Document of The World Bank Report No: ICR 2892 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H1770-LA; IDA-H5400-LA) ON A GRANT IN THE AMOUNT OF SDR 2.7 MILLION (US$4 MILLION EQUIVALENT) AND AN ADDITIONAL FINANCING GRANT IN THE AMOUNT OF SDR 1.9 MILLION (US$3 MILLION EQUIVALENT) TO THE LAO PEOPLE’S DEMOCRATIC REPUBLIC FOR THE LAO ENVIRONMENT AND SOCIAL (LENS) PROJECT December 19, 2013 Southeast Asia Sustainable Development Unit Southeast Asia Country Management Unit East Asia and Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective October 30, 2013) Currency Unit = Lao Kip (LAK) At Appraisal LAK 10,500 = US$ 1.00 At Completion (June 30, 2013) LAK 7,800 = US$ 1.00 FISCAL YEAR October 1 – September 30 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AF Additional Financing AusAID Australian Agency for International Development BLX Bolikhamxay Province BP Bank Procedures CA Concession Agreement CAR Compensation and Resettlement CAS Country Assistance Strategy CBI Community and Biodiversity Investments CBO Community Based Organization CCN Community Conservation Network CTMA Chief Technical Management Advisor CPS Country Partnership Strategy DEPP Department of Energy Policy and Planning DEQP Department of Environmental Quality Promotion DESIA Department of Environment and Social Impacts Assessment (MONRE) DOE Department of Environment (MEM) DONRE District Natural Resources and Environment Office (MONRE) ECC Environmental Compliance Certificate E/E Effectiveness/Efficiency EIA Environment Impacts Assessment EMSP Environmental Management Support Project ENV Environment EOP End of Project EPF Environmental Protection Fund ESIA Environment and Social Impacts Assessment ESSF Environment and Social Safeguards Framework FM Financial Management GDP Gross Domestic Product GEF Global Environment Facility GLIP Government Letter of Implementation Policy GOL Government of Lao PDR GNI Gross National Income HMTA Technical Assistance for Capacity Development in the Hydropower and Mining Sector Project (of the Bank, IDA Grant H539) ICR Implementation Completion Report IDA International Development Association IFR Interim Financial Report IOI Intermediate Outcome Indicator IRBM Integrated River Basin Management ISR Implementation Status Report KAM Khammouane Province I KPI Key Performance Indicator LENS Lao Environment and Social Project LFNC Lao Front for National Construction M&E Monitoring and Evaluation MAF Ministry of Agriculture and Forestry MDG Millennium Development Goals MEM Ministry of Energy and Mines MOF Ministry of Finance MONRE Ministry of Natural Resources and Environment MoU Memorandum of Understanding MPI Ministry of Planning and Investment MTR Mid-Term Review NEA National Environment Act NGO Non-Governmental Organization NKD Nam Kading NPA National Protected Area NREM Natural Resource and Environmental Management NRM Natural Resource Management NT-NKD Nam Theun-Nam Kading NT2 Nam Theun 2 Hydroelectric Project NUOL National University of Lao OP Operational Policy PAD Project Appraisal Document PCR Project Completion Report PDEM Provincial Department of Energy and Mines PDO Project Development Objective PESAP Provincial Environmental and Social Action Plan PICE Policy Implementation and Capacity Enhancement PIP Project Implementation Plan PONRE Provincial Department of Natural Resources and Environment PPA Provincial Protected Area PSC Project Steering Committee QAG Quality Assurance Group (of the Bank) QEA Quality at Entry Assessment QSA Quality of Supervision Assessment RBC River Basin Committee SDR Special Drawing Rights SESO Standard Environment and Social Obligations SIMU Social and Environment Impact Monitoring Unit STEA Science, Technology, and Environment Agency (pre-MONRE) SVK Savannakhet Province TA Technical Assistant WMU Window Management Unit (EPF) WREA Water Resources and Environmental Administration (pre-MONRE) Vice President: Axel van Trotsenburg Country Director: Elmas Arisoy (Acting) Sector Manager: Julia M. Fraser Project Team Leader: Viengkeo Phetnavongxay ICR Team Leader: Jean-Michel G. Pavy II LAO PEOPLE’S DEMOCRATIC REPUBLIC LAO ENVIRONMENT AND SOCIAL PROJECT CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I Disbursement Profile 1. Project Context, Development Objectives and Design ................................................ 1 2. Key Factors Affecting Implementation and Outcomes ................................................ 5 3. Assessment of Outcomes............................................................................................ 14 4. Assessment of Risk to Development Outcome .......................................................... 20 5. Assessment of Bank and Borrower Performance ....................................................... 21 6. Lessons Learned ......................................................................................................... 24 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ............ 25 Annex 1. Project Costs and Financing ........................................................................... 27 Annex 2. Outputs by Component ................................................................................... 28 Annex 3. Economic and Financial Analysis .................................................................. 45 Annex 4. Bank Lending and Implementation Support/Supervision Processes .............. 46 Annex 5. Beneficiary Survey Results ............................................................................. 48 Annex 6. Stakeholder Workshop Report and Results .................................................... 49 Annex 7. Summary of Borrower's ICRs ......................................................................... 50 Annex 8. Comments of Cofinanciers and Other Partners .............................................. 60 Annex 9. List of Supporting Documents ........................................................................ 61 Annex 10. Matrix of Project Indicator Changes ............................................................. 63 Annex 11. Critical Risks at Appraisal and Actual Outcomes ........................................ 68 Annex 12. Legal Covenants and their Status at Project Completion ............................. 70 MAP – Project Intervention Area ................................................................................... 72 III A. Basic Information Lao People's Lao Environment and Country: Project Name: Democratic Republic Social Project IDA-H1770,IDA- Project ID: P090693 L/C/TF Number(s): H5400 ICR Date: 12/29/2013 ICR Type: Core ICR MINISTRY OF Lending Instrument: SIL Borrower: FINANCE Original Total XDR 2.70M Disbursed Amount: XDR 4.59M Commitment: Revised Amount: XDR 4.59M Environmental Category: B Implementing Agencies: Environment Protection Fund (EPF) Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Effectiveness: 04/14/2006 04/14/2006 Review: 01/12/2010 Appraisal: 05/24/2005 Restructuring(s): 12/24/2012 Mid-term Approval: 06/30/2005 04/30/2008 06/16/2008 Review: Closing: 12/31/2010 06/30/2013 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Significant Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Government: Satisfactory Satisfactory Quality of Moderately Implementing Moderately Supervision: Satisfactory Agency/Agencies: Satisfactory Overall Bank Moderately Overall Borrower Moderately Performance: Satisfactory Performance: Satisfactory IV C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Quality at Entry Project at any time Yes None (QEA): (Yes/No): Problem Project at any Quality of Yes None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Satisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 48 48 Forestry 25 25 General education sector 7 7 Other social services 11 11 Sub-national government administration 9 9 Theme Code (as % of total Bank financing) Biodiversity 17 17 Environmental policies and institutions 33 33 Other social development 17 17 Participation and civic engagement 16 16 Water resource management 17 17 E. Bank Staff Positions At ICR At Approval Vice President: Axel van Trotsenburg Jemal-ud-din Kassum Country Director: Elmas Arisoy Ian C. Porter Sector Manager: Julia M. Fraser Maria Teresa Serra Project Team Leader: Viengkeo Phetnavongxay Patchamuthu Illangovan ICR Team Leader: Jean-Michel G. Pavy ICR Primary Author: Jean-Michel G. Pavy F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) To strengthen the management of environmental and social issues associated with the sustainable use of natural resources in Lao PDR for enhancing quality of growth and reducing poverty. (Note that an "O" displays the original indicators below) V Revised Project Development Objectives (as approved by original approving authority) To strengthen the management of environmental and social issues associated with the sustainable use of natural resources in Lao PDR. (Note that an "AF" displays the additional financing/restructuring indicators below). (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years O 1: Percentage of the development projects complying with relevant Indicator 1 : safeguard policies Value quantitative or No baseline 60 Not measured Qualitative) Date achieved 04/14/2006 12/31/2010 01/12/2010 Comments (incl. % Not measured achievement) O 2: Percentage of prevalence of selected prohibited environmental Indicator 2 : activities in target provinces Value quantitative or No baseline 50 Not measured Qualitative) Date achieved 04/14/2006 12/31/2010 01/12/2010 Comments (incl. % Not measured achievement) AF OI 1: Percentage of complaints resolved in Bolikhamxay and Indicator 3 : Khammouane Province Value quantitative or 0 50 98 Qualitative) Date achieved 01/12/2010 06/30/2013 06/30/2013 Comments (incl. % Baseline and target were defined in November 2011 (MTR). Achieved. achievement) AF OI 2: Percentage of Environmental Compliance Certificates (ECCs) Indicator 4 : issued by WREA that are of adequate quality as judged by a third party annually Value quantitative or 0 60 80 Qualitative) Date achieved 01/12/2010 06/30/2013 06/30/2013 Baseline and target were defined in November 2010 after the Additional Comments Financing. Indicator measured inclusion of Standard Environment and (incl. % Social Obligation (SESO) into Concession Agreement (CA) for achievement) hydropower and mining projects approved after 06/30/2010 VI (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years O IOI 1: Number of existing hydropower projects responsive to the Indicator 1 : national policy by preparing action plans and implementing agreed mitigation measures contained therein 6 of 8 private hydropower projects in Value No target operation; 1 of 16 (quantitative No baseline defined private or Qualitative) hydropower projects under construction Date achieved 04/16/2006 12/31/2010 01/12/2010 Comments It is noted that after 2010, 21 hydropower CAs were signed and all have (incl. % SESO attached. achievement) Indicator 2 : O IOI 2: Framework for addressing cumulative impacts in NT-NKD Value Institutional Framework in (quantitative None framework in place or Qualitative) place Date achieved 04/14/2006 12/31/2010 01/12/2010 Technical working group established by end 2010. Framework developed Comments in 2012: Decree 132/PM NT-NKD established River Basin Committee (incl. % (RBC); RBC Secretariat created; 5-year strategy drafted; capacity achievement) building of key agencies and community network initiated O IOI 3: Percentage of Project/development activities in compliance with Indicator 3 : the Decree on Compensation and Resettlement (CAR) Value CAR decree approved (quantitative 25 Not measured 7/2005 or Qualitative) Date achieved 04/14/2006 12/31/2010 01/12/2010 Comments (incl. % Not measured achievement) O IOI 4: Number of environmental management plans being effectively Indicator 4 : implemented by provincial governments Value (quantitative No baseline 6 3 or Qualitative) Date achieved 04/14/2006 12/31/2010 01/12/2010 Comments Three Provincial Environment Strategy and Action Plan (PESAP) (incl. % developed. Implementation initiated. achievement) O IOI 5: Number of protected areas actively managed according to Indicator 5 : management plans Value (quantitative No baseline 6 6 or Qualitative) VII Date achieved 04/14/2006 12/31/2010 01/12/2010 Comments Six Provincial Protected Areas (PPAs) have a management plan and (incl. % implementation has been initiated. achievement) O IOI 6: Number of communities benefitting from sustainable livelihood Indicator 6 : models or environmental management Target undefined Value in PAD; defined (quantitative No Baseline as 60 in 200 or Qualitative) Financing Agreement Date achieved 04/14/2006 12/31/2010 01/12/2010 Comments The 200 villages comprise about 16,700 beneficiaries including 6,050 (incl. % women. achievement) Indicator 7 : O IOI 7: Percentage annual operating costs per volume of transaction Value (quantitative No baseline 6 2.5 or Qualitative) Date achieved 04/14/2006 12/31/2010 01/12/2010 Comments Calculated as the ratio of the amount of IDA operating costs to the (incl. % amount of IDA subgrants disbursed. The ratio is an underestimate since it achievement) does not include EPF own funds for operating costs. O IOI 8: Percentage of subgrants financed by the original grant that have Indicator 8 : been completed satisfactorily Value (quantitative 0 80 79 or Qualitative) Date achieved 04/14/2006 12/31/2010 01/12/2010 Comments Of 154 total subgrants, 152 subgrants were physically and financially (incl. % completed. Although their completion was often delayed, 79% were rated achievement) satisfactory or higher. AF IOI 1: Percentage of subgrants financed by the additional grant that Indicator 9 : have been completed satisfactorily Value (quantitative 0 80 100 or Qualitative) Date achieved 01/12/2010 12/31/2012 06/30/2013 Comments (incl. % 19 subgrants were physically completed, mostly satisfactorily. achievement) AF IOI 2: Number of database for tracking type and number of Indicator 10 : development projects for which ECCs are issued in the selected provinces is established Value (quantitative 0 3 3 or Qualitative) Date achieved 01/12/2010 12/31/2012 12/31/2012 Comments (incl. % Achieved. achievement) AF IOI 3:Provinces where units responsible for monitoring social impacts Indicator 11 : and a functional complaint handling mechanism are established VIII Value Bolikhamxay; Bolikhamxay; (quantitative 0 Khammouane Khammouane or Qualitative) Date achieved 01/12/2010 12/31/2012 06/30/2013 Comments (incl. % Achieved. achievement) Indicator 12 : AF IOI 4: Status of the River Basin Committee (RBC) for NT-NKD Value Established with (quantitative 0 Established delay or Qualitative) Date achieved 01/12/2010 06/30/2010 06/30/2013 Comments PM decree 132 on NT-NKD RBC issued on 10/17/12. RBC members (incl. % appointed. RBC meetings carried out. MONRE decree 3302 on NT-NKD achievement) RBC Secretariat issued. Secretariat operational (staff and office). AF IOI 5: Status of implementation model for a river basin organization Indicator 13 : in Lao PDR Value (quantitative None Developed One model tested or Qualitative) Date achieved 01/12/2010 12/31/2012 06/30/2013 06/15/10 PM decree 293 on Integrated Water Resources Management. Comments Paper on RBC implementation model prepared and shared (05/13). (incl. % Piloting implementation options still ongoing (including support for achievement) options from ADB and M-IWRM). AF IOI 6: Existence of guidelines that incorporate ECC measures in Indicator 14 : Concession Agreements for hydropower projects that are signed after enactment of the 2010 Environment Impact Assessment (EIA) Decree Value Guidelines Guidelines (quantitative None Available Available or Qualitative) Date achieved 01/12/2010 06/30/2013 06/30/2013 Comments Standard Environment and Social Obligations (SESO) developed and (incl. % included in concession agreements, but further improvement is ongoing. achievement) AF IOI 7: Existence of social safeguard training program for agencies and Indicator 15 : provinces participating in the Project and number of trainees Value (quantitative 0 Exist; 60 Exist; 131 or Qualitative) Date achieved 01/12/2010 12/31/2012 06/30/2013 Short-term curricula developed. Six training sessions carried out for Comments central and provincial governmental agencies and private sector for 131 (incl. % persons. Additional, long-term curricula developed benefiting 535 achievement) students. AF IOI 08: National guideline for ethnic groups' consultation has been Indicator 16 : completed and key staff has been trained on how to conduct such consultation Value Guideline Guideline (quantitative None established and established and or Qualitative) training provided training provided Date achieved 01/12/2010 12/31/2012 06/30/2013 Comments Guidelines in English and Lao. Training included 99 people from central IX (incl. % level, 13 provinces, districts, and 6 villages including grievance achievement) committees. AF IOI 09: Number of site plans for protected areas available (and the Indicator 17 : site plans identify priority actions). Value (quantitative 0 6 6 or Qualitative) Date achieved 01/12/2010 12/31/2010 12/31/2010 Comments (incl. % Achieved. achievement) AF IOI 10: Percentage of the priority activities identified that are being Indicator 18 : implemented in the six protected areas Value (quantitative 0 60 less than 50 or Qualitative) Date achieved 01/12/2010 12/31/2012 06/30/2013 Comments (incl. % Partially achieved. achievement) Indicator 19 : AF IOI 11: Number of conservation communities established in NT-NKD Value (quantitative 0 10 12 or Qualitative) Date achieved 01/12/2010 12/31/2012 12/31/2012 Comments (incl. % Exceeded. achievement) Indicator 20 : AF IOI 12: Percentage of EPF's annual administrative cost per subgrant Value (quantitative 33 15 13 or Qualitative) Date achieved 01/12/2010 12/31/2012 06/30/2013 Comments (incl. % Achieved. achievement) AF IOI 13: Percentage of NT2 revenue received by EPF and WREA for Indicator 21 : financing their respective priority development projects Value NT2 revenues not yet MONRE 3% (quantitative Target undefined available EPF 0% or Qualitative) Date achieved 01/12/2010 12/31/2010 06/30/2013 Project supported mechanism for MONRE (then was WREA) to obtain 3 Comments % of NT2 revenues. MONRE received 1.5 billion LAK in 2011 and (incl. % 2012. EPF does not receive NT2 revenues even though GLIP of NT2 achievement) identified EPF as a recipient. X G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 12/29/2005 Satisfactory Satisfactory 0.00 Moderately Moderately 2 03/13/2007 0.24 Unsatisfactory Unsatisfactory Moderately Moderately 3 12/05/2007 0.77 Satisfactory Satisfactory Moderately Moderately 4 02/10/2009 1.89 Satisfactory Satisfactory 5 11/04/2009 Satisfactory Satisfactory 2.81 6 06/21/2010 Satisfactory Satisfactory 3.65 7 05/18/2011 Satisfactory Satisfactory 4.77 Moderately Moderately 8 08/10/2011 5.64 Satisfactory Satisfactory Moderately Moderately 9 09/08/2012 6.80 Satisfactory Satisfactory Moderately Moderately 10 02/20/2013 7.07 Satisfactory Satisfactory Moderately Moderately 11 07/11/2013 7.14 Satisfactory Satisfactory H. Restructuring (if any) ISR Ratings Amount Board at Disbursed at Restructuring Reason for Restructuring Approved Restructurin Restructurin Date(s) & Key Changes Made PDO Change g g in USD DO IP millions - Revision of PDO and indicators to improve realism and ensure of measurement of achievements - Request of additional financing (US$3m) to scale 01/12/2010 Y S S 3.19 up activities and allow for implementation of delayed priority sub-grants and related extension of closing date by 30 months (12/31/2010 to 06/30/2013) - Reallocation of grant proceeds (SDR 170,000) from unallocated category to 12/24/2012 N MS MS 7.02 finance additional activities under sub-grants A and B, consultant services and training XI If PDO and/or Key Outcome Targets were formally revised (approved by the original approving body) enter ratings below: Outcome Ratings Against Original PDO/Targets Moderately Unsatisfactory Against Formally Revised PDO/Targets Satisfactory Overall (weighted) rating Moderately Satisfactory I. Disbursement Profile XII 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal (a) Country and Sector Context Socio-demographic context.1 Laos is a landlocked country with a 2005 population of 5.8 million, of which 73 percent were living in rural areas. Only 27 percent of the population aged 15 and above had higher than primary education. The country was one of the poorest in South-East Asia with a Gross National Income (GNI) per capita of US$450. The country is ethnically extremely diverse with 49 ethnic groups, some very small and highly vulnerable. At the time, about 77 percent of the labor force was engaged in agricultural activities, dominated by rice cultivation in lowland areas. Economic context. Economic growth increased to seven percent in 2005. Lao’s economy continued to be heavily dependent on capital-intensive natural resource exports. Over 50 percent of the Gross Domestic Product (GDP) was generated by the agricultural and natural resources sector such as forestry, hydropower, and mining. The economy benefited from increasing foreign direct investment in hydropower, copper and gold mining, logging, and construction. Economic growth reduced poverty rates to 34 percent in 2002/3. Natural resources and environment sector. The country possesses significant natural resource assets. It is extremely well endowed with water resources that have the potential to generate 23,000 MW of hydropower, an important asset for engaging in trade with the economically booming neighbors.2 Forested land covered more than 40 percent of the country, with 20 percent nominally under conservation status.3 Forest cover had been decreasing due to threats stemming from logging, agricultural expansion, hydro-electricity projects, and mining. Environmental and social safeguards. Beginning 2000, the Government of Lao PDR (GOL) started to strengthen its policy, legal and institutional framework for environmental and social safeguards. It initiated decentralization of environmental functions to provinces and established procedures for environmental assessment. A turning point towards better practices was reached by the development of the Nam Theun 2 Hydroelectric Project (NT2) 4 addressing previous shortcomings of hydropower and mining projects by extensive, consultative work on impact assessment and preparation of mitigation and compensation plans. At the same time, uncoordinated, weak institutions, inadequate human resources (two percent of public sector staff), and very low governmental budget (less than one percent of GOL budget) constrained implementation and enforcement of ambitious Environment and Social Impacts Assessment (ESIA) legislation and policies. Key sector issues identified at appraisal included: (i) depletion of natural resources, especially forest and biodiversity; (ii) rapid hydropower and mining development and 1 World Databank, Lao PDR, 2005 2 World Bank, Lao Development Report, 2010 3 This figure does not include protection or production forests. 4 Project financing: IDA grant US$20m; IDA Partial Risk Guarantee US$50m; MIGA Guarantee US$200m. See PAD Report 31764-LA of March 31, 2005 1 associated environmental and social challenges, especially those related to relocation of ethnic groups; (iii) national policy focusing on economic growth and poverty reduction potentially leading to adverse environmental and social impacts; and (iv) weak implementation of the legal and policy framework for social and environmental management. (b) Rationale for Bank Assistance At appraisal, Lao PDR was well placed to achieve economic growth and reduce poverty, provided that the GOL could increase the contribution of natural resources (especially hydropower and mining) to development, and undertake reforms to improve governance. The latter included improving the management of environmental and social issues and addressing the legacy of past large hydropower projects. In 2005, the Environment Protection Fund (EPF) was established with support from the World Bank and Asian Development Bank (ADB) as an administratively and financially autonomous organization to strengthen environmental protection, sustainable natural resource management, biodiversity conservation, and community development in Laos. The EPF was expected to become the primary vehicle to fund environmental investments in the country including revenues from NT2. This was well reflected in the Laos Country Assistance Strategy (CAS 31758-LA, March 2005) as all but two CAS objectives5 support the Project design and the recommendations of the Sixth National Socioeconomic Development Plan (NSEDP, 2006-2010).6 (c) Higher level objectives The higher-level objectives to which the Project contributed were long-term poverty reduction and equitable economic growth and social development as a prerequisite to achieve Lao’s long-term development goals through sustainable use of natural resources. 1.2 Original Project Development Objectives (PDO) and Key Indicators (a) Project Development Objective The PDO, as stated in the original Project Appraisal Document (PAD) and the Development Credit Agreement, was to assist the Recipient to strengthen the management of environmental and social issues associated with the sustainable use of natural resources in Lao PDR for enhancing quality of growth and reducing poverty. (b) Key Performance Indicators The PAD proposed two key performance indicators (KPIs):  Percentage of development projects complying with relevant safeguard policies (target 60 %); and  Percentage prevalence of selected prohibited environmental activities in target provinces (target 50 %). 5 (a) Strengthen management of key drivers for future growth by strengthening policies and resources for environment conservation, improving rural livelihoods, and increasing sustainability of natural resource use; and (b) support implementation of NT2 by extending the capacity building of GOL outside the NT2 Project area to cope with any potential cumulative environment and social impacts. 6 NSEDP, Chapter Natural Resources, and Environment, p. 86 ff. 2 It should be noted that despite a focus of the PDO on growth and poverty reduction, no specific KPI was defined. Schedule 7 to the Development Grant Agreement for the original financing listed a series of KPI, which did not match those in the PAD. 1.3 Revised PDO and KPIs, and Reasons/Justification The PDO was revised in 2010 during a Board approved (level-one) restructuring which included an extension of the closing date and approval of additional financing (AF). The PDO became: to assist the recipient to strengthen the management of environmental and social issues associated with sustainable use of natural resources in Lao PDR. The last part of the PDO, “… for enhancing quality of growth and reducing poverty” was removed, as it was meant only as an adjective to describe the “higher objective” (see 1.1.c). In fact, the Project did not have growth or poverty interventions and no KPI measured growth or poverty outcomes. The two KPIs were revised in order to improve measurability, clarity, and attribution. After restructuring the KPIs became:  Percentage of environment compliance certificates (ECCs) issued by Water Resources and Environmental Administration (WREA) that are of adequate quality as judged by a third party annually (no target proposed); and  Percentage of complaints resolved in Bolikhamxay and Khammouane Provinces (no target proposed). The FA amended, restated and replaced the DGA for the original financing, and thus covered both the original and the additional financing for the entire project from the effective date of the FA. 1.4 Main Beneficiaries In the first phase of the project (commenced under the original financing) with an on- demand subgrant mechanism, the target group was very broad. It included national, provincial and district governmental agencies involved in environmental and social management such as the WREA and other beneficiaries including community groups, mass organizations or civil society organizations, educational and research institutions. Beneficiaries in the three provinces of central Lao (Bolikhamxay, Khammouane, and Savannakhet) were eligible to apply for subgrants. In Phase 2 (commenced under the additional financing), the subgrant minimal amount was increased and beneficiary selection became based on existing plans. Subgrants were distributed to various national and provincial departments of the Ministry of Natural Resources and Environment (MONRE), which had replaced WREA just before the beginning of Phase 2 (i.e. after AF approval). Such beneficiaries included MONRE’s Department of Planning and Cooperation (DPC), Department of Environment Quality and Promotion (DEQP), Department of Environment and Social Assessment (DESIA), Department of Forest Resources Management (DFRM) as well as the Provincial Offices of Natural Resources and Environment (PONRE) in the three above-mentioned provinces and the Nam Theun Nam-Kading River Basin. Communities were indirect (subgrants implemented by these departments and agencies) and direct (subgrants to Community Conservation Network) beneficiaries. 3 1.5 Original Components Component 1: Policy Implementation and Capacity Enhancement (PICE; US$1.91 million). This component was intended to strengthen capacity for environmental and social policy formulation and implementation through demand-driven capacity building subgrants offered through the five PICE sub-windows: (A1) Environmental and Social Monitoring and Policy Implementation Support (US$280,700); (A2) Integrated River Basin Management (US$466,000); (A3) Hydropower Sector Policy Support (US$479,800); (A4) Social Safeguards Management (US$390,600); and (A5) Environmental Education and Awareness (US$292,900). Component 2: Community and Biodiversity Investments (CBI; US$1.74 million). This component used demand-driven subgrants to strengthen conservation practices and livelihood improvements in and around protected areas and to improve localized environmental conditions through partnership arrangements involving communities, local governments, and civil society organizations in three central Lao provinces through the two CBI sub-windows: (B1) Protected Area Management (US$1,165,850); and (B2) Community Investment (US$575,000) Component 3: Management and Monitoring Support (Window Management Unit or WMU; US$1.15 million). This component included three sub-components: (C1) Capacity Building of EPF windows (US$766,350) through the establishment of a WMU responsible for implementing the PICE and CBI windows; (C2) Marketing and Business Development of EPF’s subgrants (US$302,200); and (C3) Guidance, Evaluation, and Monitoring (US$79,000). The component was meant to support the Project’s compliance with agreed fiduciary and safeguard requirements and ensure effective collaboration among governmental agencies, relevant projects, development partners, and other stakeholders. 1.6 Revised Components In Phase 2, various changes were made in the activities funded by each component. Component Additional allocation; Comments/description related to revised components AF; full costs (US$) A1 450,000; 730,700 Continued support to build capacities of national and targeted provincial agencies to develop, implement, and monitor environment and social safeguard policies A2 340,000; 806,000 Continued support to establishment of framework for NT- NKD River Basin Committee A3 0; 479,800 Deleted; funded from a stand-alone project (TA for Capacity Building in Hydropower and Mining Sector; Grant H5390) A4 1,100,000; 1,490,600 Continued support to capacity building on social assessment and review as well as public outreach and implementation of EIA decree by assisting the establishment of DESIA; update of the national policy on natural resources and environment, climate change, pollution control A5 160,000; 452,200 Continued support to generation of public knowledge and awareness but with a specific focus on social assessment and ethnic consultation through development of social safeguard curricula development at the National University of Lao PDR and guidelines for ethnic group consultation B1 150,000; 1,315,850 Continued limited support for PPA management for up- 4 dating protected areas regulations and consultations including implementation of PPA management plans priorities B2 450,000; 1,025,000 Support was given for the development of a larger integrated Community Conservation Network (CCN) in the NT-NKD basin MMS 350,000; 1,497,550 Reduced portfolio resulting in reduced budget for WMU technical role and a focus on subgrant procurement, supervision and monitoring. 1.7 Other Significant Changes Change Date Justification Approval Restructuring (level 1) Extension of 01/12/2010 Closing date extension was 30 months (December 31, 2010 to Board closing date; June 30, 2013). The extension was needed to complete Additional activities under the original Project constrained by Financing; implementation delays and the AF scaled-up capacity-building PDO change efforts related to social impact assessment and integrated river basin management. Restructuring (level 2 Reallocation 10/19/2009 To reallocate funds between disbursement categories and Country of proceeds increase the amount of the Special Account to US$500,000. Director Reallocation 12/20/2012 To use funds from the unallocated category and estimated Country of proceeds remaining balances under the goods and incremental operating Director cost categories to fund additional activities under subgrants A, B, consultant services and training. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparations, Design, and Quality at Entry (a) Soundness of the background analysis. Key Project activities were initially intended to be part of NT2.7 However, during pre- appraisal of NT2 in 2003, it was decided to develop a stand-alone project, to extend environmental and social management policies and practices established for the NT2 beyond its limited geographic intervention area8 and to build institutional capacity to implement those policies. This stand-alone project became LENS. Retrospectively, this was the correct decision in view of the rapidly increasing hydropower and industrial developments in the country and the weak governmental framework and capacity to address related environmental and social issues. The team was able to draw on the extensive preparatory work carried out for NT2, so preparation lasted only six months. Project design was built on a key lesson of the sector: Along with the development of policies and laws, significant attention should be paid to the development of institutions, building of human resources, establishing systems, involvement of communities and capacity at the local levels (provincial, district and communities). In addition, component 3 was designed to strengthen the EPF’s capacity to implement the Project. The subgrant approach allowed GOL to 7 See World Bank PAD .Report No. 31764 8 NT2 watershed (Nakai Nam Theun National Protected Area and two corridors), the Nakai plateau, and the downstream areas along the Nam Theun and Xe Bang Fai rivers. 5 address specific beneficiary priorities and needs based on their existing capacity and ownership. The provision for an open-menu of activity-focused subgrants afforded a flexible project structure. The design and mandate of the EPF for channeling funds as subgrants in a flexible and demand-driven manner through its thematic windows fulfilled this purpose. (b) Assessment of Project design The purpose of the Project was to support the GOL in building and strengthening capacity at all levels for sustainable management of its natural resources. The Project design, targeting in parallel the development and implementation of new policy and legal instruments, the strengthening of technical and institutional capacity of stakeholder and the implementation of environmental priorities in three target provinces, was appropriate. It involved actors at all levels, including civil society, through a systemic approach combining capacity building, planning and implementation, and addressed GOL and Bank priorities for sustainable growth. It responded to lessons from environmental capacity-building projects to establish a systematic approach resulting in a set of instruments and tools. However, this arrangement was complex and difficult to manage by the EPF as a newly established implementing agency because of: (i) coordination needs ensuring expected synergies between the three pillars with multiple beneficiaries and actors; (ii) uncertainty related to the nature, impact and results of demand-driven subgrants; and (iii) pilot introduction of support for the devolution of environmental management functions to provinces and districts ahead of the 2012 Sam Sang directive. 9 The choice of the components and their funding allocation was adequate and linked tightly to the objective, except that “ensuring quality of growth and reducing poverty” was only indirectly supported by the design. (c) Assessment of Project’s strategic choices. Limited project intervention area on the ground. The Project’s intervention on the ground targeted Bolikhamxay, Khammouane and Savannakhet, all in central Lao, to avoid spreading limited resources too widely and to enhance the impact of NT2. The rationale for selecting central Lao was the importance of its national and international biodiversity and the need to strengthen GoL’s capacity to better manage environmental and social issues in parallel with infrastructure development. Assessment: The geographic focus helped to test the approach on a manageable scale so lessons could inform future scale-up. It also responded to the limited budget and suited the EPF’s expected learning curve. Sector-wide demand-driven capacity building and investments. The Project design specifically aimed at improving implementation capacity through support for development of institutions, human resources, systems, tools and involvement of community and capacity at national, provincial, district and community level. Assessment: The approach addressed adequately ownership, commitment, and sustainability of capacity building efforts. However, piloting demand-driven approaches at all levels involved too wide a range of beneficiaries and produced a scattered impact. 9 In 2012, the governmental directive on delegation of responsibilities and benefits to local authorities (three-built: provinces, districts, villages) was passed. It is known as Sam Sang. 6 Using a new financial mechanism. The Project used two out of five of EPF’s thematic windows for smaller and larger subgrants (below/above US$10,000). The design was built on EPF’s set-up, a flexible, demand-driven instrument with an open-menu of options coupled with technical assistance to match the capacity of sub-grantees and implementing agencies. Assessment: Implementation demonstrated the feasibility of this novel approach for Lao PDR while pointing at potential efficiency risks and high administrative costs for multiple, small-size grants. (d) Institutional set-up for implementation arrangement To compensate for the emerging nature of the EPF, the implementation arrangements provided for the establishment of a Project funded WMU, essentially a Project Management Unit, staffed with consultants. Assessment: This was a logical decision; however, the Project’s funding allocation to EPF was insufficient to enable its secretariat to acquire solid institutional and technical capacity, visibility at national level and among development partners and arrangements for receiving sufficient external financial resources. (e) Risks assessment The mains risks identified included: (i) delays in implementing the agreed policy and regulatory reforms; (ii) inadequate availability of human and financial resources; (iii) EPF’s capacity as a new organization; (iv) lack of capacity at central and local levels; and (v) lack of recurrent budget at provincial level to ensure sustainability of subgrants. The overall risk was rated “modest”. Assessment: The risk assessment lacked a key risk related to the EPF’s ability to access NT2 revenues. More, NT2 revenues were presented as mitigation measures for some identified risks. This gap in the risk analysis contributed to inefficiency in addressing lack of human and financial resources which slowed implementation. Further, the risk assessment did not adequately rate the risks related to the use of demand-driven finance instruments through the EPF as a new institution with limited staff capacity, operational budget, and implementation experience. The overall rating should have been significant. See Annex 11 for a full discussion of risks at appraisal and their actual outcomes. (f) Quality at Entry - Moderately Satisfactory. Based on the analysis above, the Quality at Entry is rated as MS. The PDO and design were well aligned with GOL policy and the CAS. Lessons from similar sector projects were incorporated. The implementation arrangements and operational instruments developed during preparation (PIP, OM for EPF, EPF recruitment plan, draft forms for subgrants applications, PP, ToRs for three major subgrants, etc.) were of adequate quality and reviewed extensively by GOL and the three participating provinces. However, the short preparation time resulted in an underestimation of EPF’s capacity to rapidly become operational10and financially and institutionally sustainable during the project. The design included as a mitigation measure at EPF/WMU level the recruitment of a two-year Chief Technical Management Advisor (CTA) tasked to develop and implement an EPF training program, and to assist during the critical learning stage. Retrospectively, this arrangement failed to meet expectations. Most importantly, the design proposed a largely deficient monitoring and evaluation(M&E) 10 The constitution of the EPF Board, the appointment of EPF Executive Director, and the recruitment of a CTMA which were conditions of effectiveness, delayed implementation by about a year. 7 system with poorly defined indicators and insufficient support or incentive to carry out monitoring and to report on outcomes (see section 2.3 also). 2.2 Implementation Two key factors affected the Project during its entirety: limited capacity of the EPF and challenging coordination among governmental agencies impacting delivery of legal, institutional and policy subgrant outputs particularly during sector institutional reforms. Other issues impacted either the original or the additional financing phase (see Phase 1 and Phase 2 details below). Limited capacity of EPF. EPF’s was a new autonomous institution operating with a small budget from an endowment fund and with few staff. In Phase 1, the Project supported the development of a detailed subgrant management system and provided technical and financial assistance aiming to assist EPF with evolving into a strong, competent institution. However, recruitment of EPF staff for the Project was suffered from a lack of qualified human resources in Laos, particularly in environment and social impacts, planning and monitoring, procurement and financial management. One consequence, due also to the low competitiveness of the EPF salary scale, was a high staff turnover especially of financial and procurement staff. More, the demand- driven approach resulted in a high number of subgrants (154 in Phase 1 and 19 in Phase 2) involving significant technical support and administrative costs. Finally, EPF’s expected flow of funds from NT2 revenues could not be reached, impacting further EPF’s limited operational budget. The disconnect between the limited EPF capacity and the large volume of subgrants, aggravated by low capacity of sub- grantees for identification, implementation and fiduciary management, resulted in delayed implementation and weak monitoring. In Phase 2, a decision was taken to redress the unbalanced situation by shifting the subgrant approach from demand-driven to planned subgrants while reducing their number (mostly CBI), increasing funding amounts per subgrant, and centralizing fiduciary functions to the EPF. Assessment: This decision was correct as it entailed a number of advantages: (a) reduction of EPF’s administrative costs while improving fiduciary efficiency; (b) achievement of more tangible and measurable results and improved monitoring; and (c) reallocation of resources for completing policy and institutional reforms (PICE component) reconfirmed by GOL as sector priorities during Phase 1 and for consolidating community conservation efforts under one umbrella subgrant, the Community Conservation Network (CCN). The revised approach in Phase 2 successfully reached the Project’s main targets. Nonetheless, EPF’s financial, technical, and human capacity remained below expectations to fully accomplish its mandate. Challenging coordination among governmental agencies and delivery of outputs particularly during sector institutional reforms. Effective coordination and cooperation among multiple agencies were difficult and time-consuming due to limited human resources at each agency and strong vertical administration and decision-making practices. Priority subgrants under PICE11 aimed to address complex legal and institutional issues that required active political support from high-level 11 NT-NKD RBC, NPSH implementation, DESIA capacity building (see annex 2) 8 decision makers (Project Steering Committee/EPF Board) to overcome implementation challenges. Assessment: Despite favorable implementation arrangements, these processes were time-consuming and reduced overall Project efficiency particularly during institutional reforms primarily in Phase 1, 12 when engagement of stakeholders needed to be renewed (change in counterparts, renewal of training and awareness-raising, etc.). In addition, EPF’s performance to engage with other development partners in the sector was less than satisfactory as demonstrated by EPF’s lackluster reputation and lack of new partnerships. Phase 1 (2006-2010) suffered from delayed effectiveness. WMU staff and Chief Technical Management Advisor (CTMA) recruitment, a condition of effectiveness, took about 10 months thereby delaying effectiveness by as many months. Significant time was also required to secure approval of operational procedures and manuals as well as to clarify the roles and responsibilities of the EPF, the Project Steering Committee (PSC), and the Science, Technology, and Environment Agency (STEA). Assessment: Delays were due to the lack of readiness for implementation, which was foreseeable given the emerging nature of the EPF at that time and the high qualifications needed for the CTMA position. Unfortunately, this slowed implementation early on as it took another two years to complete all recruitment and reach a steady state of implementation. The Project rating of moderately unsatisfactory in 2007 corresponded to the implementation delays related to late start- up, EPF’s low capacity, and inexperience with Bank procedures and high staff turnover. Phase 2 (2010-2013) restructuring and AF responded to the experiences and lessons learned under Phase 1. The AF of US$ 3 million for three more years covered the identified financing gaps to complete major PICE and CBI activities and to continue capacity building priorities related to: (a) implementation of the CAR and ESIA decrees at central and local level; and (b) planning and management of cumulative impact using an integrated river basin management approach for NT-NKD, including development of a conservation community network, both to enhance achievement of the PDO. In retrospect, the AF amount and timeframe corresponded adequately to the design changes (i.e. larger, lesser and pre-identified subgrants) and forthcoming additional Bank support to the hydropower and mining sector (under a different technical assistance project), which obviated the need for hydropower policy support under Phase. Assessment: The restructuring and AF created conditions for faster and better implementation. The two Phase 2 effectiveness conditions were appropriate and did not cause delays. However, three shortfalls can be cited: (a) the restructuring could have been introduced at MTR; (b) modifications in the M&E framework did not fully respond to the gaps identified (see 2.3.); and (c) despite renewed attention on EPF’s capacity, its budget for capacity building was reduced. Other external factors and events impacted Phase 2. The creation of a new ministry in charge of the Environment (MONRE) created new capacity building needs for the PICE component (US$360,000 were reallocated to MONRE). Further, it required the development of new cooperation and coordination arrangements between EPF and 12 Before 2006 protected areas were under the Ministry of Agriculture and Forest (MAF). In 2006, MEM was created. In 2009 WREA was created. In 2011/2012 MONRE absorbed WREA and some staff responsible for PA and land management from MAF. 9 MONRE. The governmental decentralization directive on devolution of environmental management functions to provinces and districts in late 2012 (Sam Sang) strengthened political support for the Project although without an adequate increase of financial resources for provinces and districts. Access to NT2 revenues for the environment and forestry sector was gained in 2011/2012, though MONRE, not EPF, secured these revenues. Nonetheless, it is contributing to the sector’s needs thereby increasing the sustainability of Project achievements. On the other hand, despite being a key target of the Project, EPF was not able to access directly these resources. The increasing developments in the hydropower and mining sector accelerated during Phase 2 and put an additional burden on the slowly growing environmental and social management capacity supported by the Project. Particularly, DESIA, created in 2009, and the provincial and district level offices struggled to keep pace to ensure compliance with the social and environmental frameworks. Assessment: Project implementation arrangements and design in Phase 2 were flexible enough to respond to these factors and to deliver the intended results with minor implementation problems except EPF’s inability to tap NT2 revenues. Future and continued capacity- building efforts are still needed to consolidate and strengthen the new environmental institutions such as MONRE (DESIA, PONRE), the District Office of Natural Resources and Environment (DONRE) and the RBC. 2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization (a) Overall M&E rating: Moderately Unsatisfactory. M&E design and quality: Unsatisfactory. The original results framework included a few poorly defined indicators lacking baseline data, targets, and monitoring methods and loose connections to the PDO. It did not measure EPF’s increased institutional capacity or general capacity gains achieved with beneficiaries of subgrants (e.g. number of beneficiaries trained, gender analysis, number of community beneficiaries).13 Adding to the confusion, the Development Grant Agreement included an annex with indicators, which were not fully synchronized with the PAD results framework KPIs. Further, none of the EPF manuals included a specific M&E framework, which could have been used to guide EPF with M&E and progress reporting. The Project’s budget to establish and implement a WMU-based M&E system was too limited. M&E implementation: Moderately Unsatisfactory. Several factors influenced the fluctuating quality of M&E (and ratings in ISRs):  Indicators. The inappropriate quality of the original indicators, partially due to the demand-driven (open) nature of the interventions, resulted in multiple informal and inconsistent revisions from the Bank team as documented in the ISRs. During Phase 1, the two KPIs were not measured. After restructuring, the revised result framework was improved but still lacked baseline data and targets (see annex 10 for indicator revisions). The two revised KPIs were measured but did not fully assess the PDO achievements. One indicator 13 The PAD proposed a capacity-building composite index for main beneficiaries (annex 4). But it was not being implemented due to late project start and early resignation of CTMA. An institutional capacity building assessment was not carried out during preparation. 10 measured the strengthening of management of a specific social issue, in this case the grievance mechanism in two provinces. The other indicator measured the strengthening of management of a specific environmental issue, in this case the hydro-mining environmental standards (for a comprehensive analysis of the evolution of indicators during the Project, see Annex 10.)  Tool. EPF developed a comprehensive subgrant database of use for all windows except that it did not include linkages to M&E indicators. Phase 1 subgrants were captured in this database. In Phase 2, the database was not up- dated and thus was incomplete and therefore not in use at closure.  Reporting. EPF produced its annual reports starting 2006 but it was not of a suitable standard. It was only in 2010 that the EPF produced the first M&E report based on M&E data when most of the Phase 1 subgrants were completed. The first comprehensive progress report to the Bank was submitted only after the restructuring in early 2011. The report focused on the subgrant implementation and not on its impact, risks, or sustainability. However, reporting improved and in June 2013, EPF produced a comprehensive Project Completion Report in June 2013.  M&E function. M&E was meant to be the responsibility of the Project’s PICE coordinator. But this function was handed over to the provincial facilitators who supervised subgrants on the ground. EPF’s capacity to analyze the data collected in order to inform implementation decisions and stakeholders (Board, PSC, Bank) was limited due to lack of training and deficiencies in M&E design. M&E Utilization: Moderately Unsatisfactory. The M&E data was used to inform EPF’s annual report presented at annual stakeholder meetings and for dissemination on its webpage (in English and Lao). The subgrant database model was extended to cover all EPF windows. In the future, EPF plans to consolidate these currently separate databases and to link them to its financial management system. However, the information generated was not used as feedback to improve the EPF subgrant mechanisms (application forms, monitoring report forms). 2.4 Safeguards and Fiduciary Compliance (a) Safeguard Compliance – Rating: Satisfactory Environmental and Social Safeguards. The Project was correctly designated as a Category B project and triggered four Bank safeguard policies on Environment Assessment OP/BP 4.01; Natural Habitats OP/BP 4.04, Involuntary Resettlement (OP/BP 4.12), Indigenous Peoples (OP/BP 4.10). An Environmental and Social Safeguard Framework (ESSF) was prepared and disclosed on June 6, 2005 covering all four safeguard policies. No additional safeguards were triggered for Phase 2. Compliance and process. The Bank approved a subgrant template that included safeguard screening. As part of the subgrant approval process, EPF, initially with assistance from the CTMA, screened subgrants for safeguard compliance by using the ESSF. On a few subprojects, especially related to the CBI component on protected area management, the EPF consulted the Bank’s safeguard specialists on the 11 application of social safeguard policy related to potential restriction of resources access. 14 The Project complied with all safeguard policies. (b) Financial Management Compliance. Rating: Moderately Satisfactory Financial management (FM) performance. The performance is evaluated according to three criteria.  Staffing. The Project depended largely on external FM consultants. It funded one WMU financial officer and one accountant who worked full time on financial management under supervision of the EPF financial manager. The financial team experienced a high workload particularly during Phase 1 processing more than 150 small subgrants. FM capacity and performance were impacted by high staff turnover throughout implementation. In 2012 the FM position was vacant.  System. EPF developed a computerized FM system to monitor financial flows and assist in overall budget management. The system became operational in mid-2010 and is currently in use. Issues included late advance clearing for subgrants and weak recording of vehicle usage.  Compliance. Submission of the IFRs (Interim Financial Reports) became regular and timely only in Phase 2. The IFRS did not include a narrative on the Project progress and variance analysis until the last year of Phase 2. The monthly reconciliation was not done regularly and fixed assets register not up- dated. Audits were conducted and submitted on schedule and received unqualified results. (c) Procurement Compliance. Rating: Moderately Satisfactory Procurement performance. The appraisal assessment correctly rated EPF’s procurement capacity as “high risk”. This was based on the lack of procurement proficient staff in the country and the complex nature of demand-driven, small-size subgrants, which involved a wide range of beneficiaries including local communities. This risk was confirmed as the EPF struggled especially during Phase 1. The moderately satisfactory performance rating is based on an assessment of:  Staffing. The Project experienced high staff turnover involving three different procurement specialists requiring multiple repeater training sessions;  Modalities. During Phase 1, the procurement specialist experienced a significant workload, processing more than 150 subgrants. During Phase 2, procurement functions were re-delegated to EPF to compensate for low capacity at sub-grantee level, to reduce procurement risks and to accelerate completion, which was an effective mitigation measure;  Tools. The use of the subgrant manual could not be assessed but appeared to be limited. The manual and forms were not reviewed or updated; and  Compliance. The Bank rated procurement performance moderately satisfactory based on a post audit of subgrants especially early in implementation. There was no evidence of deviation from Bank procurement policy. 14 The client’s completion report (annex D, p. 71) indicates that the Houy Ngoua District Protected Area was upgraded to Provincial Protected Area (PPA) in 2011. Then, 45 households residing illegally in the PPA were relocated by the GOL into a village adjacent to the PPA. This resettlement was completed before the submission of a CBI B1 subgrant for this PPA by PONRE BLKY. The subgrant supported additional consultations between the displaced and host communities to help them define their respective roles in the management of the PPA and the use of its resources. 12 2.5 Post-completion Operation/Next Phase The maintenance and use of institutional and capacity-building achievements under the PICE and CBI windows are jeopardized by inadequate staffing, budget provisions, and inappropriate technical staff capacity at all levels of government. Ultimately, the post-completion results will depend heavily on the prioritization of the environment by national and sub-national governments. With pressure to achieve MDG (Millennium Development Goal) targets by 2015 and to become a Middle-Income Country by 2020, there is a high risk that post-operations will not receive appropriate budgets, staffing and training investments without strong donor or private sector support. However, there are two major results of Phase 2 subgrants on the ground that demonstrated considerable progress in reaching sustainability and scaling up: (a) Community Conservation Network (CCN), funded under CBI 2. Harmonized with Government policy and with high quality provincial and district support in Bolikhamxay Province, the CCN is sustainably managed without external support. Its finances have been managed effectively at the District level and some positive environmental impacts have been achieved. Village, District, and Provincial authorities are highly motivated to manage and expand the revolving village development funds (see annex 2). (b) Nam Theun - Nam Kading River Basin Committee (NT-NKD RBC), funded under PICE A2. Although uncertainty exists concerning future Lao policy with integrated water resource management, the NT-NKD RBC is harmonized with GoL’s ambition and currently receives MONRE financing for basic recurrent budget. With the recent approval of the NT-NKD RBC Strategic Plan 2015-2020, much work remains in attracting donor funds for implementation. However, positive dialogues have reportedly already taken place with potential donors and the private sector, allowing for optimism for sustainable post-operations (see annex 2). EPF established as permanent operating body. The revised Environmental Protection Law (December 2012) clearly defines the need for EPF operation, sources of EPF funding, and scope of the EPF. An EPF Board meeting in March 2013 concluded that EPF would remain an autonomous entity, chaired by the Deputy Prime Minister. EPF structure, staffing, and procedures/ and guidelines are being modified to improve its effectiveness and efficiency. At closure, most of the remaining WMU staff had been incorporated into EPF secretariat. EPF continues to utilize its ADB endowment to finance most staff costs and its revenues from hydro and mining investors. EPF continues to provide subgrants to beneficiaries. Next phase/Follow-up project. To sustain the benefits of the Project’s investments, a follow-up World Bank financed operation, LENS 2, is under preparation (appraisal expected in 2014). The follow-up operation will provide the opportunity to continue the dialogue with a wide variety of environmental and social stakeholders, scale up operations to include new stakeholders within both the three original provinces and potentially seven additional provinces (depending on quality of implementation) by using three out of the five EPF windows (adding EPF’s window for water resource management). The proposed follow-up project would build on the experiences of LENS and include the lessons learned outlined in this ICR promoting planned 13 subgrants and further strengthen EPF’s capacity administering increased volume of subgrants and ensuring its sustainability. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design, and Implementation Overall Rating Relevance: High The PDO to assist the Government of Lao PDR (GOL) to strengthen the management of environmental and social issues associated with the sustainable use of natural resources in Lao PDR remains highly relevant today and is also in line with the current Country Partnership Strategy (CPS) in Lao PDR (2012-2016) which deepens Bank involvement in natural resources management (NRM), especially for hydropower and mining. A Bank study conducted on natural resources and environmental management 15 confirmed the increasing trend for hydropower and mining development mainly in areas where poverty as well as biodiversity values are high.16 More, there are concerns on the limited knowledge, institutional capacity in the country to address the environment and social safeguard issues including the need to facilitate appropriate benefit-sharing and budget allocation among agencies. This conclusion suggested that the Project objectives reflect proper diagnosis and consistent with the country’s current development priorities given a large number of hydropower development, limited human and financial resources in the country. Relevance of design and implementation. Supporting the EPF (which essentially is a sustainable funding mechanism) is considered highly relevant. This choice is relevant in view of the limited GOL budget in comparison with the importance of the sector and the need to secure funding to address the threat for biodiversity conservation, environmental management, and capacity building for the sector. Further, this high relevance is demonstrated by additional activities funded by the Bank in the sector.17 EPF managed to complete subgrants satisfactorily particularly at provincial level which is considered a major achievement. In a low capacity environment where the needs are so many, a subgrant mechanism, even if not demand-driven, spreads the risks and matches better the capacity of EPF and sub-grantees. 3.2 Achievement of Project Development Objectives The Project is evaluated against its original and revised PDO by measuring Project achievements at the time of restructuring (Phase 1 to January 2010) and Project closing (Phase 2 to June 2013) respectively (see annex 2 for outputs produced). Then theses ratings are weighted to account for the proportion of financing leading to each (see data sheet section H) as follows: Original PDO achievement: Moderately Unsatisfactory (US$3.19m disbursed or 41%) Revised PDO achievement: Satisfactory (US$4.67m disbursed or 59% of total) 15 Lao Development Report 2010, World Bank, 2010 (see reference) 16 By 2020, about 43 large (> 50MW) hydropower projects will be in operation. At present, 8 are under operation; 7 (all IPP) are under construction; 28 (all IPP) are designed. A number of small, medium mining project (mostly potash and gravel) and large mines (mostly gold and copper) are planned. Potential impacts include resettlement, land acquisition, loss of watershed and biodiversity, and effects on water quantity and quality. 17 World Bank HMTA and IFC support to MEM. 14 Overall Rating: Moderately Satisfactory (US$7.86m) The Project is not evaluated against the indicators in the Financial Agreement as they are not fully synchronized with those from the PAD and were not monitored. PDO, Phase 1: to assist the Recipient to strengthen the management of environment and social issues associated with the sustainable use of natural resources in Lao PDR for enhancing quality of growth and reducing poverty. It was designed in the early 2000’s when PDOs tended to be descriptive . The PDO portion “…for enhancing quality of growth and reducing poverty” was meant as an adjective clause to describe the rationale for strengthening management capacity. In fact the Project had no specific growth or poverty interventions (and no KPI to measure poverty or growth outcomes). In Phase 2, this part of the PDO was rightly removed. Nonetheless, in both phases, a set of intermediary outcome indicators (IOI) reasonably well selected to measure the PDO, was available and monitored. From a direct analysis of the indicators, Phase 1 appears Moderately Unsatisfactory (of two KPIs neither were measured; of eight IOIs, six were achieved, one partially achieved and one was not measured) and Phase 2 appears Satisfactory (of the two KPIs, both were achieved; of 13 IOIs, 11 were achieved and two partially achieved.) Additional factors validate these ratings as demonstrated by the positive end results of each component. For a more comprehensive treatment of the Project outputs see Annex 2. This first analysis of the rating is weighed by a review of outcomes, not measured by indicators, but reported and aligned with the PDO. Component 1: Policy and Institution Capacity Enhancement. This component strengthened central, provincial, and district governmental agencies’ capacity at differing degrees for assessment, monitoring, and compliance for environmental and social sustainability especially in Phase 2. At central level:  Environmental Protection Law and Decree no. 122/PM on EIA (effective in March 2010) and several technical guidelines for mitigating the potential negative impacts of development projects including hydropower, mining, and agriculture on local environment and local people were promulgated. A national guideline for Ethnic Groups’ consultation was completed in December 2012 and relevant agencies’ staff were trained on how to conduct such consultation and to understand and use these new technical and legal instruments. As a result, the Project contributed to increase environmental and social compliance in new hydropower and mining projects. In addition, the revised Electricity Law (approved in early 2012) improved clarity on sustainable development of investment projects and included a provision for the project developers to share project benefits with local authority and communities as well as to make contribution to EPF.  The support for the implementation of the national policy on environmental and social sustainability of the hydropower (NPSH) has been critical given the rapid development of large hydropower projects (more than 50 MW) by the 15 private sector. The Project resulted in an improved public knowledge on the policy and commitment of the MEM’s agencies to take the lead in facilitation effective implementation of the NPSH.  A compliance-monitoring unit was established in DESIA. DESIA conducted consultation meetings and training with sector agencies and provinces including engagement through study visits of high-level decisions makers (National Assembly). A Standard Environmental and Social Obligations (SESO) is now annexed to the concession agreement of large development projects. Such SESOs, while constantly improving, are considered acceptable compared to international standards 18 . While, SESO is an improvement, monitoring of Environment Compliance Certificates (ECC) remains a challenge given DESIA’s limited number of experienced staff and funding constraints.19  The Project assisted NUOL to develop needed training capacity and a curriculum on social impact assessment and helped establishing a partnership with a research center on social impact assessment in China. These results are considered highly relevant for facilitating the implementation of the Decree no. 192/2005 on Compensation and Resettlement of Development Projects. At provincial level:  Environmental provincial and district institutional and staff capacity in planning, management and monitoring were strengthened through training and operational support.  A Social Impact Management Unit (SIMU) was established under the Provincial Office of Natural Resources and Environment (PONRE) in Bolikhamxay and Khammouane provinces. A database to monitor environmental and social compliance of development projects was established, as was a grievance compliance mechanism in Bolikhamxay and Khammouane provinces with 98% of cases resolved.  NT-NKD RBC and its secretariat were established by Decree no. 293 in June 2010 and are functioning in Bolikhamxay province. MONRE provides limited funds to the RBC Secretariat including staffing.  PONRE’s capacity to develop, up-date, and implement PESAP in the three targeted provinces was strengthened. Component 2-: Biodiversity and Livelihoods Enhancement: Selected protected areas and local communities benefited from improved environmental management and enhanced livelihood options. This intermediary outcome was achieved by increased efficiency in protected area management; lower environmental violation, increased empowerment of local communities in NRM and improved livelihoods of local communities and reduced poverty: 18 Assessment of the ECC quality at the time of the AF design, suggested that given current weaknesses of the ECC system and rapid development of hydropower projects in the country measuring the quality of the ECC based on inclusion of SESO into the CA appeared to be the most effective way to improve implementation of the ECC system. 19 A NUOL 2012 assessment on performance of the EIA process in Lao PDR identified major gaps between the EIA policy/regulations requirements and practices. Coordination and cooperation among agencies, provinces, project developers, and consultants are weak causing poor quality of the measures, delay in approval, and ineffective compliance. Lack of clear procedures has further weakened the system. 16  169,000 hectares of area brought under enhanced biodiversity conservation (six Provincial Protected Area (PPA)); six management plans for the PPAs and 20% of priority activities implemented including demarcation of boundaries and basic community-based law enforcement initiated.  12 communities established a new model in Lao PDR - the CCN in the Nam Theun-Nam Kading basin combining measures for improved livelihoods and community-engagement in the conservation of natural resources. The model has delivered satisfactory results related to strong community engagement and ownership, enhanced capacity of provincial staff and local communities and conservation efforts and is therefore being replicated and scaled-up in similar community-based natural resource management interventions in the country.  115 subgrants were completed (US$2.2 million) benefitting more than 200 communities in the areas of natural resource management, biodiversity conservation, and livelihoods development. Component 3: Management and Monitoring Support: After implementation of this Project, EPF emerged as a more competent institution:  Institutional and technical capacity: Modest improvement such as (a) the five windows are functional, (b) a computerized accounting system is operational, (c) EPF is capable in channeling funds to the provincial level, (d) EPF staff have been trained in procurement and financial management, (e) some management tools were developed and improved (e.g. Subgrant Manual, Subgrant Database, annual reports; etc.).  Financial capacity: (a) NT2 revenues accrue to MONRE, but not to EPF20, (b) no contribution from GOL or other donor accrue to EPF, (c) an endowment generates about $350,000 per year, (d) since 2008, EPF receives about $100,000-$300,000 per year from small mining developers, (e) at present (2013), and for the next 25 years, EPF receives $200,000 per year from the Theun Hinboun extension hydropower project The review of qualitative outcomes for each component, showing a long list of achievements although many of these achievements are considered “in-progress” and may not yet be sustainable. This confirms the indicator-based initial rating which is that Phase 1 is rated Moderately Satisfactory and Phase 2 is rated Satisfactory. The weighted average is Moderately Satisfactory. 3.3 Efficiency Overall Rating Efficiency: Moderately Satisfactory Project costs in comparison to outputs appear reasonable. At appraisal, an economic and financial analysis was not undertaken due to difficulties in quantifying up-front efficiency of demand-driven projects that focus on capacity and institution building, so an end-of-Project economic/financial analysis was not feasible. However, the key elements impacting the Project’s efficiency included: Implementation delays including delayed effectiveness of 10 months occurred mainly in Phase 1 and resulted in efficiency losses. 20 While the GLIP referred to EPF as beneficiary for NT2 revenues, the final revenue sharing agreement did not include EPF. MONRE negotiated access to NT2 revenues but EPF failed. 17 High staff turnover at EPF/WMU but also within beneficiaries decreased efficiency as new staff needed to be recruited and trained requiring often a steep learning curve. This was mitigated by the revised implementation arrangements under Phase 2. Operating costs. Initially the input costs 21 (including administrative costs and technical assistance) for subgrant development, monitoring, and supervision were higher than anticipated. This is not unusual as such type of subgrants, particularly for community development operations, often have high administrative costs in the first years as the portfolio is building up. The annual input costs per volume of transaction decreased over time due, particularly after the revisions introduced for Phase 2 (less transactions with larger volume, centralized procurement, more Bank TA support). Benchmarking. In order to broaden the efficiency analysis a few of the subgrants cost/outcome ratio were compared with similar projects elsewhere. This analysis must be taken with caution, as the accuracy of this analysis is not more than an order of magnitude.  Efficiency of NUOL Subgrant. Under the PICE A Window, the National University of Laos (NUOL) Faculty of Social Sciences received an $80,000 subgrant for developing curriculum and training materials on social issues related to large infrastructure projects.22 When contrasted to comparable projects within Lao PDR and the region, this subgrant appears to demonstrate a high-degree of cost-effectiveness. For example, under the WB –AusAID Hydro-Mining Technical Assistant Project, the NUOL Faculty of Mining Engineering is scheduled to receive $98,000 for one technical study, one field trip, one international workshop, and staff training. Under the same project, the NUOL Faculty of Hydropower Engineering is budgeted to receive $40,000 for the development of six new course curriculums. Outside of Lao PDR, in 2009, the Thailand International Cooperation Agency provided Phnom Penh University $64,633 to develop a curriculum for teaching and learning the Thai language. The Brazilian Cooperation Agency (ABC) in 2006 contributed $114,025 to Timor- Leste for the “technical and pedagogical capacity building for teachers of Technical Agriculture School, providing an update in their curriculum.”  Community Conservation Network Subgrant. Covering 12 villages, the $525,000 CCN subgrant supported the establishment of revolving funds and the organization of communities for protected area surveillance. The cost per village was about $43,000, which appears to be within the range of similar practices. In a Burkina and Cote d’Ivoire community-based wildlife management project, the amount per village was $43,000. In Namibia a project supported 25 conservancies, or about 125 communities, with an average of $57,000 per community. The GEF project Biodiversity Conservation in Bolikhamxay province (closed in 2007) achieved similar results with about $31,000 per village. 21 Input costs are described in the client completion report as “operating costs” but these include also technical assistance, which is an investment. The EPF endowment covers its operational costs. At closure, EPF had not calculated a “unit cost” for subgrant processing and lacked standardized monitoring of cofinancing. 22 Outputs include: (a) Social Safeguard Syllabus used by the Bachelor and Masters programs already utilized by some380 students; (b) 15 technical manuals developed with TA from Mahidol University and disseminated, (c) six technical training sessions for 131 participants from Government, private sector and academia; (d) an MOU with Hohai University in China and professional exchanges from Thai and American universities. 18 3.4 Justification of Overall Outcome Rating: Moderately Satisfactory The overall outcome rating is Moderately Satisfactory which is substantiated by a “high” rating for relevance; a moderately satisfactory rating for achievement of the PDO, with moderately satisfactory efficiency. 3.5 Overarching Themes, Other Outcomes, and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Poverty. The rural poor in Lao PDR depend primarily on the availability of natural resources for their livelihood so degradation of the environment has an immediate adverse impact on these communities. The community-based interventions focusing on the conservation of natural resources including forests, biodiversity, and water resources may help secure their livelihoods. The successful Community Conservation Network (CCN) subgrant demonstrates increased community knowledge and participation in natural resources protection. There is data to substantiate this from only one subgrant. Still, the Project CBI window appears to have contributed to poverty reduction. CBI subgrants covered a wide range of community issues including education, health, tourism, agriculture, conservation of natural resources, and fish farming. For one of the larger CBI subgrants, the CCN, livelihoods improved significantly: 263 households (41.74%) were better off in 2012 than 2009 based on an assessment that used national standards related to housing standards, rice sufficiency, and income level. Gender. The Project design did not explicitly focus on gender, so the impact of subgrants on women in terms of their participation and benefits, across all 173 subgrants could not be assessed. However, the subgrant application forms did include gender analysis, e.g., percentage of female staff, focus on women’s participation in training activities, use of a gender sensitive approach to consultation, etc. Ethnic minorities. The Project supported the participatory development and implementation of consultative guidelines of ethnic groups23 through the Lao National Front for Construction (LNFC) 24 . This is considered an important achievement particularly as these guidelines were integrated into the General Guideline on Public Involvement as part of the EIA requirements. This set of social safeguard policies provides key principles and a process through which project affected people could be consulted and encouraged to participate in the Project. The subgrant established a social safeguard committee in each of the 18 target villages (about 6,600 people) to implement the guidelines in partnership with other government agencies and provided training to the target groups. Social development. The Project significantly strengthened social safeguard compliance in Lao PDR. The results included effective implementation of the CAR 23 Laos has 49 ethnic groups categorized into 4 main families: Lao Tai, Mone-Khmer, Hmong-Mien, and Chinese- Tibetan. The latter three are considered vulnerable since their livelihood is mainly based on subsistence. These ethnic minorities are often the victims of investments projects, which in many cases, led to land acquisition, involuntary resettlement, and limited access to the natural resources. 24 LNFC received an IDF grant to train its staff on ethnic group facilitation, participatory consultation, and conflict resolution. 19 decree; development of an EIA decree (2010), establishment of DESIA, a national department in charge of environmental and social compliance; development of a curriculum at NUOL on social safeguards and training of more than 500 governmental officials, private investors and students; establishment of standards for social and environmental obligation (SESO) for investment projects; development of pilot grievance mechanism in two provinces (Bolikhamxay, Khammouane); and development of ethnic consultation guidelines including training. The Project further supported study tours to Thailand, China, and Vietnam to strengthen knowledge and raise awareness at a high political level on resettlement issues. As a result, a MOU between NUOL and the Chinese Institute for Technical Cooperation is expected to enhance inter-regional cooperation and knowledge transfer. (b) Institutional Change/Strengthening The Project achieved institutional results as summarized below:  EPF’s operational skills and capacity to manage subgrants, including from provinces, and coordinate with sector agencies improved, although less than expected. Its institutional performance and proactivity in terms of lobbying, fundraising, and internal development remained modest.  In the three targeted provinces, the general capacity of PONRE and DONRE staff was strengthened as documented by its improved planning process. Environmental personnel increased in quantity and quality compared to the baseline. Yet, lack of adequate staffing, qualifications, and budget hampers effective implementation. A provincial SIMU was established in the targeted provinces for social safeguard compliance.  The first RBC (NT-NKD) and its secretariat were established. Institutional change as a long-term effort needs to be planned with adequate funding and an adaptive strategy. Thus, beneficiary institutions supported under the Project need continued support to grow stronger and faster in the future. (c) Other Unintended Outcomes and Impacts (positive or negative) None. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops A Project steering committee and EPF annual stakeholder workshop was conducted on June 14, 2013 (114 participants including central and provincial/district level) reviewing and endorsing the results of the draft PCR (see annex 6). 4. Assessment of Risk to Development Outcome Overall risk: Significant. This is based on the assessment of two important sets of risks: (a) environment and social sector risks; and (b) institutional risks. Sectoral risk rating: Significant Some risks relate to the fast increase of hydropower and mining projects. On one hand, thanks to the project, environment legislation, regulations, and guidelines are progressively more efficient as demonstrated by SESO now that they are attached to most Concession Agreements. Also, the successful testing of grievance mechanisms, ethic group consultation guidelines and the introduction of an involuntary resettlement curriculum at the University of Laos all show that social issues can 20 increasingly be addressed in investment projects. However, the pace of capacity development of the national and provincial institutions that ensure compliance monitoring is insufficient to keep up with the pace of transport, plantations, hydropower, and mining development. Furthermore, Laos lacks a strategic planning framework to assess cumulative impacts on the environment and people, or to offset immitigable residual social or environmental impacts. Institutional risk rating: Significant.  EPF is financially sustainable with about $500,000 in secured annual revenues but it has not yet reached a critical mass of staff, capacity and financing to scale up and become relevant at the national level25 –Moderate.  DESIA has insufficient human and financial resources and capacity for critical enforcement and monitoring26 – Significant.  PONREs and DONREs have critically insufficient human and financial resources and technical capacity to deliver on their mandate27 – High.  NT-NDK RBC lacks a sufficient budget to implement its strategic plan, and much work remains to be done to attract donor funding – Significant. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory Quality at entry is already discussed at length in Section 2.1. The Bank’s strengths in ensuring quality at entry were the following: (a) the project design was consistent with Lao PDR’s national development strategies and with the Bank’s CAS in vogue at the time; (b) the project was identified in March 2004, appraised in late May 2005 and was approved on June 30, 2005, for a total preparation time of only 15 months and for a budget of about US$114,000, and preparation met the standards of 2005; (c) the project design was innovative and was based on solid sectoral knowledge gained over 10 years of working on the NT2 Project; (d) the Bank’s team was led by a senior social scientist and comprised a team including three other social scientists, an environmental economist, an environmental specialist, a biodiversity specialist, an institutional specialist and fiduciary experts. The team enjoyed excellent working relationships with GOL representatives at central and provincial level to ensure smooth preparation. The team ensured that the EPF’s operational instruments were of good quality prior to effectiveness. However, these strengths are balanced by weaknesses. First, the Bank’s assessment of institutional capacity of the EPF and other stakeholders (potential sub-grantees) was overly optimistic. As a consequence the project had limited mitigation measures and provided limited institutional development support to the EPS, both in terms of quality and modality of TA support, and offered little operational budget support. Second, the risk assessment of “moderate” was overly optimistic and overlooked a 25 EPF revenues: annually an endowment provides $350,000 and hydropower/mining contribute about $300,000. 26 MONRE recruited 50% of junior consultants funded by LENS. 27 Establishment of a SIMU in Bolikhamxay and Khammouane provinces. 21 number of risks that arose during implementation, as already reported in Section 2.1 above. Finally, as reported in Section 2.3, the project had a PDO that stretched too broadly into poverty reduction, but had no indicators linked to poverty monitoring. The KPIs lacked clear definition and the Results Framework in general had no baseline, intermediate or end-of-project target outcomes by which to measure progress. The indicators in the Financial Agreement did not match those in the PAD. This poor M&E foundation was problematic throughout the project’s life and made assessment of final outcome somewhat challenging. (b) Quality of Supervision Rating: Moderately Satisfactory Strengths of implementation support.  During Phase 1, the TTL, who was an internationally recruited staff based in Bangkok shared project leadership responsibilities with a national level staff based in Vientiane. In Phase 2, the Vientiane-based TTL and his team maintained a continual dialog with the EPF and provided just-on-time technical inputs. This arrangement also increased the efficiency of budget utilization. The average number of staff weeks decreased from 27 to 22 and the average budget utilization decreased from $58,000 per year to $36,000 per year, which are extremely low supervision coefficients.  In both phases, supervision teams were relatively stable, with a key national staff on the team for the entire duration of implementation. The team also included fiduciary experts and social and environmental safeguard specialists. A total of 11 formal review missions, an average of 1.2 per year, were organized as well as a number of informal field visits;  In Phase 2, after realizing that the EPF needed further strengthening to carry out its mandate, the Bank provided solid advisory services to the EPF to compensate for its lack of technical capacity. The quality of this support was recognized by stakeholders as one of the key factors contributing to the achievements of Phase 2.  In both Phases, the mission aide-memoires correctly highlighted concerns and priorities although the M&E was never sufficiently a concern to be fully addressed by either the team or management.  Issues for management attention in the ISRs were usually addressed during supervision missions although not always adequately documented in subsequent ISRs.  The ISR ratings were done with candor. Weaker aspects  Despite an opportunity at MTR, the team waited until the end of Phase 1 to review the project design and restructure it. One argument was that it would be more efficient to address needed changes at the additional financing stage.  Even though the Project was meant to complement NT2 project and help anchor hydro-power in a positive environment framework, there was no effort to maintain that complementarity as part of supervision. A consequence may be that NT2 revenues are not accruing to EPF; another consequence may be that the Project approach for community support in the Nakai Nam Theun NPA border zone villages was different than the NT2-supported approach in the same NPA. 22  The team missed two opportunities (at the original MTR and restructuring) to (i) address the Project’s M&E deficiencies indicated as a matter of concern at several occasions by Bank management; and (ii) address EPF’s strategic capacity building instead of limiting support to strengthening capacity for implementation. (c) Justification of Rating for Overall Bank Performance Rating: Both quality at entry and the quality of supervision are rated moderately satisfactory. Therefore, the overall Bank performance rating is Moderately Satisfactory. 5.2 Borrower Performance (a) Government Performance - Rating: Satisfactory This rating is based on:  Counterpart funding: Although GOL counterpart funding was not required, an in-kind contribution, particularly to the PICE window, was made representing about 20% of the subgrant amount. It included staff time for technical and management inputs, office space and utilities, as well as the active involvement of high level decision-makers at ministerial, departmental, and provincial levels.  Legal and institutional reforms: The GOL supported and delivered effectively a number of key environmental and social compliance regulations and institutional reforms during implementation (see Annex 2 component 2).  Commitment and involvement: GOL provided strong support from high level decision-makers at the ministerial and department levels especially during the original LENS implementation period, and during the design of the additional financing when key policy decisions regarding the responsible agencies and priority for capacity building had to be made. The participation of members of the National Assembly in a study tour to China helped to increase political support for environmental and social safeguard compliance.  Legal covenants: GOL ensured compliance with the legal agreements (legal covenants, 9 out of the 10 tracked in the ISRs were met28, although delayed) and addressed concerns in a timely manner when issues were raised.  Increased staffing for sector: GOL absorbed 56% of the Project-funded junior consultants based in MONRE (41 out of 74) in October 2012 thereby ensuring sustainability of reforms introduced and capacity gained. (b) Implementing Agency Performance - Rating: Moderately Satisfactory EPF/WMU implemented Phase 1 without prior experience on subgrant management and Bank procedures. Consequently, significant time (2007 to 2009) and efforts were required to address the issues related to the roles and responsibility of STEA and EPF, recruitment of WMU staffing, and approval of procedures and the operational manual. During implementation, EPF’s performance improved more slowly than expected due to the following issues:  Delivery design: WMU set-up appeared to be inadequate to fulfill TA and fiduciary roles for implementation which were underestimated at design state29 28 Covenant: “Action plans to bring each hydropower facility constructed since 1990 into full compliance are prepared and disclosed by each owning company” was partially met. 29 EPF facilitated approval of subgrants and monitored their implementation including training on procurement and financial management. At the provincial and local level, EPF provided technical, financial, and procurement supports to sub-grantees. 23  Staffing: EPF experienced significant recruitment difficulties and delays following a high staff turn-over reducing efficacy and efficiency  M&E: Project design did not focus on establishing an EPF based M&E system and despite improvements made (subgrant database, annual reports) a dedicated system was still not in place at closing.  FM/procurement: Moderate financial and procurement performance due to lack of experience with Bank procedures and staff capacity. Despite these challenges, EPF:  Exceeded the target of satisfactory completion of subgrants (154 subgrants in Phase 1 and 19 subgrants in Phase 2)30;  Kept operating costs under control and reduced administrative costs in Phase 2;  Fully disbursed the two LENS grants;  Managed successfully its endowment and mobilized annual contributions in hydro and mining exceeding US$300,000. (c) Justification of Rating for Overall Borrower Performance The overall Borrower performance including borrower and implementing agency performance assessment considering the particularly strong ownership and commitment to the PDO, satisfactory enabling environment, regular stakeholder consultations, and solid relationship with the Bank is Moderately Satisfactory. 6. Lessons Learned The most significant lessons learned of the Project are as follows. Lessons from similar experiences confirm that a subgrant mechanism is a suitable business model. EPF and LENS confirmed that subproject mechanisms are a valid business model, not just for social or community-driven development operations, but also to support public administrations, remote project sites and a variety of sectors. Such mechanism has the flexibility to respond to client needs in a low capacity environment as it evolves. It can be adapted to local realities during implementation (a) as lessons are learned (in this case changing the selection process and subgrant size), or (b) as policy, legal or institutional circumstances change (in this case creation of MONRE, adoption of the Sam Sang Directive). The EPF provided a proven mechanism to support decentralization by delivering financial resources to provincial and district administrations. EPF demonstrated it could channel much needed financing and technical resources in a cost-effective manner to lower levels of government. Currently donor financing and technical support are concentrated at the central level, whereas the national government is currently devolving administrative responsibilities to provincial and district governments under the Sam Sang Directive. EPF provides future potential to assist in realizing the Government’s ambitions. An effective balance between subgrant size and GOL policy harmonization is necessary. The EPF was successful in identifying the optimal model for financing the 30 EPF received a total of 251 subgrant applications (167 for CBI and 83 for PICE) of which some were ineligible. 24 Lao environment and social sectors in a low capacity environment. During Phase 1, the EPF tested small grants that were demand-driven. Even though more than 100 were administered, their high transaction costs and scattered impacts made them suboptimal. A reduced number of medium size subgrants - ranging from $100,000 to $500,000 - introduced in Phase 2 was better adapted to the capacity of beneficiaries and EPF, and concentrated impacts by focusing financing around GoL policy priorities. Future lending should focus on EPF capacity development. As a nascent institution, EPF capacity development needs to be prioritized. The EPF lacked visibility and regular communication with higher-level GoL staff, potential foreign donors, and the media, partly resulting in its inability to legally secure a sustainable source of financing from GOL revenues. Furthermore, EPF relied unsustainably on World Bank technical support. For the EPF to mature as an institution, it requires enhanced emphasis on technical capacity development, strategic communication planning, and improved fund-raising ability. Important targets need to be linked to a clear legal framework. A critical project target -- that EPF should receive a portion of NT2 revenues -- was not set out in unequivocal terms, but was just an intermediary outcome without a targeted amount which carried no weight or leverage31. The country’s commitment was captured in the Government Letter of Implementation Policy but was not included as a legal covenant in the Financial Agreement. In addition, there was no project activity or incentive for the EPF secretariat to actively pursue this target. The consequence was that, at Project closing, NT2 revenues were not accruing to EPF and past NT2, or LENS, supervisions have not been able to reverse the situation. The presence of voluntary private sector responsibility in Lao PDR can provide substantial financial support. EPF showed that private hydroelectric and mining investors were willing to voluntarily contribute financing for public environmental management. In FY12, despite limited EPF outreach and communication, 36 mining operations ($267,000 total) and the Theun-Hinboun Hydroelectric Power Company ($200,000 annually) contributed to the EPF. With natural capital extraction increasing exponentially, there is future potential for EPF to engage the private sector for substantially more support. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies A summary of the detailed and well-prepared borrower’s completion report led by EPF appears in Annex 7. EPF and the main stakeholders have reviewed and endorsed the final draft of this ICR without any further inputs. The borrower’s letter received from the Minister of Natural Resources and Environment (November 22, 2013), states that (i) the Ministry (MONRE) is satisfied with the outcome of the Project; (ii) throughout Project implementation it had been seen outstandingly a lot of achievements that MONRE 31 The Letter of Sectors Policy of the NT2 project mentions the LENS project and the fact that NT2 revenues should contribute to EPF but does not state percentages nor targets. 25 acquired and that were part of its targets and work plans; (iii) the ICR is deemed well prepared and reflected the facts of the Project; and (iv) that MONRE highly appreciates the assistance from the World Bank, especially on the LENS Project which has just completed successfully and that MONRE looks forward to further assistance and cooperation in the future. (b) Cofinanciers N/A (c) Other partners and stakeholders N/A 26 Annex 1. Project Costs and Financing Table 1: Project Costs by Component (in US$ Million equivalent, IDA) Phase 132 Appraisal Estimate Actual/Latest Estimate Percentage of Components (USD) (USD) Appraisal I. PICE 1,560,274 1,596,107 102 II. CBI 1,419,018 1,504,149 106 III. MMS 1,020,708 1,002,093 98 Total Baseline Costs 4,000,000 4,102,350 103 Total Project Costs 4,000,000 4,131,347 103 Total Financing Required 4,000,000 4,131,347 103 Table 2: Project Cost by Component (in US$ Million equivalent, IDA) Phase 233 Appraisal Estimate Actual/Latest Estimate Percentage of Components (USD) (USD) Appraisal I. PICE 2,050,000 1,832,814 89 II. CBI 600,000 669,708 112 III. MMS 350,000 429,392 123 Total Baseline Costs 3,000,000 2,931,914 98 Total Project Costs 3,000,000 2,931,914 98 Total Financing Required 3,000,000 2,931,914 98 Table 3: Financing34 Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (USD millions) (USD millions) Borrower In-kind 0.80 0.80 100 International Development Association Grant 4.00 4.13 103 (IDA) International Development Association Grant 3.00 2.93 98 (IDA) Additional Financing Total 7.80 7.86 101 Increase in total project costs from appraisal to completion 4.0 7.86 197 (IDA) 32 Project costs in table exclude in-kind counterpart funding. 33 Project costs in table exclude in-kind counterpart funding. 34 Project costs during implementation went up in US$ terms due to SDR exchange rate gains. 27 Annex 2. Outputs by Component The Project design, based on three interlinked components (PICE, CBI, MMS), supported EPF’s mandate and GOL priorities. The outputs achieved contributed clearly to the Project’s intermediate outcomes and to achieving the PDO of improving the management of environmental and social issues associated with the sustainable use of natural resources in Lao PDR. Further, key outputs were linked to the Project’s legal covenants that were essentially achieved. (See Annex 12 for a discussion of compliance with legal covenants). 2.1. Key consolidated results As presented in section 3.2, the Project achieved most of its intermediary outcomes as presented below: Operationalizing EPF as the environmental financial mechanism responsible for implementing the national environmental policy of Lao PDR. The Project was instrumental in building EPF’s human, financial technical and institutional capacity (IO 3). Piloting EPF’s subgrant mechanism. The Project launched EPF’s subgrant mechanism through two of the five funding windows (PICE and CBI). It responded adequately to funding needs for sustainable use of natural resources from central, provincial and district governmental institutions, and civil society organizations including local communities (IO 3). Improving environmental and social compliance for development projects. The Project contributed significantly to improve the policy, legal and institutional framework for environmental and social compliance particularly for hydropower and mining investments (IO 1). Strengthening capacity for environmental and social management. The Project produced considerable capacity for environmental and social management issues at central, provincial, and local level (see 2.2 for more details) (IO 2). Specifically, the Project supported EPF in managing 173 subgrants using its three components. These subgrants achieved mostly satisfactory results and contributed directly to:  Improve institutional, legal and policy framework for environmental and social management and compliance monitoring;  Strengthen governmental staff capacity (numbers, quality) at central, provincial and district level;  Strengthen education services and environmental awareness-raising;  Enhance participation from non-governmental stakeholders in local environmental management including enforcement;  Establish environmental and social grievance mechanisms to solve local environmental and social conflicts;  Address natural resource degradation through enhanced protection and improved management in some protected areas and local communities;  Increase revenues in some communities due to establishment of sustainable use and livelihood models; and  Increase funding from private sector to EPF. 28 Figure 1 below shows that the majority of the consolidated subgrants (63% of 173) aimed at supporting sustainable management of natural resources followed by community development measures and awareness raising: Figure 1: % of Subgrants per Intervention Area Source: EPF documents (G. Rechbauer) Note: Intervention area is defined here as a cluster of related subgrant activities. Most subgrants included multiple intervention areas. NRM includes: PPA and Forest Management (31%); Biodiversity conservation (20%); Water Management (11%) and RBC (1%). Community development includes: Community development (23%); Community fund (12%); Ecotourism (12%). Policy and legal framework includes: Data base (9%); Policy (6%); Environment Strategy (6%); Compliance (5%) The table 1 below presents a summary of all subgrants (number and budget) by component and sub-component and level of beneficiaries. Table 1: Overview of Project Subgrants Completed Number of subgrants Target Provinces incl. districts and communities Central BLX KM SVK Sub-total provinces Total GOL and districts Total 47 43 45 38 126 173 Cp. 1 PICE 38 7 8 5 20 58 A1 4 6 8 4 18 22 A2 3 - - - - 3 A3 2 - - - - 2 A4 12 - 12 A5 17 1 - 1 1 19 Cp. 2 CBI 9 36 37 33 106 115 29 B1 6 15 21 17 53 59 B2 3 21 16 16 53 56 Subgrant funds spent Central BLX KM SVK Total GOL Total 3.03 1.26 0.73 0.58 2.57 5.60 Cp. 1 PICE 2.86 0.23 0.24 0.10 0.57 3.43 A1 0.038 0.23 0.24 0.10 0.57 0.91 A2 0.75 - - - - 0.75 A3 0.37 - - - - 0.37 A4 1.50 - - - - 1.50 A5 0.20 - - - - 0.20 Cp. 2 CBI 0.17 1.03 0.49 0.48 2.0 2.17 B1 0.14 0.33 0.38 0.37 1.08 1.21 B2 0.03 0.70 0.11 0.11 0.92 0.96 2.2 Capacity Building – a Key Element of Project Interventions The Project supported capacity building at both the individual and institutional levels across all three components. Beneficiaries included governmental staff, non- governmental organizations, and local community members. However, the Project’s M&E system and EPF’s subgrant forms did not include dedicated indicators to track capacity building results. The EPF completion report collected some data related to training topics and number of people (see table 2 below) but the actual number of people trained is likely much higher than the 4,316 reported. Importantly, the Project’s initial subgrants helped to compile information related to training needs for environmental and social management at national and provincial level. Subsequently, this information was used to identify priority capacity building subgrants under the additional financing. At closure, stakeholders in the sector acknowledge the Project’s key role in assessing current sector training needs and defining a more strategic and programmatic approach for future environmental and social safeguard capacity-building implementation. Table 2: Capacity-Building Measures as Reported Subject Number of Beneficiary level persons trained PICE A1 Training on M&E of hydropower 21 Provincial and district staff and mining projects under Environment Protection Law and Decree Training and study tour on grievance Unreported DONRE, Villagers from 13 districts and 82 work designed for Bolikhamxay and villages Khammouane provinces Field training on implementing Unreported Governmental officials and villagers grievance mechanism Training on grievance issue 543 Provincial, district staff and villagers resolution for Bolikhamxay and Khammouane provinces Training on EIA work (7 sessions) Unreported DESIA, NUOL Study tour to Vietnam, China, 25 Provincial and district staff 30 Thailand and within Lao PDR related to resettlement and grievance issues Training sessions including 150 Provincial and district staff evaluation of hydropower and mining projects for three provinces Total 739 PICE A2 Training on river basin management 13 Provincial and district staff (4 months) in Bolikhamxay and Khammouane provinces Training on GIS and remote sensing 25 Provincial and district staff toolkit in Bolikhamxay and Khammouane provinces Training on river basin management 85 Villagers Pakading District Total 123 PICE A2 Study Tour to Nam Theun 2 Unreported Unreported PICE A5 Training from social safeguard and 385 NUOL students social policy curriculum developed by the Project Training seminars led by NUOL on 131 Provincial and district staff and private social impact assessment guidelines sector Training on chemical free vegetable 45 Villagers growing Training on Hin Ho Na national 50 Provincial and district staff and villagers protected area co-management planning in Khammouane Training on ethnic consultation 99 Central, provincial (BLX, Khammouane), guidelines districts governmental staff and villagers from 3 target provinces (including 5 women) Total 710 Total PICE 1572 CBI B1 Training on protected areas 50 Provincial and district staff and villagers management and enforcement Training on protected areas 20 Protected areas staff and villagers biodiversity surveys, enforcement, patrolling and study tours. Total 70 CBI B2 Livelihood Development Training 14 Provincial staff BLX for supporting village revolving funds Training in mapping 16 Provincial and district staff BLX, Khammouane Training on outreach activities 64 Provincial and district staff BLX, including establishment of 7 fish Khammouane conservation zones Training on outreach and CCN 2580 (1,552 Villagers BLKC establishment women) Total 2694 Total CBI 2744 Grand-total 4316 Source: EPF-based documentation 2.3 Achievements by component (original and additional financing) 31 Component 1 PICE: (US$ 3.45 million; 49% of total project costs) Overall rating: S Objective: To strengthen at national, provincial and district levels: (a) environmental and social safeguards policy formulation and implementation; (b) environmental management and monitoring and compliance of institutions; (c) integrated river basin management; (d) hydropower sector sustainability; (e) resettlement management; and (f) environmental education and awareness. Beneficiaries: Most subgrants applicants and direct beneficiaries were provincial governmental institutions, followed by central and district governmental bodies. However, central government received most of the resources. Table 3: PICE Applicants/Beneficiaries: Applicants Number of % of PICE % of PICE subgrant subgrants subgrants budget Total 55 100 100 Provincial 22 40 18 government Central government 14 25 53 District government 13 24 23 Non-governmental 6 11 6 Intervention areas: The ICR assessment shows (see Figure 2 below) that most of the PICE subgrants (76%) aimed at strengthening the policy, institutional and legal framework for environmental and social compliance; at improving awareness (62 %) and at capacity building (59 %). Figure 2: Intervention Areas of PICE Subgrants Source: EPF documents (G. Rechbauer) Note: Intervention area is defined here as a cluster of related subgrant activities. Most subgrants included multiple intervention areas. Policy and legal framework includes: Data base (26%); Policy (19%); Environment Strategy (17%); Compliance (14%). NRM includes: RBC (3%). 32 The component outputs are presented for each of the five sub-components: (A1) Environmental and Social Monitoring and Policy Implementation Support Objective: To strengthen the capacity of national agencies and selected provinces to develop, implement and monitor environmental and social safeguard policies. A1 Portfolio overview:  22 subgrants (17/Phase 1; 5/Phase 2); total budget spent US$ 622,700; average size/subgrant: US$ 28,300; largest subgrant: US$ 120,000; smallest subgrant: US$ 7,200.  Ratings for EPF per number of subgrants: 2 HS; 14 S; 6 MS  Beneficiaries: Central GOL (1); Bolikhamxay (5); Khammouane (8); Savannakhet (4); Others (3). Outputs: The outputs increased effectiveness of safeguard policy implementation, monitoring and evaluation:  Enhanced provincial capacity. In three provinces, PONRE and DONRE staff capacity was built on improved environmental and social planning and management. As a result, provincial staff and budget in target provinces increased significantly if compared with the situation prior to the Project. The Project supported the provinces with computers and office equipment.  Provincial effectiveness.  All three provinces developed and up-dated a provincial environmental strategy and action plan (PESAP) including legal measures.  Further, a database for tracking development projects and their environmental and social compliance in the three provinces was developed and is operational (pilot for Lao PDR).  A SIMU was established in Bolikhamxay and Khammouane providing technical assistance and capacity building to the committees at districts level. Activities included study visits to Vietnam, China, and Thailand on resettlement and grievance mechanisms, and training/workshops at local level (pilot for Lao PDR).  A grievance mechanism was established and operationalized in Bolikhamxay and Khammouane provinces (pilot for Lao PDR). Positive results achieved (98% of complaints resolved). Related indicators:  IOI 4 - Number of environmental plans being effectively implemented by provincial governments – Partially met  AF IOI 1 - Percentage of complaints resolved in Bolikhamxay and Khammouane - Achieved.  AF IOI 2 - Database for tracking type and number of development projects for which ECCs are issues in selected provinces established - Achieved  AF IOI 3 - Provinces where units responsible for monitoring social impacts and a functional complaint handling mechanism are established. – Achieved (A2) Integrated River Basin Management 33 Objective: to support the Water Resource Committee of the STEA and MIH to develop an integrated approach to the management of cumulative impacts in NT- NKD River Basin. A2 Portfolio overview:  3 subgrants (2/Phase 1; 1/Phase 2); total budget spent US$ 736,000; average size/subgrant: US$ 245,300; largest subgrant: US$ 340,000; smallest subgrant: US$ 110,000.  Rating EPF per number of subgrants: 1 HS; 2 S  Beneficiaries: Central and provincial GOL combined Outputs: The outputs supported the establishment of the IWRM framework Nam Kading River Basin favoring community participation and transparency of river basin management:  An institutional framework for IWRM in NT-NKD river basin leading to establishment of the first Lao River Basin Committee for the NT-NKD basin (PM decree #293 issued in 2010) was developed.  A NT-NKD RBC secretariat and office in Bolikhamxay province including working groups were established and operationalized. Project support included staff, equipment, a vehicle, and operational budget. Meetings of RBC started in October 2012. A draft 5-year RBC Strategic Plan has been prepared and shared with stakeholders. As part of EPF’s completion report, a special paper on the NT-NKD implementation model was prepared to contribute to the national discussion on RBC models (PCR, annex E). These achievements are considered critical to address potential cumulative/transboundary impacts and other crosscutting issues related to Natural Resources and Environment Management (NREM.) Related indicators:  IOI 2 - Framework for addressing cumulative impacts in NT-NKD - Achieved.  AF IOI 4 - Status of RBC for NT-NKD – Achieved  AF IOI 5 - Status of implementation model for a river basin organization in Lao PDR – Partially achieved (A3) Hydropower Sector Policy Support Objective: Support to implementation of National Policy on Environmental and Social Sustainability of the Hydropower sector. A3 Portfolio overview:  2 subgrants (2/Phase 1); total budget spent US$ 386,000; average size/subgrant: US$ 193,000; largest subgrant: US$ 289,000; smallest subgrant: US$ 97,000.  Rating EPF per number of subgrants: 1 HS, 1 non-evaluated  Beneficiaries: Central GOL Outputs: 34  Improved public knowledge on the policy and commitment of the Ministry of Energy and Mines (MEM) agencies to take the lead in facilitating effective implementation of the policy through:  NPSH implementation strategy developed  Sector action plan to facilitate effective coordination amongst agencies  Training for DOE/MEM and PDEM staff on monitoring of hydropower projects  Operational support to DOE/MEM and DESIA/WREA for carrying out monitoring of hydropower projects (including 1 vehicle, computer office equipment)  Two national high-level workshops on NPSH (2009, 2011)  Study tour in Thailand (energy related agencies)  Two NPSH status reports  Input (article 41) in revised Electricity Law (approved in 2012) to improve coverage on environmental and social safeguard including enhanced governance in the Independent Power Producer process (applied to all private investors in hydropower projects). The law stipulates the need for ensuring adequate mitigation for potential negative impacts of hydropower projects including obligation for project owners to share benefits with local communities and local authorities in the Project area and to make contribution to EPF as suggested in the NPSH. Related indicators:  IOI 1 - Number of existing hydropower projects responsive to national policy by preparing action plans and implementing agreed mitigation measures contained therein - Partially achieved.  AF IOI 2 - Percentage of ECCs issued by WREA that are of adequate quality as judged by third party (as measured by percentage of SESO attached to CAs35) – Achieved (A4) Social Safeguards Management Objective: to strengthen GOL’s capacity to implement the National Policy on Resettlement and Compensation including refinement of policies that improve livelihood opportunities for ethnic groups and awareness raising. A4 Portfolio overview:  12 subgrants (9/Phase 1; 3/Phase 2); total budget spent US$ 1,405,000; average size/subgrant: US$ 117,100; largest subgrant: US$ 630,000; smallest subgrant: US$ 5,100.  Rating EPF per number of subgrants: 2 HS, 8 S, 1 M, 1 non-evaluated  Beneficiaries: Central GOL (11); Others (1) Outputs: 35 SESO integration in the CA proved to be a more rigorous approach than measuring ECC compliance by third party, as it entails the obligation that the developers would need to adhere to and it supports the Government's own system and capacity in tracking this. 35 The related outputs led to an increased knowledge and awareness of resettlement management and increased involvement of local communities:  Implementation of Compensation and Resettlement decree (CAR). Project supported awareness and capacity-building on social assessment and review, consultation and information disclosure.  Promulgation of the EIA Decree. The Project supported the development and dissemination of the EIA decree (Decree #112, approved in 02/2010).  Elevated Institutional Role for Environmental and Social Impact Assessment at Central Government (DESIA). Upgrading of the division of environmental impact assessment of the Department of Environment (DOE) of STEA to the Department of Environment and Social Impacts Assessment (DESIA) under the WREA in 2008 and then part of the Ministry of Natural Resources and Environment (MONRE) in 2011;  Operationalizing DESIA.  Facilitating initial operation of DESIA (2009-2013) including staffing, training, and operational support.  Capacity building efforts included study visits to China to resettlement sites (2008, 2012). The 2012 visit was joined by high-level decision-makers, members of the National Assembly, to learn from Chinese experience regarding resettlement and social impacts aspect.  At closure, DESIA has reasonable staff and offices including a library that is being used for disclosure of information related to EIA/SIA as required in the EIA decree36.  Ensuring DESIA effectiveness.  DESIA conducted consultation meetings and/or training with sector agencies and the provinces.  The Project further supported DESIA efforts to forge effective implementation of EIA/CAR decrees including incorporation of SESO as an annex to the CA of development projects.37 Translation of draft SESO into Lao language and consultations carried out with line agencies and the provinces to ensure adoption of final SESO by the end of 2013.  DESIA developed technical guidelines for implementation of CAR decree and the public involvement. The guidelines were up-dated in 2011 and 2012. Training and dissemination were carried out with line agencies and provinces. Although not planned initially, the sub-component supported activities of beyond the original focus: 36 Since the launching of EIA Decree in Feb 2010, DESIA until now has reviewed 191 EIAs for 191 development projects. Out of these, it has completed and approved 162 projects including IEEs for 97 projects and full EIAs for 65 projects. In addition, DESIA has reviewed and approved SESO annexes to CAs for 13 development projects. The trend seems to be stable with notable increase in the number of SESOs reviewed, which are largely for hydropower projects possibly due to a) the recent Government's moratoriums issued for land, mining and agribusiness (plantations) concessions until 2015, b) the recent economic/financial crisis in the region resulting in some investments suspended or withdrawn, and c) monopoly in investments and special arrangements with China and Vietnam, which do not always follow the EIA policy and procedures and which are out of DESIA's control. 37 Incorporating SESO into CA is considered the most effective way to ensure that private investors will implement the proposed mitigation measures for the environmental and social impact. 36  Climate Strategy. Upon request from DOE/WREA, the Project supported the development and up-date of the National Climate Change Strategy and Action Plan.  Accessing NT2 Revenues. WREA was supported to establish a mechanism to tap into NT2 revenues starting 2011/12  Environmental Action Plan. WREA was assisted in up-dating the National Environmental Action Plan (2011 – 2015).  Pollution Control Decree. Project facilitated drafting and related consultations of the Pollution Control Decree.  Land Policy. Project supported drafting of land policy. Related indicators:  IOI 1 - Percentage of development projects complying with safeguard policies – Not measured.  IOI 3 - Percentage of projects in compliance with the CAR decree – Not measured.  AF IOI 6 - Existence of guidelines that incorporate ECC measures in CA for hydropower projects that are signed after enactment of the 2010 EIA decree - Achieved (A5) Environmental Education and Awareness Objective: to develop a generation of dedicated environmental specialists, managers and leaders to ensure that current momentum towards improved environmental management and institutional development in Lao PDR is maintained in the long- term. A5 Portfolio Overview:  19 subgrants (17/Phase 1; 2/Phase 2); total budget spent US$ 304,400; average size/subgrant: US$ 25,400; largest subgrant: US$ 80,000; smallest subgrant: US$ 700.  Rating EPF per number of subgrants: 6 HS, 10 S, 3 MS  Beneficiaries: Central (13), BLX (3), Savannakhet (1), Others (2) Outputs: The outputs contributed to improved knowledge on environmental and NRM among involved agencies and greater public awareness:  Ethnic Group Consultation. Strengthened capacity of LFNC to develop and implement Guidelines on Consultation with Ethnic Groups available in both English and Lao. The translation of the guideline in Hmong and Khmu ethnic languages were not done as planned due to delay in subgrant implementation. Training of relevant agencies and stakeholders on use of Guidelines on Consultation with Ethnic Groups by LFNC. Guidelines were included in the Public Consultation Guidelines.  Social Safeguard Curriculum. Curriculum on social impact assessment developed at NUOL (short- and long-term courses). Social safeguard training sessions (6) for 131 officials from DESIA, private sector provinces, and 9 study visits with 95 participants. In addition, the Project produced training 37 material and translation/printing of key safeguard documents. 38 Group of trainers on social impact assessment at NUOL established. International network initiated by signing of partnership agreement between NUOL and a university in China.  Environmental Awareness Raising. Multi-media support tools produced and disseminated (including World Environment Day Event, student camps, cartoon programs, radio programs, school awareness, ecological garden, herbarium, etc.) Related indicators:  AF IOI 7 - Existence of social safeguard training program for agencies and provinces participating in the Project and number of trainees – Achieved  AF IOI 8 - National guidelines for ethnic group’s consultation has been completed and key staff has been trained on how to conduct such consultation - Achieved Component 2 CBI: (US$ 2.2 million; 31 % of total project costs) Overall rating: MS Objective: To support initiatives to strengthen conservation practices and livelihood improvement activities in and around protected areas and to improve localized environmental conditions through partnership activities with communities, local governments, and civil society organizations in Central Lao. Table 4: Beneficiaries: Applicants Number of subgrants % of CBI subgrants % of CBI subgrant budget Total 115 100 100 District government 49 42 20.5 Provincial government 42 37 68.4 Communities 13 11 5.1 Non-governmental 7 6 2.4 Central government 4 3 3.6 A review of the CBI subgrant reports of the original LENS project carried out in October 2013 revealed that more than 16,700 people in about 200 villages were targeted by CBI interventions. It included more than 6,050 women. Intervention areas: The ICR assessment shows (see figure 4 below) that nearly all CBI subgrants (94 %) focused on enhancing forest, water, protected area management and biodiversity conservation; followed by subgrants for improving sustainable use and community development (70 %) and subgrants for increasing environmental 38 Produced: 1) Teaching Manual on SIA and Social Safeguard (including CAR Decree 192); 2) Social Impact Assessment; 3) Social safeguard policy. Translated and printing of existing documents: 1) Social problem analysis; 2) Cultural Resources and Museum Management; 3) Gender in Development; 4) Community Economy/Livelihood; 5) Tourism Planning; 6) Social Philosophy; 7) Natural Resource Conservation; 8) Basic Anthropology; 9) Article on SIA and Social Safeguard; 10) Summary of curriculums for master and bachelor courses on SIA and Social Safeguard; 11) Geology/community preparation for natural disaster; 12) Summary of Extracted Thesis; 13) Leaflets on SIA and Social Safeguard program in Lao and English. 38 awareness (32 %). Figure 3: Focus of CBI subgrants Source: EPF documents (G. Rechbauer) Note: Intervention area is defined here as a cluster of related subgrant activities. Most subgrants included multiple intervention areas. NRM includes: PPA and forest management (47%); Biodiversity conservation (30%); Water management (17%) Community development includes: Community development (35%); Community fund (17%); Ecotourism (18%). The component outputs are presented for each of the two sub-components: CBI 1 Protected Area Management Objective: to support protected area management authorities to do operational work in eligible protected areas CBI 1 Portfolio overview:  59 subgrants (52/Phase 1; 7/Phase 2); total budget spent US$ 1,2031,000; average size/subgrant: US$ 20,900; largest subgrant: US$ 160,000; smallest subgrant: US$ 2,100.  Rating EPF per number of subgrants: 12 HS, 34 S, 8 MS, 5 U  Beneficiaries: Central (2), Provinces (27), Districts (24), Community (3), Non- governmental (3) Outputs:  Protected Area Management.  Capacity. Provincial and district governmental staff capacity related to protected area management in target provinces was strengthened (training of at least 50 officials, of which 18 protected areas staff received comprehensive training on protected areas planning, equipment including motorbike, GPS, camera). The three provinces have increased their number 39 of staff working on forest resource management or protected area from 2006 to 2012 by 50%. 39  Governance. District and village committees for the PPAs have been established.  Site management. 10 provincial protected areas have now clear boundaries with demarcation posts (more than 150,000 ha) and signboards installed e.g. 140 signboards for 60 km in Khounxe Nongma PPA.  For the six priority PPAs (Phou Chomvoy and Houy Ngoua in BLX, Khounxe Nongma and Pha Thambing in Khammouane, and Laving-Lavern and Dong Natad in Savannakhet), the PPA management plans were completed and approved by the provinces. Implementation of priority activities initiated (mapping, boundary demarcation, patrolling).  Awareness. Conservation awareness rising was conducted for officials and villagers in the protected areas.  Tourism. Tourism facilities and checkpoints are now available in Dong Natad PPA and partly in Houy Ngoua PPA and Phou Chomvoy.  Law enforcement. Village patrol teams, village foresters, and village network have been formed as the key player for the protected area management. The local villagers of the 6 PPAs received conservation awareness training including relevant laws on forestry and wildlife.  Regulations. Developed regulations for protected areas management of the 6 PPAs, including completing most of land and forest allocation in the PPAs. Land use planning was completed in most those six PPAs except Khounxe Nongma and Laving Lavern due to their large size.  Research and data collection. All 6 priority PPAs completed socio- economic surveys, flora and fauna survey including Saola survey in Khounxe Nongma PPA with participation of village foresters. Databases were established for Laving Lavern, Phou Chomvoy, and partly Houy Ngoua PPAs.  Up-grading of PAs. As a result of the Project’s interventions, Laving Lavern PPA was promoted to be NPA in 2011 and Houy Ngoua District Protected Area was promoted to be PPA in 2008. Since the success of this new provincial protected area management by Muang Mai Forestry Technical School, the Bolikhan’s District Governor allocated some 960 ha of degraded forest for Muang Mai Forest Technical School to be responsible by rehabilitating it and use it for academic research. Some protected areas receive some funding support such as Khounxe Nongma PPA and Laving Lavern NPA from Sepone gold mining company, and Phou Chomvoy from Hinboun hydropower through WCS.  New decree on protected area. Project facilitated consultation of the new national decree on protected area. Related indicators:  IOI 5 - Site plans for six protected areas available and site plans have identified priority actions – Achieved 39 In 2006, on average per province had 30 staff but by 2012 at least 60 staff in Savannakhet to 80 staff in Khammouane. These numbers include volunteers 40  AF IOI 10 – Percentage of the priority activities identified implemented – Achieved CBI 2 Community Environmental Development Objective: to support development of reduced impact livelihood options in and around national and provincial protected areas, and other small environmental and natural resource projects in local communities CBI 2 Portfolio Overview:  56 subgrants (55/Phase 1; 1/Phase 2); total budget spent US$ 973,000; average size/subgrant: US$ 17,400; largest subgrant: US$ 525,000; smallest subgrant: US$ 2,000.  Rating EPF per number of subgrants: 23 HS, 18 S, 11 MS, 4 U  Beneficiaries: Central (2), Provinces (15), Districts (25), Community (10), Non-governmental (4) Outputs:  Phase 1 Local Community Engagement in Conservation and Livelihood Alternatives in Three Provinces. Local communities and district staff received training and outreach activities to plan and implement community-based conservation activities. A number of forest, wetlands, and water bodies (ca. 50,000 ha) were put under legal protection and are managed by communities including village patrolling. Most of these areas were marked with clear boundaries, signboards. Examples are Sokbok and Nongchao in Nongbok, Nam Piad watershed, 3 forest zones of Xebangfai, several wetlands and bamboo forest of Songkhone of Savannakhet Province) and 15 fish conservation zones in Bolikhan District and in Pak Kading River. Sustainable use / livelihood development activities were supported by establishing about 17 village funds (e.g. banana plantation, cow raising, gardening, bamboo management, women’s group). Other related outputs included development of small-scale irrigation schemes; small-scale eco-tourism sites.  Conservation Awareness. Conservation awareness tools for local communities and officials including posters and brochures and programs for radio and television were developed and disseminated.  Phase 2 with Community Conservation Network in NT-NDK basin. The Project developed a novel approach to promote conservation activities and livelihood options for local communities by building ownership, commitment, and capacity of provincial staff and local communities. This model is called Community Conservation Network (CCN). CCN included the following elements: establishment of clear land uses, including identification of fish conservation zones, village protected area, watershed protection and reforestation areas; outreach activities; village capacity building and committees, establishment of community rules; and importantly a conservation contract as part of the fund borrowing contract; and regular patrolling with NPA staff. CCN was established in 12 villages (115 members) around the Nam Kading (six) and Nakai Nam Theun (six) national protected areas. Completed training for 14 staff on livelihood development, 16 staff on mapping and 64 staff on outreach activities, complete the establishment of a total 7 fish conservation zones. For livelihood development through 41 establishing a village revolving fund in all 12 pilot villages (55 million kip per village). A village fund committee was established for managing the fund. The Project funded a CCN study tour for officials and villagers to Thailand to learn from similar approaches. The CCN fund included support for the rehabilitation of the office and procurement of equipment and vehicles (2 cars). Further, the Project supported production of outreach materials for use in 12 villages and conducted radio program for 1 year at provincial radio broadcast. Of the 2,580 people participated in the village outreach, 1,552 were women.  EPF’s provincial facilitator: Each province was supported from EPF through a provincial facilitator and one account (later only one facilitator for 3 provinces due to reduced number of subgrants).  Related indicators:  IOI 6 – Number of communities benefitting from sustainable livelihood models or environmental management – Achieved.  AF IOI 11 – Number of conservation communities established in NT-NKD basin - Achieved Component 3 MMS: (US$ 1.4 million; 20 % of total project costs) Overall rating: MS Objective: To support the day-to-day operation of the EPF, specifically PICE and CBI windows; marketing and business developments of the windows to assist beneficiaries to prepare subgrants; developing and implementing a monitoring and evaluation and dissemination process to assess performance of the two windows and training of the EPF staff to perform adequately. Beneficiaries: EPF staff, particularly the WMU staff Project funds: Phase 1: 1.05 million Phase 2: 0.35 Outputs under this component were the following: MMS 1 Capacity Building of EPF Windows (planned as 67 % of component cost)  EPF operationalization:  WMU staffing and training. The WMU staffing for Phase 1 included one WMU manager, two technical officers each in charge of one LENS window (PICE; CBI); support staff and three provincial facilitators. An international consultant was recruited for two years to provide technical assistance as the Chief Technical Management Advisor but resigned after one year (2007- 2008). The position was split in two part-time assignments (portfolio management and biodiversity conservation). A M&E officer was recruited in 2010. In Phase 2 WMU staffing was reduced (only one provincial facilitators, no technical assistance) and merged with EPF staffing to reduce management layers and increase efficiency. The current EPF secretariat staffing includes one WMU manager, one finance officer, one accountant, one procurement officer, and one facilitator. 42  EPF equipment. Project supported EPF with equipment, one vehicle, operational budget, and consultants.  Operationalizing PICE and CBI windows. A Window Management Unit (WMU) managed the two Project supported EPF windows. Technical assistance provided to beneficiaries at all levels particularly during Phase 1 including multiple workshops and consultations. Training provided to beneficiaries on subgrant development, monitoring, procurement, and financial management. A functional computerized accounting system (APIS) has been established to monitor the fund flows.  Subgrant administration. Subgrant tools (manuals, screening forms) improved. Subgrant database developed and operationalized.40  Delivery of PICE and CBI subgrants. EPF managed 154 subgrants in Phase 1 and 19 subgrants in Phase 2.  Compliance with World Bank fiduciary requirements. EPF complied with legal covenants and fiduciary and safeguard requirements. MMS 2 Marketing and Business Development amongst relevant agencies and within targeted provinces (planned as 26% of component cost)  Stakeholder consultation. Annual stakeholder meetings were carried out. SC meetings took place although with decreasing frequency over time.  Outreach. EPF developed and up-dated its webpage with documents in English and in Lao. A few outreach tools were developed (brochures, annual reports).  Additional funding. Although EPF did not succeed in tapping into NT2 revenues, it received funding from small mining companies (2008 – present) around US$200,000/year and from hydropower investor Theun Hinboun US$ 200,000/year. This contribution is to be used partly for administration and partly for new environmental activities. MMS 3 Guidance, Evaluation, and Monitoring (planned as 7% of component cost)  M&E and Reporting. EPF issued seven annual reports 2006 – 2012. EPF/WMU issued three M&E reports. A final PCR was completed in 2013. Related indicators:  IOI 7 – Percentage annual operating costs per volume of transaction – Achieved.  IOI 8 – Percentage of subgrants financed by the original grant have been completed satisfactorily - Achieved  AF IOI 1 - Percentage of subgrants financed by the additional grant have been completed satisfactorily - Achieved 40 The database model is used for all five EPF windows but the database for Project-funded windows (PICE and CBI) was kept separate. 43  AF IOI 12 – Percentage of EPF’s annual administrative cost per subgrant - Achieved  AF IOI 13 – Percentage of NT2 revenue received by EPF and WREA for financing their respective priority development projects – Partially achieved. 44 Annex 3. Economic and Financial Analysis At appraisal, a detailed economic and financial analysis was not carried out mainly due the Project's demand-driven design and menu for subgrants and lack of data on the environmental budget for governmental central and regional/local institutions. Consequently, the ICR could not carry out a classical economic and financial analysis. Nonetheless a crude analysis shows that during the project period, there was improvement in terms of financial mobilization for the sector. In 2005, only 0.6 % of the government budget was spent on environment related agencies. Only US$ 15,000 was available on an annual basis for environment related agencies within STEA. Sector financing from national budget has not significantly improved. In 2011/12, the sector received approval for tapping into NT2 revenues (3% for the environment sector to be shared 50%/50% between MONRE and the forestry sector) which is equivalent to US$ 400,000 and if continued will increase the sector budget significantly. Also, at Project completion, while EPF has not received revenues from NT2 or from the government, it receives annual voluntary contribution from small mining companies and one hydropower investor. Together with the interest rate from the endowment fund, EPF receives an estimated US$ 500,000/year to cover its recurrent budget, which is twice what it received in 2005. Economic efficiency was sought in the design of subgrants. Because of the lack of information and because of its framework approach, the Project integrated economic and financial sustainability criteria into the eligibility and review process to the selection of subgrants based not only on the technical and practical soundness, but also on economic and cost-effectiveness considerations. In terms of capacity building, the intended outcomes were realized. However, the weak monitoring and evaluation framework did not allow for an ex-post cost-benefit analysis. The Project also contributed to better environmental management and therefore reduced economic costs of environmental degradation. The environmental and social costs of extractive resources development projects have not been measured and therefore could not be used to quantify avoided costs generated by the Project. Nonetheless, the Project monitored EPF/WMU's annual operating costs per volume of transactions to ensure that expenditures for sub-grant management remained reasonable. The target of reducing annual operating costs was reached and actually exceeded by the end of the Project (see data sheet original IOI 7 and additional financing IOI 12 indicators). 45 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility Lending Achira Leophairatana EASEN Benoit Laplante Consultant LEGRA Chandavanh Dethrasavong Consultant EASFM NRM Cristina Q. Tumale-Habib Temporary SDV Administration Frank Radstake Consultant EASIN Sr. Urban Environment John Morton Specialist SACAF Environment Maria Lourdes Pardo De La Pena Sr Counsel LEGVP Legal Nat Pinnoi Consultant EACTF Civil society Sr. Social Development Nina Bhatt Specialist SDV Social Patchamuthu Illangovan SACAF TTL Sirinun Maitrawattana Consultant EAPCA M&E Stephen Ling NRM Specialist SACAF Safeguard Svend Jensby Consultant EASDE Safeguard Valerie Hickey Biodiversity Specialist ENV Biodiversity Supervision/ICR Chinnakorn Chantra Procurement Specialist EASRP Daniel R. Gibson Consultant EASDE Gabriele Rechbauer Consultant ICR co-author George Henry Stirret Wood Young Associate Professional EASER Jane T. Nishida Senior Environmental SASDI Institutional Jean-Michel G. Pavy Senior Environmental EASES ICR team Specialist leader Juana Veronica Guillermi Mendizabal Consultant EASVS Joffre Ngozi Blessing Obi Malife Program Assistant EASER Kannathee Danaisawat Financial Management EASFM Specialist Kaysone Vongthavilay Program Assistant EACLF Khamphet Chanvongnaraz Procurement Specialist EASR2 Procurement Malarak Souksavat Financial Management Analyst EASFM FM Manida Unkulvasapaul Consultant CEAMV Manoly Sisavanh Program Assistant EACLF Nat Pinnoi Consultant EASTS Nina Bhatt Senior Social Development Sp. MNSSU Nipa Siribuddhamas Financial Management EASFM Specialist Poonyanuch Chulsukon Program Assistant EACTF Renae Nicole Stenhouse Consultant EASTS Satoshi Ishihara Senior Social Development Sp. EASTS 46 Sengthong Phothisane Consultant EASTS Siriphone Vanitsaveth Financial Management EASFM Specialist Soudalath Silaphet Country Officer EACLF Souksavanh Sombounkhanh Program Assistant EACLF Souphanthachak Sisaleumsak Procurement Specialist EASR2 Stephen Ling Natural Resources Mgmt. AFTN3 Spec. Social Development Specialist EASTS Social Sybounheung Phandanouvong Safeguards Thalavanh Vongsonephet Program Assistant EACLF Toru Konishi Senior Economist EASVS Viengkeo Phetnavongxay Environmental Specialist EASTS TTL Vilayvanh Phonepraseuth Operations Analyst EASTS William Rex Lead Water Resources TWIWA Specialist b) Staff Time and Cost Stage of Project Cycle Staff Time and Cost (Bank Budget Only) No. of staff weeks USD Thousands (including travel and consultant costs) Lending FY05 21 113.69 Total: 21 113.69 Supervision/ICR FY06 16 34.82 FY07 18 25.96 FY08 25 78.19 FY09 40 92.06 FY10 38 57.4 FY11 24 32.42 FY12 18 31.93 FY13 25 43.93 FY14 0.25 4.8 Total: 204.25 401.51 47 Annex 5. Beneficiary Survey Results As reported in EPF’s Project Completion Report in 2013 41, the completion report assignment included a beneficiary survey with key agencies including opinions of representatives from the Project target provinces (Bolikhamxay, Khammouane, and Savannakhet) on WMU/EPF performance. The results suggested that EPF operation through the subgrant mechanism is considered acceptable however improvement on procedures and services (especially on technical aspects) would be necessary. The provinces identified three strengths of WMU/EPF:  Providing funds and technical assistance to support the planning and implementation of PESAP;  Promoting active participation of local staff and local communities through the subgrants; and  Having management mechanism that could be responsive to the local needs. The three weaknesses include:  Limited funds and technical supports (no funding support from government and/or other donors beside Bank);  Limited technical capacity and experience of WMU/EPF staff in the field and frequently change of staff; and  Complex requirement on procurement and financial management. Recommendations for improvement include:  Tapping additional fund from government, developers, and other sources;  Improving communication, coordination,  Timely advice between EPF and the subgrants; and  Incorporating some incentive for government staff to play an active role. 41 PCR main document, p. 55, box 4.4. 48 Annex 6. Stakeholder Workshop Report and Results The annual EPF stakeholder workshop for year 2013 was carried out on 17 May 2013 and used to present findings from the Project Completion Report (PCR). The workshop was chaired by the Minister of MONRE. More than 114 participants including central, representatives from the 17 provincial governmental agencies, stakeholders and other development partners participated. Comments provided to EPF were included in the final report before the PCR was adopted. 49 Annex 7. Summary of Borrower's ICRs The Borrower prepared and validated its Project Completion Report (PCR)42 during a national stakeholder workshop in May 2013. An extract of its executive summary is presented below: (a) Overall Conclusions The overall Project performance is considered “Satisfactory” based on the rating of 9 key aspects related to relevance of the Project objective and design, Project effectiveness/efficiency, GOL and Bank performance, achievement of the Project outcome indicators, and potential impacts. There were 173 subgrants (valued about $5.6 million equivalent) implemented under the Project of which 154 subgrants were implemented during 2006-2010 under the Phase 1 and 19 subgrants were implemented during 2011-2013 under Phase 2. Although there are some delays and difficulties encountered during implementation and the lack of NT2 revenue flowing into EPF as planned, many of the key outputs/outcomes have made significant contribution to the success of the legal and institutional reforms for the natural resources and environmental management (NREM) sector. There are also a number of lessons learnt EPF to move forward and becoming a permanent financial entity for NREM in Lao PDR, especially on water, forest, and environmental management. All the subgrants were completed at the end of 2012 and all the remaining three subgrants will be completed by the closing date. All the Project outputs/outcome indicators, including legal covenants, are “met” or “partially met” in difficult cases and the legal covenants are compliance with. Given that capacity building is a long term process additional technical assistance and financial supports from the Bank and other development partners to key agencies, provinces, and EPF to facilitate effective implementation of NREM activities will be necessary in Lao PDR when human and financial resources remain limited while development activities are rapid especially for large hydropower, mining, and plantation. LENS’s implementation experience suggested that the subgrant mechanism is flexible, appropriate, and effective for channeling technical assistance and funding supports to the agencies, especially at provincial and district levels, as well as to the local communities and other key stakeholders and that EPF staff and some GOL agencies and local communities have gained experience about the Bank operation and management and ready to move forward the implementation of additional projects. Although NT2 revenue has not been made available for EPF activities as planned during LENS design, EPF Executive Office has demonstrated its potential to tap and manage additional fund from developers and more efforts will be made on this aspect. Supporting EPF operation (at least during the next five years) will therefore be critical for forging achievement of sustainable use of natural resources in Lao PDR. Sections (b) through (g) below highlight the key findings on the Project assessment while Section (h) summarizes the key lesson learnt and recommendations from LENS Project. 42 EPF, Project Completion Report (Main report and annexes A – E), June 2013 50 (b) Overall Performance, Relevance, and Effectiveness The overall Project performance is rated “Satisfactory”. This is rated from 9 key aspects related to relevance of the Project objective and design, effectiveness and/or efficiency (E/E) of Project implementation and management, GOL and Bank performance, achievement of the Project outcome indicators, and potential impacts (Table 8). Sections (c), (d), (e), (f), and (g) briefly summarized the discussions while more details are provided in the main report and annexes. Table 5: Summary of Project Performance Rating # Performance Rate 1 Relevance of Project objective and design (S) 2 E/E of Project implementation and management (S) 3 GOL performance (S) 4 World Bank performance (S) 5 Achievement of PDO monitoring indicators (S) 6 Achievement of component monitoring indicators (S) 7 Potential impacts and sustainability of PICE (S) subgrants 8 Potential impacts and sustainability of CBI subgrants (S) 9 Potential impacts and sustainability of EPF (S) (c) Relevance of Project Objective and Design The overall Project objective, design, and implementation is rated “Satisfactory”. Reasons are briefly discussed as follows:  Relevance of Project objective is rated “Highly Satisfactory”. Review of a Bank recent study (2010) on natural resources and environmental management sector in Lao PDR 43 , the Bank country assistance strategy 44 , and other projects 45 confirmed that rapid development in hydropower projects and limited human and financial resources in the country to ensure effective implementation and monitoring of environment and social safeguard issues remain high priority in Lao PDR. Recent institutional and legal reforms in the country reflect GOL policy and priority for capacity building of key agencies, including EPF, and for active participation of people. This confirms that LENS objective is highly relevant to the current country condition. Relevance of the key subgrants and outputs is also rated “Satisfactory” given that many of them could facilitate the development/promulgation of key regulations and/or building operation capacity of key agencies considered priority for forging achievement of NREM in Lao PDR. 43 Lao Development Report 2010, World Bank, 2010 (see reference) 44 World Bank presentation on country assistance strategy (CAS) for 2012-2016 45 Technical Assistance for Hydropower and Mining Sectors (HMTA-World Bank/AusAID), Mekong-Integrated Water Resources Management Project (M-IWRM-World Bank), Environmental Management Support Project (EMSP-Finland). 51  Relevance of the Project design is rated “Moderately Satisfactory”. The Project is complex covering many sensitive issues and involves many beneficiaries while the EPF operation and the subgrant mechanism are new in Lao PDR and the budget available for the Project management and technical assistance are limited. However, despite some delays and difficulties, the subgrant mechanism is proven to be flexible and appropriate for EPF operation and could provide timely support to GOL actions on legal and institutional reforms, which are considered critical for ensuring effective management of natural resource and environmental in Lao PDR. Main shortcomings affecting achievement of the outcome are the complexity and sensitivity of NREM issues, the involvement of many agencies/beneficiaries at national and local level, and the premature application of an open-menu and the demand-driven concept with inadequate funding support. Risk identification is also considered moderately satisfactory. (d) Project Implementation and Management Effectiveness/Efficiency (E/E) of the Project implementation is rated “Satisfactory”. The Project grant was provided from the Bank in SDR (Special Drawing Right) while the US$ and Lao Kip is used during the management of the subgrants and activities. Of the total grant of $7 million, $5.6 million (80%) was allocated to subgrants and 1.4 million (20%) was allocated to WMU/EPF. Of the $5.6 million subgrant budget, $3.4 million (61%) was provided to PICE subgrants and $2.2 million (39%) to CBI. Under LENS, there were 154 subgrants ($3.1 million) comprising of 47 PICE subgrants ($1.6 million) and 107 CBI subgrants ($1.5 million). Most of these subgrants were completed by the end of 2010 as planned. Under Phase 2 there were 19 subgrants ($2.5 million) comprising 11 PICE subgrants ($1.8 million) and 8 CBI subgrants ($0.68 million) and most of them are completed at the end of 2012. Key activities included consultants, trainings/workshops, awareness/education programs, study visits, and incremental operating costs. Key outputs and outcomes are considered relevant to PDO and important for achieving sustainable development of natural resources and environmental management (NREM) in Lao PDR. Performance (E/E) of each component and key outputs/outcomes considered priority to GOL is highlighted in Table 9 and more details are provided in Chapter 2. Table 6: Summary of Key Outputs/Outcome Considered Priority for GOL Topic Key outputs/outcomes $million Rate Remarks Total grant 7.0 S Average E/E of - Promulgation of the new EIA decree in 3.4 S 49% of total grant or PICE February 2010 and the new River 61% of total subgrant subgrants Basin Committee (RBC) decree in budget; Covered 58 June 2010 including facilitating an beneficiaries mostly the initial operations of the new agencies central agencies. (DESIA and NT-NKD RBC/S); - Improved clarity on ensuring sustainable development of development project in the revised Electricity Law (approved in early 2012); and 52 - Improved planning and management capacity of BLX, Khammouane, and Savannakhet on NREM, including establishing a grievance mechanism in BLX and Khammouane. E/E of - Improved capacity of BLX, 2.2 S 31% of total Project CBI Khammouane, and Savannakhet in grant or 39% of total subgrants managing 6 priority provincial subgrant budget; protected areas (PPA) including Covered 115 development of management plans and beneficiaries mostly in implementation of priority activities. BLX, Khammouane, - Established a community conservation and Savannakhet network in 12 villages in BLX and provinces. initiated capacity building and active involvement of local communities on biodiversity conservation in BLX, Khammouane, and Savannakhet. E/E of - Completed the subgrants and activities 1.4 MS 20% of total grant or WMU/ as agreed for the Project and 25% of total sub grant EPF established engagement mechanisms budget. between EPF and potential beneficiaries and key stakeholders on NREM in Lao PDR including improved subgrant management and monitoring capacity of EPF staff. (e) GOL and Bank Commitment GOL commitment is considered “Satisfactory”. Based on the subgrant proposals, GOL in kind contribution was about 20% of the subgrant budget. Recognizing the needs for the country to address the environmental and social issues, a number of regulations and institutional reforms were carried out during the past 7 years. Although these efforts caused delay in implementation of some subgrants the potential long-term impacts on sustainable use of natural resources are considered critical for GOL to move forward achieving sustainable development in Lao PDR. Involvement of and policy support from the high level-decision makers at the ministerial and department levels were very high especially during the implementation of the original LENS and the design of additional financing when key policy decisions regarding the responsible agencies and priority for capacity building had to be determined in light of the GOL priority and the legal and institutional reforms. Most the agencies and beneficiaries are committed to the implementation of the subgrants and appreciated the availability of technical assistance and funding support provided from the Bank through EPF. EPF commitment also rated “Satisfactory” given limited human technical and management capacity in the country. However, there are rooms for improvement, especially on communication, transparency, technical, and management capacity of EPF Executive Office. Bank performance is considered “Satisfactory”. Although there are some shortcomings in the design and during implementation, the Bank team took proactive actions to address them. At the beginning of the Project, the Bank intervention helped facilitating clarity on roles and responsibility of key agency and EPF and the responsible agency for key subgrants, especially those related to the implementation of the Nam Theun Nam Kading (NT-NKD) integrated river basin management and the national policy on environment and social sustainability of hydropower sector 53 (NPSH) which has been adopted in mid-2005. During the original LENS implementation, the Bank management and technical team actively involved in the discussion with the high-level decision makers on ways to implement the NPSH, to enhance effectiveness of the EIA/SIA process, and to address potential cumulative impacts in NT-NKD river basin. Throughout the Project, the Bank technical team plays a key role in providing technical guidance to the sub-grantee and key agencies related to policy and institutional capacity building of the national agencies and the Project provinces related to environment and social safeguards. (f) Potential Impacts and Institutional Challenges Potential Project impacts on the PDO is rated “Satisfactory” for all the three components. Although there are some delays and difficulties encountered during implementation and the lack of NT2 revenue flowing into EPF as planned, many of the key LENS outputs/outcomes have made significant contribution to the success of the legal and institutional reforms carried out by GOL to forge sustainable use of natural resources and improve effectiveness of environmental management. There are a number of lessons learnt for EPF to move forward and becoming a permanent financial entity for natural resources and environmental management (NREM) in Lao PDR, especially on water, forest, and environmental management. Most of the subgrants were completed at the end of 2012 and all the remaining three subgrants will be completed by the closing date. All the Project outputs/outcome indicators, including legal covenants, are “met” or “partially met” in difficult cases and the legal covenants are compliance with. Potential impacts of LENS on strengthening institutions and instruments for assessment, monitoring and compliance for environmental and social sustainability, and broaden the constituency for environmental change is rated “Satisfactory”. LENS supported a number of subgrants under PICE component/window and many of the key subgrants resulted in an improved policies and instruments at national level that are critical for forging sustainable use of natural resources in Lao PDR and through a number of training, workshops, and study visits, these legal and technical instruments are understood by stakeholders, institutionalized within government agencies and system, and implemented by technically competent staff. During 2006- 2012, institutional capacity of Bolikhamxay, Khammouane, and Savannakhet in the planning and management of environment and social aspects, including setting up grievance mechanism in Bolikhamxay and Khammouane, have significantly increased through the implementation of PICE A1 subgrants and the key technical and management instruments such as the provincial environmental strategy and action plan (PESAP), environmental database, and implementation of the grievance mechanism in Bolikhamxay and Khammouane have been institutionalized and implemented by trained staff. Supporting an integrated river basin management (IRBM) through PICE A2 focusing in Nam Theun Nam Kading (NT-NKD) resulted in promulgation of the river basin committee (RBC) decree in 2010 (Decree 293) and operation of the NT-NKD RBC. Of the 3 subgrants (valued $0.74 million) under PICE A2, one subgrant ($0.34 million) was provided to initiate the operation of NT-NKD RBC and its secretariat office in BLX during 2011-2012 and this is considered only the beginning for GOL effort to move forward the implementation of an IRBM in Lao PDR. Additional GOL 54 efforts and technical assistance will be necessary for facilitating effective implementation of the RBC operation especially in forging effective cooperation and engagement among the provinces, the sector agencies, and local communities on the ground. Given the establishment of NT-NKD RBC and its secretariat office in Bolikhamxay, an improved understanding and commitment of the decision makers in Bolikhamxay and Khammouane, and capacity of key stakeholders at local levels, effective implementation of the NT-NKD RBC activities could be moved forward when technical assistance and funding support could be provided. Detailed information on the NT-NKD implementation model (building local capacity and leadership of the provinces) is provided in Annex E. Supporting the implementation of the national policy on environmental and social sustainability of the hydropower (NPSH) during 2007-2010 (through PICE A3) is critical for Lao PDR given rapid development of large hydropower projects (more than 50 MW) by the private sector (about 40-50 projects) expected to be in operation by the end of 2025. There were two subgrants ($0.37 million) provided to the Department of Electricity of the Ministry of Energy and Mines (DOE/MEM) under PICE A3 and they resulted in an improved public knowledge on the policy and commitment of MEM’s agencies to take the lead in facilitating effective implementation of the policy. At present, the NPSH is being implemented under a separate technical assistance project (HMTA) designed to facilitate sustainable development in hydropower and mining sectors under the Bank and AusAID supports. More importantly, the subgrants resulted in an improved integration of an environment and social aspects into the revised Electricity law during 2011-2012, including a clear provision (article 41) for the Project developers to share the Project benefits with local authority and communities in the Project area as well as to make contribution to EPF. Supporting key agencies responsible for forging effective management of environment and social impacts assessment (EIA/SIA) process and environmental management (through PICE A4) resulted in the promulgation of the new EIA decree (Decree 112), operation of DESIA, and development of a mechanism for tapping NT2 revenue for the NREM agencies. DESIA is the new agency and at present it has reasonable staff and office including a library that is being used for disclosure of information related to EIA/SIA as required in the EIA decree. DESIA conducted consultation meetings and/or training with sector agencies and the provinces including facilitating capacity building and engagement (through study visits) of high- level decision makers (the national assembly) and finalization of technical guidelines. A Standard Environmental and Social Obligations (SESO) is being applied as an annex in the concession agreement (CA) of large development projects, and this process is being formalized. The draft SESO was developed with assistance from international experts under Sweden and Finland technical assistance programs (SEM II) and Environment Management and Support Project (EMSP) and it is in line with NT2 project practice, which was considered acceptable at international level. Supporting public education on environment (PICE A5) in 2007-2010 could increase awareness and knowledge on environmental issues as well as on EPF operation and a number of small subgrants were provided to wider constituencies/beneficiaries including university, research institutes, mass organizations, and local NGOs. The National University of Lao (NUOL) subgrant ($80,000) has developed training 55 capacity and curriculum on social impact assessment and with support from DESIA and EPF a partnership with a research center on social assessment in China has been established and this effort will be continued. The Lao Front for National Construction (LFNC) subgrant ($80,000) has developed a national guideline for consultation with ethnic groups in Lao PDR and provided training to key staff. These outputs/outcomes are considered important for facilitating effective implementation of Decree 192. The potential impacts of the CBI subgrants on promoting on-the-ground investment in environmental improvement activities, with emphasis on sustainable biodiversity management, community environmental management and livelihoods enhancements, is rated “Satisfactory”. There were 115 subgrants (about $2.2 million) provided under CBI window and many of them are sustainable and appreciated by local beneficiaries. During 2007-2012, there were 59 subgrants (about $1.2 million) provided to the units responsible for PAs management in Bolikhamxay, Khammouane, Savannakhet and six selected provincial protected areas (PPAs) and nearby local communities gained experience in the planning and implementation of the protected areas management activities, including completion of the PPA management plan and demarcation of PPA boundary. Under CBI B2, there were 20 small subgrants ($0.44 million) provided directly to local communities in Bolikhamxay, Khammouane, and Savannakhet and many of them could demonstrate ways to increase ownership and sustainability of local communities to implement conservation activities. Under the additional financing, one large subgrant ($0.52 million) was provided to Bolikhamxay in the context of NT-NKD management with an aim to establish a community conservation network (CCN) that could demonstrate ways to promote conservation activities as well as building ownership, commitment, and capacity of provincial staff and local communities. Implementation of the CCN subgrant could also demonstrate ways to promote livelihood options for local communities while the province begins to strengthen its capacity on monitoring and enforcement. At present the CCN has been established comprising 12 villages around the Nam Kading national protected area (NKD-NPA). The CCN subgrant mechanism appears to follow GOL normal operation procedures and is in line with GOL policy to enhance effectiveness of PA management, increase livelihood development of local people, and increase institutional capacity at provincial and local levels. These two models (providing direct subgrant to local communities and CCN) will be scaled up and/or replicated as much as possible. Achieving the outcome indicator related to NT2 revenue and EPF (EPF emerges as a competent institution eligible to receive NT2 revenues) is rated “Satisfactory” despite the fact that EPF has not yet received NT2 revenue. Most of other outcome indicators for WMU/EPF are met and EPF operation is on going. LENS’s implementation provides an opportunity to many EPF staff and manager to gain operational experience on a subgrant mechanism and management as well as to build EPF’s capacity to connect/engage key agencies and wider constituency/ beneficiaries necessary for facilitating sustainable financing mechanism. At present EPF opens five specialized window including PICE and CBI windows and a functional computerized accounting system (APIS) has been established and could timely monitor the fund flows. EPF has demonstrated its potential and connections in providing technical and financial supports for (a) building provincial capacity on environmental protection and management including conservation and management of protected area and biodiversity conservation and pollution control; (b) facilitating effective cooperation 56 among agencies at national and provincial levels to address potential negative impacts (direct and indirect) in the context of an integrated river basin management and other cross-sector/trans-boundary issues, including capacity building; and (c) facilitating public engagement and widening constituencies for conservation of natural resources and environmental management, including enhancing transparency of regulatory monitoring process. Reviewed of EPF financial status demonstrates high potential for EPF to tap additional funds from private sector and development partners to be used for supporting NREM activities in Lao PDR, however this will require strong support from the sector agencies, especially those under the Ministry of Finance (MOF), the Ministry of Planning Investment (MPI), the Ministry of Energy and Mines (MEM), and the Ministry of Natural Resources and Environment (MONRE). With support from MPI and MEM agencies, starting 2008, EPF received budget contribution from developers (mostly small mining) about $100,000-$300,000 per year. At present (2013), EPF also received a budget of $200,000 per year from Theun Hinboun extension hydropower development project and this will be continued during the next 25 years. Institutional challenges: Sustainability of the key PICE subgrants (A1, A2, A3, and A4), CBI subgrants, and EPF are likely to be high given the operation of MONRE; the revision of the Electricity Law (2012), the Minerals Law (2011), and the Environmental Protection Law (2013); and the EPF Board decision in March 2013 to maintain autonomous status of EPF operation. However, reviewed of the NREM sector and LENS implementation experience suggested that rapid hydropower development, depleting natural resources, and limited human and financial resources remain the key challenges in Lao PDR. Balancing socioeconomic development, poverty reduction, and conservation of natural resources and environment, including reducing potential negative impacts on local community and environment in Lao PDR will require strong leadership and commitment of policy and decision makers, effective implementation of GOL regulations, and capacity and commitment of staff of key agencies. LENS has demonstrated various types of subgrant operations that could be managed through EPF however additional technical assistance and financial supports will be necessary to facilitate achievement of sustainable use of natural resources in Lao PDR. Priority for the additional supports should include but not limited to: (a) capacity building of MONRE agencies related to NREM focusing on conservation forest, protected area management, integrated water resource management, and pollution control; (b) capacity building of line agencies and the provinces to ensure effective management and monitoring of development projects and their potential negative impacts given due focus on social impact issues and integrated river basin management; and (c) capacity building on financial aspect of NREM especially in enhancing effectiveness, sustainability, and transparency of EPF operation. (g) Key Lessons Learnt and Recommendations Key factors affecting the implementation and development outcome of LENS include (a) complexity and sensitivity of the environmental and social safeguard issues, especially those related to development of large hydropower projects; (b) moderate shortfalls in the design, (c) lack of Bank experience and limited capacity of EPF and agencies/sub-grantees, and (d) delayed implementation during the institutional 57 reforms. Although some legal revisions on NREM are on-going a major organization change is not expected at least for the next five years. In Lao PDR, NREM issues are complex and sensitive and addressing them requires active involvement of policy/high level decision makers; adequate capacity and effective coordination and/or cooperation among agencies; and timely technical assistance and financial supports from GOL, EPF, the Bank, and other development partners. LENS implementation experience however suggested that ensuring effective cooperation among agencies, especially between ministries appeared difficult and time consuming due to limited human resources at each agency and strong vertical administration and decision-making practices. LENS has also demonstrated that EPF operation could play a key role in promoting sustainable use of natural resources and conservation of biodiversity and environmental quality in Lao PDR. The subgrant mechanism is flexible, appropriate, and effective for channeling technical assistance and funding supports to the agencies, especially at provincial and district levels, as well as to the local communities and other key stakeholders. On capacity of EPF, LENS provided opportunity for EPF manager and staff to gain knowledge and experience on the subgrant management and operation and the Bank operation and requirements as well as to establish connection and partnership with key agencies, local community, and other key stakeholders considered critical for ensuring effective and transparent management of natural resources and environmental management (NREM). Given the differences in GOL requirements and Bank practices however the EPF executive office will have to adjust its operation procedures that are effective and acceptable to GOL as well as in line with donor requirements. EPF autonomous status offers an opportunity for GOL to tap additional technical assistance and funding resources form developers and development partners if EPF operation could be seen as effective, transparent, and sustainable. To move forward the EPF operation, strong policy and technical supports and additional financial assistance both from GOL and the Bank will be necessary at least during the next 5 years. To make sure that EPF will have adequate operational budget to improve the quality of the services and timely delivery of expected outputs, it is estimated that increasing endowment up to at least $10 million will be necessary to help enhancing effectiveness as well as sustainability of EPF operation. EPF should develop a long-term strategy for capacity building for EPF operation during the next 10 years including a five-year action plan (2015-2020) as soon as possible. Given that capacity building is a long term process and that the incremental capacity building approach appeared appropriate for Lao PDR, EPF capacity building should be developed in line with the following three phases: Phase 1-Learning Phase (2006- 2015), Phase 2- Testing phase (2016-2020), and Phase 3-Operation phase (2020- 2025). TOR for the strategy development should be prepared as soon as possible. Key recommendations therefore are as follows:  Bank to provide technical assistance and funding supports to enhance achievement of LENS’s PDO: Given that capacity development is a long-term process and requires additional technical assistance and financial supports, especially in light of rapid development and limited human resources in the country. To address these challenges it is necessary for the Bank to continue 58 building capacity of key agencies and EPF. Priority for technical and financial supports should include: (a) Environment and social safeguard capacity and monitoring of potential negative impacts focusing on forging effective implementation, monitoring, and reporting of the EIA system; (b) Stakeholder engagement and implementation of the integrated river basin management (IRBM) focusing on supporting constructive coordination and cooperation among key agencies, local agencies, local communities, private sector, and other stakeholders on conservation of natural resources and environmental management, including livelihood development options; and (c) Enhancing effectiveness of financial aspect for NREM focusing on financial aspect regarding funding sources and fund flows.  Bank to provide technical assistance and funding supports to enhance capacity of EPF: Building on EPF unique position as an autonomous entity, it is necessary for EPF to work closely with key agencies (especially those under MOF, MPI, MEM, and MONRE) at the central and provincial levels to improve transparency and effectiveness of EPF operation both from the fund- raising and fund-utilization sides.  In a short term, EPF should also take actions to improve EPF structure and organization that could be carried out during the second part of 2013. This will demonstrate EPF willingness to be more effective, proactive, and transparent. This study should be carried out as soon as possible. 59 Annex 8. Comments of Cofinanciers and Other Partners Not applicable. 60 Annex 9. List of Supporting Documents Project documents  Project Development Agreement, August 2005  Subsidiary Grant Agreement (MoF and EPF), April 2006  Project Appraisal Document, Report No: 32485-LA, June 8, 2005  AF Project paper, Report No: 51918-LA, December 18, 2009  AF Financing Agreement, 2010 Project progress reports  EPF’s annual reports 2006 - 2012  EPF’s M&E reports on LENS: #1 2006-2010, #2 October 2010-January 2012, #3 February 2012 and annual work plans  EPF’s LAF MTR report (June 2010-August 2011)  EPF’s Project Completion Report Main report and annexes; June 2013  EPF’s Final Report on Rapid Assessment of the EPF Operations, July 2013 EPF documents  Decree on the Environment Protection Fund #146, 2005  Charter of the Lao EPF, No. 8/PM, June 2006  EPF Five-Year Strategic Program 2011-2015, May 2012  EPF/UNDP: Case study report: EPF in Lao PDR providing to discussion in Asia-Pacific region on the design and management of National Climate Funds, 2012  EPF’s brochures and subgrant compilations  EPF Operations Manual, November 2005  EPF’s Sub-project Implementation Manual, March 2007 Studies and reports  World Bank: Lao Economic Monitor 2013  World Bank: Lao PDR Development Report No 59005-LA; 2010: Natural Resource Management for Sustainable Development: Hydropower and Mining  ADB: Performance Evaluation Report, Lao PDR: Environment and Social Program, November 2010  MRC-GIZ: Options for Development of a River Basin Fund for Nam Ngum River Basin, March 2011  LNFC: Guideline on Consultation with Ethnic Group Affected by Public and Private Development Project, 2013 Legal documents  GOL: Law on Minerals (revised version), National Assembly No. 04/NA, December 2011  GOL: Law on Electricity (revised version), No. 056/PM, January 2012  GOL: Decree on Environmental Impacts Assessments, No. 112/PM, February 2010  GOL: Environmental Law, No. 09/PO, April 1999 and draft revised law in 2012 61 Operational internal and external documents  World Bank: Report No. #74538: Restructuring Paper on a Proposed Project Restructuring of Lao Environment and Social Project Additional Financing IDA Grant No. H5400-LA to the Lao People’s Democratic Republic, December 24, 2012  World Bank: ISR # 1 – 11  World Bank: Aide Memoire 2006 – 2013 including MTR Aide Memoire (June 2008)  World Bank: LENS 2 Concept Note and Review Meeting  World Bank: LENS 2 Identification Mission Aide Memoire June 2013 Environment sector and country documents  GOL: Second Five-Year National Environment Action Plan (2011-2015), 2011  NT-NKD RBC: Nam Theun-Nam Kading River Basin Strategic Plan (2015- 2020), Final Draft 2013  MONRE: Lao Environment Outlook 2012  World Bank: Lao Environment Strategy Notes: Poverty/Environment Nexus – Findings for Lao PDR, No. 5, 2002  World Bank: NT2 Multipurpose Development Project, Report No. #71539 Overview and Up-date, July 2012  GOL: Government Letter of Implementation Policy (GLIP), NT2 Hydroelectric Project and NT2 Social and Environment Project, March 2005 62 Annex 10. Matrix of Project Indicator Changes Original Project: LENS (2005-2010) Restructured Project and Additional Financing: Phase 2 (2010-2013) Original Project Development Objective (PDO) Restructured Project Development Objective (PDO) PAD46 RP To strengthen the management of environmental and To strengthen the management of environmental and social issues associated with the sustainable use of natural resources in Lao PDR. social issues associated with the sustainable use of natural resources in Lao PDR for enhancing quality of growth and reducing poverty. PDO Indicators PDO Indicators Indicator at appraisal Informal revision Indicator at restructuring Informal revision 1. Percentage of None 1. Percentage of Environmental Compliance Certificates (ECCs) issued by WREA Target specified in ISR#7 (09/2010): development projects that are of adequate quality as judged by a third party annually. “Inclusion of Standard Environmental and complying with relevant Target: Not defined. Percentage to be agreed between Recipient and Bank. Social Obligation (SESO) form into the safeguard policies. Baseline: Expected to be done by June 2010. Concession Agreement (CA) by 60% for Target: 60% hydropower and mining projects. Baseline: None Baseline: 0% (June 2010) 2. Prevalence of selected In ISR#4 (02/2009): 2. Number of functioning social management units (SMUs) in the three targeted Dropped in ISR#7. prohibited environmental Replaced by: Number of provinces. activities in target functioning social Target: Not specified provinces. management units (SMUs) Baseline: 0 Target: 50% in the three targeted Comment: Indicator overlapping with IOI 11. Baseline: None provinces. Target: Not specified Baseline: 0 3. Percentage of complaints resolved in Bolikhamxay and Khammouane Provinces. Target defined in ISR#8 (08/2011): 50% Target: Not defined. solved using the grievance mechanism. Baseline: Expected to be done by December 2010. Baseline: set as 0% Added in ISR#10 (02/2013): Grievances registered related to delivery of Project benefits addressed (Percentage + 46 The Financial Agreement (FA) included an annex (Schedule 7) with Key Performance Indicators, which were not fully synchronize d with the PAD’s Results Framework. These indicators were not reported on in subsequent ISRs or progress reports. Reference to these indicators in the Financial Agreement is marked in the annex 10 table with FA. Noteworthy, OI 1 and OI 2 were not included in the FA Schedule 7. 63 Number listed as separate indicators); Target: 98%; 509 grievances addressed Target: 50 Baseline: None Phase 1 Phase 2 Intermediate Outcome Indicator Intermediate Outcome Indicator Indicator at appraisal Informal revision Indicator at restructuring Informal revision 1. Number of existing hydropower projects responsive to Revised in ISR#1 (12/2005): AF IOI1. Existence of guidelines that incorporate the National Policy by preparing action plans and New hydropower projects and existing ECC measures in CAs for hydropower projects implementing agreed mitigation measures contained facilities are responsive to the National that are signed after enactment of the 2010 EIA therein. Policy on Hydropower Sustainability.47 Decree. Target: Not defined in PAD but in FA: Action plans Target: Same as in FA. Target: Guidelines prepared implementation ongoing in all hydropower plants Baseline: Not defined. Baseline: No guidelines covered by the policy. Baseline: None. 2. Framework for addressing cumulative impacts in NT- Revised in ISR#1: AF IOI2. Status of the River Basin Committee NKD. Completed framework for integrated (RBC) for NT-NKD. Target: Not specified in PAD but in FA specified as management of NT-NKD Target: RBC established “Institutional Framework”. Target: Framework institutionalized and Baseline: No RBC Baseline: 0 relevant institutional arrangements in place by completion. Baseline: 0 AF IOI3. Number of conservation communities Target revised in ISR#11 established in NT-NKD. (07/2013): Target: 10 communities 12 communities Baseline: 0 AF IOI4. Status of implementation model for a river basin organization in Lao PDR. Target: Implementation model developed Baseline: 0 47 The FA Schedule 7 includes the related indicator: “New hydropower projects responsive to the national policy on environmental and social sustainability of the hydropower sector”. The target was defined as: All new hydropower projects processes are implemented in accordance with the provisions of the policy. 64 3. Percentage of Project/development activities in Revised in ISR #1: compliance with the Decree on Compensation and Strengthened capacity to implement the Resettlement (CAR)48 Decree on Resettlement and Target: 25 % Compensation Baseline: Not defined in PAD Target: 25% of projects in compliance with the Decree CAR Baseline: Decree recently approved 4. Number of environmental management plans being Revised in ISR #1: effectively implemented by provincial governments49. Strengthened Provincial Environmental Target: 6 Capacity. Baseline: Not defined in PAD Target: Three provinces have strengthened capacity Baseline: Not defined Target revised in ISR#2 (03/2007): Three provinces implementing key aspects of environmental plans 5. Number of protected areas actively managed Revised in ISR #1: AF IOI5. Number of site plans for protected areas according to management plans.50 Management plans for protected areas available (and the site plans identify priority Target: Not defined under implementation with the actions). Baseline: Not defined in PAD participation with communities Target: Site plans for 6 PAs available with Target: 6 protected areas priority actions plan implemented Baseline: 2 protected areas Baseline: At AF: Preparation of 6 management plans ongoing. Added in ISR#10: Areas brought under enhanced biodiversity (ha) Target: Not defined Baseline: Not defined Target defined in ISR#11: 169,000 ha AF IOI6. Percentage of the priority activities identified that are being implemented in the six 48 This indicator was worded differently in the FA Schedule 7: “Capacity to implement the decree on Resettlement and Compensation – qualified staff at the national and provincial levels”. The target was 30 staff. 49 The indicator was phrased slightly different in the FA Schedule 7: “Number of provinces effectively implementing Provincial Environmental Strategy and Action Plans”. 50 The corresponding indicator in the FA Schedule 7 was: “Number of protected areas with management plans prepared in consultati on with concerned ethnic groups and thereafter actively managed according to these plans.” 65 protected areas. Target: 60 Baseline: At AF: Priority activities identified. 6. Number of communities benefitting from sustainable Dropped in ISR#1 livelihood models or environmental management. Target: 25 % in the PAD but in the FA 60. Baseline: 0 7. Percentage annual operating costs per volume of Dropped in ISR#1 AF IOI7. Percentage of EPF's annual transaction.51 administrative cost per subgrant. Target: 6 in the PAD but in the FA 40 % since first Target: EPF’s administrative cost reduced to no year. more than 15% of additional grant Baseline: 0 Baseline: 8. Percentage of subgrants financed that have been Revised in ISR #1: AF IOI8. Percentage of subgrants financed by the Target revised in ISR#11: completed satisfactorily. Number of sub-projects satisfactorily original grant that have been completed 99% Target: 80 completed. satisfactorily. Baseline: 0 Target specified as: Target: 80 80 percent Baseline: At AF: 84 % of 76 completed projects Baseline: 0 rated satisfactory. Added in ISR#10: Sub-projects with post-projects community engagement or O&M arrangement Target: 100 percent of 10 initial communities. Baseline: 0 Target revised in ISR#11: 173 subgrants AF IOI9. Percentage of subgrants financed by the Target revised in ISR#11: additional grant that have been completed 89,44% satisfactorily. Target: 80% Baseline: 0 Added in ISR#10: Sub-projects that are expected to have a mechanism for post -completion operation 51 The FA Schedule 7 wording for the indicator was: “Reduction in annual operating costs per volume of transactions”. 66 Target: 10 sub-projects Baseline: 0 Target revised in ISR#11: 19 AF IOI10. Number of database for tracking type Target specified in ISR#9 and number of development projects for which (09/2012): ECCs are issued in the selected provinces is 2 database established. Target: Databases available in target provinces Baseline: 0 AF IOI11. Provinces where units responsible for monitoring social impacts and a functional complaint handling mechanism are established. Target: Bolikhamxay and Khammouane Baseline: 0 AF IOI12. Existence of social safeguard training Target revised in ISR#11: 150 program for agencies and provinces participating trainees in the Project + number of trainees. Target: Training program developed and at least sixty (60) trainees trained Baseline: 0 AF IOI13. National guideline for Ethnic Groups' consultation has been completed and key staff has been trained on how to conduct such consultation. Target: Guideline completed and staff trained Baseline: 0 AF IOI14. Percentage of NT2 revenue received Target described in ISR#9 as by EPF and WREA for financing their respective “any amount but EPF should be priority development projects. eligible to receive funds”. Target: Not defined Baseline: 0 67 Annex 11. Critical Risks at Appraisal and Actual Outcomes Risks identified in PAD Mitigation Measures in PAD Risk Assessment at completion rating in PAD To PDO Environmental and social - GLIP NT2 commits GOL to Modest Risk was generally outcomes are not realized due implement specific actions aimed at underestimated, particularly to delays in implementing the improving environmental and regarding availability of agreed policy and regulatory resettlement management. human and financial reforms, inadequate - NT2 legal agreements provide resources to implement availability of human and recourse mechanism to the Bank for agreed reforms. financial resources, and lack non-fulfillment. of public involvement. - Specific policy commitments will NT2 revenues could not be be sought before approval or included accessed. as dated covenants. - Incentives are built into the Project EOP risk is Significant. to attract community involvement. - Availability of NT2 revenues for EPF will sustain Project inputs. To component results External factors and EPF has been established as an Modest At Project end, EPF administrative interference autonomous organization. In performance was not limited limits the effectiveness of addition: by external factor. So the EPF. - application of strict selection EOP risk is Moderate. criteria; - disclosure of Project activities, However, mitigation including subgrant approval and measures may not have been performance; and all implemented. Subgrant - external monitoring and semi- reports were not disclosed in annual stakeholder workshop. detail. There was not sufficient budget for strengthening EPF’s institutional capacity. This may have decreased the Project efficacy. EPF is a new organization, - Acceptable staffing plan is a Modest Risk was underestimated and and delays in recruitment and condition of effectiveness materialized (10 months developing capability could - Adoption of procurement and delay to effectiveness, high hinder Project financial management arrangements turnover of staff and implementation contained in the PIP is a condition of institutional capacity). effectiveness - EPF has flexibility to recruit staff EOP risk is Significant. from the market - Specialized staff will be trained in Project procedures, safeguards, procurement arrangements, and financial management systems Selection of weak or Detailed procedures for grant Low Procedures and operational inappropriate projects selection are detailed in the PIP to tools were not up-dated for ensure high quality applications in Phase 2. Mitigation accordance with the ESSF. measures did not assess adequately the need for longer-term and more targeted TA at the secretariat and in the provinces and did not focus on M&E of subgrants. EOP Risk is Significant. Lack of capacity at central, The Project design features demand- Modest Risk assessment assumed provincial, and district levels driven capacity building activities strong learning curve and to implement the Project. that require upfront commitment continued budget support, including preparation of plans, which materialized at a assignment of staff, and allocation of lower pace than expected recurrent expenditures. and contributed to revised 68 subgrant modalities under Phase 2. EOP risk is Significant National agencies receive - Project design is explicit about Low Adequate. undue preference over involvement of target provinces in provincial or community capacity building activities. interests and priorities - Site-specific investments at the local-level through a demand-driven process in which both provinces and communities will have a significant stake. Lack of local community - Incentives (benefits, capacity, Low Adequate. participation ownership, consultation) have been built into the Project design to encourage community involvement in Project activities - Project design encourages the involvement of civil society groups to partner with local communities Lack of recurrent budget will - Provinces participating in the Modest Risk assessment optimistic. risk the sustainability of sub- Project will need to commit to Mitigation measures were projects financing recurrent expenditures less well defined and either through their budget or cost monitored to ensure recovery from communities sustainability. EOP risk is Significant. Overall risk rating Modest Underestimated, should have been Significant. 69 Annex 12. Legal Covenants and their Status at Project Completion PICE A1 Status at completion Covenants for original LENS A1: By June 30, 2006, Met; At time of submission of The PESAP has become a planning tool. Provincial Environmental proposals by provinces for LENS PONRE staff was trained on planning and Management Plans prepared funding for PESAP 1. implementation. This capacity will for the three target provinces become a strong foundation for the and thereafter take all implementation of the GOL policy on measures to ensure that such “Sam Sang”. plans are implemented...in a manner satisfactory to the Association A1: By December 31, 2010, Met; This is an output of PESAP III The database is being used at PONRE database for tracking type and as the database system for the target however it may be modified and updated number of development provinces has been in place and over time in line with priority needs of projects in the Selected operational. MONRE agencies. Provinces is established. A1: By December 31, 2012, a Met; The Governors of The grievance mechanism is being used to unit responsible for Bolikhamxay and Khammouane track the complaints and resolve issues monitoring social impacts confirmed EMU being part of and staff was trained at provincial and and a functional complaint PONRE and responsible for local levels. handling mechanism are addressing social safeguard issues, established in Bolikhamxay including tracking implementation and Khammouane Provinces. progress of the grievance mechanism developed. PICE A2—NT-NKD Status at completion Covenants for original LENS A2: By December 31, 2005, Met; At time of submission of a NT-NKD river profile developed acceptable scope of work to proposal for LENS support by the Implementation of the second Phase design an integrated approach National Water Resources proposal during 2008-2010. to managing the NT-NKD Coordination Committee (NWRC) Promulgation of the RBC decree in June river basin responsible for forging effective 2010. NT-NKD secretariat office coordination among water established in in BLX. Development of resources management activities. the third proposal for initiating the A2: By June 30, 2007, Met with delay to June 2010 under operation of the NT-NKR RBC. acceptable institutional Phase 2. framework for river basin management of NT-NKD river basin in place PICE A3 –NPSH Status at completion Covenant for original LENS A3: By December 31, 2006, Met; when MEM assigned DOE to Results of the NPSH activities carried out agreed institutional be responsible for implementation during 2008-10, have raised awareness framework for monitoring of of the NPSH and DOE submitted and capacity of the agencies and key the implementation of the the first Phase proposal for LENS stakeholders on the national policy. NPSH support. Two-phase proposals were During the revision of the Electricity Law approved and implemented during in 2011, DOE/MEM has also incorporated 2007-2010. a legal provision requiring the Project A3: By June 30, 2008, action Partially Met. It was considered developers to share the benefits with local plans to bring each that this target is not possible to be communities and local authority in the hydropower facility achieved within the specified time Project area as well as to make financial constructed since 1990 into given that the NPSH does not have contribution to EPF for monitoring and full compliance are prepared any legal obligation and the CA has capacity building of the agencies and/or and disclosed by each owning been signed between GL and the provinces. company developer. The NPSH update and its implementation continues with support from Bank/AusAID under HMTA Project (2011-2015) PICE A4 Status at completion Covenants for original LENS: A4: By June 30, 2006, Met; When the Department of Increased understanding and capacity of appropriate institutional Environment (DOE/STEA) manger and staff on social impacts issues arrangement established at responsible for ECC issuance and the second proposal was approved in STEA to implement the submitted its proposal for the Phase 2009 when the EIA unit of DOE/STEA resettlement decree 1 LENS support and a small unit was upgraded to a department level 70 was assigned by DOE/STEA. (DESIA) in 2009 and was part of WREA and now part of MONRE. CBI Subgrants Covenants for original LENS C1. By January 31, 2006 Met with delay. In May 2006 all This was one of the effective conditions core staff of EPF and all staffs were hired. for the Phase 1. staff of WMU hired C2. By January 2006, annual Met. EPF conducted annual stakeholder consultation stakeholder workshop one time per workshop held and repeated year at a date agreed with the Bank at every anniversary to . Advice received from participants discuss the Project’s annual were incorporated in subsequent progress report and EPF work programs. annual report C3. By October 31, 2006, Met. EPF annual reports were These reports are available in the EPF first annual report of EPF prepared and published in 2006, website. published, and repeated 2009, and 2012. annually C4. By June 30, 2008, mid- Met. The mid-term review was Key findings are provided in the Bank term review of the Project is conducted during 16-27 June 2008. aide memoire for the midterm review. completed C5. Submission of progress Met. EPF submitted three M&E These reports are available in the EPF and M/E reports and other reports; First in early 2010, second website. reports in early 2012, and third in February 2013. Covenant for Phase 2 C10. Workshop, progress Met. EPF conducted the annual stakeholder reports, and FM similar to workshops and submitted the reports as LENS required. 71 106° CHINA CHINA 100° 102° 104° VIETNAM MYANMAR LAO CHINA PEOPLE’S Gulf of DEM. REP. RE Tonkin Vientiane THAILAND Gnot-Ou 22° 22° CAMBODIA Andaman Sea Boun-Nua Phongsaly VIETNAM PHONGSALY Gulf of MYANMAR Sing Boun-Tai Samphan Thailand Mai Khoa Long Louang Namtha Namo La LOUANG NAMTHA Et Xiangkho g Meung Muang kon Nambak Sopbao Viangphoukha Xai Me Ngoy Nale Viangkham Tonpheung Ban Huaisai OUDOMSAI Sam-Neva Viangxai Beng LUANG BOKEO Nge PHRABANG HOUAPHAN Pha-Oudom Pakxeng Houamuang Houn Pak-Ou 20° g 20° n Pakbeng eko M Chomphet Phonxai Viangthong Xam-Tai Nale Louang Hongsa Phabang Khop Xianghon Ngeun Xiang- Kham Ngeun Phoukout Nonghe Nan Phokhoun Xiang XIANG KHOANG Khoang Sayaboury Khoun Phiang Kasi Phoun Phaxa Mork-Mai GULF THAILAND Thathom SAYABOURI Vangviang Met Xaisomboun OF VIENTIANE Fuang Hinheup Keo-Oudom Longxan Hom Borikhan BOLIKHAMSAI TONKIN Pone Thongmixai Hong Viangkham Paksane Viangathong n Thourakhom g Pakkading ko Sangthong Thaphabat Me Paklay Xaithani Khamkeut Me Naxaythong Oak-Ngum 18° Xanakham 18° ko ng Kenthao VIENTIANE Boten PREFECTURE OF Hinboun Nakay VIENTIANE MUN. Gnommalat KHAMMOUANE Thakhek LAO PEOPLE'S DEMOCRATIC REPUBLIC Mahaxai Bouarapha Khunse Nongma ENVIRONMENT AND SOCIAL PROJECT Nongbok Xebangfai Xaibouathong Laving Laveun (LEnS) Xaibuly Atsaphangthong Atsaphon Vilabouri SAVANNAKHET Xepon Savannakhet Outhoumphon Thaphalanxai Champhone Phin Nong Xonbuly PROJECT INTERVENTION ZONE Xaiphouthong Samouay Songkhon 16° RIVERS Thapangthong Toumtan 16° MAIN ROADS Lakhongpeng SARAVANE Saravane Karum SECONDARY ROADS Vapi DISTRICT CAPITALS* Khongxedon Laongam SEKONG Thateng Dakchung PROVINCE CAPITALS Xanasomboun Sekong NATIONAL CAPITAL Bachiangchareunso PROVINCE BOUNDARIES Phonthong Pakse Pakxong Sanxai INTERNATIONAL BOUNDARIES Champassak CHAMPASSAK ATTAPEU Attapeu Pathoumphon * The district names are identical to their capitals. Xaisettha Phouvong 0 50 100 150 Kilometers Soukhouma Sanamxai 0 25 50 75 100 Miles Mounlapamok IBRD 34091R This map was produced by the Map Design Unit of The World Bank. Khong OCTOBER 2013 The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank 14° 14° GSDPM Map Design Unit Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 102° 104° CAMBODIA 106°