Mongolia

Ulaanbaatar Clean Air Project

Safeguards Report

Draft

July 6, 2011 • Ulaanbaatar

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Table of Contents I. Introduction .......................................................................................................................................... 3 II. Safeguards Documentation-Overview .................................................................................................. 6

A. Good Engineering Practices (GEP) for the Operation of the Stove Emission and Efficiency Testing Laboratory, and Stove Assistance Development Center .......................................................................... 6 B. Guidelines on good practices and precautions regarding herbicides/pesticides use .......................... 6 C. Rapid assessment of environmental impacts of domestic production of stoves ................................. 7 D. Social impacts associated with import vs. domestic production of stoves .......................................... 7 E. Plan for recycling of bought back stoves .............................................................................................. 8

III. Recommended Elements in the TORs for the Feasibility Studies Subcomponents for Environment/Safeguard Aspects .................................................................................................................. 8

A. City Greening ........................................................................................................................................ 8 B. Dust and SO2 Emissions from CHP 2, 3 and 4 and Dust Emissions from Ash Ponds ............................. 9 C. District Heating ................................................................................................................................... 12

IV. Institutional Arrangements for Agreements for Safeguards Implementation .................................. 13 ANNEXES ..................................................................................................................................................... 15

Annex A: Good Engineering Practices (GEP) for the operation of the Stove Emission and Efficiency Testing Laboratory, and Stove Assistance Development Center ............................................................ 15 Annex B: Guidelines for the Safe Use and Management of Pesticides .............................................. 20 Annex C: Rapid Assessment of Stove Production and Disposal Chain .............................................. 24 Annex D: Due Diligence Evaluation Darkhan Metallurgical Plant (DMP) ........................................... 28 Annex E: Rapid Social Impacts Assessment: UBCAP Support for Imported versus Domestically Produced Improved Stoves ..................................................................................................................... 30

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I. Introduction 1. The development objective (PDO) of the proposed project is to connect consumers in ger areas of Ulaanbaatar to heating services producing less particulate matter emissions and to develop selected medium-term particulate matter abatement measures in Ulaanbaatar. 2. To achieve these objectives, the proposed project was designed with a number of subcomponents to address immediate and medium term abatement measures needed to reduce particulate emissions in the city of Ulaanbataar. These reductions, in turn, should lead to improvements in the cities’ air quality with respect to dust. 3. The proposed project would comprise the following components: (A) Ger Area Particulate Matter Mitigation, (B) Particulate Matter Mitigation in Central Ulaanbaatar; (C) Public Awareness Raising, Program Coordination and Project Management. 4. Safeguard aspects of the proposed project are focused on components (A) and (B) which are described in greater detail below: 5. Component A. Ger Area Particulate Matter Mitigation. (total estimated component cost, US$17.1 million, indicative IDA financing $8.9 million). The objective of this component is to implement a stove replacement program and a low pressure boiler program, by providing capital subsidies, financed from the IDA credit, to households to partially bring down the capital costs of eligible stoves and low pressure boilers. This component aims to complement the US MCA stove replacement program. The UBCAP will cover those stoves and low pressure boilers market segments and households uncovered by MCA and will provide additional market development support needed to help sustain the clean stove technology market. 6. The component will finance: (a) capital subsidies (subgrants) for: (1) stoves and stoves for heating walls if they cannot be effectively covered by other sources; (2) low pressure boilers (provided they do not crowd out the replacement program); and (3) old stove buy-back; (b) additional equipment, materials, technical staff, advisory support and operating expenses for the Stove Emissions and Efficiency Testing (SEET) laboratory, which will test products for emissions performance and verify performance of stoves in use; (d) technical advisory support: (i) to design adjustments to the stove replacement program for accommodating low pressure boilers; (ii) to stove manufacturers for new product development and quality control; (iii0 monitoring and evaluation; (iv) to the Standards Inspectoratefor the development of appropriate heating appliance standards and enforcement mechanisms; (e) training and study tours for knowledge exchange. 7. Component B: Central Ulaanbaatar Particulate Matter Mitigation (total estimated component cost US$ 2.7 million, indicative IDA financing $2.7 million.) The objective of this

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component is to help the government prepare action plans for priority, medium term abatement measures. The Component has three subcomponents:

8. Subcomponent (B1) Mitigation of Fugitive Dust from lack of City Greening: (estimated cost $1.3 million, indicative IDA financing $1.3 million) This subcomponent will prepare an action plan for city greening and implement a pilot, including (a) technical assistance for preparatory studies, framework for evaluating options to seed grass and other greenery for the purpose of reducing dust not only in ger areas but throughout the city; (b) technical assistance for bid document preparation and enhanced supervision; (c) investment support for the supply and installation of grass and other eligible plants/trees in UB on a pilot basis; (d) consulting services for monitoring and evaluation. 9. Subcomponent (B2) Power Plant Emissions Control Strategy: (estimated cost $0.3 million, indicative IDA financing $).3 million) This subcomponent will finance: (a) a feasibility study for installation of improved emission controls in Ulaanbaatar’s three power plants and for mitigation of dust emissions from power plant ash ponds, studying their environmental impacts and recommending cost effective solutions; and (b) an assessment of the emissions monitoring system and policies to address current poor emissions monitoring of power plants and strengthen the enforcement regime. 10. Subcomponent (B3) Housing Improvement and Heating Policy Policy Knowledge Building: (estimated cost $1.1 million, indicative IDA financing $1.1 million) This subcomponent will support: (a) an affordable housing improvement study, exploring international experience in affordable housing schemes and applying them to UB’s circumstances; (b) feasibility study for the rehabilitation and sustainable expansion of district heating in Ulaanbaatar; and (c) complementary study tours on housing, district heating policy, regulation and management—addressing current sector issues of fragmentation (transmission and distribution are separately owned and managed), billing (heating and hot tap water are unmetered, wasting energy for heating), and planning. 11. In coordination with the East Asia Safeguards Secretariat, it was agreed that the project be assigned Environmental Assessment Category B. The proposed project will have positive environmental benefits from a reduction in PM. The project will provide significant stimulus to the introduction of clean stove and low pressure boiler technologies, replacing existing stoves. It is expected that the replaced stoves (bought back and removed from use) will be sold as scrap metal at scrap metal recycling centers (one located in Darkhan municipality in Mongolia). Domestic manufacturers have limited capacity so the new stoves are expected to be sourced internationally as well. 12. The temporary environmental impacts directly generated from the project are currently anticipated in the (a) planting of trees, grass and other eligible plants/trees in UB on a pilot basis to mitigate fugitive dust from a lack of city greening and (b) some minor operational

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impacts (primarily occupational health and safety issues) from the operation of the SEET laboratory, Stove Assistance Development Center (SADC) and stove production facilities. 1

13. Additionally, the project will also support a number of feasibility studies, namely: (a) a Power Plant Emissions Control Strategy to (i) improve emission controls in Ulaanbaatar’s three power plants and to (ii) improve mitigation of dust from power plant ash ponds, studying their environmental impacts and recommending cost effective solutions; and (b) district heating rehabilitation and expansion opportunities. 14. Upstream and downstream issues regarding the subsidy and promotion of stoves and discarding old ones will also be assessed during project preparation. Technologies for the development of new stove models will be assessed as to their potential impacts from production. Guidelines for the disposal of old stoves will also be prepared. 15. In essence, the project impacts have not changed significantly since the PCN except for the elimination of civil works activities associated with the SEET laboratory renovation. 16. The following activities should be undertaken during project preparation: 17. Component A (a) Development of good engineering practices for the operation of the SEET and SADC laboratories1. Such practices would include issues such as occupational health and safety (OSH), noise and dust emissions, site security and waste disposal; (b) Stove buyback program: From the environmental point of view, a plan for the recycling of the bought-back stoves should be prepared; (c) A rapid assessment of environmental impacts of domestic production of stoves and social impacts associated with import vs. domestic production of stoves. 18. Component B. During appraisal the Bank should review and provide its inputs/agreement with the TORs for the consultant studies under each subcomponent. The following activities related to OP 4.01 should be considered in the TORs. Component B!: (a) the criteria for seed grass and other greenery selection for dust reduction in Ulaanbaatar which should include the need for watering, especially between October and April, and the impacts on water resources; and (b) preparation of guidelines on good practices and precautions regarding herbicides/pesticides use, if needed, for the city’s greening pilot; Component B2: During project appraisal the Bank should review and provide its inputs/agreement with the TORs for the consultant studies under each subcomponent. The following activities related to OP4.01 should be considered in the TORs (a) the impacts of additional collection of ash on plant equipment and ash management system (including ash pond, ash transportation, and ash reuse/ash disposal) should be evaluated for each power plant; and development of associated mitigation 1 Initially, the proposed project involved the renovation of an existing building to accommodate the SEET laboratory. However, the earlier project concept was modified: both SEET laboratory and SADC will now be housed in existing buildings and no physical reconstruction is involved. Initial activities will be the installation of equipment and purchase of laboratory materials. This safeguards report will therefore focus on good environment, occupational health and safety practices for laboratory operation.

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measures. In addition, the FS will incorporate the relevant environmental and social analysis related to OP 4.01. 19. In accordance with the requirements cited in the Concept Stage ISDS: A safeguards report will contain the following: (a) development of good engineering practices for the stove (and low pressure boiler) emissions and efficiency testing laboratory renovation1; (b) a rapid assessment of environmental impacts of domestic production of stoves and social impacts associated with import vs. domestic production of stoves; (c) a plan for recycling of bought back stoves and (d) recommended elements in the TORs for Subcomponents B1 (City Greening), B2 (Power Plant Emission Control and Ash Pond Dust Emissions)2

and District Heating2.

20. The structure of the Safeguards Report is as follows: • Good Engineering Practices (GEP) for the Operation of the Stove Emission and

Efficiency Testing Laboratory, and Stove Assistance Development Center • Guidelines on good practices and precautions regarding herbicides/pesticides use • Rapid assessment of environmental impacts of domestic production of stoves • Social impacts associated with import vs. domestic production of stoves • Plan for recycling of bought back stoves • Recommended Elements in the TORs for the Feasibility Studies Subcomponents for

Environment/Safeguard Aspects -City Greening -Dust and SO2 Emissions from CHP 2, 3 and 4 and Dust Emissions from Ash Ponds -District Heating

• Institutional Arrangements for Agreements for Safeguards Implementation

II. Safeguards Documentation-Overview

A. Good Engineering Practices (GEP) for the Operation of the Stove Emission and Efficiency Testing Laboratory, and Stove Assistance Development Center 21. The GEP document is presented in Annex A. It includes environment, health and safety issues associated with laboratory operations and follows guidelines provided in the World Bank “Environmental Health and Safety Guidelines”.

B. Guidelines on good practices and precautions regarding herbicides/pesticides use 22. Pesticide use may be involved in both land clearing and fumigant/rodenticide use for any facilities storing seeds or seedlings. Guidelines for the Safe Use and Management of Pesticides are presented in Annex B. These guidelines closely follow requirements of the World 2 TORs for B2 were merged, and District Heating TORs was also included although not specified in the ISDS.

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Bank policy on pest management and the WHO classification scheme for pesticide hazard levels.

C. Rapid assessment of environmental impacts of domestic production of stoves 23. Rapid Assessment of the stove production and replacement program is presented in Annex C. The assessment addresses environmental aspects for the key elements in the replacement program, namely: new stove production, new stove distribution, and old stove disposal (see below “Plan for recycling of bought back stoves”). It also includes an environment, health and safety checklist for use by the PIU to evaluate safeguard acceptability of potential domestic producers. Training will be given to the PIU by the World Bank for the use of this checklist.

D. Social impacts associated with import vs. domestic production of stoves 24. Given the low technical capacity of Mongolian Stove Industry, at the early stage of the project implementation, the project might need to import stoves to replace domestic made stoves. Therefore, the approach might cause negative impacts to Mongolian domestic stove industry. The World Bank required a Rapid Social Impact Assessment be conducted to identify such potential impacts, and to propose practical mitigation measures for inclusion in the project design. 25. Main findings of the Rapid Social Impact Assessment are presented below. The detailed study which includes recommended mitigation measures is presented in Annex E.

• Large Role Played by Operator’s Behaviour of the Stove User in Emission and Efficiency Performance:

• Approximately 50% of stove sales at the Black Market and small producers are sold to rural households

• Subsidized clean technologies will inevitably reduce demand for traditional ger stoves in Ulaanbaatar and will require local producers to innovate to meet new standards, but demand for traditional technologies will persist in the short term, driven by the rural areas

• The retail prices (between $230 and $275) of the four imported stove models, which necessitate large subsidies of between $175 and $209 to offer to the Ger based costumers at a price comparable to the traditional Ger stove in the Black Market, may exert an upward pressure on the price of all stoves produced for and sold into the UB stove market. But it is very difficult to determine the likelihood that this will happen and how it would affect the market.

• The removal of old stoves from households does not appear to infringe upon cultural or social traditions.

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• The UBCAP is expected to produce very large, positive social benefits through the dramatic reduction of emissions in heating during winter time in ger areas. Because it is a gap filling project, coordination and communication with the MCA (or other) subsidy program, which is moving first on its stove replacement program, will be very important for a successful outcome.

E. Plan for recycling of bought back stoves 26. Inefficient and polluting low pressure boilers and stoves that are to be replaced present a substantial issue of waste disposal. Since it is critical that these units not be used elsewhere, a key element of the project is to insure they are destroyed. It is planned to recover and recycle the metallic content of these stoves and boilers. 27. The stove recycling scheme will involve a designated agency3

who will be responsible for stove collection and delivery to their warehouse. The stoves will be held at their warehouse for a period and then at the instruction of the PIU, the stoves will be handed over to the recycling agent in Ulaanbaatar who will transport them by truck to Darkhan Metallurgical Plant (DMP) for recycling. The DMP is located in Darkhan, Mongolia, approximately 230 km north of Ulaanbaatar. The designated agency will be paid by the project. The recycling agent will pay the designated agency for the scrap as well. It is estimated that the price would be approximately MNT 20,000 per stove.

28. The DMP is not included in the World Bank project. However, operation of the DMP is key to the overall stove/boiler replacement program. In that sense, the DMP is linked to the World Bank project and its’ environmental performance was evaluated as part of the overall corporate risk assessment. Results of this due diligence evaluation are presented in Annex D.

III. Recommended Elements in the TORs for the Feasibility Studies Subcomponents for Environment/Safeguard Aspects

29. In general, any task identified in the Terms of Reference for a Feasibility Study that could subsequently lead to an investment project is required to include safeguard aspects to be addressed in the subsequent design of the investment. The following discussion presents the tasks identified in each of the three Feasibility Studies that could lead to an investment, and the safeguard requirements associated with the preparation of that investment.

A. City Greening

3 Designated agency has not yet been determined, but it is expected the XacBank will be asked to manage removal and disposal.

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30. The detailed scope of work will consist of the following tasks: • Establish criteria for seed grass and other greenery selection for dust reduction in

Ulaanbaatar which should include water requirements, especially between October and April (dry period) and assess the impacts on water resources;

• Identify city greening pilots, if any, and assess lessons learned that could be included for the development of pilot, which will be implemented within the framework of UB Clean Air Project;

31. On the basis of the assessment, the consultant will: Develop a detailed pilot project for establishment or upgrading of green space in Ulaanbaatar, including costs, location, technical specifications and bill of quantities, proposed procurement plan based on World Bank Guidelines, implementation arrangements and monitoring and evaluation methods. The location of the pilot must be along rights of way and cannot involve land acquisition or involuntary resettlement as defined in OP4.12 and avoid culturally sensitive areas as much as possible. In developing the pilot, the consultant will consult with key stakeholders for input on design and impacts (positive and negative) and seek support from relevant municipal officials.

• Screen the identified pilot for negative impacts, if any, based on World Bank safeguard

policies, specifically: Operational Policy 4.01 Environmental Assessment and Operational Policy 4.09. Pest Management. Should the pilot be screened as Category A or Category B in accordance with World Bank EA screening criteria, the Consultant will be required to follow EA documentation, consultation and disclosure procedures described in World Bank Operational Policy 4.01. Should the pilot require use of pesticides/herbicides (for example in land clearing or seed storage), the Guidelines for the Safe Use and Management of Pesticides (see Annex B Guidelines for the Safe Use and Management of Pesticides) should be adhered to.

B. Dust and SO2 Emissions from CHP 2, 3 and 4 and Dust Emissions from Ash Ponds Recommend Investment Program for Reaching Substantially Reduced Dust Emissions and Assess the Need and Costs for Various SO2 Reduction Concepts. 32. The Consultant should investigate with plant officials how much overcapacity there is in CHP 4 and analyze the possibility of closing the small boilers, e.g. all CHP 2 boilers. This implies a study of heat water distribution to see that the net allows a higher production at e.g. CHP 4. 33. The measurements of stack emissions – see task 1 – will reveal if the present ESPs at CHP 4 are adequate to achieve lower targets for UB, e.g. 50 mg/Nm3. A specialist on the consulting team might have to support this activity.

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34. In the World Bank document: “Environmental, Health, and Safety Guidelines for Thermal Power Plants” there are guidelines for dust and SO2 emissions from new plants – see page 22. It is recommended that these guidelines are followed for UB. E.g. for dust emissions it is recommended to keep 50 mg/Nm3 in a “non-degraded airshed” and 30 mg/Nm3 in a “degraded airshed”. Ambient air in UB is to be considered as a degraded airshed and the target should therefore be to have expected emission levels of dust in the 30 mg/Nm3 range while guarantees could still be e.g. 50 mg/Nm3 with full load. Due to the conditions at UB and the location of the power plants in the city it is justified to target a low level. The same reasoning applies for SO2. Even lower dust emissions may be needed depending on the outcome of the radioactive investigation of dust – see Task 5. 35. The Consultant should meet with plant officials to discuss and propose a space at CHP 3 where an ESP could be installed and replacing the scrubbers. There should be considerations as to the maximum number of boilers in operation and if one single ESP for all boilers or e.g. two smaller ESPs for certain boilers should be considered. The Consultant should meet with consultants to the Asian Development Bank (ADB) to get information about space and equipment to be used for CHP 5, which is planned to be built close to CHP 3. 36. For each CHP, the Consultant should assess the impacts of additional ash collection with improved dust collection systems on plant equipment and ash management systems (e.g. ash pond, ash transport equipment, and ash disposal site and/or reuse). As appropriate, mitigating measures (and associated costs) to control these impacts should be developed 37. The Consultant should study and propose abatement equipment for SO2 collection and estimate expected costs for the different power plants. The study should address what technologies are possible, if there is space for the retrofit, disposal of spent sorbent, storage of sorbent, etc. It should be noted that the plans for CHP 5 includes a Flue Gas Desulphurization (FGD) plant. 38. The Consultant should meet with environmental officials from both the Municipality of UB as well as the GoM to obtain their views regarding a higher utilization of the capability of CHP 4 plants in order to reduce the l stack emissions from CHP 2 and 3. 39. Based on discussion with plant officials, UB and GoM officials and on results from investigations the Consultant should give a report where recommendations should be given how to reduce dust and SO2 stack emissions for each CHP plant in a most cost-effective way. The Consultant should estimate the cost for the various investments. 40. Based upon the recommended investment program, the Consultant should perform an environmental screening for this program in accordance with the World Bank screening criteria presented in World Bank policy OP 4.01 (Environmental Assessment, EA). Outcome of the screening criteria would be an environmental assessment category rating of “A”, “B” or “C”.

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41. The Consultant should review the rating with the PIU for verification and then define project related environmental issues, prepare a schedule for EA preparation, including review and approval, public consultation and disclosure. The schedule should be reviewed and approved by the PIU.

Develop Cost Effective Improvements in Controlling Ash Yard Fugitive Dust Emissions 42. To the extent that results of Task 6 indicate further or more effective alternative mitigating measures are necessary to suppress ash yard fugitive dust emissions, the Consultant should examine these additional possibilities. As a minimum, the following schemes should be considered:

Dust Source Mitigating Measure Active Ash Yard • Maintain standing water layer

• Deposit surface sealing agent (e.g. Soil-Sement®, starch etc.)

• Surface hardening/compression • Wind break fence (plastic or vegetative—

trees/shrubs) • Reduce exposed working area

Closed Ash Yard • Wind break fence (plastic or vegetative—trees/shrubs)

• Replace or add vegetative cover4

Ash Yard Closure Operation

• Alternative scheduling (non windy periods) • Temporary wind break at edge of working area • Temporary covering

® Product of Midwest Industrial Supply, Inc. Canton, Ohio USA 43. The Consultant should recommend the appropriate mitigating or combination of mitigating measures based upon the following factors:

• Increased dust suppression effectiveness in comparison t o current practices • Operation and maintenance costs • Ease of application and maintenance • Necessary staff skills and training needs for operation and maintenance • Secondary environmental impacts from the mitigation scheme and the costs of any

mitigation • Availability and costs of spare parts • Special monitoring or process control requirements • Need for or use of any hazardous materials

4 Recommend a plant expert to examine appropriateness of vegetation used and if necessary, suggest additional plantings or replacement plantings to more effectively protect surface cover

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44. The Consultant should prepare a cost benefit analysis (CBA) for the various mitigation schemes and rank each scheme on a priority basis in accordance with the CBA. For each scheme, the Consultant should provide a detailed account of both the positive and negative factors. The CBA should take into consideration, inter alia, any secondary environmental impacts that may be associated with the ashyard fugitive dust suppression scheme. If the secondary impacts are anticipated to be potentially significant, the Consultant should perform an environmental screening for this program in accordance with the World Bank screening criteria presented in World Bank policy OP 4.01 (Environmental Assessment, EA). Outcome of the screening criteria would be an environmental assessment category rating of “A”, “B” or “C”. The Consultant should review the rating with the PIU for verification and then define project related environmental issues, prepare a schedule for EA preparation, including review and approval, public consultation and disclosure. The schedule should be reviewed and approved by the PIU.

C. District Heating 45. Investment Program Based on estimates of cost and benefits and ranking of components, prepare recommendations and implementation plan for an Investment Program. The Investment Program should contain a Priority Investment Program for a First Phase. The Priority Investment Program could include the following (list developed based on preliminary assessments in 2007, needs to be updated):

a. Heat metering in order to have all customers in UB metered either on a group substation or building level both for DHW and SH;

b. Converting the entire system of UB to demand driven mode with variable water flow, including the network of CHP 2, which was not included in the previous projects, and by using pressure differential control valves in front of such customers who do not have temperature controllers at the time of conversion;

c. Modernizing the DHW systems of the customers of CHCs either by modernizing the heat exchanger of the group substation or by installing a building level DHW heat exchanger and controlling unit, which ever more economic.

d. Installing a water softener in the group substation in cases the secondary system water is not of appropriate quality;

e. Replacing pipelines based on their relative condition, provided that appropriate water quality will be ensured simultaneously;

f. Improving the booster pump operation of the DH system by means of new pumping plants or frequency control pumps in existing plants where ever necessary;

g. Improving or replacing textile compensators in the transmission system. h. Specifying IT tools and Technical Assistance which possibly will be found

necessary/useful for efficient running of the DH business. i. Identify possible parts of the program which might be eligible for CDM support.

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46. Environmental Review

a. Evaluate environmental issues, especially air quality impacts of the current DH system in the present state of operation and maintenance for the years to come;

b. Identify expected environmental improvements, especially the reduction in GHG

emissions and local air pollution, or if any negative impacts from the proposed investments compared to “without the project”.

c. Based upon the recommended investment program in Task 13, the Consultant

should perform an environmental screening for this program in accordance with the World Bank screening criteria presented in World Bank policy OP 4.01 (Environmental Assessment, EA). Outcome of the screening criteria would be an environmental assessment category rating of “A”, “B” or “C”. The Consultant should review the rating with the PIU for verification and then define project related environmental issues, prepare a schedule for EA preparation, including review and approval, public consultation and disclosure. The schedule should be reviewed and approved by the PIU.

IV. Institutional Arrangements for Agreements for Safeguards Implementation

47. Project implementation involves separate agreements between the PIU and various institutions which require safeguards interventions as follows:

• Stove replacement/buy back scheme Designated Agency (likely to be Xac Bank): Distribution and Sales Agreement

• Operation of SEET and SADC Laboratories Mongolia University of Science and Technology (MUST): Partnership Agreement

TA Consultants: Participating Agreement • Stove Producer

TA Consultants: Participating Agreement • Feasibility Studies (District Heating, City Greening, Power Plant Ash Emission and

Ashyard Emission Controls) Consultant: Participating Agreement

48. Safeguard conditions which are to be included in each of these agreements are presented below:

• Distribution and Sales Agreement-PIU and Designated Agency Stoves to be replaced will be disposed of in accordance with the “Plan for recycling of bought back stoves” as presented in this Safeguards Report.

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All Product Centers are required to provide sanitary facilities for the disposal of sewage in accordance with requirements of the Municipality of Ulaanbaatar and/or Mongolia.

• Partnership Agreement-PIU and MUST MUST agrees to insure SEET and SADC laboratories are operated in accordance with the recommendations presented in Annex A of this Safeguards Report (Good Engineering Practices (GEP) for the Operation of the Stove Emission and Efficiency Testing Laboratory, and Stove Assistance Development Center) and report findings on a timely basis to the PIU.

• Participating Agreement-PIU and Laboratory Technical Assistance Consultants Technical Assistance Consultants should include recommendations presented in Annex A of this Safeguards Report (Good Engineering Practices (GEP) for the operation of the Stove Emission and Efficiency Testing Laboratory, and Stove Assistance Development Center) as part of the technical assistance provided to laboratory staff.

• Participating Agreement-PIU and Stove Producer Technical Assistance Consultants Technical Assistance Consultants should include safeguard evaluation of each Stove Producer to insure it meets the environment and worker health and safety criteria described in the Attachment to Annex C.

• Participating Agreement-PIU and Feasibility Study Consultants Consultant should exercise due diligence in implementing all World Bank safeguard policy requirements for any recommended investment schemes developed in the course of the study.

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ANNEXES

Annex A: Good Engineering Practices (GEP) for the operation of the Stove Emission and Efficiency Testing Laboratory, and Stove Assistance Development Center

Laboratory Operations MATERIALS STORAGE 1. Coal to be used for stove testing should be stored in a well ventilated contained area such as a bin. 2. Any chemical reagents to be used should be stored in cabinets or a room that can be locked when not in use 3. Flammable materials should be stored in well ventilated areas, away from any source of heat, sparks or other conditions that could lead to spontaneous ignition NOISE 4. No employee should be exposed to a noise level greater than 85 dB[A] for a duration of more than 8 hours per day without hearing protection. In addition, no unprotected ear should be exposed to a peak sound pressure level (instantaneous) of more than 140 dB[C] 5. Issuance of hearing protective devices should be made when excessive noise operations are anticipated 6. Periodic medical hearing checks should be performed on workers exposed to high noise levels LABORATORY AIR QUALITY 7. Poor air quality due to release of contaminants in the laboratory (notably carbon monoxide, coal/ash dust and possibly VOCs) can result in possible respiratory irritation, discomfort, or illness to workers. The laboratory should include the following measures;

• Maintaining levels of contaminant dusts, vapors and gases in the work environment at concentrations below those recommended by the ACGIH as TWA-TLVs (Time Weighted Average-Threshold Limit Values)—concentrations to which most workers can be exposed repeatedly (8 hours/day, 40 hours/week, week after week) without sustaining adverse health effects

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• Developing and implementing work practices to minimize the release of contaminants

into the work environment, including -Minimized handling of coal, ash or any other dry powdered materials -Enclosed operations -Local exhaust ventilation at emission/release points (particularly at the stove-chimney juncture) -Indoor secure storage, and sealed containers rather than loose storage

• Installation of carbon monoxide monitors at key locations (particularly near the stove testing area) throughout the laboratory. Monitors should be equipped with alarms to warn of dangerous levels

• Installation of smoke detectors at key locations (particularly near the stove testing area)

throughout the laboratory. Monitors should be equipped with alarms to warn of dangerous levels

FIRE PREVENTION/PROTECTION 8. The laboratory should be designed to prevent unplanned fires. The following essential measures are to be included in the laboratory:

• Installation of fire detectors , alarm systems and firefighting equipment, • If possible, automatic sprinkling systems should be installed • Firefighting equipment should be in good working order and readily accessible. It should

be placed in areas with the highest risk of fire • Systems using carbon dioxide, nonflammable blankets and sand are recommended

WATER 9. Adequate supplies of potable water should be provided from a fountain with an upward jet or with a sanitary means of collecting the water for the purposes of drinking 10. Water supplied to areas of food preparation or for the purpose of personal hygiene (washing of bathing) should meet drinking water quality standards WASTEWATER 11. Adequate lavatory facilities (toilets and washing areas) should be provided for the number of people expected to work in the laboratory. Toilet facilities should be capable of locking the door, and supplied with hot and cold running water, soap and hand drying devices

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12. If materials utilized in the laboratory are poisonous or can cause skin contamination, facilities for workers to shower and change into and out of street and work clothes should be provided 13. Wastewater discharges should be to the public system or a septic system, as appropriate SOLID WASTE 14. Ash produced from stove test experiments should either be stored in a covered bin or deposited in sealed containers for removal by municipal sanitation services or other arrangements with private waste disposal contractors to be made. 15. Arrangements for the disposal of any other solid wastes should be made with the municipality and/or licensed contractors. SAFE ACCESS 16. Passageways for pedestrians and vehicles within and outside buildings should be segregated and provide for easy, safe, and appropriate access 17. Laboratory equipment and installations requiring servicing, inspection and /or cleaning should have unobstructed, unrestricted and ready access 18. Measures to prevent unauthorized access to dangerous areas should be in place LABELING OF EQUIPMENT 19. All equipment (e.g. stoves undergoing testing) that may contain substances that are hazardous as a result of chemical or toxicological properties, or temperature or pressure, should be labeled as to the contents and hazard, or appropriately color coded 20. Similarly, piping systems that contain hazardous substances should be labeled with direction of flow and contents of the pipe or color coded whenever the pipe passing through a wall or floor is interrupted by a valve or junction device AREA SIGNAGE 21. Hazardous areas (electrical rooms, compressor rooms, etc.) installations, materials, safety measures, and emergency exits etc. should be marked appropriately FIRST AID

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22. The laboratory should ensure that qualified first aid can be provided at all times. Appropriately equipped first aid stations should be easily accessible 23. Eyewash stations and emergency showers should be provided close to all work stations where the immediate flushing with water is the recommended first aid response 24. In addition to the normal supplies needed to handle cuts, bruises, etc., an adequate supply of medicines and materials for the treatment of burns should be readily available PERSONNEL PROTECTIVE EQUIPMENT (PPE) 25. Personnel Protective Equipment (PPE) provides protection to workers exposed to hazards during laboratory activities in conjunction with other facility controls and safety systems. The Table below provides occupational hazards and types of PPE that should be made available in the laboratory for different purposes. Recommended measures for the use of PPE in the workplace include:

Summary of Recommend PPE According to Hazard Objective Workplace Hazard Suggested PPE

Eye and Face Protection Flying particles, , gases or vapors

Safety glasses with side shields, protective shades, etc.

Hearing Protection Noise, ultra-sound Hearing protectors (ear plugs or ear muffs)

Foot Protection Falling or rolling objects, pointed objects. Corrosive or hot liquids

Safety shoes and boots for protection against moving and falling objects, liquids and chemicals

Hand Protection Cuts or lacerations, extreme temperatures

Gloves made insulating materials

Respiratory Protection Dust, fogs, fumes, mists, gases, smokes, vapors

Face mask with appropriate filters for dust removal and air purification (chemicals, mists, vapors and gases). Single or multiple gas personal monitors, if available

Oxygen deficiency (excess carbon monoxide inhalation)

Portable or supplied air (fixed lines) On-site rescue equipment

ELECTRICAL

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26. Exposed or faulty electrical devices, such as circuit breakers, panels, cables, cords, and hand tools, can pose a serious risk to workers. Overhead wires can be struck by metal devices, such as poles or ladders. Recommended actions include:

• Marking all energized electrical devices and lines with warning signs • Checking all electrical cords, cables, and hand power tools for frayed and exposed cords

and following manufacturer recommendations for maximum permitted operating voltage of the portable hand tools

• Double insulating/grounding all electrical equipment used in environments that are, or may become, wet; using equipment with ground fault interrupter (GFI) protected circuits

• Protecting power cords and extension cords against damage from traffic by shielding or suspending above traffic areas

• Appropriate labeling of service rooms housing high voltage equipment (electrical hazard) and entry is controlled or prohibited

• Establishing “No Approach” zones around or under high voltage power lines

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Annex B: Guidelines for the Safe Use and Management of Pesticides

BACKGROUND 1. The proposed UBCAP consists of several components designed to address the variety of dust emission sources which contribute to making Ulaanbaatar a capitol city with one of the worst air pollution problems in the world. Project Component A focuses on short term measures, which essentially consist of a low pressure boiler and stove replacement program in the ger areas to more efficient units with substantially lower dust emission characteristics. Project Component B will focus on assisting the government in preparing action plans for priority medium term abatement measures for dust reduction and Component C is intended to support public awareness, program coordination and project management. 2. Under Component B, Subcomponent B1 will address mitigation of fugitive dust emissions from the lack of city greening. An action plan for city greening will be prepared and will be followed by the implementation of a pilot program. 3. Procurement and use of pesticides (notably herbicides and fumigating agents) are not anticipated to be involved with revegetation activities or seed/sapling storage. However, to comply with the World Bank safeguard policy on Pest Management (OP 4.09) inclusion of guidelines on good practices for pesticide use were recommended by World Bank Safeguard Secretariat. These Guidelines will be incorporated into the TORs for the feasibility study which will screen recommended revegetation measures for this project Subcomponent. GENERAL NATURE OF PESTICIDE MANAGEMENT 4. Pesticide management consists of the following activities:

• Screening for pesticides appropriate for the intended use • Pesticide purchase: verification of efficacy • Packaging and labeling • Storage • Handling and Use • Disposal of excess pesticides • Management of emptied pesticide containers

5. Guidelines for each of these activities are presented below. GUIDELINES FOR THE SAFE USE AND MANAGEMENT OF PESTICIDES 6. It is currently anticipated that pesticides likely to be used for this project would consist of herbicides for land clearing and revegetation and fumigants/insecticides/rodenticides to

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protect seedling or saplings that may be stored for subsequent planting from any vermin which may be attracted to the storage sites as a potential food source. 7. Screening for pesticides appropriate for the intended use • Formulated pesticides which are classified by the WHO5

as: Extremely Hazardous (Class IA), Highly Hazardous (Class IB) or Moderately Hazardous (Class II) are excluded from use

• Only those pesticides classified as Slightly Hazardous (Class III) or Technical grade active ingredients unlikely to present acute hazard in normal use are to be considered eligible for purchase

8. Pesticide purchase: verification of efficacy • Pesticides to be purchased are to be fully formulated by the supplier No purchase of pure active ingredient for subsequent formulation locally is permitted • Weight (solid or liquid) fraction of active ingredient(s) in the formulated product as

specified in the bid document6

(optional: the composition of inert ingredients in the formulated product should also be checked if specified in the bid document)

, should be ascertained by a certified pesticide assay laboratory prior to payment

9. Packaging and labeling • All pesticide products received should be packaged and labeled in accordance with FAO

requirements, specifically: Guidelines for Packaging and Storage of Pesticides (Rome 1985) Guidelines on Good Labeling Practice for Pesticides (Rome 1985) Generally, the labels should indicate both in Mongolian and by universal symbols (e.g. skull and cross bones) the hazardous nature of the package contents. Information regarding emergency procedures for accidental exposure or ingestion, and any precautionary measures for handling should also be included on the label in clear, easy to read and easy to understand language/symbols

• Under no circumstance are pesticide products to be placed in containers with labels that do not reflect the pesticide content (e.g. food or beverage products etc.)

• Under no circumstance are pesticide products to be placed in containers that either had been used for alternative purposes or could be mistaken, by their shape for some other product. For example, soda or beer bottles/cans, cereal boxes etc.

10. Storage • Pesticides should be stored in well ventilated facilities that are secured with a lock (ideally

the area should be fenced as well) and are only accessible to authorized personnel

5 World Health Organization: The WHO Recommended Classification of Pesticides by Hazard and Guidelines to Classification (2004), Corrigenda published by 12 April 2005 incorporated, and Corrigenda published by 28 June 2006 incorporated 6 A draft Standard Bidding Document for Procurement of Pesticides is available from the World Bank

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• Storage facilities should, to the greatest extent possible, be located in areas that are remote: removed from sites popular with children or young adults, not near areas where pets, farm, or even wild animals are common, and away from densely populated residential areas

• Pesticides should not be left in easily accessible locations when not in use for any reasonable length of time (e.g. overnight)

• The storage area should be clearly marked with warning signs in Mongolian and by universal symbols about the hazard of the materials stored therein

• The storage area should be constructed with an impervious (e.g. concrete) base and protected from rain, snow and other conditions which may cause the containers to fail or the contents deteriorate

• Facilities for the maintenance of strict records regarding amounts removed for an activity and amount returned after the activity is completed should be available at the storage site

11. Handling and Use • Pesticides should be handled only by people who have been properly trained in handling of

the materials and who are utilizing appropriate personal protective equipment (PPE: eyes, skin, respiratory, etc.) in a manner specified by the manufacturer/supplier

• Pesticides should only be applied in a manner specified by the manufacturer/supplier with equipment designed and used for the specific purpose. Under no circumstance should pesticide application be performed with ad hoc equipment informally assembled application devices

• Cleaning and storage of PPE should be on site. No one should be allowed to take home any protective clothing or other PPE equipment

• Pesticide application devices should be cleaned in a manner specified by the manufacturer/supplier and stored on site. Under no circumstance should application devices be allowed to be taken home for any other application

12. Disposal of excess pesticides • Excess pesticides should not be stored indefinitely. Such practice leads to eventual

environmental issues from container leakage, theft and inappropriate use or population exposure

• If there is (are) an officially designated and well designed hazardous waste disposal site(s), appropriate agreements should be obtained from Mongolian environmental authorities for pesticide disposal at this (these) site(s) If no such sites exist, there are two possibilities: (a) arrange for the disposal with a company (Mongolian or international)officially licensed for the removal and disposal of waste pesticides, or (b) include a provision in the supplier/manufacturer contract to accept unused pesticide materials

13. Management of empty pesticide containers

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• Empty pesticide containers are to be cleaned and disposed of in a manner specified by the supplier/manufacturer

Under no circumstance are empty pesticide containers to be used for storage of food, beverages or any other substances to be consumed by people or animals • Ideally, arrangements should be made for the return of the containers to the

supplier/manufacturer. If this is not possible, the containers should be crushed, punctured or otherwise destroyed so that they are incapable of alternative use and then sold as scrap or otherwise disposed

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Annex C: Rapid Assessment of Stove Production and Disposal Chain 1. New Stove Production: Many domestic stove production facilities are artisanal in nature and extremely labor intensive with little to no automation. Facilities that were visited had valid official operating permits. However, they are rudimentary operations using the most basic equipment for metal fabrication (cutting, bending, filing, welding etc.). Environment and occupational health and safety (OSH) issues are important concerns in these facilities. However, it would be difficult to impose strict environmental and OSH requirements on these producers in order to qualify for participation in the project. Doing so, would eliminate a substantial number of local producers from participation in the program and incur a large social cost. 2. Nonetheless, certain basic environmental and OSH requirements must be met. A checklist for the PIU to use for assessing the environment, and OSH aspects of a domestic stove producer 7

is presented as an attachment below. The checklist closely follows a similar checklist utilized by the Millennium Challenge Account (MCA) for their stove replacement program in Mongolia. Only domestic producers who have a satisfactory evaluation based upon this assessment checklist may participate in the project. Training in the use of the checklist will be provided by World Bank safeguards specialists will be provided to PIU staff responsible for the assessment.

3. The PIU in turn will conduct a one day training seminar for stove producers on environment and OSH considerations. Successful completion of this seminar will also be a requirement for stove producers to participate in the project. 4. New Stove Distribution: New stoves will be sold at specified “Product Centers” which will act as showrooms to display the various replacement models. These centers will be built as temporary structures and not expected to produce any significant waste other than domestic sewage from the lavatory facilities used by the limited number of sales staff. It is anticipated that this sewage will be disposed in a pit latrine which is the common practice here. 5. Old Stove Disposal/Recycling: The stove recycling scheme has been previously described (see “Plan for recycling of bought back stoves)

7 Screening will be limited to domestic producers because screening of foreign stove producers is beyond the scope of the project.

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Attachment: Environment, Occupational Health and Safety Assessment Form for Stove Producers

Criteria Yes No Not Applicable

Comments/Action Required

LEGAL Does the producer possess valid business permit/license for stove production?

If no, permit/license must be obtained Check expiration date of permit/license to make sure it is valid for the life of the project

ENVIRONMENT Air

• Are there excessive smells (neighborhood complaints)?

• If yes, take necessary

measures to reduce or eliminate (fuel change, cover materials storage containers etc.) or move to more isolated area

Water • Is wastewater (sanitary

and/or production) treated properly on site (e.g. septic system) or properly connected to public sewage system?

• If no, take necessary

measures for on-site treatment or connection to public sewage system

Solid • Are raw materials (steel,

insulating bricks, etc.) properly stored and protected to prevent injury to workers and/or public?

• Are solid wastes (garbage,

ashes, metal filings, etc.) properly stored to prevent public access and have appropriate arrangements been made for removal?

• If no, take necessary

measures for proper storage and protection

• If no, take necessary

measures for proper storage and disposal

Noise • Any persistent complaints

from local residents?

• Check nature of complaints

(serious, modest, minimal). Assess necessary measures

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needed to resolve issue (change production hours, move fabrication facilities)

Hazardous Materials • If any hazardous materials are

utilized in production (metal degreasing fluids, welding gases, paints, solvents etc.), are they stored in appropriate containers, and properly labeled, when not in use?

• If there are any hazardous wastes, are they properly stored and have appropriate arrangements been made for disposal?

• If no, take necessary

measures for proper storage

• If no, take necessary

measures for proper storage and disposal

OCCUPATIONAL HEALTH & SAFETY Are eye and/or breathing protection equipment (goggles/masks) available for workers involved in dusty operations e.g. welding etc.

If not, such equipment is required for workers

Are insulating gloves or other body protection equipment/clothing available for workers involved with high temperature fabrication or handling hot materials?

If not, such equipment is required for workers

Are fire extinguishers available and readily accessible?

If not, such equipment is required

Does grinding equipment have proper shielding from metal dust?

If not, install proper shielding

Does sheet metal fabrication (e.g. cutting or bending) equipment have proper guards to protect worker fingers and hands?

If not, install proper guards

Are all electrical equipment properly insulated and grounded

If not, repair equipment and provide proper insulation/grounding

Do workers have access to clean potable water for drinking and

If not, arrangements for proper water supply should be made

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personal hygiene (showers, toilet)? Is there adequate ventilation in the fabrication/production area?

Can windows/doors be opened? Could installation of a fan improve air flow?

First Aid kit Is there a First Aid kit on the premises, with easy access in case of an emergency? If not such a kit would be needed. If there is a kit, check contents to see if it is adequately stocked. If not, supplies should be improved (bandages, disinfectant, etc.)

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Annex D: Due Diligence Evaluation Darkhan Metallurgical Plant (DMP) Plant Location and Plant Operational Characteristics 1. The plant is located in a remote area and no residences were evident in the vicinity. The facility was built with Japanese (Mitsubishi) technology 17 years ago, and although it is older, it appears well maintained. It was originally a joint Mongolian-Japanese joint venture, but now it is exclusively a State-Owned Company. 2. The plant is designed to handle only ferrous metals (iron and steel) and has no capabilities to handle non-ferrous metals. Production capacity is 100,000 tons/year but at present it is operating at about 70 per cent of capacity. Currently, scrap used is primarily old cars and old equipment. Plant personnel indicated that the facility has the capacity to handle the stoves and boilers with no technical difficulty. 3. The enterprise pays approximately 150-200 USD/ton for the scrap and produces semi-finished products (rolled bars, billets, and rebars etc.) which are sold to construction customers at approximately 750 USD/ton. 4. Water is supplied from the local municipality and electricity for the electric arc furnaces is purchased from an external power source. Gas used for the preheat furnace is supplied from three Chinese made coal gasifiers. Brief Process Description 5. Scrap metal is lifted magnetically and dropped into the Electric Arc Furnace (EAF), where it is melted. Various materials are added to adjust the composition of the scrap charge and oxygen lances are used to remove slag and other impurities. A cryogenic oxygen plant to supply the oxygen is part of the overall facility. 6. Discharge from the EAF is sent to the continuous casting machine where the liquid metal is cast into the first rough shape. From the continuous casting machine the metal bars are sent to a preheat furnace to soften the metal and then to the rolling mill where they are finally formed into the desired product. 7. The original plant design used diesel oil for firing the preheat furnaces. However, as the oil price increased, the company installed coal gasification units about six years ago to produce low BTU gas for the preheat furnace fuel supply. Environmental Performance 8. Overall, the plant operates with a valid permit.

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Air 9. The major air pollution problem is dust generated from the EAF during the initial cold charge, where dirt and other impurities (oil, grease, etc.) are rapidly released from the extreme and rapid temperature increase. Dust is also generated during the oxygen lancing operation as impurities are oxidized and float to the surface of the charge. 10. The EAF has a hood that is used during the lancing operation and exhaust gases are vented through a fabric filter. DMP officials indicated that Mongolian emission limits are sometimes exceeded when the cold charge is released into the hot EAF. However, this is an occasional event, and for the most part, dust emissions are within the allowable limits. 11. The coal gasifiers also exceed allowable carbon monoxide limits on occasion. Water 12. The company has a wastewater recycling plant which consists primarily of solids settling, after which all treated water is recycled back to the process. The small amount needed for makeup is purchased from the municipal water company. Solid Wastes 13. Approximately 7 tons of slag are produced for each 100 tons of steel produced. In addition, slag is produced in the coal gasification plant. At present all this waste is stockpiled at the plant site. However, DMP officials indicated that they are studying the possibilities of selling the waste to companies making construction materials (cement, brick etc.) Conclusions 14. The plant is old, but certainly not antique, and appears to be well maintained. During the project team visit the plant was not in operation: plant officials indicated that it is only operated at night when electricity costs are low. Although officials indicated there are occasional exceedances of air emission limits, on the average the plant is in compliance and certainly has installed the appropriate equipment for controlling air emissions and by recycling their process water have eliminated wastewater discharges. 15. From the project team plant visit and the information received from DMP officials, it appears that the facility is well run and in essence complies with Mongolian environmental requirements. Furthermore, its’ remote location minimizes any impacts on the local population or natural environment.

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Annex E: Rapid Social Impacts Assessment: UBCAP Support for Imported versus Domestically Produced Improved Stoves 1. The UBCAP PIU takes full responsibility for the contents of its report and its findings, which were reviewed by the World Bank team. It notes the very close collaboration with the World Bank team, which helped to strengthen its methodology and accelerate transmission of findings into project design. A. Introduction 2. Traditional Coal Heating Stoves Cause Major Health Damage. Based on World Bank analytical work, the city of Ulaanbaatar is one of the most polluted cities in the world due to high concentrations of particulates during the winter. A major source of this pollution are traditional wood stoves that burn raw coal for cooking and heating in the wintertime – this is a vital function for a city with frequent wintertime temperatures falling below -20 to -30 degrees Celsius. Based on laboratory testing in Mongolia under the ADB PATA, a traditional ger stove emits about 794 mg of PM2.5 per net MJ of heat delivered, while the recommended emission performance for eligibility criteria proposed in the ADB PATA which is being considered by the Municipality for UBCAP, would emit less than 70 mg PM2.5 / net MJ. The ubiquitous use of the polluting traditional heating stoves presents a serious challenge. The World Bank estimates that Mongolia Air Quality Standards for PM10 and PM 2.5 (fine particulates which are epidemiologically shown to cause chronic bronchitis, other respiratory diseases, loss of daily work, and even advance mortality) cannot be met even with an 80% reduction in emissions from ger heating appliances. Nevertheless, a 80% reduction would yield an estimated 67% reduction in population weighted average concentrations of PM2.5, a significant reduction with significant health benefits, yielding very positive social impacts. 3. Proposed UBCAP. The Government of the Municipality of Ulaanbaatar, through the Government of Mongolia, intends to borrow US$15 million equivalent to implement a proposed Ulaanbaatar Clean Air Project (UBCAP). The Project Development Objective of the proposed project is to connect consumers in ger areas of Ulaanbaatar to heating services producing less particulate matter emissions and to develop selected medium-term particulate matter abatement measures in Ulaanbaatar. 4. The following components are proposed to achieve the Project Development Objective: (a). Ger Area Particulate Matter Mitigation: Provision of capital subsidies (sub-grants) for selected heating appliances, support for heating appliance testing, technical assistance for product development, market development and quality control and training and study tours for the heating appliance community and policy makers.

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(b). Central Ulaanbaatar Particulate Matter Mitigation: Provision of technical assistance, training and study tours for preparation of a city greening feasibility study, power plant flue gas and ash pond emissions control feasibility study, a housing policy study, a district heating feasibility study and investment support for a city greening demonstration project (c). Public Awareness Raising, Program Coordination and Project Management: Provision of technical assistance, training, and study tours for air quality analysis capacity building activities, air quality program coordination capacity building, public awareness activities, and project management (including incremental operating costs), monitoring and evaluation activities. Support to enhance air quality monitoring and analytical capacity, a public awareness campaign, and project management, monitoring and evaluation capacities.

• The Component A intends to rapidly replace ger stoves, stoves connected to heating walls and low pressure boilers in the central Ger area districts of Ulaanbaatar using the following proposed design:

5. Component A. Ger Area Particulate Matter Mitigation. (total estimated cost, US$17.1 million, indicative IDA financing $8.9 million) The objective of this component is to implement a stove replacement program and a low pressure boiler replacement program by providing subsidies, financed from the IDA credit, to households to partially bring down the capital costs of eligible stoves and low pressure boilers. 6. The component will finance: (a) capital subsidies (sub-grants) for: (1) stoves and stoves for heating walls if they cannot be effectively covered by other sources; (2) low pressure boilers provided they do not crowd out the stove replacement program; and (3) old stove buy-back; (b) additional equipment, materials, technical staff, advisory support and operating expenses for the Stove Emissions and Efficiency Testing (SEET) Laboratory, which will test products for emissions performance, and verify performance of stoves in use; (c.) technical advisory support: (i) to design adjustments to the stove replacement program for accommodating low pressure boilers; (ii) to stove manufacturers for product development, production and quality control; (iii) monitoring and evaluation; (iv) to the Standards Inspectorate for the development of appropriate heating appliance standards and enforcement mechanisms; (d) training and study tours for knowledge exchange. 7. The main implementation and institutional arrangements for stove replacement include:

• Stove and Vendor eligibility. Stove elegibility will be partially determined by laboratory test results and field tests and vendors will be selected based on minimum quality guarantees of at least two years and meeting the quality assurance standards of the UBCAP, including penalties for non compliance. The Stove Emissions and Efficiency Testing (SEET) Laboratory was set up in August 2010, under the auspices of the Ministry of Mineral Resources and Energy. The PIU will sign a Partnership Agreement with the ultimate institutional owner of the Laboratory detailing acceptable testing protocols (developed by the Asian Development Bank’s Policy, Advisory and Technical Assistance

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Grant-supported Clean Air Project (ADB PATA, 2010) and service standards with the SEET. The baseline is a traditional stove burning coal and started with wood. The PIU will sign a Participation Agreement with each vendor which will define the rules of the game for participation in the UB CAP stove replacement program.

• Regulating supply chain through Product Centers. Eligible Vendors sell eligible stoves through Product Centers based generally on a consignment business model. This reduces risk of copy-cat models sold outside the accepted distribution channel. All eligible models are shown in the Product Centers. The Product Center is a ger (traditional nomadic tent) itself set up and run by Xac Bank, a leading micro-credit bank in Mongolia. Xac Bank was selected by the ADB PATA due to its longstanding interest in the promotion of air pollution reduction, capability and unique, innovative Product Center proposal. The PIU will sign a Distribution and Sales Agreement with Xac Bank detailing roles and responsibilities in the sale and distribution of stoves and communication of the subsidy mechanism. The inclusion of low pressure boilers and their distribution through the Product Centers shall be confirmed after surveys are completed.

• Subsidy Mechanism. The eligible stoves will be sold at a subsidized price. The subsidy levels are expected to be calculated to achieve three objectives: (i) to equalize the price of the new stove with the price of traditional model (basically, only one model is used in all households); (ii) the provision of a temporary, additional subsidy to promote more rapid adoption; and (iii) the offering of a third subsidy to buy back the stoves currently in use. The subsidy offered under UBCAP is expected to be based on experience gained from the MCA stove replacement program, which will be implemented winter 2011-2012. Whichever level is set, the subsidy will need to be justified based on health endpoints calculated on the basis of the methodology and coefficients set by a recent World Bank Mongolia Air Quality and Health Impact Baseline Study.

• Financing Mechanism. Households (HH) will purchase stoves at Product Centers. Households could choose to pay the balance out of pocket or from a Xac Bank micro-credit. Xac Bank is utilizing an ongoing Dutch grant-financed project intended to bring down costs of micro-loans to offer financing of household contributions. Payment to the stove vendors is made in two stages: (a) household contributions are transferred directly to vendor accounts by Xac Bank; (b) subsidies are transferred upon HHs meeting the following conditions: (i) signed purchase agreement between HHs and the Project (including Xac Bank) agreeing to purchase and use the stove for purposes intended, hand over the old stove, and monitoring and verification; (ii) HH counterpart contribution paid in full (Xac Bank receipt); and (iii) verification of installation of the stove in the HH. The flow of funds would be managed through Xac Bank’s internal funds management systems, which can be audited easily. Other banks could participate if they meet UBCAP criteria.

• Training, monitoring, verification and reporting (MVR). A two stage MVR system is envisioned. Xac Bank plans to verify installation of the stoves in households because it intends to use the sales toward carbon credits through a carbon aggregator. A consulting firm will be selected as a Quality Assurance Agent to provide a second verification of installation.

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B. The Objectives of the Rapid Assessment 8. Given the low technical capacity of Mongolian Stove Industry, at the early stage of the project implementation, the project might need to import stoves to replace domestic made stoves. Therefore, the approach might cause negative impacts to Mongolian domestic stove industry. The World Bank requires this Rapid Social Impact Assessment be conducted to identify such potential impacts, and to propose practical mitigation measures for inclusion in the project design.

C. The Methodology and Sources of Information for the Rapid Social Assessment: 9. The major source of field-based observation and indirect collection methods was the Asian Development Bank’s Policy and Advisory Technical Assistance Grant-supported Ulaanbaatar Clean Air Project (ADB PATA). This project prepared the key features of the UBCAP Component A stove replacement mechanism and, importantly, conducted a real-time pilot of the subsidy mechanism from June 24, 2010 – June, 2011 in Khoroo8

8 1 Khoroo is about 1,000 households. Several Khoroo comprise a District.

18 of the Chingeltei District (a central ger area district of Ulaanbaatar). Specifically, the ADB PATA: (i) established the Stove Emission and Efficiency Testing (SEET) Laboratory to test ger stoves and fuelsand train stove designers/producers, (ii) launched the pilot to assess home performance of the improved stoves, (iii) conducted a capacity assessment to determine if local manufacturers would have the ability to produce up to 70,000 improved ger stoves within 2 years (as a benchmark for rapid stove penetration), (iv) carried out awareness raising campaign to disseminate knowledge to ger area households about the importance of clean air, improved stove performance and changed stove operating behaviours such as lighting techniques, etc., by households, and (v) prepared elements of a large scale program for stove replacement, which are now being transferred to the Municipality of Ulaanbaatar in its Ulaanbaatar Clean Air

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Project (UBCAP), and the World Bank is proposing to support. Donor coordination was also piloted as the partners in this project included the Asian Development Bank, Municipality of Ulaanbaatar, the Ministry of Mineral Resources and Energy (who implemented the ADB PATA), the international NGO World Vision, and the World Bank (observing, monitoring and providing technical reviews). 10. The work was summarized in several reports reviewed for this assessment, including:

• Demand survey • Capacity assessment for local manufacturers/stove makers • Stove testing protocol • Laboratory business plan • Laboratory operations manual • Stove test report • Stove comparisons

11. The ADB PATA sold 34 improved stoves. The findings of its monitoring and evaluation work are based largely on these 34 households as well as interviews with about 100 households who intended to adopt changes to the way they heat their homes over a 2 month winter period in 2010. Data collection was done by international NGO World Vision Mongolia. 12. Based on feedback received from the ADB PATA as it was being collected, the UBCAP Project Implementation Unit (PIU) organized a series of interviews with stakeholders over a period of February – June 2011 to clarify understanding of the preliminary findings of the ADB PATA. The results of the interviews were discussed with the World Bank team during its missions on February 28 – March 11, May 2011 and June 2011. The latter two missions included a consultant specializing in Social Anthropology who participated with the interviews. 13. Over the February - June period, data were collected either through direct observations or indirectly through interviews with the following sources: stove owners/users, stove producers and stove vendors, and key stakeholders.

• 8 households in Khoroo 18 who were part of the ADB PATA. A series of in depth interviews with the households who had recently purchased an Improved Stove to assess how well they were operating the stove and their assessments of its strengths and weaknesses, advantages and disadvantages.

• 6 vendors of ger stoves in the Black Market, a vast informal market in the middle of UB,

to establish a baseline for the retail prices at which different stoves sell, sales volume, and the sources of these stove

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• 3 small stove producers who produce stoves from workshops in their haasha9

in the Ger areas; 1 small producer working from a more formal metal working shop; 2 potentially medium to large scale producers who were not involved in the fabrication of stoves but had surplus production capacity and the technical ability to manufacture Improved Stoves.

• Another 5 small producers identified by ADB PATA consultants who had conducted a producer capacity survey as part of their work, which were interviewed by telephone.

• In addition, secondary sources of knowledge about the appropriateness of the

traditional Ger stoves and the proposed Improved Stoves in an effort to identify potential problems that might interfere with the stove replacement programme and also to identify potential solutions to these problems were collected and analyzed :

14. The method of evaluation focused on gaps, if any, in the understandings by users between operation of traditional stoves and the proposed new local as well as imported stoves to make qualitative inferences on the impacts on users. The gaps were then further evaluated to make qualitative inferences on the potential impacts on stove producers in Ulaanbaatar from the promotion of improved stoves vs. traditional stoves and then more narrowly on the promotion of imported vs. locally produced models. D. Scope 15. While there are large positive impacts on the UB society, and especially ger area residents, local, especially small, producers of the polluting traditional ger stove industry may be negatively impacted. The scope of the analysis focused on smaller, artisanal producers. It must be noted there is larger manufacturing capacity in Mongolia. According to the ADB PATA capacity assessment, there could be capacity to produce 60,000 stoves per month but the report also indicated significant barriers to this local capacity that would preclude them from achieving this capacity in a short period of time. This includes,

• “The smaller/individual firms do not produce by assembling ready-made components. The larger-scale manufacturers also do not supply parts to smaller companies.

• All of the manufacturers are only willing to start their procurement process once they receive production orders.

• Manufacturers have no particular focus on Ger Stove production. They indicated that once procurement is started, workers, technicians and needed equipment will be engaged and put to work.

• Manufacturers do not have the capacity to produce engineering drawings and designs for stoves. They will need training and assistance to do this.

• Provided with drawings, the manufacturers have the capacity to make the designed stoves.”

9 [DEFINE HASHAA]

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The SEET Laboratory performed 150 tests on stoves of various designs. The vast majority of these designs were from small Mongolian stove makers and metal working enterprises. 16. The smaller manufacturers, exhibited the following characteristics:

• The stoves produced did not meet the minimum threshold requirements to qualify for subsidies

• Many were only interested in producing stoves of their own design. • Material supply is not reliable. They often use scrap metals for production. • They have poor conditions of service for workers and inadequate health and safety

safeguards

17. The conclusions of the very valuable piloting process showed that both local and imported models could meet the improved stove criteria developed under the ADB PATA. Given the fact that increasing local production would take time, the imported stoves are likely to play an important role in accelerating the introduction of clean stove technologies and thereby advance the environmental objectives of rapidly reducing Ulaanbaatar’s particulate emission levels during the next two winter heating seasons. Nevertheless, the impacts on local stove production will need to be mitigated while the Mongolian models are further developed to meet the emission and efficiency and quality requirements and/or the imported stove technologies are transferred to local production. 18. Given the unexplained divergence between the findings by the ADB PATA that local production capacity was not ready to deliver high performance domestic stoves to the Ulaanbaatar market with the observed capacity of small local manufacturers to design and produce prototype stoves with the potential to meet the UBCAP emission and efficiency criteria, this rapid assessment focused on the impacts of relatively smaller producers, who are considered the most vulnerable part of the Mongolian supply chain for improved stoves. E. Main Findings E.1 Large Role Played by Operator’s Behaviour of the Stove User in Emission and Efficiency

Performance: 19. M&E under the ADB PATA showed a divergence in the 34 users operation of the improved stove (IS) even though they all received the same written instructions on proper stove operation. Based on experiences also observed in other countries, there is often a gap between the operation of the stove recommended in the user manual and the way the stove is actually operated by particular users in the field. 20. Therefore, the cleaner models will need to take into account the operating preferences and habits of users to achieve maximum acceptance by users. This may give the local producers of improved stoves that are easy for ger residents to operate a comparative

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advantage over imported stoves, which have been developed for a generic user profile. Mongolian producers are well integrated into the local culture of stoves and their proper operation. They know their customer habits and preferences. 21. Additionally, the SEET Laboratory Protocol bases its test results of stove emission performance on operating the stove according to the manufacturer’s and/or vendor’s user manual. Therefore, the test results provide a scientific estimate of the stove emissions performance potential and not necessarily the actual emissions and efficiency performance in the field. 22. This finding identifies two risks: (i) a disappointing up take of improved stoves because they do not match user preferences; and (ii) a disappointing emission reduction performance when stove users do not follow the operating instructions for the stove. E.2 Approximately 50% of stove sales at the Black Market and small producers are sold to

rural households 23. There are perhaps as many as 10 stove producers in the UB that produce +/- 6 stoves a day x 250 work days = 1 500 stove units/annum. Some of these stove production enterprises who specialize in the production of low quality/highly polluting ger stoves will be threatened by the sudden influx of subsidized higher performance stoves into the UB stove market. 24. The Black Market accounts for about 50% of the sales of traditional stoves in Ulaanbaatar. Both vendors at the Black Market and some local producers interviewed confirmed that roughly 50% of their sales are to rural households. A number of other small stove producers reported that stove production was a relatively minor part of their total turnover, on the order of 15% to 20%. So, most small stove producers are not likely to go out of business if the UB stove market temporarily becomes soft.

25. Metal working enterprises, particularly the smaller ones, can be expected to shift to the production of those products for which there is a sustained demand and that earn a reasonable profit over costs. 26. It is very difficult to predict if there will be any net job losses from the transformation of the UB stoves market over the medium term because while some small producers who are unwilling to change their products may lose market share, there is a large upside potential for creating new jobs in a greener stove industry. Some local producers will be affected by the change in the demand for their stoves and it is uncertain how many of these will be successful in adapting their design and production. In addition, there may be new players in the market which would be interested in hiring additional workers to augment their local stove production capacity. 27. For example, ADB PATA survey of stove producers showed that larger manufacturers would be interested in producing stoves if they had firm orders. Upon taking a decision to

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produce stoves, these manufacturers would require skilled labor for stove production. Changes in regulations can also create entrepreneurial opportunities. In the case of one smaller private producer (Anard) which developed a few new models that included additional features such as fuel efficiency, hangers for drying cooking utensils, and an oven, the company had to hire about five shop workers to produce these new models. 28. Therefore, while the UB market is expected to raise standards and impose new requirements for vendors and local stove producers, they are not expected to lose all of their market and revenue over a short period of time, given the strong connections to the rural stove market. However, to reduce the risk of being unable to adapt to the new local regulatory environment, the project should consider providing technical assistance and encourage, through public awareness, more investment in Mongolian stove producers and entrepreneurs. 29. The impact of subsidized high performance improved stoves on the UB stove market, which starts in June (2011) and progressively intensifies monthly thereafter until the end of the high season for heating stoves, can be expected to weaken but not entirely extinguish demand for traditional ger stoves in the Black Market. Conversely, the rural stove market may benefit from the introduction of cleaner stove technologies in Ulaanbaatar through the gradual adoption of these technologies by the rural households. The demand for coal burning stoves from the aymag centers and the smaller cities of Darkshan and Erdenet can be roughly calculated at 120 000 ger stoves or about 24 000 stoves a year based upon a 5 year depreciation and replacement cycle. 30. This finding identifies two risks: (a) Local stove producers who do not wish to change their stoves to less polluting models could lose up to 50% of their sales as Ulaanbaatar’s market moves toward greener technologies; (b) some stove producers may not wish to incur the additional costs required to produce high quality stoves and instead choose to produce cheaper, copy-cat, models that may undermine the reputation of more expensive high quality Improved Stoves . E.3 Subsidized clean technologies will inevitably reduce demand for traditional ger

stoves in Ulaanbaatar and will require local producers to innovate to meet new standards, but demand for traditional technologies will persist in the short term, driven by the rural areas

31. There is no way to avoid a major decrease in demand for traditional ger stoves in the UB stove market because:

• the Municipality of Ulaanbaatar and the Ministry of Mineral Resources and Energy are implementing policies, supported by a revised Law on Air Pollution, which promote alternative clean coal fuels, including zoning of certain ger areas requiring use of the alternative fuels.

o Changing the fuel usually requires changing the stove to match the fuel for a desired emissions performance. As no new fuel has been tested at the

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laboratory, it is difficult to conclude what the emission reduction potential is from changing only the fuel. Based on previous attempts under the Clean Air Initiative of the European Bank for Reconstruction and Development, it is reported that the substitution of the fuel without changing the stove could reduce emission by up to 14%.

• the contemplated subsidies for the high performance stoves will provide a strong incentive for households to switch stoves

o the current subsidy program known at the time of writing are the United States Millennium Challenge Corporation/Mongolia Millennium Challenge Account stove replacement program, and

o the UBCAP Component A

32. The observations under the ADB PATA, which performed about 150 separate stove emissions tests and provided direct technical support to stove designers/producers in addressing problems and making improvements, indicate that local stove producers are able to adapt designs to new regulations provided they have technical assistance in addressing design and production challenges. 33. Imported stoves are not perfect substitutes for traditional or locally produced models that have been tested in the laboratory. Likewise there is no one local model that meets all user preferences. The introduction of subsidized imported stoves could spawn innovation in the local market by introducing competition. It is observed that the Municipality is facilitating the organization of a consortium of several local stove producers, including artisanal producers, to produce a model that has shown promising test results (open source model developed under a GTZ/GIZ project). The method of production is also reported to be assembly, a break away from the traditional artisanal approach. Reportedly this approach was initiated after the Municipality and central government officials visited an MCA supported Turkish study tour to a stove manufacturing facility 34. Stove producers could continue to produce traditional stoves for the rural markets, and this could create an opportunity for after-market trading of the highly subsidized stoves. If the subsidies are too high and incomes remain low relative to the intrinsic value of the stove, there may be an incentive to game the system: they may sell the stove at a ‘high enough’ secondary market price to convert the subsidy into a cash benefit and then using part of the cash to buy a traditional stove (which remains available). 35. The findings identify the following risks: (a) local stove producers will be under pressure to adopt their technologies and stove designs but will be unable to do so without technical assistance and that as a result, high performance imported products will gain significant market share without the participation of the local stove industry; (b) leakage of stoves to a secondary market and thereby imposing a negative impact on the environment due to the users who game the system and continue to rely on traditional heating stoves.

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E.4 The retail prices (between $230 and $275) of the four imported stove models, which necessitate large subsidies of between $175 and $209 to offer to the Ger based costumers at a price comparable to the traditional Ger stove in the Black Market, may exert an upward pressure on the price of all stoves produced for and sold into the UB stove market. But it is very difficult to determine the likelihood that this will happen and how it would affect the market.

36. If consumers are willing to game the system, then there will be a price for highly subsidized improved stoves on the secondary market. The traditional stove vendors will very quickly know the difference between the price paid for the stove in the project and the price at which the same stove can be sold in the secondary market. Because demand for a stove is inelastic (every ger household needs one), traditional stove manufacturers could raise their price to capture part of the cash surplus households converted when selling the improved stove in the secondary market. 37. Likewise, chimney vendors will also see an opportunity to raise chimney prices. Usually chimneys are sold separately from the stoves. This is not the case of the Turkish stove which requires a different chimney from the traditional one. 38. These findings lead to the following perceived risks: (a) the subsidy scheme could drive prices of traditional stoves in UB and rural areas up - and the chimney prices as well thereby imposing a burden on those consumers wishing to buy a traditional stove; However, in the case of UB residents the increase in prices of traditional, polluting stoves may reduce the incentive to game the subsidy system. It is very difficult, therefore, to arrive at a definite conclusion on the likelihood of stove price increases being caused by the subsidy scheme. (b) In addition, the extra cost of special chimneys could also create an additional barrier to the selling of cleaner technologies. E.5 The removal of old stoves from households does not appear to infringe upon cultural

or social traditions. 39. Based on interviews with households, the contemplated requirement for eligible households to hand over their old stoves does not appear to impose culturally or socially insensitive burdens. E.6 The UBCAP is expected to produce very large, positive social benefits through the

dramatic reduction of emissions in heating during winter time in ger areas. Because it is a gap filling project, coordination and communication with the MCA (or other) subsidy program, which is moving first on its stove replacement program, will be very important for a successful outcome.

40. The introduction of cleaner, affordable stove technologies, through the provision of a one-off subsidy targeting all ger area households in central Ulaanbaatar ger areas is an important part of the MUB’s strategy to reduce severe air pollution in Ulaanbaatar in a cost

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effective manner. The current criteria for eligible stoves under MUB’s program would accept stoves that would reduce emissions by 90 percent. If a sufficient penetration rate is achieved in the market, UB ger area residents – who are the most vulnerable and most affected by stove emissions – would stand to benefit economically (people will not get sick as often and can be more productive) as well as dramatically improve their quality of life. 41. The above finding reveals very high potential for social benefits which clearly outweigh the social costs. 42. However, there is a risk that a lack of communication and coordination between the government and donor agencies can confuse the market and reduce chances for quick wins, thus delaying or even reducing social benefits associated with the overall stove replacement effort. F. Recommended Mitigation Measures 43. Mitigation Measures for Risk 1: Disappointing up take of improved stoves due to a lack of match between user preferences and stove performance and Risk 2: Disappointing emissions reduction as a result of stove users who do not follow user instructions

• Mitigation Measure 1: To ensure a higher number of locally produced stoves achieve the required performance targets, provide technical assistance to producers which includes consideration of user preferences and requirements, such as lighting time and method, cooking time, refuelling process, aesthetics, etc., as well as technical support to address problems in design and production. Mitigation Measure 2: Provide assistance by helping producers whose stoves are selected for subsidy support to develop user friendly manuals.

• Mitigation Measure 3: Ensure the proposed project fully implements its intended process of training users and verifying their understanding of how to use the new stove.

• Mitigation Measure 4: Provide technical assistance to the SEET Laboratory which will improve the predictive value of the laboratory test results. For example, the Lab could design a table that assigns a range for test results based on the complexity of operation of the stove. The complexity could be defined as the variation from operating a traditional stove. For example, a “low complexity” stove operation would be similar to operating a traditional stove.

• Mitigation Measure 5. While the current testing report gives a range, ensure the SEET

Lab clearly communicates the testing results to producers and other stakeholders so that producers and vendors of improved stoves understand the difference between emission and efficiency performance in the Lab and under household conditions in the field..

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44. The UBCAP initiative now incorporates a major TA component which provides assistance to Mongolian based stove designers and producers, regardless of their size. The objective of this TA is to help designers and producers in Mongolia, with a focus on UB city, with the practical steps by which they innovate, test and optimize their stove innovations and then test these experiments at the SEET Lab to objectively assess whether these innovations are going in the right direction. So, the SEET Lab which is in the process of moving to the Institute of Heating Technology and Industrial Ecology at the Mongolian University of Science and Technology, together with the hands on workshop at the contemplated Stove Development Center, will continue to support and test the most promising Mongolian stove designs. These tests of stove performance will be reported on to the general public, including fellow stove producers, the UBCAP/PIU, the other interested branches of the Municipal Government of UB, the World Bank and to MCA. After these tests have been publicly performed by the SEET Lab it will now become common knowledge about their emissions and efficiency performance.

45. Mitigation Measures for Risk1: about 50% of the local stove local stove producer’s market share will be impacted by the imposition of stricter environmental regulations and if they are unable to adapt to these regulations the impacts on their business would be negative. And Risk2: those stove producers may not wish to incur additional costs of producing high quality stoves and therefore cheaper copy-cat, models will appear and negatively affect the penetration of good quality stoves.

• Mitigation Measure 1: As in above, provide technical assistance to willing local stove producers to help them accelerate adaptation to new regulatory environment and incentives.

• Mitigation Measure 2: Subsidies for clean stove technologies should create incentives for local producers to switch to new technologies; however, local financiers and private businesses should be encouraged to assist in the improvement and production of local stoves.

• Mitigation Measure 3: Provide free of charge SEET Laboratory testing for a limited period of time to reduce barriers to improved stove development and create incentives for stove producers to test new designs

• Mitigation Measure 4: Maintain a dedicated and branded distribution and sales channel to protect against the intrusion of copy cat models into the stove market.

• Mitigation Measure 5: Highlight the fuel efficiency/operating cost saving benefits of new stoves to create a countervailing incentive to retain the new stove, rather than to re-sell it. In addition, ask the household to formally commit not to resell the stove for a certain period of time.

• Mitigation Measure 6: Monitor sales activities in the Black Market to identify potential leakages

• Mitigation Measure 7: Ensure the subsidy scheme operates in a transparent and open fashion with the publication of eligibility criteria, publication of laboratory test results, periodic monitoring and publication of program results.

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46. Mitigation Measures for Risk 5: local stove producers will be under pressure to change their technologies and stove designs but will be unable to do so without assistance and as a result high performance imported products will gain significant market share without the participation of the local stove industry; and Risk 6: there is a risk of leakage of stoves to a secondary market, imposing a negative impact on the environment due to users which game the system and continue to rely on traditional heating stoves.

• Mitigation Measure 1: A combination of public awareness and technical support to stove designers/producers will accelerate the growth and reliance upon qualified Mongolian companies, designers, venture capitalists, and businessmen which in turn would increase the pace at which the scientific and technical capacity needed to perfect and design, produce, maintain and repair, high performance stoves becomes localized. By maximizing the involvement of Mongolian stove producers and designers in the stove replacement program it becomes possible to maximize the conversion of externally sourced capital subsidies into permanent employment opportunities inside the Mongolian economy.

• Mitigation Measure 2: It may be possible for the Stove Development Workshop to assist

small stove producers who sell through the Black Market to change their stove designs so they greatly improve their emission and efficiency performance. There may be other products to which small and medium scale metal working enterprises could be introduced such as oven stoves, grilling stoves for cooking meat outdoors, camping stoves, etc. that would have specific local markets. These alternative stove markets would help to carry the small and medium sized Mongolian stove producers until they can reclaim their ‘rightful’ place in the stove economy of UB.

• Mitigation Measure 3: Imported products also require employment of after sales

service and delivery specialists as subsidy programs expire and demand volumes are stabilized, it is expected that imported stoves would be locally produced to reduce costs. To the contrary, provided there is an even playing field with transparent criteria applied evenly to any stove no matter its origin, there is an opportunity for a local, highly polluting stove industry to transform itself into one that creates jobs over the medium term by or selling green stove technologies.

• Mitigation Measure 4: In order to avoid leakages, the project should emphasize in the

marketing and public awareness campaigns the value to the customer of the fuel savings delivered by the improved stove products. Fuel savings is not fully correlated with emissions performance. Observations show a fuel savings of between 15-30 percent and a emission reduction potential of over 90 percent in the highest performing local and imported models. Emphasis on fuel savings will create incentives to keep the stove.

47. Mitigation Measure 5: During this transition process, it may be possible for the WB and UBCAP/PIU to explore the possibility that the XacBank might be willing to share up to half of its

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carbon credits on the improved stoves it is helping to market into the Ger area of the city with the MUB/UBCAP. The idea would be to place the funds paid for reducing the pollution of UB into a special account that is used to give extra subsidies for very low income households to enable them to afford the increasingly expensive Improved Stoves. It might be possible to harvest $10 to $20 per Improved Stove per year (160 000 Improved Stoves x $10 = $1 600 00 x 5 years depreciation cycle = $8 000 000). It would become reasonable to claim $100 in extra subsidy for 80 000 stoves every 5 years.

• Mitigation Measure 6: Current subsidy schemes in Ulaanbaatar apply different subsidy levels based on some measure of performance.10

However, it is unclear how the market will react to the graduated scale of subsidy. It is recommended the project observe and monitor the first year performance of the ongoing subsidy mechanism and review the lessons learned before finalizing a large scale implementation of the stove replacement program for UBCAP. For example, the merits of a flat subsidy compared to a graduated one could be discussed in Spring of 2012.

48. Mitigation Measures for Risk 7: the subsidy scheme could drive prices of traditional stoves in UB and rural areas up, including chimney prices thereby imposing a burden on those consumers wishing to buy a traditional stove; However, in the case of UB residents the increase in prices of traditional, polluting stoves may reduce the incentive to game the subsidy system. It is very difficult to make a definitive inference on the likelihood of increase in prices driven by the subsidy scheme; and for Risk 8: it is possible that expensive chimneys could create barriers to selling cleaner technologies.

• Mitigation Measure 1: Clearly indicate from the outset that the subsidies for stoves have a finite life and will be coming to an end. If credible, the stove industry will be driven to reduce costs in the face of the disappearance of temporary incentives. If not credible, households may believe that improved stoves require permanent capital subsidies, like an entitlement.

• Mitigation Measure 2: Include chimney sales in the distribution and sales system to

ensure that the chimney prices are monitored closely and sold as “packages” with the improved stoves. If necessary, a competition for participation in the program for chimneys could be considered.

• Mitigation Measure 3: The UBCAP/PIU should assign a staff member to monitor Ger

stove prices, demand, and stove producers at the Black Market. By establishing good relationships with the stove vendors and producers selling at the Black Market, the UBCAP will be continuously receiving reports from the private stove economy in UB that will make it possible for the PIU to advise the leaders of the MUB such as the Deputy Mayor at an early point when it becomes necessary to take action to adjust UBCAP implementation processes.

10 The actual subsidy levels are known but the methodology is not disclosed in currently operating schemes.

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49. Mitigation Measures of Risk 9: A lack of communication and coordination between the government and donor agencies would confuse the market and reduce chances for quick wins, thus delaying or even reducing social benefits associated with the overall stove replacement effort.

• Mitigation Measure 1: The UBCAP should support coordination mechanisms already in place at the MUB (and the President’s office) and encourage greater initiative by the central and local governments to coordinate activities.

G. Concluding Comments: 50. The project is very challenging because it needs to balance environmental objectives of rapid penetration of cleaner stove technologies with the social objectives of the affordability of these technologies to the poor in peri-urban ger areas and also to mitigate the resulting challenges especially to the artisanal stove producers to adapt to new regulatory conditions. However, it is also recognized that the environmental objectives will provide significantly positive social benefits by:

(i.) reducing the health risks in UB which are believed to be associated with excessive particulate emissions from traditional stoves,

(ii.) by reducing ongoing heating costs (most improved stoves are much more fuel efficient than traditional ones), and

(iii.) by creating new jobs in the green stove industry in the medium term.. 51. All clean stove technologies per se are imported because the traditional technology used ubiquitously in Ulaanbaatar is highly polluting. Therefore, the impacts of the importation of stoves have less to do with the actual production and more to do with the way in which Mongolian consumers and/or producers absorb the technology and accept it in their daily life. Changing the technology requires new ideas from outside to be adapted in the Mongolian context. 52. The project approaches the key risks posed by this adaptation process through well targeted technical assistance activities. The UBCAP initiative will , focus on providing technical support to local stove producers on the design and production of cleaner stove technologies, and the education and training of consumers about the proper operation of improved stoves. 53. While the penetration rate of improved stoves could take a short period of time, the continued education of consumers and technical support for producers will continue over the medium term to ensure the new technologies continue to evolve, production processes become more perfected, and the householders become more expert in the operation of their improved stoves as well as learning how to repair and mainten their stoves.. This will help to reduce risk of rejection and help internalize the technical understanding of cleaner stove technologies.

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54. In conclusion, the overall social benefits of the project by far outweigh the risks. 55. People Interviewed for Secondary Data

(1) Prof. Lodoysamba – Professor (retired) at National University of Mongolia and

major beneficiary of the ADB PATA. He knows how to run the SEET Laboratory through training provided under the ADB PATA and has participated in about 145 SEET laboratory tests of both local and imported stoves (about XXX models [ADD THE TOTAL NUMBER OF MODELS]. He was interviewed both in his capacity as a combustion scientist and as a son of a traditional nomadic family who knows the deep culture and symbolism of Mongolian patterns of conscious and being;

(2) Crispin Pemberton Pigott – in his capacity as a consultant for the ADB PATA pilot

project which tested the hypothesis of the adaptability of local stove producers by his provision of direct technical support to local producers to improve local stove models and test them in the SEET lab. He also was consultant for the German technical cooperation GTZ (now GIZ) to directly support design of new stove models such as the GTZ 7.5. He was interviewed in this capacity to understand technical issues and how to optimize the performance of these stoves in terms of following the proper operating behaviours/instructions;

(3) Duuya Ntr Gej Megeel – who acted as the translator for the Social

Anthropologies; served as a source of insight into Mongolian traditional culture with respect to the magical and spiritual symbolism of fire and the golomt spirit (including members of her extended family);

(4) Vanchindorj Basaikhuu – the Manager of Halilaast Area Development Program,

Sukhbaatar District, in charge of the World Vision Center in Khoroo 18; consultations about how to ensure that the poorest of the poor residents of the Ger areas get covered by the UBCAP stove replacement roll out and also receive improved stoves;

(5) Sod Dulam – consultant to MonEnergy Team providing services to the ADB PATA;

specifically providing assistance in training stove operators to properly run their stoves, assessing the capacities of producers, and the assessment of consumer satisfaction with improved stoves;

(6) consultation with the GIZ stove design and prototyping team to gain

understandings of the reasons for observed malfunctions and misoperation of the GTZ 7.5 during the ADB PATA;

(7) Bumochir Dulam – head of the department of anthropology, NUM, in his

capacity as an expert on the traditional, transitional and urban cultures of

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Mongolian as it impact on stove use, resistance to change, and promoting acceptance of beneficial stove innovations;

(8) The World Vision @volunteers’ hired by MonEnergy to carry out surveys of the

customers who purchased improved stoves and were also charged with training new stove owner/operators in how to properly operate their new stoves; also, to assess the positive and negative responses to customers to their new stoves’;

(9) The XacBank sales and training agents at the Show Gers Stove Product Centers in

Khoroo 18 about the positive and negative points of different improved stoves and their perceptions about customer’s likes and dislikes with respect to improved stoves.