Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004317 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA Grant Number H155-LA and IDA Guarantee Number B-0080-LA) ON A GRANT IN THE AMOUNT OF SDR13.1 MILLION (US$20 MILLION EQUIVALENT) TO A Lao People’s Democratic Republic FOR A Nam Theun 2 Social and Environment Project (P049290) AND AN IDA PARTIAL RISK GUARANTEE IN THE AMOUNT OF UP TO US$50 MILLION FOR A SYNDICATED COMMERCIAL LOAN FOR THE Nam Theun 2 Hydroelectric Project (P076445) December 28, 2018 Energy and Extractices Global Practice Environment and Natural Resources Global Practice East Asia and Pacific Region CURRENCY EQUIVALENTS (Exchange Rate Effective November 1, 2018) Currency Unit = US Dollars (US$) SDR 0.72 = US$1 US$1.38 = SDR 1 FISCAL YEAR October 1 - September 30 Regional Vice President: Victoria Kwakwa Country Director: Ellen Goldstein Senior Global Practice Director(s): Riccardo Puliti/Karin Kemper Practice Manager(s): Julia M. Fraser/Christophe Crepin Task Team Leader(s): Daryl Fields ICR Main Contributor: Eugene D. McCarthy ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank MAF Ministry of Agriculture and Forestry AFD Agence Française de Développement MEM Ministry of Energy and Mines AM Adaptive Management MIGA Multilateral Investment Guarantee Agency CA Concession Agreement MOF Ministry of Finance CAS Country Assistance Strategy MPI Ministry of Planning and Investment CCGT Combined Cycle Gas Turbine MTDP Medium Term Development Plan CIA Cumulative Impact Assessment MW Megawatt CMU Country Management Unit MWh Megawatt hour COD Commercial Operations Date NSEDP National Socio-Economic Development Plan COTE Consortium of Technical Experts NGO Non-Government Organization CPF Country Partnership Framework NGPES National Growth & Poverty Alleviation Strategy DGA Development Grant Agreement NPV Net Present Value DSRP Dam Safety Review Panel NT2 Nam Theun 2 E&S Environment and Social NTPC Nam Theun 2 Power Company Limited EAMP Environmental Assessment and Management Plan NTSEP Nam Theun 2 Social and Environment Project EDF Electricité de France PAP Project affected person EDL Electricité du Laos PDO Project Development Objective EGAT Electricity Generating Authority of Thailand PFM Public Financial Management EGCO Electricity Generating Public Company Ltd POE Panel of (Environment and Social) Experts (Thailand) EIB European Investment Bank PDR People’s Democratic Republic (Lao PDR) EMDP Ethnic Minority Development Plan PPP Public Private Partnership ERR Economic rate of return PRG Partial Risk Guarantee FIRR Financial Internal Rate of Return QER Quality Enhancement Review GDP Gross Domestic Product RF Results Framework GFIS Government Financial Information System RIP Resettlement Implementation Period GLIP Government Letter of Implementation Policy RMP Revenue Management Program GMS Greater Mekong Sub-region SAO State Audit Organization GOL Government of Lao PDR SCD Systematic Country Diagnostic GRM Grievance Redress Mechanism SDP Social Development Plan GWh Gigawatt hour SDR Special Drawing Right HCCEMP Head Construction Contract Environmental SEMFOP Social and Environment Management Management Plan Framework and First Operational Plan IAG Independent Advisory Group SESIA Summary of Environmental and Social Impact Assessment ICR Implementation Completion and Results Report SIA Social Impact Assessment IDA International Development Association THB Thai Baht IFI International Financial Institution TOC Theory of Change IMA Independent Monitoring Agency TTL Task Team Leader IPP Independent Power Producer USD/US$ US Dollar ISR Implementation Status and Results Report WB/WBG World Bank/World Bank Group IUCN International Union for Conservation of Nature WMPA Watershed Management and Protection Authority (Nakai Nam Theun) JWG Joint Working Group XBF Xe Bang Fai River LENS Lao Environment and Social Project LNG Liquified Natural Gas LHSE Lao Holding State Enterprise LSMS Living Standards Measurement Surveys LTA Lenders Technical Advisor TABLE OF CONTENTS DATA SHEET .......................................................................................................................... 1 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 6 A. CONTEXT AT APPRAISAL ......................................................................................................6 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) ..................................... 14 II. OUTCOME .................................................................................................................... 15 A. RELEVANCE OF PDO .............................................................................................................. 15 B. ACHIEVEMENT OF PDO (EFFICACY) ........................................................................................ 16 C. EFFICIENCY ........................................................................................................................... 24 D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 25 E. OTHER OUTCOMES AND IMPACTS (IF ANY) ............................................................................ 26 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 31 A. KEY FACTORS DURING PREPARATION ................................................................................... 31 B. KEY FACTORS DURING IMPLEMENTATION…………………………………………………………………..………..32 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 34 A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 34 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 37 C. BANK PERFORMANCE ........................................................................................................... 39 D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 42 V. LESSONS AND RECOMMENDATIONS ............................................................................. 44 ANNEX 1. ICR RESULTS FRAMEWORK AND KEY OUTPUTS ..................................................... 50 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 71 ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 77 ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 78 ANNEX 5. COMMENTS FROM STAKEHOLDERS ...................................................................... 85 ANNEX 6. PUBLICLY AVAILABLE SUPPORTING DOCUMENTS ................................................. 87 ANNEX 7: REVENUE AND EXPENDITURE MANAGEMENT ...................................................... 91 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name Nam Theun 2 Hydroelectric Project / P076445 / P049290 Nam Theun 2 Social and Environment Project Country Financing Instrument Lao People's Democratic Republic Investment Project Financing Original EA Category Revised EA Category Full Assessment (A) Organizations Borrower Implementing Agency Ministry of Energy and Mines, Government of Lao PDR Lao People’s Democratic Republic Nam Theun 2 Power Company Limited (for guarantee financing) Project Development Objective (PDO) Original PDO To generate revenues, through environmentally and socially sustainable development of NT2's hydropower potential, which will be used to finance priority poverty reduction and environmental management programs. PDO as stated in the legal agreement To assist the Recipient to implement priority poverty reduction and environmental programs by generating revenues through environmentally and socially sustainable exploitation of the resources potentially generated from the Nam Theun 2 Hydroelectric Power facility. Page 1 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) FINANCING Actual Original Revised Disbursed Amount (US$) Amount (US$) (US$) World Bank Financing 20,000,000 20,000,000 19,969,077 IDA-H1550 Total 20,000,000 20,000,000 19,969,077 Non-World Bank Financing Borrower 92,500,000 92,500,000 93,000,000 Electricite de France International 157,500,000 157,500,000 131,000,000 Electricity Generating Public Company Ltd. 112,500,000 112,500,000 93,000,000 Italian-Thai Development Public Company Ltd 67,500,000 67,500,000 56,000,000 Multilaterals, Bilaterals and Export Credits Agencies (Direct Loans) 160,000,000 160,000,000 161,000,000 International commercial (US$) lenders (covered 340,000,000 340,000,000 301,000,000 by ECAs and multilateral guarantees) Thai commercial lenders (uncovered) 500,000,000 500,000,000 462,000,000 Total Project Cost excluding World Bank IDA 1,430,000,000 1,430,000,000 1,287,030,920 Total Project Cost including World Bank IDA 1,450,000,000 1,450,000,000 1,308,000,000 Pre-COD revenues 11,000,000 Net Project Costs at COD 1,297,000,000 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 31-Mar-2005 10-Jun-2005 04-Mar-2010 31-Dec-2017 31-Dec-2017 31-Mar-2005 10-Jun-2005 31-Dec-2017 31-Dec-2017 RESTRUCTURING AND/OR ADDITIONAL FINANCING Amount Disbursed (US$ Date(s) Key Revisions Millions) No restructuring Page 2 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Substantial RATINGS OF PROJECT PERFORMANCE IN ISRs Actual Date ISR No. DO Rating IP Rating Disbursement Archived s (US$M) 01 17-Jun-2005 Satisfactory Satisfactory 5.75 Moderately 02 01-Jun-2007 Satisfactory 10.72 Satisfactory Moderately 03 25-Jan-2008 Satisfactory 14.43 Satisfactory 04 21-Oct-2008 Satisfactory Satisfactory 19.98 05 21-Jun-2010 Satisfactory Satisfactory 20.09 Moderately Moderately 06 29-Jun-2014 20.09 Satisfactory Unsatisfactory Moderately Moderately 07 30-Jun-2015 20.09 Satisfactory Unsatisfactory Moderately Moderately 08 11-Jul-2016 20.09 Satisfactory Unsatisfactory Moderately Moderately 09 13-Jun-2017 20.09 Satisfactory Satisfactory Moderately Moderately 10 08-Jan-2018 20.09 Satisfactory Satisfactory Page 3 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) SECTORS AND THEMES Sectors Major Sector/Sector (%) Agriculture, Fishing and Forestry 10 Other Agriculture, Fishing and Forestry 10 Public Administration 15 Central Government (Central Agencies) 15 Social Protection 75 Social Protection 75 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 110 Jobs 100 Public Private Partnerships 10 Social Development and Protection 33 Social Inclusion 30 Other Excluded Groups 30 Fragility, Conflict and Violence 3 Forced Displacement 3 Environment and Natural Resource Management 67 Environmental Health and Pollution Management 33 Air quality management 11 Water Pollution 11 Soil Pollution 11 Renewable Natural Resources Asset Management 17 Biodiversity 17 Environmental policies and institutions 17 ADM STAFF Role At Approval At ICR Regional Vice President: Jemal-ud-din Kassum Victoria Kwakwa Country Director: Ian C. Porter Ellen Goldstein Page 4 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) Christian Delvoie / Maria Teresa Senior Global Practice Director: Riccardo Puliti/Karin Kemper Serra Practice Manager: Junhui Wu/Cyprian Fisiy Julia Fraser/Christophe Crepin Robert Anton Mertz / Patchamuthu Task Team Leader(s): Daryl Fields Illangovan ICR Contributing Author: Eugene D. McCarthy Page 5 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL 1. Background. The Nam Theun 2 (NT2) Hydroelectric Project and the Nam Theun 2 Social and Environment Project (NTSEP) – together known as the NT2 Project – have an almost three decade-long history beginning with the first discussions between the World Bank Group (WBG) and the Government of Lao People’s Democratic Republic (PDR) in 19881 until the project closed in December 2017. The environment in which NT2 was prepared was especially challenging. Lao PDR was one of the poorest countries in the East Asia region with human development indicators among the lowest in the region. The country had no experience developing a large hydropower project for export, and certainly not one with estimated capital requirements of US$1.45 billion, compared to the country’s gross domestic product in 2003 of only US$2.1 billion2. Creditworthiness alone was a major challenge. The NT2 investment also represented a formidable challenge for the WBG. While the World Bank financed several large-scale hydropower projects in the 1970s and 1980s, it had not done so in the 1990s. Project preparation also coincided with the dam debate of the 1990s, which culminated with the publication of the World Commission on Dams in 2000.This report set the benchmark against which the development impact of large dams was to be assessed. 2. Country context. Lao PDR is a landlocked, sparsely populated country, with a population of about 5.7 million and an estimated per capita income of only US$340 in 2003. The country had extensive natural resources, particularly water resources and minerals, and its central location within the rapidly growing Greater Mekong Sub-region (GMS)3 provided the potential to spur export-led growth. Economic growth based on hydropower development and mining was viewed as key to achieving Lao PDR’s poverty reduction targets, but several structural constraints were impeding growth and needed to be addressed. Among these constraints were weak government capacity, a fragile governance environment, and the need for improved incentives to attract private sector investment. 3. Sector context. In the 1990s, the domestic power system in Lao PDR was still at an early development stage, with only 43 percent of households having access to electricity. However, the country’s abundant hydropower resources, in conjunction with its central geographic location, provided significant potential for further expansion as regional power markets started to grow in neighboring Thailand and Vietnam. By 2003, even though power exports accounted for 30 percent of Lao PDR’s total export earnings, these earnings tended to be reinvested in the power sector. As such, their potential to reduce poverty nationwide was not being realized. In addition, the environmental and social (E&S) impacts of hydropower development were not adequately addressed. Within this sectoral context, the main challenge developing the NT2 Project was to ensure that the full economic benefits of this hydropower development were used to support the development of the broader country, while minimizing the E&S impact costs incurred with previous developments. 1 The development of the Mekong basin for hydropower had been under consideration by the Government since the early 1970s. The original concept was to supply electricity to the domestic market. In 1988, however, a World Bank mission recommended that the Government undertake a full feasibility study for NT2. Following this study, the original concept changed from a hydropower development supplying electricity only for the domestic market to one supplying electricity for export to neighboring countries. 2 Country Assistance Strategy (CAS) for Lao PDR, March 10, 2005 3 The GMS comprises Lao PDR, Thailand, Vietnam, Cambodia, Myanmar, and Yunnan Province of the People’s Republic of China. Page 6 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) 4. Rationale for World Bank support and contribution to country higher level objectives. In 2003, the Government of Lao PDR (GOL) prepared a National Growth and Poverty Eradication Strategy (NGPES-2004), which laid out the country’s overall development strategy. This strategy emphasized the need for sustained economic growth to help bring about a rapid reduction in poverty levels. The World Bank’ CAS4 provided direct support for the NGPES through both analytical and advisory services and new investment operations. A specific CAS objective was to ”support implementation of Nam Theun 2 (NT2) as an example of an area-based, sustainable natural resource development program that contributes to growth, social outcomes, capacity development, and stronger partnerships” The Country Economic Memorandum of December 2004 also supported the Government’s growth strategy to reduce poverty through the development of sustainable hydropower and mining resources, while emphasizing the need to improve the quality of economic growth by strengthening institutional capacity, the quality of governance, and the management of public finances. 5. The WBG’s involvement in the NT2 Project was predicated on the Government’s commitment to share the benefits from foreign investment in export-driven developments with the wider population by allocating the revenues generated from NT2 to increased public expenditure on priority programs for poverty reduction and environmental management. However, given the weak framework for public expenditure at the time, and the failure of past hydropower developments to contribute significant resources beyond the sector, there was a fundamental need to improve the efficiency, transparency, and accountability of public expenditure management systems and strengthen the voice of those communities that would be directly affected by the NT2 development. 6. To proceed with the NT2 Project preparation, the WBG and the Government adopted a framework approach consisting of three pillars: (a) Government commitment to draw up and implement a poverty reduction and environmental protection program; (b) commitment by the lead project developer – an experienced international electric utility – to ensure that the implementation of NT2 met World Bank standards, particularly the E&S safeguard policies; and (c) Government commitment to mobilize broad support for its poverty reduction strategy and the role of NT2 in realizing this strategy from international donors and civil society. 7. The Government prepared a Poverty Reduction Strategy Paper and implemented measures to reform public financial management (PFM). In addition, steps were taken to help ensure that project standards, particularly E&S standards, were acceptable to the main financing partners. By the time of appraisal there was substantive agreement on the approach to address the downstream impacts and the specific mitigation measures to be taken. These were included in the project’s base budget. 8. The World Bank played an enabling role in the project financing plan with partial financing of (GOL) equity and an IDA guarantee that leveraged the presence of several other financiers, which included the Asian Development Bank (ADB), Agence Française de Développement (AFD), the European Investment Bank (EIB) as well as European and Thai export credit agencies. International commercial lenders also played a key role, with about US$840 million being raised through these banks. 4 CAS, March 10, 2005. Page 7 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) 9. Project appraisal was completed in February 2005, and the IDA and Multilateral Investment Guarantee Agency (MIGA) support5 for the US$1.45 billion NT2 Project financing package was approved by the World Bank’s Executive Board of Directors on March 31, 2005.6 Theory of Change (Results Chain) 10. The development of NT2’s hydropower potential provided the Government with a unique opportunity to generate a significant stream of foreign exchange revenue7 to help finance its poverty reduction strategy while demonstrating sustainable E&S practices within hydropower developments. The project development objective (PDO) focused on using the stream of revenues generated from the environmentally and socially sustainable exploitation of NT2 revenues to finance the implementation of priority poverty reduction and environmental programs. 11. The PDO in the Development Grant Agreement (DGA) is ’to assist the Recipient to implement priority poverty reduction and environmental programs by generating revenues through environmentally and socially sustainable exploitation of the resources potentially generated from the Nam Theun 2 Hydroelectric Power facility’. In the Project Appraisal Document (PAD), the PDO is ’to generate revenues, through environmentally and socially sustainable development of NT2’s hydropower potential, which will be used to finance priority poverty reduction and environmental management programs.‘ The word ‘implement’ in the DGA PDO is interpreted as to ‘finance’ priority poverty reduction and environmental programs as the project activities and outputs did not intend for the project to actually implement the priority programs but provide the enabling environment to support their implementation. Figure 1 provides an overview of the inputs and outputs that contributed to the achievement of the project objectives and outcomes. 12. Four interrelated set of activities were linked to the PDO in a logical sequence. These activities produced outputs, which supported achievement of the development objectives/outcomes and laid the foundation for achievement of longer-term outcomes (see Figure 1)8 as follows: • Through construction (and operation) of the NT2 hydropower facility (“Activities”), electricity is generated (’Outputs’), which is then exported to earn revenues that are used for targeted expenditures supporting broader benefit sharing (’Outcomes’); over the longer-term, which contributes to sustained economic growth. • Activities under ’Social Development, Environmental Assessment and Management, and Watershed Management’ were undertaken to mitigate social and environmental impacts, yielding a range of outputs that supported the achievement of social and environment outcomes (as well as longer-term outcomes such as strengthened institutional capacity for sustainable natural resource use). • The comprehensive monitoring and evaluation (M&E) framework produced periodic, visit-based reporting on project progress and issues, helping ensure that the project met its 5 MIGA support comprised guarantees of up to US$200 million for a syndicated commercial loan and an equity investment in the Nam Theun 2 Power Company (NTPC). 6 ADB board approval followed on April 4, 2005, while other partners’ approvals also followed the World Bank board approval. 7 The revenue stream was estimated at US$1.95 billion in nominal terms over a 25-year concession period. For comparison, the GDP of Lao PDR in 2003 was estimated at US$2.1 billion. 8 Note that Figure 1 only presents a summary of major outputs. The project delivered many more outputs which are shown in Annex 1 under outputs by component. Page 8 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) objectives/outcomes, and providing information to track progress on key indicators. • The Revenue and Expenditure Management activities produced outputs such as improved eligibility criteria and financial reporting, which helped ensure that NT2 revenue allocations and expenditures were used to finance the implementation of priority poverty reduction and environment programs, and led to stronger, more efficient, and transparent public expenditure management systems over the longer term. The outputs provided the financial means, structure and enabling environment (eligibility, governance, transparency) to ensure that NT2 revenues support the implementation of the priority programs. The critical assumptions underlying the Theory of Change, and the progress from activities to longer term outcomes, are: • Electricity Generation: NT2 Hydropower plant continues to generate electricity beyond end of CA (2035) with annual average exports to EGAT not less than 4,500GWh. • Social Development and Environmental Management: Institutional capacity developed sufficiently at central and provincial levels to enable monitoring of key social and environment goals. • Revenue and Expenditure Management: Public expenditure reviews undertaken regularly to monitor allocation of NT2 revenues for priority poverty reduction and environmental programs. Project Development Objective (PDO) 13. The PDO as per the DGA is as follows: ‘to assist the Recipient to implement priority poverty reduction and environmental programs by generating revenues through environmentally and socially sustainable exploitation of the resources potentially generated from the Nam Theun 2 Hydroelectric Power facility’. Page 9 of 97 Figure 1: Theory of Change (TOC) Activities Outputs Outcomes Longer Term Outcomes Electricity generated -with bulk exported Project Development Objective: to assist Construction of to Electricity Generating Public GOL to implement priority poverty reduction NT2 Hydropower Company Ltd (Thailand) (EGAT) over and environmental programs by generating Facility 25-year concession period from 2010- revenues through environmentally and 2035 to generate revenue stream from socially sustainable exploitation of the NT2. resources generated from the NT2 • All impacted villages moved to Hydroelectric Power facility • Sustained economic resettlement sites and alternative growth through private livelihood programs set up Generation of Revenues from the sector development, Social Hydroelectric Facility: • Planned environmental measures regional integration and Development, implemented and water quality and fish • Minimum, annual exports of electricity to further sustainable Environmental EGAT to generate revenues for broader monitoring programs in place development of Lao Assessment and benefit sharing; plus minimum annual • Wildlife management, biodiversity and PDR’s natural resources Management, supplies to EDL. land use monitoring systems are in and Watershed place; village-based resource • Strengthened Management Socially Sustainable Exploitation of NT2 management plans developed/ Government capacity to endorsed; training in alternative Resources: manage the further livelihoods provided to enclave • New livelihood activities are created, development of its (watershed) villages household incomes restored, and basic natural resources, social services such as health, nutrition, promote biodiversity and and education are improved protect ethnic minorities • Periodic, visit-based reports issued by expert panels (e.g. POE) covering dam Environmentally Sustainable Exploitation safety and Environment and Social • Revenues from NT2 of NT2 Resources: continue to finance Lao (E&S) issues Monitoring and • Reports on all technical and E/S issues • Water quality of Xe Bang Fai (XBF) river PDR’s poverty reduction Evaluation and Nam Theun reservoir is adequate to and development and recommending solutions • Periodic reporting on progress and ensure fish stock diversity and poses no strategy through to 2035 issues to ensure project meets threat to public health development and project-specific • Watershed management results in no • Public expenditure objectives further habitat degradation or declines in management systems populations of threatened species are strengthened, more efficient and more Revenue and Expenditure Management transparent • Mechanism for updating eligible of NT2 Revenues: programs • NT2 revenues are allocated to eligible Revenue and • Financial reporting systems for eligible poverty reduction and environmental Expenditure programs in place; reports published management programs which comply with Management • Public expenditure reviews and selection criteria expenditure tracking surveys • Regular consultation, publications and conducted and published audits of expenditures incurred on these programs Page 10 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) Expected Outcomes and Outcome Indicators 14. The PDO consists of four interrelated outcomes (in order noted in the PDO): • Outcome 1: Revenue and Expenditure Management of NT2 Revenues outcomes help ensure that the net revenues9 generated from NT2 are allocated to finance ‘eligible’ priority poverty reduction and environmental management programs of the Government, within the framework of a transparent public financial management (PFM) system. ‘Eligible’ programs were those identified in the national budget and which complied with the Revenue Management Program (RMP) criteria. • Outcome 2: Socially Sustainable Exploitation of NT2 Resources outcomes linked to the sustainability of the NT2 investment. These include: (a) outcomes achieved through implementation of a comprehensive Social Development Plan (SDP)10 for all project-affected persons (PAPs); and (b) outcomes from the implementation of the Social aspects of the Social and Environment Management Framework and Operational Plan (SEMFOP) for the NT2 watershed. • Outcome 3: Environmentally Sustainable Exploitation of NT2 Resources outcomes achieved through: (a) an Environmental Assessment and Management Plan (EAMP); and (b) outcomes from the implementation of the Environmental aspects of the Social and Environment Management Framework and Operational Plan (SEMFOP) for the NT2 watershed. • Outcome 4: Generation of Revenues from the Hydroelectric Facility outcomes as a result of electricity produced from the NT2 hydropower facility for export sale and domestic use to provide a stream of revenues to finance poverty reduction and environmental programs over the 25-year concession period, 2010-2035. Collectively, these key outcomes were used to assess whether the overall PDO has been achieved. 15. Tracking progress over the long implementation period required some adaptive management to move from the framework designed in the PAD, which reflected the input-output focus at that time, through the Implementation Status and Results Report (ISR) process, which also evolved to become more results- oriented, to ensure that the indicators remained relevant and useful in assessing the achievement of objectives. Although the Results Framework (RF) in the PAD specified only a few ultimate outcome indicators (i.e., PDO-level), it delineated a number of expected outcomes,11 each linked to the main components and subcomponents of the project. 16. In 2014, an improved set of indicators was introduced in the ISRs which are closely related to the ultimate outcomes delineated in the PAD12. This set of indicators includes eight PDO-level indicators and several intermediate results indicators drawn from the ‘ultimate outcomes’ in the PAD Results Framework 9 Net revenues from the NT2Pproject are the sum of royalties, taxes (profit and dividend), and dividends, minus debt repayments and operating costs for the Lao Holding State Enterprise (LHSE, the entity holding GOL’s equity share in NT2). 10 The NT2 SDP comprised Resettlement Action Plans and Ethnic Minority Development Plans (EMDPs) organized by project impact zone. 11 Designated as ‘Ultimate Outcomes by 2015’ in Annex 5 of the PAD (see bullet points under that column) . 12 No formal restructuring was undertaken as the project was fully disbursed in 2008. Page 11 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) (RF). The Implementation Completion and Results Report (ICR) RF adopts a ’hybrid’ approach by presenting the set of indicators used in the ISRs, augmented by elevating ISR intermediate indicators or adding new ones from the PAD to ensure full coverage of expected ultimate outcomes. The ICR RF and accompanying explanatory notes are presented in Annex 1. 17. A list of the 14 outcome indicators used to assess progress towards the PDO is provided in Table 1.13 Table 1: Outcome Indicators Outcome Indicator Revenue and Expenditure • Allocation and utilization of NT2 revenues for poverty reduction and Management of NT2 environmental management purposes (100%)14 Revenues • Financial statements of NT2 revenues are published • Audit reports for eligible programs (financed with NT2 revenues) are published (annually) • Ministry of Finance reports on implementation of revenue management arrangement and holds annual consultation with NT2 partners Socially Sustainable • Household income targets of resettled households on the Nakai Plateau (100%) Exploitation of NT2 • Resettled villages meet village income targets (100%) Resources • Basic public and social services are provided and improved in all resettlement villages on the Nakai Plateau • Maintenance of pre-project levels of income and protein equivalent in affected villages in the Xe Bang Fai river and the Nam Theun River • Quality of life in enclave villages (i.e., villages located in the watershed protected area) Environmentally • Water quality adequacy in Nam Theun reservoir and Xe Bang Fai River Sustainable Exploitation • All construction sites have been decommissioned and restored in accordance of NT2 Resources with provisions of the Head Construction Contract Environmental Management Plan (HCCEMP) • Populations of elephants and other terrestrial and aquatic species have stabilized or improved on the plateau • Watershed environmental protection: Management of the NT2 watershed results in no further degradation of habitats or in declines of threatened species Generation of Revenues • Generation capacity of hydropower constructed or rehabilitated under the from the Hydroelectric project (MW) Facility Components 18. The NT2 Project comprised three main components as described in the PAD: (a) Component 1: NT2 Hydropower Facility. Construction of a hydropower facility with a capacity of 1,070 MW, providing 995 MW for export to Thailand and 75 MW for domestic use. The facility comprised a 39m high dam and a 450 km2 reservoir on the Nam Theun River and Nakai Plateau. 13 Indicators are shown in order of the PDO, with Revenue and Expenditure Management first compared to the Theory of Change (TOC) figure where Generation of Revenues appears first. 14 This indicator embeds the requirement that expenditures meet selection criteria defined in the DGA (i.e., priority poverty reduction and environmental programs). Page 12 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) It also included 138 km transmission line to the Thai border and 70 kms of transmission lines to the national grid. (Estimated Cost15: US$722.2million; Actual Cost16 US$736.1 million) (b) Component 2: Management of Environmental and Social Impacts of NT2 in four main areas: (i) implementation of an SDP comprising the construction of resettlement villages for 6,300 project- affected persons (PAPs) on the Nakai Plateau, design and delivery of livelihood programs for PAPs, design and implementation of measures to restore and enhance household income, and technical assistance to strengthen the Government’s capacity in areas related to resettlement; (ii) implementation of an Environmental Assessment and Management Plan (EAMP) in the Nakai Plateau and downstream areas comprising mitigation measures, wildlife management programs, water quality monitoring and management programs, flood control measures, supervision and monitoring of construction contractor’s environmental mitigation and monitoring plan, and technical assistance to strengthen the capacity of the Government’s environmental management unit; (iii) implementation of Downstream Program for fisheries and fishing impacts of river diversions; and (iv) implementation of the Social and Environment Management Framework and First Operational Plan (SEMFOP) for the NT2 watershed. (Estimated Cost: US$48.8million; Actual Cost: US$78.6million17) (c) Component 3: Monitoring and Evaluation. These arrangements included the design and adjustment of the RF to ensure compliance with all project fiduciary requirements. It included: (i) supervision of physical implementation; (ii) independent review of key project components through the Dam Safety Review Panel (DSRP) and Panel of Environment and Social Experts (POE); (iii) systematic monitoring of technical, and E&S safeguards by a professional firm; (iv) an Independent Advisory Group (IAG) to advise World Bank senior management on project implementation; and (v) supervision by World Bank staff, other International Finance Institutions (IFIs), and bilateral agencies. (Estimated and actual costs are not available.)18 19. Revenue and Expenditure Management (REM) activities were not identified as a separate component in the PAD, although REM objectives were prominent in the PAD results framework and are inherently linked with Component 1 (Hydropower Facility) and Component 3 (Monitoring and Evaluation). Specifically: • Revenue and expenditure management ensured the revenues generated by the NT2 facility (Component 1) were allocated by the Government to priority poverty reduction and environmental management programs; and • Revenue and expenditure management obligations related to reporting and transparency supported ongoing Monitoring and Evaluation (Component 3) of project performance. (For 15 This cost represents the Head Construction Contract and related NTPC works at COD, as explained in the PAD. 16 At COD based on World Bank calculations using NTPC data. 17 Estimated and actual costs are shown for COD, to enable comparison of forecast and actual at the same time. No costs were forecast after COD; actual costs for Component 2 from COD to 2017 are estimated to be a further US$20 million. 18 The Project Cost Table of the PAD (Annex 7) did not include a cost estimate for Component 3, Monitoring and Evaluation. The different M&E activities carried out under Component 3 were funded by different parties: for example, expenditures under (i), (ii) and (iii) of Component 3 were borne directly by NTPC and included as part of the overall project cost while expenditures under (iv) IAG and (v) IFI supervision was financed with institutional budget funds. Neither the original cost table in the PAD (Table 1) nor the cost data provided by NTPC provided disaggregated cost information for the Monitoring and Evaluation (M&E) component. Page 13 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) background information on the NT2 REM Arrangements, see Annex 7). 20. The PAD estimated the total cost of the project at Commercial Operations Date (COD) at US$1.45 billion, comprising a base cost of US$1.25 billion plus US$200 million in contingency costs; however, it did not provide cost estimates of each project component. The actual cost of the project was US$1.31 billion, or 10 percent lower than estimated with contingency (and slightly higher than projected without contingency).19 For an investment of the scale and complexity of NT2, it was a significant achievement to complete the construction of the hydropower facility, close to the original schedule and at a lower total cost, while still addressing the multiple E&S costs associated with the investment. However, within the overall cost, there were variations in the following cost categories when compared with the original estimates: (a) E&S costs: US$48.8 million estimated cost compared with US$78.6 million actual cost; and (b) NTPC general and administrative costs: US$33.6 million compared with US$65.3 million actual cost. B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets 21. The PDO was not revised during implementation. Revised PDO Indicators 22. As noted earlier, the RF benefitted significantly from updated methodologies and M&E practices, resulting in the introduction of a modified M&E framework in the ISRs in 2014. While maintaining close alignment with the ultimate outcomes specified in the PAD, the newer M&E framework enabled closer monitoring of quantitative progress being made towards the key PDO (i.e. it specified 100 percent allocation of NT2 revenues for poverty reduction and environmental programs of the Government) during the final implementation period, 2014-2017. The evolution of the RF is explained in Annex 1. Revised Components 23. No project components were revised during implementation. Other Changes 24. A number of adjustments were made over the 12-year implementation period to help ensure that the project would meet its PDO. These included: (a) expansion of the scope of safeguards documents,20 in response to evolving safeguards standards and to help meet the project’s E&S objectives; (b) in 2012, NTPC allocated a further US$2.3 million above the US$16 million it had already spent on the downstream program 19Based on NTPC data. Includes all sources of financing including ADB, MIGA. AFD commercial banks etc. 20Three documents were added: Cumulative Impact Assessment (CIA); Strategic Impact Assessment (SIA); and the Summary Environmental and Social Impact Assessment (SESIA). Page 14 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) to help ensure an effective outcome in the handover to the Government; and (c) in 2015, a Joint Working Group, composed of the Government (at the national, provincial and district levels), NTPC, and IFIs was formed to address outstanding concerns largely related to resettlement and to identify actions – which were included in an action plan – required to close the Resettlement implementation Period (RIP). The Working Group provided a common platform to set targets, liaise with external monitors and ensure attention to handover activities. The Action Plan was augmented by a Medium-Term Development Plan that set out support for sustainability on the resettlement Plateau following RIP closure in mid-2018. Rationale for Changes and Their Implication on the Original Theory of Change 25. As mentioned in earlier sections, including in the Theory of Change and Key Outcomes sections, the RF was modified to better capture results against outcomes. This change was not formally approved through a restructuring and did not have a negative impact on the Theory of Change and the originally expected outcomes but helped to clarify the targets so that they became more measurable. Other changes on the expansion of the scope of safeguards documents helped to further enhance achievements of the Project’s E&S outcomes. II. OUTCOME A. RELEVANCE OF PDO Assessment of Relevance of PDO and Rating Rating: High 26. The NT2 PDO remains fully consistent with the findings of the most recent World Bank Systematic Country Diagnostic (SCD)21 and the latest Country Partnership Framework (CPF)22 for FY17-21. In the SCD, the first of three priority development pathways is the ‘sustainable and efficient management of natural resources’ and the SCD findings noted that ‘promoting the strategic use of natural resources and protecting the environment’ should remain a ‘top priority’ for the Government and an integral component of the CPF. In the CPF, two of the three priority focus areas for Lao PDR support inclusive growth and protection of the environment. Furthermore, a key objective of the CPF (i.e., Objective 1.3: Investing in Infrastructure for growth and inclusion) aims to sustain investment in poverty reduction using the resources generated by the further development of the country’s hydropower potential, in line with the approach used in the NT2 Project. 27. In summary, the PDO for the NT2 Project remains fully consistent with the development goals and priority focus areas of the latest CPF. Finally, poverty alleviation and natural resource management remain central to the 8th National Socio-Economic Development Plan (NSEDP), according to the latest draft of the Mid-Term Review. Based on these considerations, the rating for Relevance of the PDO is judged ‘High’. 21 World Bank 2017, Report Number 112241-LA, 22 Country Partnership Framework for the Lao PDR, FY 17-21, March 7, 2017. Page 15 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) B. ACHIEVEMENT OF PDO (EFFICACY) Assessment of Achievement of Development Objective/Outcome Rating: Substantial 28. The PDO, as described in the Development Grant Agreement (DGA), is ’to assist the Recipient to implement priority poverty reduction and environmental programs by generating revenues through environmentally and socially sustainable exploitation of the resources potentially generated from the Nam Theun 2 Hydroelectric Power facility’. To assess the outcome of assisting the Recipient in implementing priority poverty reduction and environmental programs, the ICR will consider the achievements under each of the four outcomes of the PDO statement: Outcome 1: Revenue and Expenditure Management of NT2 Revenues, specifically the implementation of priority poverty reduction and environmental programs using the revenues generated from NT2; Outcome 2: Socially Sustainable Exploitation of NT2 Resources linked to social aspects and sustainability of NT2 investments; Outcome 3: Environmentally Sustainable Exploitation of NT2 Resources linked to environmental aspects and sustainability of NT2 investments; and Outcome 4: Generation of Revenues from the Hydroelectric Facility. Outcome 1: Revenue and Expenditure Management of NT2 Revenues 29. To assist with the assessment of this element of the PDO, the following results will be discussed: NT2 revenue allocation, programs and projects financed with NT2 revenues, additionality, and reporting and transparency. The Revenue and Expenditure Management Program requires the allocation of the revenue stream generated from NT2 for ‘eligible’ expenditures. The key indicator to measure success was 100 percent of NT2 revenues allocated for these programs which embeds the requirement that expenditures meet agreed selection criteria defined in the DGA (i.e., priority poverty reduction and environmental programs). Outcome indicators also include: financial statements of NT2 revenues to be published, as were audit reports for eligible programs financed with NT2 revenues; the Ministry of Finance (MOF) also agreed to report regularly on implementation and meet regularly with NT2 partners. 30. NT2 Revenue Allocation. During the initial revenue generation period (2010-2014), a specific NT2 Designated Account was not set up in the MOF as agreed in the DGA. Although it was verified that royalty payments in 2010 were directed to eligible expenditures through the Government budgeting process, subsequent years failed to capture new revenue streams (e.g., dividends, profit taxes). The oversight was identified in 2014 and corrective action was taken in April 2015 when the Government and the World Bank agreed to a ‘Functional Equivalent Approach.23 By end December 2017, the Government had allocated 100 percent of net revenues (US$180 million) from all revenue streams for eligible programs over 2010-2017. 31. Programs and Projects Financed with NT2 Revenues. NT2 revenues financed social investment programs, with a strong focus on poverty reduction, as well as specific public investment projects. Figure 2 and Table 2 show the breakdown of disbursement of NT2 net revenues by sector: (a) 74 percent of NT2 revenues were allocated directly for education and health-related investments, 23Under the Functional Equivalent Approach, the GOL assigned account codes to all NT2 revenues (i.e., royalties, dividends, profit taxes, and dividend taxes) across all bank accounts receiving NT2 revenues. This approach helped ensure that all NT2 revenue streams were efficiently accounted for and transferred to the Treasury. Page 16 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) and the Poverty Reduction Fund; (b) 25 percent of NT2 revenues were allocated to: (i) public works and transport (rural road construction and maintenance in poorer provinces); (ii) energy and mining (primarily to support rural electrification); and (iii) projects implemented by provinces: and (c) 1 percent for natural resources and environment.24 32. This analysis confirms that the allocation of NT2 revenues over this period met eligibility criteria, namely poverty reduction related investments, with a small percentage allocated for environmental activities. 33. Additionality of NT2 Revenues. A guiding principle for the allocation of NT2 revenues was ‘additionality’-- namely, the different programs and projects eligible for NT2 revenues would receive a budgetary allocation in addition to the general increase in the overall budget for a particular year. However, verifying ‘additionality’ proved difficult, due to the lack of a baseline, changes in budget classification, and the unavailability of budget data on a timely basis. Figure 2: Disbursement of NT2 Revenues to Sectors (FY09/10-FY17) Poverty Reduction Fund Projects Natural Resources Implemented by and Environment Provinces Education Energy, Mining and Agriculture Health Education Public Works and Transport Public Works Energy, Mining and Agriculture and Natural Resources and Environment Transport Poverty Reduction Fund Projects Implemented by Provinces Health 24 The low share of funds allocated to environmental protection is due in part to the World Bank’s separate sup port to the Environmental Protection Fund through IDA funding of two Lao Environment and Social Projects (under project codes P090693, and P128392/P128393) approved in FY2011 and FY2014 for $7.14 million and $32 million, respectively, as well as US$6.83 million in trust funding approved in FY2014. Page 17 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) Table 2: Disbursement of NT2 Revenues US$ mil % Education 65.81 35.3 Health 62.14 33.3 Public Works and Transport 15.67 8.4 Energy, Mining and Agriculture 24.32 13.1 Natural Resources and Environment 1.31 0.7 Poverty Reduction Fund 9.91 5.3 Projects Implemented by Provinces 7.05 3.9 Total 186.22 100 Sources: State Audit Organization (SAO) Audit Reports 2009/10 - 2015/16, MoF Data FY15/16 and FY17 34. Reporting and Transparency. While reporting has evolved with progress in institutional development,25 tangible progress has been made in building transparency and accountability in how NT2 revenues are managed and allocated. Specifically: (a) NT2 revenue statements were shared with the World Bank and forwarded to State Audit Organization (SAO) for use in audits, although they were not published separately; (b) a sample of programs and projects financed with NT2 revenues were audited and audits were published; and (c) Ministry of Finance (MOF) has reported on implementation and consultation has been carried out annually since 2012 with all IFIs, in addition to more frequent dialogue with the World Bank. Outcome 2: Socially Sustainable Exploitation of NT2 Resources 35. Resettlement. All 6,300 people were resettled from the reservoir area. This was completed with extensive local consultation prior to reservoir impoundment and with the concurrence of the POE.26 By project closing, 100 percent of the resettled households had achieved the income target, reaching (at least) the rural poverty level. Specifically, 97 percent of households met income levels directly, while the remaining 3 percent received additional in-kind support in the form of a social safety net (vulnerable households) and special programs (poor and ‘at risk’ households).27 The rural poverty line represented an ambitious target, at approximately double pre-project incomes. The village income targets were also met, a result that was first achieved in 2013. These income results are complemented by other indicators of economic wealth, including: • Increase in savings rates (99.6 percent of households reported having savings, compared to 21 percent in 2006); 25 Institutional capacity in PFM was initially limited, as reflected (for example) in efforts by the new SAO to establish systems and capacity which delayed the first audits until early 2014. 26 The POE had a mandate to confirm its agreement with the impoundment and closure of the diversion tunnel. This example of linking the E&S and construction tasks was innovative at the time. 27 Monetization of in-kind support would raise incomes of these households to above the target; however, converting to a cash basis was considered impractical as such households (especially vulnerable households) are unable to access banking services or markets. The rural poverty income target exceeds the safeguards requirement of, at least, regaining pre-project income. For comparison, the national poverty rate is 23 percent, and the poverty rate in Nakai was 50 percent before resettlement. Page 18 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) • Greater diversity of income sources (across agriculture, fisheries, livestock and off-farm businesses, augmented by improved road access to alternative livelihoods and markets); • More land titles (6,300 resettlers now have use of ownership rights recorded as a result of the project compared to zero in 2005; • Significantly improved access to basic public and social services. These services are provided and improved in all the resettlement villages on the Nakai Plateau (see Box 1); and • Achieving a “basis for sustainable livelihoods” and “confidence that the project is on the road to overall sustainability”.28 36. Considerable investment has also been allocated to the provision of basic public and social services, with accompanying improvements in education and health indicators (see Box 1). Overall, the resettlement outcomes were fully achieved. Box 1: Public and Social Services Village infrastructure: Includes 1330 houses, 270km roads, 17 primary and 16 nursery schools, 2 health centers and upgraded district hospital; Funds are available for maintenance up to 2035. . School enrollment: Increased from 31percent to 94 percent at primary level (above national rural average of 85 percent); increased from 7 percent to 31 percent at secondary level. Health: Child mortality dropped from 120 to 50 per 1000; stunting is down from 43 percent to 34 percent; 90 percent of children under five are immunized. General: Currently, 99 percent of families say their life is as good or better. 37. Downstream PAPs. Approximately 100,000 people live in areas downstream of the NT2 dam and the NT2 powerhouse; these communities are vulnerable to project-induced changes in river flows with regard to loss of land, changes in fishing income and protein and changes in water quality. To address these vulnerabilities, the engineering design aimed to mitigate these potential impacts, a Downstream Program was established from 2008-2012 to compensate for lost land and provide infrastructure and livelihood training, and a Village Income Restoration Fund was created to provide loans for livelihood investments. As noted by the POE, the Downstream Program went beyond the scope of World Bank safeguards policies and was recognized as innovative at the time. 28 A “basis for sustainability” is a requirement of the Concession Agreement (CA) and was a central concern of the POE. Notwithstanding achievement of income targets over several years, specific concerns related to: the forestry livelihoods pillar not being able to return dividends or economic benefits; sustainability of fast-growing reservoir fishery; and carrying capacity for large livestock, led to a 2-year extension of the resettlement program from 2015 to 2017. The 28th report of the POE (July 2018) concluded that “the provisions of the Concession Agreement relating to the closure have been satisfi ed to our satisfaction” and the Panel has “confidence that the project is on the road to overall sustainability”. Page 19 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) 38. The last formal Downstream Socioeconomic Survey concluded that consumption and dietary diversity had increased while sustaining protein levels. Also, beneficiaries reported increased assets and improved housing as well as decreased poverty. It was further assessed that water quality was adequate to ensure sufficiency and diversity of fish stock in the reservoir and two downstream rivers and poses no threat to public health. Following concerns in 2015 about income sustainability and livelihoods of some vulnerable households, the district and provincial governments prepared sustainable livelihoods plans in 92 villages that are most affected; and business plans were approved for individual households. 39. Watershed communities. Recognizing a potential reduction in access imposed by conservation efforts, the project sought to ’improve quality of life for the enclave communities, with higher incomes, better access to basic services and active involvement in conservation’. In an early 2018 study, 90 percent of those interviewed in the survey felt that their life had improved (“life has gotten better”) in the last 10 years, with 75 percent associating improvements with the WMPA works. In women’s focus groups, participants said that: access to education had improved, citing primary school rates of 70-100 percent depending on the village; and that universal health services for maternal and pre-natal care and child vaccination had resulted in lower infant mortality. The outcome indicator for watershed villages also refers to communities being active in conservation. Individuals are engaged in remunerated conservation activities (e.g., patrols), but this is not formalized at the community levels, as originally envisioned. Outcome 3: Environmentally Sustainable Exploitation of NT2 Resources 40. Plateau and Downstream. The physical works associated with NT2 were extensive, ranging from road construction to dam construction, impoundment of the reservoir and changes in river flows, and establishment of resettlement villages, with an equally wide range of environmental impacts and potential for environmental damage, including loss of fauna and flora, water quality, waste management and abandoned construction sites. The EAMP identified key actions and obligations of the developer to manage the impacts and risks. 41. The RF identifies three indicators related to environmentally sustainable exploitation of NT2 resources in the construction and resettlement areas: (a) water quality adequacy in the Nam Theun reservoir and Xe Bang Fai; (b) all construction sites have been decommissioned and restored in accordance with provisions of the Head Construction Contract Environmental Management Plan (HCCEMP); and (c) populations of elephants and other terrestrial and aquatic species have stabilized or improved on the Plateau. Each of these indicators were achieved as follows: • Each parcel of land used as a construction site had to undergo a process of restoration (e.g., re- grading land back to its natural slope, revegetation) before they could be returned to use for its original or other purpose. All 348 construction sites have been decommissioned and restored in accordance with provisions of the HCCEMP. • During project preparation and implementation, NTPC implemented a robust Wildlife Program, including various wildlife management and monitoring activities on the Nakai Plateau.29 29 Activities included, inter alia; wildlife rescue during the reservoir inundation period (including 268 individual animals from 49 species that were captured and released into the National Protect Area); patrolling; turtle conservation and environmental education; wetlands conservation; invasive species management; monitoring of key species; etc. Page 20 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) Particular attention was paid to sensitive muntjac species (including tracking of muntjacs post- translocation), elephants and turtles (the latter two through partnerships with Wildlife Conservation Society Laos and Conservation International, respectively. The “careful and deliberate implementation” of the program combined with the slow filling of the reservoir resulted in the low impact on wildlife.30 However, post-translocation data is limited to fully assess stabilization or improvement. • Water quality was a concern for health and environmental reasons. After initial issues with low water quality in the initial years after impoundment, reservoir water quality stabilized and quality is adequate to ensure sufficiency and diversity of fish stock in reservoir, Xe Bang Fai and Nam Theun rivers, while posing no threat to public health. 42. NT2 Watershed Management. The NT2 Watershed offered both an opportunity to preserve a high- quality biodiversity “hotspot” in Lao PDR and south-east Asia and a challenge. Specifically, it required simultaneous attention to conservation actions (e.g., patrolling, biodiversity research), a new institution to develop long term plans and manage the funding from the project, and support for the well-being of the communities in the area. The SEMFOP set out the basic structure for the Watershed Management and Protection Authority (WMPA) that was established in 2001 to oversee all aspects of watershed management, funded by an annual payment from NTPC and guided by two external monitors. Several outcome indicators informed achievements for this outcome, in three areas noted earlier. 43. Watershed Conservation. The outcome indicator (‘Watershed Environmental Protection: conservation and management of NT2 watershed results in no further degradation of habitats or declines in populations of threatened species’) was partially achieved. A total of 400,000 ha have been brought under enhanced biodiversity protection and forest cover has been effectively preserved.31 However, with continued pressures of illegal logging and poaching, the area has experienced a loss of biodiversity, such as large mammals (including threatened species such as the Saola). 44. Watershed Management. The WMPA’s ability to execute all the designated managerial functions to support conservation and community well-being in a technically sound, transparent and professional manner has been partially achieved. While the WMPA has fielded patrols in the watershed and reservoir, other aspects such as biodiversity monitoring and account management have lagged because of institutional capacity weaknesses. Recent reforms, supported by a Lao-led Consortium of Technical Experts (COTE), were implemented to raise capacity to international management standards (encompassing staffing, administration, wildlife protection technologies and approaches) and, while there remains considerably more work, the 28th POE report (July 2018) noted the reforms as positive changes worthy of cautious optimism. In addition, the Ministry of Agriculture and Forests (MAF) has initiated the process to convert the protected area into a national park, raising the protection category and transitioning the WMPA into a national park office. Outcome 4: Generation of Revenues from the Hydroelectric Facility 45. Construction of the NT2 hydropower facility was completed in early 2010, only slightly (4.5 months) 30 U. Streicher (2016), “The Wildlife Rescue Programme of the Nam Theun 2 Hydropower Project (Lao PDR) in Hydroecologie, Tome 19, pp. 407-428. The article concluded that the program was to be considered “an outstanding success”. 31 Forest cover loss in the Nakai Nam Theun Protected area is estimated at 0.08 percent per year. Page 21 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) behind the original schedule of 54 months. The facility has been operating successfully since then at its rated capacity of 1,070 MW. Annual average exports of electricity to EGAT have consistently exceeded the minimum annual indicator of 5,000 GWh, generating 5,695 GWh of electricity in 2017, creating the revenues to finance the GOL’s priority poverty reduction and environmental management programs; annual domestic supplies to EDL have also exceeded the minimum annual indicator of 200 GWh, generating 397 GWh in 2017. 46. There is every prospect that the NT2 hydropower facility will continue operating at its current capacity through the end of the concession period (2035) and will likely go well beyond. The plant has now been operating successfully for over eight years (since April, 2010), exceeding the minimum annual export targets of electricity during that period. The current operator, NTPC, is experienced in operating and maintaining hydropower plants of similar capacity and will continue until the end of the CA in 2035, after which responsibility for operation of the plant will be the responsibility of the Government, specifically EDL. The intervening period provides ample time during which EDL can acquire the necessary training and operational experience to run NT2. Finally, while natural disasters can never be ruled out in a region prone to severe flooding, the likelihood of such events leading to severe structural damage to the plant is considered low. Based on these considerations, prospects for the plant to continue operating at or near the current capacity are considered high. Justification of Overall Efficacy Rating 47. The rating for efficacy is based on the achievement of the set of four outcomes and their related indicators. Three out of four outcomes were well achieved or exceeded. As shown in Table 3 below, assessments are: “Fully achieved” (8 out of 14 indicators), “Almost fully achieved” (5 out of 14 indicators) and “Partially achieved” (1 out of 14 indicators). The Project fully achieved the core outcome for Revenue and Expenditure Management of NT2 Revenues to allocate 100% of NT2 revenues to poverty reduction and environmental protection, with important advances in budget management and reporting and increases in the share of government budget to health and education over the period. Minor shortcomings included sharing but not separately publishing NT2 financial statements, and delays in audits. Socially Sustainable Exploitation of NT2 Resources outcomes were achieved, bringing sustainable income and education and health benefits to resettlers and improved quality of life to communities in the Watershed. Environmentally Sustainable Exploitation of NT2 Resources related to construction decommissioning and water quality on the Plateau and wildlife program in the reservoir area were effective. Results related to wildlife management and conservation in the Watershed were assessed as partially achieved. The assessment reflects the demanding targets set, external pressures on biodiversity in Lao PDR, and the institutional challenges within WMPA, while recognizing that recent reforms – and the prospects of national park status -- are likely to continue yielding positive results in the near future. The project exceeded the outcomes on Generation of Revenues from the Hydroelectric Facility with a stream of revenues to finance eligible poverty reduction and environmental programs over the 25-year concession period 2010-2035. 48. Considering all outcomes and supporting indicators (Table 3), the overall rating for ‘Efficacy’ of the project is judged to be ‘Substantial’ as the project almost fully achieved its objective. Page 22 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) Table 3: Status of Outcome Indicators at Completion Outcome Indicator Status at Comment completion 1. Revenue and Expenditure Management of NT2 Revenues Allocation and utilization of NT2 Fully 100% allocation of NT2 revenues to poverty reduction revenues for poverty reduction and achieved and environmental conservation programs by December environmental management purposes 2017. Government expenditures on key poverty sectors (100%) (health, education) have increased during the implementation period. Financial statements (of NT2 revenues) Almost fully Financial statements were received by the World Bank are published achieved and published within the SAO audits for auditing purposes. They were not published separately. Audit reports for eligible programs Almost fully The audits were completed for both funded programs (financed with NT2 revenues) are achieved and projects for the period 2009-2015, as were project published (annually) disbursements for FY15/16, representing over 80% of audit requirements. The audit for program disbursements for FY15/16 is pending as is the full audit for FY17. Audits for 2009/10-2013/14 were delayed 2-3 years. Publication and posting of audits on websites represented an innovation in budget reporting for GOL. Ministry of Finance reports on Fully MOF reported on implementation through: (i) annual implementation of revenue achieved consultations and briefing during annual IFI missions; management arrangement and holds and (ii) direct, ongoing dialogue between MoF and World annual consultation with NT2 partners Bank directly on both revenue management arrangements and public finance. 2. Socially Sustainable Exploitation of NT2 Resources Household income targets of resettled Fully 100%, 3% of which receiving support in kind in the form households on Nakai Plateau (100%) achieved of social safety net (vulnerable households) and special programs (poor and at-risk households). The target – the rural poverty line – was ambitious at approximately double pre-project incomes. Resettled villages meet village income Fully 100% of all villages met income targets. targets (100%) achieved Basic public and social services are Fully 17 primary and 16 nursery schools, 2 health centers and provided and improved in all achieved an upgraded district hospital and 270 km new/upgraded resettlement villages on the Nakai roads provided, resulting in significant improvements in Plateau education and health statistics. 150 km new roads providing better access to regional public services, markets, etc. Maintenance of pre-project levels of Almost fully Assessment of income levels in the downstream area income and protein equivalent in achieved suggests most households have exceeded pre-project affected villages in the Xe Bang Fai river incomes, although some very poor may not have met and Nam Theun river that average, resulting in additional measures and monitoring by local government. Quality of life in enclave villages Almost fully Physical infrastructure has improved, communities have (villages located in the watershed achieved largely continued to derive benefit from land resources protected area) and health and education statistics have improved significantly -- 90% of interviewees “feel life is better”. Individuals are engaged (and remunerated) in conservation activities such as patrolling; this outcome is not fully achieved as engagement is not formalized at the community level. Page 23 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) 3. Environmentally Sustainable Exploitation of NT2 Resources Water quality adequacy in Nam Theun Fully Water quality is adequate to ensure sufficiency and reservoir and Xe Bang Fai River achieved diversity of fish stock in reservoir, Xe Bang Fai and Nam Theun rivers, and also poses no threat to public health. All construction sites have been Fully All 348 construction sites have been decommissioned decommissioned and restored in achieved and restored in accordance with provisions of the accordance with provisions of the HCCEMP. HCCEMP Populations of elephants and other Almost fully During project preparation and implementation, NTPC terrestrial and aquatic species have achieved implemented a robust Wildlife Program, including stabilized or improved on the plateau various wildlife management and monitoring activities on the Nakai Plateau and translocation of priority species to the protected area. Combined with slow filling of the reservoir, the impact on wildlife populations was low, however, post-translocation data is limited to fully assess stabilization or improvement. Watershed environmental protection: Partially The indicator was not fully achieved because of illegal conservation and management of the achieved poaching of wildlife populations and high-value timber NT2 watershed results in no further extraction, resulting in some loss of biodiversity degradation of habitats or in declines of (including threatened species such as the Saola). threatened species However, forest cover has been maintained and the watershed remains a high value area. The GOL plans to designate the area as national park (upgrade from IUCN category VI to II), to be supported by further institutional reforms, resources and technical upgrading that will help achieve the indicator in the future. 4. Generation of Revenues from the Hydroelectric Facility Generation capacity of hydropower Fully Full capacity of plant i.e. 1070 MW reached in 2010 and plant constructed/rehabilitated under achieved has been maintained. This provides a stream of revenues the project (MW) to finance eligible poverty reduction and environmental programs over the 25-year concession period, 2010- 2035. C. EFFICIENCY Assessment of Efficiency Rating: High 49. The Project’s efficiency exceeded expectations at appraisal based on the following considerations: first, the economic efficiency of the NT2 investment indicates substantially higher benefits than estimated at appraisal; and, second, the implementation efficiency of the main components was also high. 50. Economic analysis. The economic analysis of the NT2 Project, undertaken at project closing indicates substantially higher economic benefits from the project than at the appraisal stage. The baseline economic rate of return (ERR) of the project, inclusive of global and local environmental benefits, is 29.1 percent with net present value (NPV) of US$2,176 million compared to an ERR of 16.3 percent and NPV of US$523 million which was estimated at appraisal. The levelized cost of electricity generated from the NT2 Project in 2004 prices as estimated at project closing is US$0.03 per kWh, compared with US$0.09 per kWh for the liquified Page 24 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) natural gas (LNG) counterfactual case.32The economic payback period of the NT2 Project is estimated at three years after COD, implying that the project has already passed its economic breakeven point. 51. Implementation Efficiency. Construction of the main hydropower facility (i.e. Component 1 in the PAD), was completed only 4.5 months behind the original schedule of 54 months, reflecting the high technical competence and extensive project management experience of the lead developer. Given the scale and complexity of the hydropower facility, the relatively small cost overruns in relation to the base cost estimates were well within the $200 million contingency cost and reflect a high implementation efficiency for this component. Furthermore, despite delays and difficulties in implementing certain sub-components of Component 2, Management of Environmental and Social Impacts (e.g., village resettlement activities), all components and sub-components were satisfactorily completed before closing. The Resettlement Implementation Period (RIP) was extended two and a half years to complete a package of measures to solidify confidence in the sustainability of livelihoods of resettlers. However, this did not extend project closing, given the World Bank’s assessment of measures completed by December 2017, and by July 2018, resulted in full support of the POE for RIP closure. Procurement activities related to construction of the hydropower plant were handled efficiently, as were the small volume of procurement activities undertaken using the IDA grant funding. Finally, some staff turnover within NTPC took place over the long period of NT2 implementation, but the overall continuity was maintained in key management positions. 52. A financial analysis of the NT2 investment concluded that the project met its financial targets. The estimated financial internal rate of return (FIRR) at project closing was 11.0 percent, only slightly below 11.7 percent calculated in the PAD. The Financial net present value (FNPV) of the project at closing was estimated at US$118 million (i.e., lower than the US$235 million FNPV calculated in the PAD). The differences between the expected and actual FIRRs and FNPVs are due mainly to the four and a half month construction delay and net additional costs of US$47 million associated with managing environmental and social issues and general overhead and administration. However, these additional costs -- about 5 percent of project capital costs -- reflect good performance in the hydropower industry, with total costs still 10 percent below estimated when the planned contingency cost is included. Annex 4 provides more detail of the economic and financial analyses. D. JUSTIFICATION OF OVERALL OUTCOME RATING Rating: Satisfactory 53. The overall outcome of the Project is rated Satisfactory, taking into consideration the following: • ‘High’ relevance of the PDO to the CPF at closing; • ‘Substantial’ efficacy with the project almost achieving the PDO driven by 100 percent of the net NT2 revenues allocated to poverty reduction and environmental management projects, achievement of ambitious income and livelihoods targets for resettlers and exceeding targets for electricity generation. The assessment also recognizes delays in the audits of the revenue and expenditure management of NT2 revenues and some shortcomings relative to the ambitious 32The economic analysis assumes that in the “without NT2” scenario, the electricity supplied by NT2 would have come from combined cycle gas turbines (CCGT) fueled by liquified natural gas (LNG). Page 25 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) targets for the environmentally sustainable exploitation of NT2 resources in the watershed. • ‘High’ Efficiency as reflected in the economic benefits that exceeded expectations as well as a high implementation efficiency for the main investment component, the hydropower facility. The overall outcome is rated Satisfactory rather than Highly Satisfactory in balancing shortcomings in the environmentally sustainable exploitation of NT2 resources in the watershed against the achievements in poverty alleviation through revenue management, social development and generation of revenues from electricity production. E. OTHER OUTCOMES AND IMPACTS (IF ANY) 54. NT2 was designed to be a catalyst for transformational achievements in the country. Lao PDR had never been through a project of this complexity, scope, visibility or opportunity. Extraordinary levels of preparation and resources were put forth to lay the foundation upon which NT2 could be successfully implemented and make lasting and far-reaching contributions to the country’s development. As a result, a number of ‘other outcomes’ can be identified that go beyond those specifically captured in the RF and reflect the transformational aspirations of the project. Four other outcomes are highlighted: (a) improving Lao PDR’s experience with, and opportunities for, accessing foreign direct investment and mobilizing financing for development; (b) laying institutional and legal foundations for hydropower development and conservation management; (c) building a modern PFM system and promoting transparency (e.g., disclosure of information); and (d) expanding participation of women in project activities and decisions. Mobilizing Finance for Large Infrastructure Investments in Low Creditworthy Countries 55. The mobilization of private sector finance for NT2 was a major challenge, but achieving it helped ‘put Lao PDR on the map’ by helping establish a track record for Lao PDR’s performance for future private sector projects. It helped Lao PDR attract foreign direct investment and stimulated private-public partnership for infrastructure development. At the time of preparation (2005), the project financing requirements for NT2 represented (a) the largest private sector (PPP), cross-border, financing operation in electric power; (b) the largest private sector financing for a hydroelectric power investment; and (c) one of the largest internationally-financed independent power producer (IPP) projects in Asia. The NT2 Partial Risk Guarantee (PRG) was the first IDA Guarantee to support hydropower development as well as the first operation to use a mix of IDA, MIGA and ADB guarantees. Overall, about US$42 million of IDA PRG helped mobilize about US$1.15 billion of private lending and investment, a ratio of 1:28 — highlighting the effectiveness of World Bank guarantees in mobilizing private capital and supporting PPPs for infrastructure development. 56. A key requirement for participation of the international commercial banks was political risk mitigation. The international private commercial banks had indicated to NTPC that, without the availability of adequate political risk mitigation in Lao PDR and in Thailand, they would not be able to lend to NTPC for the project. In addition, given the magnitude of NT2’s financing requirements and its location in Lao PDR, a country with low creditworthiness at the time, the use of multilateral guarantees offered the only practical solution. Through the use of guarantee instruments and a modest amount of direct lending, multilateral and bilateral institutions were able to use modest amounts of public resources to mobilize over US$1.15 billion in limited recourse private funding. The successful financial structure for NT2 sharply contrasted with the perceived credit worthiness before the project, a change that has supported ongoing foreign direct investment and public-private partnerships in the hydropower sector and beyond. Page 26 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) Institutional Strengthening and Legal Framework 57. The NT2 Project helped the hydropower sector grow rapidly: from about 756 MW in 2009 to 6330 MW in 2016. This growth has not been – and is not – without its difficulties to ensure sustainable projects that maximize the value of water to Lao PDR.33 It has, at the same time, been a driver of growth and contributed to national development indicators such as access to electricity (now over 90 percent of the population); government revenues (from about US$37m in 2010 to almost US$170m in 2016); and reduction in poverty levels (from 44 percent in 2002/3 to 23 percent in 2012). 58. Early concepts for the NT2 project included its potential contribution to an institutional framework for future natural resource development (such as hydropower) that was seen to be central to economic growth and development in Lao PDR. Contributions included: • defining legal structures for PPPs, facilitating access to foreign direct investment; • demonstrating sharing of economic benefits to support national poverty reduction and environmental protection; • building government and sector agencies, including: (a) key government ministries such as Ministry of Energy and Mines (MEM) and Ministry of Planning and Investment (MPI) through “learning-by- doing” experience in negotiating the country’s first IPP; and (b) creation of the Lao Holding State Enterprise (LHSE), to hold the GOL equity in PPP and IPP projects; and • nurturing a cadre of senior managers, public servants and sector specialists (“graduates of the ‘University of NT2’) with experience in large, complex project preparation and execution consistent with multi-lateral development bank policies and procedures, and a modern construction workforce. 59. NT2 was also the catalyst for establishing new policies on E&S impacts and for testing guidelines and approaches that, with suitable adaptation, could be applied more broadly in the country, beyond hydropower, including: • The Decree on Resettlement and Compensation of Development Project No 192/PM (July 2005), a pre-condition set by the ADB and the World Bank for financing support, and associated creation of the Government’s Resettlement Committee; • The Decree on Environmental Impact Assessment No. 112/PM (February 2010) and creation of the Environmental Protection Unit; and • National Policy on Environmental and Social Stability in the Hydropower Sector (2006) and National Policy on Sustainable Hydropower Development (January 2015). 60. NT2 has also made a contribution in conservation management. The WMPA, established in 2001, was created to protect and manage the Nakai Nam Theun National Protected Area and the broader NT2 watershed. The WMPA was a ‘first’ for Lao PDR: while many (more than 20) national protected areas had been created, only the Nakai Nam Theun National Protected Area had a management entity like the WMPA, Page 27 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) with guaranteed budget resources to support protection of biodiversity. The WMPA lacked any Lao model and effectively became a pilot for conservation management. As noted above, the scale and complexity of the conservation and biodiversity goals, lack of prior experience and national institutional capacity in conservation work and limited political awareness of conservation and biodiversity goals posed enormous challenges and required adaptation over time. 61. The WMPA continues to mature. In 2017, leadership of the WMPA was transferred to the MAF complemented by mobilization of a Lao-led COTE to strengthen government policy and technical support. The next step in institutional – and conservation -- strengthening is the Government’s commitment to establish Nakai Nam Theun as the first national park in the country, expected in 2019. This will raise the management standards from IUCN Category VI (protected area with sustainable use of natural resources) to IUCN Category II (protect large-scale ecological processes for biodiversity conservation, research, and recreation), and transition the WMPA to a National Park Office, further strengthening the institution’s potential to serve as a pilot for future conservation capacity. Public Financial Management Reform 62. NT2 played an important role as a driver of PFM reform. The processes and capacity that the GOL would need to implement the NT2 Revenue Management Arrangements (RMA) would be developed through reforms in the Government-wide PFM system, while demonstrating budget mechanisms to ensure that these revenues contributed to the country’s social and economic development. In short, the NT2 revenue and expenditure management framework -- which covered budget preparation, execution, and reporting of the NT2 revenues received by the Government – was designed to be a first step towards broader PFM reform. 63. Over 2005-2012, through parallel but connected World Bank projects, progress was made in ‘first generation’ PFM reforms (see Box 2). In 2016, following a period of diminished donor engagement, some of the PFM reform initiatives were revived, leading to revisions of the budget, tax and value added tax laws and the drafting of a long-term fiscal strategy, including the first public disclosure audits in Lao PDR. Although reforms were slower than expected during project design, considerable progress was made across a number of areas, including: improving consistency, efficiency, transparency and accountability in public expenditure policy and management; enhancing effectiveness of revenue collection and tracking; and strengthening capacity in budget preparation and execution as well as public accounting and audit. 33For example, the 2017 CPF pointed out concerns that the hydropower sector may be reaching its limits for growth in the absence of management of water resources, including coordination of power facilities (“hydraulic balance”) and with non -power uses of water. The GOL continues to upgrade the policy environment for hydropower, including a recent revision to the Electricity Law, sector-wide moratorium on construction of new projects and review of dam safety, and new Water Law institutionalizing river basin planning. Page 28 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) Box 2: Achievements of Public Financial Reforms (2003-2018) • Budget preparation: A new State Budget Law was approved in 2006 and revised in 2015, followed by improvement of the chart of accounts, including an ongoing expansion to cover the district level. However, important features of the revised State Budget Law, such as introduction of ceilings and the use of costing methodologies have not yet been implemented. • Budget Execution: The first-generation reforms brought significant progress by centralization of the National Treasury, improvement in payroll payment processes, and the roll-out of a locally developed Government Financial Information System in 2006, and its expansion to provinces in 2008. At the same time, reporting, timeliness and disclosure of the state budget was improved. However, cash management remains weak, and commitment controls are yet to be put in place. • Public accounting and audit: New legislation on Accounting and Auditing was introduced, granting autonomy to the SAO and paving the way for the introduction of the International Public Sector Accounting Standards. SAO had initially made progress in establishing its mandated role and had made some early contribution to transparency and public accountability. • Public Finance Development Strategy 2025 and Vision 2030 : In 2017, MOF launched its Public Finance Development Strategy 2025 and Vision 2030. It foresees actions commonly recommended as minimum requirements of a core PFM system, such as: (a) an adequate regulatory framework; (b) a sound accounting system and treasury-centric budget execution processes; (c) a realistic budget preparation process; and (d) ultimately a core Financial Management Information System. Gender 64. Gender issues were addressed as an integral part of the NT2 project design. Based on an assessment undertaken during project preparation, a Gender Strategy and Action Plan was prepared and incorporated into the SDP and a number of gender-focused social safeguards were included in the CA. An evaluation of the gender obligations under the CA was undertaken in 2015 and indicated that the gender obligations under the CA were met overall: (a) Improvements to women’s health: While the majority of health users in the early years of the project (2005-2010) were male, the majority of health users by 2012 were women, linked with better roads and transportation as well as to improved access to maternal health facilities. (b) Increase in level of education and literacy for women and girls: All resettled villages now have operating primary schools, with young women and girls the primary beneficiaries; net primary school enrolment in these resettled villages increased from 20 percent in 2006, 83 percent by 2013, and 94 percent by 2017-an improvement which is higher than the national average of 85 percent. (c) Reduction in women’s workloads: Infrastructure improvements in roads, water supply, and electricity helped reduce women’s workloads in the resettled villagers. Page 29 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) 65. Overall, the changes brought about by the NT2 Project in the Nakai Plateau resettlement area were effectively used to bring about improvements in women’s health, increasing the number of girls with access to education, reducing women’s workloads, improving their access to productive resources and creating sustainable livelihood opportunities (for example, fishing and off-farm businesses). Over this period, measurable changes have taken place at the village level to provide new opportunities for women’s participation in decision-making (e.g., in village development planning), and more income-generating opportunities (e.g., off-farm work such as weaving, handicrafts, fisheries, and better access to markets). Poverty Reduction and Shared Prosperity 66. Poverty reduction was an important goal of this project, as reflected in the assessment of the efficacy of the project. However, NT2 also played a role in demonstrating the potential for natural resource (and export-driven) projects to share benefits, contribute to poverty reduction and share prosperity at the national scale. Specifically, the REM program and attention to resettlement results introduced concepts and policies to leverage such projects for broad social and economic development of the county, that are applicable beyond NT2 and hydropower. Other Unintended Outcomes and Impacts 67. NT2 goes beyond standard projects in that it includes a mechanism to support sustainable livelihoods for resettled communities over the longer-term and is over and above what was agreed in the CA. As part of the development of the Comprehensive Action Plan to Close the Resettlement Implementation Period and Beyond (2017), a medium-term development plan (MTDP) was developed for the resettlement area. The MTDP integrates advice from PoE report #28; it is expected to bring a more complete and effective transfer from project- to community-driven development. 68. The MTDP seeks to: (a) continue actions to support sustainable livelihoods; (b) strengthen hand-over of assets and development responsibilities from NTPC to local government; (c) support application of emerging national policies; and (d) maintain a platform for ongoing coordination of development actions on the Nakai Plateau. Highlights of the MTDP include: • NT2 Development Fund, US$750,000/year to 2035 financed by NTPC as part of their corporate social responsibility policy, to be co-managed with villages and local government; • A three-year Transition Plan, funded by the Government and managed at the Provincial level, to continue commitments (including for downstream communities) and support transfer of skills and responsibilities; • Integration of the national Sam Sang (“3 Build”) policy for rural self-reliance and governance as part of new approach to development planning process at the village level; • Village-level forest management plans embedding a new paradigm for village forest resources, shifting from the disappointing commercial timber venture to a community-driven resource management; • Agriculture, livestock and fisheries program co-funded by AfD, NTPC and the Government; Page 30 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) • Continuation of the social safety net for vulnerable households throughout the CA period, funded as part of the NT2 Development Fund; and • A proposed “Nakai Working Group” to meet regularly to share progress and identify coordination benefits among development partners and stakeholders. 69. In addition, the World Bank’s Second Lao Environment and Social project (LENS2 -- P128393) will provide funding to augment current NTPC funding to the WMPA and focusing on: (a) the upgrading of the current protected area to a National Park; and (b) professionalization of the WMPA into a National Park Office. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 70. Lessons learned from similar operations and reflected in the Project Design. Lessons drawn from a number of previous hydropower investments in Southeast Asia as well as from recent large infrastructure projects in other developing countries helped shape the project design. In addition, the reports of (a) World Commission of Dams; (b) Extractive Industries Review; and (c) Worldwide Fund for Nature study ’Rivers at Risk: Dams and the Future of Freshwater Ecosystems’ also had an important influence on the project design. 71. Stakeholder engagement and targeting of beneficiary groups. During project preparation, extensive consultations and public workshops were carried out by the Government and NTPC with affected stakeholders. These included consultations with a broad group of local and international stakeholders, meetings with potential donors, and focus group discussions with non-governmental organizations and other interested parties. The consultations and workshops resulted in a number of design changes being made to the siting of specific works with a view to mitigating the impacts of these works. Stakeholder consultation during preparation was both extensive in coverage and responsive in terms of its impact on specific mitigation plans. While there were differences of view on the standards to be met, there was sufficient consensus by early 2005 to enable the project to move ahead to the implementation stage. 72. Adequacy of risk analysis and mitigation measures. A comprehensive analysis of the main implementation risks for each project component and sub-component was undertaken during preparation and specific risk mitigation measures were proposed for each risk. In general, the ‘substantial’ and ‘high’ risk activities were correctly identified during preparation, which enabled mitigating measures to be anticipated and put in place. Targets for two risks were recognized as ambitious for the pre-project institutional environment: (i) reporting and disclosure of revenue and expenditures management and (ii) strengthening the capacity of WMPA to implement the SEMFOP and coordinate with other sectoral agencies and district authorities. 73. Selection of experienced lead developer for construction of the hydropower facility. The lead developer for the project played a crucial role in the construction and subsequent operation of the NT2 project. For an investment of this scale and complexity, it was essential to have an experienced international Page 31 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) contractor with worldwide experience in both the construction and operation of major hydropower plants. The lead developer’s commitment to the longer-term goals of the project (i.e. beyond the five-year construction phase) was an important consideration as was its prior corporate experience in addressing the social and environmental impacts of hydropower developments in different regions of the world. 74. Readiness for implementation Overall, the project was ready for implementation by Board presentation in March 2005. The readiness of each project component was as follows: • Component 1: NT2 Hydropower Facility: The main investment component i.e. construction of the NT2 hydropower facility, was ready for implementation. The lead developer was in place (i.e., NTPC), and the financing requirements of the project had been completed. • Component 2: Management of Environmental and Social Aspects: This component was also ready at Board presentation although it took longer to prepare due the need for extensive local consultations with the affected communities as well as to reach agreement on the project’s downstream impacts and the needed mitigation measures to be included in the project’s base budget. • Component 3: Monitoring and Evaluation: The main monitoring entities under Component 3 were either ready and/or in place. B. KEY FACTORS DURING IMPLEMENTATION 75. Implementation covered a period of more than 12 years -from Board approval in March 2005, until the project closed in December 31, 2017. Given the significant differences forecast in the implementation periods between Component 1, Construction of the hydropower facility, i.e. 4-5 years, and Component 2, Management of Environmental and Social Impacts, i.e. over 10 years, a deliberate decision was taken, prior to Board, to have a long implementation period for the overall project. The project closed as planned on December 31, 2017, the original closing date. 76. Implementation was supported by funds from a Processing Fee of US$5 million, charged to NTPC on the IDA guarantee (in line with the Guarantee Fee Policy Paper, 1997) and paid out in five installments. These funds were used to supplement the supervision budget for NT2, especially during the initial years of implementation, which enabled the Bank to fully staff task teams with the various specialists required to address the different environment and social issues during the early years of implementation support between 2005-2010. (i) Factors subject to Government/Implementing Entities’ Control and/or World Bank Control 77. Project coordination and engagement. The implementation arrangements required a clear specification of responsibilities at the outset and strong partnership arrangements with the main financing institutions. Overall, responsibilities were clearly defined, which enabled coordination across the Government ministries and specialized units to address the social and environmental impacts of NT2 and facilitate implementation of the hydropower facility as well as the resettlement and downstream livelihood programs. Page 32 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) 78. Government commitment and leadership. Sustained government commitment to the poverty reduction goals agreed at Board was a critical factor in helping achieve these objectives. NT2’s potential contribution to poverty reduction and improvement in the country’s human development indicators was first acknowledged by the Government’s Letter of Implementation Policy (GLIP) in 2005. However, by 2014, a number of concerns were identified in achievement of the PDO. Over the final three years, the Government took corrective measures in a number of areas, including increased allocations to ensure 100 percent of NT2 revenues were allocated to eligible programs by the grant closing date, and institutional re-alignment of forest and conservation agencies, bringing more direct national guidance to the WMPA. 79. Organizational capacity in developing large hydropower schemes. The extensive technical, managerial, and organizational capacity of the main implementing agency, NTPC, in developing large hydropower schemes worldwide enabled construction of a major hydropower facility to be completed within the estimated total cost of US$1.45 billion, and with only a 4.5-month delay in the planned 54-month construction period. NTPC also had responsibility for (a) livelihood and restoration activities in the Nakai Plateau as well as for (b) mitigation of the downstream impacts. Its organizational experience in managing complex investments in other developing countries combined with an established institutional culture of social responsibility were important reasons that project impacts were addressed satisfactorily. 80. Ensuring social, environmental, and other safeguards compliance: The project was rated a Category A operation and triggered all 10 safeguard policies. Consequently, ensuring full compliance of these safeguard policies was a major task of implementation. By mid-2014, a number of key safeguards were not in compliance. In August 2016, a safeguards compliance review was undertaken by the World Bank’s Operations Policy and Country Services (OPCS) and its recommendations were integrated into the safeguards work programs. The recommendation from this review together with an intensive implementation support effort throughout 2017 enabled the project to close with all ten safeguards ratings Satisfactory or Moderately Satisfactory. 81. Adequacy of supervision and reporting. Field missions and reporting took place regularly over the entire project duration, alongside external monitors and NTPC quantitative data collection. The World Bank country-based team coordinated annual IFI missions with management participation, led by a World Bank Director. After 2010 (start of operations), several monitoring mechanisms were concluded (e.g., DSRP, ISR according to guidance on fully disbursed projects).34 However, other reporting functions continued, including risk reporting, updates to the Board of Directors, mission Aide Memoires, and NTPC reports and data collection. Public information on project progress was available from other sources, such as: World Bank Update Reports to the World Bank Board of Directors, periodic postings (e.g., overviews, feature articles on project aspects, etc.) to WB's NT2 website, POE reports, and NTPC Semi-Annual Environmental and Social Reports (see Annex 6). This reporting maintained management oversight and ensured active supervision. The newly structured RF identified two key areas for action in 2014: (i) a significant portion of NT2 revenues were being deposited directly into the Treasury rather than being allocated for poverty reduction or environmental management programs; (ii) two safeguards were not in compliance. These became priority areas for the World Bank to help the client resolve. As a result, over the three-year period 2015-2017, the World Bank participated in a Joint Working Group that focused on sustainable livelihoods in the resettlement area, supervision missions and supplemental technical visits were focused on outstanding issues, additional 34As per Bank guidance, requirement for ISRs were discontinued because the grant was fully disbursed, reclassifying the project as not active. ISRs restarted in June 2014 when an internal change in the definition of ‘active portfolio’ was modified to include all pr ojects with their legal closing dates in the future. Page 33 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) studies were undertaken, reporting was candid in terms of the revenue allocation issues and safeguard compliance, and an NT2 Steering Committee was established to ensure senior sector and country management were fully engaged. The response resulted in the resolution of key issues, enhanced preparation for project transfer from NTPC to local governance, compliance with all safeguards, allocation of 100% of NT2 revenues to eligible expenditures or poverty alleviation and environmental protection, and achievement of the PDO by closing, December 31, 2017. (ii) Factors Outside Control of Government and/or Implementation Agencies 82. There were no significant factors affecting implementation outside of the control of the Government, or the implementing agencies, during the period 2005-2017. Over this period, the Southeast Asia region enjoyed a favorable macro environment for growth, with annual growth rates for Lao PDR averaging between 7 percent - 8 percent. There were also no periods of conflict or civil unrest. Finally, there were no natural disasters. While major flooding did occur in 2011 in a region prone to flooding, its impact on the operation of the hydropower plant was short term and did not result in any lasting damage. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 83. Given the complexity and scale of the NT2 investment together with its high, external visibility, the M&E design for the NT2 Project consisted of a multi-layer framework. At the same time, it retained an adaptiveness which: (a) enabled it to identify specific concerns threatening the PDO during implementation; and (b) allowed corrective action to be taken to address these concerns. These features proved critical in helping achieve the PDO. Table 4 lists the various monitoring mechanisms, including independent monitors, World Bank implementation support and reporting. Table 4: M&E Mechanisms Independent Monitors World Bank Supervision Supervision of physical implementation of the An International Advisory Group (IAG), advising the World hydropower project by professional engineering firms Bank’s President on project implementation, revenue under contract to NTPC and GOL management arrangements, and E&S aspects. The Lenders’ Engineer monitored progress in project Project Oversight Group: Composed of senior managers construction as well as implementation of the E&S and directors to build internal consensus while addressing management plans during construction key issues encountered during preparation and implementation. A Dam Safety Review Panel (DSRP) advised on NT2 Steering Committee: Directors from 11 practice technical construction, operations, and safety issues. groups and the Country Management Unit (CMU). and chaired by the Directors of Strategy and Operations for Sustainable Development and East Asia and Pacific Region; the committee has been functional since September 2016. Independent Monitoring Agencies (IMAs), reporting Regular supervision by multi-disciplinary team of World to Government agencies, monitored progress on Bank staff, including an in-country Task Team Leader (TTL) Page 34 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) resettlement, environmental impact mitigation, and for most of the project. watershed management issues A Panel of Environmental and Social Experts (POE), Member of the Government/IFI/NTPC Joint Working Group reporting to Government, advised on environmental to oversee closure of the RIP and social issues. Their reports were made public A Lenders’ Technical Advisor (LTA) reported to the Regular, coordinated supervision with the other IFIs (ADB commercial lender’s group on compliance with the CA and EIB) and bilateral agencies (AfD), including and project performance, based on bi-annual field management and technical missions. visits. Reporting The World Bank and the ADB released reports NTPC also released reports updating information on project annually to inform their respective Boards as well as implementation, which were made available on the NTPC the public on the status of project implementation. website. Project reports prepared by the IAG, POE, and the Various reports on specific issues (e.g., gender). DSRP were also made available publicly. Annex 6 provides a listing of the main reports and documentation for the project. 84. The Theory of Change was clear and the project’s activities and subsequent outputs leading to the expected outcomes were logical. During preparation, the log frame format was used to design the project’s results measurement framework (Annex 5, PAD). That table specified ‘outputs’, ‘intermediate outcomes by 2009’, and ‘ultimate outcomes by 2015’ for each of the three project components as well as for the revenue and expenditure management framework. In total, the PAD table identified 19 different ultimate outcomes (i.e., the bullet points under the column titled ‘Ultimate Outcomes by 2015’), the majority of which covered social and environmental sustainability outcomes. These ultimate outcomes are closely linked to the indicators that were ultimately used in the ISRs and ICR (see Annex 1 headnote for explanation of the evolution from PAD ultimate outcomes to ISR indicators). 85. The M&E design for the project was generally sound in design, comprehensive in coverage, and reinforced by expert advisory groups providing independent oversight, as well as continuous data collection (e.g., Living Standards Monitoring Survey). It also paid due attention to the closely linked efforts of the infrastructure works on E&S issues and revenue management. This treatment had the benefit of providing a holistic view of the NT2 PDO as one integrated ‘program’ rather than many separate but related parts. These arrangements provided a framework by which to monitor targets and identify corrective adjustments during implementation. 86. At the same time, there were a few shortcomings in the M&E design. Specifically, the two PAD final indicators (to measure achievement of the PDO) could have been more clearly specified. Indicators focused exclusively on allocation to the Government’s poverty reduction and environment programs as well as on the transparency of these expenditures. Both the indicators and ‘ultimate outcomes’ identified in the PAD under Revenue and Expenditure Management either lacked a quantitative target, baseline or were not easily measurable. Also, the PDO itself did not clearly define the meaning of ‘implementing’ funded programs as ‘financing’ these programs. 87. In addition, some PAD indicators of progress towards the different social and environmental outcomes Page 35 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) were, in practice, difficult to measure, and were also ambitious given the minimal institutional structure, capacity and experience in Lao PDR, other risk factors identified during preparation, and external pressures linked to wildlife threats and conservation goals. M&E Implementation 88. The collection and analysis of M&E data can be divided into three distinct periods: (a) 2005-2010: During this period, construction of the hydropower facility was completed, and safeguard compliance was monitored closely. Data collection was timely and thorough, and the information collected was used to address delays (for example, in livelihood restoration programs). A Public Expenditure Review was also carried out in 2010 and the findings used to take stock of progress in implementing the NT2 revenue and expenditure management arrangements, prior to the start of commercial operations and revenue flows. (b) 2011-2014: Completion of construction and physical resettlement led to a number of changes in M&E instruments in this period: the Project Oversight Group, IAG and ISR reporting concluded (as per Bank guidance on fully disbursed projects); the Downstream Program closed; several E&S indicators had been met. However, other reporting functions continued, including risk reporting, updates to the Board of Directors, mission Aide Memoires, and NTPC reports and data collection. Supervision identified concerns in some components of the project starting in 2012. For example, the November 2013 Board Update reported that while “almost all of the royalty payments received to date had been allocated to eligible activities, dividends and taxes had not been deposited in the NT2 Revenue Account as required”. The re-instated ISR reporting documented several concerns from a mid-2014 World Bank supervision mission.35 The World Bank team responded by undertaking additional technical assessments of safeguards and conservation issues and accelerating work on designing the Functional Equivalent Approach for revenue and expenditure management (which was agreed by GOL in April 2015). This work set the stage for a concentrated partnership in 2015 (see below). Also, during this period, the PAD RF was integrated into a newer ISR RF, taking advantage of earlier improvements in World Bank M&E methodologies (towards explicit results, timelines and targets) while: (a) maintaining existing M&E data collection and external monitoring mechanisms essential for continuity; and (b) closely aligning with PAD ultimate outcomes. The ISR structure: (i) Introduced clear, measurable end-of project outcome indicators; (ii) Captured all aspects of the PDO (i.e., revenue management, hydropower facility; E&S issues); and (iii) Structured indicators (measurable targets and baseline). Although the ISR RF is tightly and logically linked to the PAD ultimate outcomes, it is noted that this adjustment from PAD to ISR indicators should have been formalized in a restructuring. A more 35 ISRs restarted in June 2014 when the definition of ‘active portfolio’ was modified to include all projects through to their legal closing (instead of the date they fully disbursed) date. Page 36 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) detailed explanation of the transition and linkages between the PAD and ISR RF is presented in the Annex 1 Explanatory Note. (c) 2015-2017: In 2015, four separate work programs were expanded to ensure end-of projects targets were met. First, spurred by the extension of the RIP, a joint GOL, NTPC, and IFI Working Group was established to define clear and measurable indicators for closure of the resettlement program. Second, an assessment of conditions in the downstream area was undertaken and recommendations enacted. Third, an action plan for reform at the WMPA was agreed by all parties. Fourth, agreement on and implementation of the Functional Equivalent Approach clarified and strengthened attention to allocations of NT2 revenues to eligible programs and reporting, including audits and public disclosure. Overall supervision also included a comprehensive safeguards review that was completed and, internally, establishment of a World Bank NT2 Steering Committee, chaired and attended at the director level to provide guidance on the four work programs. M&E Utilization 89. M&E data and information was effectively used throughout implementation – to support necessary adaptation to attain the objectives of the PDO. For example, during the 2014-2017 period when the main development objective was at risk, close monitoring of the NT2 REM program enabled significant increases in revenues allocated to eligible expenditures. M&E information on safeguards compliance was also continuously highlighted and used to inform World Bank management on compliance. Finally, M&E inputs on areas affecting the basis for sustainable livelihoods were used effectively to take corrective and/or remedial actions, paving the way for achieving closure of the RIP. Justification of Overall Rating of Quality of M&E 90. The M&E framework for the project was generally sound and reinforced by a robust set of data collection activities, World Bank management oversight and independent panels and advisory groups. The design maintained a holistic approach, ensuring integration and coordination of the multiple components and sub-components of the project. Despite the large number of panels and advisory groups, the M&E framework enabled different concerns to be identified quickly and corrective action to be taken. Finally, the RF was appropriately adjusted from the PAD log-frame RF into the 2014 ISR structure. 91. Overall, shortcomings in the original M&E design and implementation (e.g., clarity of PAD results indicators, ambitious conservation indicators, and tracking of revenues) were considered moderate and, subsequently addressed which yielded strong results (i.e., compliance with obligations, safeguards and outcome targets). Based on these considerations, the overall quality of M&E was generally sufficient to track the range of project outcomes, identify problems, direct responses and, ultimately, assess the achievement of the objectives. The quality of M&E is, therefore, judged to be ‘Substantial’. B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE Social and Environmental Safeguards 92. The NT2 project was rated Category A and triggered all 10 safeguard policies, in line with the World Bank’s environmental screening procedures. The main safeguard issues included: (a) resettlement and Page 37 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) restoration of livelihoods of some 6,300 persons living on the Nakai Plateau; (b) protection of the NT2 watershed area, an environmental offset area for the NT2 Project with significant biodiversity; and (c) mitigation of the adverse downstream impacts on several communities as a result of changes in river flows. 93. Two of the ten safeguards policies triggered were met by Board presentation (March 31, 2005), through design changes (Projects in Disputed Areas (OP 7.60) and Projects on International Waterways (OP 7.50)); these safeguard policies remained in compliance throughout implementation. By the start of commercial operations in April 2010, Safety of Dams (OP 4.37) was also in full compliance, following annual reviews by the Dam Safety Review Panel, which confirmed the high standard of safety of the dam. Prior to Board approval in 2005, grievance redress mechanisms (GRMs) were set up, active and regularly monitored for the resettlement area and downstream program. In 2015/16, it was assessed that the mechanisms were less active than during construction and early operations periods as resettlement was largely completed and there was an (incorrect) perception that the GRM was closed following the closure of the NTPC Downstream Program. In response, the downstream GRM was reinvigorated and fully internalized into the country system with technical support from the Adaptive Management Committee; on the Plateau the GRM was also fully internalized into the country systems. 94. In August 2016, a comprehensive safeguards review was undertaken by the World Bank which helped identify steps remaining to bring all safeguard policies into compliance. At the time of the review, 5 of the 10 triggered safeguards were found to be fully compliant including Pest Management (OP 4.09) and Physical Cultural Resources (OP 4.11). Three safeguards were in partial compliance (Environmental Assessment (OP 4.01), Indigenous Peoples (OP 4.21), and Involuntary Resettlement (OP 4.12)), while two safeguards were non-compliant (Natural Habitats (OP 4.04) and Forests (OP 4.36)). Following the review, 11 actions were proposed to bring all safeguard policies into compliance which was subsequently achieved by project closure in December 2017. Fiduciary 95. The FM rating was not less than Satisfactory throughout project implementation and was rated highly satisfactory in 2008 and 2009. An FM specialist based in the regional office in Bangkok carried out regular FM implementation support missions to review project accounting and reporting arrangements, organization and staffing, internal control procedures, planning and budgeting, counterpart funding, funds flow and disbursement and external audits. Interim unaudited financial reports were submitted to the World Bank for review within the agreed time frame. Project financial audits provided a timely and unqualified (clean) opinion on the project financial statements. 96. Procurement was rated satisfactory in the ISRs throughout implementation. The bulk of the procurement activities under the IDA Grant took place over a 20-month period from September 2006-May 2008, following which the US$20 million Grant was fully disbursed. Procurement activities were managed efficiently during this period between the regional mission in Bangkok, Thailand, the World Bank resident mission in Vientiane, Laos, and the NTPC office in Vientiane. Page 38 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) C. BANK PERFORMANCE Quality at Entry 97. The NT2 Project was prepared in a challenging context. As a large, complex hydropower project taking place in a small country with limited capacity, weak governance structures, and limited creditworthiness, NT2 had high visibility and posed a considerable reputational risk to the World Bank. Risks also arose from the global concerns for hydropower impacts on PAP and the environment; indeed, NT2 was seen as the World Bank’s re-entry into hydropower after several years and tested global opinion. Against this backdrop, heavy emphasis was given to thorough preparation and to risk identification and mitigation. The preparation team of World Bank staff and consultants was large and multi-sectoral to cover the broad range of technical areas involved. Extensive “due diligence” was undertaken and a number of studies went beyond the standards of the time. Communications and consultation efforts were strategically planned to promote transparency and support the availability of balanced information about the project and the Bank’s role in it, while creating meaningful ways for communities and civil society to participate in project implementation and monitoring. 98. In 1995, the World Bank initiated a comprehensive review of the NT2 investment, which examined not only the technical, economic and financial benefits of the investment but also a broader set of resettlement, livelihood restoration, and conservation issues that would need to be addressed if the NT2 project was to be financed by international financing agencies. This led to the preparation of a number of different impact studies after 1996, including an E&S action plan for the watershed and corridor areas that would be affected by the investment. The World Bank played a major leadership role in ensuring that all of these issues linked to the NT2 development were fully assessed. 99. The World Bank also quickly adapted to changes that took place in the external and internal environment over 1997-2001 and, again, in 2001, when project preparation resumed after the financial situation in Asia began to stabilize. It first mobilized a large, experienced project team within the World Bank with a broad range of skills needed to address the different issues raised by the development of the NT2 hydropower facility. External high-level advisory groups also played an active role during preparation, providing advice as to how safeguard concerns in particular should be addressed and mitigated. In this context, as noted earlier, the publication of the World Commission on Dams report (2000) defined a new framework for the development of large dams, challenging standards and raising expectations for social and environmental performance. 100. With inputs and advice provided from different sources, the World Bank was able to reach agreement with the Government on a clearly defined framework for preparation of the NT2 investment which would later be adopted by the main multilateral donors and financiers. The key elements of this decision framework were a sharp focus on the potential of the NT2 investment to reduce poverty and improve environmental management by putting in place efficient and transparent revenue management arrangements. In parallel, the World Bank was able to secure support for the NT2 project from international donors and civil society through an intensive process of dialogue and debate and the use of international workshops. Without such support, the project could not have gone ahead. 101. The financing arrangements for the NT2 investment were also a significant achievement. They required the creative use of partial risk and political guarantee instruments to be able to mobilize the large amounts of commercial financing needed to complete the financing package. The project financing plan was Page 39 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) completed before the end of 2003 but the dual need to prepare a poverty reduction strategy as well as secure broad support for the project from international donors and civil society took time, considerable debate, and lengthy consultations with local communities. Throughout, the World Bank was able to strike a balance between the desire to accelerate investment of the Government and the developers to move the project forward with the demands of external stakeholders that the project impacts, involving resettlement, mitigation measures, and conservation concerns, be adequately addressed before committing funds. 102. A thorough Quality Enhancement Review (QER) was undertaken in 2004 on: development framework issues, E&S safeguards, external relations and consultations with civil society, and project quality issues (economic, financial, technical and monitoring). The QER reviewers noted the significant amount of work that had gone into project preparation during the previous two years and the due diligence with which the technical, safeguard, economic, financial and communications issues are being addressed. Quality of Supervision 103. Supervision covered more than 12-years – from Board approval in March 2005 to project closure in December 2017. Over this lengthy implementation period, there were initially two task team leaders (TTLs): one for the NT2 guarantee project and one for the IDA grant project (NTSEP), until the hydropower plant started commercial operations in 2010; thereafter, there was a single TTL for both projects. During this period, there were three to four changes in the NTSEP task team leadership, but continuity was maintained with proper hand over and transition arrangements. From 2010, TTLs started to be based in a regional office and then in the country office which allowed more frequent visits and provided significant benefits in resolving implementation issues. Annex 2 illustrates the wide scope of skill sets of the World Bank team. 104. As part of the financing discussions, it was contractually agreed that IFI lenders would take part in joint implementation support missions with other financing partners, which the World Bank led. This was the first ever World Bank project where as many as 27 lenders agreed to a common set of safeguard requirements, supervision requirements, and joint missions. The World Bank took the leadership in designing the broad framework for implementation support. In addition, a formal management-level IFI mission was fielded annually, led by a Bank Director, that ensured corporate oversight throughout implementation and consistent guidance from all partners. 105. World Bank supervision performance is assessed over three distinct periods: (a) from April 2005 until the start of commercial operations of the NT2 hydropower facility in April 2010, during which the grant and guarantee financing was disbursed; (b) mid-2010 to mid-2014, covering the first four years of commercial operations; and (c) mid-2014 until project closure in December 2017. (a) The main achievement during the initial implementation period (2005-2010) was the construction and commissioning of the NT2 hydropower facility. The completion of this facility, close to the original schedule, was a major achievement. In parallel, the World Bank started to closely supervise resettlement (which was completed in 2008), impoundment and construction-related environmental mitigation, followed by livelihood restoration and conservation issues. Considerable resources were committed to address both expected and unexpected needs requiring flexible and adaptive responses. For example, full time consultants were hired to work on socio-economic monitoring/surveys, and watershed management. Reporting was extensive, both benefiting from and reporting to the array of systems outlined in Table 3. The Independent Evaluation Group (IEG) of the World Bank also reviewed implementation of NT2 during this period, Page 40 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) stating that ‘Lao PDR is implementing NT2 successfully, without any significantly adverse social or environmental impacts’ and rated the outcome as highly satisfactory.36 (b) During the subsequent four-year period (mid-2010 to mid-2014), implementation support missions continued to focus on the implementation of the main social and environmental components. As noted earlier, reporting continued although, with completion of major construction and disbursement of the Grant, some M&E mechanisms became redundant. During this period, other supervision and monitoring mechanisms identified emerging problems in two safeguards and overall implementation in the reactivated ISR of 2014. During the same period, specific issues were resolved, assessed or more closely supervised, including external initiatives that threatened the watershed (e.g., salvage logging, mining), early resettlement challenges (e.g., Ahoe relocation, viability of commercial logging in village forests) and issues raised by international non- governmental organizations (e.g., downstream livelihoods). After identification of gaps in the revenue and expenditures management program (e.g., lack of a Designated Account), efforts focused on developing a new approach that could be coordinated with existing government systems; this led to agreement on a “Functional Equivalent Approach” to capture all NT2 revenues, enable closer tracking of NT2 revenues, and ultimately ensure all eligible revenues were allocated to eligible expenditures. During the period, the Bank team completed a revision to the RF; building on the PAD framework, indicators were strengthened and streamlined (the project development objection was not changed), and guided project supervision through to project closure. It is recognized that this revision should have been formalized in a restructuring notwithstanding the close linkages with the ultimate outcomes and/or indicators delineated in the PAD. (c) The final implementation period (mid-2014 until December 2017) entailed a sustained, proactive focus by the World Bank on the aforementioned risks to the PDO. Implementation support missions were more frequent and additional resources were mobilized in key areas such as revenue and expenditure management to ensure any gaps in allocations and reporting. A Joint Working Group-comprising various levels of government, NTPC and IFIs was established to develop and implement an Action Plan to close the resettlement program, in consultation with the POE and led by the World Bank. By July 2018, the POE indicated that sufficient progress had been made to ‘materially improve resettler livelihoods on a sustainable basis’ and to recommend closure of the resettlement program. In the watershed, the World Bank team, headed by a wildlife expert, worked closely with the POE and IMA monitors to respond to institutional challenges within the WMPA. An Action Plan for reform and upgrading was discussed over the course of a year, resulting in consensus in late 2016. Supervision continued through 2017, ensuring that each element in the action plan (except one) was implemented37 and a new platform established to better meet the demands of the WMPA’s mandate. In parallel, a sustained and intensive focus on safeguard compliance was also maintained. Each of the identified shortcomings with Forests, Natural Habitats, and Environmental 36 World Bank. 2012. Lao People's Democratic Republic - Country assistance strategy completion report (CASCR) for the period FY2005- FY2011: IEG review (English). Washington, DC: World Bank Group. Reference number 88746. 37 The outstanding element at project close was a strategic staffing plan. In early 2018, IUCN agreed to advise on, and implement the plan, ensuring recruitment met high standards of objectivity and international standards in conservation management. Page 41 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) Assessment safeguard policies were addressed and by project closure, all 10 Safeguards had a rating of either Satisfactory or Moderately Satisfactory. The impact of these sustained efforts enabled achievement of the PDO by the scheduled closing on December 31, 2017. Justification of Overall Rating of Bank Performance 106. The World Bank played a critical leadership role throughout the project in: clearly defining a framework for preparation of the NT2 investment; inserting specific financial instruments to address risk (e.g., guarantees) and environmental innovations (e.g., watershed biodiversity offset); convening the IFIs; facilitating consensus amongst diverse perspectives; and managing E&S risks (e.g., impact studies, safeguards instruments, global consultations).38 Supervision reporting was continuous, with adaptation of instruments guided by project activities (e.g., conclusion of the IAG) and World Bank policy (e.g., ISR reporting). The RF was adjusted to reflect emerging Bank methodologies and project priorities; although strengthening the monitoring tool, it is recognized these changes should have been formally documented as a restructuring. The project predictably faced an array of implementation challenges, and the institutional risks for the watershed and revenue and expenditure management were realized; however, corrective actions were identified to improve performance, contribute to longer term development possibilities and, ultimately, achieve the PDO. Based on the above considerations, the overall rating of World Bank performance is ‘Satisfactory’. D. RISK TO DEVELOPMENT OUTCOME 107. The overall risk to the sustainability of the development outcome is assessed against the following risks: • Technical risk that the NT2 hydropower facility would either stop producing electricity, or significantly reduce electricity generation, as a result of damage to the main dam structure caused by severe flooding, structural flaws, or extended plant failure; • Financial risk due to the inability of EGAT, and/or the Thai government, to continue purchasing NT2 generated electricity as a result of a protracted regional economic recession; • Social and Environmental Sustainability Risk comprising the different risks involved in assuring the longer-term sustainability of the NT2 development; and • Revenue Management and Budgetary Risk that NT2 revenues are no longer fully allocated to finance the Government’s poverty reduction and environmental management programs. 108. The technical risk to the development outcome is considered low. At the time of completion, the NT2 hydropower facility had been operating for more than seven years without any operational difficulties. Over 2013-2017, annual average exports of power to EGAT exceeded the minimum target of 5,000 GWh by 6-19 percent. The technical soundness of the facility has already been established and it will continue to be managed by an experienced operator during the rest of the concession period. Vulnerability to floods and other natural disasters have been so far withstood. While extreme natural disasters can never be ruled out, the prospect of such occurrences leading to structural and/or operational damage is considered unlikely. 38 See Annex 5 for stakeholder comments on World Bank role. Page 42 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) 109. The financial risks to the development outcome are also judged to be low. The 25-year CA between the GOL and EGAT has been operating satisfactorily since 2002. There have been no delays in making payments for the purchase of electricity and the main purchaser of NT2 generated electricity, EGAT, has a long-established creditworthiness. While a prolonged global or regional recession can never be ruled out, it is unlikely to have the same, adverse impact as in 1997. 110. The social and environmental sustainability risks of the project vary, but several post-closure support measures are in place that mitigate risks to social development, as follows: • Resettler income stability and livelihoods resilience. Population growth, land pressures and resource management are of concern; however, the POE considered resettlers to be on the road to sustainability (POE report #28), vulnerable households will be aided by extension of a social safety net to 2035, ongoing funding for maintenance and repair of community infrastructure (SERF, also to 22035), and an NT2 Development Fund (US$750,000)39 to support Sam Sang village development. • Fishing revenues and income levels of vulnerable households in the downstream area. District government program and plans are in place in most riparian villages to address livelihoods concerns. • Conservation of the watershed area. Recognizing the conservation challenges in the watershed area are still considerable, there are already positive outcomes from the steps taken to strengthen institutional capacity and patrolling, integration of national and international specialists, new government policies for natural resource management (e.g., recent logging legislation), availability of ongoing NTPC funding to WMPA until 2035 with ongoing monitoring by the IMA, and planned transformation to Lao PDR’s first national park (with upgrading of IUCN conservation classification). 111. Finally, there is a risk that NT2 revenues may not be allocated to priority poverty reduction and environmental programs after Grant closing. Several factors need to be considered. First, there is a legal obligation in the GLIP to continue allocating NT2 revenues for such programs until the end of the CA in 2035 even though mechanisms to enforce the obligation diminish significantly after the DGA terminates in 2020.40 Second, and importantly, the Government has demonstrated a commitment, sustained over two decades, to allocate resources for poverty reduction. It is likely that this will continue to be a national priority given the issues articulated in the Government’s recent mid-term review of the 8th National Social and Economic Development Plan, 2016-2020. Finally, while the Government’s PFM systems still are relatively weak, World Bank support provided through current and planned operations and dialogue with the MOF will help mitigate the risk. 39 Funded by NTPC and managed through the village development planning process, additional to funding for maintenance and repair of community infrastructure (SERF) and WMPA operating costs. 40 "The NT2 revenue management arrangements will be applied for the duration of the Concession Agreement or as mutually agreed between Government and the NT2 GOL equity financiers." GLIP, Technical Annex on Revenue Management Arrangements Page 43 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) V. LESSONS AND RECOMMENDATIONS 112. NT2 offers many lessons, drawn from more than two decades of experiences during preparation and implementation. Some lessons could be considered more ‘generic’ as they would also emerge from other complex, large projects. The lessons below focus on those that emerge from the unique circumstances of a major infrastructure investment in hydropower that seeks to establish the foundations of a new trajectory for a country, such as NT2. They cover: (a) the importance of inclusiveness in design and implementation; (b) using project preparation to embed the foundations for achieving objectives; (c) leveraging adaptive management to manage the unexpected; (d) the need for exceptional budget resources as well as World Bank institutional commitment to ensure success; and (e) weaving transformations into country norms. Lesson 1: The importance of inclusiveness in the design and implementation of large hydropower developments. Consultations and communications are essential in complex projects that span a wide range of stakeholder expectations and perceptions, to help reduce uncertainty, design better project outcomes and strengthen ownership of the GOL and local communities. 113. The NT2 Project committed considerable time and resources to engage a range of stakeholders and build partnerships about the project, leveraging the World Bank’s convening role and using a variety of mechanisms across different project components and projects stages. Key examples include the following: • Extensive consultation with villagers regarding resettlement design, infrastructure and livelihoods. This consultation ranged from village data collection (quantitative and qualitative), to training and awareness raising on new livelihoods. In recent interviews, resettlers consistently noted the challenge in shifting to such a different way of life and noted how important help from project staff was in adapting and taking up new opportunities. • Global communications and consultation (London, Bangkok, Washington, etc.) to inform international non-governmental organizations and concerned stakeholders about safeguards provisions and commitment to the principles of sustainability. Although such consultations did not lead to agreement with all stakeholders, they demonstrated transparency and flexibility, and helped build trust and a cohesive approach for the project. • Project design negotiations and discussions – and the convening role of the World Bank – strengthened the understanding of the political, institutional, and cultural context of the project early in the planning phase. In turn, this clarified GOL priorities and built government ownership, mutual trust, and consensus on a common goal with all parties to develop NT2 to generate electricity and effect development with benefit-sharing at the national level. • Partnerships with external monitors and experts – from the Project Oversight Committee to the DSRP to the POE – further contributed to transparency and credibility of the project. Similarly, regular engagement with IFIs helped all parties understand a range of stakeholder concerns. • The Joint Working Group consisting of the GOL (national, provincial and district), NTPC, and IFIs was established in 2015 after a contentious decision to extend the RIP. The Group developed a Page 44 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) consensus plan to close the Resettlement Implementation Period based on past POE recommendations and CA obligations. The Plan was executed in consultation with the POE and resulted in an unambiguous recommendation from the POE in July 2018 to close the RIP. • In the final three years, focus was again directed to engaging villagers and district government in: closing the RIP; revising the village development planning approach; and in designing and, once activated, co-managing the NT2 Development Fund. These consultations helped manage the uncertainty and risks of the project, bridging existing perceptions and realistic impacts. Lesson 2: Using project preparation to embed the foundations for achieving the eventual objectives. Ambitious transformational projects are best supported with comprehensive preparation documents whose provisions are embedded in legal agreements and targeted institutional development. 114. Standard safeguards documents (e.g., SSDP, Environmental Management Plan) and prescriptions were not only comprehensive but were also embedded in the CA and Financing Agreements, thereby formalizing agreements negotiated in the design phase, raising their profile and stimulating additional oversight through the LTA. Some prescriptions were linked with engineering schedules to manage social and environmental risks. For example, reservoir impoundment required endorsement from the POE’s assessment of resettlement progress. In addition, safeguards documents were supplemented with strategic assessments (e.g., CIA, SESIA). 115. New institutions were established to implement the project, including: (a) the LHSE to administer PPPs and facilitate foreign direct investments; (b) safeguards policies (e.g., ESIA and resettlement decrees) to establish basic parameters and mechanisms for hydropower development; and (c) a stronger MEM to nurture sector policies and development. In addition, complementary projects were initiated to support areas of high risk (e.g., LENS, Poverty Reduction Fund, PFM). 116. The CA was prescriptive, covering the technical, financial as well as E&S obligations and embedded legal obligations of each party. The CA led to harmonization of the E&S standards across lenders and became a model for such inclusion in Lao PDR. However, in implementation, the CA’s detailed specifications for compliance created inflexibilities and, at times, delays in resolving problems. For example, the CA specified that village forests produce commercial timber, but, even though revenue to resettlers fell well short of expectations, an alternative was not developed until 2016. The lesson is that a prescriptive CA has significant value in embedding obligations in legal responsibilities, but those obligations should be specified in terms of outcomes rather than actions. Lesson 3: Leveraging adaptive management to manage the unexpected. Large transformational projects such as NT2 depend critically on the use of sound adaptive management practices throughout implementation. 117. NT2 was very much an exercise in experimentation and so depended on the ability to: (a) quickly identify problems; and (b) adapt and innovate based on circumstances. The M&E system for NT2 was a core element in enabling adaptive management. The array of monitors, including a Lao PDR-based World Bank Page 45 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) team, maintained a constant stream of project oversight and technical observations which supported adaptiveness. However, the fragmented network of multiple monitors at times led to a confusing array of recommendations with unclear prioritization. Better coordination of monitoring indicators and reporting would be needed to take full advantage of external monitors’ expertise, manage costs and facilitate, rather than constrain, effective adaptive management. 118. Some high-risk components warrant more structured adaptive management provisions. In NT2, decisions were taken to implement both revenue and expenditure management and the watershed components through existing local institutions in order to build Lao ownership and capacity rather than ‘ring fencing’. Risk assessments had been undertaken and monitoring mechanisms were in place, but these difficult areas could have benefitted from a more structured and explicit adaptive management system, including realistic targets and outcome indicators, linked with specified, tracked risk signals based on early and comprehensive risk assessments and pre-agreed (or identified) remedial measures. 119. The choice of project timeframe (including preparation and implementation) can aid adaptive management. By establishing a longer commitment for NT2, the World Bank was able to support the range of social development mechanisms as PAPs followed the path from awareness to physical resettlement to establishment of new livelihoods to building long term resilience to greater community-driven governance and development planning. In the policy environment, a similar long-term commitment supports the complex and sometimes slow process of creating laws, standards, institutions and, ultimately, systems to effect change. The NT2 project, for example, was able to leverage multi-year World Bank and partner initiatives in pubic financial management and protected area reforms. Lesson 4: Need for large budgets and strong institutional commitment 120. Transformational projects such as NT2 Project require a large commitment of budgetary resources as well as a sustained institutional commitment to the project objectives. The resource commitment to NT2 was very high: World Bank budget expenditures on preparation alone exceeded US$6.6 million, corresponding to nearly 750 staff weeks (SWs); expenditures for supervision over the lengthy implementation period were also very high, exceeding US$6.8 million and over 1,300 SWs. In addition, NTPC provided US$5 million in financing over the first five years of implementation, which enabled the World Bank to include high expertise safeguard specialists and other experts in the early supervision missions. Supervising progress towards the main objectives required more than the usual number of missions, often with management participation. Also, there was regular reporting to the World Bank Board (jointly, with ADB reporting to their Board at the same time) on the status of implementation. Throughout, there was continuous involvement of World Bank senior management, frequently at the highest levels of the institution, including internal project oversight committees that met regularly to provide guidance on a broad range of ‘critical path’ issues. During implementation, a senior management steering committee met regularly to help ensure a corporate perspective and resolve various implementation concerns. These parameters indicate a substantial deployment of staff, management, and resources over two decades. 121. High budget costs and lengthy project development times tend to be typical of large, complex infrastructure projects, reflecting the broad array of transformational objectives, the large number of implementing agencies and stakeholders involved, and the ambitious outcomes. In short, a project that seeks multiple outcomes costs more than single objective projects. Page 46 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) 122. However, costs can be mitigated by aligning funding with risk assessment. The decision framework for NT2 (created by the World Bank, agreed to by the GOL) identified specific milestones at which specific risks were assessed before moving to the next phase of preparation. Project processing was linked to demonstrated progress by the GOL on: (a) implementing a development framework, characterized by concrete performance that aims at poverty reduction and environmental protection; (b) ensuring that technical, financial and economic aspects of the project and the design and implementation of safeguard policies were of a standard acceptable to the World Bank; and (c) obtaining broad support from international donors and civil society for the country’s development strategy and the NT2 project itself. This approach enabled the intensive internal review processes within the World Bank, which were an integral part of the preparation for NT2, to be spread out across decision points defined by either clearance of a specific risk, or critical path steps for investment or preparation. This decision framework provided predictability, enabled consultation with partners, stakeholders or management, and recorded progress. Costs were assumed in accordance with resolution of risks and, implicitly, strengthening of trust and confidence in the project. While each large infrastructure investment is different, including the political environment in which it is to be implemented, serious consideration should be given early in preparation to the feasibility of developing a risk mitigation strategy along the lines outlined above. Lesson 5: Weaving transformations into country norms. Design of transformational projects needs to consider the transition from project-driven to country-driven management, beyond the project’s closing date. 123. Notwithstanding the 20-year period of preparation and implementation, NT2 began but did not conclude a series of transformational changes. On the Plateau, the basis for sustainable livelihoods was achieved, but it is recognized that actual sustainable economies are yet to be guaranteed; the PFM reforms have made progress but issues of transparency and efficiency remain; the WMPA is stronger than most other conservation agencies in the country but effectiveness as a world class conservation agency remains a stretch objective which will require ongoing capacity building; and the now-established Lao hydropower sector continues to adapt to both internal and external pressures for sustainability. These ambitions are consistent with reasonable objectives of a single project and to initiate and embed the critical components of transformational change. 124. Several lessons from NT2 suggest ways to protect these transformation ‘saplings’ beyond project close. First, the unusually long 12-year implementation timeline for NT2 was needed to set the foundations and evolve into more sustainable approaches. This is evidenced in the WMPA changes and evolution of village forestry. Second, transformational changes aligned relatively well with the long-term interests for the World Bank/GOL partnership (i.e., PFM, energy sector development, green growth), supporting nascent reforms beyond the project’s direct impact and (World Bank) closing date. Third, for PPPs, corporate social responsibility policies can support local area ambitions, as demonstrated by the NTPC NT2 Development Fund co-managed with the village development planning committees. Fourth, as adopted by the Action Plan to close the RIP, efforts can be made to proactively mainstream project activities into government policies, particularly as the project approaches closure. Examples in NT2 include: piloting Sam Sang development approaches for community planning; providing bridge funding between project safety nets and government national insurance systems; and supporting the conversion of the watershed into a national park. Page 47 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) End Note 125. The transformational aspirations of the World Bank in the NT2 Project were ambitious: a hydropower project demonstrating environmentally and socially sustainable development of natural resources; embedding international best practices in Government decrees and regulations; reforms and capacity building in key policies to support such growth (in particular, financial management systems to share the benefits of natural resource management), and establishing institutions capable of implementing (for example) foreign-financed PPPs, new practices in village development planning and wildlife conservation. Early articulation of the vision was essential which, in turn, helped mobilize the five factors above. Although persistent challenges in the NT2 Project will likely remain for many years, the project has also shown that transformational projects that are conceived, prepared and implemented as an integrated package of objectives, can be pathfinders, securing human, institutional and physical infrastructure for nationally inclusive growth and development. Page 48 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and NT2 Social and Environment Project (P049290) ANNEXES Page 49 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) ANNEX 1. ICR RESULTS FRAMEWORK AND KEY OUTPUTS Annex 1 presents the Results Framework (RF) for the ICR. This framework is an evolution from the RF presented in the PAD (log-frame format, more input-output oriented) towards that used in Implementation Status and Results Reports (ISRs) (more results-oriented). The evolution was driven by corporate changes in monitoring frameworks and needed improvements in measurability and other challenges with the PAD framework. No formal restructuring was undertaken because the new set of indicators is closely linked to the ultimate outcomes and/or indicators delineated in the PAD and respected the logic and principles of the evolving process (e.g., sharpened results orientation). The ICR Results Framework adopts a “hybrid” approach by presenting the set of indicators used in the ISRs, supplemented to ensure coverage of ultimate outcomes noted in the PAD. It presents a holistic, end-of-project framework for assessing achievement of project’s objectives as outlined in the PAD and TOC. Indicators are grouped according to the relevant key outcomes, consistent with the Theory of Change. PDO indicators and results are summarized in Tables A1 and A2. A. RESULTS INDICATORS A.1 PDO Indicators Outcome 1: Revenue and Expenditure Management of NT2 Revenues Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Allocation and Utlization Percentage 0.00 100.00 N/A 100.00 of NT2 Revenues for Poverty Reduction and 31-May-2005 31-Dec-2017 31-Dec-2017 Environmental Management Purposes Comments (achievements against targets): Fully achieved. Indicator includes requirement that all expenditures meet eligibility criterion, namely for Page 50 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) poverty reduction and environmental management programs and projects, as specified in the DGA. 100% of NT2 revenues were allocated to poverty reduction and environmental conservation programs by December 2017. Government expenditures on key poverty sectors (health, education) have increased during the implementation period. Financial statements (of Yes/No N Y N/A N NT2 revenues) are published 31-May-2005 31-Dec-2017 31-Dec-2017 Updated Nov 2018 Comments (achievements against targets): Almost fully achieved. All statements were received by the World Bank and forwarded to SAO for use in audits of expenditures, but not published separately. Financial statements enable tracking of revenues to GOL and hence, to allocation to eligible expenditures on poverty alleviation and environmental protection. Note: Result revised from the December 2017 ISR based on further information. Audit reports for eligible Yes/No N Y N/A N programs (financed with NT2 revenues) are 31-May-2005 31-Dec-2017 31-Dec-2017 published (annually) Updated Nov 2018 Comments (achievements against targets): Almost fully achieved. Audits were completed for both funded programs and projects for the period 2009-2015, as were project disbursements for FY15/16, representing over 80% of audit requirements. The audit for program disbursements for FY15/16 is pending as is the full audit for FY17. Audits for 2009/10-2013/14 were delayed 2-3 years. Publication and posting of audits on websites represented an innovation in budget reporting for GOL. Note: Result revised in November 2018 from the December 2017 ISR based on further information. Ministry of Finance reports on Yes/No N Y N/A Y implementation of revenue 31-May-2005 31-Dec-2017 31-Dec-2017 management arrangements and holds annual consultation with NT2 partners Comments (achievements against targets): Fully achieved. Reports on implementation provided during annual IFI missions and, more frequently through ongoing dialogue between MoF/SAO and World Bank on revenue management arrangements and public finance. Ongoing dialogue covered mechanisms for REM tracking (e.g., introduction of Functional Equivalent Approach), review of annual budget allocations, and steps to complete and disclose audits. Outcome 2: Socially Sustainable Exploitation of NT2 Resources Household Income Targets Percentage 0.00 100.00 N/A 100.00 Page 51 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) of Resettled Households 31-May-2005 31-Dec-2017 31-Dec-2017 on Nakai Plateau Comments (achievements against targets): Fully achieved. 100% of resettled household on the Nakai Plateau have achieved the prescribed Household Income Targets; 97% meet the target through direct income and the remaining 3% in the form of social safety net (vulnerable households) and special programs (poor and at-risk households). Note: the Dec 2017 ISR noted 97% but clarified in the comments section that the remaining 3% were receiving in kind support. The outcomes are the same in either description. Targets were approximately double pre-project incomes. Resettled Villages Meeting Percentage 0.00 100.00 N/A 100.00 Village Income Targets 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. 100% of resettled villages met their income targets, a result that was first achieved in 2013. Basic public and social Text Public and social The resettled N/A The resettled services are provided and services were scarce population benefit population continues improved in all and low quality. from improved, to benefit from resettlement villages on stable and affordable improved and the Nakai Plateau basic services. affordable basic services, as emphasized by the independent Panel of Experts. 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. Basic public and social services provided include - 17 primary and 16 nursery schools, 2 health centres and an upgraded district hospital and 270 km new/upgraded roads, resulting in significant improvements in education and health statistics. New/rehabilitated roads are required for project construction/operations as well as providing better access to regional public services, markets, tourism opportunities, employment, etc. Maintenance of pre- Text (Custom) The Downstream Affected villages in N/A Assessment of income project levels of income Socioeconomic Survey XBF and NT maintain levels suggests most and protein equivalent in implemented by NTPC their pre-project households have more affected villages in the Xe in 2009 provides levels of income and than exceeded pre- Page 52 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Bang Fai river and the baseline values for protein equivalent project incomes, Nam Theun river incomes and from alternate although some of the consumption of fish livelihood options very poor may not and meat in affected during the immediate have met that villages prior to years after COD. average. Sustainable project impacts livelihood plans have recently been prepared in 92 villages that are most affected (those downstream and along the rivers). In addition, individual household business plans have been prepared and approved. Protein levels are met. 31-Mar-2009 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Almost fully achieved; Vulnerable households that may not have reached pre-project income levels are receiving additional measures from GOL (e.g., livelihoods plans). Quality of Life in Enclave Text Average household Improved quality of N/A 90% of those recently Villages (villages located in income was estimated life for the enclave interviewed felt life the watershed protected to be around US$375 villages, with higher had improved (“life area) per household per incomes, better has gotten better”) in year. Schools were access to basic the last 10 years. In lacking in most of the services and their women’s focus villages in the NT2 active involvement in groups, participants Watershed and conservation. declared that: wherever there are • access to schools the level of education had Page 53 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) teaching and facilities improved in all were poor. Healthcare hamlets, citing services were erratic. primary school Malaria, respiratory attendance rates of diseases and gastro- 70-100% depending intestinal diseases on the village; and were common. Infant • access to health mortality rates were services for maternal very high, drinking and pre-natal care and water rarely boiled child vaccinations is and general sanitation universal, and much very poor. lower infant mortality. Villagers are employed in patrols to improve conservation efforts; though engagement in conservation is not formalized at the community level. 31-Dec-1997 31-Dec-2017 31-Dec-2017 Updated 01-Nov-2018 Comments (achievements against targets): Almost fully achieved: Health and education indicators have improved and 75% of those surveyed associate improvements in quality of life with WMPA works. Villagers working as patrollers are paid, but broader conservation awareness and efforts are not formalized at the community levels. Status reflects qualitative survey undertaken in early 2018; the qualitative approach, while appropriate for the village context, combined with lack of a robust baseline precludes assessment of income levels Outcome 3: Environmentally Sustainable Exploitation of NT2 Resources Water Quality Adequacy in Text Water quality Water quality is N/A Water quality is Nam Theun reservoir and corresponds to adequate to ensure adequate to ensure Page 54 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Xe Bang Fai natural, pre-project sufficiency and sufficiency and conditions diversity of fish stock diversity of fish stock in reservoir, XBF and in reservoir, XBF and NT, and also pose no NT, and also pose no threat to public threat to public health. health. 31-May-2005 31-Dec-2017 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. Based on NTPC monitoring data on water quality parameters and fish stocks in the reservoir. Water samples were taken weekly at 21 surface points plus an additional eight sites on the reservoir. Samples were monitored using chemical and biological parameters. Fish surveys and impact assessments also were conducted for the reservoir and downstream areas. Studies and monitoring included species and habitat inventories and monitoring of fish productivity, among other parameters. All construction sites have Number 0 348 N/A 348 been decommissioned and restored in 31-May-2005 31-Dec-2017 31-Dec-2017 accordance with provisions of the HCCEMP Comments (achievements against targets): Fully achieved. Each parcel of land used as a construction site had to undergo a process of restoration (e.g., re-grading land back to its natural slope, revegetation) before they could be returned to use for its original or other purpose. All 348 construction sites have been decommissioned and restored in accordance with provisions of the Head Construction Contract Environmental Management Plan (HCCEMP). Populations of elephants Y/N N Y N/A N and other terrestrial and aquatic species have 31-May-2005 31-Dec-2017 31-Dec-2017 stabilized or improved on the plateau Comments (achievements against targets): Almost fully achieved. Reservoir inundation and resettlements on the Plateau area put pressure on wildlife habitat and populations. During project preparation and implementation, NTPC implemented a robust wildlife program, including various wildlife management and monitoring activities on the Nakai Plateau. These included, inter alia, wildlife rescue during the reservoir inundation period; patrolling; turtle conservation and environmental education; wetlands conservation, invasive species management, monitoring of key species, etc. The program, Page 55 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) combined with the slow filling of the reservoir, resulted in a low impact on wildlife. However, post-translocation data is limited to fully assess stabilization or improvement. Watershed Environmental Text No formal watershed Conservation and N/A No forest cover loss Protection protection plan management of the (0.08% in the Nakai NT2 watershed Nam Theun Protected results in no further Area); however, degradation of pressure on wildlife habitats or declines populations and high- in populations of value timber remains threatened species. and some large mammals are scarce. Significant insitutional reforms of the WMPA initiated in September 2017, with a new Board, approval of a Five Year Plan (as documented in SEMFOP III) and addition of full time Consortium of Technical Experts. Decree drafted to upgrade watershed protection to Lao’s first national park (including upgrading of management standards from IUCN Category VI (protected area with sustainable use of natural Page 56 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) resources) to IUCN Category II (protect large-scale ecological processes for biodiversity conservation, research, and recreation) 31-May-2005 31-Dec-2017 31-dec-2017 Updated 01-Nov-2018 Comments (achievements against targets): Partially achieved. Significant pressures from organized poaching and logging existed in the Watershed before establishment of the WMPA. WMPA introduced controls but some large mammal species and high value trees were lost. The area remains a premier biodiversity zone for Lao PDR and institutional changes (including ban on log exports, additional technical expertise in WMPA and potential designation as a national park) are positive signals of the likelihood of achievement of the indicator in the future. Status as of December 2017, except for national park decree and assessment of implementation of institutional reforms which was updated in July 2018 (extended site visit) and November 2018. Outcome 4: Generation of Revenues from the Hydroelectric Facility Generation Capacity of Megawatt 0.00 1070.00 N/A 1070.00 Hydropower constructed or rehabilitated under the 31-Mar-2005 31-Dec-2017 01-Dec-2017 project • Generation Capacity Megawatt 0.00 1070.00 N/A 1070.00 of Hydropower constructed under the 31-May-2005 31-Dec-2017 31-Dec-2017 project Comments (achievements against targets): Fully achieved. Full capacity of plant i.e. 1070 MW reached in 2010 and has been maintained with a steady Page 57 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) revenue stream from exports and domestic supply to finance eligible poverty reduction and environmental programs over the 25-year concession period, 2010-2035. Revenue targets have been met or exceeded each year of full operation. A.2 Intermediate Results Indicators Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Management of Environmental and Social Impacts of NT2 Vulnerable/marginalized Percentage 0.00 100.00 N/A 99.00 people in proj. area aware of project inv. & benefits (%) 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. Information is based on a survey of the Downstream Areas (NTPC, 2014), which indicated that 99 percent of affected persons surveyed were aware of the NT2 project. All households on the Nakai Plateau are aware of the project, as many of these households were resettled. CSI (Core Sector Indicator). Vulnerable/marginalized Number 0.00 2402.00 2402.00 people aware of project inv. & benefits – male 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. Information by gender was derived using an average gender ratio applied to the absolute number of vulnerable/marginalized persons affected Vulnerable/marginalized Number 0.00 2425.00 N/A 2425.00 people aware of project inv. & benefits – female 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. Information by gender was derived using an average gender ratio applied to the absolute number of vulnerable/marginalized persons affected People in the project area - Number 0.00 77138.00 N/A 77138.00 Page 58 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) male (number) 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. People in the project area – Number 0.00 81219.00 N/A 81219.00 female (number) 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. Target popln with use or Number 0.00 6300.00 N/A 6300.00 ownership rights recorded as a result of the project 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. 6,300 resettlers now have use of ownership rights (land titles) recorded as a result of the project compared to zero in 2005, providing security of land use for investment and income sustainability. Supported by participatory land use planning process. CSI (Core Sector Indicator). Direct project beneficiaries Number 0.00 158357.00 N/A 158357.00 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. In the NT2 context, the project affected persons are considered to be the same as the direct project beneficiaries. Data is based on various NTPC data. The main categories of direct project beneficiearies include: persons resettled on the Nakai Plateau, who benefitted through improved infrastructure, livelihood opportunities, health programs, and education; communities in the Watershed who benefitted from participatory efforts to enhance sustainable land and resource use and improve livelihoods as well as access to education and health services; and persons in the Downstream Areas, who benefitted from livelihood restoration programs.CSI (Core Sector Indicator). Female beneficiaries Percentage 0.00 51.00 N/A 51.00 31-May-2005 319-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. Roads rehabilitated, Rural Kilometers 0.00 120.00 N/A 120.00 Page 59 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. These rehabilitated roads connect critical project areas, facilitating project construction and spanning three provinces contributing to social development (e.g., better access to markets, regional public services, employment opportunities, etc.) for those in the project area. Results also relevant to Component 1: NT2 Hydropower Facility to enable construction and operations. CSI (Core Sector Indicator). Roads constructed, Rural Kilometers 0.00 150.00 N/A 150.00 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. These new roads connect critical project areas, facilitating project construction and spanning three provinces contributing to social development (e.g., better access to markets, regional public services, employment opportunities, etc.) for those in the project area. Results also relevant to Component 1: NT2 Hydropower Facility to enable construction and operations. CSI (Core Sector Indicator). Improved community water Number 0.00 877.00 N/A 877.00 points constructed or rehabilitated under the 31-May-2005 31-Dec-2017 31-Dec-2017 project Comments (achievements against targets): Fully achieved. Water points included borewells in the resettled villages to provide more readily accessible potable water, with social and environmental benefits. Based on NTPC information provided during the October 2015 IFI mission and subsequent discussions and/or field visits by technical team members. CSI (Core Sector Indicator). Key wildlife threats such as Yes/No N Y N hunting and further habitat loss having greatly reduced 31-Mar-2005 31-Dec-2017 31-Dec-2017 (Watershed) Comments (achievements against targets): Partially achieved. Additional patrolling and public policy changes (e.g., ban on log exports) has diminished illegal logging and poaching, and forest cover remains intact; however, some wildlife has been lost and wildlife threats remain. The Watershed Management Yes/No N Y N/A N Protection Authority is able to execute all designated 31-May-2005 31-Dec-2017 31-Dec-2017 Page 60 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) managerial functions in a Updated Nov 2018 technically sound, transparent and professional manner. Comments (achievements against targets): Almost fully achieved. At project close, WMPA had implemented numerous longstanding institutional reforms, including: revised Board membership, with senior Ministry of Agriculture and Forests leadership, produced and approved a Five-Year Plan and established a long-term contract with a Lao-led Consortium of Technical Experts. As of November 2018, the reforms were more established and starting to show results (e.g., in patrolling, administration and financial management, community support). Also, strategic staffing plan for the WMPA had been submitted by the IUCN (the contract between WMPA and IUCN includes IUCN’s leadership in implementing recruitment under the plan, although recruitment had not yet begun). Areas brought under Hectare(Ha) 0.00 400000.00 N/A 400000.00 enhanced biodiversity protection (ha) 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. This is a proxy indicator that measures biodiversity protection as a result of the World Bank operation through formally converting an area into a protected area and establishing a functioning management system; or, improving the management system of an existing protected area. NT2 brought 400,000 ha under a functioning management system, with a public designation and establishment of the Watershed Management and Protection Authority which in turn had secured funding from NTPC through to 2035, a management plan (SEMFOP) and Board of Directors. CSI (Core Sector Indicator). NT2 Hydropower Facility Annual average export Gigawatt-hour (GWh) 0.00 200.00 N/A 397.00 to Electricite du Laos is not less than 200 GWh 01-Jan-2010 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Exceeded. Annual average export Gigawatt-hour (GWh) 0.00 5000.00 N/A 5695.00 Page 61 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) to Electricity 31-May-2005 31-Dec-2017 31-Dec-2017 Generating Authority of Thailand is not less than 5,000 GWh Comments (achievements against targets): Exceeded. Generation targets under EGAT contract have been met or exceeded each year. Transmission lines Kilometers 0.00 208.00 N/A 208.00 constructed or rehabilitated under 31-May-2005 31-Dec-2017 31-Dec-2017 the project • Transmission lines Kilometers 0.00 208.00 N/A 208.00 constructed under the project 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. CSI (Core Sector Indicator). Reservoir silting Text 0.00 Less than 2 N/A 0.02 (volume loss) (million cubic meters) 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. Reservoir silting is a risk to the operating conditions. NT2 silting is significantly below the target. Private Capital Amount (USD 0.00 1150.00 N/A 1150.00 Mobilized millions) 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. Private investors included international commercial lenders, multilaterals, bilaterals and export credit agencies, as well as the three private sector (original) equity stakeholders: Electricite de France International, Ital-Thai Development, and Electricity Generating Public Company (Thailand). Mobilization was significantly facilitated by a US$42 million IDA Partial Risk Guarantee. CSI (Core Sector Indicator). Monitoring and Evaluation Page 62 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Effectiveness of Lenders' Text 0.00 Satisfactory N/A Satisfactory Technical Advisor 30-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. The Lenders Technical Advisor provided regular site-based assessments of all aspects of the project through implementation. The findings, reported to the lenders group, were made available to NTPC, GOL, POEs and IFIs and enriched monitoring information. Effectiveness of Monitoring Text Limited Monitoring Dam Safety Review N/A Effective by Independent Expert Panels ([e.g., POE started in Panel and 1997) International Panel of Social and Environmental Experts demonstrate ability to ensure dam safety and accomplishment of E&S objectives and CA commitments to income targets of resettlers, watershed preservation, etc. 31-May-2005 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Fully achieved. Monitoring by Independent Expert Panels, including Dam Safety Review Panel and International Panel of Social and Environmental Experts, was regular, based on site visits; the environment and social panel’s reports were published. The panels, composed of highly qualified and prominent specialists, provided objective, third party assessments, ensured coordination of construction with key environmental and social milestones (e.g., impoundment and resettlement). Coordination across various monitoring agencies (i.e., LTA, IFIs, IMA) and with NTPC/GOL presented challenges at times (e.g., at extension of Resettlement Implementation Period) but enabled commonly agreed adaptation that demonstrated CA objectives and commitments were met. Page 63 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) B. KEY OUTPUTS BY COMPONENT Outputs are grouped according to Key Outcomes, consistent with the TOC and Results Framework. Monitoring and evaluation outputs are embedded in each outcome. Objective/Outcome 1: Revenue and Expenditure Management of NT2 Revenues • Allocation and Utilization of NT2 Revenues for Poverty Reduction and Environmental Management Purposes (note: this indicator encompasses requirement that all expenditures meet eligibility criterion, namely poverty reduction and environmental management) Outcome Indicators • Ministry of Finance reports on implementation of revenue management arrangements and holds annual consultation with NT2 partners • Financial statements (of NT2 revenues) are published • Audit reports for eligible programs (financed with NT2 revenues) are published (annually) Intermediate Results Indicators • [None – all are PDO-level indicators] • Functional Equivalent Approach to track revenues and allocations to eligible expenditures Key Outputs by Component • Annual financial statements of the aggregate NT2 revenues (linked to the achievement of • Audit reports of eligible project and programs for 2009 -2015, and for project disbursements FY15/16 the Objective/Outcome 1) • Publication of the Audit reports on SAO and MoF websites Objective/Outcome 2: Socially Sustainable Exploitation of NT2 Resources • Household income targets of resettled households on Nakai Plateau • Resettled villages meeting village income targets • Basic public and social services are provided and improved in all resettlement villages on the Nakai Plateau Outcome Indicators • Maintenance of pre-project levels of income and protein equivalent in affected villages in the Xe Bag Fai River and the Nam Theun River • Quality of life in enclave villages (villages located in the watershed protected area) • Vulnerable/marginalized people in proj. area aware of project inv. & benefits ([total] %) // (male [#]) // Intermediate Results Indicators female [#]) • People in the project area - male (number) // female (number) Page 64 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) • Target popln with use or ownership rights recorded as a result of the project • Direct project beneficiaries // Female beneficiaries • Improved community water points constructed or rehabilitated under the project • Effectiveness of Lenders' Technical Advisor • Effectiveness of Monitoring by Independent Expert Panels • All impacted villages moved to resettlement sites and alternative livelihood programs set up • Training in alternative livelihoodsParticipatory land use planning process and land titling Key Outputs by Component • Village-based resource management plans developed/ endorsed; and training in alternative livelihoods (linked to the achievement of provided to enclave the Objective/Outcome 2) • Socio-economic monitoring studies, surveys and reports • External monitor reports (IMA, POE, LTA, IFI) reports • Joint Working Group documents Objective/Outcome 3: Environmentally Sustainable Exploitation of NT2 Resources • Water quality adequacy in Nam Theun reservoir and Xe Bang Fai • All construction sites have been decommissioned and restored in accordance with provisions of the HCCEMP Outcome Indicators • Populations of elephants and other terrestrial and aquatic species have stabilized or improved on the plateau • Watershed environmental protection • Key wildlife threats such as hunting and further habitat loss having greatly reduced • The Watershed Management Protection Authority is able to execute all designated managerial functions in a technically sound, transparent and professional manner Intermediate Results Indicators • Areas brought under enhanced biodiversity protection (ha) • Effectiveness of Lenders' Technical Advisor • Effectiveness of Monitoring by Independent Expert Panels • Planned environmental measures implemented and water quality and fish monitoring programs in place; Key Outputs by Component • Wildlife management, biodiversity and land use monitoring systems are in place (watershed) villages. (linked to the achievement of • Periodic, visit-based reports issued by expert panels and monitors (e.g., POE, LTA, IMA), the Objective/Outcome 3) • Joint Working Group (JWG) documents Page 65 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Objective/Outcome 4: Generation of Revenues from the Hydropower Facility Outcome Indicators • Generation capacity constructed or rehabilitated under the project • Annual average export to Electricité du Laos is not less than 200 GWh • Annual average export to Electricity Generating Authority of Thailand is not less than 5,000 GWh • Roads rehabilitated, Rural • Roads constructed, Rural Intermediate Results Indicators • Transmission lines constructed or rehabilitated under the project • Reservoir silting (volume loss) (million cubic meters) • Private Capital Mobilized • Effectiveness of Lenders' Technical Advisor • Effectiveness of Monitoring by Independent Expert Panels • Construction of NT2’s hydropower facility with 1070 MW of installed generation capacity • Civil works (e.g., Nakai Dam, saddle dams, spillway and stilling basin, headrace channel and tunnel, Key Outputs by Component powerhouse and switchyard, Regulating Dam and Downstream Channel) (linked to the achievement of • Ancillary structures (e.g., transmission towers/lines and roads) the Objective/Outcome 4) • $1.45 billion NT2 project financing (including contingencies) achieved • Periodic, visit-based reports issued by expert panels (e.g., LTA and DSRP) • Periodic reporting by NTPC Page 66 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) C. Explanatory Note: Evolution of the NT2 Results Framework PAD Results Framework The NT2 PAD was structured to handle both the Guarantee (P076445) and the IDA Grant (P049290), to explain the complex context and give due attention to the closely linked efforts of the infrastructure works, social, and environmental management aspects, and revenue and expenditure management. This treatment has the benefit of providing a holistic view of the NT2 Project Development Objective as one integrated “program”. The PAD Results Measurement Framework (Annex 5 in the PAD) was developed in 2003-2004 and finalized in 2005. Responding to the prevailing requirements and processes at that time, it was more input/output focused while also presenting “intermediate” and “ultimate” indicators and outcomes. Capturing the holistic view, while important, created challenges in terms of fitting NT2 information into preparation and monitoring templates designed for single operations. The PAD identified a complete set of ultimate outcomes which reflects the programmatic aspects of the project. However, the set of ultimate outcome indicators was very limited -- only two, both related to revenue and expenditure management. Most of the indicators were delineated under “Intermediate Outcomes (by 2009)” covering environmental / social /electricity generation performance milestones that would need to be achieved before the commercial operations date (COD).41 Over time, as project implementation progressed and Bank monitoring processes evolved, it became apparent that some of the indicators in the PAD did not have clearly defined targets and were not as measurable as had originally been envisioned, or as needed for end-of project assessment. 2014 ISR Results Framework An improved set of indicators was informally agreed and gradually implemented in ISRs starting in 2014. Each indicator is specified with baseline, metric, and target. Extra indicators were added to meet new Corporate Sector Indicators introduced in 2012 to track selected development indicators at the corporate level. No formal restructuring was undertaken because the new set of indicators (beyond the CSIs) bore close relation to the ultimate outcomes delineated in the PAD and respected the logic and principles of the evolving process. The ISR set included eight PDO-level indicators and 26 Intermediate Results Indicators. 41 Delineating indicators for 2009 was intended to ensure certain milestones (e.g., resettlement) were reached prior to COD, a progressive approach at the time. Page 67 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) ICR Results Framework The ICR Results Framework, presented in the matrix above, adopts a hybrid approach by presenting the set of indicators used in the 2014 ISR, suitably adjusted to reflect the full set of ultimate outcomes specified in the PAD. The ICR RF includes the 8 PDO-level indicators from the 2014 ISR, to which 6 are added to fully reflect the ultimate outcomes in the PAD. The additional 6 indicators are drawn from: • Elevation of 3 ISR intermediate results indicators to PDO level, to adequately reflect PAD RF ultimate outcome indicators for governance and transparency in the revenue and expenditure management program; • Elevation of 1 ISR intermediate results indicators to PDO level, to adequately reflect PAD RF in the intermediate outcome indicators related to provision of public services and infrastructure to resettlers; and • Addition of 2 indicators to capture the importance of management of construction sites and wildlife populations on the Plateau (resettlement) area, to adequately reflect outcome indicators documented in the PAD RF related to environmental management during project construction. Details Tables A1.1 and A1.2 document the alignment of the PAD, ISR and ICR results frameworks. Table A1.1 Alignment of the ISR PDO indicators with PAD Ultimate Outcomes/Indicators Indicator in ISR / ICR RF) Alignment with PAD Ultimate Outcome 1 Aligned with ultimate outcome bullet: [100%] Allocation and Utilization of NT2 Revenues “NT2 revenues applied in financing eligible poverty reduction and conservation programs that meet selection criteria, for Poverty Reduction and Environmental including financial management requirements” Management Purposes (i.e., eligible expenditures) Aligned with ultimate outcome indicators: “Eligible programs listed in plans and budget comply with selection criteria” i.e., poverty reduction and environmental management purposes. 2 Generation Capacity of Hydropower constructed Aligned with ultimate outcome bullet: under the project “Annual average export to EGAT not less than 4500 GWh” and “Annual average export to EDL not less than 300 GwH” Generation Capacity of Hydropower constructed or rehabilitated under the project 3 Household Income Targets of Resettled Households Aligned with ultimate outcome bullet: on Nakai Plateau “Household incomes met and stabilized above rural poverty line, specifically: (i) all resettler household incomes rises to at least US$820, at the beginning of the fifth year after relocation; (ii) average aggregated village level income rises to at least US$1200, at the beginning of the ninth year after relocation.” Page 68 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) 4 Resettled Villages Meeting Village Income Targets Added indicator but aligned with part (ii) of the ultimate outcome bullet on household incomes (see above) 5 Water Quality Adequacy in Nam Theun reservoir and Aligned with ultimate outcome bullet: Xe Bang Fai “Water quality is adequate to ensure sufficiency and diversity of fish stock in reservoir, and also pose no threat to public health” 6 Maintenance of pre-project levels of income and Aligned with ultimate outcome bullet: protein equivalent in affected villages in the Xe Bang “Affected villages in XBF and NT maintain their pre-project levels of income and protein equivalent from alternate Fai river and the Nam Theun river livelihood options during the immediate years after COD.” 7 Watershed Environmental Protection Aligned with ultimate outcome bullet: “Conservation and management of the NT2 Watershed results in no further degradation of habitats or declines in populations of threatened species” 8 Quality of Life in Enclave Villages (villages located in Aligned with Ultimate Outcome bullet: the watershed protected area) “Improved quality of life for the enclave villages, with higher incomes, better access to basic services and their active involvement in conservation.” Table A1.2: PAD ultimate outcomes/indicators not included in ISR PDO Indicators Ultimate Outcome Bullet/Indicator in PAD Alignment with ISR Results Framework 1 Ultimate outcome indicator: Eligible programs listed in plans and budget comply with Aligned with Intermediate Results indicator “Financial statements (of NT2 revenues) selection criteria; Budgeted and actual expenditures on eligible programs are greater are published.” Elevated to PDO level indicator in ICR RF. than base expenditures; Continued publication of quarterly budget execution reports, financial statements and audit reports for eligible programs published. MOF reports Aligned with intermediate Results indicator: “Audit reports for eligible programs on implementation of revenue management arrangements and holds annual (financed with NT2 revenues) are published (annually)”. Elevated to PDO level consultation with NT2 partners. indicator in ICR RF. Aligned with Intermediate Results Indicators: “Ministry of Finance reports on implementation of revenue management arrangement and holds annual consultation with NT2 partners”. Elevated to PDO level indicator in ICR RF Not aligned with “quarterly budget execution reports” which are not captured in the ICR RF. 2 Ultimate outcome indicator: Progress in baseline indicator defined for eligible While the project clearly intended to expand service delivery, there are no activities programs. designed to improve the efficiency or social targeting of service delivery and this is 3 Ultimate outcome bullet: Increased spending on Eligible program contributes to beyond the project scope. These indicators are, therefore, not included in the ICR RF. improvement in service delivery performance 4 Ultimate outcome bullet: Reservoir silting (volume loss) not more than 30Mm3 at end Aligned with intermediate results indicator: of 15 years “Reservoir silting (volume loss) [less than 2 million cubic meters]” 5 Ultimate outcome bullet: The resettled population benefit from improved, stable and Aligned with intermediate results indicators: affordable services Page 69 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) “Improved community water points constructed or rehabilitated under the project” “Basic public and social services are provided and improved in all resettlement villages on the Nakai Plateau” which is added to the PDO level ICR RF. 6 Ultimate outcome bullet: All construction sites have been decommissioned and Not included in ISR RF. Added to ICR RF. restored in accordance with provisions of the HCCEMP 7 Ultimate Outcome bullet: Populations of elephants and other terrestrial and aquatic Not included in ISR RF. Added to ICR RF. species have stabilized or improved on the plateau 8 Ultimate outcome bullet: DSRP and POE demonstrate ability to ensure dam safety and Aligned with intermediate results indicator: accomplishment of E&S objectives to income targets of resettlers, watershed “Effectiveness of monitoring by Independent Expert Panels” preservation, etc. 9 Ultimate outcome bullet: IAG reports on social and environmental issues and NT2 Overlap with LTA and PoE intermediate results indicators (note: IAG Closed in 2010) revenue management, to help ensure progress toward PDO 10 Ultimate outcome bullet: Effectiveness of [independent monitoring agencies for EMU Overlap with LTA and PoE intermediate results indicators and RMU] reports in identifying issues in timely manner and recommending solutions 11 Ultimate outcome bullet: Effectiveness of [Lender’s Technical Advisor] reports in Aligned with Intermediate results indicator: identifying issues in timely manner and recommending solutions “Effectiveness of Lenders’ Technical Advisor” 12 Ultimate outcome bullet: Effectiveness of [annual consultative] meetings are Overlap with LTA and PoE intermediate results indicators generating concession effective reform measures and corrective actions 13 Ultimate outcome bullet: Consensus amongst financial parties on project progress Overlap with LTA and PoE intermediate results indicators and corrective actions, as needed. Note: indicators 8-13 are discussed under the Bank Performance section “Monitoring and Evaluation” Page 70 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. Task Team Members Name Role Preparation Ahmed, Zafar Economist – Country Al-Hamad, Laila Consultant – Local Consultations Babbar, Suman Guarantee Baranson, Mara T. Project Coordination (HQ) Bekhechi, Mohammed A. Lawyer – Safeguards Besant-Jones, John E. Economist – Energy Bhatt, Nina Social Development - Gender Boonratana, Ramesh Consultant – Biodiversity Brown, Gillian M. Social Development - Gender Bruce, John W. Lawyer – Land Policy Campbell, Ian Leslie Consultant – Physical Cultural Resources Carvalho, Soniya Economist – Poverty Reduction Chamberlain, James R. Consultant – Local Consultations Chamberlin, Christopher TTL – NTSEP (FY01) Chulsukon, Poonyanuch Team Assistant Covindassamy, M. Ananda Power Sector (QER – 2004) Crousillat, Enrique O. Energy Policy (Country Manager) De Zeeuw, Dick NT2 International Advisory Group (IAG) - Chair Deichmann, Uwe Environment Delvoie, Christian Director, Infrastructure Di Leva, Charles E. Lawyer – Safeguards du Pont, Peter T. Energy Economics Consultant – Thai Power Demand Eejima, Nina Masako Lawyer – country Fisiy, Cyprian Sector Manager Fozzard, Adrian Economist – Revenue Management Gibson, Daniel R. Social Development Gill, Maninder S. Social Safeguards Goodland, Robert James Environmental Gupta, Pankaj Financial Analysis - Guarantee Hickey, Valerie Environmental Scientist and Conservation Biologist Hood, Ronald D. Economist – Country Illangovan, Patchamuthu NTSEP TTL (FY02-FY06) Jordan, Cally Lawyer – Finance and Private Sector Development Ko, Peter Yuk Lam Hydrology Page 71 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Economic Consultant– Cost/Benefit Analysis of E&S Laplante, Benoit Impacts Larsen, Morten Extractive Industries Specialist Ling, Stephen Natural Resources / Watershed Lintner, Stephen F. Safeguards Adviser Lotsch, Alexander Geographer Luangpenthong, Angkanee Program Assistant Magnoli Bocchi, Alessandro Economist – Country Magrath, William B. Forestry Specialist Matin, Kazi Mahbub-Al Economist – Public Expenditure Mgmt Mcdowell, David K. NT2-IAG Member Mehta, Darayes Bahadur Power Engineer Mejia, Maria Cristina N. Communications Mertz, Robert Anton NT2 Project Manager - (FY03-FY05) Miwa, Keiko Social Development - Local Consultations Morgan, Glenn S. Environment Specialist Morton, John Environment Specialist Nguyen, Hoi-Chan Lawyer – Country Palmieri, Alessandro Dam Safety Expert Pinnoi, Nat Environmental Economist Porter, Ian Country Director Rai, Navin K. Safeguards – Indigenous Peoples Raturi, Rahul Agriculture and Rural Development Robichaud, William G. Consultant - Wildlife Conservation Salamon, Ilhem Economist – Energy Salim, Emil NT2 IAG – Member Salim, Maryam Poverty Reduction Fund Project (TTL) Sara, Jennifer J. QER – Secretariat Schneider, Linda M. Country Manager, Lao PDR Segal, Mark D. Economist (PAD sections and analyses) Serra, Maria Teresa Director, Environment and Social Development Shivakumar, Jayasankar Senior Advisor Silverman, Michael R. Lawyer – Guarantee / Project Finance Singh, Sarinda Consultant – Anthropology Souksavat, Malarak Program Assistant Stuggins, Gary Economist – Power (QER Member) Swami, Rajeev Kumar Financial Management (QER Member) Talero, Blanca Ximena Lawyer – Project Finance / Guarantee Tansanguanwong, Pamornrat Social Development – Consultations Page 72 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Trembath, Barry Hydropower Engineer Toft, Anthony G. Lawyer – Negotiations Unger, Heinrich K. Environmental Safeguards Unkulvasapaul, Manida Environmental Safeguards Economic Consultant– Regional Economic Least-Cost Vernstrom, Robert Analysis Vucetic, Vladislav Power Engineer (QER Member) Walker, Mark Lawyer – Project Finance / Guarantee Walton, Thomas E. Environmental Specialist (QER Member) Webber, David B. Public Financial Management Whitten, Anthony J. Biodiversity Zhang, Chaohua NTSEP TTL (FY06-FY08) Zweig, Ronald D. Ecologist – Fisheries Supervision/ICR Public Sector Management Specialist -NT2 Revenue April, Leah Management Austin, Mark Program Leader Augustinus, Thomas Community Fisheries Babbar, Suman Guarantee Baranson, Mara T. Project Coordination (HQ) Bekhechi, Mohammed A. Lawyer – Safeguards Director, Strategy and Operations, Sustainable Bjerde, Anna Development Campbell, Ian Leslie Consultant – Physical Cultural Resources Chamberlain, James R. Local Consultations Consultant Chanthala, Phetdara Health Programs Chanthavong, Thongkham Program Assistant Chanvongaraz, Khamphet Procurement specialist Chisholm, Richard H. E. Agriculture Chung, Diana Ya-Wai Communications Davis, Robert Ragland Forestry Dick, John H. Environmental Assessment Consultant Dubois, Mark Joseph Aquatic Ecology Consultant Feinstein, Charles Director, Energy and Extractives Fenton, Nina Clare Socio-Economic Monitoring Consultant Fields, Daryl NT2/NTSEP TTL (FY16-FY19) Fisiy, Cyprian F. Social Scientist (& Sector Manager) Floroiu, Ruxandra Maria Environmental Engineer Fodor, Martin Social Safeguards Specialist Page 73 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Fraser, Julia Practice Manager, Energy and Extractives Gibson, Daniel R. Social Development Specialist Goldstein, Ellen Country Director Gray, Meriem Communications Gulati, Mohinder P. NT2-TTL (FY05-FY09) Gupta, Pankaj Financial Analysis – Guarantee Halls, Ashley Stewart Fisheries Consultant Hristov, Manush A. Lawyer Illangovan, Patchamuthu Task Team Leader (FY02-FY06) Ishihara, Satoshi Social Safeguards Specialist Jensby, Svend Social Development Specialist Jipp, Peter Forestry Economist - Downstream Program and Khammouane Konishi, Toru Development Program Kwakwa, Victoria Regional Vice President Laohapakakul, Duangrat Lawyer – Project Finance / Guarantee Lenihan, Martin Henry Social Development Specialist Londono, Andres Guarantee Ling, Stephen Natural Resources / Watershed Manythong, Chanhsom Agriculture Specialist Mason, Andrew D. Economist – Social Protection Maweni, Joel J. Task Team Leader, (FY08-FY09) Mayes, Warren Paul Social Development Specialist McCarthy, Eugene D. ICR Contributing Author McDonald-Moniz, Hannah Louise Communications Meades, Una Lawyer Mehta, Darayes Bahadur Power Engineer Mejia, Maria Cristina N. Communications Mertz, Robert Anton NT2 Project Manager - (FY03-FY05) Minoian, Victoria Communications Miralles Gasparini, Maria Fernanda Communications Morgan, Glenn S. Environment Specialist Najdov, Evgenij Senior Economist Palmieri, Alessandro Dam Safety Expert Pavy, Jean-Michel G. Environmental Specialist - Watershed Payuan, Edwin V. Village Forestry Consultant Phandanouvong, Sybounheung Social Development Specialist – Downstream Program Phetnavongxay, Viengkeo Environment Specialist – Watershed Phonsavat, Khamlar Climate Change Specialist Page 74 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Pohl, Wolfhart Environmental Specialist Pontara, Nicola Country Manager, Lao PDR Quintero, Juan D. Environmental Safeguards Specialist Rasphone, Sihattha Project Coordination (VTE) Rex, William NTSEP TTL: FY08-FY10; NT2 TTL: FY10-FY14 Schmitt, Ulrich K. H. M. Economist – Agriculture Serra, Maria Teresa Director, Environment and Social Development Shah, Jitendra J. Environment Specialist (& Country Sector Coordinator) Smithers, Nicola Practice Manager Somsanith, Phetsila Program Assistant Sosourivong, Phommachanh Water and Sanitation Specialist Southivong, Sombath Infrastructure Specialist Srithirath, Viengsamay Communications Stenhouse, Renae Nicole Biodiversity Consultant Stirrett Wood, George Henry Environmental Specialist - Watershed Tessier, Claude Environment Consultant Unkulvasapaul, Manida Environmental Safeguards Vanitsaveth, Siriphone Sr Financial Specialist Yu, Xiaoqing Director, Strategy and Operations, East Asia Pacific Van Eenaeme, Jean Education Consultant Vongviengkham, Saysanith Public Sector Specialist Sr. Environmental and Social Development Specialist, Wallace, Kathleen MIGA Environment and Social Development Consultant Waters, Warren (Safeguards Compliance Assessment) Public Sector Management Specialist – NT2 Revenue Weiner, Fanny Management Whitten, Anthony J. Biodiversity Specialist – Watershed Wiederhofer, Ingo NT2/NTSEP TTL (FY14-16) Zhang, Chaohua NTSEP TTL (FY06-FY08) Zweig, Ronald D. Ecologist – Fisheries Page 75 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) B. Staff Time and Cost Staff Time and Cost Stage of Project P049290 P076445 Total Cycle No. of No. of No. of US$ (including travel and US$ US$ SWs SWs SWs consultant costs) Preparation FY98 168,275 - 168,275 FY99 25,723 - 25,723 FY00 14.4 101,048 14.4 101,048 FY01 13.6 192,186 13.6 192,186 FY02 31.5 208,274 50.1 642,914 81.5 851,188 FY03 36.1 270,509 97.8 1,249,356 133.9 1,519,865 FY04 36.3 335,585 124.7 1,435,663 161.0 1,771,248 FY05 92.0 318,111 252.3 1,718,921 344.3 2,037,033 Total 224.0 1,619,710 524.9 5,046,854 748.8 6,666,564 Supervision/ICR - FY05 0.2 835 4.8 41,183 5.0 42,018 FY06 80.3 418,158 59.2 372,162 139.5 790,320 FY07 97.9 471,153 28.3 275,367 126.2 746,520 FY08 102.0 654,589 28.7 342,519 130.7 997,108 FY09 114.4 539,536 30.0 297,361 144.3 836,898 FY10 86.9 373,251 21.8 224,949 108.6 598,201 FY11 81.2 351,747 7.4 79,446 88.6 431,193 FY12 88.7 303,019 10.1 68,143 98.9 371,162 FY13 66.5 188,501 9.8 73,284 76.3 261,785 FY14 52.7 167,328 23.7 122,981 76.4 290,309 FY15 57.2 145,402 17.8 174,068 74.9 319,469 FY16 67.4 207,477 26.0 247,258 93.4 454,735 FY17 77.5 303,076 15.9 134,544 93.4 437,619 FY18 43.8 166,434 7.2 65,580 51.1 232,013 FY19 (to Dec 2018) 8.84 69,853 6.74 45,965 15.9 115,818 Total 1,016.6 4,290,507 290.5 2,518,843 1,307.1 6,809,350 Page 76 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) ANNEX 3. PROJECT COST BY COMPONENT US$ millions Cost Category (A) (B) (C) (D) Estimated Costs to Actual Project Percentage of Actual Project COD Costs at COD Actual/Estimated Costs at Closing [Note 1] [Note 2] Costs (Percent) [Note 3] PAD Component 1: Hydropower Facility 722 737 102 739 [Note 4] PAD Component 2: Management of 49 73 149 141 Environmental and Social Impacts PAD Component 3: Monitoring and n/a n/a n/a n/a Evaluation [Note 5] Other Costs 479 492 103 709 [Note 6] TOTAL excluding 1250 1308 105 1589 contingency TOTAL including 1450 1308 90 1589 contingency NOTES: [1] PAD data. The Nam Theun 2 PAD covered two project codes: P076445, representing the IDA Partial Risk Guarantee supporting part of the commercial financing of the project, and P049290, representing the US$20 million in IDA Grant for the social and environmental project, which counted as part of the Government of Lao PDR’s equity in the NT2 project. COD was April 2010. [2] NTPC data (December 2018) [3] NTPC data (December 2018). [4] Head Construction Contract/ NTPC works (construction activities) [5] Given the structure of this project, the PAD delineated three Components to help conceptually describe the three major areas of work; however, costs were not analyzed along the same component delineations because there is “financial overlap” (as NTSEP funds part of the overall financing of the broader NT2 project). Specifically, the Project Cost Table of the PAD (Annex 7) did not include a cost estimate for Component 3, Monitoring and Evaluation. Neither was the cost data provided by NTPC provided disaggregated for monitoring and evaluation. Different monitoring and evaluation activities carried out under Component 3 were funded by different parties: for example, expenditures under (i), (ii) and (iii) of Component 3 were borne directly by NTPC and included as part of the overall project cost while expenditures under (iv) IAG and (v) IFI supervision were financed with institutional budget funds. [6] Includes: NTPC operating costs, operations and maintenance costs, LTA & insurance advisor, Advisors & financial expenses, Reimbursement at financial close, NTPC technical activities, Other. A breakdown of these costs is provided in Annex 4. Page 77 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) ANNEX 4. EFFICIENCY ANALYSIS 1. NT2 Economic Analysis 1. The ICR stage economic analysis of the NT2Project indicates substantially higher economic benefits from the project than estimated at the appraisal stage. The baseline ERR of the Project, inclusive of global and local environmental benefits, is 29.1 percent (NPV US$2,176 million) compared to ERR of 16.3 percent (NPV US$523 million) estimated at appraisal (Tables A4.1; for details see Table A4.3). The estimated levelized cost of electricity generated from the NT2 Project in 2004 prices at project closing is US$0.03 per kWh, compared with US$0.09 per kWh for the LNG counterfactual.42 The economic payback period of NT2 project is estimated to be three years after COD, implying that the project at this stage is already past its economic breakeven point. Table A4.1 - Comparison Between ERR and NPV at Appraisal and ICR NPV ERR (US$ millions (%) Appraisal 523 16.3 ICR 2176 29.1 2. The upward revision in the ERR reflects higher valuation of global and local environmental benefits and LNG in the counterfactual at the ICR stage. The appraisal stage economic analysis valued avoided GHG emissions and did not value local environmental benefits while the ICR stage analysis uses Bank recommended social values of carbon as well as damage costs for local pollutants. The appraisal stage analysis valued LNG at US$2.27 per MMBtu through the life of the project while the ICR stage analysis uses actual prices from 2010 through to 2018 and World Bank commodity forecasts prices for LNG in Japan, as the proxy for the economic value of LNG used in Thailand’s power sector. 3. Four-fifths of project benefits are attributable to avoided LNG fuel and operations and management costs while the remainder of the benefits are attributable to avoided GHG and local pollutant emissions from gas generation. The economic analysis assumes that, in the “without project” scenario, electricity generated by the NT2 Project would be replaced by CCGT LNG plants in Thailand. This would increase the use of LNG for power generation by 1,683 million MMBtu. Given the high reserve margin of Thailand’s power system and lower than expected growth in peak electricity demand since the commissioning of NT2, the economic analysis assumes zero capacity credit for NT2, in keeping with a conservative approach to estimating the benefits in the analysis. Sensitivity analysis using 100 percent capacity credit for NT2 would increase the estimated ERR to 35 percent. 42The economic analysis assumes that in the ‘without NT2’ scenario (the counterfactual), electricity supplied by NT2 would have come from CCGT fueled by LNG. Page 78 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) 4. The NT2 Project is estimated to help avoid more than 154 million tons of GHG emissions compared to the LNG counterfactual over the 40-year life of the project. As a reservoir hydropower project, NT2 Project is estimated to have an emission intensity equal to 36 gCO2/kWh for reservoir emissions and 2.5 gCO2/kWh during construction43 and would lead to gross emissions of 8.9 million tons of CO2e over the 40-year life of the project. However, this is small in comparison to the emission intensity of CCGT LNG plants of 360 gCO2/kWh44, which would lead to emissions of more than 163 million tons of CO2e. Hence, a substantial net emission reduction of 154 million tons is estimated for the NT2 Project. The Marginal Abatement Cost of emissions from the NT2 Project is -US$9.3/ton, making it a cost-effective investment in reducing emissions. 2. NT2 Financial Analysis 5. A financial analysis of the project was carried out to assess whether the project achieved a rate of return in line with what was expected at the time of Board approval. Achievement of this target depended on NTPC’s ability to construct, complete and commission the project on time and within budget, and to ensure efficient operations and maintenance of the hydropower station. 6. The project met its targeted FIRR and FNPV as indicated in the PAD. In particular, the project FIRR is expected to reach 11.0%, only slightly lower than the 11.7 percent projected FIRR in the PAD. The FNPV of the project is expected to be US$118 million, i.e. lower than the US$ 235 million FNPV that was projected in the PAD, assuming a weighted average cost of capital of 9.76 percent similar to the one used in the PAD. The lower than expected FNPV and FIRR is small relative to total project costs (e.g., $117m lower NPV versus $1.308bn project costs, or less than 4 percent) and are mostly the result of a 4.5-month construction delay and net additional construction costs of US$47 million. Table A4.2 below shows the comparison of profitability metrics from the PAD and ICR.45 Table A4.2: Comparison of Project Returns at COD PAD (2005) ICR (2018) Difference FNPV (US$ mln) 235 118 (117) FIRR 11.7% 11.0% -0.7% 43 Reservoir emission rate: Internal calculation using the G-Res tool as guided by Greenhouse Gases from Reservoirs Caused by Biogeochemical Processes, World Bank Group (December 2017) available at: http://documents.worldbank.org/curated/en/739881515751628436/pdf/122610-WP-PUBLIC- WFinalApplicationFilesWeBookW.pdf; Construction emission rate: Zhou, J. ( 2011). Life cycle assessment of greenhouse gas emissions from Nam Theun 2 Hydroelectric project in central Laos: Duke University at https://dukespace.lib.duke.edu/dspace/bitstream/handle/10161/3595/MP_Zhou.pdf?sequence=1&isAllowed=y 44 IPCC emission values for LNG CCGT plants 45 Calculations of FNPV and FIRR in the PAD are based on expected costs excluding contingency. Page 79 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Table A4.3 – Summary of Economic Analysis of NT2 Project at ICR Stage Base Case Sensitivity [1] Discount rate 10.0% 6.0% [2] Economic rate of return [3] ERR [ ] 24.8% 24.8% [4] ERR+local externalities [ ] 25.3% 25.3% [5] ERR+local+GHG@BankGuidanceValues [ ] 29.1% 29.1% [6] Levelized cost of elec. 'from NT2 US$/kWh 0.03 0.02 [7] Levelized cost of avoided gas generation US$/kWh 0.09 0.08 [8] Composition of NPV [9] Nam Theun 2 Hydro Costs [10] construction activities [$USm] 435 482 [11] environmental and social costs [$USm] 47 52 [12] NTPC operating costs [$USm] 38 43 [13] Other Costs [$USm] 96 107 [13] NT2 O&M Costs [$USm] 146 256 [14] Inremental T&D Costs [$USm] 84 101 [14] T&D O&M costs [$USm] 8 14 [15] total costs [$USm] 853 1054 [16] Benefits [avoided capex and fuel ] [17] Avoided gas fuel [$USm] 2080 3393 [19] Avoided gas capex [$USm] 0 0 [20] Avoided gas O&M [$USm] 214 386 [21] total benefits [$USm] 2293 3779 [22] [23] NPV (before environmental benefits) [$USm] 1440 2726 [24] local env. benefits: avoided grid gen. [$USm] 84.6 160.6 [25] NPV (incl. local environmental benefits) [$USm] 1525 2886 [26] value of avoided GHG emissions [$USm] 652 1187 [27] NPV (including environment) [$USm] 2176 4073 [28] Lifetime GHG emissions, undiscounted mtons CO2 154.5 154.5 [29] Marginal abatement cost $/ton -9.3 -17.6 Project Capital Costs 7. The total project cost including all development costs, construction costs, and financing costs was US$1,308 million, 10 percent lower than expected capital cost of US$1,450 million including contingency but 5 percent higher than the expected capital cost of US$1,250 million excluding contingency. The project achieved financial closure on June 15, 2005 and started construction on June 16, 2005. The construction period was expected to be 54 months, ending on December 15, 2009. However, the project incurred a slight delay of 4.5 months and started operations on April 30, 2010 leading to slight overage compared to Page 80 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) expected (without contingency). Table A4.4 illustrates the cost breakdown of the project until COD in April 2010. Table A4.4: Project Costs at COD (2010) % of total Amount in USD Million costs Construction activities 737 56.4% Fees and Interest During Construction 263 20.1% Environmental & Social costs 79 6.0% NTPC operating costs 65 5.0% Advisors and Financial Expenses 58 4.5% Reimbursements at FC 57 4.4% Operation and Maintenance costs 21 1.6% NTPC Technical activities 14 1.1% Other 13 1.0% Total Project Costs 1,308 100.0% Financing Structure 8. The project has been financed by a mix of i) international commercial banks benefiting from guarantees and political risk insurances from MDBs and ECAs, ii) DFIs, iii) Thai commercial banks and iv) equity from the private sponsors. The overall debt-to-equity ratio at completion was 71-to-29. Figure A4.5 below shows the full breakdown of the project financing. Revenue Generation 9. The project successfully delivered the quantity of electricity that had been contractually agreed upon (Figure A4.1). The PPA signed between NTPC and EGAT stipulated that the project had to supply 5,636 GWh of power per year to EGAT. From 2011 to 2017, the project was able to supply EGAT with 5,671 GWh of power on average every year, or 0.6 percent above the contracted quantity. In addition, the project supplied 359 GWh of power to EDL. Since the project achieved its electricity generation targets, revenues have been in line with expectations, reaching US$252 million per year on average from 2011 to 2017. Page 81 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Figure A4.1: Electricity Supplied to EGAT and EDL Electricity Generation EGAT EDL 8,000 7,000 6,000 5,000 GWh 4,000 3,000 2,000 1,000 - 2010 2011 2012 2013 2014 2015 2016 2017 Page 82 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Table A4.5 Breakdown of the Project Financing. % of total Amount in USD Million financing Debt International commercial lenders & Guarantors ECA 185 14.1% ADB PRG 39 3.0% IDA PRG 39 3.0% MIGA 39 3.0% Total 301 23.0% DFIs ADB OCR 46 3.5% NIB 31 2.4% AFD 28 2.1% Proparco 28 2.1% Thai EXIM 28 2.1% Total 161 12.3% THB-denominated debt Thai commercial banks 462 35.3% Total 462 35.3% Equity EDF 131 10.0% EGCO 93 7.1% ITD 56 4.3% Government of Laos 93 7.1% Total 374 28.6% Pre-COD Project Revenues 11 0.9% Total 1,308 100.0% Finacing Summary % of total Amount in USD Million financing Debt 924 70.6% Equity 374 28.6% Pre-COD Project Revenues 11 0.9% Total 1,308 100.0% Page 83 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Cash Flow Utilization 10. Since the project started operations in April 2010, operating costs have accounted for 14 percent of total revenues on average per year, debt service for 49 percent, tax and royalties for 6 percent, dividends paid to shareholder for 23 percent and other for 8 percent. Project debt is expected to be fully repaid by 2022. By the time project debt gets repaid, preferential royalty and corporate tax rates will progressively phase out, generating up to an additional US$100 million of revenues for GOL per annum. At the end of the concession period in 2034, the project assets will be transferred by NTPC to GOL at no cost. Figure A4. below, illustrates the actual and projected cash flow distributions from 2010 to 2034. Figure A4.2 Cash Flow Utilization of NTPC Forecast 300 250 200 USD Million 150 100 50 - OPEX Tax & Royalities Debt Service Dividends Other Revenue Debt sustainability The Debt Service Coverage Ratio (DSCR) of the project has consistently been above 1.50x since the start of operations, which is in line with what had been contemplated in the PAD, i.e. a minimum DSCR of no less than 1.48x. The DSCR is expected to remain above 1.50x until 2022 when the debt will be fully repaid. Page 84 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) ANNEX 5. COMMENTS FROM STAKEHOLDERS The following stakeholders were provided a copy of a draft ICR report for their comment. These comments are presented verbatim. Government of Lao PDR and Khammounane Province “Reference is made to letter dated 28 November 2018, requesting the Department of Energy Business provide the comments on the Implementation Completion Results Report on NT2 Project. DEB has collaborated with Khammouane province authorities (Nakai District and RMU/PTIMU) to gather the comments as requested. We together with provincial authorities, found the context of draft report has covered all activities that defines in the Project Appraisal Document of the World Bank and MIGA, No. 31764-LA, dated 31 March 2005. The World Bank’s performance throughout the implementation period has helped GOL and Company meet project development objectives perfectly.” International Financial Institutions (NT2 development partners) Agence Française de Développement (AfD) “The Agence Française de Développement (AFD) Group contributed to the financing of the Nam Theun 2 project through (i) a €5 million grant from AFD to the Government of Laos to take a share NTPC’s equity through LHSE, (ii) a US$30 million loan from AFD to NTPC and (iii) a US$30 million loan from Proparco to NTPC. In addition to these initial financings, AFD granted an €1.5 million grant to the Government of Laos to support the longer-term development of agriculture, livestock and fisheries on the Plateau, targeting all interested parties, not only resettled people. AFD concurs with the conclusions of the report. Laos hosts a number of large investment projects: hydropower, extractives, agriculture, forestry… These projects are economic opportunities for the country. They are also risks when environmental and social aspects are not managed properly. The promotion of quality investment, including transparent concession approval processes and sound environmental and social regulations, are an absolute priority for the development of the country. The Nam Theun 2 project, which ultimately reached its very ambitious objectives in terms of environmental and social management, is in that sense a great achievement. AFD remains committed to support the Government and the communities in the transition between the resettlement period, where NTPC was accountable of the livelihood of the resettled people, and the post-project era where the communities and the authorities are managing by themselves, as anywhere else in the country. Although it went through difficulties, the creation of the WMPA, its long-term financing from the project and its expected upgrade as the first National Park in Laos is a key achievement for the protection of biodiversity in the country. Page 85 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Regarding greenhouse gas emissions, we understand from NTPC that a scientific assessment evidenced that the emission factor of the electricity generated by the NT2 HPP is in the range of 17 to 92 gCO2/kWh, including methane emissions. This report says 38 gCO2/kWh. Both figures are consistent, but we believe that the clarification that the figure includes methane emissions would be useful. Methane emissions and overall climate impact in tropical reservoirs are indeed an area of debate. As outlined in the report, the impacts of the project go beyond the project itself, with the creation of an environment enabling a better management of the hydropower sector, even though this did not prevent less responsible projects to develop. The Bank has efficiently led the consortium of International Financial Institutions, with an appreciated balance between leadership and attention given to smaller financiers like AFD. It is obvious that the project could not have developed satisfactorily without the Bank’s strong involvement.” Asian Development Bank (ADB) 1. Overall ADB would agree with WB that project has fully achieved its financial and economic goals, and has achieved its social objectives and environmental objectives, except for WMPA, where we believe it is partially achieved. 2. We would suggest having a section that highlights innovations that were deployed in the project such as the use of the regulating dam, and the safeguards programs such as the downstream program. 3. WB and ADB’s estimation of FIRR and EIRR at appraisal and at project completion are slightly different owing to variations in methodology, however, they are directionally similar. Page 86 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) ANNEX 6. PUBLICLY AVAILABLE SUPPORTING DOCUMENTS Title/Citation Date Reference Number / Link Key World Bank Documents NT2 Project Appraisal Document1 March 31, 2005 World Bank Report Number: 31764-LA World Bank. 2005. Laos - Nam Theun 2 http://documents.worldbank.org/curated/en/250 Hydroelectric Project (English). 731468277466031/Laos-Nam-Theun-2- Washington DC; World Bank. Hydroelectric-Project Note: See Annex 1 for Government Letter of Implementation Policy. See Annex 3 for Decision Framework. Lao PDR Country Assistance Strategy March 10, 2005 31758-LA (2005) http://documents.worldbank.org/curated/en/956 World Bank. 2005. Lao - Country 031468277465435/Lao-Country-assistance- assistance strategy (English). strategy Washington, DC: World Bank. IEG CASCR Review (2012) Feb 29, 2012 88746 World Bank. 2012. Lao People's http://documents.worldbank.org/curated/en/117 Democratic Republic - Country 711468091768388/Lao-Peoples-Democratic- Assistance Strategy completion report Republic-Country-assistance-strategy-completion- (CASCR) for the period FY2005-FY2011: report-CASCR-for-the-period-FY2005-FY2011-IEG- IEG review (English). Washington, DC: review World Bank Group. Lao PDR Country Assistance Strategy January 25, 2012 66692 (2012) World Bank. 2012. Lao People's http://documents.worldbank.org/curated/en/665 Democratic Republic - Country 731468045572057/Lao-Peoples-Democratic- partnership strategy for the period Republic-Country-partnership-strategy-for-the- FY12-FY16 (English). Washington, DC: period-FY12-FY16 World Bank. Country Partnership Framework March 2, 2017 110813 (2017) http://documents.worldbank.org/curated/en/617 World Bank. 2017. Laos - Country 471493517642342/Laos-Country-partnership- partnership framework for the period framework-for-the-period-FY2017-FY2021 FY2017-FY2021 (English). Washington, D.C.: World Bank Group. Systematic Country Diagnostic March 9, 2017 112241 World Bank. 2017. Lao PDR - http://documents.worldbank.org/curated/en/983 Systematic Country Diagnostic: 001490107755004/Lao-PDR-Systematic-Country- Page 87 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Priorities for Ending Poverty and Diagnostic-Priorities-for-Ending-Poverty-and- Boosting Shared Prosperity (English). Boosting-Shared-Prosperity Washington, D.C.: World Bank Group. Project Implementation Status and Multiple (2005- Multiple (Final ISR is ISR30886) Results (ISR) reports 2010; 2014-2018) Link to final ISR: http://documents.worldbank.org/curated/en/913 Citation for final ISR (Seq. 10): 401515462612991/Disclosable-Version-of-the- Fields, Daryl. 2018. Disclosable Version ISR-Nam-Theun-2-Social-and-Environment- of the ISR - Nam Theun 2 Social and Project-P049290-Sequence-No-10 Environment Project - P049290 - Link to all ISRs: Sequence No: 10 (English). http://projects.worldbank.org/P049290/nam- Washington, D.C.: World Bank Group. theun-2-social-environment- project?lang=en&tab=documents&subTab=projec tDocuments Board Update Reports Multiple Multiple 2005-2013 http://projects.worldbank.org/P076445/lao-nam- theun-2-power-project-former-under-pe- p004206- len?lang=en&tab=documents&subTab=projectDo cuments Publicly-available Aide Memoires and Multiple Multiple Management Letters for Supervision 2001-2005 At link below, scroll to section for Aide Memoires: Missions (2001-2005) http://web.worldbank.org/WBSITE/EXTERNAL/CO UNTRIES/EASTASIAPACIFICEXT/LAOPRDEXTN/0,,c ontentMDK:21111184~pagePK:141137~piPK:141 127~theSitePK:293684,00.html Note: From 2005, Board Update Reports (listed above in this table) were utilized to share public information. Development Grant Agreement April 26, 2005 http://documents.worldbank.org/curated/en/510 861468276372805/pdf/H1550la.pdf Nam Theun 2 Social and Environment April 26, 2005 http://documents.worldbank.org/curated/en/968 (NTSEP) Project Agreement 311468045550782/pdf/H1550NTSEPPA.pdf Independent Monitoring Reports International Environmental and Social 129708 (for Final Report, #28) Panel of Experts (POE) Report 1997-2018 Link to Report #28: http://documents.worldbank.org/curated/en/227 Final Report (#28) 931535719837867/Laos-Nam-Theun-2- Multipurpose-Hydro-Project-Twenty-Eighth- Mcdowell, David K.; Mann, Elizabeth; Report-on-the-International-Environmental-and- Talbot, Lee M. 2018. Laos - Nam Theun Social-Panel-of-Experts 2 Multipurpose Hydro Project: Twenty- Eighth Report on the International Note: Reports #1 (1997) through-#27 (2018) are Environmental and Social Panel of available at: Page 88 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Experts (English). Panel of experts; report no. 28. Washington, D.C.: World http://documents.worldbank.org/curated/en/doc Bank Group. advancesearch/docs?query=&sType=2&author=& aType=2&docTitle=panel%20of%20experts&tType =2&qDate=3&fromDate=&toDate=&disclDate=3& fromDisclDate=&toDisclDate=®ion=&cntry=&l ang=&lndinstr=&prdln=&majorDocTY=&docTY=& teraTopic=&topic=&discType=&report=&loan=&cr edit=&projectId=P076445&trustFunds=&UNRegn Nbr=&sortDesc=docdt&sortType=desc International Advisory Group (IAG) Multiple 74673 (for Final Report, #10) reports 1997-2011 http://documents.worldbank.org/curated/en/doc Final report advancesearch/docs?query=&sType=2&author=& World Bank. 2011. Laos - Nam Theun 2 aType=2&docTitle=IAG&tType=2&qDate=3&from Hydropower Project: Tenth report of Date=&toDate=&disclDate=3&fromDisclDate=&t the International Advisory Group (IAG): oDisclDate=®ion=&cntry=&lang=&lndinstr=&p handing over (English). Washington rdln=&majorDocTY=&docTY=&teraTopic=&topic= DC; World Bank. &discType=&report=&loan=&credit=&projectId=P 049290,P076445&trustFunds=&UNRegnNbr=&sor tDesc=docdt&sortType=desc Impact Evaluations / Safeguards Documents NT2 Safeguards Documents: Multiple Multiple • Social Development Plan (SDP), • November including Resettlement Action 2004-March http://web.worldbank.org/WBSITE/EXTERNAL/CO Plans (RAP)s and Ethnic Minorities 2005 (SDP) UNTRIES/EASTASIAPACIFICEXT/LAOPRDEXTN/0,,c Development Plans (EMDP)s ontentMDK:21151850~pagePK:141137~piPK:141 • Environmental Assessment and 127~theSitePK:293684,00.html Management Plan (EAMP) • March 2005 • Social and Environment (EAMP) and/or Management Framework and • January 2005 Operational Plan (SEMFOP-1 and (SEMFOP-1) http://www.namtheun2.com/index.php/reports/r SEMFOP-2) and eports-doc • Cumulative Impact Analysis (CIA) Undated • Strategic Impact Assessment (SIA) (SEMFOP-2) • ADB Summary Environmental and • October 2004 Social Impact Assessment (SESIA) (CIA) • November 2004 (SIA) • November 2004 Other Reference Documents Summary Concession Agreement November 2005 http://namtheun2.com/index.php/reports/report s-doc Page 89 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Summary Power Purchase Agreement Undated http://namtheun2.com/index.php/reports/report s-doc Closure of the RIP (DEB to NTPC) July 12, 2018 http://pubdocs.worldbank.org/en/724551536564 207090/RIP-Closure-Letter NT2 Semi-Annual Environmental and Multiple (2005- http://www.namtheun2.com/index.php/reports/r Social Reports 2017) eports-doc Websites World Bank’s NT2 Project website ➢ http://projects.worldbank.org/P049290/nam- theun-2-social-environment-project?lang=en ➢ http://www.worldbank.org/en/country/lao/b rief/nam-theun-2-project-overview-and- ➢ NT2 Project Brief September 28, update 2018 ➢ http://web.worldbank.org/WBSITE/EXTERNA L/COUNTRIES/EASTASIAPACIFICEXT/LAOPRDE XTN/0,,contentMDK:21109105~pagePK:1411 37~piPK:141127~theSitePK:293684,00.html ➢ Economic Reports on NT2 Multiple Government of Lao PDR’s website http://www.poweringprogress.org Nam Theun 2 Power Company http://www.namtheun2.com (NTPC)’s website Page 90 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) ANNEX 7: REVENUE AND EXPENDITURE MANAGEMENT 1. The Revenue and Expenditure Management (REM) arrangements governing the allocation and use of revenues received from the NT2 Project were conceived with the broad needs of public finance management (PFM) in mind. The approach adopted focused on strengthening national PFM systems since effective revenue and expenditure management was considered central to the achievement of the NT2 Project’s development objective. It also served a broader and more fundamental development purpose since an effective, transparent finance management system would be essential for the country to be able to use its limited resources effectively in support of its poverty reduction and development objectives. 2. The REM arrangements developed for the use of NT2 net revenues covered four main areas (Figure A7.1). The first focused on the revenue receipts from, and through, various entities into the GOL’s National Treasury account. The second element dealt with the allocation of the NT2 revenues within the government budget, specifying both the principles to be used in the allocations as well as the criteria for selection of programs. The third concerned the reporting requirements for these public funds to ensure that there is transparent and timely information available on the progress of the programs as EM covered overall improvement of the PFM framework, which was to be carried out through the NT2 revenue management as well as linked, parallel support initiatives from 2000 to present. Figure A7.1: Primary Areas of REM NT2 Revenue Receipts Monitoring of NT2 Revenue overall PFM Allocation progress Reporting NT2 Revenue Receipts 3. GOL received net revenues from NT2 operations in the form of (i) Royalties from Nam Theun Power Company (NTPC), (ii) Dividends from Lao Holding State Enterprise (LSHE), (iii) Profit tax from NTPC and LHSE, and (iv) Dividend Tax from LHSE. These revenues are the net revenues, which are defined as “the total NT2 revenues, less costs of the LHSE and the payments (principal and interest) arising out of loans and grants made to the Government and on-lent to the LHSE to finance its equity in Nam Theun 2 Power Company Limited (NTPC).46 Figure A7.2 shows the revenue sources and flow. 46 NT2 Revenues are defined in Article I, Section 1.02 (nn) of the DGA. Page 91 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) 4. NTPC pays annual royalties directly to the National Treasury, based on the amount of electricity produced. Since 2010, NTPC has been operating at high capacity so the annual royalty stream was steady over the period 2010-2017. NTPC enjoyed tax exemption until May 2015 when profit taxes started to be paid. As the government-owned shares for NTPC are held by the LHSE, NTPC also paid dividends annually to the LHSE. The dividends to be paid were decided on an annual basis by the NTPC board of directors. The Board of Directors of LHSE in turn decides the annual dividend to be paid by the LHSE to the shareholder (i.e., GOL). The LHSE also paid a 10 percent tax on the dividends received from NTPC and profit taxes. Figure A7.2: NT2 Revenue Sources 5. Functional Equivalent Approach (FEA). It was initially agreed with government to establish a designated NT2 Revenue Account into which all net NT2 revenues would enter. However, such an account was never set up. During the initial years of revenue flow, only royalties and dividends were captured through budget accounts while profit and dividend taxes were not captured. In April 2015, the functional equivalent approach (FEA) was introduced to ensure all NT2 revenues were considered.47 Under the FEA, GOL assigned account codes to all NT2 revenues (i.e., royalties, dividends, profit taxes, and dividend taxes). This measure helped ensure that all NT2 revenue streams were accounted for and transferred to the Treasury. 6. Financial audits. The LHSE and NTPC’s annual financial statements were audited by an external audit company and provided to the World Bank. The State Audit Organisation (SAO) also prepared audits for 47 The GOL and LHSE received all relevant NT2 revenues during the entire implementation period. Page 92 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) 2009/10 to 2015/16 on funds disbursed under REM, albeit with delay (2-3 years); these audits were publicly disclosed. NT2 Revenue Allocation 7. Selection of programs and projects. The DGA defined Eligible Programs as programs for (i) poverty reduction and/or (ii) environmental management and conservation of natural resources. For the selection of eligible programs and projects, the State Budget allocations were reviewed to identify eligible program and projects to receive funding from NT2 Revenues. The resulting list of programs and projects48 was shared with the World Bank and, in recent years, also included in the summary of the State Budget. Two of the priority programs (School Block Grants and Maternal and Child Health Care) received continuous funding from FY2014/15 to FY2017. 8. Allocation of NT2 net revenues to eligible programs and projects between 2010 and 2017. During 2010/11 and 2013/14, the amount of the allocations to eligible programs and projects was lower than the NT2 net revenues received, as some revenue flows (i.e., dividend transfer and taxes, and profit taxes from the LHSE) were not recorded through the REM mechanism. However, during the subsequent years 2016/16 to 2017, GOL made adjustments by allocating more funds to eligible programs and projects than NT2 net revenues received during that time. At the end of the project, the GOL had allocated the total value of received NT2 net revenues during the same timeframe (US$180 million) to eligible programs and projects between 2010 and 2017. 9. The distribution of allocations is shown in Figure A7.3 below. 46 percent is allocated to programs (i.e., School Block Grant, Free Maternal Health Care and Poverty Reduction Fund) while 54 percent is allocated to projects (i.e., school and dormitory construction, supply of medical equipment to health centers, rural access road construction, and reforestation). 48Projects include funded activities undertaken as part of a ministry’s work program (e.g., rural electrification); Programs are packages of activities (e.g., School Block Grants). Page 93 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) Figure A7.3 Disbursement of NT2 Revenues to Sectors (FY2009/10-FY2017) Poverty Reduction Fund Projects Natural Resources Implemented by and Environment Provinces Education Energy, Mining and Agriculture Health Education Public Works and Transport Public Works Energy, Mining and Agriculture and Natural Resources and Environment Transport Poverty Reduction Fund Projects Implemented by Provinces Health Table A7.1: Disbursement of NT2 Revenues Sector US$mil % Education 65.81 35% Health 62.14 33% Public Works and Transport 15.67 8% Energy, Mining and Agriculture 24.32 13% Natural Resources and Environment 1.31 1% Poverty Reduction Fund 9.91 5% Projects Implemented by Provinces 7.05 4% Total 186.22 Sources: SAO Audit Reports 2009/10 - 2015/16 and, MoF Data FY2015/16 and 2017 10. Additionality. Under the concept of ‘additionality’, programs eligible for NT2 revenue were to receive a budgetary allocation in excess of the general increase in the overall budget in the particular year. However, the 2011 Public Expenditure Review (PER) (Report No: 63200-LA) noted some of the difficulties of verifying additionality due to a missing baseline (as a result of changes in budget classification and the unavailability of timely budget data). In addition, projects that received NT2 allocations were, in general, small public investment projects with a short time frame, selected to be NT2 eligible based on the approved budget plan. The particular programs that received NT2 allocations only started after 2010, so Page 94 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) no baseline was available. Consequently, it was difficult to verify that the NT2 allocations constituted additional funding. 11. At the same time, overall allocations of the State Budget to the education and health sectors (which accounted for about 68% of REM allocations) increased over the past decade. Specifically, allocations to the health sector doubled from 3.6 percent of the budget in 2007/08 to over 7 percent of budget in the years (2014/15 – 2015/16), increasing health expenditures as a share of GDP from 0.7 percent of GDP in 2007/08 to 1.9 percent in 2015/16. Allocations to the education sector also increased from 13 percent in 2007/08 to a relatively stable allocation at about 15 percent over the last three years (2013/14 to 2015/16), which corresponds to an increase, as a percentage of GDP, from 2.4 percent in 2007/8 to 3.5 percent in 2015/16 (Figure A7.4). Figure A7.4: Priority Sector Expenditure as Share of GDP 6 5 Percentage of GDP 4 3 2 1 0 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Agriculture Public Works Education Health Source: Bank staff calculations based on data from Ministry of Finance Reporting 12. Specific reporting activities on the NT2 revenues and their corresponding allocation to poverty reduction and environmental management programs were specified in the DGA. These included publication of NT2 financial statements, audits of disbursements of funds to eligible expenditures, with publication and regular reporting and consultation with IFIs. Progress on Overall Public Finance Management Reforms 13. The NT2 Hydropower Project played a significant role as a driver of PFM reforms by putting in place a framework which would support the Government in complying with reporting requirements to donors on the use of revenues derived from the NT2 Hydropower plant. The World Bank, in coordination with other development partners, also supported broader reforms, the high-level objective of which was to enhance public sector effectiveness by strengthening the legal and institutional framework for PFM. Page 95 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) 14. The cornerstone of the reforms was the revision of the State Budget Law, followed by the introduction of the Government Financial Information System (GFIS). In 2000/2001, the Government launched a five-year plan and a Poverty Reduction Strategy Paper (PRSP), which was the start of the first generation of PFM reforms. These reforms focused on putting in place regulations, processes and procedures required for a basic PFM framework as well as to enhance transparency and accountability through increased public disclosure. It was accompanied by an intensive capacity building effort to support implementation of the reforms. Figure A7.5: Public Financial Management Reform Timeline 15. The Public Financial Management Strengthening Program, officially adopted in November 2005 as a medium-to-long-term program, was an important element of the Government’s long-term framework for public finance reform (Figure A7.5). It was intended as the main vehicle to implement Government policies and strategies, the 2004 National Growth and Poverty Eradication Strategy, and the sixth National Socio-Economic Development Program 2006–2010. The Public Financial Management Strengthening Program sought to improve consistency, efficiency, transparency, and accountability in public expenditure policy and management as well as in revenue collection. 16. Over the period 2003-2013, ‘first’ generation PFM reforms advanced in some key areas: specifically, in budget preparation, execution, and public accounting (see Box A7.1); however, other aspects remained a work in progress. In early 2013, a change in the Government’s donor cooperation policy affected further PFM reform. MoF appointed a national firm to design and implement an integrated treasury system for the Ministry, replacing and, consequently, halting the donor-funded program. In the absence of a broader reform agenda and coordinated donor support, progress in PFM reforms slowed significantly. However, dialogue between MoF and the wider donor community continued on a limited scale, including through the ongoing NT2 Hydropower project. A turning point came in 2016 with the appointment of a new Government, and a new Minister of Finance, which revigorated government commitment to PFM reforms. The approval of the Public Finance Development Strategy 2025 and Vision 2030 by the Prime Minister in July 2017 made PFM reforms a Government priority and initiated preparation of second-generation PFM reforms. The donor community also renewed its commitment to support these reforms through technical Page 96 of 97 The World Bank Nam Theun 2 Hydroelectric Project (P076445) and Nam Theun 2 Social and Environment Project (P049290) assistance under and European Union trust fund for Public Financial Management Modernization Program during March 2016 – September 2018 which provided Technical Assistance for the identification of a next phase of PFM reforms. Box A7.1: Achievements of PFM Reforms (2003-2018) Budget preparation: Considerable groundwork was laid for improved budget preparation. This included the approval of a new State Budget Law in 2006 and its revision in 2015, followed by the adoption of new budget nomenclatures and a chart of accounts. An expansion of the chart of accounts to cover the district level and to introduce organization classification has recently started. However, important features of the revised State Budget Law, such as the introduction of ceilings, the use of costing methodologies and the use of improved budget preparation documents, have not yet been implemented. Budget Execution: The first-generation reforms brought significant progress for the country’s treasury function by centralizing the National Treasury and implementing account consolidation. Payment processes improved, specifically in the payments of the central government’s payroll, which was moved from cash transactions to direct deposits via bank accounts. The most important achievement was arguably the roll-out of a locally developed Government Financial Information System (GFIS) in 2006, and its expansion to provinces in 2008. The implementation of the GFIS connected the whole country, and Financial Statements were generated for the first time. At the same time, reporting, timeliness and disclosure of the state budget was improved. However, cash management remains weak, and commitment controls are yet to be put in place. With the GFIS becoming obsolete, MoF is planning to introduce a new financial management information system, which would go along substantial process reforms at the National Treasury. Public accounting and audit: Improvements to public accounting and audit functions also progressed. Implementing legislation for the Accounting Law and a new Audit law was approved by the National Assembly, granting autonomy to the State Audit Organization (SAO). The use of International Public Sector Accounting Standards as foreseen in the Accounting Law, it is currently being introduced. So far there has been no progress on setting up internal control functions within the ministries, resulting in a continued weak control environment. SAO had initially made progress in establishing its mandated role, gradually being recognized by the public, and had made some early contributions to the government objective of transparency and public accountability in the management of public resources. However, SAO continues to suffer from capacity and resource constraints (i.e., human resources and financial). Plans to strengthen the auditing profession have been slow, resulting in a continued shortage of qualified accountants in the country. Public Finance Development Strategy 2025 and Vision 2030. MoF has undertaken major reform efforts on a broad level and developed the Public Finance Development Strategy 2025 and Vision 2030, which was approved in 2017. It foresees actions commonly recommended as minimum requirements of a core PFM system, such as (a) an adequate regulatory framework, (b) a sound accounting system and treasury- centric budget execution processes, (c) a realistic budget preparation process, and (d) ultimately a core Financial Management Information System. Page 97 of 97