Environmental Due Diligence Report

Project Number: 46122-005

August 2020

Proposed Additional Financing Republic of Maldives: Preparing Outer Islands for Sustainable Energy Development

This environmental due diligence report is a document of the borrower. The views expressed herein do not necessarily represent those of ADB’s Board of Directors, Management, or staff, and may be preliminary in nature. In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgements as to the legal or other status of any territory or area.

CURRENCY EQUIVALENTS (as of 8 August 2020)

Currency Unit = Maldivian Ruffiyaa (MVR)

MVR1.00 = US$ 0.065 US$1.00 = MVR 15.42

LIST OF ABBREVIATIONS

ADB - Asian Development Bank EARF - Environmental Assessment and Review Framework

EIA - Environmental Impact Assessment

EPA - Environmental Protection Agency

FENAKA - Fenaka Corporation Limited

GRC - Grievance Redress Committee IMO - International Maritime Organization JFJCM - Japan Fund for Joint Crediting Mechanism IEE - Initial Environmental Examination MEE - Ministry of Environment and Energy MOF - Ministry of Finance MOE - Ministry of Environment PCB - polychlorinated biphenyl PMC - Project Management Consultant PPTA - Project Preparatory Technical Assistance STELCO - State Electric Company Limited

NOTES

i. The fiscal year (FY) of the Government of Madives ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2012 ends on 31 December 2012.

ii. In this report, "$" refers to US dollars

I. INTRODUCTION

1. The Preparing Outer Islands for Sustainable Energy Development (POISED) project was approved by the Board on 29 September 20141, financed through a grant from the Special Funds resources of the Asian Development Bank (ADB) not exceeding $38.0 million and a grant from the Strategic Climate Fund, administered by ADB, equivalent to $12.0 million. The first additional financing was approved on 19 March 2015, consisting of a grant of $5 million from the Japan Fund for Joint Crediting Mechanism (JFJCM), administered by ADB. The original project and first additional financing remain ongoing, with the grants expected for closure in first quarter 2021. The objective of the ongoing project is a shift towards clean and cost-effective energy sources. The ongoing project finances the replacement of inefficient diesel-based power generation grids in 160 outer islands of the Maldives and in Male with hybrid (solar photovoltaic-battery-diesel) generation, energy management systems, and upgraded distribution grids. These interventions will contribute to reducing the cost of electricity, the subsidy burden on the government budget, emissions and diversify power generation mix. The project has two outputs: (i) renewable-energy-ready grid systems developed for outer islands and greater Male region; and (ii) enhanced capacity of the Ministry of Environment (MOE) and the utilities State Electric Company (STELCO), and FENAKA Corporation Limited (FENAKA) to implement renewable energy grid interventions. 2. The proposed additional financing will scale up and change the scope of the ongoing project by (i) scaling up of hybrid renewable energy systems in more outer islands; (ii) introducing disaster resilient project components and gender inclusive livelihood activities; and (iii) accelerating the pace of reform initiatives introduced in the ongoing project through pilot projects and policy actions. The impact and outcome of the overall project remains the same as defined in the original project design. Following the ongoing project, the additional financing will apply the sector financing modality, and will scale up and change the scope of outputs 1 and 2, as described below 3. Output 1: Renewable-energy-ready grid systems developed for outer islands and greater Male region. The additional financing will scale-up this output by introducing Solar photovoltaic-battery-diesel hybrid systems with grid upgrades, energy management system and Supervisory Control and Data Acquisition (SCADA) system in an additional 12 outer islands. The output’s scope will also be expanded to include (i) installation of solar photovoltaic-based ice making machines for 4 outer islands to support fisheries, the main economic activity in outer islands; (ii) development of a disaster resilient distribution system in identified outer islands; and (iii) pilot testing of a renewable energy-operated ferry for transport. 4. Output 2: Capacity of MOE, STELCO and FENAKA to implement renewable energy grid interventions enhanced. The additional financing will continue support the project management unit (PMU) within MOE, to ensure close project monitoring and implementation of the overall project.2 Capacity-building support to MOE will be in areas including for project monitoring and implementation, along with assistance for planning, designing and implementing disaster resilient project components.

1 ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Grant to Maldives for

Preparing of Outer Islands for Sustainable Energy Development Project. Manila. 2 The $50 million loan financed by European Investment Bank (EIB), one of the co-financiers of POISED was made

effective by the government only in December 2019, the support for PMU through additional financing will ensure implementation of entire project.

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5. The indicators in project outputs will be expanded to support disaster resilient components and gender inclusive income generation activities. This will include design and pilot testing of disaster resilient components such as (i) solar photovoltaic based ice making machines to support disaster resilient livelihoods; (ii) renewable energy operated ferry for transport; (iii) climate resilient distribution system; and (iv) capacity building component to support its implementation and sustainable operation. The interventions are identified in the roadmap3 prepared for Low Carbon Development of Energy Sector of the Maldives under the POISED project and can be easily integrated with the original project outputs. 6. The overall implementation arrangements of the proposed additional financing will remain the same as the current project. MOE will be the executing agency. The MOE, FENAKA, and STELCO are the key implementing agencies. MOE will administer the loan and grant proceeds and will be responsible for procurement and implementation. The activities of FENAKA and STELCO will be financed through counterpart funds. A PMU within MOE, comprising officials from implementing agencies has been set up to coordinate the project activities with experts in the areas of finance, technology, and contract management. The PMU will continue to organize training programs to build the institutional capacity of FENAKA and STELCO in remaining islands4 and will be responsible for monitoring the implementation. The project departments of FENAKA and STELCO will continue to support the PMU as project implementation units (PIU) in reviewing feasibility studies and designs, bid evaluation as team members and project supervision during implementation. The PMU will also be responsible for overall intra-agency coordination. PIU will provide project implementation support to contractors and will liaise with the islands where the project will be implemented.

II. REGULATORY REQUIREMENT (OPERATIONS MANUAL SECTION F1/OP) 7. Para 34.7. Additional Financing. ADB may provide additional financing to an ongoing project. When additional financing is required to scale up or modify a project, the incremental activities that such financing will support are screened and classified in accordance with the procedures described in paras 4–11. Proposed additional financing that is classified category A for environment, involuntary resettlement, or Indigenous Peoples requires a new or updated Environmental Impact Assessment (EIA), resettlement plan, or Indigenous Peoples Plan (IPP). Those classified category B require new or updated Initial Environmental Examination (IEE) and/or Environmental Assessment and Review Framework (EARF), resettlement plan and/or resettlement framework, or IPP and/or Indigenous Peoples Planning framework (IPPF). Those classified category FI require an Environmental and Social Management System Arrangements (ESMS) or an update of the ESMS. The operations department reviews all new or updated EIA, IEE and/or EARF, resettlement plan and/or resettlement framework, IPP and/or IPPF, and/or other instruments. For category A additional financing, the operations department seeks review and comment from the Environment and Social Safeguard Division (RSES) on new or updated EIA, resettlement plan, IPP, and/or other instruments. The operations department ensures the following documents are disclosed on the ADB website: (i) the new or updated draft EIA report at least 120 days before the additional financing project is approved; (ii) the draft EARF, resettlement plan and/or resettlement framework, and/or IPP/IPPF before the management review meeting,

3 Though the roadmap was approved by Ministry of Energy and Environment (MEE) in May 2019, there was a request

from the new government to revise the roadmap to align with the Strategic Action Plan (SAP) 2019-2023 and revision is in progress and expect the roadmap to be published by October 2020.

4 The PMU will support the project implementation of additional financing and EIB loan to cover the project

implementation in 160 islands.

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staff review meeting or final investment committee meeting; (iii) the draft IEE upon request before approval of the additional financing; and (iv) the final IEE upon approval of the additional financing.

III. DUE DILIGENCE ON ADDITIONAL FINANCING 8. As per the due diligence requirement described in the OM Section F1/OP, the environment impacts of the incremental activities to achieve these additional indicators are screened and assessed, and the result is summarized in the Table 1 below.

Table 1. Summary of the Impact Assessment Indicator Additional Impact

Comparing to the original project (Small/Medium/High)

Details

i) Solar photovoltaic based ice making machines

S – Solar photovoltaic was already included and assessed. Only Ice making machine is newly adopted at four locations.

• General information: The ice making machine is not plant scale but warehouse type facility which does not cause significant environmental impact. It can be located at the same or similar size of the land where battery used to be installed. Four Ice machines will be adopted at Dhidhdhoo, Buruni, Rsadhoo and Vilufushi islands. The specification and pilot testing result of the Ice making machine in an island is in the Attachment 1.

• Expected Impact: The Ice making machine can bring additional social and environmental benefit comparing to the batteries by saving fuel for fishermen, who no longer need to travel to other islands to buy ice and reducing waste of the used batteries.

• Safeguard Requirement: Though the environmental impact is minor but due diligence along with the solar photovoltaic system need to be conducted as per original EARF.

ii) Renewable energy operated ferry for transport

S – Only one ferry is to be purchased for pilot testing.

• General information: A new ferry (30-40 passenger) using solar photovoltaic system as an energy resource will be procured from a supplier which has a shipyard overseas. Location will be confirmed only after competitive bidding process.

• Expected Impact: Purchasing the ferry does not cause significant environmental impact as long as the supplier is an internationally reputable shipbuilder following applied international treaties and guidelines. Also, during operation, no major impact is expected as it is a locally operated small ferry for short distance transportation, which does not have a big ballast water tank. This kind of ship is exempted from application of the international maritime organization (IMO) regulation. The requirement on ballast water management (BWM) is in the Attachment 2.

• Safeguard Requirement: Though the environmental impact is minor but due diligence need to be conducted including location of the

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shipyard, reputation of the supplier, and its environmental and social practices.

iii) Disaster resilient distribution system

S – It is the same intervention with the current distribution line but procuring better equipment only.

• General information and Impacts: There are no differences with the existing intervention in distribution system. Only difference is high rated cables, sensors, smart meters will be introduced which is more expensive than the normal intervention which is the only difference.

• Safeguard Requirement: Though the environmental impact is minor but information on the area and specification of the procured equipment needs to be collected

iv) Capacity building component to support its implementation and sustainable operation

None N/A

IV. EXISTING PROJECT IMPLEMENTATION STATUS

9. To ensure that the existing project has been implemented as per EARF in compliance with ADB’s safeguard policy statement (2009), the current implementation status was scrutinized. So far 4 IEEs have been prepared and reviewed by ADB. One prepared during project processing and three (for Haa Alif Atoll, Nooonu Atoll and Shaviyani Atoll) prepared during implementation. The summary of the ADB’s review on the three IEEs is in the Attachment 3. These have been disclosed on ADB’s website. Environmental reports are also submitted regularly as per the monitoring schedule, and these monitoring reports have been also disclosed on ADB’s website after review. 10. Used or defective batteries are taken back for disposal and reuse by suppliers, and this practice has been and will be applied for all interventions under the project. Currently a new normal follows the global experience in handling the coronavirus disease 2019 (COVID-19) pandemic affecting various industries including energy sector. International organizations, governments and industries take into consideration various measures to update plans to reduce exposure and spread of this disease. Under the circumstance, a COVID-19 management plan for the project has been prepared to address and reduce the risks to the workers and the community. So far, no major grievances have been raised.

V. CONCLUSION 11. The additional financing is classified as environment category C as the incremental activities are likely to have minimal or no adverse environmental impacts. There are four new indicators in the additional financing which are ice making machine, solar photovoltaic ferry, disaster resilient distribution system, and the capacity building. The ice making machines are not plant scale, but small warehouse type facilities and expected to be installed at 4 locations along with solar photovoltaic systems. In a pilot test, the machine does not cause any environmental issues except minor vegetation clearing to locate it. The solar photovoltaic installed ferry to be purchased is for local transportation of 30–40 passengers, which does not need any ballast water management by International Maritime Organization (IMO). The climate change resilient distribution system is the same with the existing distribution intervention which is mostly

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refurbishment but only adopting improved equipment in the system. Though the incremental risk is low, environmental due diligence during the implementation should cover these additional interventions as well as the existing ones under the original scope. A necessary covenant which cross-references the safeguards covenants of the original grant agreement is included in the loan agreement. The project has been implemented in accordance with EARF with submitting required IEE and monitoring reports. The IEE will be continuously prepared and monitoring reports will be also provided semi-annually including implementation status of both existing and additional activities.

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Attachment 1. References on ICE Making Machine 1. Specifications of the ICE Making Machine

Source: Exploratory report on A hybrid system combining Ice making facility with PV system in the atoll of the Republic of Maldives, 27 March, 2020, Nissin Electric. Supported by TA 7997 and TA 9586.

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2. A pilot project – The Dhiffushi Solar ICE project in the republic of Maldives

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Source: THE DHIFFUSHI SOLAR ICE PROJECT IN THE REPUBLIC OF MALDIVES, Global Sustainable Electric Partners

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Attachment 2. IMO Requirement

BMW=Ballast Water Management

Source: https://www.dnvgl.com/maritime/ballast-water-management/frequently-asked-

questions.html