Report and Recommendation of the President to the Board of Directors Proposed Loan and Grant Lao People's Democratic Republic: Pakse Urban ...
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Report and Recommendation of the President to the Board of Directors Project Number: 43316-02 June 2012 Proposed Loan and Grant Lao People’s Democratic Republic: Pakse Urban Environmental Improvement Project
CURRENCY EQUIVALENTS
(as of 4 May 2012)
Currency unit – kip (KN)
KN1.00 = $0.000125
$1.00 = KN7,986
ABBREVIATIONS
ADB – Asian Development Bank
C-DPWT – Champasack Department of Public Works and Transport
CEI – community environment improvement
DPWT – Department of Public Works and Transport
EIRR – economic internal rate of return
EMP – environment management plan
GMS – Greater Mekong Subregion
IEE – initial environmental examination
Lao PDR – Lao People’s Democratic Republic
MPWT – Ministry of Public Works and Transport
O&M – operation and maintenance
OPWT – Office of Public Works and Transport
P-UDAA – Pakse Urban Development Administration Authority
PAM – project administration manual
PCU – project coordination unit
PMIU – project management and implementation unit
PPSC – provincial project steering committee
TA – technical assistance
UDAA – urban development administration authority
NOTE
In this report, ―$‖ refers to US dollars unless otherwise stated.Vice-President S. Groff, Operations 2
Director General K. Senga, Southeast Asia Department (SERD)
Director A. Leung, Urban Development and Water Division, SERD
Team leader A. Jain, Senior Social Sector Specialist, SERD
Team members L. Adams, Social Development Specialist, SERD
I. Ahsan, Counsel, Office of the General Counsel
L. Balicanot, Project Analyst, SERD
P. Chanthirath, Senior Project Officer (Infrastructure), SERD
A. Garrovillas, Associate Project Officer, SERD
E. Honda, Principal Portfolio Management Specialist, SERD
S. Kotagiri, Social Development Specialist (Resettlement), SERD
S. Sandhu, Senior Environment Specialist, SERD
S. Schipani, Social Sector Specialist, SERD
A. Senador, Operations Assistant, SERD
M. White, Urban Development Specialist (Water Supply and
Sanitation), SERD
Peer reviewer V. Joshi, Environment Specialist, Regional and Sustainable
Development Department
In preparing any country program or strategy, financing any project, or by making any
designation of or reference to a particular territory or geographic area in this document, the
Asian Development Bank does not intend to make any judgments as to the legal or other status
of any territory or area.CONTENTS
Page
PROJECT AT A GLANCE
I. THE PROPOSAL 1
II. THE PROJECT 1
A. Rationale 1
B. Impact and Outcome 4
C. Outputs 5
D. Investment and Financing Plans 6
E. Implementation Arrangements 7
III. DUE DILIGENCE 8
A. Technical 8
B. Economic and Financial 8
C. Governance 8
D. Poverty and Social 9
E. Safeguards 9
F. Risks and Mitigating Measures 9
IV. ASSURANCES AND CONDITIONS 10
V. RECOMMENDATION 10
APPENDIXES
1. Design and Monitoring Framework 11
2. List of Linked Documents 14PROJECT AT A GLANCE
1. Project Name: Pakse Urban Environmental Improvement Project 2. Project Number: 43316-012
3. Country: Lao People's Democratic 4. Department/Division: Southeast Asia Department/Urban Development and Water Division
Republic
5. Sector Classification:
Sectors Primary Subsectors
Water supply and other municipal √ Urban sector development
infrastructure and services
Other municipal services
Waste management
Water supply and sanitation
6. Thematic Classification:
Themes Primary Subthemes
Economic growth Promoting economic efficiency and
enabling business environment
Environmental sustainability √ Urban environmental improvement
Capacity development Institutional development
6a. Climate Change Impact 6b. Gender Mainstreaming
No Climate Change Indicator available. Gender equity theme (GEN)
Effective gender mainstreaming (EGM) √
Some gender benefits (SGB)
No gender elements (NGE)
7. Targeting Classification: 8. Location Impact:
Targeted Intervention National Low
Geographic Income Regional Medium
General Millennium
dimensions of poverty at Urban High
Intervention development
inclusive household
goals
growth level
√
9. Project Risk Categorization: Low
10. Safeguards Categorization:
Environment B
Involuntary resettlement B
Indigenous peoples C
11. ADB Financing:
Sovereign/Nonsovereign Modality Source Amount ($ Million)
Sovereign Project grant Asian Development Fund 3.2
Sovereign Project loan Asian Development Fund 24.2
Total 27.5
12. Cofinancing:
No Cofinancing available.
13. Counterpart Financing:
Source Amount ($ Million)
Beneficiaries .6
Government 3.6
Total 4.2
14. Aid Effectiveness:
Parallel project implementation unit No
Program-based approach NoI. THE PROPOSAL
1. I submit for your approval the following report and recommendation on (i) a proposed
loan, and (ii) a proposed grant, both to the Lao People’s Democratic Republic (Lao PDR) for the
Pakse Urban Environmental Improvement Project.1
2. The project will enhance the competitiveness of Pakse as a regional economic and
tourism center of the southern Lao PDR. It responds to the local government’s vision for Pakse to
become a green city and for the greater Pakse urban area to gain official city status in the future2
by improving citywide environmental improvements in solid waste management, flood protection
and drainage, and riverbank erosion protection along the Xedon River; supporting community-
driven initiatives in urban environmental improvements; strengthening local capacity in urban
planning and services; and strengthening local capacity in project management and
implementation. 3 The project contributes to the Government of the Lao PDR’s long-term
urbanization strategy and Pakse Urban Development Strategy, 2011–2030.4
II. THE PROJECT
A. Rationale
3. Pakse is the largest urban center in the southern Lao PDR and the capital of Champasack
province. Since the mid-1990s, it has grown to become a regional commercial and service center
in the country and the Greater Mekong Subregion (GMS). It is becoming an important tourism hub
and staging post for the southern Lao PDR and the GMS. Pakse is strategically located on the
regional road network (Road 13) and on an interconnector link from the East–West Economic
Corridor to the Southern Economic Corridor in the GMS.5 Pakse district’s population in 2010 was
77,647; this is expected to double by 2030 based on annual growth of 3%. The population of
greater Pakse urban area6 in 2011 was about 107,600; this is expected to grow to 138,700 by
2020 and 176,100 by 2030. Champasack’s gross domestic product growth has averaged 9.8%
since 2006, driven largely by industry and services, accounting for 60% of total economic output in
2010 compared to 49% in 2006. Revenue from tourism, banking, transport, and construction have
also surged. Pakse has significant natural attractions and is near major cultural and heritage sites
such as Wat Phou. Tourism development has helped stimulate local investment in tourism-related
facilities and generate local employment. Since 2005, tourist arrivals in Champasack Province
have grown by an average of 20% per year, especially via the Cambodia and Thailand borders.7
4. Despite these growth opportunities, Pakse is experiencing rapid environmental
degradation caused by significant urbanization and economic growth pressures. It has witnessed
an increase in traffic, tourists, and commercial activities. Improvement of basic urban and
environmental infrastructure and strengthening of local capacity to plan and manage urban growth
are key steps in developing Pakse as a sustainable, livable, and competitive city.
1
The design and monitoring framework is in Appendix 1.
2
Based on Champasack Socioeconomic Development Plan, 2011–2015, Pakse District Socioeconomic
Development Report, and Government Notification No. 1094/GOV/7 June 2011 to gain official city status.
3
The Asian Development Bank (ADB) provided project preparatory technical assistance (TA). (ADB. 2010.
Technical Assistance to the Lao People’s Democratic Republic for the Pakse Urban Environmental Improvement
Project. Manila [TA 7567-LAO].)
4
The draft National Urban Sector Strategy prioritizes Pakse based on its growth and regional location. Ministry of
Public Works and Transport. 2011. The National Urban Sector Strategy and Investment Plan to the Year 2020.
Vientiane: Department of Housing and Urban Planning (final draft). Pakse Urban Development Strategy, 2011–
2030 was approved by the Office of Provincial Governor Champasack on 8 November 2011 (Decision No. 1445).
5
The East–West Economic Corridor passes through the Lao PDR, Myanmar, Thailand, and Viet Nam, and the
Southern Economic Corridor passes through Cambodia, Thailand, and Viet Nam.
6
Includes 42 villages in Pakse district, 13 villages in Phonthong district, and four villages in Bachiang district.
7
Pakse Tourism Development (accessible from the list of linked documents in Appendix 2).2 5. Urban issues and challenges. Urbanization in the Lao PDR is taking place with minimal coordination, inadequate infrastructure, and limited consideration for the environment, including climate change issues. Results include disorganized growth, inefficient land use, damage and loss of natural resources, and insufficient urban services. The problems can be attributed to weak urban management, little strategic spatial planning, poor linkages between urban planning and environmental management, and insufficient investment in infrastructure and community services. The Pakse Urban Development Strategy, 2011–2030 is a significant step in moving away from traditional urban master plans to guide Pakse’s future urban growth. 6. Weak urban management caused by overlapping responsibilities is also a challenge. In 1998, an urban development administration authority (UDAA) was created in Pakse and other secondary towns to facilitate effective urban management. It was envisaged that UDAAs would eventually be transformed into autonomous municipalities. A number of regulations support the decentralization of government functions and clarification of UDAAs’ responsibilities, but the process has been slow. Preparation of a municipality administration decree will help to clarify the roles and responsibilities of UDAAs, provincial Departments of Public Works and Transport (DPWTs), and district Offices of Public Works and Transport (OPWTs).8 In the interim, the project will support capacity development activities for Pakse UDAA (P-UDAA) and Champasack DPWT (C-DPWT) based on the approved road map for urban management in transition, which reflects Pakse’s application to become a city (or Nakhone).9 7. The urban poor suffer disproportionately from inadequate provision, management, and maintenance of urban infrastructure and services. Underinvestment and insufficient operation and maintenance (O&M) of existing infrastructure in low-lying areas have had an adverse impact on their health and access to livelihood opportunities. The urban poor are vulnerable to risks associated with externalities in service provision, as they are unable to cope with the effects of poor drainage, inadequate sanitation and flooding, and poor road quality. About 35% of the 663 households surveyed live below the poverty line.10 The project targets improved drainage in low-lying areas and supports household sanitation improvements for the poor. 8. Inadequate solid waste management poses serious environmental and health risks, and adversely affects Pakse’s ability to function as a regional economic center. The Environmental Regulation for the Urban Area of Pakse No. 160 (14 May 2001) provides for proper waste management.11 However, challenges confronting the solid waste sector in Pakse include lack of financial resources to develop, operate, and maintain facilities; inadequate capacity to manage services and concession contracts; low environmental awareness of residents; and generally low willingness to pay for solid waste services. The P-UDAA household collection rate is about 21% in the greater Pakse urban area, focusing on 28 of 43 villages in Pakse district. Households pay an average of KN18,000 per month for collection and disposal, while commercial entities pay a tipping fee of KN100 per kilogram. About 25 tons of waste per day are transported to the landfill site, located 17 kilometers from the town center.12 About 22% of households recycle at the source and 65% reportedly burn their waste. The project will assist P-UDAA to improve overall solid waste management, facilitate amendments to the existing concession for waste processing, support behavioral change efforts, and assist C-DPWT in enforcing environmental protection regulations. 8 The government envisions that provincial towns will become municipalities before they gain city status. The key difference between a municipality and a city is population size, as a city needs to have a population of 80,000. 9 Champasack Provincial Governor Decision No. 611/CPS (16 May 2012);Prime Minister Instruction No. 01 (March 2001); Prime Ministerial Decree No. 141 (May 2000); and Law on Local Administration (2003). Urban Institutional Analysis (accessible from the list of linked documents in Appendix 2). 10 Prime Minister Decree No. 285 (October 2009). The poverty line is based on KN240,000 per person per month. 11 It refers to the Environment Protection Law (3 April 1999) and the Prime Ministerial Decree for UDAA No. 177. 12 Solid waste composition and volume was surveyed in 2010. Technical Report on Solid Waste Management in Pakse (accessible from the list of linked documents in Appendix 2).
3 9. Poor drainage and increased flooding create poor environmental conditions, increase the health risk from waterborne and water-related diseases, and contribute to a low quality of life for residents. Pakse and its immediate surroundings are susceptible to flooding, as it lies at the confluence of the Mekong and Xedon rivers. Its central area is relatively flat, while the drainage capacity of small rivers in the town is limited. Flooding often occurs when the small streams back up because of surface runoff from the surrounding hills during heavy rainfall, or when river levels rise during the wet season. Property becomes inundated or surrounded by stagnant water. This is exacerbated when drainage easements are obstructed and retention areas are filled. The project supports implementation of the drainage strategy, 2011–2015 to manage flood risk better, retain natural drainage in nine catchment areas, and guide drainage system development in Pakse.13 10. Riverbank erosion caused by annual floods results in progressive weakening of the riverbanks and creates instability at various locations. Riverbank erosion along the Xedon and Mekong rivers is a major challenge. While riverbank protection is expensive, the loss of valuable riverside land and property such as temples has very high social, cultural, and economic impacts. Flooding and rapid drawdown of the river level are the dominant causes of riverbank erosion and damage. The project will support riverbank erosion protection along the Xedon River. 11. Basic household sanitation and de-sludging services are limited in Pakse. About 30% of the households surveyed use septic tanks, 67% use pit latrines, and 3% do not have any latrine. About 73% of households have never emptied their septic tanks, while about 41% complain about the effluence and bad odor from sanitary facilities. Problems with septic tanks are related to poor design, poor quality construction, and infrequent cleaning. About 50% of those that use desludging tanker services emptied their tanks every year. The project will assist poor households to improve their sanitation facilities and help P-UDAA improve existing de-sludging services.14 12. Related policies and strategies. The project is in line with the Lao PDR’s Seventh National Socioeconomic Development Plan, 2011–2015, which envisions graduation from least- developed country status by 2020. The project focuses on achieving sustainable and inclusive development by transforming the key urban growth area into a competitive and green urban center—a strategy central to the government’s draft national urban sector strategy and local socioeconomic development plans. The project is also in line with the GMS strategy to transform transport corridors into economic corridors. It has synergies with ADB’s GMS Sustainable Tourism Development Project15 and the proposed GMS Corridor Towns Development Project. The country partnership strategy of the Asian Development Bank (ADB) for the Lao PDR, 2012–2016 also emphasizes stronger rural–urban linkages through improved urban services and municipal infrastructure. The project is consistent with ADB’s Urban Operational Plan, 2011–2020 under Strategy 2020, which fosters competitive, inclusive, and green cities by improving performance in economic, equity, and environment areas.16 13. Development partner coordination exists and will be strengthened through the technical working group on infrastructure (subgroup on urban development, water supply, and sanitation), chaired by the Ministry of Public Works and Transport (MPWT). ADB has been a lead partner in 13 Ministry of Labor and Social Welfare, National Disaster Management Office, 2011, National Disaster Management Plan, 2011–2015 (draft, April, with support from the United Nations Development Programme). 14 P-UDAA has about 30% of the septage services market on a volume basis and charges KN300,000 per trip. Three private entities also provide de-sludging services. 15 ADB. 2008. Report and Recommendation of the President to the Board of Directors: Proposed Grant to the Lao PDR and Loan to the Socialist Republic of Viet Nam: Greater Mekong Subregion Sustainable Tourism Development Project. Manila (Grant 0117-LAO, for $10 million and Loan 2457-VIE, for $10 million, approved 15 October). 16 Ministry of Planning and Investment. 2010. Lao PDR Seventh National Socio-Economic Development Plan, 2011–2015. Vientiane; ADB. 2011. Country Partnership Strategy: Lao People’s Democratic Republic, 2012–2016. Manila; ADB. 2011. ADB Urban Operational Plan. Manila; and ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020. Manila.
4 urban sector development in the Lao PDR. Other key partners include Agence Française de Développement, Japan International Cooperation Agency, Korean International Cooperation Agency, Thailand Neighboring Countries Economic Development Cooperation Agency, the United Nations Human Settlements Programme, the United Nations Children’s Fund, the World Health Organization, and the Netherlands Development Organization. The Norwegian Agency for Development Cooperation and United Nations Development Programme previously supported landfill construction in Pakse. Parallel financing opportunities will be explored during implementation. 14. Lessons from ADB’s experience in the urban development sector in the Lao PDR are incorporated in the project design. The project builds on the support provided to Pakse under ADB’s Secondary Towns Urban Development Project and recommendations from ADB evaluation reports. 17 Key lessons include: (i) active community participation and decentralized decision making are key to enhancing ownership and strengthening the capacity of communities and local government agencies; (ii) support for community planning complements central (or provincial) urban and regional plans; (iii) overlapping and ambiguous responsibilities should be resolved prior to investments in the sector; (iv) a more open-ended policy dialogue may be more helpful than the application of loan covenants; (v) a multisector approach in the urban sector in Lao PDR is implementable, as subsectors are within the mandate of a single ministry; and (vi) UDAAs often have insufficient funds and require budgetary support for O&M of infrastructure. 15. Special features. The project is in line with the Pakse Urban Development Strategy, 2011–2030, which integrates provincial and district socioeconomic objectives with overall national and sector objectives. It will facilitate efficient urban development and investment through a phased and more flexible approach. The project supports investments aimed at improving the conditions of the urban poor and low-income households, thereby maximizing potential project benefits. It promotes community-driven urban development and community-led service delivery through village grants, which help to support a balanced approach to urban land use planning and reinforce the interlinks between urban environmental improvements, health, and well-being. It includes support for continued policy dialogue and coordination at the national level to strengthen decentralized urban management and services. It includes support to implement and monitor a public–private partnership in solid waste management for possible replication in other towns. It also supports transformation of corridor towns to economic hubs and growth engines. B. Impact and Outcome 16. The impact of the project is improved competitiveness of Pakse as a regional economic and tourism center of the southern Lao PDR. The outcome will be increased quality, reliability, and coverage of urban infrastructure and environmental improvements in the greater Pakse urban area. By 2018, the project will enhance the urban environment, improve public health, and contribute to improved urban services for about 135,000 residents. It builds on a medium- term investment planning exercise and prefeasibility study supported by the Cities Development Initiative for Asia in 2010, which prioritized improved solid waste management, improved urban drainage, riverbank protection, and institutional capacity development and strengthening.18 The project will pursue an integrated program of investments in priority infrastructure rehabilitation, improvement and extension of urban services, and organizational and capacity development of urban development and management agencies. 17 ADB. 2011. Critical Constraints to Growth in the Lao PDR. Vientiane; ADB. 2010. Performance Evaluation Report: Lao PDR—Vientiane Urban Infrastructure and Services Project. Manila; ADB. 2010. Country Assistance Program Evaluation: Lao PDR—Sustainable Growth and Integration. Manila; ADB. 2010. Completion Report: Small Towns Development Project in the Lao PDR. Manila; and ADB. 2005. Completion Report: Secondary Towns Urban Development Project in the Lao PDR. Manila. ADB. 1997. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Lao People’s Democratic Republic for the Secondary Towns Urban Development Project. Manila (Loan 1525-LAO [SF], for $27 million, approved on 26 June). 18 ADB. 2005. Technical Assistance for the Cities Development Initiative for Asia. Manila (TA 6293-REG).
5
C. Outputs
17. The project will have the following four outputs in the greater Pakse urban area:
18. Output 1: Citywide environmental improvements will focus on the following:
(i) Improved solid waste management, including support for better collection,
transportation, processing, and disposal of waste. This will include procurement of
solid waste collection and landfill equipment; improvement and capacity increase of
the existing landfill (or open dump) to a controlled landfill standard; possible landfill
expansion to accommodate increased volumes of waste resulting from increased
collection; and improvement of an existing concession contract with Khamtay
General Agricultural and Trading Co. Ltd. in solid waste processing and recycling.19
(ii) Improved flood protection and drainage conditions, including support for drainage
improvements and maintenance of natural drainage paths, major culverts, and
floodwater retention areas. This includes installment of new storm-water pumping
stations, construction or rehabilitation of flap gates, and construction of a new
outlet channel; construction of primary and secondary drains in priority catchments,
maintenance of flood retention areas and green space, and improvement or
construction of access roads for drainage maintenance. 20 The project adapts a
sustainable approach to floodplain management, consistent with Pakse’s vision of
being a green and environmentally sustainable city.
(iii) Riverbank erosion protection along the Xedon River, which will support riverbank
reinforcement along three kilometers of Xedon River—along both sides from the
Russian Bridge to the French Bridge and on the left side at Wat Ban Kea.
19. Output 2: Community-driven urban environmental improvements will enhance community
participation through (i) improved solid waste collection and management in villages of greater
Pakse urban area through village grants (output 2.1), and (ii) improved household sanitation
through sanitation grants (output 2.2). 21 The project will support each village development
committee in local urban planning, prioritization and selection of small-scale infrastructure
investments, and identification of poor households for sanitation improvements. Output 2.1 will be
financed by the project funds (80%), government funds (10%), and community funds (10%). The
project will also increase public awareness in solid waste management and support P-UDAA to
improve septage collection, treatment, and disposal.
20. Output 3: Strengthened capacity for provincial urban planning and services supports
urban agencies in Pakse to deliver quality, reliable urban services based on an agreed road
map for Pakse urban management in transition. It includes (i) strengthened capacity of P-UDAA
in urban management and service delivery through better management of private concessions
and improved operational and financial performance; (ii) strengthened capacity of C-DPWT and
participating OPWTs in urban planning and development control; and (iii) enhanced gender
equity in urban planning, management, and service delivery through 1-year project internships
for about 40 students (50% women).22
19
A sanitary landfill is not feasible in Pakse because of high initial and operating costs, low volumes of waste
currently generated, high levels of technical expertise required, and people’s low willingness to pay for collection.
P-UDAA signed a concession contract on 20 June 2011 (contract no. 099/UDAA).
20
Provincial Governor Notification No. 478/DGPS (10 June 2011) on the enforcement of retention areas and
drainage easement protection (Pakse Urban Development Strategy, 2011–2030).
21
Output 2.1 is estimated at $35 per capita per village, and output 2.2 at about $180 per household for pour-flush
toilets and $450 for a toilet with septic tank. Output 2 builds on ADB’s experience in similar projects (footnote 17).
22
Interns will be selected from educational and vocational institutions in Pakse, including Champasack University. Each
intern will sign an agreement with the project management and implementation unit (PMIU) prior to participating in the
program and receiving a stipend (about $1,250 for per diem, travel, and insurance).6
21. Output 4: Strengthened capacity for project management and implementation will focus
on the project coordination unit (PCU) and project management and implementation unit (PMIU).
Capacity development activities may be extended to provincial project steering committee (PPSC)
members, and staff from C-DPWT, P-UDAA, and participating OPWTs in the greater Pakse
urban area. It will include skills enhancement and training in project design and supervision,
gender and community development, accounting and financial management, procurement and
disbursement, environmental and social safeguards, and other areas agreed to in advance with
ADB. It will support on-the-job training for C-DPWT and P-UDAA in urban planning and
development, solid waste collection, and landfill management.
D. Investment and Financing Plans
22. The project is estimated to cost $31.74 million (Table 1). The government requested a
loan equivalent to SDR15,904,000 and a grant equivalent to $3.25 million from ADB’s Special
Funds resources to help finance the project.23 The loan will have a 32-year term, including a grace
period of 8 years, an interest rate of 1.0% per annum during the grace period and 1.5% per
annum thereafter, and such other terms and conditions set forth in the draft financing agreement.
Table 1: Project Investment Plan ($ million)
Item Amounta
b
A. Base Cost
1. Citywide environmental improvements
1.1. Solid waste management improvementc 4.46
1.2. Drainage and stormwater management 5.39
1.3. Riverbanks erosion protection – Xedon River 5.87
2. Community-driven urban environmental improvements
2.1. Community-driven infrastructure upgrading 6.21
2.2. Household sanitation improvement 1.10
3. Strengthened capacity for provincial urban planning and services 1.04
4. Strengthened capacity for project management and implementation 4.49
Subtotal (A) 28.56
B. Contingenciesd
1. Physical 0.61
2. Price 1.87
Subtotal (B) 2.48
C. Financial Charge During Implementatione 0.69
Total (A+B+C) 31.74
a
Includes taxes and duties of about $2.38 million to be financed by Asian Development Bank resources; and land
acquisition and resettlement of $2.36 million to be financed by the Government of the Lao People’s Democratic Republic.
b
In 2012 prices.
c
Includes provision of $0.792 million for possible landfill expansion to be identified during project implementation.
d
Physical contingency is computed at 0% for resettlement cost and 10% for other base costs. Price contingency is
computed using cost escalation factors of–1.5%–0.5% progressively from 2012 for foreign cost and 6%–5% for local cost.
e
Includes interest during construction on the Asian Development Bank loan computed at 1% per annum.
Note: Numbers may not sum precisely because of rounding.
Source: Asian Development Bank estimates.
23. The financing plan is in Table 2. The government will provide counterpart financing of
$3.65 million to cover its 10% contribution to output 2.1 village grants, entire costs for land
acquisition and resettlement, and the financial charge of the loan during implementation. The
community financing of $0.59 million covers its 10% contribution to output 2.1 village grants. The
government will make the loan proceeds available to the executing agency and implementing
agencies on a grant basis.
23
ADB will finance (i) taxes and duties on ADB-financed expenditures, as it is within reasonable country thresholds,
does not represent an excessive share of the project investment, and is material and relevant to the project’s success;
and (ii) recurrent costs, local transportation, and internship insurance to facilitate project implementation.7
Table 2: Financing Plan
Source Amount Share of Total
($ million) (%)
Asian Development Bank (loan) 24.25 76.40
Asian Development Bank (grant) 3.25 10.24
Government 3.65 11.50
Community 0.59 1.86
Total 31.74 100.00
Source: Asian Development Bank estimates.
E. Implementation Arrangements
24. The MPWT will be the executing agency and C-DPWT and P-UDAA will be the
implementing agencies. A PCU will be located in the Department of Housing and Urban Planning
of MPWT and a PMIU in P-UDAA, with staff from both implementing agencies. A PPSC will be
established in Champasack province, with the vice provincial governor as chair and the Pakse
district governor as vice-chair. Ad hoc coordination meetings at the national level will be chaired by
the vice minister of the MPWT, with the vice governor of Champasack as vice-chair. The PMIU will
report directly to the Pakse district governor on project-related matters. Implementation
arrangements are in Table 3 and described in detail in the project administration manual (PAM). 24
Table 3: Implementation Arrangements
Aspects Arrangements
Implementation period July 2012–June 2018 (6 years)
Estimated completion date 30 June 2018
Management
(i) Ad hoc coordination Vice minister, MPWT (chair); vice governor, Champasack Province (vice-chair);
meetings (national) representatives from Ministry of Home Affairs, Ministry of Finance, Ministry of Planning and
Investment, Ministry of Natural Resources and Environment; Pakse district governor; PMIU
director and deputy director; and Lao Women’s Union (participants)
(ii) Project coordination unit PCU coordinator (head); procurement officer, accountant, treasurer, secretary, and driver (members)
(iii) Provincial project Vice provincial governor, Champasack province (chair); district governor, Pakse District
steering committee (vice-chair); representatives from PCU, C-DPWT, Department of Housing and Urban
Planning, PMIU director and deputy director, Bachiang and Phonthong districts, Department
of Finance, Department of Planning and Investment, Department of Home Affairs, Department of
Natural Resources and Environment, and Champasack Lao Women’s Union (members)
(iv) Executing agency MPWT
(v) Implementing agencies C-DPWT and P-UDAA. C-DPWT is the sector agency responsible for sector planning and
development. P-UDAA is responsible for delivery of urban services and operation and
maintenance after project completion.
(vi) Project management Project director (C-DPWT); project deputy director (P-UDAA); accountant (P-UDAA),
and implementation procurement officers (P-UDAA and C-DPWT); engineers (C-DPWT and P-UDAA); treasurer;
unit environment officer; resettlement officer; social and community development officers (2); drivers
(2); and secretary (members)
Procurement International competitive bidding 4 contracts $11,336,000
National competitive bidding 16 contracts $8,949,500
Shopping 12 contracts $343,500
Consulting services Consulting firm (QCBS) 479 person-months $4,000,000
Individual consultants 8 person-months $92,000
Advanced contracting Advanced action for consulting services requested
Disbursement The loan and grant proceeds will be disbursed in accordance with ADB’s Loan Disbursement
Handbook (2007, as amended from time to time) and detailed arrangements agreed upon
between the government and ADB.
ADB = Asian Development Bank, C-DPWT = Champasack Department of Public Works and Transportation, MPWT = Ministry of
Public Works and Transport, P-UDAA = Pakse Urban Development Administration Authority, PCU = project coordination unit, PMIU
= project management and implementation unit, QCBS = quality- and cost-based selection.
Sources: ADB, MPWT, C-DPWT, and P-UDAA estimates.
24
Project Administration Manual (accessible from the list of linked documents in Appendix 2).8
III. DUE DILIGENCE
A. Technical
25. The project will enhance the urban environment in Pakse through the selection of
technologies focused on durability and sustainability. Citywide improvements target priority areas
where there is maximum impact on local communities and the environment, such as greater
waste collection and organized disposal, drainage in low-lying flooded areas, and targeted
riverbank protection. Engineering solutions for infrastructure and equipment are appropriate and
developed based on technical viability and compatibility with local conditions, particularly with
respect to local O&M capacity. To ensure durability and continuity of the proposed infrastructure,
contract packages will attract contractors with appropriate skills and experience. Community-
driven improvements will respond to local planning and prioritization results. Household sanitation
improvements will be based on function, cost, and long-term durability in an urban setting.
B. Economic and Financial
26. An economic analysis was conducted following ADB’s guidelines and best practices. The
project contributes significantly to the improved economic welfare of Pakse residents. Drainage
and sanitation components will significantly reduce the incidence and severity of flooding, reduce
ponding of polluted water in public areas, provide sanitation facilities in public areas and schools,
enhance environmental and living conditions, and improve public health. The base case economic
internal rate of return (EIRR) is 15.8% for solid waste management, 21.8%–39.7% for drainage
and storm water, and 26.2%–30.9% for riverbank protection. All EIRRs are higher than ADB’s
12% economic opportunity cost of capital. Sensitivity analysis showed that the EIRRs are most
vulnerable to changes in anticipated benefits.
27. A financial analysis was conducted following ADB guidelines and best practices. The
financial viability was assessed for solid waste management improvements, as the project’s only
revenue-earning component. The financial internal rate of return is 3.5%, which exceeds the
weighted average cost of capital of 0.4%, indicating financial viability. The remaining components
are nonrevenue generating, so a financial sustainability analysis for P-UDAA was completed. While
P-UDAA is recovering O&M costs for solid waste management through user charges, the analysis
found that it is unable to meet recurrent costs for collective urban services. The project will assist P-
UDAA to improve its financial performance through activities such as corporate planning, annual
budget reviews, and establishment of an urban services charge. It will assist P-UDAA to undertake
periodic reviews of its solid waste management activities, highlighting the importance of translating
cost recovery into continuous planning, operations, and ongoing construction for landfill expansion
and landfill closure to absorb the amounts of waste collected.
C. Governance
28. A financial management and a procurement capacity assessment of the MPWT and P-
UDAA helped to confirm the project implementation arrangements, which follow previous ADB
urban development projects in the Lao PDR. The executing and implementing agencies have
experience in managing externally funded projects and have sufficient capacity to undertake
international and national competitive bidding for civil works packages. Output 4 will strengthen
the capacity of PMIU staff and provide on-the-job support. The PCU will also help build local
capacity through its review of procurement and disbursement documents. ADB’s Anticorruption
Policy (1998, as amended to date) was explained to and discussed with the government and
MPWT. The specific policy requirements and supplementary measures are described in the PAM.9 D. Poverty and Social 29. The project will have significant positive social and environmental impacts, which will improve the overall attractiveness of Pakse and allow residents to seize commercial opportunities. It will improve the lives and health of communities and individuals by (i) enhancing air quality from indiscriminate burning of waste; (ii) improving accessibility, which may be otherwise hampered by flooding; (iii) reducing vulnerability along the Xedon River; and (iv) enhancing local ownership and awareness about environmental sanitation. The project is category II—effective gender mainstreaming. It will improve women’s access to basic urban infrastructure and services. A gender analysis and action plan has been prepared for the project, which creates opportunities for women to access training (33%) and project internships (50%), to participate in project implementation units (33%), and to be employed in community infrastructure O&M (40%). E. Safeguards 30. The safeguard category for indigenous peoples is C, in accordance with ADB’s Safeguard Policy Statement (2009). About 95% of the population in the greater Pakse urban area is Tai Kadai (Lao majority). The Mon-Khmer ethnic group and some foreign migrants (Vietnamese and Chinese) also reside in the project area. Most of the Mon-Khmer group lives in Bachiang district, and are well-integrated into Lao society. No adverse impacts are anticipated on Mon- Khmer group or migrants in the project area. 31. The safeguard category for involuntary resettlement is B. A resettlement plan and resettlement framework25 have been prepared. About 224 affected households or 1,250 affected persons will incur minor impacts. One affected household (or three affected persons) will be severely affected by riverbank erosion protection. The cost is estimated to be $2.36 million, which includes base costs, allowances, and contingencies. A cutoff date has been established with extensive stakeholder consultation and participation. A project information booklet has been disclosed to affected persons, which will be updated and distributed during implementation. 32. The safeguard category for the environment is B. An initial environmental examination (IEE) and an environmental assessment review framework have been prepared. The potential environmental impacts are related to siting, design, construction, and operation, and are not expected to cause irreversible adverse environment impacts. Environment management plans (EMPs) have been prepared for solid waste management, drainage, and riverbank erosion protection. The EMPs will form part of the bidding and contract documents. The potential adverse impacts during construction are expected to be temporary and can be mitigated through compliance with the EMPs. The project includes support for EMP implementation and monitoring. 33. Resettlement and environment documents have been prepared in consultation with local communities and are in accordance with ADB’s Safeguard Policy Statement and Lao PDR laws and regulations. The documents have been endorsed, approved and posted on the ADB website.26 A grievance redress mechanism will help to facilitate resolution of complaints regarding project performance. The resettlement plan, IEE, and EMPs will be updated and disclosed after detailed design and cleared by ADB prior to contract awards. F. Risks and Mitigating Measures 34. The key project risks and mitigating measures are summarized in Table 4 and all risks are described in detail in the risk assessment and risk management plan.27 25 Also referred to as land acquisition and compensation plan and land acquisition and compensation framework. 26 The Ministry of Natural Resources and Environment issued its Certificate No. 2271/MONRE on 30 March 2012. 27 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).
10
Table 4: Summary of Risks and Mitigating Measures
Risks Mitigating Measures
Trade and investments in Pakse and Champasack The project includes environmental improvements focused on
province are adversely affected by natural disasters. flood control, erosion protection, and solid waste management.
The concession contract with the private sector for The project includes capacity development activities to strengthen
the waste processing facility fails. P-UDAA’s ability to manage public–private partnerships.
Urban residents are unaware of the links between The project includes measures to increase community awareness,
health and environmental sanitation. ownership, and responsibility for environmental protection.
Nonavailability of qualified national consultants The project includes consulting services that will provide on-
residing in Pakse the-job training to PMIU and institutional staff.
Lack of sufficient resources to support delegated The project requires consulting services are based in Pakse and
project management and implementation the PCU to support the PMIU in implementation procedures.
P-UDAA = Pakse Urban Development Administration Authority, PCU = project coordination unit, PMIU = project
management and implementation unit.
Source: Asian Development Bank.
IV. ASSURANCES AND CONDITIONS
35. The government and the MPWT have assured ADB that implementation of the project
shall conform to all applicable ADB policies including those concerning anticorruption measures,
safeguards, gender, procurement, consulting services, and disbursement as described in detail
in the PAM and loan and grant documents.
36. The government and the MPWT have agreed with ADB on certain covenants for the
project, which are set forth in the financing agreement. In addition to the standard conditions for
the award of civil works, the government and the MPWT have agreed to the following additional
conditions: (i) civil works contract will not be awarded until a comprehensive feasibility study
together with the appraisal report is submitted to ADB showing that relevant works meet ADB’s
and the beneficiary’s social and safeguards, technical, economic, financial, and institutional
requirements as set forth in the PAM; and (ii) the government will not award any civil works
contract which involves involuntary resettlement impacts until a report from the external
resettlement monitor has been submitted to ADB confirming that there are no resettlement issues.
V. RECOMMENDATION
37. I am satisfied that the proposed loan and grant would comply with the Articles of
Agreement of the Asian Development Bank (ADB) and recommend that the Board approve
(i) the loan in various currencies equivalent to SDR15,904,000 to the Lao People’s
Democratic Republic for the Pakse Urban Environmental Improvement Project,
from ADB’s Special Funds resources, with an interest charge at the rate of 1.0% per
annum during the grace period and 1.5% per annum thereafter; for a term of
32 years, including a grace period of 8 years; and such other terms and conditions
as are substantially in accordance with those set forth in the draft financing
agreement presented to the Board; and
(ii) the grant not exceeding $3,250,000 to the Lao People’s Democratic Republic, from
ADB’s Special Funds resources, for the Pakse Urban Environmental Improvement
Project, on terms and conditions that are substantially in accordance with those set
forth in the draft financing agreement presented to the Board.
Haruhiko Kuroda
President
4 June 2012Appendix 1 11
DESIGN AND MONITORING FRAMEWORK
Performance Targets and Data Sources and Assumptions and
Design Summary Indicators with Baselines Reporting Mechanisms Risks
Impact By 2021: Assumption
Improved Increase in per capita income of Pakse Pakse district annual Favorable business
competitiveness of residents to $1,750 (2010: $1,097 per socioeconomic reports climate in Pakse and
Pakse as a regional capita income) Champasack district
economic and tourism Champasack provincial Risk
Gross domestic product in Champasack reports and economic
center of the southern province increases by at least 8% annually Trade and investments
Lao PDR statistics in Champasack and
(2010: KN6,225 billion)
Reports from Pakse are adversely
Increase in international tourist arrivals in affected by natural
Champasack province by at least 75% development and trading
partners disasters.
(2010: 301,699 people)
Outcome By 2018: Assumptions
Increased quality, At least 125,000 residents benefit from the P-UDAA monthly reports The government is
reliability, and project (2011: 107,000 people). committed to the
coverage of urban Pakse district reports and project.
Number of households served by improved statistics
infrastructure and solid waste management increased by
environmental Urban communities
30% (2011: 21% of 107,000 people) Champasack provincial realize the benefits of
improvements in the reports and statistics
greater Pakse urban Annual flood damages to households Pakse as a green and
area reduced by 20% (2011: 2,895 households Consultant reports clean city.
affected)
Pakse Urban
Riverbank erosion along Xedon River Development Strategy,
constructed to 1:30 year flood levels 2011–2030 is
(2011: less than 1:10 year flood levels) enforced.
At least 42 urban villages developed
participatory urban environmental
improvement plans (2012: none)
Outputs By 2018: Assumptions
1. Citywide 4.2 ha of the existing landfill is rehabilitated Subproject feasibility and Safeguard documents
environmental and 3.7 ha is developed. appraisal reports are approved on time.
improvements
P-UDAA operates the existing landfill site Construction records Enforcement of
as a controlled landfill (2011: open dump). retention areas and
Project progress and drainage easements
1.1 Improved solid P-UDAA household collection increases to completion reports
waste management 50% or at least 70 tons per day across 59 The government
system villages (2011: 21% or 20 tons per day in Detailed designs of new pursues the 2010
28 villages in Pakse district). cell development and riverbank improvement
At least 1 public–private partnership is waste disposal plans and protection
implemented based on amended contract Concession contract proposal along the
(2012: 1 contract). Mekong River only.
Census report
10 pumping stations and 4 flap gates are Risks
1.2 Strengthened
rehabilitated or constructed (2011: 6 Concession to develop
flood protection and
pumping stations and 3 flap gates are the waste processing
drainage
operational). facility fails.
At least 6,000 m of primary and 7,500 m of
secondary drains are constructed (2011: Urban residents are
no drains in specified areas). unaware of the links
between health and
At least 4,400 m of drains are cleaned and environmental
rehabilitated (2011: 4,430 m of drainage sanitation.
require rehabilitation).
At least 2,900 m of roads are improved and
600 m of new roads are constructed for
drainage easements (2011: 2,965 m
require improvement).
At least 80% of flood retention areas are
1.3 Reinforced
retained (2011: 17.40 ha demarcated).
riverbank protection12 Appendix 1
Performance Targets and Data Sources and Assumptions and
Design Summary Indicators with Baselines Reporting Mechanisms Risks
(Xedon River) By 2018, at least 3 km of riverbank
protection constructed in areas where
severe erosion occurs
2. Community-driven By 2018: Assumptions
urban environmental At least 50% of villages in project area Project progress and The government is
improvements receive village grants. completion reports committed to
At least 40% of participants in CEI training Urban village plans and community
2.1 Improved solid are women. agreements participation.
waste collection and Community and
management At least 40% of all CEI employment Construction records
opportunities are for women. government
contributions are
2.2 Improved At least 12,000 households have improved released on time.
household sanitation their toilets to pour-flush standards (2005: Risk
10,577 households have a pour-flush Urban residents are
toilet). unaware of the links
At least 3,000 households have improved between health and
their toilets to have a septic tank (2005: environmental
832 households have a septic tank). sanitation.
3. Strengthened By 2018: Assumptions
capacity for provincial At least 33% of training course participants Project progress and The government
urban planning and are women. completion reports allocates adequate
services Integration of environmental management staff and resources for
Project performance PMIU.
in urban planning (at least 4 technical monitoring and evaluation
guidelines developed). reports P-UDAA and local
Integration of environmental management government recognize
in service delivery (a functioning recycling Corporate plan updates the value of corporate
program is developed). Training records plans.
Pakse urban services charge implemented disaggregated by sex
Green certification program implemented
At least 40 interns recruited (50% female)
P-UDAA corporate plan is prepared by
2013, and updated annually.
5-year capital investment plan approved for
greater Pakse urban area by 2015.
4. Strengthened By 2018: Assumption
capacity for project Knowledge on project management is Project progress and PMIU has adequate
management and acquired by the PCU and PMIU. completion reports staff and resources.
implementation Project implementation modules are Risk
Project performance Nonavailability of
developed (including gender-sensitive and monitoring and evaluation
sex-disaggregated information) qualified national
reports consultants
Sex-disaggregated indicators are
incorporated in project performance Lack of sufficient
management system. resources to support
delegated project
management and
implementation
Activities with Milestones Inputs
1 Citywide Environmental Improvements Loan and Grant
1.1 Improved solid waste management system ADB: $27.50 million
1.1.1 Update feasibility study and prepare appraisal report (Q1–Q3 2013) Item Amount
1.1.2 Submit external resettlement monitoring to ADB by Q3 2013 Civil works $18.07
1.1.3 Procure first batch of collection and landfill equipment by Q4 2013 Equipment $1.59
1.1.4 Key works include design and construction of roadworks, buffering and Consulting $4.50
landscaping, installation of landfill monitoring facilities by Q3 2013 services
1.1.5 Rehabilitate and upgrade leachate pond, construct septage ponds, and procure Gender equity $0.06
landfill equipment by Q4 2013 internshipsAppendix 1 13
Activities with Milestones Inputs
1.1.6 Rehabilitate cells A and D, and raise perimeter bunds of cell A to 7 m by Q4 2013 Recurrent costs $0.80
1.1.7 Weekly soil covering of waste (Q4 2013–ongoing) Contingencies $2.48
1.1.8 Detailed designs prior to new cell B development by Q1 2014 Government: $3.65 million
1.1.9 Determine need for landfill expansion; prepare feasibility study and appraisal report Item Amount
for ADB and government consideration; and include technical, financial (and fee Land $2.36
structure), economic, and safeguards due diligence (Q1 2014–Q1 2015) acquisition and
1.1.10 Cap and close cell A (Q1 2015) and cells B, C, and D (Q1 2018) resettlement
1.1.11 Procure second batch of collection and landfill equipment by Q3 2015 Output 2.1 $0.59
1.1.12 Construct new cell C to 7 m height by Q1 2017, and raise perimeter bunds of cell D contribution
to 7 m height by Q3 2017 (10%)
1.1.13 Complete report on PPPs in solid waste management by Q4 2017 Financial $0.69
1.1.14 Monitor safeguards (continuous) charge during
1.2 Strengthen flood protection and drainage implementation
1.2.1 Update feasibility study and prepare appraisal report (Q1–Q3 2013) Communities: $0.59 million
1.2.2 Rehabilitate existing drains (Q1–Q2 2013) Item Amount
1.2.3 Submit external resettlement monitoring report to ADB (Q3 2013)
1.2.4 Award civil works contracts (Q4 2013) Output 2.1 $0.59
1.2.5 Monitor safeguards (continuous) contribution
1.3 Reinforce riverbank protection (Xedon River) (10%)
1.3.1 Update feasibility study (including the need for tie-back levies to ensure 1:30 year
flood level protection) and prepare appraisal report (Q1–Q3 2013)
1.3.2 Submit external resettlement monitoring report to ADB (Q4 2013)
1.3.3 Award civil works contract (Q1 2014)
1.3.4 Monitor safeguards (continuous)
2 Community-Driven Urban Environmental Improvements
2.1 Update indicative implementation guidelines for CEI proposals by Q4 2012
2.2 Participating districts approve Department of Housing and Urban Planning district
sanitation regulations prior to starting project activities in each district (Q4 2012)
2.3 Assist villages in preparing CEI feasibility studies (10 phases) Q2 2013–Q4 2016
2.4 Assist in implementing CEI plans (10 phases: Q1 2014–Q4 2017)
2.5 Submit external resettlement monitoring reports (10) to ADB (Q3 2013–Q4 2016)
2.6 Prepare a report on the CEI and lessons by Q1 2018
3 Strengthened Capacity for Provincial Urban Planning and Services
3.1 Update the training matrix and capacity development program by Q4 2012
3.2 Develop an institutional development plan for P-UDAA and C- DPWT, training of
trainer modules, and internship program by Q2 2013
3.3 Approve first corporate plan with project support by Q1 2014
3.4 Prepare and submit annual business plans by 30 March of each year (Q1 2013–
2018), and prepare initial P-UDAA 3-year corporate plan (Q2 2014)
3.5 Develop Pakse green certificate program (Q2 2014)
3.6 Prepare Pakse urban services charge structure within 30 months of effectiveness
(Q1 2014) and implement within 6 months thereafter (Q2 2015)
3.7 Prepare a report on lessons from capacity development activities by Q1 2018
4 Strengthened Capacity for Project Management and Implementation
4.1 Appoint PCU, PMIU, and PPSC units and members (Q2 2012)
4.2 Recruit and mobilize individual consultants by Q3 2012, and project management
and implementation consultants by Q4 2012
4.3 Develop project performance management system, finalize design and monitoring
framework, and submit to ADB (Q4 2012)
4.4 Prepare and submit annual project performance monitoring and evaluation reports
by 31 January of the following year (January 2013–2018)
4.5 Deliver gender training to project agencies and communities by Q1 2013
4.6 Establish grievance mechanism and appoint grievance focal person in PMIU and
village development committees by Q3 2012
ADB = Asian Development Bank, C-DPWT = Champasack Department of Public Works and Transport, CEI = community
environment improvement, ha = hectare, km = kilometer, Lao PDR = Lao People’s Democratic Republic, m = meter, P-UDAA
= Pakse Urban Development Administration Authority, PCU = project coordination unit, PMIU = project management and
implementation unit; PPP = public–private partnership, PPSC = provincial project steering committee, Q = quarter.
Note: Numbers may not sum precisely because of rounding.
Sources: Asian Development Bank and Ministry of Public Works and Transport.You can also read
