Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD2623 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 69.6 MILLION (US$100 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF PAKISTAN FOR A SINDH SOLAR ENERGY PROJECT MAY 23, 2018 Energy & Extractives Global Practice South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. i CURRENCY EQUIVALENTS (Exchange Rate Effective Apr 30, 2018) Currency Unit = Pakistan Rupees (PKR) PKR115.77 = US$1 US$1.438 = SDR1 FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS AEDB Alternative Energy Development Board AG Accountant General AGP Auditor General of Pakistan CAPEX Capital expenditure CGA Controller General of Account CPPA Central Power Purchase Agency CO2 Carbon dioxide CPS Country Partnership Strategy DA Designated account DFI Development finance institution DISCO Distribution company EIRR Economic internal rate of return ENPV Economic net present value EPA Energy purchase agreement EPC Engineering, procurement, and construction ERR Economic rate of return ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan FABS Financial Accounting and Budgeting System FHH(s) Female headed household(s) FIRR Financial internal rate of return FM Financial management GCF Green Climate Fund GDP Gross domestic product GENCO Generation company GHG Greenhouse gas GoS Government of Sindh HFO Heavy fuel oil ii ICT Information and communication technology IDA International Development Association IFC International Finance Cooperation NDC Nationally Determined Contribution IPP Independent power producer IRR Internal rate of return IUFR Interim Unaudited Financial Report LNG Liquefied natural gas M&E Monitoring and evaluation MDB Multilateral development bank MTF Multi-Tier Framework NEPRA National Electric Power Regulatory Authority NPV Net present value NTDC National Transmission and Despatch Company O&M Operation and maintenance OPEX Operating expense PDO Program Development Objectives PMU Project management unit PPA Power purchase agreement PV Photovoltaic RAP Resettlement Action Plan RPF Resettlement Policy Framework SED Sindh Energy Department SHS Solar home system SPV Special-purpose vehicle SREC Sindh Renewable Energy Company SSEP Sindh Solar Energy Project SSP Solar service provider WAPDA Water and Power Development Authority WB(G) World Bank (Group) All dollar amounts are U.S. dollars (US$) unless otherwise indicated Acting Regional Vice President: Ethel Sennhauser Country Director: Patchamuthu Illangovan Senior Global Practice Director: Riccardo Puliti Practice Manager: Demetrios Papathanasiou Task Team Leader(s): Oliver Knight, Anjum Ahmad iii The World Bank Sindh Solar Energy Project (P159712) BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Pakistan Sindh Solar Energy Project Project ID Financing Instrument Environmental Assessment Category Investment Project P159712 B-Partial Assessment Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Approval Date Expected Closing Date 14-Jun-2018 29-Sep-2023 Bank/IFC Collaboration Joint Level Yes Complementary or Interdependent project requiring active coordination Proposed Development Objective(s) The Development Objective is to increase solar power generation and access to electricity in Sindh Province. Components iv The World Bank Sindh Solar Energy Project (P159712) Component Name Cost (US$, millions) Component 1: Utility-Scale Solar 40.00 Component 2: Distributed Solar 25.00 Component 3: Solar Home Systems 30.00 Component 4: Capacity Building and Technical Assistance 5.00 PMU Costs 5.00 Organizations Borrower: Islamic Republic of Pakistan Implementing Agency: Energy Department - Government of Sindh PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 105.00 Total Financing 105.00 of which IBRD/IDA 100.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 100.00 IDA Credit 100.00 Non-World Bank Group Financing Counterpart Funding 5.00 Borrowing Agency 5.00 v The World Bank Sindh Solar Energy Project (P159712) IDA Resources (in US$, Millions) Credit Amount Grant Amount Total Amount National PBA 100.00 0.00 100.00 Total 100.00 0.00 100.00 Expected Disbursements (in US$, Millions) WB Fiscal Year 2018 2019 2020 2021 2022 2023 2024 Annual 0.00 3.80 15.00 28.64 35.25 17.00 0.31 Cumulative 0.00 3.80 18.80 47.44 82.69 99.69 100.00 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Energy & Extractives Climate Change Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of Yes country gaps identified through SCD and CPF b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or Yes men's empowerment c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) vi The World Bank Sindh Solar Energy Project (P159712) Risk Category Rating 1. Political and Governance  Moderate 2. Macroeconomic  Moderate 3. Sector Strategies and Policies  Moderate 4. Technical Design of Project or Program  Moderate 5. Institutional Capacity for Implementation and Sustainability  Moderate 6. Fiduciary  Substantial 7. Environment and Social  Moderate 8. Stakeholders  Moderate 9. Other 10. Overall  Moderate COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓ ] No Does the project require any waivers of Bank policies? [ ] Yes [✓ ] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✔ Performance Standards for Private Sector Activities OP/BP 4.03 ✔ Natural Habitats OP/BP 4.04 ✔ Forests OP/BP 4.36 ✔ Pest Management OP 4.09 ✔ Physical Cultural Resources OP/BP 4.11 ✔ vii The World Bank Sindh Solar Energy Project (P159712) Indigenous Peoples OP/BP 4.10 ✔ Involuntary Resettlement OP/BP 4.12 ✔ Safety of Dams OP/BP 4.37 ✔ Projects on International Waterways OP/BP 7.50 ✔ Projects in Disputed Areas OP/BP 7.60 ✔ Legal Covenants Sections and Description Provision of a minimum of US$5,000,000 equivalent as counterpart funds [Project Agreement, Schedule, Section I.D.]. Sections and Description No later than one (1) month after Effectiveness, establishment of the Project Steering Committee [Project Agreement, Section I.A.1]. Sections and Description No later than forty-five days (45) days after Effectiveness, establishment of the PMU and recruitment or nomination of the Project Director [Project Agreement, Section I.A.2]. Sections and Description No later than three (3) months after the Effectiveness, adoption of the Project Implementation Manual [PA, Section I.B] and recruitment of one procurement manager, one accounting officer in charge of financial management, and one environmental and social development officer [Project Agreement, Section I.A.2]. Sections and Description No later than six (6) months after the Effectiveness, recruitment of one Project monitoring and evaluation specialist [Project Agreement, Section I.A.2]. Sections and Description Strengthening of Sindh Energy Department [Project Agreement, Schedule, Section I.A.3]: i) No later than one (1) month after Effectiveness, preparation of an annual internal audit plan for the Project and viii The World Bank Sindh Solar Energy Project (P159712) quarterly audits thereafter; ii) No later than two (2) months after Effectiveness, one superintendent vacancy filled. Sections and Description Compliance with requirements on Safeguards (including quarterly reporting), Annual Work Plans, Budgets, and Mid-Term Review [Project Agreement, Schedule, Section I]. Conditions Type Description Disbursement Condition of disbursement of the funds allocated to Category 2 (grants under Component 3 of the Project): adoption of the Project Operations Manual in form and substance satisfactory to the Association [Financing Agreement, Schedule 2, Section III. B. 2]. ix The World Bank Sindh Solar Energy Project (P159712) PAKISTAN SINDH SOLAR ENERGY PROJECT TABLE OF CONTENTS I. STRATEGIC CONTEXT ..................................................................................................................1 Country Context ............................................................................................................................... 1 Rationale for the Project .................................................................................................................. 4 Higher-Level Objectives to which the Project Contributes .............................................................. 5 II. PROGRAM DEVELOPMENT OBJECTIVES .......................................................................................6 Project Development Objective ....................................................................................................... 6 Project Beneficiaries ........................................................................................................................ 6 PDO-Level Results Indicators ........................................................................................................... 7 III. PROJECT DESCRIPTION................................................................................................................7 Project Components ........................................................................................................................ 7 Component 1: Utility-Scale Solar (US$40 million) .......................................................................... 7 Component 2: Distributed Solar (US$25 million) ........................................................................... 7 Component 3: Solar Home Systems (US$30 million) ..................................................................... 8 Component 4: Capacity Building and Technical Assistance (US$5 million) ................................... 8 Lessons Learned and Reflected in the Project Design ................................................................... 10 IV. IMPLEMENTATION.................................................................................................................... 11 Institutional and Implementation Arrangements .......................................................................... 11 Results Monitoring and Evaluation ................................................................................................ 11 Sustainability .................................................................................................................................. 12 Role of Partners ............................................................................................................................. 12 V. KEY RISKS ................................................................................................................................. 13 VI. APPRAISAL SUMMARY .............................................................................................................. 14 Economic and Financial Analysis.................................................................................................... 14 Technical ........................................................................................................................................ 15 Financial Management .................................................................................................................. 16 Procurement .................................................................................................................................. 16 x The World Bank Sindh Solar Energy Project (P159712) Social (including Safeguards) ......................................................................................................... 16 Environment (including Safeguards) .............................................................................................. 17 Gender ........................................................................................................................................... 18 Citizen Engagement ....................................................................................................................... 19 World Bank Grievance Redress...................................................................................................... 20 VII. RESULTS FRAMEWORK AND MONITORING ................................................................................. 21 ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN................................................. 35 xi The World Bank Sindh Solar Energy Project (P159712) I. STRATEGIC CONTEXT Country Context 1. Pakistan, with an estimated population of over 207 million people, is the world’s sixth most populous country. In recent years, it has achieved continued Gross Domestic Product (GDP) growth and substantially reduced poverty. Provisional official estimates suggest that the GDP grew by 5.8 percent for Fiscal Year (FY) 17/18 up from 5.4 percent in FY16/17, and the government’s growth target for FY19 is 6.2 percent. Fiscal and external imbalances if not addressed may however erode these gains in the future. The national poverty headcount declined from 64.3 percent in FY02 to 29.5 percent in FY14. Nevertheless, inequality persists and the country continues to rank low on the human development index at 147th out of 188 countries. 2. Sindh, with an estimated 47 million people,1 has a large economy centered on Karachi, is in a key geographic situation, and has abundant natural resources. However, recent growth and social development trends indicate that the province is not realizing its full potential because of underlying structural challenges. Sectoral and Institutional Context 3. Pakistan was one of the first countries to reform its power sector, in the early 1990s. The first stages of reform were aimed at attracting private investment into the generation segment and were initially highly successful. The Government also unbundled the Power Wing of the Water and Power Development Authority (WAPDA), which had been a publicly owned, vertically integrated monopoly with responsibility for generation, transmission, and distribution: four thermal generation companies (GENCOs) and eight distribution companies (DISCOs) were formed, and the large hydropower assets remained with WAPDA. The National Transmission and Despatch Company (NTDC) was also established as the single buyer of electricity and to be the transmission network owner and system operator. The National Electric Power Regulatory Authority (NEPRA), was also set up and is responsible for licensing, determining tariffs, creating standards, and monitoring sector performance. Under the 18th Amendment to the Constitution, the provinces may generate, transmit, and distribute power within their territorial jurisdiction, although the provinces’ use of these powers has so far been limited. 4. Despite the promising start, improvements in power sector performance remain elusive. In the past two decades there have been a few further reforms, including the privatization of some generation assets and the Karachi Electricity Supply Company (K-Electric), an integrated power utility serving Karachi, 1Pakistan Bureau of Statistics. 2018. “Provisional Summary Results of 6th Population & Housing Census-2017.” http://www.pbscensus.gov.pk/ 1 The World Bank Sindh Solar Energy Project (P159712) its suburbs, and parts of Balochistan Province. More recently, the single buyer function has been separated from NTDC and is now the responsibility of the Central Power Purchasing Agency (CPPA). The plans to privatize GENCOs and DISCOs have not yet been followed through. In addition, the competitive market for generation, originally planned to start by 2012, has not yet been put in place. 5. The sector lacks commercial discipline and operational effectiveness. Although performance across the DISCOs varies, in aggregate, technical and nontechnical losses remain relatively high at around 18 percent,2 while collections are relatively low at around 94 percent. These factors have contributed to a chronic liquidity crisis. In December 2016 the accumulated arrears of payments from DISCOs to their suppliers, commonly called the circular debt, reached an estimated PKR374 billion (US$3.4 billion),3 or around 1.2 percent of GDP. Furthermore, because of the weak institutional setting, company accountabilities are not fully enforced or recognized, and companies continue to operate under centralized control. Inadequate power supply and poor-quality electricity service have reduced GDP growth by an estimated two percentage points annually for the past several years. 6. Power shortages have resulted from inadequate power system investment. From the mid-1990s to FY09/10, investment in power infrastructure declined from 26 percent of total investment and 51 percent of public investment to four percent and 26 percent, respectively. New private sector investment essentially came to a halt. The decline in investment was due to water use concerns, which constrained hydropower development, and a power surplus that emerged in 2002 because independent power producers (IPPs) installed too much capacity. 7. Generation capacity shortages persist because of the limited availability of capacity and continued financial liquidity constraints. Increases in electricity coverage and the normal increases in demand over time, have resulted in a growth in peak demand of an estimated eight percent a year to around 29,000 MW in June 2017. While the total installed capacity was around 31,000 MW, the actual shortfall remains stubbornly high at an estimated 5,000–7,000 MW. In addition, the shortage of financial liquidity to cover fuel payments obliges the Government to limit generation to typically around 100 terawatt hours (TWh) per year (excluding K-Electric). This results in load shedding of about 6-8 hours a day for households and 1-2 hours for industrial consumers during periods of peak demand. To address the gap between the demand for and supply of electricity, the Government plans to increase generation capacity by 30,000 MW by 2022,4 and this plan is beginning to bear fruit. 2NEPRA. 2016. “Performance Evaluation of DISCOs & K-Electric 2015-16.” http://www.nepra.org.pk/Standards/2017/PER%202015-16.pdf. 3International Monetary Fund. 2017. Country Report No. 17/212. https://www.imf.org/~/media/Files/Publications/CR/2017/cr17212.ashx. 4Prime Minister’s Office. 2016. Press Release (2016, December 19): “Our power generation plans go beyond ending load shedding by 2018.” http://www.pmo.gov.pk/press_release_detailes.php?pr_id=1624. 2 The World Bank Sindh Solar Energy Project (P159712) 8. Despite huge hydropower and renewable energy potential, Pakistan’s electricity mix is becoming more reliant on imported fossil fuels, and thus more vulnerable to price volatility. The energy sector is the largest contributor to Pakistan’s greenhouse gas (GHG) emissions at 46 percent of total emissions,5 and will grow with the planned increase in coal-fired generation capacity. In its Nationally Determined Contribution (NDC),6 Pakistan committed to reduce up to 20 percent of its projected GHG emissions, subject to the availability of international grants to meet the US$40 billion estimated abatement cost. The main mitigation options presented in its NDC are (a) increased grid efficiency; (b) improved coal efficiency; and (c) large-scale and distributed grid-connected solar, wind, and hydroelectricity. For solar and wind, the resource potential is very significant, especially in the south and west of the country. Estimated solar photovoltaic (PV) output ranges from 1400-2000 kWh per kW peak (KWp) per year outside the mountainous northern provinces,7 and there is an average wind speed of 7.82 meters per second in the country’s 10 windiest areas.8 9. Even with a policy regime that is conducive for renewable energy, installed solar and wind power capacity remain relatively low at 430 MW and 940 MW, respectively.9 In 2006 the Government published its renewable energy policy document covering small hydropower (<50 MW), solar, and wind, and setting out an initial plan for developing renewable energy in the country.10 The Alternative Energy Development Board (AEDB) was established as an autonomous body that would promote and facilitate the exploitation of renewable energy projects in Pakistan. As the first step in developing a renewable energy project, the provincial Energy Departments and AEDB issue a Letter of Intent to project sponsors. Under the renewable energy policy, once the developer has secured all requisite approvals in the development process and has signed an Energy Purchase Agreement (EPA) with CPPA, K-Electric, or another DISCO, it is mandatory for the distribution utility to purchase all of the electricity offered to them by the project. However, progress has been slow, with wind development primarily in Sindh Province and solar PV development primarily in Punjab. Until 2016 NEPRA provided an “up-front tariff’ for solar and wind power, equivalent to a “feed-in tariff,” but in 2017 NEPRA announced that future solar and wind 5UNFCCC. 2015. Pakistan’s Intended Nationally Determined Contribution (PAK-INDC). http://www4.unfccc.int/ndcregistry/PublishedDocuments/Pakistan%20First/Pak-INDC.pdf 6 By decision 1/CP.21, paragraph 22, the Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) invited Parties to communicate their first NDC no later than when the Party submits its respective instrument of ratification, acceptance, approval or accession. If a Party has communicated an intended nationally determined contribution (INDC) prior to joining the Agreement, that Party shall be considered to have satisfied this provision unless that Party decides otherwise. https://unfccc.int/process/the-paris-agreement/status-of-ratification 7 World Bank. 2017. “Global Solar Atlas.” http://globalsolaratlas.info. 8 World Bank. 2017. “Global Wind Atlas.” https://globalwindatlas.info. 9 AEDB. 2018. “Alternative & Renewable Energy Sector of Pakistan.” Presentation at workshop in Islamabad on April 11, 2018. 10AEDB. 2006. “Policy for Development of Renewable Energy for Power Generation”. http://aedb.org/Documents/Policy/REpolicy.pdf 3 The World Bank Sindh Solar Energy Project (P159712) projects would be awarded tariffs through competitive bidding.11 So far, no solar or wind capacity auction has been launched. 10. The electricity access rate in Pakistan is highly uncertain, but there are likely to be significant access gaps in rural areas. The most recent census, in 2017, indicates that there are over 32 million households in the country, and NEPRA reports just under 23 million household connections,12 which means an electricity access rate of just over 70 percent. In Sindh Province, however, the rate is much lower, at 37 percent. The International Finance Corporation (IFC) estimates that around 24 million households are currently either without a grid connection or are suffering from severe under- electrification (those with working grid connections but without adequate supply).13 Previous efforts to bridge the gap in electricity access have been conducted primarily through grid extension, which is uneconomic in some rural areas because of low population density and high dispersion among rural settlements. Provision of off-grid solutions have relied on small hydropower in the northern provinces, and there have been limited attempts to provide solar home systems (SHSs) in the southern provinces. However, government-provided SHSs often suffer from high rates of system failure and abandonment, especially when no long-term operation and maintenance (O&M) support is in place. In the absence of a decent electricity service, Pakistani households spend an estimated US$2.3 billion annually on alternative lighting products/services such as kerosene, gas lights, and battery-powered torches. Rationale for the Project 11. As a result of sustained equipment and construction cost reductions internationally, and the experience gained from several early projects, solar PV is now a low-cost option for additional power capacity. Transitioning to renewable energy offers Pakistan the potential to reduce its average cost of generation, diversify away from imported fossil fuels, and realize climate change, air pollution, and water conservation benefits. However, to continue to drive down the cost of solar power Pakistan needs to fully implement competitive bidding through a stable, transparent, and predictable series of solar auctions, leveraging successful international experience. There is also a need for future solar and wind projects to be developed more strategically than in the past, taking account of land availability, grid capacity, and grid integration issues—a fact that argues in favor of a stronger government role in identifying and 11NEPRA. 2017. “Decision of Authority in the Matter of Solar PV Power Generation Tariff.” March 3, 2017. See also NEPRA. 2017. “Determination of New Tariff for Wind Power Generation Projects.” January 27, 2017. 12NEPRA. 2016. “State of Industry Report 2016.” http://www.nepra.org.pk/Publications/State%20of%20Industry%20Reports/NEPRA%20State%20of%20Industry%20Report%202 016.pdf. 13IFC. 2015. “Pakistan Off-Grid Lighting Consumer Perceptions: Study Overview.” http://lightingasia.org/Pakistan/market- intelligence/ 4 The World Bank Sindh Solar Energy Project (P159712) predeveloping sites for the private sector development of solar power plants. 12. With a likely access deficit in both the availability and quality of electricity supply, Pakistan has the potential to be a large market for SHSs14 at a time when commercial provisioning of such systems is starting to take off. However, Pakistan’s SHS market is characterized as early-stage, with only limited adoption of pay-as-you-go technology, despite a potential market size of 22 million households.13 13. Sindh Province is key to increasing the share of renewable energy generation in Pakistan and to developing new ways of providing electricity access. With excellent solar resources, ample non-arable land, private and public sector electric utilities, and the only provincial transmission company in the country, Sindh has the potential for installing gigawatts of least-cost solar and wind power over the next decade. Working in partnership with the Federal Government, national agencies, DISCOs, and IPPs, Sindh has the mandate under the 18th Constitutional Amendment to plan and deliver strategic public investments by predeveloping solar parks through land preparation, power evacuation, grid strengthening, and potentially storage provision to ensure the lowest prices to consumers by de-risking project development. There is opportunity for utilizing the free space on and around public buildings to generate solar power in major urban areas, helping to meet the increasing daytime load from air conditioning and reducing the electricity bills of public sector consumers. On electricity access, the remoteness of off-grid villages, the inability of many consumers to afford grid connections, and the erratic provision of power argues in favor of expanding the SHS market, with technically and commercially sustainable product solutions. 14. Sindh requires a strong Energy Department to plan and deliver strategic public investments, build markets for provision of solar power and SHS, and attract commercial financing. Sindh Energy Department (SED) has been instrumental in attracting private sector investors to the Gharo and Jhimpir wind corridors in Sindh, where there is now around 800 MW of commissioned generation. Additionally, SED is promoting biomass and hydropower generation through small pilot projects of 5-10 MW, and for many years it has provided SHS to rural communities on a relatively small scale. SED is also keen to adopt a private sector approach for facilitating increased electricity access, supported by public funding where affordability gaps remain. Delivering against these objectives will require enhanced capacity within SED to design and deliver large, complex interventions, engage with key stakeholders, and develop robust procedures for the handling of fiduciary, procurement, and safeguards issues. Higher-Level Objectives to which the Project Contributes 15. The proposed Sindh Solar Energy Project (SSEP, or the Project) is aligned with the World Bank Group’s Country Partnership Strategy (CPS) FY15-19, discussed by the Board on May 1, 2014 (Report no. 84645), which was extended to FY20 in the Performance and Learning Review, discussed by the Board on June 15, 2017 (Report No. 113574). It is also aligned with the twin goals of ending extreme poverty and 14WBG. 2018. “Global Off-Grid Market Trends Report: 2018.” Washington, DC. https://www.lightingglobal.org/2018-global-off- grid-solar-market-trends-report/. 5 The World Bank Sindh Solar Energy Project (P159712) promoting shared prosperity. It supports Results Area 1 (Energy) by increasing generation of renewable energy and access to electricity. The Project specifically supports CPS Outcomes 1.1 (reduced load shedding) and 1.2 (reduced cost of production of electricity) through investment in new solar power capacity, now a highly competitive option for new-build electricity generation in Pakistan, and by increasing access to electricity. The operation is also aligned with the Government’s 2025 Vision, and its 2006 Policy for Development of Renewable Energy for Power Generation. The operation also incorporates specific measures on gender, 100 percent climate co-benefits as a result of the focus on renewable energy, and by Maximizing Finance for Development through private sector delivery and by leveraging commercial finance. 16. There is a strong development rationale for the public-sector support for the Project. The World Bank (WB) has experience supporting the design and implementation of similar programs, such as in Argentina, Armenia, India and Zambia when it comes to utility-scale and distributed solar power development, and in Bangladesh and Kenya on increasing electricity access through support for privately- provided SHSs. II. PROGRAM DEVELOPMENT OBJECTIVES Project Development Objective 17. The Development Objective is to increase solar power generation and access to electricity in Sindh Province. Project Beneficiaries 18. The final project beneficiaries are Pakistani consumers and households, who will gain from low- cost, secure, and clean electricity. The direct project beneficiaries include the following: (a) SED, which will (i) meet its objectives of attracting private sector investment in solar power; (ii) gain knowledge and experience in setting up a world-class competitive bidding regime and developing solar parks, leading to a healthy return on investment; (iii) gain knowledge and experience in developing a distributed solar PV scheme on/around public buildings; (iv) achieve much greater efficiencies in the use of public funding to increase electricity access by leveraging private sector provision of SHSs; and (v) improve its capacity to carry out monitoring and evaluation (M&E), including product quality assurance; (b) Private sector IPPs, which will gain opportunities for investment in de-risked solar power projects; (c) Public sector agencies and DISCOs in Sindh, which will benefit from reduced public sector electricity bills through the installation of distributed solar PV, thereby helping to reduce the circular debt; and (d) Households with no or a low level of electricity access in Sindh, who will benefit from provision of SHSs. 6 The World Bank Sindh Solar Energy Project (P159712) PDO-Level Results Indicators 19. Achievement of the PDO will be measured using the following two indicators:15 (a) Renewable energy generation capacity constructed under the project (MW); and (b) People provided with access to electricity under the project by household connections (off-grid). III. PROJECT DESCRIPTION Project Components 20. The Project aims to support the deployment of solar power in Sindh Province through development of utility-scale solar power at highly competitive prices within strategically identified solar parks, installation of distributed solar power systems on and around public buildings, and provision of solar home systems for households with no or low access to electricity. The Project includes four components, described below, and is further described in the results chain provided in Figure 1. Component 1: Utility-Scale Solar (US$40 million) (a) Identification and development of a series of publicly owned solar parks, including site identification; feasibility and environmental studies; land acquisition and resettlement; obtaining of permits; and up-front development of shared infrastructure such as grid connection and reinforcement, road access, security arrangements, and water supply; and (b) Provision of support for the competitive selection of private sector developers through solar auction for the construction of solar power plants in the solar parks developed under (a), including transaction advisory services, arrangements for off-taking of power, and financial support through equity or otherwise, as needed. Component 2: Distributed Solar (US$25 million) Procurement and installation of solar PV systems and associated energy management systems on rooftops and other available space on and around public sector buildings, including building identification; feasibility and other related studies; arranging for interagency agreements and leasing arrangements; transaction advisory services and contracting arrangements for construction and O&M; and obtaining of permits and arranging for off-taking of power. 15 These are the two Corporate Results Indicators. The full set of PDO indicators and intermediary results indicators is provided in the Results Framework. The cumulative intermediate targets for each indicator start in December 2019 onwards, assuming that the first year will be focused on preparatory work and procurement. 7 The World Bank Sindh Solar Energy Project (P159712) Component 3: Solar Home Systems (US$30 million) (a) Deployment of affordable SHSs in prioritized areas with low or no access to electricity; and (b) Analysis and identification of priority areas; activities to enhance consumer awareness and financial literacy; product certification and quality control; and M&E activities. Component 4: Capacity Building and Technical Assistance (US$5 million) Implementation of a program of capacity-building and technical assistance activities to support the design and implementation of the Project and compliance with fiduciary, gender, M&E, procurement, and safeguards requirements. The component will include training for SED staff, Project stakeholders, and women; planning and synchronization of activities of the relevant experts; consultation and coordination with key stakeholders and community groups; and data collection, including household energy surveys. 21. Public funding will be used to leverage private sector investment and expertise. Under Component 1, the Project will provide shared infrastructure and a competitive bidding regime to select independent power producers for development of 400 MW of new solar power capacity (starting with an initial 50 MW pilot project), leading to the mobilization of an estimated $273,500,000 of private sector capital. Component 2 will award contracts to private sector developers for the construction and long-term O&M of 20 MW of distributed solar power on and around public buildings in Karachi and Hyderabad, helping to reduce public sector electricity bills. Component 3 will support the commercial provision of SHS to 200,000 households by private sector solar solution providers (SSPs) by providing partial grants, a public awareness-raising campaign, and extensive monitoring and evaluation (M&E) to ensure adherence to high quality standards. In doing so, Component 3 will help expand SHS provision by encouraging additional SSPs to enter the Pakistan market. Component 4 supports implementation of the Project by investing in capacity building and technical assistance for SED and key Project stakeholders, including commissioning of household energy surveys at the start and end of the Project to inform delivery of Component 3. Although focused on Sindh Province, the Project is explicitly designed to provide national benefits by demonstrating new approaches that can be replicated in other provinces. In the context of potential new investment in fossil-fuel-fired generation capacity, and remaining gaps in the availability and quality of electricity supply, the Project is designed to help steer Pakistan toward a lower-carbon development pathway and support new approaches for provision of electricity access. 22. Investment Project Financing (IPF) in the form of an IDA credit for SDR69,600,000 (equivalent to US$100 million) is proposed for the Project, alongside US$5 million of counterpart funding provided in local currency (PKR). The counterpart funding will come from central GoS funds, and will cover the staff and set-up costs related to the project management unit (PMU). Retroactive financing will be available under the Project for an aggregate amount up to SDR 13,920,000 of the IDA credit for payments made for eligible expenditures on or after December 18, 2017. It is expected that any retroactive financing would be applied to project preparation activities such as feasibility and environmental studies related to Component 1. All expenditures for which retroactive financing is sought will be submitted by SED to the WB to verify their eligibility according to the project description and disbursement table, safeguards policies, and procurement requirements. 23. The Project is designed to facilitate future expansion in both reach and scope through additional 8 The World Bank Sindh Solar Energy Project (P159712) financing and/or parallel financing by other donors. In each of the investment components there is substantial opportunity for expansion if early results are obtained. For Component 1, additional, larger, or more complex solar parks could be added if there is a need for additional solar capacity in Sindh. For Component 2, the total space available on and around public buildings is known to be many orders of magnitude higher than the 20 MW target being proposed, and there may be significant opportunities to increase the scale and speed of deployment. For Component 3, opportunities for expansion include a substantial scale-up in the grant funding available to accelerate market development, for example by increasing the targeted number of households/people or expanding to more remote areas. Figure 1: Results Chain16 Problem Statement: Limited generation of clean, low cost solar power and lack of access to electricity ACTIVITIES OUTPUTS OUTCOMES Component 1 Critical Assumptions: A1. Competitive bidding leads to tariffs comparable to other countries and therefore lower than the average cost of new generation in Pakistan. Identify and develop sites for solar A2. Public sector institutions are willing to participate and provide space on/around their buildings. parks to facilitate private sector A3. There is sufficient consumer demand for SHSs and SSP interest in providing SHS to target areas. investment Increased electricity infrastructure Mobilization of private sector Design and run solar auction to investment while minimizing capital award tariffs to developers for burden on public sector projects within solar parks Utility-scale solar power Reduction in the average cost of constructed by private sector A1 electricity to consumers against Component 2 developers baseline Develop portfolios of public buildings for installation of solar Increase in renewable energy Reduction of GHG emissions power capacity against baseline A2 Carry out competitive bidding for Distributed solar power Lower electricity bills for public construction and O&M for each constructed on/around public buildings leads to reduction in portfolio of public buildings sector buildings circular debt Reduced household expenditure A3 Component 3 on alternative sources of electricity/lighting Households provided with SHS by Carry out consumer awareness private sector SSPs raising to support creation of SHS People provided with new or Increased educational and market improved electricity service livelihood opportunities Female-headed households targeted for provision of SHS by Identify priority areas for SHS SSPs Improved conditions and deployment and provide partial employment opportunities for grants to bridge affordability gaps women and girls Increased capacity of SED and PMU and Project stakeholders Component 4 stakeholders enhances Project trained and consultations held sustainability Carry out training and commission Better targeting of future energy household energy surveys Improved data on energy access access interventions and replication in other provinces 16 A high-resolution version of the Results Chain is available as part of the project documents. 9 The World Bank Sindh Solar Energy Project (P159712) Lessons Learned and Reflected in the Project Design 24. The Project builds on an increasing body of evidence on how best to facilitate private sector investment and ensure sustainability, drawing on lessons learned in Pakistan and internationally.  Facilitating private sector involvement. Consistent with the Maximizing Financing for Development approach of the World Bank Group (WBG), strategically using public funding to leverage private sector investment and expertise is central to this Project. This approach lies at the heart of Component 1: a relatively small amount of public investment in solar parks can help to de-risk project development, resulting in low tariffs under solar power auctions. This has already been demonstrated in WBG-financed projects in Argentina, India, and Zambia.17 For off- grid electricity access, private sector involvement helps minimize up-front public financing requirements, helps ensure that households get the services they desire, and leads to better long- term outcomes.  Sustainability of O&M. Policymakers in Pakistan are concerned to ensure that interventions are commercially and technically sustainable over the long term. Pakistan’s experience with distributed and off-grid solar generation so far has been poor: public sector installations often have had no O&M plan in place, leading to rapid deterioration of performance and eventually failure. Ensuring long-term O&M is central to this Project and is reflected in each of the components: in Component 1 through an annual fee paid to SED for developing and maintaining the solar park assets, and through private sector ownership of the solar power plants; in Component 2 by putting in place a performance-based O&M contract and establishing a revenue- generating model to cover long-term O&M; and in Component 3 through private sector delivery and the alignment of incentive structures to ensure a long-term presence in target communities.  Importance of having good data. Experience from similar projects shows that using high-quality data can substantially improve design and implementation. In Zambia, as part of the Scaling Solar program, the Government carried out a comprehensive site identification process, involving assessment of daily load profiles in selected cities for suitability of solar PV supply, potential yield of a solar PV plant near selected cities, proximity to evacuation infrastructure, and assessment of the impact of solar PV plants on the transmission system. In India, the IFC-supported project on rooftop solar in Gujarat found that detailed technical surveys and data collection to identify buildings suitable for solar installations, which could be packaged into a bidding document, are the most important first step. Hundreds of surveys were conducted, leading to about 312 installations. And in Kenya, the WB’s off-grid solar project has identified data gaps as one of the main challenges to be addressed to understand and expand the off-grid market.18 The Project includes substantial investment in data collection and integration across all four components. 17 Projects P159901, P154283, and IFC37811/P157943. 18 World Bank. 2017. “Kenya: Off-grid Solar Access Project for Underserved Counties.” http://projects.worldbank.org/P160009. 10 The World Bank Sindh Solar Energy Project (P159712) IV. IMPLEMENTATION Institutional and Implementation Arrangements 25. The Project will be implemented by the Province of Sindh, as the Project Implementing Entity, through SED. A PMU will be created within SED that will be responsible for project implementation and supervision. The PMU will have appropriate experts, will be headed by a full-time Project Director at the level of a senior government officer, and will consist of a small team of staff, budgeted for and funded by GoS. More specialist requirements, such as for transaction advisors to manage the solar auctions under Component 1, or for the M&E campaign under Component 3, will be supported by consultants as required, funded from the IDA credit under each component. The PMU’s scope of work will include (a) design and implementation of the Project activities; (b) data collection and monitoring; (c) procurement-related activities; (d) preparation of an annual work plan for all Project activities and of annual financial reports; and (e) supervision and reporting on implementation of Environmental and Social Management Plans (ESMPs) and Resettlement Action Plans (RAPs) as required. A Project Steering Committee, chaired by the Secretary of SED, will be established to provide high-level oversight and guidance to the PMU on Project design and implementation issues. SED has already created the Sindh Renewable Energy Company (SREC) to be the holding company responsible for all publicly owned assets under Components 1 and 2, following a well-established model that led to the creation of the Sindh Transmission & Dispatch Company in 2015. Results Monitoring and Evaluation 26. M&E staff/consultants will support the PMU in any aspects related to the monitoring and evaluation of the Project. They will be responsible for: (a) monitoring physical progress; (b) carrying out M&E of delivered outcomes; (c) reviewing and supervising the environmental and social issues identified and any mitigation measures; and (d) providing guidance to the PMU in early identification and resolution of any issues identified. Their scope of work will include: (a) establishing Management Information Systems, a Geographic Information System, and ICT-based monitoring and verification systems for all project components and activities; (b) monitoring the implementation and physical progress of any civil works, including environmental and social safeguards; (c) collecting and analyzing data on project impacts, including data on direct and indirect stakeholders under the Project; and (d) identifying and assessing problems during implementation and developing potential solutions. 27. A household energy survey will be commissioned under Component 4 to provide baseline values for M&E, as well as to fill information gaps on the market size for SHS in Pakistan. The survey will be carried out at the start and end of the Project, and will conform to the Multi-Tier Framework (MTF) approach for assessing access to electricity,19 including gender disaggregation. Throughout Project 19The Multi-Tier Framework for Energy Access is a global standard for assessing and reporting energy access. See World Bank. 2015. “Beyond Connections: Energy Access Redefined.” https://openknowledge.worldbank.org/handle/10986/24368. 11 The World Bank Sindh Solar Energy Project (P159712) preparation and implementation, robust stakeholder and citizen engagement mechanisms will be designed and implemented where needed. Sustainability 28. GoS is committed to scaling up solar power in Sindh Province, building on their success with wind power. An official request for this Project was received from Economic Affairs Division (EAD) on behalf of GoS in March 2017, and since then the Project has been extensively discussed with GoS and federal government stakeholders. The Project is designed to build capacity within SED to scale up solar power within Sindh Province, and the fact that solar power is increasingly a least-cost form of electricity generation and provider of electricity access helps ensure long-term sustainability within each Component. There is also a strong emphasis on ensuring the commercial and technical sustainability of solar power plants and SHSs supported under the Project through the involvement of the private sector in Components 1 and 3, and incorporation of long-term O&M under Component 2. Role of Partners 29. The Project has attracted strong interest from other development partners and donors, including for possible co-financing during implementation. Korea’s Economic Development Cooperation Fund (EDCF) has expressed interest in possible co-financing, and it has been agreed to explore this further once the Project generates initial results. There is also the possibility of seeking funding from the Green Climate Fund (GCF) or other sources of climate finance, to scale up one or more of the Components or to respond to financing or affordability constraints that may be identified during implementation. 30. In addition, the WB has secured grant funding for Bank-executed technical assistance to support Project implementation and national efforts to scale up renewable energy. The Korean Green Growth Trust Fund (KGGTF) has committed grant funding for technical assistance and knowledge exchange activities, including prefeasibility work, study tours, and upstream analysis. Additionally, KGGTF provides a platform for SED and other stakeholders to collaborate with relevant Korean institutions and companies. The Energy Sector Management Assistance Program (ESMAP) has committed grant funding from its Lighting Global window for technical assistance and dissemination activities. Other sources of grant funding may also be explored. 31. The Project also has linkages to ongoing or planned initiatives on renewable energy by other development partners, where close coordination will be required. Kreditanstalt für Wiederaufbau (KfW) is actively exploring support to off-grid solar providers and microfinance institutions, and is closely aligned with the IFC Lighting Pakistan program, which aims to reach 1.5 million households by 2020, and therefore with the objectives of Component 3. IFC Advisory has an active program of support in Pakistan covering all three investment components, and is in close contact with SED and the WB team. The IFC and WB are exploring the possibility of grant-funded IFC technical assistance to support Component 1 in particular. United States Agency for International Development (USAID) is launching a new, multiyear Pakistan energy program at the national level, and will be carrying out a range of work that seeks to improve the deployment of renewable energy, contributing most directly to Component 1. The WB is in regular contact 12 The World Bank Sindh Solar Energy Project (P159712) with USAID and other development partners working in the energy sector through regular donor coordination meetings. V. KEY RISKS 32. The overall risk associated with the Project is assessed as Moderate. The various risks related to the Project were assessed and are summarized in the Project data sheet. Three of the key risks, their assessment, and proposed mitigation measures are described below. 33. Political and governance. National elections scheduled for mid-2018, as well as state and local elections, may alter the authorizing environment for the Project or create delays. However, the strong commitment to and ownership of the Project that GoS has demonstrated is likely to ensure continuity on the GoS side. At a technical level, concerns over a projected supply surplus, the technical and commercial challenges of integrating variable renewable energy sources into the grid, and the potential for future cost reductions are creating new uncertainties. To help mitigate these risks, the WB is providing technical assistance to AEDB, CPPA, NTDC, and the Planning Commission to review the planning strategy for the electricity sector and provide recommendations on the scope for renewable energy capacity additions, taking account of commercial and technical constraints. Continued reductions in the cost of solar technologies will provide a strong incentive to reconsider prior assumptions. As a result, the political and governance risk is rated as Moderate. 34. Institutional capacity for implementation and sustainability. SED has no prior experience of implementing multilateral development bank (MDB) projects, and the Project relies on SED’s rapidly building up its capacity and putting in place a highly functioning PMU. The risk to Project implementation and sustainability is mitigated by the dedicated budget that SED is seeking for PMU establishment and operation, and by the funds available under Component 4 for capacity building and technical assistance. The WB team will also provide substantial implementation support (see Annex 1), including through grant- funded technical assistance in parallel to the Project. The results indicators are graduated to acknowledge the need for and progress on preparatory activities. In addition, sustainability considerations have been integrated into the design of each component to ensure long-term O&M, and a return on investment for GoS in relation to Components 1 and 2. The risk for institutional capacity is therefore rated as Moderate. 35. Procurement and financial management. The WB carried out a procurement and financial management (FM) capacity and risk assessment for SED, reviewing the organizational structure for implementing the Project and the need for dedicated procurement and FM staff within the PMU. Because SED has no prior experience with WB financed projects, public procurement will be challenging, but adherence to WB procurement rules and practices will help mitigate the risk to implementation. Furthermore, SED is not familiar with the fiduciary reporting requirements of the WB, including maintaining and operating designated accounts. Capacity will have to be built from the ground up, and will require strong implementation support from the WB team. Under the WB’s Procurement Framework, a simplified Project Procurement Strategy for Development has been developed to mitigate the procurement risk. A Financial Management Action Plan has been agreed to mitigate the FM risk. The Project will also mitigate fiduciary risk by working closely with both provincial and federal authorities, and Component 4 will support greater transparency through capacity building and exposure to global solutions. The fiduciary risk is rated as Substantial. 13 The World Bank Sindh Solar Energy Project (P159712) VI. APPRAISAL SUMMARY Economic and Financial Analysis Project Economic Analysis 36. The economic analysis confirms net economic benefit from all three project components . The economic rate of return (ERR) and net present value (NPV) of the benefits for each component are calculated using standard cost-benefit methodology.20 For Components 1 and 2, the counterfactual is the marginal generation source (heavy fuel oil- and LNG-based plants).21 For Component 3, the counterfactual is the energy produced from household diesel generators and unserved electricity demand currently met by such sources as kerosene lamps, candles, and battery torches. The economic analysis indicates that the Project’s components are viable even without factoring in the environmental benefits. The total lifetime GHG emissions avoided from the Project are approximately 1,079,293 tons of carbon dioxide equivalent (CO2e). Table 1 shows the breakdown of the net benefits per component. According to the approach for climate co-benefits assessment laid out in the 2016 Joint Report on MDBs’ Climate Finance,22 the Project can claim 100 percent climate co-benefits as it is a Category 1.1 Renewable Energy Solar Project. Table 1: Summary of economic analysis 50 MW Solar Plant23 20 MW Distributed Solar Solar home systems24 ERR 11.7% 20.5% 17.1% ERR including GHG emissions 16.7% 27.7% - Net economic benefits (with US$51.1 million US$33.0 million US$97.6 million externalities) Project Financial Analysis 37. The Project is financially feasible for both Components 1 and 2.25 The initial 50 MW solar plant under Component 1 assumes a debt-to-equity ratio of 75:25 and access to non-recourse project financing through international finance institutions. The analysis of the feasibility of the solar plant was based on the cost estimation from a prefeasibility study already carried out, and the plant capacity factor specific to the region. The equity internal rate of return (IRR) for the solar plant is 15 percent for an EPA price of 20 The full economic and financial appraisal is available as part of the project documents. 21 Based on Merit Order Dispatch from NEPRA and Generation Mix of Pakistan. 22 European Investment Bank. 2016. “Joint Report on Multilateral Development Banks’ Climate Finance.” http://www.eib.org/attachments/press/2016-joint-report-on-mdbs-climate-finance.pdf. 23 The analysis is based on the 50 MW pilot project. The results can be applied to the remaining 350 MW. 24 The analysis took a ‘willingness to pay’ approach to calculate the economic benefits. Customers were assumed to pay US$10 per month for different energy options (lanterns, candles, etc.). The service from existing energy options is different from service from SHSs. Therefore, existing options are not treated as counterfactuals and GHG assumptions are not applied to them. 25 Financial analysis was not carried out for Component 3 because it is not relevant at the household level. 14 The World Bank Sindh Solar Energy Project (P159712) US$0.04 per kWh against a weighted average cost of capital (WACC) of 7.6 percent. For the distributed solar under Component 2, assuming 100 percent debt financing by the IDA credit and an avoided cost of grid electricity of US$0.16 per kWh, the financial internal rate of return (FIRR) is estimated at 22.3 percent against a WACC of 3.3 percent. The financial NPV of this component is US$26.7 million, which can be offset against electricity bills. Sensitivity Analysis 38. A sensitivity analysis was conducted to assess the impact of changes in the main parameters on the project’s economic and financial analysis. For Components 1 and 2 the switching values of capital expenditure (CAPEX) that make the investments economically unviable are US$1.5 per Watt and US$2.1 per Watt respectively. In the absence of blended finance (at 4 percent interest) for Component 1, the investment is still financially feasible for a cost of debt up to 7.5 percent. Component 2 ceases to be financially feasible when the avoided electricity tariff falls below US$0.119 per kWh, which is highly unlikely, and this does not take into account the likely continued reductions in the cost of solar power over time. Technical 39. The Project has been designed under a framework approach based on concepts that have been successfully applied in other countries and WB-financed projects.26 Furthermore, solar power is now a mature technology, and under all components high standards would be applied to products/equipment for vendor qualification. For the initial 50 MW sub-project under Component 1, a feasibility study will be completed to assess the project area and prepare the bidding package, including an ESMP and grid integration study. Future solar parks under Component 1 will be identified through a comprehensive locational analysis, with feasibility studies and ESMPs commissioned by SED for each solar park developed and as part of the bidding package for private developers. For Component 2, SED will develop portfolios of public sector buildings in consultation with other GoS departments, which will be appropriately surveyed to assess space, shading, and loading constraints. A study published by the WB in June 2016 identified significant potential for rooftop and ground-mounted installations on and around a relatively small number of public buildings in Karachi,27 suggesting very significant overall potential. In addition to meeting the relevant International Electrotechnical Commission technical standards for solar PV equipment and NEPRA’s grid code requirements for interconnection at the distribution level, installations will adhere to international and local building code regulations in relation to rooftop static and dynamic loading requirements. For Component 3, SSPs would be prequalified against objective criteria before being allowed to participate in the competitive bidding process to obtain the right to service prioritized 26A more detailed description of the technical design, including breakdown of cost by component, is available as part of the project documents. 27World Bank. 2016. “Demand for Distributed Renewable Energy Generation.” Washington, DC. http://pubdocs.worldbank.org/en/651451464210676719/Report-Demand-Distributed-Renewable-Energy-Generation-Pakistan- Elan-Partners-World-Bank-Jun2016.pdf. 15 The World Bank Sindh Solar Energy Project (P159712) areas and obtain partial grants for SHS sales made within those areas. For all three investment components, stringent technical criteria for product/system quality will be applied, including adherence to the relevant international standards and testing procedures. Spot inspections and product testing will be used to ensure compliance. Financial Management 40. The FM arrangements of SED were reviewed during preparation to assess the risks and develop mitigation measures. Subject to the recommended mitigation measures and action plan (described in Annex 1) being implemented by SED, according to the agreed timeframe, the Project has met the minimum FM requirements in accordance with the WB’s Investment Project Financing Policy. The FM arrangements provide reasonable assurance that the financing proceeds will be used for the intended purposes, with due attention to the principles of economy, efficiency, effectiveness, transparency, and accountability, to support implementation and achieve the desired results. Further, this objective will be sustained by ensuring that strong FM systems are maintained for the Project throughout its duration. Detailed FM reviews will be carried out regularly, either within the regular proposed supervision plan or on a more frequent schedule if needed, to ensure that expenditures incurred by the Project remain eligible. Procurement 41. SED will follow the WB procurement regulations and systems for the Project, including those for any eligible expenditures under retroactive financing. Procurement for the Project will be carried out in accordance with the WB’s Procurement Regulations for Borrowers for Goods, Works, Non-Consulting and Consulting Services dated July 1, 2016 (Procurement Regulations) and revised November 2017. The Project will be subject to the WB’s Anti-Corruption Guidelines, dated October 15, 2006, and revised in January 2011 and July 2016. A Project Procurement Strategy for Development has been prepared, which will inform the overall procurement and contract management approach. The WB’s planning and tracking system, Systematic Tracking of Exchanges in Procurement, will be used. Social (including Safeguards) 42. The Project is expected to have highly positive direct and indirect social impacts, including improved electricity supply, increased electricity access, and employment generation. Energy, and in particular lack of availability of or access to electricity, is a highly sensitive issue in Pakistan because of the negative impact on standards of living and livelihoods, particularly during the summer months. Even relatively low levels of power consumption can have substantial social benefits, including evening lighting, cooling, and provision of mobile charging and entertainment. The Project is likely to result in significant employment generation, including construction jobs under Components 1 and 2, followed by a smaller number of long-term jobs associated with O&M activities. For Component 3, SSPs are likely to create new jobs in SHS distribution and installation, including in remote areas, and there is substantial opportunity to promote female employment (direct and indirect) through training and incentives. 16 The World Bank Sindh Solar Energy Project (P159712) 43. In terms of negative social impacts, the Project does not anticipate acquiring private land; most impacts identified are moderate in nature and intensity and can be mitigated. An Environment and Social Management Framework (ESMF), which includes a Resettlement Policy Framework (RPF), has been prepared and was publicly disclosed on April 9, 2018 on the SED and WB websites, identifying the generic social impacts of the Project and mitigation measures. Solar parks under Component 1 may put additional pressure on local resources, particularly on drinking water. There may also be impacts from labor influx— for example, impacts on the privacy of women, health and safety risks for the community and the construction workers, and possible livelihood losses. Although an RPF has been prepared, no land acquisition is expected since the Project would use GoS-owned land, with checks in place to ensure that any land selected is free of squatters, encroachers, and other claims or encumbrances. Component 2 may pose health and safety risks for building occupants as well as for the construction workers, and water requirements during plant operation.28 Some buildings may have historical significance and be protected under provincial cultural heritage laws, although such buildings will be avoided where possible. Component 3 is likely to cause only minor social impacts, such as damage to rooftops from SHS installation. Mitigation measures include commissioning an ESMP for any relevant subproject (e.g., a solar park) and adhering to the WBG’s Environment, Health, and Safety Guidelines and the Guidance Note on Managing the Risks of Adverse Impacts on Communities from Temporary Project Induced Labor Influx. Environment (including Safeguards) 44. The Project will lead to substantial direct environmental benefits by increasing the deployment of renewable energy. In addition, building supply chains and experience in the sector is likely to yield indirect benefits through continued cost reductions, leading to additional solar power deployment outside of the Project. Transitioning to a higher percentage of renewable energy in the electricity mix has benefits for Pakistan’s GHG emissions, air and water pollution, and use of water resources. 45. The Project has some negative environmental impacts, but they are not expected to be significant or irreversible. Since the exact locations and nature of the solar parks and distributed solar sites under the Project are not known at this stage, the ESMF highlights the generic environmental impacts of the Project. Component 1 is likely to have some negative impacts on local air quality, soil and water resources, noise pollution, existing infrastructure, natural vegetation and habitat, and wildlife, and to entail the potential environmental aspects of labor influx. However, most of these potential impacts are low to moderate in intensity/significance and are reversible and localized in nature, and therefore can be easily mitigated. Similarly, Component 2 could have impacts on air, soil, and water, and result in noise generation, blockage of building access routes, damage to the buildings and other infrastructure, and increased water requirements. The impacts of Component 3 could include minor damage to houses, noise, and battery disposal issues, although SSPs have an economic incentive to ensure battery collection and recycling. Most of these impacts are mild in nature and intensity and can therefore be addressed through 28 Although most distributed solar systems rely primarily on dry cleaning methods, such as manual sweeping. 17 The World Bank Sindh Solar Energy Project (P159712) simple mitigation and precautionary measures. 46. Risks due to climate change impacts include inundation and strong winds, and these will need to be addressed in the design specifications under each Component. The climate change risks in Sindh Province were assessed through the WB’s Climate and Disaster Risk Screening Tool, and two main risks identified were: (i) Inundation, due to extreme precipitation, projected sea-level rise and storm surge, and relevant to Components 1, 2 (ground-mounted solar installations), and 3 (especially coastal villages); and (ii) Strong winds, relevant to Component 2 (rooftop installations). These risks are already well understood and dealt with in Pakistan, although the Project will need to factor in potentially higher frequency and severity of such events. Gender 47. Pakistan suffers from one of the lowest gender equality performance indicators worldwide.29 In 2013, female-headed households (FHHs) made up 10.6 percent of all households in Pakistan, although the figure is 1.6 percent in rural Sindh.30 Unfortunately gender disaggregated data on electricity access is severely lacking, in part due to the general uncertainties on rates of electricity access. This data gap is a significant constraint on the ability of the Project to incorporate gender considerations into the detailed design, and will be tackled in the early stages of implementation. However, research indicates that FHHs in Pakistan allocate a higher share of their budget/expenditure on fuel and lighting than non-female headed households.31 Compounding the issue, less than 5 percent of women are included in the formal financial sector, compared to South Asia’s average of 37 percent.32 This implies that FHHs are likely to benefit most from a SHS, but are least able to afford them (Endowment Gap – Access to Electricity). In addition, there is an extremely low representation of women in the energy industry (for example, they are 1 percent of utilities’ workforce), and the country lacks in the ability to implement gender mainstreaming activities, especially for larger energy infrastructure projects (Jobs/Livelihood Gap).33 29Ranking 143rd (out of 144 countries) according to the Global Gender Gap Report 2016 (quantifying the magnitude of gender disparities) and 146th (out of 188 countries) according to the UN Gender Inequality Index. World Economic Forum. 2016. “Global Gender Gap Report” Geneva, Switzerland. http://reports.weforum.org/global-gender-gap-report-2016/ & UNDP. 2016. “UN Gender Inequality Index” New York, NY. http://hdr.undp.org/en/content/gender-inequality-index-gii 30 World Bank. 2018. “Female-headed households: Pakistan (2013)”. https://data.worldbank.org/ 31 http://www.pide.org.pk/psde/pdf/AGM28/Ashfaque%20H%20Khan%20and%20Umer%20Khalid.pdf 32 World Bank. 2016. “Pakistan’s Financial Access Statistics”. Washington, DC. 33ESMAP. 2017. “Gender program on Social Inclusion in the Energy Sector”, World Bank. 2017. “Getting to gender equality in energy infrastructure: lessons from electricity generation transmission, and distribution projects.” Washington, DC. http://documents.worldbank.org/curated/en/930771499888717016/Getting-to-gender-equality-in-energy-infrastructure- lessons-from-electricity-generation-transmission-and-distribution-projects & World Bank. 2013. “Pakistan Enterprise Survey” 18 The World Bank Sindh Solar Energy Project (P159712) 48. The first priority of the Project is to address the data gap through a comprehensive household energy survey, which will help improve the understanding of gender gaps in access to electricity in Sindh Province.34 Over 600,000 women and girls can potentially benefit from improved electricity access under the Project assuming an equal distribution of benefits between men and women. However, the improved data from the household energy survey will guide SED’s efforts to target women and girls, and specifically FHHs, for adoption of SHS under Component 3 (Endowment Gap - Access to Electricity). The Project will (i) identify priority communities for the grants that will be provided (including areas with high percentages of FHHs); (ii) explore differentiated grant amounts/financing options (for example in the case of FHHs); and (iii) hold consumer awareness raising and financial literacy activities targeting women so that they are more informed about the SHS program, including through local media outlets, roadshows and market events, household visits, and flyers). The Project will also put in place measures to encourage female employment opportunities (Jobs/Livelihood Gap). At least one training event targeting women and disabled people will be organized to support recruitment of these groups by SSPs, and SED-issued contracts for the household energy surveys will require qualified firms to have at least 15 percent women and/or disabled persons on their teams, in line with a GoS quota. This will also facilitate having sufficient female staff on the survey teams (paired with men for their safety and security), which will help ensure that women within households and FHHs are adequately surveyed. The Project will work with a gender specialist to design and provide the training and other support under Component 4. Finally, the recruitment of staff for the PMU will be carried out to maximize female and disabled person participation in the application process through targeted job advertisements and the use of social media, with the objective of meeting the GoS quota for 15 percent of new staff to be female and/or disabled. 49. The results indicators will help to capture the outcomes from the above objectives and activities. The Project will target an SHS adoption rate by FHHs of 2 percent under Component 3, which is slightly higher than the proportion of FHHs (1.6 percent) in rural Sindh. The baseline and target will be updated once the household energy survey is complete to better reflect the situation in Sindh and in the target areas. The Project also includes a series of intermediary results indicators to capture the targets outlined in the paragraph above on female training and employment. Citizen Engagement 50. Citizen engagement runs across the Project, and will help improve the data gathering and consumer feedback to inform detailed design and implementation. Initial citizen engagement has already been carried out through the ESMF and through a workshop held in August 2017 focusing on Component 3. To provide continuous citizen engagement at the Project level, the PMU will invite an ‘advocate’ for citizens/consumer views and concerns to the Project Steering Committee. For the solar Washington, DC. http://www.enterprisesurveys.org/data/exploreeconomies/2013/pakistan 34The household energy survey will be carried out (as described in Paragraph 34) at the start and towards the end of the implementation period, which will be combined with the data from the 2017 Census to build a more complete picture of electricity access in Sindh Province, and the gender gaps that exist. 19 The World Bank Sindh Solar Energy Project (P159712) parks developed under Component 1, the ESMP developed for each site includes provisions for obtaining citizen engagement. There will also be substantial and ongoing engagement under Component 3, including the consumer awareness-raising campaign, an M&E program that includes consumer follow-up, product testing, and a helpline to report concerns or complaints regarding SSPs. A social audit will be carried out at the mid-term point of the Project to ascertain social inclusion, citizen engagement and overall community satisfaction under Component 3. The household energy survey commissioned under Component 4 will help ensure a better understanding – disaggregated by gender – of consumer requirements, product preferences, and affordability, and will include community outreach and/or focus groups to better understand specific issues and test out different design and product options. The citizen engagement measures are captured in three of the intermediary results indicators. World Bank Grievance Redress 51. Communities and individuals that believe that they are adversely affected by a project supported by the WB may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service, which ensures that complaints are promptly reviewed and project- related concerns addressed. Project-affected communities and individuals may submit a complaint to the WB’s independent Inspection Panel, which determines whether harm occurred, or could occur, as a result of the WB’s noncompliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the WB's attention and WB Management has been given an opportunity to respond. For information on how to submit complaints to the WB’s corporate Grievance Redress Service, please visit https://www.worldbank.org/GRS. For information on how to submit complaints to the WB Inspection Panel, please visit https://www.inspectionpanel.org. . 20 The World Bank Sindh Solar Program (P159712) VII. RESULTS FRAMEWORK AND MONITORING Results Framework Project Development Objective(s) The Development Objective is to increase solar power generation and access to electricity in Sindh Province. RESULT_FRAME_T BL_ PD O Unit of PDO Indicators by Objectives / Outcomes DLI CRI Baseline Intermediate Targets End Target Measure 1 2 3 4 Increase solar power generation in Sindh Province 106.0 260.0 Generation capacity of energy constructed or rehabilitated Yes Megawatt 0.00 1.00 53.00 420.00 0 0 Renewable energy generation capacity (other than 106.0 260.0 Yes Megawatt 0.00 1.00 53.00 420.00 hydropower) constructed under the project 0 0 Utility-scale solar power generation capacity constructed 100.0 250.0 Megawatt 0.00 50.00 400.00 under the project 0 0 Distributed solar power generation capacity constructed Megawatt 0.00 1.00 3.00 6.00 10.00 20.00 under the project Increase access to electricity in Sindh Province 1,140, 180,0 420,0 720,0 People provided with new or improved electricity service Yes Number 0.00 000.0 1,200,000.00 00.00 00.00 00.00 0 21 The World Bank Sindh Solar Program (P159712) RESULT_FRAME_T BL_ PD O Unit of PDO Indicators by Objectives / Outcomes DLI CRI Baseline Intermediate Targets End Target Measure 1 2 3 4 1,140, People provided with access to electricity under the project 180,0 420,0 720,0 Yes Number 0.00 000.0 1,200,000.00 by household connections (grid or off-grid). 00.00 00.00 00.00 0 RESULT_FRAME_T BL_ IO Unit of Intermediate Results Indicators by Components DLI CRI Baseline Intermediate Targets End Target Measure 1 2 3 4 Component 1: Utility-Scale Solar Completion of competitive bidding process for awarding Yes/No N Y the first 50 MW sub-project 34,18 Amount(US Private capital mobilized 0.00 7,500. 273,500,000.00 D) 00 Component 2: Distributed Solar Identification of at least 1 MW of distributed solar PV and Yes/No N Y competitive bidding completed Component 3: Solar Home Systems Female-headed households provided with solar home 600.0 1,400. 2,400. 3,800. Number 0.00 4,000.00 systems 0 00 00 00 22 The World Bank Sindh Solar Program (P159712) Social Audit conducted at mid-term and results Yes/No N Y incorporated into project Component 4: Capacity Building and Technical Assistance Consumer Advocate added to Project Steering Committee Yes/No N Y Female and/or disabled staff within household energy Percentage 0.00 15.00 15.00 survey contractor firm Female and/or disabled staff within the PMU Percentage 0.00 15.00 15.00 15.00 15.00 15.00 Training event for women and/or disabled people held Yes/No N Y Improved data on energy access in Sindh Province Yes/No N Y Y RESULT_FRAME_TBL_UL Unit of Indicators to be mapped DLI CRI Baseline End Target Measure PDO Indicators Amount(U Private Capital Mobilization 0.00 273,500,000.00 SD) Intermediate Outcome Indicators Completion of a comprehensive household energy survey to inform prioritization and targeting of Component 3, including on Yes/No N Y gender impacts 23 The World Bank Sindh Solar Program (P159712) Monitoring & Evaluation Plan: PDO Indicators Indicator Name Generation capacity of energy constructed or rehabilitated Definition/Description Assessed half-yearly. Frequency Refer to utility-scale and distributed solar indicators. Data Source Refer to utility-scale and distributed solar indicators. Methodology for Data Collection PMU to obtain data from solar power developers and report to WB. Responsibility for Data Collection Indicator Name Renewable energy generation capacity (other than hydropower) constructed under the project Definition/Description Assessed half-yearly. Frequency Refer to utility-scale and distributed solar indicators. Data Source Refer to utility-scale and distributed solar indicators. Methodology for Data Collection PMU to obtain data from solar power developers and report to WB. Responsibility for Data Collection 24 The World Bank Sindh Solar Program (P159712) Indicator Name Utility-scale solar power generation capacity constructed under the project Definition/Description Capacity of solar power (in MW) installed under Component 1. Assessed half-yearly. Frequency Quarterly report(s) submitted by solar power developers. Data Source Sum of total MW installed. Methodology for Data Collection PMU to obtain data from solar power developers and report to WB. Responsibility for Data Collection Indicator Name Distributed solar power generation capacity constructed under the project Definition/Description Capacity of solar power (in MW) installed under Component 2. Intermediate targets are cumulative. Assessed half-yearly. Frequency Quarterly report(s) submitted by EPC contractor(s). Data Source Sum of total capacity installed. Methodology for Data Collection PMU to obtain data from contractors and report to WB. Responsibility for Data Collection 25 The World Bank Sindh Solar Program (P159712) Indicator Name People provided with new or improved electricity service Definition/Description Assessed quarterly. Frequency Installation records provided by Solar Solution Providers. Real-time reporting will be used if possible. Data Source Calculation of total households actively using a SHS, multiplied by the average household size (6 Methodology for Data Collection persons). PMU to provide data to WB. Responsibility for Data Collection Indicator Name People provided with access to electricity under the project by household connections (grid or off-grid). Definition/Description Assessed quarterly. Frequency Installation records provided by Solar Solution Providers. Real-time reporting will be used if possible. Data Source Calculation of total households actively using a SHS, multiplied by the average household size (6 Methodology for Data Collection persons). PMU to provide data to WB. Responsibility for Data Collection 26 The World Bank Sindh Solar Program (P159712) Monitoring & Evaluation Plan: Intermediate Results Indicators Indicator Name Completion of competitive bidding process for awarding the first 50 MW sub-project Completion of a transparent and competitive process for awarding the tariff of the first 50 MW solar Definition/Description project (solar auction). Assessed on completion. Frequency Results of the selection committee. Data Source Not applicable. Methodology for Data Collection PMU to disclose winning bidder and report to WB. Responsibility for Data Collection 27 The World Bank Sindh Solar Program (P159712) Indicator Name Private capital mobilized The project design assumes that private sector solar power developers will arrange commercial financing Definition/Description for the sub-projects that they construct and own, thereby leading to the mobilization of private capital that far exceeds the public funding used to develop solar parks and support solar auctions. Upon RFP completion for each Solar Park. Frequency RFP bidding documents from winning vendor. Data Source Sum of equity and debt financing for each sub-project. Methodology for Data Collection PMU to collect data and report to WB. Responsibility for Data Collection 28 The World Bank Sindh Solar Program (P159712) Indicator Name Identification of at least 1 MW of distributed solar PV and competitive bidding completed Identification of a portfolio of buildings with a combined capacity of at least 1 MW, with agreements in Definition/Description place with relevant government departments, and completion of competitive bidding for identifying the developer(s) for installation and O&M. Assessed on completion. Frequency PMU to provide verification that a winning bidder has been selected. Data Source Assessed as successful once bidding is completed for at least 1 MW. Methodology for Data Collection PMU to provide data to WB for verification. Responsibility for Data Collection 29 The World Bank Sindh Solar Program (P159712) Indicator Name Female-headed households provided with solar home systems Female-headed households provided with solar home systems under Component 3. This indicator is based on the assumption that around 1.6% of total rural households in Sindh are headed by women, and that through a combination of targeting and potentially a higher grant amount, they can be reached and Definition/Description incentivized to procure a SHS from a SSP. The household energy survey to be carried out at the start of the project will provide further data to help inform this gender-related objective, and any modifications to the targets that may be required. Intermediary targets are cumulative. Assessed quarterly. Frequency Quarterly reports submitted by SSPs. Data Source SSPs will be required to identify female-headed households using pre-defined criteria, and will be Methodology for Data Collection independently verified by the M&E consultants.. PMU to collate data and report to WB. Responsibility for Data Collection 30 The World Bank Sindh Solar Program (P159712) Indicator Name Social Audit conducted at mid-term and results incorporated into project Social Audit (also called social accounting) is a monitoring process through which organizational or Definition/Description project information is collected, analyzed, and shared publicly in a participatory fashion. Community members conduct investigative work at the end of which findings are shared and discussed publicly. Assessed on completion. Frequency Final social audit report by contracted firm. Data Source Assessed as completed once social audit is written up and published. Methodology for Data Collection PMU to provide data for verification by WB. Responsibility for Data Collection Indicator Name Consumer Advocate added to Project Steering Committee To provide citizen engagement at the Project level, the PMU will invite an “advocate” for Definition/Description citizens/consumer views and concerns to the Project Steering Committee. Assessed annually. Frequency Steering Committee minutes. Data Source PMU to provide evidence of consumer advocate participation. Methodology for Data Collection PMU to provide minutes for WB to verify. Responsibility for Data Collection 31 The World Bank Sindh Solar Program (P159712) Indicator Name Female and/or disabled staff within household energy survey contractor firm Firm(s) contracted to carry out the household energy survey at the start and end of the project to have Definition/Description at least 15% female and/or disabled staff on the team working on the assignment. This will also facilitate the surveying of women within households. Assessed at start and end of the contract with the firm(s) involved. Frequency Staff roster provided by contracted firm(s). Data Source List of project staff and gender of each staff member. Methodology for Data Collection PMU will collect data and report to WB. Responsibility for Data Collection Indicator Name Female and/or disabled staff within the PMU PMU hires at least 15% female and/or disabled staff, in line with Government of Sindh recruitment Definition/Description objectives. Assessed once PMU is fully constituted and then annually. Frequency PMU staff roster. Data Source Assessment of staff roster provided by PMU. Methodology for Data Collection PMU to maintain accurate staff roster and report to WB. Responsibility for Data Collection 32 The World Bank Sindh Solar Program (P159712) Indicator Name Training event for women and/or disabled people held Definition/Description Training event for women to support recruitment of women by solar solution providers (SSPs) Assessed on completion. Frequency Event invitation and participation lists. Data Source Confirmation of event being held. Methodology for Data Collection PMU to provide data to WB upon completion. Responsibility for Data Collection 33 The World Bank Sindh Solar Program (P159712) Indicator Name Improved data on energy access in Sindh Province Comprehensive data on energy access in Sindh Province is available in compliance with the Multi-Tier Framework (MTF) for assessing energy access. This should include detailed gender-disaggregated data to Definition/Description help inform the targeting of female-headed households, and ensure overall project success by better understanding the needs of women and girls, and using this data to inform the targeting of households and the data provided to SSPs. Assessed at mid-term review and end of the Project. Frequency Household energy surveys to be commissioned under the Project, combined with Pakistan Census data Data Source and other reliable sources of data on energy access. Methodology provided by the MTF for carrying out household energy surveys and reporting of results. Methodology for Data Collection PMU responsible for collating energy access data and making it publicly available. Responsibility for Data Collection 34 The World Bank Sindh Solar Energy Project (P159712) ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN Project Institutional and Implementation Arrangements 1. SED is the final recipient of the loan, and the PMU will be in charge of Project implementation. The PMU will hire staff and consultants for the FM, safeguards, procurement, and technical aspects of the Project, on the basis of the PMU budget developed by SED. The roles and responsibilities of such staff/consultant(s) will be set out in detailed terms of reference to be agreed by the WB. Based on SED’s experience with the Sindh Transmission & Dispatch Company and other publicly owned companies, SREC will be the holding company responsible for SPVs created under the Project to own and manage public assets under Components 1 and 2. 2. SED will require technical support as well as capacity building on social safeguards aspects. The PMU will be responsible for the implementation of the ESMF and all ESMP development tasks and cross- agency coordination, and will be tasked with day-to-day ESMF/ESMP-related activities. The PMU Project Director will be assisted by an environmental and social development specialist and by individual consultants as needed. The PMU will engage a consulting firm to prepare ESMPs for individual subprojects. It will also engage M&E consultants to monitor the progress of the Project and evaluate the impacts, including environmental and social issues, upon completion. ESMP consultant firms will prepare quarterly reports covering the implementation of the ESMF and the preparation and implementation progress of each ESMP. Capacity building will be needed to ensure that the ESMF/ESMP objectives, procedures, and roles and responsibilities of various entities are well understood and are being implemented. Training under Component 4 will support this objective. 3. For each component there will be a specific implementation strategy. Component 1 will be implemented by the PMU, which will either take on the role of solar park manager or hand it to a specially created SPV. Component 2 will be implemented by the PMU, with the distributed solar assets and management of the O&M contract potentially handed to an SPV created under SED. Component 3 will be implemented by the PMU, with SSPs responsible for selling SHSs to households. An Operations Manual will be developed to help guide SED and the PMU in procedures, reporting mechanisms, and M&E activities in relation to Project implementation. Financial Management 4. FM will use country systems and procedures. The PMU will be responsible for the execution and implementation of the Project, including management of and reporting on the fiduciary aspects, including FM, disbursements, audits, and procurement. SED uses manual processes with redundant steps based on rules from 1962 that cause delays in budget execution, and this will need to be addressed under the Project. 5. Planning and budgeting. As part of the Public Sector Development Program, the Project will be 35 The World Bank Sindh Solar Energy Project (P159712) reflected in the Federal Government’s capital budget.35 GoS follows a budget call circular that includes detailed instructions on preparing a comprehensive budget in time for approval by the Legislature. The Project will be included in the SED development-capital sub-fund sub-elements budget using the detailed object and functional classification prescribed in the New Accounting Model. The Project’s budget will be prepared using function and object codes of the Chart of Accounts to capture expenditures for identified schemes and assets to be procured under the components, including the capacity building under Component 4. 6. The Accountant General (AG) Office for Sindh Province will capture and track development expenditure through project coded numbers identified in the Annual Development Plan. The Chart of Accounts is flexible enough to capture and report project transactions. The AG Office exercises budgetary controls through the Financial Accounting and Budgeting System (FABS). The PMU will approach the Controller General of Account (CGA) for the provision of a FABS terminal for the maintenance of the Designated Account (DA). 7. The GoS has a comprehensive internal control framework comprising the Sindh General Financial Rules, Treasury Rules, and Sindh Delegation of Financial Powers Rules. SED will observe this framework for Project expenditure. At present, SED has no internal audit section. The Project will support the establishment and functioning of an Internal Audit Wing in SED to cover donor-funded projects and submit quarterly internal audit reports to the Departmental Internal Audit Committee, with copies provided to the WB. 8. A segregated DA in US dollars would be established in the National Bank of Pakistan for the IDA credit in accordance with agreed procedures for the operation of DAs. Disbursements will be made quarterly on the basis of reports. 9. Monthly civil accounts are published by the CGA within 15 days after the end of each month. Semiannual Interim Unaudited Financial Reports (IUFRs), including cash forecasts for two quarters, in a format agreed with the WB, will be submitted to the WB within 45 days after the end of each calendar semester. The PMU will maintain books of accounts for Project-related activities in accordance with the accounting procedures and policies defined in the New Accounting Model. The Project’s financial reports will identify the use of funds according to predefined eligible expenditures to be financed by the WB. The reports will include adequate notes and disclosures consistent with acceptable international practice. 10. External audit of the Project will be conducted for the PMU by the Auditor General of Pakistan (AGP). In addition to the audited financial statement, the PMU will provide an assertion that funds have been used for the intended purposes. For each financial year closing on June 30, acceptable audited financial statements of the Project, along with a Management Letter, will be submitted to the WB by December 31 (i.e., within six months after the close of the financial year). 11. Implementation support is expected to entail two missions per year during the first two years 35The capital budget is intended for development projects in the country. The capital expenditure is generally met from the revenue surplus, reserve funds, and borrowings for specific or general purposes. 36 The World Bank Sindh Solar Energy Project (P159712) of operation; thereafter frequency will depend on the updated project FM risk assessment and progress in building FM capacity. The scope of the supervision is left to the professional judgment of the FM specialist. It may cover the following: (a) review of SED’s continuous maintenance of an adequate FM system; (b) review of selected transactions, as deemed necessary; (c) follow-up on the timeliness of FM reporting and actions taken on issues raised by external auditors; (d) review of Project financial reports; (e) follow-up on the status of agreed actions; and (f) review of compliance with the financial covenants. Financial Management Action Plan 12. SED and the PMU will ensure the implementation of the action plan outlined in Table A1. Table A1: Financial Management Action Plan Significant weaknesses Action Completion date 1. Transaction entry and SAP-FABS terminal and end-user devices (desktop, printer, 30 days after authorization centralized at scanner, Uninterrupted Power Supply) installed at the PMU effectiveness AG Office causes delays in and experienced user seconded by CGA. All Project date payments. transactions will be processed and authorized at the PMU and payment from the Assignment Account will be made direct to vendors without recourse to endorsement at AG Office. 2. No internal audit Internal Auditor technical assistance will be provided under 30 days after arrangements. Component 4. The Internal Audit Wing will prepare an effectiveness annual audit plan that will include the Project scope, and a date quarterly internal audit of the Project will be submitted to the WB. 3. Lack of professionally AGP to deputize a suitably qualified and experienced staff 60 days after qualified staff in the Admin familiar with WB disbursement, FM, and procurement effectiveness and Finance Section. procedures as Project accountant. date 4. Second Superintendent Fill second Superintendent position to ensure proper 60 days after position is vacant. segregation of duties. effectiveness date 5. The Sindh Directorate of 2014-15 and 2015-16 audit to be completed. By date of Alternate Energy audit reports effectiveness for 2014-15 and 2015-16 are yet to be issued as of the time of the assessment in August 2017. Disbursement 13. Disbursements will be made quarterly on the basis of reports. Advances will be provided for the following six months based on the budgeted/forecast expenditures for that period. Subsequent IUFRs will document expenditures against the advance received and provide forecast expenditures for the following six months, on the basis of which the amount of funds to be disbursed will be determined. Retroactive financing up to a maximum amount of SDR13,920,000 is permitted for the financing of eligible expenditures incurred for the Project on or after December 18, 2017, until the date of the Financing 37 The World Bank Sindh Solar Energy Project (P159712) Agreement. Procurement 14. A Procurement Plan has been prepared that will set out the selection methods to be followed by SED during Project implementation. The plan will cover the procurement of goods, works, and non- consulting and consulting services financed by the WB. It will represent the first 18 months of Project implementation and will be updated at least annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity, through the Systematic Tracking of Exchanges in Procurement planning and tracking system. 15. Once selected, firms may procure the goods, works, non-consulting services, and/or consulting services required to undertake their commitment/investment from eligible sources, using their own procedures. The transactions under Component 1 are likely to be facilitated by professional transaction advisors that the PMU will procure using Quality- and Cost-Based Selection. The developers of solar power projects under Component 1 would be competitively selected in accordance with the WB’s procurement policies. Additionally, the Project may include public investments in related infrastructure for power evacuation and grid upgrades, to prepare sites for private sector investment. These investments will be subject to appropriate procurement processes under the WB’s Procurement Regulations (2016). 16. The WB will support procurement implementation through two missions per year during the first two years of operation. The frequency of implementation support for procurement will depend on the progress of capacity building in the implementing agencies. Procurement post-reviews will be conducted at least annually by the WB or by consultants or audit agencies acceptable to the WB. Environmental and Social (including safeguards) 17. Since the exact scope and locations relating to each component are not known at this stage, a framework approach has been adopted for environmental and social assessment. An ESMF and RPF have been prepared, and site-specific ESMPs will be prepared during project implementation. 18. Screening process. The initial screening was done through reconnaissance site visits and completion of checklists. The ESMF specifies the type and extent of environmental and social assessment that will need to be carried out, with the help of checklists, before subprojects are initiated. If the screening concludes that the subproject is likely to have significant and/or irreversible negative environmental or social impacts, the subproject will be excluded from the Project. If the subproject is likely to have low to moderate negative impacts, an ESMP will be prepared before the subproject is initiated. For subprojects that will potentially cause low levels of environmental or social impacts, the only assessment required will be the screening carried out with the help of checklists. The checklists and ESMPs prepared for various subprojects will be reviewed by the Project environmental and social development specialist(s). The first two ESMPs and the first two checklists of each subproject type will be shared with the WB for their review and clearance. After the WB experts have provided their guidance/input, the subsequent ESMPs and checklists may be reviewed by the PMU’s environmental and social development specialist(s) and cleared by the Project Steering Committee. They should also be shared with the WB. 19. Mitigation measures. For the three components, mitigation measures will include tree plantation, evaluation of the structural integrity of physical cultural resources, mandatory compliance with 38 The World Bank Sindh Solar Energy Project (P159712) environmental code of practices (covering waste, fuels and hazardous goods, water, drainage, soil, erosion, soil management, etc.), strict adherence to work timings, and preparation of site-specific waste and traffic management plans. Noise will be kept within the permissible limits by using noise abatement devices and barriers, and high-noise activities will be restricted to normal working hours only. It will be ensured that waste from construction activities is not released into any surface or groundwater source. Special care will be taken to keep fuels, lubricants, and chemicals in specially designated areas to avoid soil contamination. The WBG’s environmental health and safety guidelines will be implemented. Land may be required on a temporary or small-scale basis, and to facilitate this an RPF has been prepared. RAPs will be prepared to ensure that people are compensated where required. Screening will also be undertaken for impacts on old buildings. Labor issues will be stringently monitored by the Project, and contracts will include specific clauses requiring compliance with Pakistan’s labor laws. If buildings selected for distributed solar power generation are protected under the Sindh Cultural Heritage Act of 1994, a Physical Cultural Resources Management Plan will be prepared for such subprojects in accordance with the Bank’s OP 4.11, Physical Cultural Resources, and the Sindh Cultural Heritage Act of 1994. 20. Training and capacity building. To ensure implementation of the ESMF, PMU staff will need training and capacity building on the key environmental and social issues associated with the proposed interventions, ESMF/ESMP implementation and monitoring, and awareness-raising. The training program falls under Component 4 and is estimated at US$100,000. 21. Implementation. The PMU will have overall responsibility for safeguards compliance and will include an environmental and social development specialist. Contractors commissioned under Component 1 (e.g., for solar park civil works) or Component 2 (for distributed solar installation) will be required to implement safeguard mitigation and monitoring measures on site, including employing dedicated environmental and social development specialists as part of their field teams. The implementation cost of the ESMF, which includes training, preparation of site-specific plans, and monitoring and reporting, has been estimated at US$1.32 million and is part of Component 4. 22. Documentation and reporting mechanism. Quarterly M&E reports will be produced. Any major accident will be reported immediately and communicated separately. Consultations will be conducted as part of ESMP preparation and implementation. Monitoring and Evaluation 23. The PMU will include M&E staff/consultants, and mechanisms will be explored to provide real- time tracking of SHS installations under Component 3. The WB team will need to intensively monitor overall performance as it will be the first time SED works with the WB. Data and statistics on actual project outputs and outcomes will be gathered, analyzed, and included in the progress reports to be submitted to the WB. Implementation Support Plan and Resource Requirements 24. Implementation support will begin as early as possible to prepare the Government and the implementing agencies ahead of the first disbursement. WB team members for procurement, FM, and safeguards will be based in Islamabad to ensure timely support to the client. Formal supervision and field visits will be carried out at least twice a year. Table A2 details the Implementation Support Plan and WB resourcing requirements. 39 The World Bank Sindh Solar Energy Project (P159712) Table A2: Implementation Support Plan Time Focus Skills needed Resource estimate First 12 - Project management US$175,000, including - Build capacity for project months - Energy expert US$30,000 of travel management - Procurement - Build capacity for 12-48 months - Financial management US$215,250, including procurement, FM, and - Social and US$30,000 of travel safeguards environment per year safeguards Table A3: Summary of WB Skills Mix Requirement Skills needed Number of staff weeks Number of trips TTL 15 10 Co-TTL 15 10 Operations Advisor 8 5 Energy Expert 8 10 Financial Management 4 4 Procurement 4 4 Environmental Safeguards 4 4 Social Safeguards 4 4 40