World Bank Documentdocuments.worldbank.org/curated/en/641991468046128110/... · 2016-07-13 · Schedule 2, section I. D. 4 implementation of the Resettlement Action Plan and shall

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 73115-XK

PROJECT PAPER

ON A

PROPOSED SECOND ADDITIONAL FINANCING (CREDIT)

IN THE AMOUNT OF SDR2.8 MILLION(US$4.2 MILLION EQUIVALENT)

AND

SECOND RESTRUCTURING (GRANT)

TO THE

REPUBLIC OF KOSOVO

FOR THE

KOSOVO ENERGY SECTOR CLEAN-UP AND LAND RECLAMATION PROJECT

March 28, 2013

Sustainable Development DepartmentEurope and Central Asia Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed without WorldBank authorization

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CURRENCY EQUIVALENTS

(Exchange Rate Effective February 28, 2013)

Currency Unit = EUROEURO 0.76580 = US$1

US$1 = SDRO.66014

FISCAL YEARJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

CLRP Clean-up and Land Reclamation ProjectCPS Country Partnership StrategyEA Environmental AssessmentEC European CommissionECSEE Energy Community of Southeastern EuropeESIA Environmental and Social Impact AssessmentEMP Environmental Management PlanEU European UnionFMRs Financial Monitoring ReportsFY Fiscal YearGHG Greenhouse GasIBRD International Bank for Reconstruction and DevelopmentIDA International Development AssociationIFRs Interim Un-audited Financial ReportsIPPC Integrated Pollution Prevention and ControlISR Implementation Status ReportKEK Kosovo Energy CorporationKPP Kosovo Power Project (proposed)MESP Ministry of Environment and Spatial PlanningPMU Project Management UnitPOEs Publicly Owned EnterprisesPRG Partial Risk GuaranteeRAP Resettlement Action PlanRPF Resettlement Policy FrameworkRfP Request for ProposalsSFDCC Strategic Framework for Development and Climate ChangeToR Terms of ReferenceUSAID United States Agency for International Development

Vice President: Philippe le Hou6rouCountry Director: Ellen GoldsteinCountry Manager Jan-Peter Olters

Sector Manager: Kulsum AhmedTask Team Leader: Katelijn van den Berg

KOSOVO

SECOND ADDITIONAL FINANCING (CREDIT)AND

SECOND RESTRUCTURING (GRANT)TO THE

KOSOVO ENERGY SECTOR CLEAN-UPAND LAND RECLAMATION PROJECT

CONTENTS

Page

Project Paper Data Sheet

Project Paper

I. Introduction....................1...................

II. Background and Rationale for Additional Financing.................... 1

III. Proposed Changes...................................4

IV. Appraisal Summary..................................10

Annexes

1. Revised Results Framework and Monitoring Indicators.............13

2. Operational Risk Assessment Framework ................... 22

3. Procurement arrangements and summary of procurement plan....... 27

4. Implementation Support Plan...........................31

REPUBLIC OF KOSOVO

KOSOVO ENERGY SECTOR CLEAN-UP AND LAND RECLAMATION PROJECT

ADDITIONAL FINANCING DATA SHEET

Basic Information - Additional Financing (AF)Country Director: Ellen Goldstein Sectors: Mining and other extractivesSector Manager/Director: Kulsum (70%); Power (30%)Ahmed/Laszlo Lovei Themes: Environmental Policies andTeam Leader: Katelijn van den Berg Institutions (P); Pollution ManagementProject ID: P131539 and Environmental Health (P)Expected Effectiveness Date: June 15, Environmental category: A2013 Expected Closing Date: 12/31/14Lending Instrument: Specific Joint IFC: NoInvestment Loan Joint Level:Additional Financing Type: Scale-up;restructuring

Basic Information - Original ProjectProject ID: P096181 Environmental category: AProject Name: Kosovo Energy Sector Expected Closing Date: 06/30/13Clean-up and Land ReclamationProjectLending Instrument: SIL Joint IFC:No

Joint Level:AF Project Financing Data

[ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other:Proposed terms: IDA Credit on blend terms with five years grace period and 25 years tomaturity.

AF Financing Plan (US$m)Source Total Amount (US $m equivalent)

Total Project Cost: 4.2Cofinancing:Borrower:

Total Bank Financing:IBRD

IDA 4.2

New 4.2

Recommitted

Client InformationRecipient: Republic of KosovoResponsible Agency: Korporata Energjetike e Kosoves Sh.a. (Kosovo EnergyCooperation J.S.C.) and Ministry of Environment and Spatial PlanningContact Person KEK: Project Management Unit CoordinatorTelephone No.: + 38138 5017011158Email: mimoza.dugolli(oDkek-energy.com

Responsible Agency: Ministry of Environment and Spatial PlanningContact Person MESP: Arben Citaku, Permanent SecretaryTelephone No.: +381(0) 517 638 / ext 32 307Email: arben.citaku(&,ks-gov.net

AF Estimated Disbursements (Bank FY/US$m)FY FY13 FY14 FY15Annual 0 3.5 0.7Cumulative 0 3.5 4.2

Project Development Objective and DescriptionOriginal project development objective: (a) address environmental legacy issues related to opendumping of ashes on land from KEK's Kosovo A thermal power plant; (b) enable KEK to freeland for community development purposes currently taken by overburden material and to enableKEK to remediate the Kosovo A Ash Dump; and (c) build capacity in KEK for continued clean-up and environmentally good practice mining operations.

Revised project development objective: Section (c) of the PDO will be modified to state: (c)support KEK and MESP to implement continued clean-up operations and environmental goodpractices in the mining and energy sector. The other sections of the development objectiveswill remain the same.

Project description:

The Additional Financing will not finance any additional activities for Component A:Preparation of the Mirash Open Pit Mine for Ash Management and Component B: Remediationof Kosovo A Ash Dumps.

Component C: Reclamation of Overburden Dump Areas. The Additional Financing will fundonly one activity: (i) additional tree planting in overburden areas.

Component D: Project Management. The Additional Financing will also provide support toKEK and MESP to implement the project in terms of project management, short term expertsand office equipment for MESP and audits.

Component E: Removal of Hazardous Chemicals from Kosovo A's Gasification Site. TheAdditional Financing will fund: (i) scale-up of the ongoing tar deposits/tar sludge removalactivity to ensure that all tars found on site are removed and properly disposed; and (ii) continuefinancing the supervising engineer to monitor the implementation of tar sludge and tar depositsremoval.

Component F: Environmental Monitoring and Management. This will be an additional newcomponent with the focus to improve the review and monitoring function of the Ministry ofEnvironment and Spatial Planning in relation to the environmental and social implications oflarge power sector projects and in particular the proposed Kosovo Power Project (KPP). TheAdditional Financing will fund: (i) Air Monitoring Equipment to measure baseline air qualitydata; (iii) Soil and Water Monitoring to collect data on current pollution baseline data in soil andwater; (iii) the Environmental and Social Impact Assessment (ESIA) for the proposed KosovoPower Project; (iv) Monitoring of the implementation of the Resettlement Action Plan (RAP) forthe Shala neighborhood of Hade village; (v) international ESIA and RAP Panel of Experts; and(vi) Low carbon growth energy strategy.

Safeguard and Exception to PoliciesSafeguard policies triggered:Environmental Assessment (OP/BP 4.01) [X]Yes [ ] NoNatural Habitats (OP/BP 4.04) [ ]Yes [X] NoForests (OP/BP 4.36) [ ]Yes [X ] NoPest Management (OP 4.09) [ ]Yes [ X] NoPhysical Cultural Resources (OP/BP 4.11) [ ]Yes [X ] NoIndigenous Peoples (OP/BP 4.10) [ ]Yes [ X] NoInvoluntary Resettlement (OP/BP 4.12) [X]Yes []NoSafety of Dams (OP/BP 4.37) [ ]Yes [X ]NoProjects on International Waterways (OP/BP 7.50) [ ]Yes [X ] NoProjects in Disputed Areas (OP/BP 7.60) [ ]Yes [ X] No

Is approval of any policy waiver sought from the Board1? [X]Yes []NoHas this been endorsed by Bank Management? [X]Yes []NoDoes the project require any exception to Bank policy? []Yes [X] NoHas this been approved by Bank Management? []Yes []No

Conditions and Legal Covenants:Financing Agreement Description of Date Due

Reference Condition/CovenantIDA Grant Nulmbers: H234- The Recipient shall ensure Dropped

KOS and H3 19-KOS. that KEK shall have the

financial statements referredSchedule 2, Section IV.B.5 to above periodically audited

by independent auditors

acceptable to the Association,in accordance with

consistently applied auditing

standards acceptable to the

Association.

Each audit of the financial

statements shall cover the

period of one fiscal year of

KEK or such other period as

agreed by the Association.

The audited financial

statements for each such

period shall be furnished to

the Association not later than

six months after the end of

such period.

The Additional Financing is expected to be submitted for Board approval before the Investment Lending Policy Reformbecomes effective; therefore with respect to the proposed Closing Date of the proposed AF being four years after the OriginalClosing Date, approval of a policy waiver for OP 13.20 is sought from the Board, see paragraph 1 of the Project Paper.

IDA Credit 5240-XK: MESP shall be responsible for Continuous

Schedule 2, section I. D. 4 implementation of the

Resettlement Action Plan and

shall ensure that resettlement

undertaken in for the Shala

neighborhood of Hade village

is undertaken in accordance

with the provisions and

procedures contained in the

approved RAP.

IDA Credit 5240-XK: The Recipient, through the October 31, 2013Schedule 2, section I. A.3 MESP PMU, shall retain the

panels of experts, satisfactory

to the Association, pursuant to

Part F of the Project.

IDA Credit 5240-XK: A stakeholder review and October 31, 2013Schedule 2, section I.A.4. monitoring committee will be

established under the Project

to oversee the progress and

results of Component F of the

AF, in particular the ESIA.The committee will be chaired

by the MESP and consist of

representatives of the Ministry

of Economic Development,Ministry of Finance, KEK and

the municipality of Obiliq.

I. Introduction

1. This Project Paper seeks the approval of the Executive Directors to provide an additionalcredit in the amount of SDR 2.8 million (US$4.2 million equivalent) to the Republic of KosovoEnergy Sector Clean-up and Land Reclamation project (CLRP) (P096181, original GrantNumbers IDA H234-KOS and IDA319-KOS and additional IDA Credit Number 5240-XK). ThisAdditional Financing includes a restructuring as well as extension of the Closing Date of theoriginal Grants until December 31, 2014 (four years after the original Closing Date). Under OP13.20, an Additional Financing is expected to close within three years after the current closingdate for the original loan2. As the proposed Closing Date for the AF is four years after theoriginal Closing Date, approval of a policy waiver for OP 13.20 is sought from the Board, whichhas been endorsed by Bank Management on November 12, 2012. The waiver applies to theAdditional Financing to the Energy Sector Clean-up and Land Reclamation Project (P131539),IDA Credit Number (5240-XK) and the extension of the Project financed by the original Grantand the first Additional Financing: IDA Grant Numbers: H234-KOS and H319-KOS.

2. The proposed additional financing would help fund the costs associated with scale-upactivities and additional similar activities to enhance the impact of the CLRP. Expanding theCLRP works under the proposed Additional Financing would help the Government of Kosovo(GoK) to further address legacy issues related to tar deposits/tar sludge at the gasification site ofthe Kosovo Energy Corporation J.S.C. (KEK), tree planting at overburden areas, and assist theMinistry of Environment and Spatial Planning (MESP) in the identification, monitoring andassessment of environmental and social impacts related to the proposed Kosovo Power Project.

3. The current Project was co-financed by a Trust Fund from the Government of theNetherlands for EURO 3 million, which was fully disbursed by the Closing Date of the originalIDA Grant. A separate second self-standing Trust Fund from the Government of the Netherlandswill provide an additional EURO 0.89 million (US$1.13 million equivalent) Grant to financeenvironmental monitoring and management at the Ministry of Environment and Spatial Planning,repairing a slurry pump, project management, and removal of the tar sludge/deposits at thegasification site of KEK.

II. Background and Rationale for Additional Financing in the amount of US$4.2 millionequivalent

4. The Kosovo Energy Sector Clean-up and Land Reclamation Project (CLRP) IDA Grantfor SDR3.8 million (equivalent to US$5.5 million) was approved on June 13, 2006 and becameeffective on February 28, 2007. The first additional IDA Grant financing in the amount ofSDR3.3 million (equivalent to US$5 million) was approved on June 28, 2007 to cover afinancing gap as well as finance an additional clean-up activity needed to safely remove highestpriority hazardous chemicals stored at a former gasification plant site of KEK. This originalfinancing gap of US$2.7 million was already foreseen and included when the original Grant wasapproved. It was indicated then that in case the required additional financing could not be found,

2 In the case of multiple additional loans to an operation this has been interpreted under the OPCS Guidance on AFas requiring that the closing date of the proposed AF not exceed three years beyond the closing date that was ineffect when the first AF was approved.

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a smaller amount of funds would be spent on equipment for remediation of the Kosovo A ashdump and the overburden dumps which would make remediation still feasible but in a muchlonger time frame. The first additional financing allowed for the closing of the financing gap andto include a new Component E: Removal of Hazardous Chemicals from Kosovo A's GasificationSite. The additional funding was not sufficient to remove all hazardous chemicals from thegasification site; therefore the outcome indicator was formulated as: (i) remove the high priorityhazardous substances, and partial removal of phenol in water solutions.

5. In 2009, the Project was restructured such that the Project's approach to deal with theenvironmental impacts of the ash dump of the Kosovo A power plant was shifted from fullremoval of the ash dump to in-situ remediation of the ash dump site that included reshaping,coverage and some partial removal.3 As a result, development objective (b) was slightlymodified to: (b) enable KEK to free land for community development purposes currently takenby overburden material and enable KEK to remediate the Kosovo A ash dump. The originalrelated outcomes were not changed.

6. The CLRP aims at supporting the beneficiary, KEK and the Kosovo authorities to addressenvironmental issues related to open dumping of ashes from the mines on land. Specifically, theCLRP's objectives are to: (a) address environmental legacy issues related to open dumping ofashes on land from KEK's Kosovo A thermal power plant; (b) enable KEK to free land forcommunity development purposes currently taken by overburden material and to enable KEK toremediate the Kosovo A Ash Dump; and (c) build capacity in KEK for continued clean-up andenvironmentally good practice mining operations.

7. By October 17, 2012, the original IDA Grant number 2340 disbursed 94% of the Grantfunds; the additional IDA Grant number 3190 has disbursed 80%. The project is on track tomeet the expected Development Objectives, which are summarized in the following table 14.

3 The reasons behind the first restructuring is that originally, the project would remove the materials from theKosovo A ash dumpsite and the ash would then be transported to a disposal site in the Mirash Open Pit Mine. Aspart of project implementation, during site investigations and detailed design study, the following issues wereidentified, which led to the subsequent restructuring: (i) some parts of the Kosovo A ash heaps are contaminatedwith substantial quantities of hazardous waste (phenol and liquid waste by-products) from the former gasificationplant. Removal of these chemicals prior to full excavation and removal of the ash dump would be costly and wouldincrease the danger of further contamination. Investigations also showed that the ash dump itself provides a reliablebarrier against infiltration therefore preventing further contamination of the underground and ground water systems.Additionally, site investigations discovered areas at the ash dump that have multiple soft and cemented layers of ash.This type of stratification required excavation equipment in much better condition than KEK had available andwould significantly increase the equipment cost as well as the time to complete the works (up to 15 years); (ii)Further studies demonstrated that adequate measures for dust control with the relocation of ashes by using existingconveyor belts for ash transport as originally designed would be much more difficult than envisaged; and (iii) in2008, pressed by coal shortage problems, KEK made the decision to extend coal exploitation in the Mirash mine tomeet urgent coal production. As a result, overburden materials from this so-called Sitnica field were also depositedinto the Mirash mine, which highly complicated the option to dispose the dry ashes from the Kosovo A ash dumpand Kosovo A production to the same mine.4 Progress of the project can also be viewed in the following results storyhttp://intranet.worldbank.org/WBSITE/INTRANET/INTCOUNTRIES/INTECA/INTKOSOVO/O,,contentMDK:23205236-menuPK:297757~pagePK: 145897~piPK: 147187~theSitePK:297667,00.html

2

Table 1: Progress to meet the Project Development ObjectivesPDO indicators Target Baseline Current Status

Disposal of ash from Complete 100% ash production The wet ash hydraulicKosovo A at the open elimination of ash from Kosovo A is system which will stopash dump site will be dumping on open dumped on open land. all dry ash dumping onstopped and redirected land. open land is underto the Mirash mine. construction.

Initiate and enable Remediation of 0 hectares of Target of 134KEK to remediate 55% of the unremediated ash remediated hectaresKosovo A ash dump Kosovo A Ash disposal area. (55%) has beenarea, thereby initiate Dump (equal to achieved as of Octoberand enable KEK to 134 hectares). 13,2011.eliminate pollutioninfiltration from theashes into thegroundwater.

Initiate and enable No houses at risk Ten houses at risk Risks were eliminatedKEK to reduce loss of and target achieved asprivate property in the of October 18, 2011area by eliminating theextensive geotechnicalinstabilities from theKosovo A ash dumpand adjacent over-burden dumps.

Initiate and enable Reclamation of 0% or 0 hectares of Already more than 450KEK to achieve land 55% of total overburden dumps ha are available forreclamation for natural overburden area reclaimed. communityhabitats, agriculture, (equal to 358 development. Target ofresettlement or other hectares) 55% has been met as ofland use purposes. October 13, 2011.

Increase in capacity in KEK staff fully No capacities Target achieved as ofinstitutions and KEK responsible for October 13, 2010.for good environmental cleanup and landpractices mining reclamationoperations operations

Removal of highest Removal of 4780 metric ton of 4,545 metric tons of

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priority hazardous highest priority hazardous substances hazardous substancessubstances from hazardous found in storage tanks have already beenstorage tanks at the substances from removed and properlygasification site storage tanks at the 2,232 metric ton of tar disposed

gasification site deposits2,232 metric ton of tardeposits have beenrepackaged but not yetremoved and properlydisposed

Partial removal and Partial removal 13245 metric tons of 0 metric ton, all phenolcontainment of phenol and containment phenols untreated in in water solutions hasin water solutions of phenol in water water solutions in been treated.

solutions storage tanks

Preparation of full site Prepared site No Remediation Plan Target achieved.clean-up investment clean-upplan and adaptation of investment planhealth and safety and adaption ofregulations and low- health and safetycost remediation regulations andprogram low-cost

remediation plan

8. The Recipient has requested the additional IDA Credit to further scale-up the existingclean-up and land reclamation activities, aiming to fully remove hazardous chemicals found onthe gasification site of KEK and in order to fund additional activities associated with theenvironmental and social impact assessment for the proposed Kosovo Power Project to beimplemented by the Ministry of Environment and Spatial Planning. These activities aredescribed in detail from paragraph 12 onwards.

9. The proposed Additional Finance is in line with the original Project DevelopmentObjective and the second pillar of the new Country Partnership Strategy of May 1, 2012"Improving Environmental Management", in particular through reducing environmental hazardsand improving environmental monitoring and management. The eligibility requirements for theAdditional Financing have been met.

III. Proposed Changes

10. Project Development Objective The second Additional Financing will lead to limitedbroadening of the development objective of the project. In general, the proposed additionalfinancing will in fact contribute to the achievement of CLRP's development objective byscaling-up existing activities and supporting additional activities that further enhance its overallimpact as well as strengthen sector development. However, some of the proposed additional

4

activities will build capacity not only at KEK but also at the Ministry of Environment and SpatialPlanning in Kosovo; hence, under the additional financing, section (c) of the PDO will be furtheramended to state: (c) support KEK and MESP to implement continued clean-up operations andenvironmental good practices in the mining and energy sector.

11. Project Costs The total project cost was US$13.65 million equivalent consisting of (i)US$ 5.5 million IDA grant; (ii) additional US$5.0 million IDA grant; (iii) US$3.15 millionrecipient contribution (KEK); and with a (iv) co-financing grant of the Government of theNetherlands in the amount of E 3.0 million. Due to the additional scale-up activities, anadditional US$4.2 million equivalent IDA Credit is foreseen. A further additional self-standingGrant from the Government of the Netherlands in the amount of E 0.9 million will be madeavailable to finance environmental monitoring and management at the Ministry of Environmentand Spatial Planning, repairing a slurry pump, project management, and removal of the tarsludge/deposits at the gasification site of KEK.

12. Components There are no additional or new activities proposed under components A(Preparation of the Mirash Open Pit Mine for Ash Management) and B (Relocation of Kosovo AAsh Dumps into Mirash Open Pit Mine). The proposed changes to the other components will be:

13. Component C: Reclamation of Overburden Dump Areas (US$0.2 million additional IDACredit financing). This component intends to invest in reclaiming about 650 hectares of landthrough reshaping and re-cultivating the overburden dump areas in the South Field and locationswest of the Bardh mine. The reclaimed land is providing an area suitable for purposes such asagriculture, new housing developments or recreation. The Additional Financing will fund onlyone activity: (i) additional tree planting in overburden areas, provided that an adequate weedremoval and plantation protection management system is in place.

14. Component D: Project Management (US$0.1 million additional IDA Credit financing).The original project provided support to KEK to implement the project. It included support foroverall project management and technical assistance in such areas as detailed design,construction supervision, procurement and financial management. The Additional Financing isexpected to finance: (i) project management for both KEK and MESP; (ii) short term experts;and (iii) office equipment for MESP and audits.

15. Component E: Removal of Hazardous Chemicals from Kosovo A's Gasification Site(US$1.6 million additional IDA Credit financing). This component intends to secure and removehigh priority hazardous chemicals that were left at the Kosovo A's gasification site. TheAdditional Financing will: (i) fund scale-up of the ongoing tar deposits/tar sludge removalactivity to ensure that all found tars are removed from site and properly disposed; and (ii)continue financing a supervision engineer to monitor the implementation of tar sludge and tardeposits removal.

16. Component F: Environmental Monitoring and Management (US$2.3 million additionalIDA Credit financing). This will be an additional new component with the focus to improve thereview and monitoring function of the Ministry of Environment and Spatial Planning regardingenvironmental and social impacts of large power plant projects and in particular the proposedKosovo Power Project (KPP). The Additional Financing will fund: (i) Air Monitoring Equipmentto measure baseline air quality data; (iii) Soil and Water Monitoring to collect data on current

5

pollution baseline data in soil and water; (iii) the Environmental and Social Impact Assessment(ESIA) for the proposed Kosovo Power Project; (iv) Monitoring of the implementation of theResettlement Action Plan (RAP) for the Shala neighborhood of Hade village; (v) InternationalPanel of Environmental and Social Experts; and (vi) Low carbon growth energy strategy.

17. Regarding the air monitoring equipment, three online air quality monitoring stationswill be established in the proposed project area to collect baseline data on the air quality at theirlocations. The equipment will monitor Sulfur Dioxide, Nitrogen Oxides, PM2.5 and PM1O,Carbon Monoxide, Ozone, temperature, relative humidity, and wind speed and direction.

18. An elaborate soil and water sampling and laboratory analysis program will beundertaken to collect and analyze the baseline environmental data in the soil, groundwater andsurface water and river sediments. This activity will serve to collect data related to existinglignite mining activities; operation of the power plants Kosovo A and Kosovo B; andenvironmental rehabilitation activities undertaken under the original project. The data willunderpin the environmental baseline for the ESIA for the KPP, taking into consideration theexisting mining activities in Bardh and Mirash open cast mines as well as already abandonedopen cast and underground mining activities; the current disposal of ash and wastewater fromexisting plants Kosovo A and B; and fresh water supply related to existing fresh waterconsumption of the power plants.

19. The objective of the Environmental and Social Impact Assessment for the proposedKosovo Power Project and associated infrastructure is to inform the decision-making process ofthe proposed investment, including the Bank's decision on the possible partial risk guarantee,and to increase the monitoring and management capacity of the MESP. Normally, it is theresponsibility of the investor, in this case the winning private sector bidder for each of theconcessions for the proposed KPP, to prepare an Environmental Impact Assessment. This ESIA,as financed under the CLRP AF, is not intended to serve as the document to inform nationalpermitting and other authorization, e.g. under the Kosovo legislation on Environmental ImpactAssessment, which would be prepared later by the selected investor. Financing of theEnvironmental and Social Impact Assessment for the proposed KPP under the CLRP AF doesnot imply that assumptions as to the feasibility of the KPP have been made. In parallel, a Grantfrom the Government of the Netherlands will support strengthening of the capacity of MESP interms of applicable EU standards, mitigation measures and environmental conditions to beexpected from KPP bidders in line with IPPC permit procedures.

20. With regard to the monitoring contract for RAP implementation, a ResettlementPolicy Framework (RPF) has been developed by the Government consistent with Bank policieswith financing from the now closed Lignite Power Technical Assistance Project (LPTAP) thatwould govern the relocation and resettlement of any population that might be displaced by theproposed KPP. Based on the RPF, a draft Resettlement Action Plan (RAP), also financedthrough LPTAP, has been prepared for the Shala neighborhood of Hade village, in consultationwith the affected communities. The Shala neighborhood of Hade village will be relocated since itis close to the edge of the mine from which extraction of lignite has started. The Shalacommunity is proposed to be relocated to a new site (Shkabaj) close to Pristina city whereinfrastructure and housing plots are already being developed. In order to provide an extra level ofoversight and support, the Additional Financing will assist the Hade Project Office under theMinistry of Environment and Spatial Planning which is responsible for the implementation of theRAP, through support for a monitoring contract to oversee implementation of the RAP. Also a

6

resettlement completion audit of the RAP will be included. Preparation and implementation ofpossible future RAPs related to the proposed KPP will not be part of the AF of the CLRP. Themonitoring contract will also not cover the people displaced in 2004 from Hade village, whichwas carried out by UNMIK, though the Bank will provide the Government with technical adviceand use its good offices to encourage the Government to engage the resettled households toresolve outstanding issues. Resettlement has not been and will not be needed for the Clean-upand Land Reclamation Project itself.

21. An International Independent Panel of Environmental and Social Experts will berecruited for both the ESIA as well as the RAP to assist the government of Kosovo in thesupervision of the ESIA preparation and RAP implementation.

22. The low carbon growth energy strategy will be prepared to help reduce energy demandand promote renewable energy projects for perspective investments by the private sector andothers, which will help identify the opportunities for reducing future demand of electricity,increase power generation without increasing emissions, and possibly reduce Greenhouse Gas(GHG) emissions. The strategy will include: (i) building an energy sector GHG inventory; (ii)identification of mitigation options in the energy sector (both on the demand and supply sides);(iii) conducting an economic analysis that will generate Marginal Abatement Cost (MAC)curves5 and indicating which technology would be the preferred choice dependent on differentcarbon prices; (iv) describing/quantifying the potential for reducing future emissions based onMAC; (v) identifying barriers against the implementation of low carbon options; and (vi)reviewing existing mitigation measures and proposing new applicable measures. This strategywill be developed in close cooperation with the Ministry of Economic Development, which isresponsible for Kosovo's energy strategy.

23. Implementation Arrangements The additional funds will be implemented through theinstitutional arrangements that already exist for CLRP and, in addition, new arrangements withinMESP. The Project Management Unit (PMU) in KEK established under CLRP will continue tooversee, monitor and evaluate the overall performance of scale-up activities under Component C(Reclamation of Overburden Dump Areas) and Component E (Removal of HazardousChemicals) from Kosovo A's Gasification Site. A second PMU under MESP will be establishedto manage the new activities under the new Component F (Environmental Monitoring andManagement) as this activity is directly related to the institutional mandate of the Ministry ofEnvironment and Spatial Planning and the Ministry has ample experience with Environmentaland Social Impact Assessments. An additional Grant from the Government of the Netherlandswill further strengthen the capacity of MESP. Regarding the development of the low carbongrowth energy strategy and the air monitoring stations, MESP will work closely with theMinistry of Economic Development. A public information center will be established in themunicipality of Obiliq for Component F. A stakeholder review and monitoring committee will beestablished under the AF to oversee the progress and results of Component F of the AF, inparticular the ESIA. The committee will be chaired by the MESP and consist of representatives

' A marginal abatement cost curve or MAC curve is a set of options available to an economy to reduce pollutionstarting with the measure which has the lowest costs and then ranking the abatement costs for pollution reduction inaccordance with their marginal costs. Typically, MAC curves cover emissions reduction opportunities across anumber of sectors in an economy including power, industry, waste, buildings, transport, agriculture, and forestry.

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of the Ministry of Economic Development, Ministry of Finance, KEK and the municipality ofObiliq.

24. Financial Management Arrangements Consolidated project financial statements willbe submitted by the KEK-PMU until activities related to removal of all hazardous chemicalsfrom gasification site have been completed and reported after which the consolidated projectfinancial statements will be submitted by the MESP-PMU. Project consolidated audits will beconducted by independent private auditors hired by the Ministry of Finance in accordance withconsistently applied accounting standards. MESP will appoint relevant staff from the Ministrywho will be responsible for FM arrangements together with part-time consultant with experiencein Bank-financed projects Financial Management.

25. Disbursement arrangements Grant expenditures will be pre-financed by Government ofKosovo and then reimbursed from the World Bank on the basis of regular WithdrawalApplications. In addition, Direct Payment Withdrawal Applications for amounts not less thanminimum application size will be submitted to the Bank. KEK and MESP PMUs will prepareseparate Withdrawal Applications for reimbursement of their respective expenditures pre-financed by the Government of Kosovo. The Bank will reimburse pre-financed expenditures toTreasury Single Account of the Government. There will be no Designated Accounts. WithdrawalApplications will be prepared by Finance Specialists of the PMUs and signed by senior officialsof KEK and MESP respectively and MOF Treasury Department. The KEK and MESP PMUswill apply all applicable Treasury policies and procedures for the processing of invoices andpayment orders received within the Grant.

26. Legal Covenants KEK has met its obligations with regard to co-financing of the Projectand the activities for which co-financing was foreseen have already met their DevelopmentObjective. As the remaining activities to be implemented by KEK will be completed in thecourse of 2013 and the other activities under the AF will continue to be implemented by MESP,the legal covenant to ensure that KEK maintains a financial management system and preparesfinancial statements for its corporate entity, has these financial statements audited byindependent auditors and submits these to the Association will be withdrawn. The regularobligation for audited Project statements will remain unchanged.

27. Additionally, a legal covenant will be added that MESP shall be responsible forimplementation of the Resettlement Action Plan and shall ensure that resettlement undertaken infor the Shala neighborhood of Hade village is undertaken in accordance with the provisions andprocedures contained in the approved RAP.

28. Closing Date The Additional Financing will include an extension of the Closing Date forthe original Grant and the first Additional Financing until December 31, 2014 (four years afterthe original Closing Date).

29. Outcome Indicators Key performance indicators have been reviewed and amendmentsto the Results Framework are proposed to improve the clarity of selected indicators. Scaling-upof project activities and extension of the closing date also allowed revisions to target indicatorsto reflect the higher development impact. In addition, where possible, relevant Core Sector

8

Indicators have been integrated in the Results Framework. A summary of the proposed changesto the outcome indicators is provided in Table 2 below and detailed in Annex 1.

Table 2: Changes to Project Outcome Indicators

Indicator Original target Changes with AF Revised targetDisposal of ash from Complete Percentage of ash 100%Kosovo A at the open ash elimination of ash disposal thatdump site will be stopped dumping on open complies withand redirected to the land (0%). environmental goodMirash mine. practice and is

redirected fromopen dumping onthe Kosovo A AshDump to the Mirashmine.

Percentage of remediation 550 of the ash Contaminated land 156 hectaresof Kosovo A ash dumps, dump remediated managed or contaminated landeliminating dust problems (industrial) dump managed.and pollution infiltration sites closed underfrom the ashes into the the Project.groundwater.

Remediation of 55% of the ashKosovo A Ash dump remediatedDump, eliminatingdust problems andpollutioninfiltration from theashes into the

.groundwater 6.Initiate and enable KiEK to Reclamation of Land reclaimed for 526 hectaresachieve land reclamation 55%R of total natural habitats,for natural habitats, overburden area agriculture or other 5500 landagriculture, resettlement or land use purposes reclaimedi7

other land use purposes in KEK'soverburden area

Increase in capacity in KEK staff fully Increase capacities 100 hectares in theinstitutions and KEK for responsible for in KEK for Kosovo A Ashgood environmental cleanup and land continued clean-up Dump remediatedpractices mining reclamation operations and with own staff and

6 The original indicator of the Project is kept under the Project for consistency reasons in the SR where otherwise

the original targets already met would not be captured in the ISR system; the Core Sector Indicator is added to theResults Framework

L The original indicator of the Project is kept for consistency reasons in the fSR where otherwise the original targetsalready met would not be captured in the ISR system; in addition, the amount of hectares remediated is added to theResults Framework.

9

operations. operations. environmental good resources.practices in themining and energysector.Increase capacities ESIA for KPPin MESP for prepared in lineenvironmental good with Bank'spractices in the policies and goodmining and energy internationalsector8 practices.

Resettlement ofShalaNeighborhood ofHade villagecompleted in linewith approvedRAP.

Removal of highest priority 4,300 tons of All found priority 21,783 tons safelyhazardous substances from highest priority hazardous removed andstorage tanks at the hazardous substances from the treated/disposed.gasification site (tars, substances removed gasification sitebenzene, phenols, safely removed andmethanol, oily compounds) 13,245 tons of treated/disposed

phenols removed (tars, benzene,and contained phenols, methanol,

I oily compounds).

30. Retroactive Financing Retroactive financing not exceeding US$840,000 equivalent(maximum of 20% of the Additional Financing amount) will be allowed for payments made priorto the date of the Credit Agreement but on or after June 1, 2012, for Eligible Expenditures.

IV. Appraisal Summary

31. Procurement for the proposed Project will be carried out in accordance with the WorldBank's "Guidelines: Procurement under IBRD Loans and IDA Credits" published in January2011 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants byWorld Bank Borrowers" published in January 2011 and the provisions stipulated in theFinancing Agreement (FA). Please refer to Annex 3 for further details on procurementarrangements and summary of procurement plan.

This is a new outcome indicator as a result of the change in the PDO.

10

32. Financial Management/Disbursement The KEK PMU has in place FinancialManagement arrangements acceptable to the Bank. The MESP will recruit an experienced FMconsultant on a part time basis for its PMU to help the MESP to build its own FM capacity9

33. The PMUs will maintain a sound financial management system, including records andaccounts, and prepare consolidated project financial statements in conformity with acceptableaccounting standards. The project accounting records will be maintained in the Treasury FreeBalance system. The project consolidated financial statements will reflect adequately the projectactivities, resources and expenditures, and will be submitted quarterly to the Bank within forty-five days after the end of each quarter. The project financial statements will be audited byindependent auditors acceptable to the Bank in accordance with agreed Terms of Reference.Such audit will cover one fiscal year of the Recipient and the audit report will be furnished to theBank as soon as available, but not later than six months after the end of the audited period. Theproject audit report will be made publicly available according to the Bank's Policy on Access toInformation.

34. Environment and Social, including Safeguards. In relation to the Additional Financingfor component C (Reclamation of Overburden Dump Areas) and Component E (Removal ofHazardous Chemicals) from Kosovo A's Gasification Site. OP 4.01 is already triggered for theoriginal CRLP which is a category A activity. The additional activities foreseen to beimplemented by KEK are covered under the existing ESIA and EMP as the additional activitiesunder this additional financing are the same as the original activities, only the quantities arehigher than originally estimated. The new Component F (Environmental Monitoring andManagement) consists of the following activities, the preparation of a category A- ESIA for theproposed Kosovo Power Project and a proposed monitoring contract for the implementation ofthe Resettlement Action Plan for the Shala neighborhood of Hade village. A Resettlement PolicyFramework (RPF) has been developed by the Government consistent with Bank policies withfinancing from the now closed Bank financed Lignite Power Technical Assistance Project(LPTAP), which applies and will apply to all resettlement linked with the proposed KosovoPower Project. Based on this RPF, a Resettlement Action Plan (RAP), also financed throughLPTAP, has been prepared for the Shala neighborhood of Hade village, in consultation with theaffected communities. The Additional Financing for the CLRP will finance a contract to assistthe Hade Project Office under the Ministry of Environment and Spatial Planning to monitor theimplementation of the RAP -financed under the LPTAP. Therefore OP 4.12 is triggered for thisadditional finance. No resettlement was needed for the original CLRP and therefore OP 4.12 wasnot triggered for the original project; resettlement is also not required for the activities which areto be financed under the Additional Financing.

35. The draft Terms of Reference for the Environmental and Social Impact Assessment hasbeen disclosed in Kosovo and in the Bank's Infoshop on July 26, 2012. The Ministry ofEnvironment and Spatial Planning has organized public consultations on the draft ToR onSeptember 13, 2012.

9 Experienced procurement and financial management consultants have been identified for the MESP-PMU whowill ensure that the PMU will meet the minimum requirements from procurement and financial management pointof view. These arrangements are deemed to be suitable from fiduciary point of view by the Bank.

11

36. The Environmental and Social Assessment will include a social assessment that willdescribe the current social and economic impacts of the proposed KPP project on directly- andindirectly-affected communities. This socio-economic information will develop a robustsampling base of the affected population regarding the salient demographic and socio-economiccharacteristics of the population in the project's area of influence. This assessment will include:(i) anticipated social and economic impacts; (ii) current social and economic baselinecharacteristics; (iii) assess social and economic impacts; (iv) describe measures for mitigation ofadverse impacts and enhancement of positive impacts; and (v) identify community developmentopportunities and priorities. This social assessment will be fully gender informed as thehousehold surveys will be based on roughly equal numbers of man and women, separate womanfocus groups will be organized and specific questions related to development problems andpriorities for women will be integrated into the questionnaire. For the proposed KPP, the investorwill provide for set aside funds to support a Community Development Fund as part of theiroverall Corporate Social Responsibility (CSR) program. The information from the socialassessment will be used to inform the establishment of this fund.

37. Cost Effectiveness Analysis The waste materials at the former Kosovo A gasificationsite are stored in tanks or -in the case of tar deposits-dumped on land. Although, thesematerials are in a way contained, the storage conditions are poor and the materials cause seriousrisks to the environment and public health through possible spillages, fires, soil contaminationand contaminated run-off water to surface water. In addition, the presence of these materialshampers options for redevelopment of the site and would entail high costs when Kosovo A willbe decommissioned.

38. In a feasibility study, various options for treatment of these chemicals have beeninvestigated and for the watery chemicals (phenol solutions) on-site treatment was identified asthe (by far) cheapest and environmentally adequate method to treat and neutralize thesematerials. For all other materials, repackaging and destruction in specially licensed facilities wasfound to be the only viable solution for removal of the materials. To reduce costs and developnew capabilities in Kosovo, efforts have been made with the support of the Government ofKosovo to try and find facilities in Kosovo that potentially could incinerate these materials, buttechnical and administrative (permitting) issues rendered this option as not feasible. As a result,the only disposal option outlet for these materials (other than the watery solutions) is export tolicensed and internationally reputable facilities for their destruction in line with BaselConvention.

12

Annex 1: Results Framework and Monitoring

COUNTRY: Project NameResults Framework

Revisions to the Results Framework Comments/Rationale for Change

PDO

Current (PAD) ProposedCLRP's objectives are to: (a) CLRP's objectives are to: (a) address Some of the proposed additionaladdress environmental legacy environmental legacy issues related to activities will build capacity notissues related to open dumping open dumping of ashes on land from only at KEK but also at MESP.of ashes on land from KEK's KEK's Kosovo A thermal power plant; (b)Kosovo A thermal power enable KEK to free land for communityplant; (b) enable KEK to free development purposes currently taken byland for community overburden material and to enable KEK todevelopment purposes remediate the Kosovo A Ash Dump; andcurrently taken by overburden (c) support KEK and MESP to implementmaterial and to enable KEK to continued clean-up operations andremediate the Kosovo A Ash environmental good practices in theDump; and (c) build capacity mining and energy sector.in KEK for continued clean-upand environmentally goodpractice mining operations.

PDO indicators

Current (PAD) Proposed change*Disposal of ash from Kosovo Revised Revision to the language of theA at the open ash indicator to link the indicator moredump site will be stopped and 1. PDO Level Indicator One: specifically to the PDOredirected to the Percentage of ash disposal that compliesMirash mine with environmental good practice and is

redirected from open dumping on theKosovo A Ash Dump to the Mirash mine

Initiate and enable KEK to Revised The Core Sector Indicator (PDOremediate Kosovo A Level Indicator Two) is added toash dump area, thereby initiate 2. PDO Level Indicator Two: the Results Framework; theand enable Contaminated land managed or (industrial) original indicator of the Project isKEK to eliminate pollution dump sites closed under the Project revised to better reflect the linkageinfiltration from the between the target and theashes into the groundwater 3. PDO Level Indicator Three: indicator.

Remediation of Kosovo A Ash Dump,eliminating dust problems and pollutioninfiltration from the ashes into thegroundwater

Initiate and enable KEK to Revised Minor revision, the indicator wasachieve land reclamation for revised to reflect the linkagenatural habitats, agriculture, 4. PDO Level Indicator Four: between the target and theresettlement or other land use Land reclaimed for natural habitats, indicatorpurposes agriculture or other land use purposes

KEK's overburden areas.Initiate and enable KEK to Dropped The indicator has been revised asreduce loss of an Intermediate Results Indicator

13


private property in the area byeliminating theextensive geotechnicalinstabilities from theKosovo A ash dump andadjacent overburdenDumpsIncrease in capacity in Revised Minor revision to link the increaseinstitutions and KEK for good in capacity more clearly to both theenvironmental practices 5. PDO Level Indicator Five: continued clean-up operations asmining operations Increase capacities in KEK for continued well as environmental good

clean-up operations and environmental practicesgood practices in the mining and energysectorNew Added to reflect the change in the

PDO due to the new activities6. PDO Level Indicator Six:Increase capacities in MESP forenvironmental good practices in themining and energy sector

New Introduced as a PDO LevelIndicator in addition to the already

7. PDO Level Indicator Seven: existing Intermediate ResultsAll found priority hazardous substances Indicator. Revised to reflect thatfrom the gasification site safely removed with the Additional Financing alland treated/disposed (tars, benzene, found priority substances can nowphenols, methanol, oily compounds). be removed rather than only the

highest priority hazardoussubstances (scaling-up)

Intermediate Results indicators

Current (PAD) Proposed change*Percentage of Mirash Mine Revised Minor change in language toprepared for remove the percentagesanitary disposal of Kosovo A Mirash Mine prepared forash sanitary disposal of Kosovo A ashTransfer of ash stream from Dropped Dropped to remove duplicationKosovo A to dump with PDO level indicatorssite will be stopped andredirected to Mirashmine.Percentage of remediation of Dropped Dropped to remove duplicationKosovo A ash with PDO level indicatorsdump, eliminating dustproblems and pollutioninfiltration in undergroundReduction of houses at risk Continuedfrom geotechnicalinstabilities of Kosovo A ashdumpInitiate reclamation of 6.5 km2 Dropped Dropped to remove duplication(650ha) of land with PDO level indicators

14


available for communitydevelopment includingfor agriculture, resettlementand/or naturalhabitatsIncreased capacities in KEK Dropped Dropped to remove duplicationand institutions for with PDO level indicatorsgood environmental practicesin lignite miningoperations.Preparation of full site clean- Continuedup investment plan andadaptation of health and safetyregulations and low-costremediation program.Removal of highest priority Revised Revised to clarify in more detailhazardous substances from the precise hazardous substances tostorage tanks at the Intermediate Result Indicator Four be removed, disposed and treatedgasification site Tons of found tar sludge, benzene, and to monitor the scaling-up

methanol and oily compounds from thegasification site safely removed anddisposed

Intermediate Result Indicator Five:Tons of found tar deposits from thegasification site safely removed anddisposed

Partial removal and Revised Revised to measure in more detailcontainment of phenol in the tons of phenol removed andwater solutions Intermediate Result Indicator Six: Tons of treated and to monitor the scaling-

found phenol in water solutions from the upgasification site safely removed and treatedNew A new activity under the

Additional FinancingIntermediate Result Indicator Seven:Environmental and Social baseline dataavailable for ESIANew A new activity under the

Additional FinancingIntermediate Result Indicator Eight: Lowcarbon growth strategy prepared

* Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value

15

.Data ResponsibCumulative Target Values Sore .espor

BaselineSource/ i1ity forBaseline

Baseline (Progress to Methodolo Data

Unit of (Original Date) gy CollectionIndicator Name Core Measure Project 2012 2013 2014 End Target Fq

start)2007

1. Percentage of ashdisposal that complieswith environmentalgood practice and is Percentage 0% 0% 100% 100% Quarterly Quarterly PMU-KEKredirected from open reportsdumping on theKosovo A Ash Dumpto the Mirash mine.

2. Contaminated land Indicatormanaged or (industrial) Hectares 0 15610 156 alreadydump sites closedunder the Project

3. Remediation ofKosovo A Ash Dump,eliminating dust Indicatorproblems and pollution Percentage 0% 55% 55% alreadyinfiltration from the met.ashes into thegroundwater"

4. Land reclaimed for Indicatornatural habitats, alreadyagriculture or other Hectares 0 603 526 met, evenland use purposes in more thanKEK's overburden the targetareas. has been

10 The original indicator for the Project is 55% of ash dump area remediated which is 156 hectares, see also PDO indicator 3." This is the current indicator of the original Project which is kept under the Project for consistency reasons, the Core Sector Indicator is added to the ResultsFramework

16

achieved.

5. Land reclaimed for Indicatornatural habitats, already

met, evenagriculture or other. Percentage 0% 63% 55% more than

land use purposes in tetreKEK's overburden hae

has beenareas. achieved

6. Increase capacitiesin KEK for continuedclean-up operations asmeasured by the Quarterlymere o Htaes Hectares 0 69 69 127 127 Quarterly PMU-KEKnumber of Hectares reportsremediated andreclaimed with KEK'sown resources

ESIA for KPPNo ESIA for peae nKPP prepared and

prepred.ESIA disseminated inprepared. Resettleme for KPP line with Bank'sResettlement nt of Shala prepared policies and good

7. Increase capacities for Shala Neighborho and internationalin MESP for neighborhoo od of Hade dissemi practices. Quarterly PMU-environmental good Text d of Hade village nated in Quarterly reports MESPpractices in the mining village not completed line with Resettlement ofand energy sector ve in line with Bank's Shala

completed in approved policy Neighborhood of

line with RAP on OP Hade village4.01 completed in line

RAP with approvedRAP

8. All found priorityhazardous substancesfrom the gasification Reports fromsite safely removed Tons 0 19,316 21,783 21,783 Quarterly Supervising PMU-KEKand treated/disposed Engineer(tars, benzene,phenols, methanol, oily

17

compounds).

Beneficiaries

C Projectbeneficiaries 1sestimated

Project beneficiaries Number 0 21,500 21,500 conservatively as thepopulationofmunicipality of Obiliq

Of which female C Number 0 10,600 10,600(beneficiaries)

18

INTERMEDIATE RESULTS AND INDICATORS

Data ResponsibilitySource/ for

BaselineBaseline Progress Methodolog Data Collection

Core Unit of original to date 2013 2014 End FrequencyMeasure project Target

start

Intermediate Result -Mirash Mine prepared for sanitary disposal of Kosovo A ash

Mirash MirashIntermediate Mine MineResult Indicator prepared preparedOne: Mirah mine for forMirash Mine Text not sanitary sanitary argetedprepared for prepared disposal disposalsanitary disposal of ofof Kosovo A ash Kosovo A Kosovo A

Ash Ash

Intermediate Result - Reduce loss of private property by eliminating the extensive geotechnical instabilities from the Kosovo AAsh dump and adjacent overburden dumps

Intermediate Result. Full site clean-up investment plan and remediation program prepared for Kosovo A Gasification site

Intermediate Site SiteResult Indicator No clean-up clean-up Target alreadyTwo: Text remediation and low and low aheePreparation of full plan costs costssite clean-up and L investmen investmen

19

low-costs t and t andinvestment plan remediati remediatiand remediation on plan on planprogram and prepared, prepared,adaptation of including includinghealth and safety health healthregulations and safety and safety

regulation regulations

Intermediate Result. All found tars sludge, benzene, methanol and oily compounds from the gasification site safely removed anddisposed

IntermediateResult IndicatorThreeTons of found tarsludge, benzene, Reports frommethanol and oily Tons 0 4,545 4,780 4,780 Quarterly Supervising PMU-KEKcompounds from Engineerthe gasificationsite safelyremoved anddisposed

Intermediate Result. All found tar deposits from the gasification site safely removed and disposed

IntermediateResult IndicatorFour: Reports fromTons of found tar Tons 0 0 2,232 2,232 Quarterly Supervising PMU-KEKdeposits from thegasification sitesafely removedand disposed

Intermediate Result: All found phenol in water solutions from the gasification site safely removed and locally treated

Intermediate 7:1 IIndicator alreadyResult Indicator Tons 0 14,771 14,771 metFive: Tons of

20

found phenol inwater solutionsfrom thegasification sitesafely removedand treated

Intermediate Result: Environmental and Social Baseline Data Available for the ESIA

Intermediate Environm EnvironmResult Indicator ental and ental andSix: Indicator .Social SocialQurel PM M PEnvironmental not part of No data baseline baseline Quarterly Quarterlyand Social original available dataReportsbaseline data project available availableavailable for for ESIA for ESIAESIA

Intermediate Result: Low carbon growth strategy

Low LowIntermediate carbon carbonResult Indicator Indicator No growth growthSeven: Low not part of strategy strategy Quarterly PMUMESP

cabo gowhText orgnl strategy Quarterly PMU-MESPcarbon growth original prepared prepared reportsstrategy prepared project and andand disseminated dissemina dissemina

ted ted

21

Annex 2-Operational Risk Assessment Framework (ORAF)

Kosovo: Additional Finance (P131539) to the Clean-up and Land Reclamation Project (P096181)

Stage: Board

1.1. Stakeholder Risk Rating Low

Description: Risk Management:

Fragmentation of responsibilities and institutional complexity may Institutional responsibility for the implementation of the different components under the Additionaladversely affect decision making, slow down project Financing has been clearly defined and the activities financed under the Project follow theimplementation institutional mandates within Kosovo.

Resp: Stage: Both Due Date: Status:Both

3.1. Capacity Rating Substantial


(a) Project Management Capacity Risk for KEK. At the (a) Through successful implementation of CLRP, KEK has obtained substantial experience withbeginning of CLRP, KEK lacked experience in good practice implementing good international practice of clean-up and land reclamation activities and willclean-up and land reclamation activities. continue to use this experience in the completion of activities under the Project. For the component

which is related to the removal of hazardous chemicals from the gasification site and which is thesubject of the AF, an international supervision engineer will supervise and oversee the treatment andremoval of hazardous waste.

(b) Project Management Capacity Risk for MESP.(b) As MESP has no previous experience with implementation of World Bank projects, they willrecruit procurement and financial management consultants with adequate experience. The Bank willprovide training to MESP staff on the Bank's procurement guidelines, and Financial Management.

(c) Having two PMUs with separate FM and ProcurementSpecialists may create a situation where there will not be clear (c) The existing CLRP PMU with experienced staff will be responsible for the components which areroles and responsibilities for each staff. implemented by KEK. MESP will establish a separate PMU for the activities to be implemented by

MESP. Full Financial Management implementation responsibilities will be transferred from KEK toMESP in the course of 2013 after all chemicals have been removed from the gasification site andmajority of activities in KEK have been completed.

Resp: Client Stage: Implementat Due Date: Status: In Progression

3.2. Governance Rating Moderate


Changes in the government agenda or sector priorities leads to a The Energy Strategy of Kosovo was approved by the Assembly in 2010, confirming the high priority

22

lessening of government support and ownership for the energy this has for the government.sector

Resp: Client Stage: Preparation Due Date: Status: Not Yet Due

4.1. Design Rating Moderate


Risk that the activities as foreseen under the Additional Finance The proposed Additional Financing has a wide scope of activities; however the additional activitiesfor the Clean-up and Land Reclamation Project will not be under component E are just an increase ofthe quantities as the type ofmaterials are the same asimplemented as designed. Other activities under the Project are under the original project. The same techniques will be used and the removal of additional hazardousalready in advanced stage of implementation and Project waste materials from the gasification site and the construction supervision thereof in line with theDevelopment Indicators have already been met, thus reducing Basel Convention.remaining design risks.

With regard to the activities foreseen under component F, there are strong incentives from theRecipient to implement as designed as component F follows the existing institutional mandate of theMinistry of Environment and Spatial Planning.

Resp: Client Stage: Implementati Due Date: Status: Not Yet Dueon

4.2. Social and Environmental Rating Moderate


Environment EnvironmentalFailure by Ministry of Environment and Spatial Planning (MESP) The ESIA and EMP for the proposed KPP will be prepared rigorously, with adequate periodicto prepare the ESIA in line with Kosovar legislation, World Bank consultations and close supervision by the Bank team as well as an independent Panel of Expertspolicies and EC Directives (PoE).

The ESIA will assess the environmental and social impacts of the The ESIA PoE and Bank team will oversee the public consultations. The ESIA will provide anproposed Kosovo Power Project, including scale, locations and overview of the available environmental and social baseline data, applicable standards, emission limitphasing of the new mine and the assessment process and results values and Best Available Techniques as required under EU Directives applicable to coal fired powercan be questioned and criticized in the public. plants and Mine Reclamation practices which will allow for a transparent process where impacts and

mitigation measures are discussed in detail and ensure that all environmental impacts are taken intoconsideration in the decision making process and that the public has been properly consulted andmitigation measures and monitoring identified and agreed.

In addition a separate Trust Fund will include a capacity building component for MESP (e.g.,strengthening skills for reviewing and managing different ESIAs for energy and mining projects).

Failure by KEK to implement the hazardous chemical removal in An international supervising engineer will be contracted to ensure that the hazardous chemicalline with the agreed Environmental Management Plan. removal is done in line with Kosovar legislation, the approved Environmental Management Plan and

international good practices as well as the Basel Convention. In addition, KEK is supervising theactivity closely together with the Ministry of Environment and Spatial Planning.

Risks of underground phenol contamination Phenol contamination was found during the detail design stage of implementation where some partsof the Kosovo A ash heaps were found to be contaminated with substantial quantities of hazardouswaste (phenol and liquid waste by-products) from the former gasification plant. Investigations

23

however also showed that the ash dump itself provided a reliable barrier against infiltration thereforepreventing further contamination of the underground and ground water systems. The project wassubsequently restructured such that the project's approach to deal with the environmental impacts ofthe ash dump of the Kosovo A power plant was shifted from full removal of the ash dump to in-situremediation of the ash dump site that included reshaping, coverage and some partial removal

Social SocialThe proposed AF supports the monitoring of the implementation of The activities under the AF are designed to finance a monitoring contract for the implementation ofthe Resettlement Action Plan (RAP) for the Shala neighborhood of the resettlement of the Shala neighborhood of the Hade village to be implemented in compliance withHade village to properly address resettlement issues. Accordingly, the RAP which has been prepared, based on the approved Resettlement Policy Framework. The Hadethis would have a beneficial impact. If, however, the RAP is Project office under the Ministry of Environment and Spatial Planning has the responsibility forimplemented poorly, the negative impact would pose a reputational resettlement implementation consistent with Bank OP 4.12. The monitoring contract for the RAPrisk for the institutions involved. implementation is only aimed at providing an extra level of oversight and support. In addition, the

office will further be assisted through the Panel of Experts, which includes one environmentalspecialist and one social specialist and which is also paid by the AF. Lastly, the Bank teams for boththe AF for the CLRP as well as the proposed KPP will closely supervise the implementation of theRAP for the Shala neighborhood. The monitoring contract will not cover the people displaced in2004 from Hade village, which was carried out by UNMIK, though the Bank will provide theGovernment with technical advice and use its good offices to encourage the Government to engagethe resettled households to resolve outstanding issues.

Resp: Both Stage: Implementati Due Date: Status: Not Yet Dueon

4.3. Program and Donor Rating High


As this is now an IDA credit rather than an IDA-Grant, the The proposed Additional Financing covers physical clean-up activities which are a continuation ofAdditional Financing needs to be approved by Parliament in order activities already successfully and visibly being implemented at this time being complemented by ato become effective. Re-opening of the KRPP debate in parliament component to improve the review and monitoring function of the Ministry of Environment anddue to the new component F might cause delays for ratification. Spatial Planning in relation to the environmental and social implications of large power plant such as

the KPP and prepare an ESIA in line with World Bank policies to inform the decision makingprocess, including the Bank's decision on a possible partial risk guarantee.

KEK has fulfilled its obligations related to required staff and equipment requirements for ProjectContributions of KEK related to required staff and equipment to implementation and those components for which significant KEK resources were required haveimplement the Project. already met their Development Objective Indicators.

Resp: Both Stage: Due Date: Status: Not yet duePreparation

4.4. Delivery Monitoring and Sustainability Rating Moderate


There is a risk that the PMU at MESP will have difficulties to The project has a limited number of remaining activities and new activities to be funded under themanage and implement the project milestones at the satisfactory AF. In addition, a separate trust fund would include funding for training of PMU staff and funding oflevel. short-term experts to advice and support implementation of project activities. The Bank team will

24

also closely supervise and support the activities.

Risks related to sustainability of clean-up operations implemented Clean-up operations for the Ash Dump Remediation and overburden dump remediation would notby KEK. need maintenance after the works are completed, Regarding the hazardous chemical removal at the

gasification site; as all the materials will have been removed and treated, no further maintenancewould be required either. The wet ash hydraulic ash system will require normal maintenance but isintegrated in and attached to KEK's electricity production.

Resp: Both Stage: Implementati Due Date: Status: Not Yet Dueon

4.5. Other Rating Moderate


Premature spilling risk: The original risk for the CLRP was as All hazardous materials have already been safely removed from the storage tanks and stored infollows: "Given the lack of precise information regarding the Intermediate Bulk Containers (IBC) and bags. This has reduced the risk of a major spill; the vastremaining lifetime of the storage tanks, there is a risk the tanks majority of IBCs have already been safely transported and disposed abroad and only solid waste iscould deteriorate further and chemical spills could occur before the still left at the site which does not carry the risk of spillages.Bank financed containment and removal activities begin. Healthand safety regulations to be implemented by KEK are currently Health and Safety regulations which have been prepared and which are supervised by an internationalbeing prepared and will be ready well in advance of the start of the supervising engineer will remain in place.clean-up works"

Resp: Client Stage: Both Due Date: Status: In progress

4.6. Other Rating High


Component F is linked to Kosovo Power Project and therefore 1. The project team maintains regular contact with the leading local CSOs. Meetings withchallenges by NGOs/CSOs that oppose coal-fired power plants intemational CSOs are also planned as part of the connunications plan.over the Environmental and Social Impact assessment and the 2. Component F contains the preparation of the Environmental and Social ImpactBank's involvement in possible support for coal projects could Assessment of the Kosovo Power Project and these activities are directly related to the institutionalpose a reputational risk. mandate of the Ministry of Environment and Spatial Planning in the area of energy and mining sector

monitoring and regulations. This ESIA, as financed under the CLRP AF, has as the objective toinform the decision-making process of the proposed investment, including the Bank's decision on thepossible partial risk guarantee for the proposed KPP, and to increase the monitoring and managementcapacity of the MESP and is not intended to serve as the document to inform national permitting andother authorization, which would be prepared later by the winning investor, if selected. Thedistinction between these different documents and processes will be clearly explained throughout theprocess.3. The Bank team will provide close supervision of the preparation of the Environment andSocial Impact Assessment.

Resp: Both Stage: Both Due Date: Status:

25

Preparation Risk Rating: High Implementation Risk Rating: Substantial

Comments: Given the nature of the capacity, country, social, environmental risksand program and donor risks, the overall risk rating during implementation is

Comments: Given the nature of the stakeholder, country and social and considered substantial as, while there is a high reputational risk, the risks of theenvironmental risks, the overall rating is considered high. project not achieving its development objectives are lower during implementation

compared to preparation.

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Annex 3: Procurement Arrangements and Summary of Procurement PlanKosovo: Energy Sector Clean-up and Land Reclamation Project

A procurement capacity assessment of the KEK to undertake necessary procurement actionsunder the AF was conducted using the web-based Procurement Risk Assessment ManagementSystem (P-RAMS). At the project level, the KEK has acquired procurement experience underthe Original Project thus far, thus the same arrangements will be used, as in the Original Projectin regard to components managed by KEK (i.e. C. Reclamation of overburden dump area; E.Removal of hazardous chemicals from gasification site; and partially D. Project management).The new component (F) for Environment sector capacity development will be managed byMESP, for which a separate PMU for implementation of this component will be established.

The following mitigation measures have been agreed upon: (a) the MESP will start earlier withprocedures for staffing of the MESP-PMU, so to make sure qualified coordinator, procurement,and financial management are selected and hired under the Trust Fund from the Government ofthe Netherlands which will become effective earlier; (b) the Bank will continue to conduct priorreviews of almost all contracts; (c) the Bank's procurement specialists will conduct regular andneed-based training in Bank's procurement policies and procedures, especially for the MESP-PMU staff; (d) regular support, guidance, and supervision by the Bank's procurement specialistduring project supervision; and (e) a procurement plan covering the first 18 months of the projectimplementation has been prepared and will be discussed and approved by the Bank.

Procurement Risk and Mitigation Measures: The overall project risk for procurement is highbefore mitigation measures, and with the agreed mitigation measures described above, theresidual risk for procurement is judged to be substantial. The table below summarizes the projectprocurement risks, the mitigation measures proposed and the oversight and monitoringarrangements for procurement.

Procurement Risk and Mitigation Measures

Procurement Risks Mitigation Measures Mitigation Measures Mitigation Measuresduring Preparation by Effectiveness during

ImplementationThe MESP does not The MESP will start By effectiveness, a fully Regular and ad-hochave a PMU staffed yet, hiring process of the qualified PMU should training in the Bank'which may create delays procurement, financial be in place procurement policiesin implementation of the management, and procedures by therespective project coordinator and Bank's Procurementcomponent. Lack of technical experts from Specialist (PS). Projectcapacity in the Trust Fund of the coordinator andprocurement, financial Government of the procurement officers ofmanagement and Netherlands, to ensure MESP to attendcoordination and PMU includes qualified procurement trainingtechnical side for staff. offered.implementation ofMESP component.Both implementing Prepare draft Update the detailed Implementation of theagencies might have procurement plan. procurement plan for procurement plan will

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deficiencies in the first 18 months of be closely monitored byprocurement planning the Project. the Bank's task team.process. Regular support,

guidance, supervisionby the Bank'sprocurement specialistsduring the projectimplementation.

Procurement Plan The procurement plan for project implementation has been prepared and issummarized below; this will be updated annually. The procurement plan will be published inBank's external website.

Goods/Works/Technical Services

Description Procurement Domestic Review CommentsMethod Preference by Bank

(yes/no) (Prior/Post)Removal of remainder tar deposit Existingand of additional tar sludge DC No Prior Contract

extensionTREPCA pump repair and otherrelated costs (electrical, control, ICB No Priorsystem, repair); Equipment for airmonitoringServices for soil and watermonitoring program ICB No PriorAdditional tree planting inoverburden areas SH No Prior/Post

International Competitive Bidding (in accordance with section 2 of the Guidelines)C For works contracts valued at or more than > US$500,000

For goods and technical services contracts valued at or more than > US$100,000

NCB =JNational Competitive Bidding (in accordance with section 3.3 of the Guidelines)For works contracts valued less than < US$500,000For goods and technical services: < US$200,000

LIB= Limited International Bidding (in accordance with section 3.2 of the Guidelines)

DC= Direct Contracting (in accordance with section 3.6 of the Guidelines)

SH Shopping (in accordance with section 3.5 of the Guidelines)For works, goods and technical services contracts valued at or less than < US$100,000.

INo Domestic Preference will apply.

Prior reviewFor Works contracts: All ICB contracts. First two contracts for NCB s regardless of value ofcontract.

For Goods contracts: All ICB contracts. First two contracts for NCB s regardless of value ofcontract.

Shopping: First two contracts

Direct Contracting: All

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Consultancy Services

Description of Assignment Selection Review CommentsMethod by Bank

(Prior/Post)Contracts to be procured with QCBS method:(i) EISA KPP, (ii) monitoring, registration and QCBS Priormanagement of environmental data, (iii) Lowcarbon growth strategyProject audit LCS/CQ Prior

Summary of number of contracts that will be letunder IC/SS method: IC/SS Prior/Post(i) short term experts, (ii) panel of experts, (iii)MESP-PMU staff; (iv) contract amendment forSPN engineer, (v) monitoring RAPimplementation, (vi) KEK-PMU staff (director,technical, procurement)

Legend2

Q Quality and Cost-based Selection (in accordance with sections 2.1 - 2.28 of the Consultant'sQ Guidelines)

QBS=Quality Based Selection (in accordance with section 3.2 the Consultant's Guidelines)

FBSFixed Budget Selection (in accordance with section 3.5 the Consultant's Guidelines)

CQ= Consultants Qualifications (in accordance with section 3.7 of the Consultant's Guidelines) contractsvalued at or less than < US$200,000

LCS = Least-Cost Selection (in accordance with section 3.6 of the Consultant's Guidelines)

S Leso-rC Selection (in accordance with section 3.8 of the Consultant's Guidelines)SS=Single source Selection (in accordance with section 3.8 of the Consultant's Guidelines)

IC=I Individual Consultant (in accordance with section V of the Consultant's Guidelines)

Prior ReviewlFor firms: All contracts equal to USD 50,000 or more. All SSS contracts.

For individual consultants: All contracts equal to USD 25,000 equivalent or more. All SSScontracts and all TORs.

Post review and Frequency of Procurement Supervision In addition to the prior review,implementation support mission to be carried out by the Bank team, for both KEK and MESPinstitutions, during post review missions at least one in five (20 percent) of the contracts will besubject to post review during the review period. Implementation support reports will include thefindings of the Bank's team in its post review. It is expected that an implementation supportmission in the field will be conducted once a year during which post reviews will be conducted.

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Annex 4: Implementation Support PlanKosovo: Energy Sector Clean-up and Land Reclamation Project

Implementation Support StrategyThe Bank's implementation support strategy for the project reflects the key implementation risks

identified in the ORAF. Regarding the clean-up and land reclamation activities to be

implemented by KEK, the additional financing will provide additional funds to contracts for the

removal and disposal and the accompanying supervising engineer which were already in place as

part of the original contract and for which contract amendments will be concluded for the

additional found quantities. The new Component F will be implemented by the Ministry of

Environment and Spatial Planning which is a new Implementing Agency. Therefore, experienced

procurement and financial management consultants have been identified for the MESP-PMU

who will ensure that the PMU will meet the minimum requirements from procurement and

financial management point of view. These arrangements are deemed to be suitable from

fiduciary point of view by the Bank. The Bank will continue to provide assistance during project

implementation. The team will require technical specialists on air monitoring and modeling and

mitigation measures as required by the Industrial Emissions Directive applicable to coal fired

power plants as well as experience in maintenance of forest plantations. The plan set out below

details the needed resources.

Implementation Support PlanThe Bank's implementation support plan consists of scheduled supervision and monitoring

missions, site visits to project areas and fiduciary compliance reviews. Guidance and

recommendations will, as appropriate, take into account the findings of independent consultants

engaged under the project. Critical technical experts will be retained as required during

implementation to review and provide recommendations on the environmental baseline data to

be collected for the ESIA, the results of the air monitoring and modeling as part of the ESIA as

well as the ESIA itself. The Bank team will ensure timely, efficient and effective implementation

support to the client. Ongoing on demand support will be provided by the Pristina office-based

members of the task team and Washington office. The table below summarizes the skills needed

for implementation support during the various stages of project implementation.

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Time Focus Skills Needed Resource PartnerEstimate Role

First twelve Review of the RfP for the ESIA Environmental 1 SWmonths and the procurement process for Specialist

ESIA consultantReview of the air monitoring data Air Modeling and 2 SWsand air modeling of the ESIA Monitoring SpecialistCapacity Building or Training of Procurement Spec 2 SW eachPMU (Procurement/FM, etc FM Specialisttraining)Review of RAP implementation Social Safeguard 2 SWs

SpecialistReview of preparation of Environmental 2 SWs eachEnvironmental and Social Impact SpecialistAssessment, including Social DevelopmentEnvironmental and Social SpecialistSafeguardsReview of hazardous chemical Environmental 2 SWsremoval and disposal, including SpecialistEnvironmental SafeguardsReview of seedlings planting and Forestry Specialist 0.5 SWmaintenanceReview of communications and Communication 2 SWscommunication strategy SpecialistTask Team Management TTL 10 SWs

12-24 Overall monitoring of project Environmental 2 SWs eachmonths activities and conduct technical (Safeguard) Specialist

audits for any refinements that may and Social (Safeguard)be needed, including Environment Specialistand Social SafeguardsReview of communications and Communication 2 SWscommunication strategy SpecialistFM management, disbursement and FM Specialist, 1 SWs eachprocurement Procurement Specialist I I

I Task Team Management TTL 8 SWs I

Skills Mix RequiredSkills Needed Number of Staff Number of Comments

Weeks TripsEnvironment Specialist 7 SWs 3Social Safeguards Specialist 6 SWs 4FM Specialist 3 SWs 4Procurement Specialist 2 SWs 4Air Modeling and Monitoring 1 SWSpecialist

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Communication Specialist 2 SWsTTL 18 SWs 6

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Documents

World Bank Documentdocuments.worldbank.org/curated/en/641991468046128110/... · 2016-07-13 · Schedule 2, section I. D. 4 implementation of the Resettlement Action Plan and shall