Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 72613-MV

PROJECT DOCUMENT

ON A

PROPOSED GRANT UNDER THE

MALDIVES CLIMATE CHANGE TRUST FUND

IN THE AMOUNT OF US$1.326 MILLION

TO THE

REPUBLIC OF MALDIVES

IN SUPPORT OF THE

ARI ATOLL SOLID WASTE MANAGEMENT PILOT PROJECT

November 16, 2012

Sustainable Development Department Maldives Country Management Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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MALDIVES: Ari Atoll Solid Waste Management Project (P130163)

CURRENCY EQUIVALENTS (Exchange Rate Effective May 8, 2012)

Currency Unit = US$ US$1 = Maldivian Rufiyaa (MVR) 15.36

FISCAL YEAR July 1 – June 30

ABBREVIATIONS AND ACRONYMS

AusAID Australian Agency for International Development

MOU Memorandum of Understanding

CAS Country Assistance Strategy MVR Maldivian Rufiyaa CCAC Climate Change Advisory Council MW Megawatts CCTF Climate Change Trust Fund NCB National Competitive Bidding CQS Consultants’ Qualifications NEAP National Environmental Action Plan DC Direct Contracting NPC National Planning Council EU European Union NPV Net Present Value EIA Environmental Impact Assessment OP Operational Policy EPA Environmental Protection Agency PDO Project Development Objective FBS Fixed Budget Selection PMU Project Management Unit FM Financial Management PPP Public-Private Partnership GDP Gross Domestic Product PRA Participatory Rural Appraisal GHG Greenhouse gas QBS Quality-Based Selection GOM Government of the Maldives QCBS Quality- and Cost-Based Selection IBRD International Bank for Reconstruction and

Development RWDF Regional Waste Disposal Facility

ICB International Competitive Bidding SIDS Small Island Developing States IDA International Development Association SAP Strategic Action Plan IFRs Interim Unaudited Financial reports SSS Single-Source Selection KM2 Square Kilometer SWM Solid Waste Management LCS Least Cost Selection TC Technical Committee MEMP Maldives Environmental Management Project TOR Terms of Reference MMA Maldivian Monetary Authority UNDP United Nations Development Program MOEE Ministry of Environment and Energy

Regional Vice President: Isabel M. Guerrero Country Director: Diarietou Gaye

Sector Director: John Henry Stein Sector Manager: Herbert Acquay

Task Team Leaders: Marinela Dado/Sumith Pilapitiya

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Table of Contents

I. Strategic Context and Rationale .......................................................................................... 1

A. Country and Sector Background ...................................................................................... 1

B. Rationale for Bank Involvement ...................................................................................... 6

C. Higher Level Objectives to which the Project Contributes .............................................. 7

II. Project Description ............................................................................................................ 7

A. Project Development Objectives and Key Indicators ...................................................... 7

B. Project Components ......................................................................................................... 8

C. Project Financing Table ................................................................................................. 13

D. Lessons Learnt and Reflected in Project Design ............................................................ 13

III. Implementation ................................................................................................................ 15

A. Institutional and Implementation Arrangements ............................................................ 15

B. Monitoring and Evaluation of Results ........................................................................... 15

C. Sustainability .................................................................................................................. 16

IV. Key Risks and Mitigation Measures .............................................................................. 17

V. Project Appraisal ................................................................................................................ 18

A. Economic Analysis ......................................................................................................... 18

B. Fiduciary......................................................................................................................... 21

C. Environment and Social Due Diligence ......................................................................... 25

D. Policy Exceptions ........................................................................................................... 26

Annex 2: Detailed Project Description ..................................................................................... 28

Annex 3. Institutional Arrangements ........................................................................................ 36

Annex 4: Operational Risk Assessment Framework (ORAF) ................................................. 37

Annex 5. Implementation Support Plan .................................................................................... 40

Annex 6. Team Composition .................................................................................................... 41

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I. Strategic Context and Rationale A. Country and Sector Background 1. The Republic of Maldives – a small island nation located in the Indian Ocean southwest of Sri Lanka – consists of 26 major atolls and hundreds of smaller islands. Only 33 islands have an area greater than one square kilometer (km2). The country’s total land area1 is less than 300 km2. Maldives possesses more territorial sea than land. Its total population of 324,992 (as of 2009) is highly concentrated in relatively few islands. The atolls are ringed by coral reefs that are the seventh largest in the world and among the richest in terms of species diversity and aesthetic appeal. The reefs host over 1,900 species of fish, 187 coral species, and 350 crustaceans. Tourists are attracted to Maldives for the pristine beaches and dive locations, the latter considered among the finest in the world. An estimated 500,000 tourists – nearly twice the country’s population – visit the country annually. 2. There are some 200 inhabited islands scattered across the archipelago, and some 90 additional islands dedicated solely for resort operations. The population of the inhabited islands varies from a few hundred inhabitants to several thousand. Distances between atolls and inhabited islands are great and transport costs are high, depending on sea and air transport. Malé is the location of the country’s major port and international airport (the latter located in the adjacent island of Huhulle).

3. The Maldives is largely a service-oriented economy. Due to its small population and sparse land area, the scope for agriculture and manufacturing is limited. In recent years, nature-based tourism has served as the engine of growth and prosperity for the economy, accounting for about 70% of GDP (in terms of direct and indirect contributions), followed by fishing and fish processing (about 10% of GDP). Revenues from these activities have been channeled largely into public investments in education, health and infrastructure, creating an economy that is graduating to middle-income status. For much of the last three decades, economic performance has been robust with growth averaging about 8% per year.

4. Environmental risks may undermine economic development. Like other small island states, Maldives faces daunting environmental risks that threaten to undermine its economic achievements. In recent years, growing environmental pressures have emerged as a consequence of rising population densities, increased tourism and changing consumption patterns. Some islands with high population density2 confront growing problems of solid waste management, pollution from sewage and other effluents emanating from urban settlements, hotels, fish-processing plants, ships and other sources. In particular, with growing prosperity and buoyant tourism, the quantities of solid waste generated exceed disposal and treatment capacity. This poses a substantial and visible risk to the country’s reputation as an unspoiled tropical “paradise”. An estimated 248,000 tons of solid waste was generated in Maldives in 2007 and the figure had been projected to rise to 324,000 tons by 2012 (equivalent to a 30% increase).3 1 By comparison, the United Kingdom occupies an area of 242,495 km2. 2 According to the United Nations World Populations Prospect Report (2005), the population density in Maldives is 1,005 persons per km2. 3 The World Bank. 2008. Project Appraisal Document. Maldives Environmental Management Project. May.

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Current arrangements for waste management on inhabited islands are inadequate. Most waste is dumped onto the island foreshore and burned at low combustion temperatures. In addition, approximately 510 tons per year of medical waste is estimated to be produced. The current uncontrolled disposal of solid waste, including medical waste, is a threat to the coastal, marine and coral reef ecosystems and a blemish on the pristine marine landscape expected by tourists.4 5. Sewage disposal is a further, though less visible, problem that can degrade seawater quality and damage coral reefs – the keystone resource for revenues in the country’s economy. Of particular concern are the continuing threats to marine assets from habitat degradation by indiscriminate disposal of sewage and solid waste. Coral mining for construction and dredging of lagoons for reclamation have been identified as the most widespread causes of reef destruction. Other pressures include damage caused by divers, illegal collection of corals and unsustainable exploitation of high-value reef resources such as sea-cucumber, grouper and giant clams. On the islands, timber harvesting and the destruction of mangroves threaten terrestrial biodiversity while pollutants from numerous sources have caused eutrophication of coral reefs.5 6. Climate induced risks. In addition to anthropogenic pressures, climate change poses a more far-reaching source of environmental risk. Geography has rendered Maldives especially vulnerable to the consequences of climate change. Being land scarce (96% of the islands occupy less than 1 km2 in area) and low lying (over 80% of the country is less than 1 meter above sea level), the country is exposed to the risks of intensifying weather events such as damage caused by inundation, extreme winds and flooding from storms.

7. With the melting of polar ice caps, Maldives is exposed to the risks of sea level rise. With future sea level projected to rise within the range of 10 to 100 centimeters by the year 2100, the entire country could be submerged in the worst-case scenario. Rising sea temperatures also threaten the coral reefs and cause bleaching and death, with the most severe damage in areas that are stressed by pollutants, or damaged by physical disturbance.6 Coral bleaching events have been observed in Maldives seven times since 1997 and are associated with elevated sea surface temperatures in the Indian Ocean. The recovery of corals from bleaching events has been slow, especially in degraded and damaged reefs.

8. Strengthening environmental stewardship. The significance of the country’s natural assets can be gleaned from the work on the valuation of biodiversity undertaken jointly by the Government of Maldives (GOM), Global Environment Facility (GEF) and United Nations

4 World Bank. 2012. “What A Waste: A Global Review of Solid Waste Management.” Urban Development Series No. 15. March. Annex J of the report provides the following current available data on municipal solid waste (MSW) generated in Maldives: 2.48 kilograms per capita per day and 175 tons per day. The report provides the following corresponding projections on MSW generation in 2025: 2.2 kilograms per capita per day and 513 tons per day. The latter would represent an increase of 193%. 5 Eutrophication involves an increase in chemical nutrients—typically compounds containing nitrogen or phosphorus—in an ecosystem. It may occur on land or in water. The term is often used to imply the resultant increase in the ecosystem's primary productivity which translates into excessive and ultimately destructive plant growth leading to decay and mortality which may have even further impacts, including lack of oxygen and severe reductions in water quality and in fish and other animal populations. 6 “Global Climate Change and Coral Reefs”. International Union for Conservation of Nature (IUCN) 2003 Report to UNEP-IOC-ASPEI Global Task Team.

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Development Program (UNDP). Table 1 presents a summary of the economic values of marine and coastal biodiversity and ecosystems provided in the joint 2009 GOM/GEF/UNDP report, “Valuing Biodiversity: The Economic Case for Biodiversity Conservation in the Maldives”. The shoreline protection provided by coral reefs was measured indirectly by the cost that would be incurred with the loss or decline of coral reefs.7

Table 1. Contribution of Biodiversity to the Economy of Maldives

Amount (Current market prices,

2006)

Percent of total

Direct values of tourism and fisheries Employment (no. of jobs) 78,500 71.2 Government revenue (MVR million) 2,512 48.6 Foreign exchange (US$ million) 434 62.2 GDP (MVR million) 10,596 89.2 Indirect values of shoreline protection by coral reefs: Replacement cost of various protection measures Replacement

Measure Cost (US$ billion)

Male Tetrapod seawall 0.06 200 inhabited islands Tetrapod seawall 7.0 200 inhabited islands Boulders 1.8 Settlement areas only Boulders 1.1

Source: “Valuing Biodiversity: The Economic Case for Biodiversity Conservation in the Maldives” 9. With the country’s high dependence on a few key environmental assets and as pressure on these assets rises, prudent economic management calls for strengthened environmental stewardship. The substantial environmental challenges facing Maldives could become a formidable brake on economic growth, especially if these undermine tourism. High-end tourism is an inherently fragile activity that depends on consumer perceptions, adequate transport and a continuous effort by the private sector to maintain and improve the quality of the tourism product in a highly competitive global market. To retain its comparative advantage, Maldives needs to maintain a clean and attractive environment for tourists who are mainly well-to-do foreigners. This calls for considerable improvement in environmental management with policy principles being translated into measurable outcomes and an environmental infrastructure that matches the needs of a country on the threshold of middle-income status.

10. Recognizing the economic significance of its environmental assets, the National Planning Council (NPC) – headed by the President of Maldives and mandated to develop national priorities and ensure sustainable development of the nation – has emphasized the need for adopting sound environmental practices that go hand in hand with the country’s development. The country has an overarching policy framework for environmental protection. Tourist resorts are governed by comprehensive environmental regulations and have a strong economic incentive

7 Emerton, L. et al, 2009. Valuing Biodiversity: The Economic Case for Biodiversity Conservation in the Maldives. Report Produced for Atoll Ecossytem Conservation (AEC) Project by International Union for the Conservation of Nature (IUCN). Male.

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to protect the environment on the islands on which they hold concessions. Despite government commitment and past efforts, the mounting environmental pressures far outpace the country’s ability to manage its key natural assets. Solid waste management: The Maldivian context 11. The Maldives is faced with the challenge of managing increasing quantities of solid waste – the country’s most visible environmental threat to the tourism and fishery industries. The challenge is compounded in Maldives (more than other small island states) due to the small island sizes with few inhabitants on these islands and the visible lack of economic activities that make any investment in waste management financially unviable. The difficulties the country confronts are unlike those of most countries where scale economies drive the principles and delivery of solid waste management (SWM) services. With a population spread across numerous little islands, there is little scope for harnessing economies of scale. The high costs of sea transport and low volumes of waste raise the costs of service delivery. The scarce surface area of any island in the archipelago puts a premium on the value of land and limits on the landfill method traditionally used in many parts of the world. The amount of waste generated far exceeds the capacity of available landfills which are basically uncontained open dumps. Improper disposal of solid waste can foul beaches, degrade sea water quality and damage the corals that are the magnet for tourists.

12. Poor management of solid waste is one of the most serious immediate threats to the country’s reputation as an unspoiled tourist destination which could have a debilitating effect on the economy. Few residential islands have satisfactorily functioning SWM facilities. Many of them dump waste into lagoons as a crude method of land reclamation while others allow waste to accumulate on beaches, forming rings of trash around the perimeter of entire islands. Resorts are required by law to burn their combustible waste (including plastic bags) in on-site incinerators and to crush cans and bottles. Food waste is discarded in the deep sea. The non-combustible and non-degradable waste is disposed of by transporting them to the one functioning landfill in the country which is located in the island of Thilafushi. Some allegedly dump residual waste at sea rather than incur the expense of transporting waste hundreds of kilometers to Thilafushi. It is not uncommon for waste to wash up on the shores of other islands, including resorts. The growing volume of waste in areas visited by tourists and the appearance of debris on dive sites, sand-banks and beaches are alarming. 13. Waste disposal is likely to become even more challenging in the future as population densities rise and prosperity grows. Prosperity has brought many new consumer products, often contained in non-biodegradable containers or packages that litter the beaches and lagoons. Given the rapid scale of these developments, it is not surprising that there is little knowledge of waste management technology or of the risks of current disposal methods. The problem with SWM was aggravated after the Indian Ocean tsunami hit Maldives in December 2004. As part of the international community’s support to post-tsunami reconstruction, development partners and donors, such as the Australian Agency for International Development (AusAID), European Union (EU) and UNDP as well as relief organizations, like the Canadian Red Cross assisted Maldives in developing national SWM strategies and capacity and public awareness programs. They also supported the construction of island waste management centers (IWMCs) for waste

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segregation and storage for periodic off-island disposal. Unfortunately, most of the IWMCs were unsuccessful because of the inability to secure off-island disposal facilities. 14. South Ari waste management experience. The EU established a World Bank-administered trust fund in September 2006 for post-tsunami recovery and reconstruction. The trust fund provided support to a project which included an environmental component amounting to US$2.8 million for improving SWM in the Central Province atolls (Alif Alif, Alif Dhaalu, Faaful, Dhaalu, Vaavu and Meemu). The project was commonly referred to as the South Ari SWM project. The project aimed to establish 16 IWMCs and one Regional Waste Disposal Facility (RWDF) for off-island waste disposal and to support technical assistance (TA) for capacity building and environmental awareness programs targeted for the island communities. While those programs were implemented successfully, the South Ari SWM project was able to construct only 11 IWMCs due to the shortage of land in inhabited islands and the lack of community interest.

15. Moreover, the cost of constructing a RWDF – in the form of a planned landfill on a small island where the surrounding lagoon – was estimated at more than double the budget available from the EU trust fund. The reason is rather obvious: land in Maldives is costly. Not surprisingly, the proposed off-island RWDF had to be abandoned. Although 11 IWMCs were constructed, only two inhabited islands are currently making partial use of the IWMCs while the other IWMCs were abandoned due to the lack of access to an off-island waste disposal facility. 16. Need for scalable and replicable models on integrated SWM on inhabited islands to improve environmental outcomes. At present, a fully functioning and properly integrated SWM system – that includes fees collection and payments to service providers – does not exist in Maldives. It is in this context that the proposed pilot project seeks to develop technical, institutional and human resource capacity in the targeted inhabited islands of the Ari Atoll to manage municipal solid waste in a manner that would strengthen environmental outcomes and reduce the risks posed by climate change. The proposed project intends to make five IWMCs operational on a pilot basis. The demonstration effect from the pilot project would facilitate the process of scaling up an integrated SWM system for the inhabited islands and resorts in the Ari Atoll. The success of the pilot project is expected to bring about the participation of the remaining inhabited islands of the Ari Atoll, particularly those where IWMCs were built with EU funding. Thereafter, the project mechanisms and experience could be expanded to the remaining atolls of the Central Province. 17. The proposed project will be particularly useful, if implemented successfully, in the context of the recent decentralized governance framework. Local stakeholders – atoll councils, island councils, civil society organizations, tourist resorts and the local communities – have played a limited role in SWM in the islands. Therefore, models that will actively involve community stakeholders have to be developed since SWM is a local level responsibility. Local stakeholders need to be sensitized and incentivized to develop a sense of ownership, acceptance and commitment towards the effective management of solid waste generated at the island level, thereby reducing the adverse impacts to the unique marine ecosystem vital to Maldives. 18. Climate Change Trust Fund (CCTF). A multi-donor Maldives CCTF was established

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in December 2009 to address the climate related risks facing Maldives and to strengthen the country’s resilience to those threats. The majority of the resources (approximately US$9.8 million) will be used by GOM to carry out priority projects related to climate change adaptation and mitigation. With support from CCTF, GOM proposes to undertake a pilot project in integrated SWM in the Ari Atoll to demonstrate island level management of solid waste with an aim to reduce greenhouse gas (GHG) emissions and improve environmental outcomes.

19. The CCTF’s project selection process was applied to the Ari Atoll pilot proposal led by the Environmental Protection Agency (EPA). The selection is consistent with the arrangements provided in CCTF’s legal agreements and took into account the role of the CCTF governance structure, namely, the National Planning Council (NPC), Climate Change Advisory Council (CCAC) and the Technical Committee (TC). In compliance with the CCTF’s governance mechanism, the pilot project was vetted in the following manner.

• First, the CCAC members reached agreement on CCTF’s priority areas: wetland conservation, coral reef monitoring, clean energy and a pilot program in integrated SWM in the Ari Atoll.

• Second, EPA submitted a concept note for the SWM pilot – through the Ministry of Environment and Energy (MOEE) – to CCTF’s governance structure.8

• The proposal was reviewed by the TC for strategic and technical merit, endorsed by NPC and finally submitted to the World Bank with a request to initiate project preparation.

B. Rationale for Bank Involvement 20. The proposed project is aligned with GOM’s priorities and the World Bank’s FY08-FY12 Country Assistance Strategy (CAS).9 10 The Bank’s CAS acknowledges the significant threats to economic prosperity posed by environmental degradation and the risks of climate change. A strategic priority of the CAS is to selectively target limited resources where assistance is most needed and effective. Accordingly, strengthening environmental management and building greater resilience to climate variability and change were identified as major CAS pillars. 21. Climate change has emerged as an important priority in the Bank’s deepening engagement in promoting responsible stewardship of global public goods. The Maldives represents the iconic case of a small island economy facing unprecedented threats from climate change and sea level rise. How the country approaches these challenges could have important lessons for other small island developing states (SIDS) that depend on coastal resources for economic development and environmental security. This project therefore would have

8 The Ministry of Housing and Environment was reorganized in April 2012 to the Ministry of Environment and Energy. 9 The CAS was endorsed by the World Bank Group Board of Executive Directors in December 2007. (CAS Report Number: 41400-MV). 10 “World Bank”, “Bank”, International Development Association and “IDA” are used interchangeably throughout the document.

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important demonstration effects for better management of solid waste to minimize GHG emissions and conserve the integrity of marine and coastal ecosystems. C. Higher Level Objectives to which the Project Contributes 22. The Government developed the National Adaptation Program of Action (NAPA) in 2006, the Strategic Action Plan (SAP) in 2009, and two National Environmental Action Plans (1993, 1999). In addition, the National Solid Waste Management Policy was approved in 2008. These documents set forth a vision for the country and lay out specific environmental goals to be achieved within a given timeframe. The SAP identifies environmental sustainability as a cross-cutting theme. The Ari Atoll pilot project is aligned with the National Solid Waste Management Policy’s objectives to extend services to all inhabited islands, support sustainable development and encourage private sector participation in waste service delivery. The pilot project aims to enhance environmental sustainability of growth and to improve the management of its key environmental assets. By seeking to increase the capacity and understanding of sustainable practices in environmental management, the pilot project is expected to contribute to the principles of sustainable tourism and marine environmental conservation presented in the Maldives Third Tourism Master Plan (2007–11). II. Project Description A. Project Development Objectives and Key Indicators 23. Project development objectives. The development objective of the project is to build technical and human resource capacity to effectively manage solid waste generated in selected inhabited islands of the Ari Atoll, thereby reducing the environmental risks to marine habitats and greenhouse gas (GHG) emissions. The pilot project will develop and implement an integrated SWM system in selected inhabited islands of the Ari Atoll and also build the capacity of the Island Councils and communities to manage solid waste.11 24. Key indicators. The implementation period of this project is slightly less than two years.12 Because of the short duration and the project’s pilot nature, the indicators had to be formulated such that they reflect intermediate outcomes. The related indicators for the project are as follows and the results monitoring framework is presented in Annex 1.

• Five pilot islands participating in an integrated SWM system composed of: (i) waste segregation at the household level; (ii) composting of organic waste, recycling and storage of residual waste prior to final disposal at the IWMC level; and (iii) a transport system for removal of the residual waste from the IWMCs and disposal at the RWDF in Thilafushi Island

11 The five pilot islands do not have any hospitals and therefore no medical waste requiring management. Medical waste management, however, is being addressed under the IDA-financed Maldives Environment Management Project (MEMP), specifically, the solid waste management (SWM) component of the project targeted for the North Province. 12 Grant effectiveness is expected in December 2012 and the grant closing date is end-September 2014.

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• All five targeted islands with functioning IWMCs have no observed spillage 25. Project area. The project will cover five selected islands of the Ari Atoll. The islands of Dhigurah, Fenfushi, Ukulhas, Thoddoo and Dhangethi within the Ari Atoll have been identified to serve as model islands for SWM and as demonstration sites for expanding the island level integrated SWM system to surrounding inhabited islands. The first phase of the project will be implemented in three model islands, i.e., Ukulhas, Dhigurah and Fenfushi. Thereafter, the pilot project will be expanded to the islands of Thoddoo and Dhangethi in the Ari Atoll. Eventually, it is anticipated that all inhabited islands in the Ari Atoll will participate in an atoll-based SWM system although such expansion is not part of this project due to time and resource constraints. B. Project Components 26. The proposed project will have three components that have been designed in consultation with GOM, civil society and other stakeholders as well as technical assessments undertaken and lessons learnt from the EU-financed, partially abandoned South Ari SWM Project. The project component details are provided in Annex 2. Component 1: Development and implementation of an island level integrated SWM system (US$605,750 excluding contingencies) 27. This component aims to build the institutional capacity of the Island Councils and communities in the five islands to plan and implement an island level integrated SWM program to minimize the environmental risks to the country’s marine and terrestrial assets while reducing GHG emissions. In addition, support will be provided to the development of a strategy to operationalize the remaining EU-financed IWMCs in the atolls of the Central Province. The project would support the following activities:

• Community participation in source segregation of solid waste

• Implementation of an island level recycling and composting program at the IWMCs

• Institutional capacity building of the Island Councils and communities for planning and managing an effective island level integrated SWM system

• Development of a strategy to operationalize the remaining EU-financed IWMCs in the atolls of the Central Province

Sub-component 1.1: Community participation in source segregation of solid waste 28. The inhabited islands that participated in the EU-financed South Ari SWM Project prepared island waste management plans (IWMPs) that called for community participation in the source separation of household solid waste prior to collection and transport to the IWMCs. Although basic community awareness was initiated under that project, virtually no source separation of household waste is taking place in the islands. This is attributed to two factors: (i) inadequate community commitment to participate in island level SWM; and (ii) lack of a waste transfer and disposal system for residual waste from the inhabited islands for ultimate disposal. This sub-component is designed to address the lack of community commitment to participate in

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island level SWM while Component 2 of the project will address the issue of the transfer of residual waste from the IWMCs for ultimate disposal at the Thilafushi RWDF. 29. This sub-component will create community awareness on the environment and public health implications of poor SWM in the respective islands and solicit community participation for source segregation of household level solid waste. This will be achieved through: (i) a capacity building program that involves strengthening community awareness and initiating active community participation in source separation of waste at the household level; and (ii) an effective waste collection and transport system in the inhabited islands. The program will be designed to involve the participation of all households in the selected islands as well as the Island Councils. 30. The key outputs of this sub-component are:

• A community awareness program to encourage community participation in island level SWM

• Updated island waste management plans (IWMPs)

• Household level segregation of solid waste into three groups: (i) recyclable material; (ii) organic waste for composting; and (iii) residual waste requiring off-island disposal

• An effective system of waste collection and transport to the IWMCs Sub-component 1.2: Implementation of an island level recycling and composting program at the IWMCs 31. Because of the high population density in inhabited islands and the dispersed geography of Maldives, conventional approaches to SWM are not applicable. Most inhabited islands have inadequate land available for solid waste disposal and therefore off-island disposal is often the only available alternative. Ocean transit is the only mode of transport for the transfer of residual waste to an off-island facility. Since transport costs are prohibitively expensive in Maldives, it is in the interest of any inhabited island to minimize the waste that would require off-island disposal. Approximately 70% of the solid waste stream is composed of biodegradable organic matter and could be managed at the island level through low cost, low technology composting at the IWMCs, thereby minimizing the amount of waste that would have to be transported to an off-island facility. While composting is often seen as an environmental luxury elsewhere in the world, it is vital and makes economic sense in Maldives because of the importance of reducing the costs of transport, off-island disposal and IWMCs where space constraints dominate. The non-degradable residue would be baled and stored under a protective cover at the IWMC site until the Thilafushi Island facility is rehabilitated. 32. The IWMCs that were constructed on inhabited islands presently do not have provisions for composting. Hence, this sub-component would finance: (i) the construction of a concrete pad for composting with a drainage system for leachate collection at each of the IWMCs; and (ii) training of staff to undertake simple windrow composting at the IWMCs.

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33. The key outputs of this sub-component are:

• Effective composting of the organic fraction of solid waste at the IWMCs

• Segregation of the recyclable waste that has a market for resale

• Baling and temporary storage of residual waste in a safe and environmentally responsible manner at the IWMCs until the waste is transferred for off-island disposal

Sub-component 1.3: Institutional capacity building of the Island Councils and communities for planning and managing an effective island level integrated SWM system 34. While GOM assigned the responsibility for SWM to the regional utility companies in six out of the country’s seven provinces, an arrangement has not been made for the Central Province, which includes the capital island, Male’. SWM services for the Central Province have been assigned to the recently created Waste Management Corporation WMC). The Ari Atoll is part of the Central Province, and therefore, SWM is WMC’s responsibility. However, the Island Councils are responsible for intra-island SWM while WMC is responsible for inter-island SWM. 35. This sub-component will build the institutional capacity of the Island Councils and Island Offices to effectively manage intra-island solid waste, including the development of a viable institutional mechanism for cost recovery through the introduction of user fees.

36. The key outputs of this sub-component are:

• Training for Island Councils and IWMCs in intra-island SWM

• An institutional mechanism for island level SWM that includes waste collection, transport and operations of the IWMCs

• Introduction of a cost recovery system through user fees for sustainable management of the IWMCs

Sub-component 1.4: Development of a strategy to operationalize the EU-financed IWMCs in the atolls of the Central Province 37. As previously mentioned, the EU trust fund aimed to support the construction of 16 IWMCs in inhabited islands in the atolls of the Central Province. However, for reasons described in paragraph (para.) 14, only 11 IWMCs were constructed and just two inhabited islands are making partial use of the IWMCs. Under the proposed project, the results – i.e., the development and implementation of an integrated SWM system in five pilot islands – would subsequently be scaled up in the other inhabited islands of the Central Province. This sub-component would support the development of a strategy to operationalize the remaining EC- financed IWMCs in the Central Province atolls. The key output of this sub-component is:

• A strategy for operationalizing the remaining EU-financed IWMCs in the atolls of the Central Province

Component 2: Development of institutional arrangements and implementation of a waste transfer system for off-island disposal of residual solid waste (US$579,500 excluding

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contingencies) 38. The objective of this component is to develop an effective, working institutional model to transfer residual waste from the participating islands of Ari Atoll to the Thilafushi Island facility and demonstrate the use of this model for residual waste transfer for all Central Province atolls. 39. The component would include the following activities:

• Development of a viable institutional mechanism which could include a public-private partnership (PPP) for the transfer of residual waste to the Thilafushi Island facility

• Development of a cost recovery mechanism for the residual waste transport system

• Procurement of a barge and associated equipment for the transfer of residual waste

• Transfer of residual waste from the participating pilot islands to a regional SWM facility, like the Thilafushi site

40. The Thilafushi facility has been identified by GOM as the ultimate disposal facility for solid waste in the Central Province until other regional waste disposal facilities are established in the future. Under the SWM component of the IDA-financed Maldives Environmental Management Project (MEMP) that is currently under implementation, a RWDF is proposed for establishment in the North Province. Nevertheless, because of the country’s geography as (Para. 11), the experience with the South Ari SWM project (Para. 14) and the environmental risks to coral reefs and human health, the construction of RWDFs, including the one supported under MEMP, and their near prohibitive costs have been enormous challenges for Maldives. 41. The residual waste from the islands participating in this project will use the Thilafushi facility for ultimate disposal of the waste. In the past, Thilafushi operated as an “open dump” with no precautions taken to minimize any adverse environmental impacts from solid waste disposal. Recently, GOM assisted by the International Finance Corporation (IFC),13 privatized the operations and management of the Thilafushi site. The private sector operator is contractually bound to improve the site’s conditions and operations in order to conform to guidelines on environmental safeguards of IFC and of GOM. Such contractual obligation represents a major and substantive step toward enhancing the environmental conditions of the Thilafushi facility in view of its checkered reputation. While this project will not support nor be involved in the operation of the Thilafushi site, the developer’s legal obligation to conform to IFC’s and GOM’s environmental guidelines renders the use of Thilafushi for residual waste disposal from islands participating in this project acceptable. 42. The privatization of the Thilafushi facility provided for the rehabilitation of the site, and under current projections, the process will likely take another 18 months. Until such rehabilitation is completed, the non-degradable residue from the IWMCs in the five pilot islands will be baled and stored under a protective cover in the respective IWMCs. In the unlikely event that the rehabilitation of the Thilafushi facility takes longer than anticipated and storage space for 13 IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in developing countries.

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the baled waste becomes a problem at the IWMCs, it is proposed that the baled waste would be transported to Thilafushi and stored on site until proper disposal is possible. 43. The potential adverse environmental impact of the residual waste is significantly reduced when compared with mixed solid waste because the organic fraction of the waste has been removed from the waste stream and subjected to composting at the island level. Studies have shown that the removal of the organic fraction of the waste from the residual waste stream reduces the pollution potential (as measured through the biochemical oxygen demand (BOD) of the waste) of the residual waste stream by about 90%. Therefore, the adverse environmental impact of residual waste disposal from the participating islands would be minimal compared to that of mixed waste disposal at the Thilafushi site at present.

44. The Thilafushi facility currently serves only Male’, a few surrounding islands and some resort islands, including a few outside the Male’ Atoll. An institutional mechanism for waste transfer from the Ari Atoll to the Thilafushi facility has not yet been developed. While GOM has delegated the overall responsibility for inter-island SWM in the Central Province to WMC, the exact role of WMC as the service provider needs to be formally established. Based on WMC’s existing capacity, the most appropriate role for the corporation is to serve as a partner on behalf of GOM within a public-private partnership (PPP) arrangement that contracts the transport of residual waste (from the Ari Atoll to the Thilafushi facility) to the private sector. The project would assist WMC in developing a suitable PPP for waste transfer from the five pilot islands to the Thilafushi facility as well as in making the waste transfer system operational. The project would also assist WMC in developing a viable institutional mechanism for waste transfer from the outer atolls in the Central Province to the Thilafushi facility as part of the process of operationalizing the remaining EU-financed IWMCs. 45. The key outputs of this component include:

• A viable institutional mechanism (including a PPP option) for residual waste transfer from islands participating in the project to the Thilafushi Island facility

• A cost recovery system for the residual waste transfer system developed under the project

• Procurement of a waste transport barge and associated equipment for waste transfer to the Thilafushi Island facility

• Development and testing of a waste transfer model suitable for other atolls in the Central Province

Component 3: Project Management (US$29,450 excluding contingencies) 46. The objective of this component is to establish an effective mechanism for project implementation, including monitoring and reporting of the implementation progress. An existing Project Management Unit (PMU) in MOEE manages the implementation of the IDA-financed MEMP. Component 3 will include the following additional costs at the existing PMU – incremental professional staff, individual consultancies and operating costs. While MOEE will have overall responsibility for implementing and ensuring that the project objective is met, it will

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execute the project through the EPA. The SWM Coordinator for MEMP in the PMU will be responsible for day-to-day technical coordination of this project with support from EPA’s SWM staff. The SWM Coordinator, supported by CCTF-designated staff and the PMU, will be responsible for the following functions: overall project and component management, liaison with other agencies and programs, financial management, procurement, monitoring and evaluation and project communications. Also, implementation support would be provided by EPA staff posted at the Island Offices of the five targeted islands for technical oversight and coordination among the participating Island Councils that will have the primary responsibility for island-level implementation. C. Project Financing Table

Table 2. Project Costs by Component

Project cost by component

Project cost (US$ million)

Maldives CCTF

Financing (US$ million)

% Financing

Component 1: Development and implementation of island level integrated SWM system 605,750 605,750 100 Component 2: Development of institutional arrangements and implementation of a waste transfer system for off-island disposal of residual solid waste 579,500 579,500 100 Component 3: Project management 29,450 29,450 100 Total project base costs 1,214,700 1,214,700 Physical contingency 45,000 45,000 Price contingency 66,300 66,300 Total project cost 1,326,000 1,326,000 100 D. Lessons Learnt and Reflected in Project Design 47. As previously mentioned, SWM in the context of the Maldives is unique because of the dispersed population in small islands and the acute scarcity of land on inhabited islands. The islands are marked by variation in local conditions with differences in: (i) the composition of waste between resort islands and inhabited islands; (ii) customs including the extent of community participation; and (iii) economic enterprise. 48. Past endeavors have failed because of inadequate consultation, insufficient assessment of local conditions and the lack of appropriate and simple waste management technologies that are accessible and understandable to the island residents. The design of this project benefited from the experiences of activities supported by AusAID, Canadian Red Cross, EU and other partners. Equally important, the experience in the preparation and the ongoing implementation of the IDA-financed MEMP informed the project design. Lessons from the social, institutional, financial (user pays framework) and technical assessments from the Best Practical Environmental Option (BPEO) – a screening, optimization and selection process with stakeholder involvement – carried out for MEMP’s SWM component have supported the development of the project design.

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49. Four important lessons have emerged from the above-mentioned projects. First, the program design ought to consider the local conditions which vary widely across atolls and within atolls. Second, strong consultations and community buy-in are key elements for the successful operation and sustainability of the system. IWMCs cannot operate satisfactorily unless an agreement has been reached with each participating community regarding the SWM modality and unless islanders have agreed to cooperate. Third, it is essential that the IWMCs are linked to a regional SWM facility through a regular waste transfer system. Finally, given the high cost of transportation, the waste volume needs to be reduced through composting of organic waste on the islands.14 With careful attention to the lessons learned from previous experiences and local authority-led, low cost, low technology composting projects in Sri Lanka, a viable SWM system for the participating islands can be implemented successfully. 50. In designing the project, considerable weight has been given to local preferences by carrying out public awareness and communications programs. The technical, financial and social assessments conducted under the EU-financed project (when the IWMCs were constructed) ensured that the IWMPs reflect the local conditions and needs. The experience from the existing IWMCs in Maldives shows that community participation in the recycling and resource recovery program is poor in most islands because of the need for an attitudinal change among the communities, the lack of a mechanism for the resale of recyclables, and the absence of facilities to transport residual waste to a regional SWM facility. In some instances, this has created a serious environmental and public health problem on inhabited islands, with waste accumulation spilling onto beaches. In other cases, island communities dump mixed solid waste along the shoreline with adverse consequences for reef habitat. Since the public awareness and communications campaigns were conducted a couple of years ago, a renewed program will be carried out under this project to encourage community participation. The availability of an off-island disposal facility for the removal of residual waste from the participating islands under this project would address the biggest and most significant constraint to the successful operations of the IWMCs. 51. The financial sustainability of the operations of the IWMCs is the next most significant constraint to a fully functioning integrated SWM system. Attempts to achieve full cost recovery from island communities have typically failed. To date, it remains uncertain whether all islanders will be willing to pay a fee for SWM. Their reluctance is due to: (i) skepticism about the capabilities of service providers; (ii) perception by communities about the lack of affordability vis-a-vis user fees; and (iii) misinformation that waste collection in Malé is provided free of charge. To overcome these concerns, the island communities must be convinced that reliable services can be provided at a reasonable rate and those services are tailored to the needs and preferences of the islanders. The social mobilization and outreach to be carried out by EPA and NGOs are intended to give island communities a sense of ownership. The project will begin SWM service in each island with at least a token payment from each household. With the provision of satisfactory service, the public would be encouraged to pay for the service they receive. Although recognizing that SWM is a public good, it is not expected that

14 While composting can be done at the household level or at the community level, experience in South Asia indicates that community or island level centralized composting systems would be the most appropriate. But for such a system to work, training and outreach are necessary to show islanders and IWMC workers how to properly compost organic waste.

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full operating cost recovery will be achieved and, as elsewhere in the world, a public subsidy will be necessary. 52. On the positive side, a community in one of the pilot islands is already paying modest user fees for waste disposal at the island level and this experience can serve as a model for the communities of the other islands. The financial sustainability of the waste transfer system and tipping fees at the Thilafushi Island facility would be assured through cross-subsidies from commercial enterprises, including resorts, with the shortfall financed by GOM. III. Implementation A. Institutional and Implementation Arrangements 53. The governance arrangements for CCTF would apply to this project as well. They comprise the NPC and CCAC led by the Office of the President and a Technical Committee of national experts. While MOEE has overall responsibility for this project, implementation will be carried out by EPA and the Island Councils in the targeted islands. The PMU staff for the ongoing IDA-financed MEMP will be augmented to carry out project management for this project as well. The PMU will coordinate project activities and will be directly involved with EPA in executing some specific sub-component activities. It will be responsible for the fiduciary aspects (financial management and procurement) of implementation. The PMU will have a part-time Project Manager who will be responsible for overall project management. Part-time Procurement and Financial Management (FM) Officers will be responsible for the project’s fiduciary management requirements. The PMU will be responsible for monitoring progress and evaluating the project’s outcomes. 54. EPA will provide technical oversight and coordination support to the participating Island Councils that will have primary responsibility for island-level implementation. The SWM Coordinator for MEMP in the PMU will also be responsible for day-to-day technical coordination of this project with support from EPA’s SWM staff. At the island level, an IWMC Coordinator will be designated from existing Island Office staff and trained in managing the operations of the IWMC on a day-to-day basis. WMC will be responsible for the waste transport system and the PPP arrangement. B. Monitoring and Evaluation of Results 55. Overall responsibility for monitoring and evaluation (M&E) – embedded in each component of the project – rests with the PMU. A results framework and monitoring matrix to track inputs, outputs and outcomes has been developed for the project with intermediate and key performance indicators (Annex 1). Project outcomes and outputs will be monitored during project supervision using data compiled by the PMU to evaluate progress. The PMU will keep track of the agreed indicators on a regular basis.

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56. The PMU’s SWM Coordinator will be responsible for M&E while EPA and the participating Island Councils will provide the necessary information, data and reports.15 The PMU will be supported by EPA in monitoring the implementation and performance of the SWM system. The technical capacity of the Island Offices in M&E is weak. Hence, the project will support the training of designated officials from the participating Island Offices on monitoring the performance of the IWMCs. 57. The PMU’s Project Manager will be responsible for convening all project stakeholders to discuss project performance, fulfillment of benchmarks, and to propose and adopt adjustments to the project design to facilitate achievement of the project’s goals. The raw data for M&E will consist of financial, procurement and physical progress reports along with financial audit reports submitted by the PMU. The M&E meetings will discuss the efficacy, efficiency, sustainability and acceptance by the population of the project activities. Compliance with quantitative benchmarks without considering the qualitative effects of the project activities will not be sufficient. Hence, the quantitative targets will be supplemented by narrative reports. The recommended periodicity of reports from the Island Offices to the SWM Coordinator is 120 days and the M&E meetings should take place at least annually.

C. Sustainability 58. The project is designed with an inherent emphasis on sustainability as it addresses some of the root causes of poor SWM in Maldives, such as the lack of systems for community involvement in SWM, local level solutions, limited technical capacity and an off-island waste disposal facility. Sustainability of IWMCs is one of the fundamental aspects of the project design as it incorporates community ownership, leadership and participation, training, capacity building in order to ensure financial viability. In the final analysis, however, the project’s long-term sustainability will depend on the participation of the other inhabited islands in the Ari Atoll and the acceptance by the resorts of the business value of participating in the SWM system and protecting the environment.

59. The project will finance the cost of construction of the composting pad, requisite equipment and training of island communities, Island Council officials and IWMC workers. In virtually all countries, SWM is recognized as a public good requiring government support to meet the full operational costs. It is anticipated that full-cost recovery for the operations and maintenance (O&M) of the IWMCs – i.e., island level activities only – is possible from user fees. 60. The costs of waste transfer and disposal is beyond the level of affordability of the island communities due to excessively high sea transport costs. Therefore, it is anticipated that resorts would cross-subsidize the waste transfer costs. In the past, some resorts were unwilling to cooperate with GOM on waste management which is not surprising because continuous monitoring is impossible. A possible way of addressing the perverse incentive and eliciting resort participation would be to include a (lump-sum) waste disposal surcharge in the room tax paid by resorts. Such cross-subsidization is especially needed in Maldives where the island geography drives costs higher than in other context. It was agreed with GOM that it will be necessary to ascertain and provide support for operations and maintenance of waste transfer. 15 The Bank will recommend that the Recipient carries out a household survey for monitoring some indicators.

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61. There is ongoing dialogue under MEMP implementation with the resorts on improving waste management and introducing user fees. Recently, the Minister for MOEE instructed EPA to introduce a log of waste leaving resorts and arriving at Thilafushi so that illegal dumping can be controlled. Policy and institutional issues around SWM are being addressed under MEMP. IV. Key Risks and Mitigation Measures 62. Potential risks and mitigation measures are summarized in the Operational Risk Assessment Framework (ORAF) shown in Annex 4. 63. The most significant risks relate to environmental safeguards. The option of continuing with the current practice (the do-nothing option) is itself environmentally destructive and highly damaging to coral reefs and other marine assets. It represents a visible risk to tourism and health. The SWM system and process supported by this project would represent an improvement to the current situation, although there are environmental risks that need to be considered and mitigated. Most islands in Maldives are small and unlikely to be of sufficient size to accommodate the entire volume of waste generated by island communities. Such a situation also prevails in the five targeted islands. This requires approaches that minimize the pollution potential and the volume of waste requiring final disposal. This will be achieved in this project through the removal of recyclables and composting of the organic waste fraction so that the residue requiring disposal can be significantly reduced. Although 70% of the waste stream is organic, a portion consists of combustibles, such as wood vegetation and branches that do not easily decompose during the composting process. Yet a significant portion of the organic waste can be stabilized through composting. 64. Even after the removal of recyclable and organic waste, adequate land is not available in the participating islands for disposal of the residual waste. This project proposes to transport the residual waste by barge to the Thilafushi facility. Previously, solid waste from Male and surrounding islands were dumped in the open or subjected to uncontrolled low temperature burning at Thilafushi Island. With IFC’s assistance, GOM awarded the operation and management of the Thilafushi facility to the private sector through a PPP. IFC recently concluded the competitive bid process with the selection of a private concessionaire, Tatva Global Renewable (Maldives) Private Limited, an Indo-German consortium of UPL Environmental Engineers Limited and Mittledeutsche Sanierunds-Und Entsorgungs Gesellschaft mBH (the “Concessionaire”). This consortium will undertake the operation of an integrated SWM project, which also includes setting up a 2.7 megawatt (MW) gasification plant at Thilafushi and creating an engineering controlled landfill. The integrated SWM facility at Thilafushi Island is contractually obligated to conform to IFC’s environmental safeguard policies. Therefore, the environmental risk related to the disposal facility is minimized. 65. GOM carried out an environmental and social due diligence (ESDD) for the project. It includes the environmental and social safeguard measures to be carried out during implementation.

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66. Although WMC is responsible for inter-island SWM in the Central Province, the institutional capacity of WMC to undertake this mandate is uncertain, especially acting as the service provider for waste transport. On the other hand, Maldives has significant experience with private sector operations of waste transport barges. Therefore, the project proposes the development of a PPP arrangement between WMC and a private service provider to minimize this risk. Responsibility for SWM in the inhabited islands and the Thilafushi Island facility is dispersed across a number of government agencies such as EPA, Island Councils, the Male City Council (as the Project Grantor for the PPP) and the private concessionaire. Despite some efforts, coordination, collaboration and communication among key officials and agencies remain uneven with differences in priorities. Project implementation risks would be mitigated through the cross-ministerial representation in the CCTF management structure. High-level engagement by senior officials would provide the enhanced oversight and accountability needed to facilitate project implementation. Finally, the PMU responsible for the project has gained knowledge and experience in supporting the implementation of the IDA-financed MEMP since 2008. 67. The overall risk rating for the project is “substantial.”

V. Project Appraisal A. Economic Analysis 68. The economic analysis for the proposed project utilizes the cost-effectiveness approach because the expected project benefits are not readily measurable in monetary terms. The technique takes into account the costs of various options and evaluates different alternatives with similar objectives. 69. The primary project benefits will be the substantial improvement to the environment through the reduction of threats to marine assets from degradation caused by indiscriminate disposal of solid waste and the introduction of systematic management of waste disposal sites and composting plants. These measures would preclude the dumping of waste or debris in areas visited by tourists, such as dive sites, sand banks and beaches, as well as the lowering of GHG emissions. Hence, the project will contribute to ensuring the competitive edge and high quality of the tourist industry, the mainstay of the Maldives economy. 70. The beneficiaries will include the island inhabitants since SWM will help reduce environmental health hazards. Also, the communities will benefit from the project’s capacity building program for waste separation. The Island Councils and Island Offices would also benefit from TA and training to strengthen their capacity to establish and maintain an integrated waste collection and transport system. The project is expected to have a significant demonstration effect to sensitize other island communities and Island Councils of the Central Province atolls (i.e., those beyond the five targeted islands) to participate in a better managed and environmentally sound SWM system. Private sector participation will be encouraged through contracting to private providers for the waste collection within the island and/or the transport of waste. The introduction of competition should increase efficiency. Some employment will be generated through the opportunities offered by presorting, collection and composting,

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particularly for lower income groups. 71. The project’s environmental and social benefits are significant but are not easily quantifiable. However, the data presented in Table 1 confirms that biodiversity and protection of coastal ecosystems form the foundation of economic activity in the Maldives, that is, for the national economy across sectors and for livelihoods.16 Biological resources and ecosystems are key components of development infrastructure. They provide the raw material, services and facilities required for the economy to prosper and grow and for the society to function effectively. The country’s rich biological and ecological asset base produces a flow of goods and services which, in turn, generates economic benefits and cost savings for the government, businesses, households and the global community. If managed sustainably, biological resources and ecosystems will continue to provide economically valuable services. On the other hand, if they are degraded, over-exploited or irreversibly converted, the economic benefits will decline, disappear and will become unavailable to sustain growth in the future.

72. While many of the benefits of the project cannot be quantified, it is expected that the benefits would substantially outweigh the costs. Because the quantitative measurement of the benefits was not possible, the technique applied here is the cost-effectiveness approach. It is the same one used for the economic analysis of the SWM component of the IDA-supported MEMP. The analysis for the proposed project applied similar assumptions as those for MEMP. In addition, the cost figures were extrapolated from the data related to various options analyzed for the SWM component of MEMP as shown in Annex 9 of the Project Appraisal Document (PAD).

73. Table 3 presents the investments to be undertaken under the project and compares them to the non-project options in terms of capital and operating costs. The top part of Table 3 presents the costs of the proposed project related to the following: (i) household level waste segregation program; (ii) retrofitting of the IWMCs in the pilot islands to enable composting, recycling and storage of residual waste; (iii) operating and maintenance costs of the IWMCs; (iv) purchase of one barge for the residual waste collection and transport to the Thilafushi facility; and (v) recurrent expenditures for transport to Thilafushi for final disposal.

74. The non-project options are presented in the lower part of Table 3 and they assume that each island would establish its own SWM system independently. That is, the options would differ from the integrated system proposed under the project. Five waste disposal options are evaluated: (i) no compaction with separation of recyclables; (ii) semi-compaction with separation of recyclables; (iii) heavy compaction with separation of recyclables; (iv) semi-compaction with separation of recyclables and organic waste; and (v) no compaction with separation of recyclables and organics. Moreover, the figures for the non-project options reflect the transport costs of hauling the residual waste from each individual island to the Thilafushi facility under the project. The costs of the non-project alternatives would vary with the extent of trash compaction and the scope for recycling and composting at the IWMCs.

16 Emerton, L. et al, 2009. Valuing Biodiversity: The Economic Case for Biodiversity Conservation in the Maldives. Report Produced for Atoll Ecossytem Conservation (AEC) Project by International Union for the Conservation of Nature (IUCN). Male.

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75. The results are summarized in Table 3. They suggest that the proposed project is more cost effective with a net present value (NPV) of costs (12% discount rate over 15 years) amounting to US$2.5 million. That figure is considerably less than the individual island options with the cost NPV ranging from US$7.7 to US$20.2 million. The results also imply that the project investments will entail the lowest user fees from the island communities, cross subsidy from the resorts and GOM subsidy when compared to those for the other options.

Table 3. Cost Effectiveness of Ari Atoll Project1/

(In thousands of US$)

Net present value 2/ 2012 2013 2014 2015 2016 2017 2018 2019 2020 2026

Ari Atoll project optionProject 6 1293 27Operating costs of island waste management centers (IWMCs) 58 60 61 63 64 66 67 67 72

Transport of residual waste from IWMCs to Thilafushi facility 160 165 169 174 177 181 184 186 200

Total Ari Atoll project option 2,487 6 1511 251 231 237 242 247 250 253 272

Island options

(i) No compaction with separation of recyclables Investment cost 3,187 7,742 6,475 5,956 3,560 Recurrent/operating cost 102 105 108 111 114 117 119 121 122 125 Total costs 20,210 3,289 7,847 6,584 6,067 3,674 117 119 121 122 125

(ii) Semi-compaction with separation of recyclables Investment cost 2,495 6,060 5,069 4,662 2,786 Recurrent/operating cost 102 105 108 111 114 117 119 121 122 125 Total costs 15,989 2,597 6,165 5,177 4,773 2,901 117 119 121 122 125

(iii) Heavy compaction with separation of recyclables Investment cost 1,942 4,718 3,946 3,629 2,169 Recurrent/operating cost 102 105 108 111 114 117 119 121 122 125 Total costs 12,620 2,044 4,823 4,054 3,741 2,284 117 119 121 122 125

(iv) Semi-compaction with separation of recyclables & organics Investment cost 1,240 3,013 2,520 2,318 1,385 Recurrent/operating cost 102 105 108 111 114 117 119 121 122 125 Total costs 8,340 1,342 3,118 2,628 2,429 1,500 117 119 121 122 125

(v) No compaction with separation of recyclables & organics Investment cost 1,138 2,765 2,313 2,127 1,271 Recurrent/operating cost 102 105 108 111 114 117 119 121 122 125 Total costs 7,718 1,240 2,870 2,421 2,238 1,386 117 119 121 122 125

1/ The cost-effectiveness approach used for the proposed project is based on the same technique applied to the SWM component of the IDA-financed

2/ Net present value at 12% calculated over 15 years.Maldives Environmental Management Project (MEMP). See Annex 9 of the Project Appraisal Document for MEMP, Report No. 43418-MV.

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B. Fiduciary 76. Financial Management (FM). The PMU within MOEE that currently supports the implementation of MEMP will implement the proposed project. The same PMU will also handle the FM arrangements under the project. An FM assessment of the PMU was completed by the Bank's FM specialist and the FM risk associated with the CCTF was rated as "moderate" which is similar to the rating under MEMP. The key findings are as follows: (i) Expenditures and fund flows under CCTF: A segregated Designated Account (DA),

denominated in United States Dollars (US$) will be set up by the PMU at the Maldivian Monetary Authority (MMA) to receive funds from CCTF. The World Bank will advance an amount to the account in MMA that would provide funding for the project to meet estimated expenditures for the next six months as forecasted in the interim unaudited financial reports (IFRs). Hence, the DA will have a variable ceiling. From the bank account, payments will be made to suppliers, vendors and consultants for CCTF's share of project activities. Although several agencies are involved in planning and coordinating the various sub-projects financed by CCTF, all funds will be paid for and spent at the PMU level to help simplify fund flows and project FM arrangements as well as to establish proper internal and operational controls from a fiduciary perspective.

(ii) Staffing: The PMU has FM personnel with hands-on experience in World Bank fiduciary procedures. The FM Officer assigned to MEMP will be responsible for the project's FM arrangements. He will be assisted by an FM Assistant who would be identified among MOEE staff and seconded to CCTF on a full-time basis.

(iii) FM manual: The FM manual used for MEMP has been updated for the purpose of implementing CCTF activities. This manual has detailed procedures on budgeting, accounting, fund flows, financial reporting and audit arrangements including the auditors' Terms of Reference (TOR). In addition, the manual also includes formats for accounting registers and books of accounts and the fixed asset and inventory management process. CCTF-specific business process flow mapping were updated as a separate chapter to the manual by the FM Officer after consulting with implementing agencies.

(iv) Accounting policies and procedures: All funds for the project will be routed through the PMU and the latter will be responsible for funding all project expenditures, accounting for them, and reporting on CCTF's financial and physical progress. Books of accounts for CCTF will be maintained on a cash basis and all applicable international accounting standards and policies will be applied. The accounting software currently used by the PMU will be used for CCTF. IFRs will be prepared on a cash basis and will also forecast funding needs for the next six months.

(v) Financial management information systems: The existing accounting system is voucher based, computerized, and a double entry system that can generate expenditure information similar to expenditure classification in the government budget by identifying the funding source. The PMU currently maintains the DAs for MEMP. These accounts are reconciled on a monthly basis which reflects good practice. A separate financial statement for the project will be prepared by the PMU to distinguish CCTF activities from those of MEMP. All CCTF books of accounts will be maintained as a separate sub-ledger in the accounting system.

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(vi) Financial reporting: The PMU is responsible for the project's overall financial reporting. Other government agencies involved in the projects will provide physical reporting, procurement progress and other documentation that may be required from an accounting and audit perspective, on a monthly basis to the PMU. Starting from the end of the first calendar quarter after project effectiveness, the PMU will submit quarterly IFRs to the Bank within 45 days from the end of each quarter.

(vii) Internal controls: The PMU's internal controls were assessed during preparation and determined as capable of ensuring transparency and accountability in operations and allowing smooth coordination of multiple agencies under CCTF. The PMU's internal controls, as documented in the FM manual, would be tailored to reflect CCTF activities, where necessary.

(viii) Internal audit: CCTF will be subject to a regular internal audit by a chartered accountant firm to assess whether the funds have been disbursed on a timely basis and have reached the intended recipients, and whether transactional controls and propriety have been maintained and used effectively and efficiently for the intended purposes. Detailed internal audit TOR will be included in the FM manual. The internal audit reports will be shared with the Bank.

(ix) External audit: Because of the workload and the capacity issues in the Audit Office of Maldives, CCTF's financial statements, as prepared by the PMU, will be audited by an independent audit firm acceptable to the Bank and selected from a shortlist of approved audit firms kept by the Office of Maldives Auditor General to maintain full transparency and provide adequate assurance to all stakeholders that funds were used for the purposes intended. They will also review the procurement undertaken by the project to ensure that it follows the Bank’s guidelines for procurement. The TOR for the external audit is part of the FM manual used by the PMU for CCTF-supported projects. The external audits would be conducted every fiscal year and audited financial statements together with the auditor's report will be submitted to the Bank within six months of the end of the fiscal year.

(x) Disbursement arrangements: The primary disbursement method will be advances. The other methods, such as reimbursement, special commitment, and direct payment disbursement methods will also be available. The supporting documentation required for documenting eligible expenditures paid from the DA will be the quarterly IFRs. Reimbursements would also be documented through IFRs. Direct payments will be documented through receipts. The minimum application size for reimbursements, special commitments and direct payments will be US$50,000 equivalent. The disbursement deadline date (i.e., the final date when the Bank will accept applications for withdrawal from the borrower or documentation on the use of grant proceeds already advanced by the Bank) will be four months after the grant’s Closing Date. Such grace period would be provided to permit the orderly project completion and closure of the grant account via the submission of applications and supporting documentation for expenditures incurred on or before the Closing Date. Expenditures incurred between the Closing Date and the Disbursement Deadline Date are not eligible for disbursement, except as otherwise agreed with the Bank.

(xi) Supervision plan: The supervision activities will include an FM supervision mission at

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least once every six months, supplemented by desk reviews of internal and external audit reports, quarterly financial reports and dialogue with project staff as needed.

77. Procurement. The procurement of all goods, works and non-consulting services required for and to be financed out of the proceeds of the CCTF grant shall be in accordance with the requirements set forth or referred to in the “Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank” (dated January 2011). Procurement of consulting services shall be in accordance with “Guidelines: Selection and Employment of Consultants under IBRD Loans & IDA Credits & Grants by World Bank Borrowers” (dated January 2011) and the provisions stipulated in the legal agreement. For each contract to be financed under the grant, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements and timeframe are agreed upon between GOM and the Bank in the procurement plan. 78. The following methods will be applicable for goods, works and non-consulting services consistent with the relevant sections of the Bank's Procurement Guidelines: International Competitive Bidding (ICB), National Competitive Bidding (NCB), Shopping (S), Direct Contracting (DC), and Community Participation (CP). The following methods will be applicable for consultant selection, consistent with the relevant sections of the Bank's Consultant Guidelines: Quality- and Cost-Based Selection (QCBS), Quality-Based Selection (QBS), Least Cost Selection (LCS), Fixed Budget Selection (FBS), Selection based on Consultants' Qualifications (CQS), Single-Source Selection (SSS), and Sole Source Procedures for the Selection of Individual Consultants. Consultant shortlists for services estimated to cost less than US$100,000 or equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 79. The Bank's standard request for proposal (SRFP) document will be used for all consultant services. The SRFP may be customized, as appropriate, for small value assignments (less than US$300,000). 80. The PMU will handle the procurement arrangements under the project. An assessment of the PMU’s procurement management was completed by the Bank's procurement specialist and the procurement-related risk for CCTF was rated as "moderate". The key findings of the procurement risk assessment that led to a moderate rating include: (i) Accountability: The PMU has a clear accountability system with clearly defined

responsibilities and delegation of authority on who has control of procurement decisions – in accordance with GOM's Financial Regulations, and more specifically the new Procurement Regulations which are to be adopted soon. Procedures for addressing complaints are not clearly defined but will be prepared in consultation with the Anti-Corruption Commission and the Tender Evaluation Board. The PMU has a well-documented set of implementation procedures manual, accessible to staff in the form of the Operations Manual for MEMP.

(ii) Record keeping: Records are well maintained, secure and protected at the PMU office, including documents relating to procurement processed through the Tender Evaluation Section.

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(iii) Staffing: The PMU consists of key staff with experience and a satisfactory track record in procurement and contract management but additional support is being provided with the recruitment of additional staff. The PMU will reflect details of GOM’s code of ethics as it becomes available in the Operations Manual – developed as a living document.

(iv) Procurement planning: The PMU has a track record of adhering to and updating realistic procurement plans.

(v) Bidding documents: Simple templates acceptable to the Bank exist for procurement methods.

(vi) Contract management and administration: There is a mechanism for procurement and/or contract monitoring (quarterly procurement monitoring reports).

(vii) Procurement oversight: Procurement is covered under external audit but is not sufficiently detailed. The Bank will conduct regular prior and post reviews, as identified in the procurement plan, and will share findings and recommendations with GOM and EU. The contract awards will be published on MEMP’s website for information to civil society groups.

81. The existing PMU with experience in the Bank's procurement guidelines and procedures will be responsible for all CCTF procurement activities. Therefore, procurement activity is expected to run smoothly.

Table 4. Procurement Methods and Prior Review Thresholds Expenditure Category

Contract Value (Threshold)

Procurement Method Contracts/Processes Subject to Prior Review

Works >US$30,000 NCB All contracts subject to post review <US$30,000 Shopping All contracts subject to post review <US$30,000 Community participation All contracts subject to post review

Goods >US$100,000 ICB All contracts costing over US$600,000

>US$30,000 and <US$600,000

NCB All contracts subject to post review

<US$30,000 Shopping All contracts subject to post review DC All contracts subject to prior review

Consultant Services (firms)

>US$100,000 All competitive methods; advertize internationally

All contracts over US$600,000

<US$100,000 All competitive methods; advertize locally

All contracts subject to post review

<US$300,000 CQS SSS All contracts

Individual Consultants

IC (Section V, Consultant Guidelines)

All contracts over US$60,000

IC – Sole source All contracts 82. The Procurement Specialist assigned to MEMP will be responsible for procurement under this project on a part-time basis and will be assisted by a full-time Procurement Officer and an Assistant identified from among MOEE staff. They will follow up, as necessary, on all

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procurement activities and liaise with GOM's Tender Evaluation Section for all contracts costing more than MVR 1.5 million in accordance with government requirements. All procedures and documents to be used for procurement activities are in the Operations Manual and have been appraised and will be reviewed, updated and agreed to with the Bank, as and when necessary. The thresholds for procurement methods and prior review are provided in Table 4 (prior review and method thresholds would be reviewed annually and adjusted, if necessary). 83. Procurement plan. The Recipient has developed the initial procurement plan for project implementation and has agreed with the World Bank on the procurement methods. The formal agreement between GOM and the Bank is expected to be signed in December 2012 and the plan will be provided by the PMU to the Bank. The procurement plan will be updated at least annually, or as required, to reflect actual needs vis-à-vis project implementation and institutional capacity. C. Environment and Social Due Diligence 84. Overall, the proposed project activities will contribute towards improved SWM in Maldives. The technical, financial and institutional approaches implemented under the project will serve as a suitable model for future SWM in other inhabited islands of the Central Province. The project is classified as Safeguards Category "A" primarily to reflect the risks involved in SWM both at the island level and at the Thilafushi Island facility. Under the PPP contract, the private concessionaire of the Thilafushi Island facility is contractually bound to conform to IFC environmental safeguards. The project will involve community-based waste recycling and resource recovery facilities, composting of the organic fraction as well as off-island regional waste disposal at Thilafushi Island for residual waste. Because the country’s ecosystems are fragile and the atolls are ringed by coral reefs that are among the world’s richest in species diversity and aesthetic appeal, the operation of these facilities could generate further environmental impacts although the project’s net environmental impact will be strongly positive. 85. Given that nature-based tourism is the country’s primary revenue earner, the economic and social well being of the population depends largely on maintaining a high level of environmental integrity. Sound environmental management in Maldives is, therefore, essential to ensuring continued growth and development. Maldives established a regulatory and institutional framework for environmental protection in 1993 by enacting the Environmental Protection and Preservation Act (EPPA). A National Environmental Action Plan (NEAP) and an update to the EPPA were completed in 1999. Several NEAPs have been implemented and they have served as GOM’s comprehensive framework for ensuring environmental protection and sustainable development during the years of implementation.

86. Environment plays a key role in national development as articulated in the 2009 SAP. A Ministry responsible for the environment was established in 2004 with mandate for environmental protection and management. The EPA was established in December 2008 as the environmental regulator. Therefore, the institutional and regulatory framework for environmental management in Maldives is in place, although institutional capacity for effective regulation and enforcement is weak and requires strengthening. The SWM component of the IDA-financed MEMP is directly aimed at addressing this weakness and the capacity building program is progressing satisfactorily. One of the greatest threats to public health from

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environmental-related issues is ad hoc disposal of solid waste on inhabited islands. The Ari Atoll SWM pilot project could provide a model for replication in other islands of Maldives.

87. Environmental impacts of significant concern. The do-nothing option is itself environmentally unsustainable and a risk to human health. Past experience indicates that because of the high population densities and the not-in-my-backyard (NIMBY) type of community opposition, it would be difficult to locate a residual waste disposal site in any of the participating islands. Therefore, the only available alternative is to either construct a regional facility on an uninhabited island or to transport the waste to the Thilafushi Island facility. Due to budgetary constraints, a regional facility in the Ari Atoll is not feasible. However, since the Thilafushi Island facility is within reasonable travel time from the participating islands in the Ari Atoll, residual disposal at the Thilafushi facility is a practical solution. Since GOM has signed a PPP contract with a private contractor for the upgrading and operation of the Thilafushi Island facility and the private contractor is contractually obligated to comply with IFCs environmental safeguard policies, the environmental risk of residual waste disposal is minimal. However, in order to reduce sea transport costs, the organic fraction of the waste will be composted on the island of origin. This would significantly decrease the pollution load of the residual waste sent for disposal to the Thilafushi Island facility.

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) X Natural Habitats (OP/BP 4.04) X Pest Management (OP 4.09) X Physical Cultural Resources (OP/BP 4.11) X Involuntary Resettlement (OP/BP 4.12) X Indigenous Peoples (OP/BP 4.10) X Forests (OP/BP 4.36) X Safety of Dams (OP/BP 4.37) X Projects in Disputed Areas (OP/BP 7.60) X Projects on International Waterways (OP/BP 7.50) X

88. GOM prepared an environmental and social due diligence (ESDD) report that would guide and ensure the safeguard requirements during all stages of the project. The ESDD includes the respective environmental management plans (EMPs) that GOM prepared for the five participating islands. The PMU will include an ESDD Coordinator who will be responsible for the overall implementation of the EMPs and will liaise with other agencies at the island level to implement safeguard mitigation measures, monitoring and evaluation of implementation and report on compliance and status of performance indicators. D. Policy Exceptions 89. No policy exceptions are sought.

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Annex 1: Results Framework and Monitoring

MALDIVES: Ari Atoll Solid Waste Management Project

PDO: build technical and human resource capacity to effectively manage solid waste generated in selected inhabited islands of the Ari Atoll, thereby reducing the environmental risks to marine habitats and GHG emissions

PDO Level Results

Indicators Cor

e Unit of Measure Baseline Cumulative Target Values Frequency Data Source /

Methodology Responsibility for Data Collection

Description (indicator definition

etc.) Y1 Y2 Indicator One: Five pilot islands participating in an integrated SWM system composed of: (i) waste segregation at the household level; (ii) composting of organic waste, recycling and storage of residual waste prior to final disposal at the IWMC level; and (iii) a transport system for removal of the residual waste from the IWMCs and disposal at the regional waste disposal facility(RWDF) in Thilafushi Island

Number No proper SWM practices in place in all participating islands

2 5 Bi-annual M&E report EPA, Island Councils

Demonstrate the adoption of integrated SWM practices for GHG emission management

Indicator two: All five targeted islands with functioning IWMCs have no observed spillage

Number Targeted islands do not have functioning IWMCs

2 5 Bi-annual M&E report EPA, Island Councils

Assess the functionality of the IWMCs in reducing the environmental risks to marine habitats and GHG emissions

INTERMEDIATE RESULTS Intermediate Result (Component 1): Development and implementation of an island level integrated SWM system Indicator one: Five community-based Island Waste Management Plans are updated for the participating islands

Number Consist of outdated Island Waste Management Plan

5 - Bi-annual M&E report EPA, Island Councils

Develop community owned and implementable SWM plans

Indicator two: 50% of households carry out segregation of solid

% Currently source segregation is not carried out by the

25% 50% Bi-annual M&E report EPA, Island Councils

Demonstrates that island communities are committed in source segregation of solid

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waste communities waste Indicator three: The recycling and composting programs are effectively implemented in all five participating islands

Number No recycling and composting programs in place

2 3 Bi-annual M&E report EPA, Island Councils

Island communities are involved in sound solid waste management practices such as composting and recycling

Indicator four: At least one community member in each participating island is successfully trained in SWM practices to manage the IWMC

Number Where IWMCs are present, there is no dedicated personnel to manage the centers

2 5 Bi-annual M&E report EPA, Island Councils

Ensure the IWMCs are properly managed reducing the risks of contamination

Indicator five: At least two islands with targeted households pay user fees for island level waste management

Number Households in all participating islands do not pay user fees for SWM

- 2 Bi-annual M&E report EPA, Island Councils

Introduction of a cost recovery system through user fees for sustainable management of the IWMCs

Indicator six: A strategy in place to operationalize the remaining EU-financed IWMCs in the Atolls of the Central Province

Output Currently there is no strategy to operationalize the EU- financed IWMCs in the Central Province

- Central Province IWMC operationalizing strategy

Bi-annual M&E report EPA, Island Councils

Strategy is required to scale up the piloted integrated SWM system for use in other inhabited islands in the Atolls of the Central Province in the future

Intermediate Result (Component 2): Development of institutional arrangements and implementation of a waste transfer system for off-island disposal of residual solid waste Indicator one: Institutional mechanism for transfer of residual waste developed

Output Functional institutional mechanism for transfer of residual waste is not in place

Institutional mechanism for transfer of residual waste

- Bi-annual M&E report EPA, Island Councils

Institutional arrangements and implementation of a waste transfer system for off-island disposal of residual solid waste are in place

Indicator two: Cost recovery system for the transfer of residual waste developed

Output There is no cost recovery system for the transfer of waste

- Cost recovery system

Bi-annual M&E report EPA, Island Councils

Development of a cost recovery mechanism for the residual waste transport system

Indicator three: All 5 islands’ residual waste transferred to a regional SWM facility

Number All waste are dumped in the island and occasionally transferred to a regional facility based on the availability of funds and transportation facilities

2 5 Bi-annual M&E report EPA, Island Councils

Transfer of residual waste from the participating pilot islands to a regional SWM facility, like the Thilafushi Island facility

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Annex 2: Detailed Project Description

MALDIVES: Ari Atoll Solid Waste Management Project 1. Solid waste is one of the most visible environmental threats to the Maldives tourism industry.17 With a highly dispersed population spread across numerous islands the scope for harnessing scale economies for managing waste is limited and the costs of delivering services are high. In addition, with restricted endowments of land, the space available for disposing waste is limited, calling for the waste stream to be minimized through incentives for recycling and composting. Finally, a fragile marine ecosystem requires special attention to the choice of technology and system design to mitigate adverse impacts with further cost implications. 2. Reflecting the Maldives’ uniquely challenging geography and fragile ecology, the program will operate at multiple levels. The construction of an Island Waste Management Center (IWMC) in each of the five participating inhabited islands will provide facilities for island communities to sort, recycle, compost and store their residual waste in a safe and environmentally responsible manner. A key objective of an IWMC is to minimize the amount of residual waste requiring transport to an off-island final disposal facility. The Thilafushi Island facility will serve as the destination for residual waste from the IWMCs participating in the program. This will be supported by allied services such as sea transport facilities, technical assistance, community programs and financial systems – all of which will be guided by stringent environmental criteria. The IWMC facilities will be operated to the highest appropriate standards to reduce the risk of contamination from solid waste. The private sector operator of the Thilafushi facility is contractually obligated to operate the facility to IFCs environmental safeguard standards, thus ensuring minimal environmental risk from waste disposal. 3. The project will support pilot efforts to demonstrate an integrated SWM program for the inhabited islands in the Ari Atoll of the Central Province. The piloting is intended to catalyze the operationalization of the remaining IWMCs financed by the European Union (EU) in the post-tsunami period as well as other IWMCs supported by other development partners in the Ari Atoll. The IWMCs constructed were not used or partially used because of the lack of access to a suitable site for off-island disposal of the residual waste. With the rehabilitation of the Thilafushi facility under the recently signed PPP contract, an off-island disposal facility has become available for residual waste from Ari Atoll. 4. The proposed project will have three components that have been designed based on consultations held with GOM, civil society and other stakeholders as well as technical assessments undertaken and lessons learnt during the discontinued EU-financed South Ari Solid Waste Management (SWM) Project.

17 World Bank. 2012. “What A Waste: A Global Review of Solid Waste Management.” Urban Development Series No. 15. March. Annex J of the report provides the following current available data on municipal solid waste (MSW) generated in Maldives: 2.48 kilograms per capita per day and 175 tons per day. The report provides the following corresponding projections on MSW generation in 2025: 2.2 kilograms per capita per day and 513 tons per day. The latter would represent an increase of 193%.

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Component 1: Development and implementation of an island level integrated SWM system (US$685,000 including contingencies) 5. This component aims to build the institutional capacity of the Island Councils and communities to plan and implement an island level integrated SWM program in order to minimize environmental risks to the country’s marine and terrestrial assets while reducing GHG emissions. The project would support the following activities:

• Community participation in source segregation of solid waste

• Implementation of an island level recycling and composting program at the IWMCs

• Institutional capacity building of the Island Councils and communities for planning and managing an effective island level integrated SWM system

• Development of a strategy to operationalize the remaining EU-financed IWMCs in the atolls of the Central Province

Sub-component 1.1: Community participation in source segregation of solid waste 6. The island Waste Management Plans (IWMPs) for the inhabited islands that participated in the discontinued EU-financed project were prepared with the participation of the island communities. Implementation of the IWMPs requires community involvement in the source separation of household solid waste prior to collection and transport to the IWMCs. Although basic community awareness was created under the EU-financed project, virtually no source separation of household waste is taking place in the islands at present. This is due to two factors: (i) inadequate community commitment to participate in island level SWM; and (ii) lack of a waste transfer and disposal system for residual waste from the inhabited islands for ultimate off-island disposal. Based on community feedback, the lack of a waste transfer system for removal of residual waste for off-island disposal is the main reason for inadequate community participation. This sub-component is designed to address the lack of community commitment to participate in island level SWM. Component 2 will address the issue of the transfer of residual waste from the IWMCs for ultimate disposal at the Thilafushi facility. 7. Alternatives to the current systems of waste collection within the island and transport to the IWMCs will be explored to develop a sustainable system with the right incentives for community participation. A viable waste transfer system for removal of residual waste for off-island disposal would generate community enthusiasm for participation in island level SWM. Framework agreements between the Island Councils, the communities and the Environmental Protection Agency (EPA) outlining the roles and responsibilities of each party will be prepared under the project. 8. This sub-component will create community awareness on the environment and public health implications of poor SWM in the respective islands and solicit community participation for source segregation of household level solid waste. To ensure a simple segregation process at the household level, the waste will be separated into three categories: (i) organic or degradable waste; (ii) recyclable waste or waste material that has a resale market; and (iii) residue for disposal at the off-island disposal facility. Simple segregation would enable greater community

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participation and relatively easy separation of recyclables at the IWMC. 9. There is a potentially lucrative market for compost in the Maldives. The islands are made of coral sand and organic matter needs to be combined with sand to enrich the soil for plant growth. The resorts in the Maldives currently import compost from Sri Lanka and India for their gardens. Consultations with the resorts have confirmed their willingness to purchase compost domestically than to import. Because the amount of compost produced is small, virtually 100% of the compost can be purchased by the closest resort. The project will assist in forging linkages between the islands and the surrounding resorts. Indeed, discussions between some islands and resorts have already commenced. In addition, one of the participating islands is an agricultural island where a high demand for compost is expected.

10. Community participation will be achieved through: (i) strengthening community awareness and launch of active community participation in source separation of waste at the household level; (ii) establishing an effective waste collection and transport system in the inhabited islands; and (iii) having access to an off-island disposal facility for removal of residual waste. The community programs will be designed to involve the participation of all households in the selected islands as well as the active involvement of the Island Councils. 11. The key outputs of this sub-component are:

• A community awareness program to encourage community participation in island level SWM

• An updated island waste management plan

• Household level segregation of solid waste into three groups: (i) recyclable material; (ii) organic waste for composting; and (iii) residual waste requiring off-island disposal

• An effective system of waste collection and transport to the IWMCs Sub-component 1.2: Implementation of an island level recycling and composting program at the IWMCs 12. Due to the high population density on inhabited islands and the dispersed geography of Maldives, conventional approaches to SWM are not applicable. Most inhabited islands have inadequate land available for solid waste disposal therefore off-island disposal is often the only available alternative. Ocean transit is the only mode of transport for the transfer of disposable solid waste to an off-island facility. Since transport costs are prohibitively expensive in Maldives, it is in the interest of any inhabited island to minimize the waste requiring off-island disposal and reducing the frequency of off-island residual waste transport. Approximately 70% of the solid waste stream is composed of biodegradable organic matter and could be managed at the island level through low cost, low technology composting at the IWMCs, thereby minimizing the amount of waste requiring transfer to an off-island facility. While composting is often seen as an environmental luxury elsewhere in the world, it is vital and makes economic sense in Maldives to reduce the costs of transport, off-island disposal and IWMCs where space constraints dominate.

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13. As already mentioned, no separate collection of recyclable waste is practiced at present. Mixed waste is collected and the food waste is dumped in the sea and the rest of the comingled waste is either dumped in the open or burned at the IWMCs. Maldives has no rag pickers inhabiting any of the islands. With a per capita income of $6,530, it is classified by the World Development Indicators as an upper middle-income country based on per capita income. The communities in Maldives are better off than those in most South Asian countries. 14. There will be no leachate treatment facility at the IWMCs. All leachate will be collected and re-circulated into the compost piles as moisture. A significant amount of moisture addition is needed for composting. Based on prior studies in the Maldives, about 20% of the waste is recyclable. Therefore, once the organic fraction has been composted and recyclables have been removed, the residual waste requiring disposal is small and relatively inert.

15. The residual waste which is non-degradable can be stored at the IWMC for a longer period of time – such as a month or six weeks – prior to transport for off-island disposal. This would contribute towards a significant reduction in transport costs and increase the project’s economic viability. 16. The IWMCs that have been constructed on inhabited islands do not have provision for composting. Therefore, this sub-component would finance: (i) the construction of a concrete pad for composting with a drainage system for leachate collection at each IWMC; and (ii) training of staff to undertake simple windrow composting at the IWMC. A team of officials from two of the pilot islands and staff from EPA and MEMP’s PMU have already been trained at the Weligama Urban Council solid waste composting facility in Sri Lanka on the simple windrow composting process that will be replicated under this sub-component. 17. The key outputs of this sub-component are:

• Effective composting of the organic fraction of solid waste at the IWMCs

• Segregation of the recyclable waste that has a market for resale

• Baling and temporary storage of residual waste in a safe and environmentally responsible manner at the IWMC until the waste is transferred for off-island disposal

Sub-component 1.3: Institutional capacity building of the Island Councils and communities for planning and managing an effective island level integrated SWM system 18. While GOM assigned the responsibility for SWM to the regional utility companies in six out of the country’s seven provinces, an arrangement has not yet been made for the Central Province, which includes the Capital Island, Male’. SWM services for the Central Province have been assigned to the recently created Waste Management Corporation (WMC). The Ari Atoll falls within the Central Province, and hence, SWM will be the responsibility of the WMC. Overall SWM is WMC’s mandate but intra-island SWM will still be the responsibility of the Island Councils and inter-island SWM will be within WMC’s purview.

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19. This sub-component will build the institutional capacity of the Island Councils and Island Offices to effectively manage intra island solid waste, including developing a viable institutional mechanism for cost recovery through the introduction of user fees. The key outputs of this sub-component are:

• Training for Island Councils and IWMCs in intra-island SWM

• An institutional mechanism for island level SWM that includes waste collection, transport and operations of the IWMCs

• Introduction of a cost recovery system through user fees for sustainable management of the IWMCs

Sub-component 1.4: Development of a strategy to operationalize the EU-financed IWMCs in the atolls of the Central Province 20. As previously mentioned, the previous EU-funded project aimed to support the construction of sixteen IWMCs in inhabited islands in the atolls of the Central Province. However, only eleven IWMCs were constructed and just two inhabited islands are making partial use of the IWMCs. The five- island pilot project is intended to develop and implement an integrated SWM system that could be scaled up for use subsequently in other inhabited islands in the atolls of the Central Province. The project would explore options for encouraging resort islands and other inhabited islands with IWMCs in the Central Province atolls to join the islands with EU-financed IWMCs in developing a full-fledged regional SWM system (assuming the pilot is successful). 21. This sub-component will support the development of a strategy to operationalize the remaining EU-financed IWMCs in the Atolls of the Central Province. The key output is:

• A strategy for operationalizing the remaining EU-financed IWMCs in the atolls of the Central Province

Component 2: Development of institutional arrangements and implementation of a waste transfer system for off-island disposal of residual solid waste (US$610,000 including contingencies) 22. The regular transfer of recyclable material to markets and residual waste for off-island disposal will be necessary if the IWMCs are to operate successfully. As inhabited islands have inadequate land for waste disposal and the IWMCs have limited area for waste storage, the regular transfer of waste is an absolute necessity. Since the biodegradable organic waste will be stabilized through composting, it is only the residual non-degradable waste – as segregated recyclables – that need to be transferred for off-island disposal. In view of the exorbitant costs of sea transport of waste, the removal of non-degradable residue from the composting process could be undertaken once a month or once in six weeks. The residue is not expected to generate odors or attract flies. As an additional precaution, the project will support the procurement of baling machines in each island so that the waste can be baled and stored. This will minimize any pollution potential from storage of the residue.

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23. The project will explore the feasibility of mobilizing communities to pay for part of the SWM costs. Cross-subsidies from participating tourist resorts or other local enterprises and GOM are necessary to make the system economically sustainable.18 In keeping with the National Solid Waste Management Policy, private-sector participation in the operation of the waste transfer service will be considered through competitively bid contracts. WMC would supervise the contract management. This component has three objectives: (i) ensuring that the residual waste from the plot islands is transferred to an environmentally acceptable SWM facility for ultimate disposal; and (ii) assisting in the development of an effective institutional model to transfer residual waste from inhabited islands and resorts in the Ari Atoll to the Thilafushi facility; and (iii) demonstrating the model for residual waste transfer for all Central Province atolls. 24. The component would include the following activities:

• Development of a viable institutional mechanism, which could include a public-private partnership (PPP), for the transfer of residual waste to the Thilafushi Island facility

• Development of a cost recovery mechanism for the residual waste transport system

• Procurement of a barge and associated equipment for the transfer of residual waste

• Transfer of residual waste from the participating pilot islands to a regional SWM facility, like the Thilafushi site

25. The Thilafushi site has been identified by GOM as the ultimate disposal facility for solid waste in the Central Province until other regional waste disposal facilities are established in the future. Therefore, the residual waste from the islands participating in the project will use the Thilafushi Island facility for ultimate disposal of the waste. In the past, Thilafushi operated as an “open dump” with no precautions taken to minimize adverse environmental impacts from solid waste disposal. Recently, GOM assisted by the International Finance Corporation (IFC),19 privatized the operations and management of the Thilafushi site. The private sector operator is contractually bound to improve the site’s conditions and operations in order to conform to guidelines on environmental safeguards of IFC’s as well as GOM. While this project will not support nor be involved in the operation of the Thilafushi site, the developer’s legal obligation to conform to IFC’s and GOM’s environmental guidelines renders the use of Thilafushi for residual waste disposal from islands participating in this project acceptable. 26. The potential adverse environmental impacts of the residual waste is significantly reduced when compared with mixed solid waste because the organic fraction of the waste has been removed from the waste stream and subject to composting at the island level. Studies have 18 The team encountered resistance to the institution of new taxes or fees on resorts from the Ministry of Tourism and Civil Aviation. Currently resorts transport their residual waste at their own expense to the Malé landfill or Thilafushi often using supply vessels returning to Malé. There is no certainty that resorts would volunteer to use the RWMF or the associated transport infrastructure, nor are there audits of waste (from any source) to determine how these are disposed. However, GOM has tabled legislation that would make the use of the RWMF mandatory. 19 IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in developing countries.

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shown that the removal of the organic fraction of the waste from the residual waste stream reduces the pollution potential (as measured through the Biochemical Oxygen Demand (BOD) of the waste) of the residual waste stream by about 90%. Therefore, the adverse environmental impact of disposal of residual waste from islands participating in the project is minimal compared to the mixed waste being discarded at Thilafushi at present. 27. The Thilafushi facility currently serves only Male’, a few surrounding islands and some resort islands, including a few outside the Male’ Atoll. An institutional mechanism for waste transfer from the Ari Atoll to the Thilafushi facility has not yet been developed. While GOM has delegated the overall responsibility for inter-island SWM in the Central Province to WMC, the exact role of WMC will be to manage and regulate the service provider. The project would assist WMC in developing a suitable PPP arrangement for waste transfer from the five pilot islands to the Thilafushi Island facility as well as in making the waste transfer system operational. The project would also assist WMC in developing a viable institutional mechanism for waste transfer from the outer atolls in the Central Province to the Thilafushi facility as part of the process of operationalizing the remaining EU-financed IWMCs. 28. The privatization of the Thilafushi facility provided for the rehabilitation of the site, and under current projections, the process will take another 18 months. Until such rehabilitation is completed, the non-degradable residue from the IWMCs in the five pilot islands will be baled and stored under a protective cover in the respective IWMCs. In the unlikely event that the rehabilitation of the Thilafushi facility takes longer than anticipated and storage space for the baled waste becomes a problem at the IWMCs, it is proposed that the baled waste would be transported to Thilafushi and stored on site until proper disposal is possible. 29. The key outputs from this component are:

• A viable institutional mechanism (including a PPP option) for residual waste transfer from islands participating in the project to the Thilafushi Island facility

• A cost recovery system for the residual waste transfer system developed under the project

• Procurement of a waste transport barge and associated equipment for waste transfer to the Thilafushi Island facility

• Development and testing of a waste transfer model suitable for other atolls in the Central Province

Component 3: Project Management (US$31,000 including contingencies) 30. The objective of this component is to establish an effective mechanism for project implementation, including monitoring and reporting of the implementation progress. This component will include the following additional costs at the existing Project Management Unit (PMU) – incremental professional staff, individual consultancies and operating costs. While the Ministry of Environment and Energy (MOEE) will have overall responsibility for implementing and ensuring that the project objective is met, it will execute the project through the EPA. The SWM Coordinator for MEMP in the PMU will be responsible for day-to-day technical

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coordination of this project with support from EPA’s SWM staff. The SWM Coordinator, supported by the PMU and CCTF-designated staff, will be responsible for the following functions: overall project management, component management, liaison with other agencies and programs, financial management, procurement, monitoring and evaluation and project communications. Also, implementation support would be provided by EPA staff posted at the Island Offices of the five targeted islands through technical oversight and coordination among the participating Island Councils that will have the primary responsibility for island-level implementation.

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Annex 3. Institutional Arrangements

MALDIVES: Ari Atoll Solid Waste Management Project 1. Overall governance. The overall governance arrangements for CCTF would apply to this project as well. They comprise the National Planning Council (NPC), the Climate Change Advisory Council (CCAC) led by the Office of the President and a Technical Committee (TC) of national experts. The CCAC is responsible for providing strategic guidance to the CCTF, ensuring the trust fund’s alignment with the country’s climate change priorities and Strategic Action Plan (SAP), and seeking the approval of NPC (the apex planning committee of GOM for all development programs) to finance technically sound proposals. The TC is composed of technical experts, private sector and leading civil society organizations. It is responsible for reviewing proposals for funding and recommending technically sound ones to CCAC for financing, monitoring overall progress of project implementation and assessing results of the project on the ground. The Ari Atoll Solid Waste Management (SWM) pilot project proposal complied with the governance mechanism described above and was approved by the NPC and CCAC in October 2011. 2. Component 1: Development and implementation of island level SWM systems will be implemented by the Island Councils of the participating pilot islands. However, due to constraints in technical capacity in the Island Councils on SWM, the Project Management Unit (PMU) will provide technical support to operate the island waste management centers (IWMCs), especially the compost plants, and training for officials and staff of the Island Councils to enable the latter to assume sole responsibility for managing the IWMCs by the end of the project’s first year. Community awareness and training for participation in island level SWM will be provided by consultants and managed by the PMU. The PMU will also be responsible for safeguard and fiduciary aspects of the project (mainly financial management and procurement) in view of the limited capacity of Island Councils at this stage. The Environmental Protection Agency (EPA) will assign an official responsible for regulatory oversight of the operation of IWMCs. 3. Component 2: Development of institutional arrangements and implementation of a waste transfer system for off-island disposal of residual solid waste will be led jointly by the PMU and the Waste Management Corporation (WMC). A public-private partnership (PPP) between WMC and the private sector will be developed for the transfer of residual waste from the participating islands to the Thilafushi facility. The PMU would assist WMC in developing the PPP arrangement. Regulatory oversight will be provided by EPA. 4. Component 3: Project management. The Ministry of Environment and Energy (MOEE) will maintain overall responsibility for the proposed project. The PMU will handle all project management activities and achievement of its objectives with regulatory oversight provided by the Environmental Protection Agency (EPA). The PMU staff will be led by a Project Manager and include a Procurement Officer, Financial Management Officer and Environmental and Social Safeguards Officer. The PMU will be strengthened with the recruitment of a SWM Coordinator with technical solid waste knowledge and an engineering background who would be able to take a lead in Component 1, in particular.

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Annex 4: Operational Risk Assessment Framework (ORAF)

MALDIVES: Ari Atoll Solid Waste Management Project

Stage: Approval (Disclosable Version) Project Stakeholder Risks Rating Moderate Description: The main risk would be the reluctance of the island communities to pay user fees for solid waste management (SWM) because of misperceptions about affordability and misgivings about the quality of service providers.

Risk Management: The pilot project is contributing to the country’s national policies to implement sustainable practices in environmental management and promote economic growth at the same time that the population grapples with the realities of climate vulnerability. The project will entail social mobilization and outreach (training, communications) to be carried out by EPA in collaboration with NGOs. Satisfactory services by SWM providers will allay concerns about quality of the service. By disseminating information on the public good nature of SWM as well as the role of the government and the resorts in ensuring the financial viability of the SWM system, households in the participating islands would be encouraged to make payments. Resp: Client Stage: Imp Due Date: 9/30/2014 Status: Not yet due

Implementing Agency Risks (including fiduciary) Capacity Rating: Substantial Description: The Environmental Protection Agency (EPA) and the Island Offices are understaffed and overstretched with broad mandates and limited experience in managing externally financed projects.

Risk Management: Some sections of EPA are gaining experience in working with Bank and other donor-financed projects while the Island Offices will be on the steep part of the learning curve. The Project Management Unit (PMU) for the project has been implementing the SWM component of the IDA-financed Maldives Environmental Management Project (MEMP), two other projects financed by the Maldives Climate Change Trust Fund (CCTF). The PMU will be responsible for overall coordination and support to implementation vis-à-vis this project. Resp: Client Stage: Prep & Imp Due Date: 9/30/2014 Status: Not yet due

Governance Rating: Moderate Description: Progress with implementation may be delayed by weak decision-making, accountability, oversight and the need for collaboration among the Island Offices and other stakeholders in SWM. Project implementation will be carried out largely at the local level (i.e., the islands), thereby raising the risk of

Risk Management: The high-level Maldives Climate Change Advisory Committee (CCAC) has oversight and accountability for the project. CCAC had reached agreement on the priority areas to be supported by the Maldives Climate Change Trust Fund (CCTF). The implementing agency, EPA, prepared and submitted a proposal for the project to the Technical Committee (TC) and National Planning Council (NPC) and both structures endorsed the project.

Like the IDA-financed MEMP, the legal agreement for the Recipient-executed grant

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misuse of project funds, poor performance by contractors and quality issues.

requires compliance with the Bank’s Anti-Corruption Guidelines during implementation.

Resp: Client Stage: Prep & Imp Due Date: 9/30/2014 Status: Not yet due Project Risks Design Rating: Substantial Description: The cost recovery aspect may be difficult to implement. Resorts may be resistant to accepting part of the burden of SWM costs.

Risk Management: In the Maldives context, this risk would be mitigated through cross-subsidies from tourist resorts as well as user fees to be charged on the communities in the inhabited islands. However, ahe community in one of the pilot islands is already paying modest user fees for waste disposal at the island level and such example would serve as a model for the other targeted islands. The Government recognizes that SWM is a public good and that it would need to cross-subsidize the system. Additionally, the national SWM policy proposes mandatory participation of resorts in regionalized SWM programs. Resp: Client Stage: Imp Due Date: 9/30/2014 Status: Not yet due

Social & Environmental Rating: Substantial Description: Weak environmental monitoring and enforcement capacity at EPA could contribute toward poor compliance monitoring, especially with regard to the Thilafushi Island disposal facility and at the IWMC levels.

Risk Management: The IDA-financed MEMP that is under implementation is strengthening EPA’s capacity in the area of SWM. IFC will be responsible for ensuring compliance of the Thilafushi Island facility with World Bank Group safeguards policies. TA has been provided to the Male City Council on the management of the regulatory aspects of the public-private partnership contract which includes compliance with IFC mandated safeguards. An environmental and social due diligence (ESDD) for the project and environmental management plans (EMPs) for the five pilot islands were prepared by GOM. The ESDD and EMPs cleared by the Bank’s safeguards specialist includes a detailed and time-bound action plan for monitoring and mitigating safeguard risks. Resp: Client Stage: Prep Due Date: 9/30/2014 Status: Not yet due

Program & Donor Rating: Moderate Description: Appraisal of the project is scheduled for July 2012. While the pilot project is designed in such a way that implementation would be completed in approximately three years. Any start-up delay related to unforeseen constraints or issues could hamper the achievement of the project development objective.

The recent extension of the CCTF’s closing date to March 31, 2015 has mitigated the risks of a much shorter implementation period. The prospects for further financing are expected to be positive if implementation performance is satisfactory.

Resp: Bank and Donors

Stage: Prep & Imp. Due Date: 9/30/2014 Status: Not yet due

Delivery Monitoring & Sustainability Rating: Substantial Description: Community participation is central to the success of the Island Waste Management Centers, but may

Risk Management: In a study of environmental perceptions, Maldivians selected solid waste as their most critical problem. With sharpened environmental awareness,

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not be forthcoming since there is little experience with community mobilization.

community training and full participation in the decision-making process, the island communities are expected to develop full ownership of the SWM system Resp: Client Stage: Impl Due Date: 9/30/2014 Status: Not yet due

Overall Risk Rating: Substantial Comments: The risk rating is associated with EPA’s capacity to implement the project, the necessary acceptance of the system of user fee charges by the communities for island-level SWM in all of the pilot islands, the requisite subsidy element from GOM and the resorts as well as the process required for the island communities to develop full ownership of the SWM system.

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Annex 5. Implementation Support Plan

MALDIVES: Ari Atoll Solid Waste Management Project

Strategy and Approach The strategy for implementation support would build on the experience gained during the implementation of the IDA-financed Maldives Environmental Management Project (MEMP) and the preparation of this pilot project. As with MEMP, implementation support places emphasis on strengthening the domestic capacity to carry out the management of the country’s environmental assets. Implementation support of both projects will focus on the key risks described in Annex 4, especially, the stakeholder risks regarding island communities’ willingness to pay, the capacity of the Island Councils and Island Offices, as well as collaboration between EPA and the Island Offices. The Bank will continue to discuss the mitigation measures with the Government, EPA and the Island Offices with an aim to overcoming any obstacles to creating a well functioning, integrated SWM system in the Ari Atoll. Implementation Support Plan Supervision of MEMP and this project is being led by two task team leaders (TTLs). The Washington-based TTL will oversee all implementation support issues. The Colombo-based TTL has extensive and deep knowledge and experience with SWM programs at the national and local levels and brings a wealth of experience on the technical aspects and awareness of the community mobilization needs and challenges.

Implementation support will be carried out primarily by the Colombo-based staff responsible for the procurement, financial management and safeguard aspects of project supervision. These staff members have been involved in implementation support for MEMP and in the preparatory phase of this project.

The proximity of the Colombo office to Maldives provides considerable assurances about

prompt attention to implementation issues. In terms of formal implementation support, progress review visits would be carried out in coordination with the timing of MEMP supervision missions.

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Annex 6. Team Composition

MALDIVES: Ari Atoll Solid Waste Management Project

Name Title Unit Marinela Dado Senior Operations Officer (Task Team Leader) SASDI Sumith Pilapitiya Lead Environmental Specialist (Task Team Leader) SASDI Darshani De Silva Environmental Specialist SASDI Supul Wijesinghe Financial Management Specialist SARFM Sunethra Samarakoon Procurement Specialist SARPS Eashwary Ramachandran Operations Analyst SASDI Priya Chopra Program Assistant SASDO Mary Ann Ashra Fernando Team Assistant SASDO