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Project Name
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Region Sector Project ID Borrower(s) Implementing Agency Environment Category Safeguard Classification Date PID Prepared Date of Appraisal Authorization Date of Grant Signature

South Asia SASSD P103979 Grant to Government of Nepal Alternative Energy Promotion Center [] A [X ] B [ ] C [ ] FI [ ] TBD []S1 [X ] S2 [ ] S3 [ ] SF [ ] TBD December 15, 2006 TBD TBD

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1. Country and Sector Background
Nepal faces significant development challenges, particularly in rural areas. Eighty-two percent of Nepal’s 26 million people live in rural areas where access to basic services is limited. For instance, it is estimated that only 27 percent of rural households have access to electricity while the majority of the rural population still relies on traditional biomass to meet household energy needs. Over 75 percent of household energy demand is met through combustion of firewood and 20 percent is met from combustion of agriculture residues and dung. The lack of access to modern fuels in rural areas and consequent use of biomass as fuel has several important social and environmental consequences. Cooking with biomass fuel in traditional stoves results in high levels of indoor air pollution (IAP), which is a leading cause of illness and premature death for women, young children and infants. The time spent for collection of firewood and other biomass for cooking creates a social burden on the majority of rural women and children, as this is time that cannot be spent on beneficial social or income generating activities. Nepal’s energy policy as presented in the 10th Five-Year Plan of the National Planning Commission (NPC) outlines the need for strong expansion in renewable energy, especially in the rural areas, and has made the energy sector a focal point of development. This development is linked to poverty alleviation and conservation of nature, in particular the forest reserves and control of soil erosion. Within this plan, the expansion of biogas in rural areas holds an important place. The Government of Nepal (GoN) has been providing support for a biogas program with bilateral assistance from the Netherlands and Germany since 1992. The program provides subsidy support through a public-private partnership to promote use of biogas for cooking and (to a much lesser extent) lighting in rural areas, and has supported the installation of over 150,000 biogas reactors to date. Operated under the aegis of the Alternative Energy Promotion Centre (AEPC) through the Ministry of Environment, Science

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4. sector coordination. Biogas reactors reduce greenhouse gas (GHG) emissions by displacing conventional fuel sources for cooking and through the introduction of alternative methods of disposal of animal waste. a local NGO. The program provides subsidy support of approximately 30% of the capital cost of the biogas reactor to participants who then contract installation to private sector providers. social inclusion and regional balance issues and at the same time ensuring enhanced commercialization and sustainability of the sector. research. c) support additional renewable energy projects benefiting the rural areas of Nepal.000 tons of carbon emissions reductions generated from a selected number of the biogas reactors installed under Phase IV of the program. Objectives The objective of this grant project is to expand financial support to the Nepal Biogas Program to increase access to more modern energy sources in the rural and peri-urban areas of Nepal through the use of an Output-Based Aid (OBA) approach. bilateral grants from Netherlands DGIS. 3. while better addressing poverty. 2. and. changes in the CDM regulations governing calculation of emissions from biomass has prevented the sale of additional CERs under this program. and have access to a sufficient amount of water. saves large amounts of agriculture residue and dried dung cakes which were previously burned. Credit availability for the farmers’ investment 2 . training and quality control. Furthermore. and produces quality organic fertilizer (after composting) as a by-product. particularly through its provision of support for the development of the rural economy and by increasing access to more modern energy sources. product development. putting future program sustainability at risk due to the continued reliance on outside grant assistance for future program implementation. The World Bank Community Development Carbon Fund signed an Emissions Reduction Purchase Agreement (ERPA) with AEPC in 2006 to purchase 1. b) fund future phases of the biogas program. performs core implementation functions in the field of subsidy administration. However. and proceeds from the sale of carbon credits to the CDCF. Rationale for Bank Involvement The project is consistent with the Country Assistance Strategy (CAS) for Nepal and supports the PRSP. The target group for the BSP Program are farming families who own at least one bovine. It is estimated that each biogas reactor installed saves each household about 450 kg of firewood and 6 litres of kerosene per cubic meter (m3) plant size each year. It was agreed that the proceeds from this sale would be used to: a) ensure full implementation of Phase IV. have land to build the biogas plant on. The World Bank Global Partnership for Output Based Aid (GPOBA) has received a request from the Government of Nepal for consideration of a GPOBA-supported program providing grant support for expansion of the Nepal Biogas Program.000. the use of biogas for cooking significantly reduces indoor air pollution (IAP) levels. The Biogas Sector Partnership-Nepal (BSP-Nepal). Description The overall objective of the BSP-IV is to further develop and disseminate biogas plants as a mainstream renewable energy solution in Nepal.and Technology (MOEST). with advisory assistance provided by SNV-Nepal (Netherlands Development Organisation). and Germany’s KfW. the biogas program is currently implemented by the Biogas Sector Partnership Nepal (BSP-Nepal). The capital cost subsidy is currently funded by a combination of GoN budget contribution.

Reduction in deforestation. etc Sponsor’s plant investment Source: Government of Nepal Participant Contribution from equity and loans KFW DGIS Carbon Finance GPOBA Total ($m.0 81.9 1. Time savings due to a reduced need for gathering fuel wood. Success will be measured by the increase in numbers of biogas plants meeting the project’s quality criteria. or reduced expenditure for commercial fertilizers. BSP program implementation. particularly fuel wood and kerosene. particularly the prevention of increase of soil erosion.6 55.5 9. inundations and other catastrophic events. The particular objective of this GPOBA grant is to increase the number of households using biogas plants. Financing The cost of BSP-IV stands as follows: Project Cost Program Cost Installation Costs TOTAL US$ Million 26.1 4. This should result in: ƒ ƒ ƒ ƒ ƒ ƒ Economic savings due to a reduced expenditure on cooking and lighting fuels.9 Project Component Program Development cost including AEPC subsidy.4 55. Improved soil fertility resulting from the use of bio-slurry as a fertilizer. technical assistance.contribution is being made available through a complementary KfW revolving fund scheme through the Agricultural Development Bank of Nepal.) 5.300 plants. number of plants) up to a target of 37. decrease in cooking time and other factors. GPOBA will make a payment to AEPC of $134 per verified output delivered (i. The GPOBA output report also contains indicators measuring the success of attaining the additional benefits outlined above.9 3 .8 5. Improved indoor air quality resulting in reduced respiratory diseases and infant mortality. and additional outreach by BSP is underway to other MFIs active in the target areas to increase rural access to credit.e. 5. resulting in a better quality of the environment.5 81. Improved sanitary conditions and decrease in related illnesses due to the connection of latrines to biogas plants.

AEPC is responsible for channeling the capital subsidy to the biogas companies after receiving the completion reports and recommendations for disbursement from BSP. GPOBA will demonstrate and document OBA methods of supporting the sustainable delivery of basic services (water. quality control and supervision for after sales service support. United Kingdom's Department for International Development (DFID) and the World Bank established the Global Partnership on Output-Based Aid (GPOBA) as a multi-donor trust fund administered by the World Bank. AEPC is also responsible for the overall monitoring of the Program activities. the GPOBA agreement will largely replicate this existing institutional arrangement by signing the grant agreement with APEC and having BSP responsibilities covered in an addendum MOU. electricity. This donor support is sufficient to meet the lower bound target of 135. The objective of AEPC is to popularize and promote the use of renewable energy technology to raise living standards in rural areas. sanitation. business development support to the private sector biogas construction companies. coordination of outreach and social marketing through NGOs. SNV (with funding from DGIS) has entered into agreements with HMGN to provide TA support to BSP and will provide 8% of the total subsidy amount needed for capital cost buy-down.Implementation The Project will be implemented by the Alternative Energy Promotion Center (AEPC) with program support provided by BSP-Nepal. and facilitating the implementation of the policies/ plans. transportation. but will not allow for implementation of the upper bound target of 200. Acting as an intermediary institution between the operational level NGOs/ private promoters of renewable energy and the policy deciding levels in relevant ministries. BSP also provides technical assistance in R&D on biogas reactor design.000 new units to be installed under the fourth phase of the program.000. As this structure has worked well through the earlier phases of the BSP program. to protect the environment and to develop commercially viable alternative energy industries in the country. AEPC was set up to promote the use of renewable energy technologies to meet the energy needs in rural areas of Nepal. and provides yearly reports on the progress of the subsidy disbursement. AEPC’s activities include renewable energy policy formulation and planning. Established in 1996 by a Government Cabinet Order. A tripartite agreement has been signed by the Netherlands Government through SNV-Nepal. BSP is responsible for the implementation of the Program. which it is projected to be. Carbon Finance revenues generated through the sale of emissions reductions will be 4 . Science and Technology (MOEST). health and education) to those least able to afford them and to those currently without access. telecommunications. The proceeds from the GPOBA grant will complement the ongoing biogas activities supported by SNV and KfW. the AEPC and BSP-Nepal to govern the implementation of Phase IV of the Biogas Program. It will also not be sufficient if the costs of extending the program to more remote users are higher than projected. BSP provides monthly financial reports and half yearly progress reports to AEPC and SNV/Nepal. It provides its recommendation of approval to AEPC to release payment of the per-plant subsidy to the biogas companies based upon BSP verification of plant installation. and follow-up monitoring and verification activities. The goal of GPOBA is to provide increased access to reliable basic infrastructure and social services to the poor in developing countries through the wider use of OBA approaches. the institution has an autonomous status under the purview of Ministry of Environment. KfW will provide up to 70% of the resources required to fund the subsidy commitment. subsidy administration. Partnership arrangements The AEPC is devoted to the development and promotion of renewable and alternative energy technologies in Nepal.

The GPOBA grant seeks to increase program sustainability through mobilization of additional resources to fund future subsidy payments and program operation above and beyond the amount currently provided to the AEPC through sale of ERs under the CDM. and special programs designed to increase penetration of the technology in more remote areas have been incorporated into the current AEPC/BSP business plan for Phase IV. The program. A monitoring and verification plan for the community benefits of the program has been agreed to under the CDCF purchase. and the new funds will be used for expanding program implementation. quality control. 7. No significant adverse environmental impacts are anticipated from program implementation. by reducing demand on forest wood for fuel also directly contributes to the conservation of local environmental resources. BSP is taking specific actions to mitigate this risk as presented in the Environmental Management and Mitigation Plan agreed to under the Carbon Offset project. the study confirms the presence of other pathogens.used to help ensure that resources are available to fully meet BSP-IV targets and to fund activities under the next phase of the program. preparation of financial monitoring reports. However. M&E of community benefit aspect. GPOBA funds will reimburse AEPC for grants disbursed to the Biogas companies under the current program. This information will feed into the reporting format of the GPOBA. low income levels of potential participants. A review of relevant BSP documents shows that the safeguards measures prescribed under the OD-4. The presence of pathogens in the liquid slurry and slurry compost has been studied. Sustainability The continued provision of a certain level of subsidy is required to ensure continued installation of biogas units in Nepal. 6. 5.20 (Indigenous People) are incorporated in the Annual Plan. outreach and marketing support. and reduction of emissions of greenhouse gasses. reduction of indoor air pollution. While it has been possible to reduce this level of subsidy since program inception. and preparation of audited project accounts as currently required under BSP IV. and additional verification of new plant operations as required under the GPOBA grant agreement. Monitoring and evaluation of outcomes/results Monitoring and evaluation will be undertaken through two mechanisms: the World Bank supervision of the ongoing ERPA and independent verification under the CDM process. Specific lessons concerning establishment of subsidy levels. will prevent widespread adoption of biogas reactors in Nepal without some level of financial assistance. particularly in the more remote areas. Strategy and Implementation Procedures 5 . Environmental Issues and Safeguard Policies The Biogas Program has direct positive contributions towards meeting the energy needs of rural Nepal. confirming the absence of any potentially fatal bacteria like Salmonella typhi and Vibrio cholarae -01 in all the samples of digested liquid slurry and slurry compost irrespective of whether the BG plants are connected to latrines or not. 8. Lessons Learned from Past Operations in the Country/Sector The proposed grant incorporates lessons learned through the implementation of the Nepal Biogas Carbon Offset project and from implementation of the first three phases of the Biogas Program. AEPC will be accountable for overall reporting on implementation progress.

July 2006. BSP.adopted by BSP. December 17. May 2005. Environmental Management and Mitigation Plan. the Netherlands Development Organisation. Final Report on Mosquito Breeding Research. D. 10. BSP. For more information contact: The Info Shop The World Bank 1818 H Street. March 2004. NW Washington. Gopi Krishna Sedhain. BSP. Contact point Bilal H. March 6 . 202-458-7853. such as increased outreach and partnering with local organizations are currently included in the BSP Action Plan.04) Pest Management (OP 4. March 2005. 2005. Safeguard Policies Triggered by the Project Environmental Assessment (OP/BP/GP 4.11) Involuntary Resettlement (OP/BP 4. BioSlurry Pathogen Study.50) 9. Integrated Environmental Impact Assessment. May 2005.03.60) Projects on International Waterways (OP/BP/GP 7. Rahill. being revised as OP 4. Dr. BSP-Nepal.01) Natural Habitats (OP/BP 4. Biogas User’s Survey 2005/2005. 2003. BSP. being revised as OP 4. Lead Environmental 11. BSP-Nepal. Working Agreement Between Biogas Sector Partnership-Nepal (BSP-Nepal).36) Safety of Dams (OP/BP 4. and will be further developed during the implementation of Phase IV of the program. brahill@worldbank. Social Consultations Related to Phase IV of the Nepal Biogas Support Program. March. 2003 Nepal Biogas Sector Partnership PDD.37) Projects in Disputed Areas (OP/BP/GP 7. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.12) Indigenous Peoples (OD 4.09) Cultural Property (OPN 11.10) Forests (OP/BP 4. (SNV/N) and Alternative Energy Promotion Centre (AEPC) Concerning Implementation of the Biogas Programme Phase IV. additional measures are necessary to increase the participation of the recognized Indigenous/Tribal Groups and other Minority Ethnic Groups in the Biogas Support Program. While no supplemental plan is required. List of Factual Technical Documents Yes [X] [ ] [ ] [ ] [ ] [X] [ ] [ ] [ ] [ ] No [ ] [X] [X] [X] [X] [ ] [X] [X] [X] [ X] Final Report on Biogas Programme Phase III. These measures.

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