GrCF Ulaanbaatar Solid Waste Modernisation Project

Country:

Mongolia

Project number:

46581

Business sector:

Municipal and environmental infrastructure

Notice type:

Public

Environmental category:

IESE

Target board date:

21 Jun 2017

Status:

Passed Final Review, Pending Board Approval

PSD disclosed:

20 Mar 2017

Project Description

The provision of a senior loan of up to USD 8.1 million (EUR 7.6 million) to the City of Ulaanbaatar (the "City" or "Ulaanbaatar"), the largest city in Mongolia, to finance the City's Priority Investment Programme ("PIP"). The PIP includes investments designed to expand the City's landfilling capacity and build a Construction and Demolition Waste ("CDW") plant. Additionally, the machinery and equipment necessary for the landfill and CDW plant operations will be purchased. It is expected that the Project will be co-financed by a concessional loan of USD 3.5 million (EUR 3.3 million) and investment grants of USD 3 million (EUR 2.8 million).

Project Objectives

  • Decrease pollution: the City's existing landfilling capacity is limited, and the quality of the existing landfill sites is sub-standard. The construction waste increasingly generated by the growing City is dumped into the existing landfills or elsewhere, without being crushed or recycled. The Project's objective is to help avoid environmental pollution related to the lack of landfilling capacity and introduce proper management practices in relation to construction waste. The Project's substantial environmental benefits include reduction of CO2 emissions (on average 18 thousand tonnes per annum or 300 thousand tonnes by 2037).
     
  • Prepare the City for a Green City Action Plan ("GCAP"): the Project will be one of the first subprojects under the Bank's Green City Framework ("GrCF"). The comprehensive GCAP will be developed for the City to identify priority environmental challenges and suggest corresponding green investments. With a number of environmental issues and under-developed infrastructure, Ulaanbaatar is an appropriate candidate for practical launch of the GrCF.
     
  • Test the structure of direct lending to the City: this is envisioned to be the first sub-sovereign project in Mongolia.

Transition Impact

Strong Good

This sub-project's key potential sources of transition impact run along the same lines as the GrCF. It will contribute to and covenant the development of a GCAP, which will take a strategic, multisector approach to identify and prioritise environmental challenges, and outline appropriate action to address those challenges. While the Project will start prior to finalisation of the GCAP, it will address significant environmental challenges and pursue sector reforms aimed at operational and financial sustainability through the comprehensive TC package. More specifically:

Framework for markets

  • GCAP Development: The Project will covenant and support development of a comprehensive GCAP process. The GCAP will require the City to assess, identify, benchmark and prioritise environmental issues, and identify appropriate mitigation action and investments. The plan will set a vision and benchmarks for the City's sustainable development, and help municipal authorities and key stakeholders to prioritise and make informed decisions regarding investment and reforms aimed at addressing the challenges identified. As such, the process of developing the GCAP will improve the municipality's governance of environmental issues.

Demonstration of new replicable behaviour and activities

  • Implementation of the GCAP: The GrCF is expected to demonstrate the development and effective implementation of GCAPs and how they can help address core environmental challenges in a cost-efficient and financially sustainable manner. If successful, the GrCF approach will be rolled out to other COOs and increasingly mobilise additional funding and private investment for priority environmental projects.
     
  • New and replicable product: The Project will have a positive demonstration effect in Mongolia, as this would be the first investment Project in Mongolia on a sub-sovereign basis.

Demonstration of successful restructuring

Commercialisation: The Project will have a positive demonstration effect for commercialisation in Mongolia by providing a TC for corporate development and building of institutional capacity. The same TC will provide the City with a financial and operational performance improvement programme.

Client Information

CITY OF ULAANBAATAR

EBRD Finance Summary

USD 8,100,000.00

Total Project Cost

USD 14,600,000.00

Environmental and Social Summary

The Project has been categorised B in accordance with the EBRD Environmental and Social Policy 2014. The Project will bring significant environmental and social benefits to the City of Ulaanbaatar and surrounding communities, through provision of a landfill designed to EU standards and the construction of a new Construction and Demolition Waste (CDW) plant. The Project will overhaul waste collection, transportation, recycling and disposal services, delivering increased operational efficiency and raising environment and hygiene standards. However, policy dialogue on a comprehensive waste management approach at the City level will also be needed to achieve full compliance with EU Waste Framework Directive requirements in this area. This dialogue will include implementation of sector reforms and allocation of significant further investments, and will be supported by post-signing TCs. On that basis, derogation from the 2014 Environmental and Social Policy ("ESP") is sought.

The Environmental and Social Due Diligence ("ESDD") has confirmed that the adverse future environmental and/or social impacts arising from the implementation of the Project are site-specific and that it will be possible to readily identify them and address them through adequate mitigation measures.

The ESDD was undertaken by independent consultants as part of the Feasibility Study and included an independent environmental and social audit of the Company's current operations, facilities and environmental and social management capabilities, and analysis of potential environmental and social issues associated with the proposed PIP. Implementation of the project will allow approximately 25 percent of the City's MSW to be disposed of at a landfill complying with EU standards, and the City to meet EU requirements relating to recovery, re-use and recycling of construction and demolition waste.

However, the new landfill's capacity will not be sufficient for disposal of all the non-hazardous waste produced in Ulaanbaatar. As such, two existing dumpsites, Tsagaan Davaa (TDDS) and Morin Davaa (MDDS), which is adjacent to the new proposed landfill, will continue to operate alongside the new landfill site. An additional USD 40-60 million would be required to replace these dumpsites with landfills complying with EU standards, which is not within the Company's financial reach.

Given the existing situation in the City, hazardous waste from households cannot be collected separately, and a small quantity of hazardous waste will be mixed with the municipal solid waste and thus be disposed of in the landfill. Considering the landfill's location and robust design, and the operational measures that will be put in place, the presence of this small quantity of hazardous waste is not expected to present any significant risk to the environment or human health.

Significant further investments and improvements will be required from the City to replace the remaining dumpsites with MSW landfills complying with EU standards, as well as to provide separate collection and segregation of waste, including hazardous waste, and to build disposal facilities for hazardous waste complying with EU standards.

To investigate the hydrogeological condition of the site, test drillings were conducted and confirmed no underground water up to -40m from the surface and also that the natural conditions beneath the new landfill site provide a low-permeability clay barrier. With scarce precipitation, the site is generally dry, and no leachate has been observed at the existing landfill. This, in conjunction with the proposed double lining system comprising an engineered clay barrier and High Density Polyethylene ("HDPE") liner, will result in a low risk of groundwater contamination and ensure compliance with the EU Landfill Directive.

The nearest community to the landfill site is located 1.2 km north of the proposed landfill site, with the nearest household 700m away. After about 40 years of operation of the existing landfill, measured parameters for groundwater quality at this community are within acceptable limits for Mongolian and WHO standards, except at one well, where water "colour" falls slightly below Mongolian standards. It is assumed that the well water is sourced from the Tuul River via baseflow.

The ESDD confirmed that there are no designated natural protection sites, natural sensitive receptors or cultural heritage or known archaeological sites in the vicinity of the project's proposed location. The new site is adjacent to the existing dumpsite and has already been disturbed by various construction activities and vehicle traffic, and no additional adverse impact on biodiversity or cultural heritage is expected. The ESDD also confirmed that the project site is state-owned and no new land acquisition or associated resettlement will be necessary. Up to 100 waste pickers working at the existing landfill were identified, and the ESDD concluded that their working conditions pose a health and safety risk and a challenge for safe dumpsite operations. The Environmental and Social Action Plan requires the Company to develop a Livelihood Restoration Plan that will provide a baseline and identify alternative livelihood options in consultation with the waste pickers. Development and adoption of a Livelihood Restoration Plan will be a condition precedent to loan effectiveness, and implementation of the LRP will have to be closely monitored. The LRP will need to be developed according to conditions to be agreed with the team by FRM. Plan implementation support will be provided under the Corporate Development and Institutional Capacity Building in the solid waste sector TC.

Due diligence investigations showed that the Company has weak EHSS management capabilities and an underdeveloped EHSS management system, and that its current occupational, health and safety and stakeholder engagement practices require improvement to meet the EBRD's Performance Requirements (PRs). The Company's facilities are currently in poor operating condition, resulting in unreliable and low-quality solid waste management services.

An Environmental and Social Action Plan (ESAP) is under development to address the necessary mitigation measures and improvements, and will be agreed with the Company prior to approval by the EBRD Board. The ESAP requires: (i) development of a local Environmental Impact Assessment including public consultation and disclosure at the detailed design stage according to national requirements; (ii) development and implementation of a comprehensive Environmental and Social Management Plan ("ESMP") specifically focused on construction activities, development of an H&S management system to include company policy, requirements for risk assessments, development of a closure plan for the existing landfill and hazardous waste management plan; (iii) preventative measures including Personal Protection Equipment, training, regular inspection, documentation and reporting, emergency prevention, preparedness and response; (iv) traffic management; (v) development and implementation of public awareness campaigns to disseminate information on efficient waste management practices among local communities, and (vi) implementation of the Stakeholder Engagement Plan ("SEP"), including a grievance mechanism. These E&S management system plans and procedures will be designed to cover the existing adjacent dumpsite as well as the new landfill and CDW plant.

E&S considerations and requirements for engagement in a policy dialogue on waste segregation and recycling and hazardous waste management have also been incorporated into the associated post-signing TCs, including Project Implementation Support (PIS) and the Corporate Development and Institutional Capacity Building (CDICB) Programme to assist the Client in building up its EHSS management capacity, implementation of the Environmental and Social Action Plan, Stakeholder Engagement Plans and its annual environmental and social reporting requirements to the Bank as
well as the development of GCAP.

Technical Cooperation

The Project is expected to benefit from the following Technical Co-operation assignments:

Pre Loan Signing

TC 1: Feasibility Study including financial, technical, and environmental and social due diligence, an economic rate of return analysis of the proposed investment, and an assessment of climate change impacts and adaptation recommendations. EUR 280,000, financed by the Government of Japan.

TC 2: Mongolia - Creditworthiness Assessment of the City of Ulaanbaatar. The TC supported financial analysis and forecast of the City's budget and preparation of a report on the City's creditworthiness to provide the base data for Bank assessment. EUR 39,000, financed by the EBRD.

Post Loan Signing: TC Com approved on 8 March 2017

TC 3: Project Implementation Support. The TC will support the Project Implementation Unit with engineering design, procurement, preparation and evaluation of tenders, contract award and administration, financial control, Project management and reporting. The assignment's cost is estimated at EUR 600,000, proposed to be financed by the EBRD Shareholder Special Fund ("SSF").

TC 4: Corporate Development and Institutional Capacity Building in the Solid Waste Sector.

The TC will assist the Borrower, the Company and the Government in the following areas relating to the solid waste sector: (a) developing tariff setting mechanisms based on the full cost recovery concept and a uniform tariff (including collection, transportation and landfilling); (b) improving revenue collection in the sector, and (c) advise on institutional and legislative developments as regards hazardous waste and construction and demolishing waste. The TC will also (d) support institutional development in the form of operational, financial and corporate governance improvements to secure the sustainability of solid waste management and (e) advise on measures aimed at enhancing public ownership by encouraging recycling, reuse and safe disposal, increasing public participation in maintenance of sustainable waste management practices and raising public awareness on issues related to Project implementation and resource efficiency. The assignment's cost is estimated at EUR 300,000, proposed to be financed by the SSF.

TC 5: City Debt Management. The TC will aim at streamlining debt management and reporting in the City. This will include clear identification of the City's direct and contingent obligations and monitoring of the sustainable debt level. The assignment's cost is estimated at EUR 100,000, proposed to be financed by an international donor or the ETC Fund.

TC 6: Green City Action Plan ("GCAP") and Policy Dialogue to comprehensively assess the City's environmental performance and prioritise actions and investments that support green city development. The assignment's cost is estimated at EUR 300,000, proposed to be financed by the Green Climate Fund ("GCF").

Company Contact Information

Batkhuu Idesh
batkhuu@gmail.com
+976 11327662

Business opportunities

For business opportunities or procurement, contact the client company.

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Email: procurement@ebrd.com

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Public Information Policy (PIP)

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Text of the PIP

Project Complaint Mechanism (PCM)

The EBRD has established the Project Complaint Mechanism (PCM) to provide an opportunity for an independent review of complaints from one or more individuals or from organisations concerning projects financed by the Bank which are alleged to have caused, or likely to cause, harm.

Project Complaint Mechanism

Any complaint under the PCM must be filed in accordance with the timeframes prescribed in the PCM Rules of Procedure. You may contact the PCM Officer (at pcm@ebrd.com) for assistance if you are uncertain as to the eligibility of your complaint.