The World Bank Punjab Clean Air Program (P508222) @#&OPS~Doctype~OPS^blank@pidaprpfrcoverpage#doctemplate Program Information Document (PID) Appraisal Stage | Date Prepared/Updated: 23-Feb-2025 | Report No: PIDPA00180 The World Bank Punjab Clean Air Program (P508222) @#&OPS~Doctype~OPS^dynamics@pidaprpfrbasicinformation#doctemplate BASIC INFORMATION A. Basic Program Data Project Beneficiary(ies) Region Operation ID Operation Name Pakistan SOUTH ASIA P508222 Punjab Clean Air Program Financing Instrument Estimated Appraisal Date Estimated Approval Date Practice Area (Lead) Program-for-Results 18-Feb-2025 31-Mar-2025 Transport Financing (PforR) Borrower(s) Implementing Agency Transport and Masstransit Department, Government of Punjab, Planning and Development Board, Islamic Republic of Pakistan Government of Punjab, Agriculture Department, Government of Punjab, Industries Department, Government of Punjab Proposed Program Development Objective(s) To reduce exposure to particulate matter emissions in Lahore Division @#&OPS~Doctype~OPS^dynamics@pidpfrprojectfinancing#doctemplate COST & FINANCING (US$, Millions) Maximizing Finance for Development Is this an MFD-Enabling Project (MFD-EP)? Yes Is this project Private Capital Enabling (PCE)? Yes SUMMARY Government program Cost 847.00 Total Operation Cost 621.00 Total Program Cost 601.00 IPF Component 20.00 Total Financing 621.00 Page 1 The World Bank Punjab Clean Air Program (P508222) Financing Gap 0.00 FINANCING Total World Bank Group Financing 300.00 World Bank Lending 300.00 Total Government Contribution 231.00 Total Non-World Bank Group Financing 90.00 Private Capital and Commercial Financing Amount 90.00 of which Private Capital 90.00 @#&OPS~Doctype~OPS^dynamics@pidaprdecision#doctemplate Decision The review did authorize the team to appraise and negotiate B. Introduction and Context Country Context 1. Pakistan’s economy has faced periodic episodes of macroeconomic instability and slow growth, driven by deep policy and institutional distortions. Between 2000 and 2023, it achieved real annual per capita GDP growth of just 2.2 percent—almost half South Asia’s average. Periods of unsustainable, consumption-boosted growth have been followed by severe crises. Distortionary tax, investment, and subsidy policies, and a large presence of the state in the economy have led to important resource misallocations and underinvestment in services and infrastructure. Periods of exchange rate overvaluation combined with protectionist trade policies that incentivize firms to primarily sell domestically have undermined exports and integration into global supply chains. 2. Pakistan experienced heavy monsoon rains in 2022 leading to catastrophic and unprecedented flooding with enormous human and economic impacts. Roughly 33 million people were impacted, and many permanently displaced. The government’s Post-Disaster Needs Assessment estimated rehabilitation and reconstruction needs at US$16.3 billion. 3. Poverty has increased slightly amid recent shocks, while an unfinished human capital agenda contributes to economic challenges. Pakistan achieved significant progress towards reducing poverty between 2001 and 2018 due to remittances and increased off-farm labor opportunities. COVID-19, 2022 floods, and economic volatility have reversed this trend, with an estimated 40.5% (US$3.65/day 2017 PPP) lower-middle income poverty rate in FY24, and an additional 2.6 million Pakistanis falling below the poverty line. Over one-third of school-age children across Pakistan are out of school; nearly two-thirds of those in school in FY24 were learning deprived; and child stunting remains alarmingly prevalent (40 percent in FY23). The country’s Human Capital Index, is 41, meaning that a child born in Pakistan today will be 41 percent as productive when she grows up as she could be if she enjoyed complete education Page 2 The World Bank Punjab Clean Air Program (P508222) and full health. Evidence suggests that the lack of safely managed water supply, sanitation, and hygiene (WASH) services is partly responsible for this staggering loss of human potential. 4. Pakistan’s economy has recently emerged from crisis. The COVID-19 pandemic depleted policy buffers, which were further eroded through 2022 floods, global commodity price shocks, and tightening external financing conditions. Economic mismanagement further weakened macroeconomic fundamentals. Risks have since moderated with improvements in macroeconomic management since FY23, successful completion of a nine-month IMF Stand-By Arrangement, agreement on a new Extended Fund Facility (EFF) program, the rollover of bilateral external debt, and new official inflows. Foreign exchange reserves have recovered, the exchange rate has stabilized, inflation has declined, and bond yields have fallen. With improved macroeconomic policies and favorable weather conditions supporting recovery in the agriculture sector, real GDP grew by 2.4 percent in FY24 after contracting by 0.2 percent in FY23. 5. Growth is expected to gradually recover as confidence improves, but sustainable improvements in growth and living standards will require further reforms. Current gross foreign reserves, at 2.2 months of imports, are adequate to meet short-term external financing needs. Real GDP growth is currently projected to remain below potential and average 3.0 percent over FY25–26, reflecting weak confidence and continued external financing constraints. Gross financing needs will remain sizeable, at around 27.9 percent of GDP over FY25–26 with maturing short-term debt, multilateral and bilateral repayments, and Eurobond maturities. Government has developed ambitious fiscal and structural reform plans which would, if fully implemented, help address persistent fiscal deficits, external imbalances, and resource misallocations within the economy, enabling sustainably higher rates of economic growth. Implementation remains at early stages, however, and the outlook remains highly vulnerable to downside shocks, including natural disasters, global price shocks, and deteriorations in macroeconomic policy. 6. The 2022 Country Climate and Development Report (CCDR) highlights Pakistan’s severe climate vulnerability, ranking it among the top 10 most affected countries. Frequent droughts, floods, heat waves, and risks to coastal cities like Karachi from sea level rise and erosion increase development challenges and could reduce GDP by 18-20% annually by 2050. Punjab province in particular faces multiple, overlapping climate and environmental threats: it has the largest settlement area exposed to fluvial flooding (163 sq. km) and pluvial flooding (129 sq. km) in Pakistan, while in central and eastern regions over 700,000 residents are exposed to dangerous heatwaves with routinely high temperatures (World Bank, 2022). 7. This Program is aligned with World Bank Group new Country Partnership Framework (CPF), as well as with corporate and regional priorities. One of the six Pakistan CPF (FY26–35) outcomes includes reducing Pakistan’s high levels of air pollution, by focusing on key contributing sectors such as transport, construction, residential cooking, industry, agriculture and land use. The target of the CPF’s Air Quality Outcome 4.2 is to reduce the population - weighted PM2.5 average annual exposure by 35 percent in a decade: from 55 to 35 micrograms per cubic meter (µg/m3) by 2035. This operation aims to reduce exposure in Greater Lahore by [2.4 µg/m3] against a baseline of 99.79 µg/m3 in 2030. In the longer run, Program interventions are expected to reduce exposure in Greater Lahore by up to 7 µg/m3 by 2035. The operation will form part of a series of operations to tackle air quality countrywide and in the region. Multi-Sectoral and Institutional Context 8. The Punjab province in northeast Pakistan is part of the Indo-Gangetic Plain and Himalayan Foothills (IGP-HF) region which is a global air pollution hotspot. IGP-HF includes parts of Bangladesh, Bhutan, India, Nepal, and Pakistan, and has the most people exposed to hazardous air in the world. In Pakistan, Bangladesh, India, and Nepal, between 93 and 97 percent of the population are exposed to hazardous air pollution (World Bank, 2023). 9. Air pollution poses a chronic health threat in Punjab and has become a national and provincial priority. Fine Page 3 The World Bank Punjab Clean Air Program (P508222) particulate matter below 2.5 microns (PM2.5) can be inhaled through the lungs and is the most significant contributor to the public health burden associated with air pollution—including child stunting, the first outcome area of the CPF. Annual average concentrations of 110–130 micrograms per cubic meter (µg/m3) have been measured in central Lahore and 87 µg/m3 for Greater Lahore. Across the entire Punjab, the figure is 52 µg/m3, more than ten times the World Health Organization (WHO) guideline (of 5 µg/m3) and 3.5 times the Punjab ambient air quality standard (of 15 µg/m3). Without additional abatement measures, exposure to PM2.5 in Punjab will increase to 58 µg/m³ through 2030 and to 99 µg/m³ in Greater Lahore. PM2.5 exposure (both ambient and household) in Pakistan caused 230,000 premature deaths and illnesses in 2019, with estimated health costs equivalent to 9 percent of GDP (due to premature deaths and years lost to disability). Poor and vulnerable groups, such as women, the elderly, and young children, suffer disproportionately. 10. Transboundary effects of air pollution are significant. Transboundary air pollutants travel far within “airsheds,� including to other countries, influenced by climate and geography. More than half (53 percent) of PM2.5 air pollution in 2021 originated from within Punjab, 9 percent came from other provinces in Pakistan, and 13 percent from other countries. Given the predominant southeasterly wind direction, 30 percent of air pollution in Punjab, India is from Pakistan. Interventions in Punjab, Pakistan could therefore mitigate air pollution across the border and vice versa. 11. Regional cooperation is crucial to reduce air pollution in South Asia, especially in the IGP-HF airshed. Countries in the IGP-HF airshed depend on collective action to meet clean air targets. The World Bank is supporting Bangladesh, Bhutan, India, Nepal, and Pakistan on a comprehensive IGP-HF Air Quality Management (AQM) program implemented as a series of projects. The support covers: (i) institutional strengthening and emissions abatement measures; and (ii) regional high-level convening, technical knowledge exchanges, and analytics in all countries. Clean air engagements are currently ongoing in the South Asia Region. 12. Anthropogenic sources of air pollution within Punjab account for 75 percent of air pollution. Natural sources account for 25 percent. Sectoral contributors to PM2.5 concentrations are: (i) residential (23 percent), mostly burning of solid fuels for cooking; (ii) transportation (16 percent), largely heavy-duty vehicles (buses and trucks), two- and three- wheelers (2/3Ws), and road dust; (iii) industries (16 percent), largely heavy industry and brick kilns; (iv) agriculture and livestock (13 percent), including crop residue burning, fertilizer, and manure; and (v) municipal solid waste burning (7 percent). In Greater Lahore, sectors that account for the larger shares are residential (28 percent) and transport (24 percent). Other sectors have similar contributions as in Punjab, but natural sources are lower at 9 percent. 13. The Government of Punjab (GoPb) has started to lay the foundation for improved AQM planning and governance, which are essential for reducing air pollution, in particular via its recently launched Smog Mitigation Action Plan (SMAP). Policies such as the 2017 Smog Control Policy, the 2022 Health Advisory System for Critical Air Pollution Events, the 2023 Clean Air Policy and Action Plan, and especially the new 2024 SMAP 2024 demonstrate GoPb's commitment. These plans focus on abating PM2.5 in the transport, agriculture, industry, energy, and municipal sectors, while promoting behavioral change and citizen engagement. Strengthening enforcement will be an essential part of successful implementation of the SMAP, especially in a context of limited institutional capacity and budgets. The Punjab Environment Protection and Climate Change Department (EPCCD), responsible for overseeing AQM, is currently under-resourced in terms of personnel, facilities, and systems. 14. Effective AQM governance and planning requires several key technical elements. GoPb is expanding the regulatory grade air quality monitoring network in the province under the World Bank-funded Punjab Green Development Program (PGDP; P165388). This expansion is crucial for monitoring compliance of air quality standards and providing real-time information to protect sensitive populations. But it has largely been restricted to central Lahore. Further expansion of monitoring stations can cover more areas within the province which impact Greater Lahore, while also supporting the development of operation and maintenance protocols, data validation, and quality assurance (QA) Page 4 The World Bank Punjab Clean Air Program (P508222) plans. In addition, strengthening the province’s analytical and modeling framework, including emissions inventory, scenario planning, and decision support systems, is essential for evidence-based decision-making and assessing the effectiveness of current and planned interventions. Effective data-driven behavioral change and citizen engagement campaigns are also essential to leverage the air quality monitoring data and sustain public support for pollution reduction policies. 15. Road transport is the second highest contributor to air pollution in Punjab. Motorization trends indicate a rapid proliferation of private vehicles, which would further add to emissions if not addressed promptly. In Lahore, registered private vehicles have doubled in the last decade and number around 7.4 million vehicles till date, with two-wheelers (2Ws) accounting for 82 percent. The actual number of vehicles is likely to be substantially lower as vehicles are generally not de-registered in Punjab. Lahore has very limited public transport for its size, with 27 kilometers (km) of metro, a bus rapid transit (BRT) line, and feeder buses. Around 250 buses under public sector concessions currently operate in Lahore, together with an unknown but possibly larger number of private buses (against an estimated need of over 4,000 buses in 2026 provided no further BRT or metro lines are added) (Punjab Mass Transit Authority, 2016). With low fares ranging from PKR 15 to 30 per trip, public buses in Lahore require annual subsidies of around US$15 million, straining tight fiscal resources. GoPb is committed to improving urban transport in the city, in consultation with stakeholders, and has commissioned several studies, including the ongoing Lahore Transport Study. 16. Outdated emission norms exacerbate road transport emissions. The prevailing emissions standard of EURO II for diesel buses is significantly more polluting than newer iterations (16 times more PM2.5 per km compared to cleaner EURO VI standard). Unclean diesel with high sulfur content of 0.5 percent is still in use. There is a need to expand fuel quality inspections to curb the supply of adulterated fuel, including establishing fuel quality testing laboratories to verify compliance with emission standards. 17. Road transport pollution can be mitigated using Avoid-Shift-Improve (ASI) approaches. “Avoid� refers to reducing motorized travel; “shift� refers to modal shifts from private vehicles to public and non-motorized transport; and “improve� refers to reducing the emissions intensity of vehicles, partly via the transition to low-emission vehicles. 18. Electric buses (e-buses) can reduce emissions through a combination of “Shift� and “Improve�. E-buses can reduce life cycle PM2.5 emissions by 88 percent relative to EURO VI diesel buses, and by over 98 percent relative to cars and 2Ws of equivalent capacity, emphasizing the importance of modal shifts (International Transport Forum, 2023). An impact evaluation of the Lahore BRT found that 40 percent of riders on the BRT shifted from private vehicles, predominantly motorcycles (Majid, Malik & Vyborny, 2018). This could represent the upper bound for modal shifts from introducing feeder buses given their lower operating speeds. Although e-buses cost more upfront, savings accrue via lower operations and maintenance (O&M) costs. The total cost of ownership for a 12m e-bus in Pakistan is an estimated 14 percent lower than hybrid, 11 percent lower than Diesel EURO VI and 4 percent lower than a Diesel EURO II bus. GoPb recently procured 27 e-buses for a pilot in Lahore under the PGDP and is also deploying around 500 e-buses across Punjab under its Annual Development Plan in FY25. For successful rollout, transit agencies need to build capacity on e-bus operations and contract management. With improving macroeconomic conditions, business models that transfer the responsibility for fleet procurement and technology risks to the private sector could become increasingly attractive. 19. Low emission alternatives for existing vehicle fleets include electric two- and three-wheelers (e-2/3Ws). 2Ws are the predominant mode of personal mobility and last mile logistics in Punjab, while 3Ws are common for passenger and goods transport. E-2W emissions have been estimated to be 88 percent lower than internal combustion engine (ICE) equivalents in India, while e-3W emissions are 95 percent lower (International Transport Forum, 2023). The reductions are likely larger in Pakistan given the cleaner power generation mix, and the older emission norms (EURO II vs EURO VI in India). However, despite favorable cost economics, high upfront costs, limited charging infrastructure availability, and the lack of affordable commercial financing are limiting uptake. E-2Ws offer a total cost ownership Page 5 The World Bank Punjab Clean Air Program (P508222) advantage, particularly commercial applications with higher utilization. The higher upfront cost can be recouped via operating cost savings within two years for commercial e-2Ws and four years for commercial e-3Ws. Expanding risk sharing facilities, such as partial credit guarantees for e-2/3Ws, can catalyze affordable commercial financing and uptake. One such mechanism is being trialed in Punjab under the Chief Minister’s Youth Initiative. 20. Besides electrification, there is a need to take polluting vehicles off the road. Punjab’s vehicle inspection regime is emerging. It was introduced in 2015 for public service vehicles and subsequently extended to private vehicles under PGDP. 2Ws are currently excluded from inspections. Public service vehicles that fail inspections have their route permits canceled, but the government does not have the legal mandate to scrap or impound them. Fines for non- compliance are low. The Smog Mitigation Action Plan contemplates a buyback scheme for polluting vehicles, given the environmental benefits demonstrated in the Peshawar Bus Rapid Transit, Latin America, and China. 21. The agriculture sector is the fourth largest contributor to air pollution in Punjab. Annually, 6–7 million tons of rice straw are burned in the province. Inefficient use of nitrogenous fertilizer and inadequate manure management add to emissions. In the short term, technological solutions for rice straw management such as super seeders (tractor- drawn machines to chop, till, and sow seeds in one operation), rice harvesters, and other machinery can provide alternatives to burning, along with awareness raising. Digital solutions can improve small farmers’ access to super seeders, balers, and rice harvesters through the provision of rental subsidies employing proven global models (e.g., Hallo tractor). In the long term, policy reform with increased focus on research and development, transition to diversified cropping from rice-wheat monocropping, fertilizer use efficiency, livestock feed efficiency and manure management, improved agriculture marketing, and developing the value chain can all sustain reductions. PforR Program Scope 22. The Punjab Clean Air Policy and Action Plan (2023) and the Punjab Smog Mitigation Action Plan (2024) form the basis of the government program (“p�, the program). The Policy has a longer time horizon (through 2030) while the Smog Mitigation Action Plan (2024) is the short-term implementation mechanism, with annual budgeted activities. GoPb is expected to update the Action Plan annually with activities and budgets. Both these documents identify the need for action across multiple sectors and awareness raising and behavior change to reduce air pollution. 23. The World Bank’s support for GoPb’s program will be offered through a series of projects (SOP) to support AQM. The first operation or SOP 1 is the “Punjab Clean Air Program (PCAP)�. PCAP will establish a foundation for AQM in the province and support the government’s plans to curb emissions across transport and agriculture. While improving the emissions inventory and air quality analytics, SOP1 will study means to reduce industrial and other source sector emissions, to be implemented under a SOP2. Three RAs and an IPF component make up SOP 1 and are described as follows. 24. RA1: AQM Governance and Awareness Raising. This supports EPCCD to enhance Punjab’s regulatory, institutional, and technical capacity for AQM, as well as encourages robust data-driven communications and awareness raising to bring together diverse actors towards the goal of improving air quality. a. Strengthen AQM infrastructure, regulatory and institutional capacity. The Program will support the expansion of regulatory grade air quality monitoring stations and regulatory capacity across Punjab, with real- time data reporting on a publicly available website. The Program will also enhance fuel quality testing by adding two new laboratories, with testing quality aligned with the American Society for Testing and Materials (ASTM) standard. Institutional capacity will be further strengthened through training of EPCCD staff to manage the monitoring network, laboratories and data analysis, such as the inventory (below). b. Data, inventory, and source attribution. The Program will facilitate the development of an integrated pollutant and greenhouse gas (GHG) emissions inventory system, which will provide a comprehensive and systematic approach to track and manage emissions data. The inventory will be used to inform AQM policy Page 6 The World Bank Punjab Clean Air Program (P508222) making and budget allocations, including potential revisions to Punjab’s Clean Air Policy and Action Plan and Punjab’s Smog Mitigation Action. c. Strengthening public communication and inducing behavioral change. The Program will develop a data- driven behavioral change and citizen engagement campaign, building on lessons learned from previous initiatives and utilizing air quality monitoring data and emissions inventories. This comprehensive outreach effort will employ multiple communication channels, including five “roadshow� vehicles at least 450 awareness sessions, to educate stakeholders about air pollution sources, health impacts, and reduction measures. Special attention will be given to vulnerable populations through targeted messaging and advisories, including schools and hospitals. The campaign will integrate with and enhance the existing Health Advisory System, enabling real-time communication of air quality data and health recommendations through both digital platforms and direct messaging. 25. RA2: Transport Sector Abatement Measures will focus on measures to curb road transport emissions through a combination of Shift and Improve measures: a. Expanding and encouraging modal shifts to mass transit. This supports the deployment of 648 e-buses in Lahore and supporting infrastructure viz. depots and charging facilities. Public–private partnership (PPP) options will be explored under a study to identify business model(s). GoPb will be supported to implement a distance-based fare policy for e-buses using updated payment systems, which could increase fare revenue and improve the financial sustainability of buses. A Public Transport Service Contract (PTSC) between GoPb and the Punjab MassTransit Authority (PMA) that improves government funding commitment in exchange for greater accountability from PMA will also be incentivized. Measures to boost female labor force participation in e-bus and depot operations will be promoted. Complementary interventions to improve access to public transport while tackling road dust will form part of the results framework. b. Fostering the transition to e-2/3Ws. PCAP will promote the adoption of provincial electric vehicle (EV) policy with clear EV adoption targets, institutional arrangements and action plan, and an associated charging infrastructure roadmap for key cities in Punjab. A provincial EV Cell will be established to spearhead policy implementation. A financing facility will be established via a financial intermediary (Bank of Punjab) to catalyze the flow of affordable commercial financing to e-2/3Ws across Punjab. c. Expanding vehicle inspections and retiring polluting vehicles. The combination of an expanded vehicle inspection and maintenance regime and a buyback scheme will reduce the emissions intensity of the existing vehicle stock. Two Disbursement-Linked Indicators (DLIs) will support the expansion of vehicle inspections to 2Ws and a buyback scheme for aged and polluting vehicles, with associated amendments to the Provincial Motor Vehicles Ordinance (1965). Financial incentives to encourage cleaner alternatives will be provided, with the possibility of linking these to the EV financing facility described in the para above. 26. RA3: Agriculture Sector Abatement Measures. This RA will support abatement measures in agriculture. Activities in this RA will focus on immediate alternative measures to address rice crop residue burning, secondary pollution contribution from fertilizer use, and awareness raising among farmers on air quality. a. Alternative to crop residue burning. This activity will incentivize the scale-up of GoPb’s initiative on the provision of 5,000 super seeders and other straw collection and management machinery to small farmers as an alternative to rice crop residue burning. b. Digital access to straw management machinery and crop residue management service. This activity will focus on digital solutions using proven models to improve access to super seeders, balers, and rice harvesters to small farmers through rental subsidies to reduce crop residue burning and provide data on usage by farmers. c. Awareness raising and enforcement. This activity will run rigorous awareness campaigns on alternative options for crop residue management, digital machinery rental services and subsidies, off-farm management options for straw management, and banning of burning to improve air quality in Punjab. These efforts will Page 7 The World Bank Punjab Clean Air Program (P508222) include targeted awareness campaigns for women in agriculture, enabling them to adopt climate-smart practices and advocate for better residue management, supporting emissions reduction goals. d. Research and development. This activity will explore promotion of soil testing and slow-release fertilizer alternatives, and policy reforms for the introduction and enforcement of slow-release fertilizer manufacturing and use. This intervention will be included in the long-term measures. Table 1: Alignment between GoPB’s program and the PforR Program Government program PforR Program Reasons for non-alignment Objective Clean air through emission reductions and To strengthen AQM and reduce Overall objectives well aligned sustainable green development for increasing access emissions from targeted to living-friendly environment (Punjab Clean Air sectors Policy) Duration Punjab Clean Air Policy (to 2030), Smog Mitigation 2025 to 2030 N/A Action Plan (annual) Geography Punjab province Focus on Greater Lahore Lahore has highest population- weighted PM2.5 exposure Results areas Plans tackle awareness, abatement in transport, • AQM governance and Remaining sectors will be municipal, industrial, agriculture & livestock, energy, awareness raising supported by GoPb and infrastructure/housing, public health, environmental • Sectoral abatement across planned subsequent operations protection, school education, parks & horticulture transport and agriculture Financing US$847 million US$601 million Gap will be financed by GoPb 27. Program beneficiaries include a broad range of stakeholders within Greater Lahore and beyond. First, the Program will improve air quality in Greater Lahore, with potential health benefits for all residents. Second, direct beneficiaries of Program interventions include public transport users, individuals and corporates accessing financing for EV purchases, and vehicle owners who would be able to renew ageing vehicles. Farmers will benefit from improved access to technologies, which will improve rice straw management in all rice producing areas with a focus on Gujarat, Gujranwala, Sahiwal, Faisalabad, Sargodha and Lahore divisions, with significant health benefits. The Program will also create jobs, particularly in e-bus and depot operations, with interventions to boost female labor force participation, and benefit the supply chains for EVs and agricultural equipment. Lastly, government officials will benefit from receiving training, capacity building, and access to global knowledge under the Program. 28. The government program is estimated at US$847 million, of which the PforR Program is US$606 million. The Program will be funded by US$231 million own resources, an IDA credit of US$280 million, and commercial financing of US$90 million, with a separate IPF Component of US$20 million. IDA resources make up around 47 percent of the PEF, a healthy figure which signals government commitment and would avoid financing gaps. The summary of financing sources and the PEF is provided in Tables 2 and 3. Table 2: Financing Sources for PCAP Amount (US$, millions) Financing Source PforR IPF Total IDA contribution 280 20 300 Borrower/Recipient contribution 231 - 231 Commercial financing 90 - 90 Total 601 20 621 29. The Program Expenditure Framework (PEF) includes expenditures supporting: (i) capital and operating expenditures of EPCCD and the Environmental Protection Agency (EPA) to strengthen air quality monitoring, awareness raising, and enforcement; (ii) procurement and operational expenditure for e-buses, and supporting infrastructure such as depots, Page 8 The World Bank Punjab Clean Air Program (P508222) charging infrastructure, and automated fare collection systems; (iii) transfers to Bank of Punjab for the EV financing facility; (iv) subsidies for super seeders; and (v) Program management and operational costs. All infrastructure investments shall apply environmental and social (E&S) risk management measures. Activities with high E&S risks and high-value contracts exceeding the World Bank’s PforR policy limits have been excluded from the Program. Table 3: Program Expenditure Framework Amount (PKR, millions) Economic Nature of Expense Budget for Next 5 % of 2025/ 2026/ 2027/ 2028/ 2029/ Code Years PEF 26 27 28 29 30 Employee-related expenses A01 3,637 2.5 709 780 858 614 676 Operating expenses A03 27,617 19.3 2,801 4,231 5,540 6,759 8,286 Grants, subsidies/write-off loans A05 13,664 8.6 1,680 1400 1,960 3,080 4,200 Development* A14 99,631 69.6 28,853 19,192 17,660 17,038 16,888 Total PEF in PKR millions 143,205 100 34,043 25,603 26,018 27,491 30,049 Total PEF in US$ millions 511 - 122 91 93 98 107 Note: *Development budget to also include any schemes that the GoPB may put forth to consider for inclusion in PEF due to their contribution towards achievement of DLRs. 30. An IPF component of US$20 million will support studies and capacity building to facilitate PCAP implementation and identify industrial abatement measures for SOP 2. The list of activities is outlined below. 31. The proposed DLIs are outlined in Table 3. Table 3: Disbursement Linked Indicators Financing DLI Agencies (US$ mil) Results Area 1: Air Quality Management Governance and Awareness Raising DLI 1: Additional regulatory grade monitors added to air quality monitoring network EPCCD/EPA 9 (Number) DLI 2: Integrated air pollutant/SLCP/GHG emissions inventory system is developed and EPCCD/EPA 6 routinely updated, used for assessment of Smog Action Plan and informs annual development plans (Yes/No) DLI 3: Fuel quality testing laboratories with mobile and fixed facility operational (Number) EPCCD/EPA 3 DLI 4: Interactive public information and behavioral change campaign sessions held EPCCD/EPA 2 (Number) Results Area 2: Transport Sector Abatement Measures DLI 5: Expand Cleaner Public Transport in Lahore Division (Electric Buses) (Number) T&MD via PMA/PTC 140 DLI 6: Transition to Electric Two- and Three-Wheelers (new vehicles) (Text) T&MD; EPCCD 50 DLI 7: Expand vehicle inspections (Text) T&MD 10 DLI 8: Buyback of aged polluting vehicles (Text) T&MD 40 Results Area 3: Agriculture Sector Abatement Measures DLI 9: Expanding mechanized rice straw management (Number) Agriculture 20 C. Proposed Program Development Objective(s) Program Development Objective(s) To strengthen air quality management and reduce emissions from targeted sectors in Greater Lahore Page 9 The World Bank Punjab Clean Air Program (P508222) D. Environmental and Social Effects @#&OPS~Doctype~OPS^dynamics@pidaprlegalpolicy#doctemplate Legal Operational Policies Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Area OP 7.60 No Summary of Screening of Environmental and Social Risks and Impacts of the IPF Component 32. The Program's environmental risks are rated Substantial and largely stem from transport sector activities. EVs generate indirect GHG emissions due to battery charging from the fossil fuel-based electricity grid in Punjab. Lithium batteries in e-buses pose fire hazards when damaged and are not easily extinguished by traditional methods. Charging stations and storage areas also present fire risks. Expired batteries require disposal, but informal recycling practices in Punjab are environmentally unsustainable and unregulated, leading to hazardous material discharge. Using diesel generators as backup for charging stations poses pollution and fire risks from diesel storage, handling, and generator operation. Bus washing creates contaminated wastewater and sludge. Improper disposal of old vehicles may lead to them being back on roads and causing soil and water contamination from toxic leaks. Construction activities for bus depots, stops, road repairs, footpaths, cycling lanes, and charging stations carry minor temporary environmental risks including noise, dust, and occupational and community health and safety (OHS/CHS) concerns. 33. AQM governance activities under the Program will generate e-waste. The Program activities, under expansion of the air quality monitoring network, developing continuous emission monitoring for the priority industries, and establishment of brick kiln district monitoring stations, will require procurement and installation of IoTs (Internet of Things), i.e., devices with sensors, processing ability, software and other technologies that connect and exchange data with other devices and systems over the internet or other communication networks. E-waste is expected to be generated by the end of life of the procured equipment. The environmental and health and safety impacts occur during improper recycling and disposal of e-waste. The improper recycling arrangements result in polluting air, water, and soil due to release of pollutants such as persistent organic pollutants including flame retardants (poly brominated biphenyl), dioxins (polychlorinated dibenzodioxins and dibenzofurans), perfluoroalkyls, polycyclic aromatic hydrocarbons, and heavy metals (lead, chromium or hexavalent chromium, cadmium, mercury, zinc, nickel, lithium, beryllium) during dismantling, burning, chemical processing and disposal activities. 34. The Program's social risks are rated Substantial, linked to public transport infrastructure construction and potential exclusion of vulnerable groups from benefits. Ineffective communication and poor consultation can heighten these risks. For RA2 transport measures, construction of e-bus routes, bus stops, depots, pavements, and cycle lanes pose health and safety risks for workers and the public. Land acquisition could forcefully remove encroachers from government lands for e-bus depots. People with disability may face exclusion from using e-buses and related infrastructure, while women, students, and low-income people might struggle to access financing for e-2/3Ws. Women employed in e-bus operations, female public transport users, and women driving EVs face risks of sexual exploitation and abuse/sexual harassment (SEA/SH). RA3 agriculture and industries sector measures may exclude women small farmers from mechanization options, cause income loss from crop burning bans, penalize small farmers unequally, and exclude various groups from digital solutions. Mechanization and new machinery like super seeders present health and safety risks for farmers, labor, and children. RA1 AQM governance and awareness activities could Page 10 The World Bank Punjab Clean Air Program (P508222) render government employees with low IT literacy redundant, especially older and female staff. Increased monitoring might lead to stricter actions on small, less influential industries, risking closures, layoffs and potential social conflict. 35. An Environmental and Social Systems Assessment (ESSA) for the PforR Program has been prepared following the PforR Policy and World Bank Directive. ESSA consultations were held in Lahore on 30 January 2025. The existing E&S management systems are adequate for addressing the Program's risks. Environmental risks are managed by federal and provincial Environmental Protection Acts. Social aspects are governed by Local Government Acts, social welfare acts, provincial Grievance Redress Systems, Transparency and Right to Information Acts, and Ombudsman Offices. Land acquisition follows the Land Acquisition Act (LAA) 1894, which outlines compensation for land titleholders but does not address replacement costs for assets, livelihood compensation, or measures for non-titleholders and encroachers. 36. The ESSA makes the following recommendations to maximize the benefits of the Program: consider fire safety for e-buses with lithium batteries, and develop battery waste management rules and strategies for ecosystem development under IPF; address E&S aspects in bus depots and labs; manage E&S risks through regular staff training and reporting; implement OHS/CHS plans based on World Bank Environmental and Social Framework (ESF) guidelines; ensure women and persons with disabilities benefit from the program through a Gender Inclusion and SEA/SH Action Plan and a Disability Inclusion Plan; tailor and adopt PGDP’s standard operating procedures for land acquisition and resettlement ensuring provisions for screening checklists, compensation for affected landowners, tenants, and non- titleholders aligned with market rates, preparation of Resettlement Action Plans, and prohibition of anti- encroachment drives (AEDs) and exclusion of areas with AEDs in the last five years; maintain transparent consultations and ensure communication materials and awareness campaigns are tailored to vulnerable groups with a clear plan for stakeholder engagement; and review grievance redressal forums' accessibility for vulnerable groups. @#&OPS~Doctype~OPS^dynamics@contactpoint#doctemplate CONTACT POINT World Bank Shyam Srinivasan Transport Specialist Shafick Hoossein Senior Environmental Specialist Borrower/Client/Recipient Islamic Republic of Pakistan Kazim Niaz Secretary, Economic Affairs Division secretary@ead.gov.pk Implementing Agencies Page 11 The World Bank Punjab Clean Air Program (P508222) Transport and Masstransit Department, Government of Punjab Waseem Akram Director, Transport Planning Unit waseemakram555@hotmail.com Planning and Development Board, Government of Punjab Saba Ashgar Ali Chief Environment Srchiefca@pndpunjab.gov.pk Agriculture Department, Government of Punjab Sajid Mehmood Director General, Agriculture, Field Wing fieldwing@gmail.com Industries Department, Government of Punjab Asif Ali Farrukh Director General, Industries asif.farrukh.ansari@gmail.com FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects @#&OPS~Doctype~OPS^dynamics@approval#doctemplate APPROVAL Task Team Leader(s): Shyam Srinivasan, Shafick Hoossein Approved By Practice Manager/Manager: Jung Eun Oh 06-Feb-2025 Country Director: Gailius J. Draugelis 23-Feb-2025 Page 12