revised Collection 2015 2016 2017 2018 2019 2020 2021* Off-grid biogas generated for 3 m /year – 1,600 133631 2162428 3444101 5363504 1016146 thermal application from Meter Reading C (Cumulative) 0 (–) (1,600) (135231) (2297659) (5741760)(11105264) (12121410) 16,050,186 AEPC large-scale projects (>12 Report m3) [Annual Target] [0] [1,432] [304,568] [686,000] [453,000] GWh/year 0 0.04 0.7409 1.3321 1.3321 0.2369 Off-grid biogas-based – Meter Reading C (Cumulative) 0 (0) (0.04) (0.7809) 4.50 AEPC electricity generated** (2.1130) (3.4451) (3.6820) Report [Annual Target] [0] [0.0] [0.7] [2.4] [2.6] INTERMEDIATE RESULTS Intermediate Result (Component 1): Technical Assistance Proposals/year – 69 243 142 96 43 9 No. of large biogas proposals submitted for investment C (Cumulative) 0 (–) (69) (312) (454) (550) (593) (602) 350 Monitoring AEPC Report evaluation [Annual Target] [0] [69] [191] [90] [0] Companies/year – 0 29 29 29 No. of companies trained to (Cumulative) (–) 0 (29) (29) (29) 8 Monitoring evaluate and appraise C 0 AEPC Report large biogas sub-projects [Annual Target] [0] [0] [8] [0] [0] Intermediate Result (Component 2): Financing of Investments No. of off-grid generation Plants/year – 1 43 78 26 27 0 plants created and Monitoring operational by the C (Cumulative) 0 (–) (1) (44) (122) (148) (175) (175)+ 340 Report AEPC project - Commercial [Annual Target] [0] [0] [88] [169] [83] Plants/year – 0 0 0 0 0 0 No. of off-grid generation plants created and Monitoring C (Cumulative) 0 (–) 0 (0) (0) (0) (0) (0) 10 AEPC operational by the Report project - Municipalities [Annual Target] [0] [0] [0] [3] [7] * Data as of 20 September 2020. ** A reference conversion rate of 1.4kWh per m3 of biogas is used. +2 Pilot Plants additional to the cumulative figure * Data as of 27 August 2020. ** A reference conversion rate of 1.4kWh per m3 of biogas is used. +2 Pilot Plants additional to the cumulative figure 7 Annex 3 Project status No of Project Commissioned 175 160 136 1 year back 6 month back Now No of large Project under Construction 12 7 4 1 year back 6 month back Now 8 Annex 4 Larger sized project pipeline Large sized projects under construction Projected Name of project Commissioning date SREP Share NPR Annapurna Poultry Dec-20 2,682,400.00 Dharan Sub-Metropolitan City (MSW) Dec-20 34,547,476.20 Dhangadhi Sub-Metropolitan City (MSW) Dec-20 41,698,543.20 Kamadhenu Gas tatha Mal Udhyog Jul-21 27,354,600.00 Kankai/Birtamod/Arjundhara Consortium (MSW) Jul-21 27,324,804.20 Ghorahi Municipality (MSW) Apr-21 39,956,654.00 Birendranagar Municipality (MSW) Dec-21 28,312,400.00 Damak Municipality (MSW) Dec-21 29,413,951.40 Itahari Sub-Metropolitan City (MSW) Jul-21 26,992,400.00 Jeewan Bikash Samaj May-21 15,189,800.00 Dumkibas Poultry Farm P. Ltd. May-21 32,076,917.46 Kalash Cattle Farming Jun-21 14,678,000.00 Total NPR -- approx 320,227,946.10 Total USD (approx. @ NPR:USD 110) 2,911,163.15 Large sized projects under pipeline (Feasibility studies completed) Name of project SREP Share NPR National Waste Management (Khairahani/Ratnanagar Commercial Project) 30,000,000.00 Comtronics P. Ltd. 26,000,000.00 Big Agriculture P. Ltd. 490,500.00 JKJ Agricultural Farm P. Ltd. 701,024.00 Hetauda Municipality 25,000,000.00 Besisahar Municipality 1,774,152.00 Birgunj Metropolitan City 50,000,000.00 Janakpur Sub-Metropolitan City 50,000,000.00 Butwal Sub-Metropolitan City 31,079,000.00 Tansen Municipakity 8,380,000.00 Chatara Multipurpose 30,000,000.00 Kantipur Poultry 20,000,000.00 Janakpur Agro farm 20,000,000.00 Suryabinayak Municipality 30,000,000.00 Biratnagar Metropolitan City MSW 35,000,000.00 Dhulikhel Municipality MSW 20,000,000.00 Total (NPR) -- approx 378,424,676.00 Total USD (approx. @ NPR:USD 110) 3,440,224.32 9