Document ofThe World Bank

Report No: 62730-CR

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING OF THE

UMBRELLA PROJECT FOR RENEWABLE ENERGY SOURCES PROTOTYPE CARBON FUND (P076421)

US$0.525 MILLIONDATED JULY 31, 2002

TO THE

REPUBLIC OF COSTA RICA

JULY 3, 2012

Latin American and Caribbean Energy SectorSustainable Development Network

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

ABBREVIATIONS AND ACRONYMS

ACA-T

Arenal-Tempisque Conservation Area (Área de Conservación Arenal- Tempisque)

CNFL National Power and Light Company (Compañía Nacional de Fuerza y Luz)

EIA

EMP

ERPA

ICE

ISDS

PAD

PCF

PDD

Environmental Impact Assessment

Environmental Management Plan

Emission Reduction Purchase Agreement

Instituto Costarricense de Electricidad

Integrated Safeguards Data Sheet

Project Appraisal Document

Prototype Carbon Fund

Project Design Document

SETENA

US$

National Environmental Technical Secretariat

United States Dollars

Regional Vice President: Hasan TuluyCountry Director: Carlos Felipe JaramilloSector Manager: Malcolm Cosgrove-Davies

Task Team Leader: Roberto G. Aiello

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COSTA RICA

CONTENTS

PROJECT DATA SHEET

RestructuringRestructuring Type: Level 1Last modified on date : 07/03/2012

1. Basic InformationProject ID & Name P076421 - Umbrella Project for Renewable Energy Sources

(New project name as per this restructuring: “Costa Rica- Cote Hydroelectric Project”) 

Country Costa RicaTask Team Leader Roberto G. AielloSector Manager Malcolm Cosgrove DaviesCountry Director Luis Felipe Jaramillo Original Board Approval Date 12/03/2002 (Date of ERPA Signing)Current Closing Date 12/31/2017Proposed Closing Date [if applicable] N/AEA Category B-Partial AssessmentRevised EA Category BEA Completion Date Draft Assessment Dated 09/04/2002Revised EA Completion Date 11/2010

2. Revised Financing Plan (US$)Source Original RevisedPrivate and Public Sector Companies 48.60 48.60Carbon Offset 2.40 2.40

Total 51.00 51.00

3. BorrowerOrganization Department Location

National Power and Light Company (Compania Nacional de Fuerza y Luz)

Costa Rica

4. Implementing AgencyOrganization Department Location

National Power and Light Company (Compania Nacional de Fuerza y Luz) Costa Rica

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5. Disbursement Estimates (US$m)Actual amount disbursed as of 03/05/2012 US$ 0.095

Fiscal Year Annual CumulativeFY10 0.095 FY11 0.000FY12 0.000FY13 0.204 0.299 FY15 0.113 0.412 FY16FY17 0.113 0.525 Total 0.525

6. Policy Exceptions and Safeguard PoliciesDoes the restructured project require any exceptions to Bank policies? NoHave these been approved by Bank managementIs approval for any policy exception sought from the Board?Does the scale-up of restructured projects trigger any new safeguard policies? If yes, please select from the checklist below.

Yes

Safeguard Policy Last Rating Proposed Environmental Assessment (OD 4.01) X Natural Habitats (OP 4.04) X Forestry (OP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP 4.11) Indigenous Peoples (OD 4.20) Involuntary Resettlement (OP 4.12) X Safety of Dams (OP 4.37) X Projects in International Waterways (OP 7.50) Projects in Disputed Areas (OP 7.60)

7a. Project Development Objectives/OutcomesOriginal/Current Project Development Objectives/OutcomesThe objective of the Umbrella Project is to support development of the international market mechanism for the new commodity known as "Emission Reductions" (ER), developed in the framework of the Kyoto Protocol. In this particular case, the project will function as an umbrella to facilitate the implementation of several subprojects in Costa Rica of which three are presented for approval at this time. The subprojects produce reductions of C02 emissions through substituting electricity produced by thermal plants with electricity from renewable sources.

7b. Revised Project Development Objectives/Outcomes The objective of the Project is to support the National Power and Light Company (Compania Nacional de Fuerza y Luz) in developing initial experience with the Clean Development Mechanism of the Kyoto Protocol by supporting the development of a 6.95 MW capacity hydroelectric project in Costa Rica.

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COSTA RICAUmbrella Project for Renewable Energy Sources

(Costa Rica- Cote Hydroelectric Project) 

P073367CONTENTS

PageA. SUMMARY................................................................................................................6B. PROJECT STATUS..................................................................................................6C. PROPOSED CHANGES...........................................................................................7D. APPRAISAL SUMMARY........................................................................................8

Annex……………………………………………………………………………………10

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COSTA RICA

Umbrella Project for Renewable Energy Sources

(Costa Rica- Cote Hydroelectric Project) 

RESTRUCTURING PAPER

A. SUMMARY

1. The restructuring proposes to: (i) trigger the Involuntary Resettlement safeguard policy (OP 4.12), (ii) trigger the Safety of Dams safeguard policy (OP/BP 4.37); (iii) limit the potential subprojects under the original umbrella to just the Cote Hydro Project with CNFL and thus adjust the Project Development Objective (PDO), the Project title to “Costa Rica- Cote Hydroelectric Project”, and the Project cost accordingly; and (iv) amend the Emissions Reductions Purchase Agreement (ERPA) to reflect the Project restructuring.

B. PROJECT STATUS

2. The Project’s progress to achieving the Development Objective (PDO) is rated Moderately Satisfactory, as it supports the development of the Kyoto Protocol’s Clean Development Mechanism (CDM) and its emission reductions (known as Certified Emission Reductions (CERs)). The original Project foresaw support to up to three subprojects under the Umbrella. Ultimately, only the Cote Hydroelectric Project was included as it was the only project that materialized.

3. The Overall Implementation Progress is rated Moderately Satisfactory. Although the ERPA was signed and the Project was commissioned and is producing electricity, the first verification process for emission reductions for the period April 1, 2003 to March 31, 2006 has been finalized with CER issuance only on June 8, 2011. The second verification covering the period April 1, 2006 to March 31, 2010 is currently at its final stage before submission to the United Nations Framework Convention on Climate Change (UNFCCC) for CER issuance. Issuance is expected by the end of calendar year 2012.

4. The Project has been generating above expected electricity and emissions reductions in comparison to the Project Design Document (PDD) estimations. The Designated Operating Entity for the second verification was contracted at the beginning of 2010 (TUV-Nord) and is also currently working on extending the crediting period by an additional 7 years (re-validation).

5. The Project’s overall safeguard compliance is rated Satisfactory. CNFL’s environmental management plan (EMP) has been rigorous and the Project has complied with both the Environmental Assessment and Natural Habitats safeguards. CNFL implements a unique monitoring of the Project impacts on the natural ecosystems, has environmental policies, standards and environmental

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specialist staff supervising the Project. However, one social issue concerning the Project awaits resolution regarding a land compensation dispute between CNFL and a private landowner having substantial holdings along the banks of Cote Lake. The World Bank is proposing to trigger the Involuntary Resettlement policy to ensure adequate follow up to this pending land-related dispute.

6. The World Bank has reviewed and agreed upon CNFL’s abbreviated Resettlement Plan dated November 2010, submitted to the Bank on April 8, 2011. The Resettlement Plan was disclosed at the World Bank’s Infoshop on May 19, 2011 and in country on CNFL’s website on June 9, 2011.

C. PROPOSED CHANGES

7. The restructuring proposes to: (i) trigger the Involuntary Resettlement safeguard policy (OP 4.12), (ii) trigger the Safety of Dams safeguard policy (OP/BP 4.37); (iii) limit the potential subprojects under the original umbrella to just the Cote Hydroelectric Project with CNFL and thus adjust the PDO, the Project title to “Costa Rica- Cote Hydroelectric Project”, and the Project cost accordingly; and (iv) amend the ERPA to reflect the Project restructuring, as indicated below:

(i) During the supervision mission dated March 2011, it was found that only one land-related dispute still requires resolution and CNFL is working through the national judicial system to resolve this issue. The triggering of OP 4.12 will enable the team to closely follow-up on this land compensation dispute. This has entailed the preparation of an abbreviated Resettlement Plan by CNFL and will require continued supervision until the case is resolved.

(ii) The World Bank is proposing to trigger OP4.37 Safety of Dams for the case of small dams to ensure adequate dam safety measures are in place.

(iii) Although the Costa Rica Prototype Carbon Fund (PCF) Umbrella Project originally envisioned three subprojects, the Cote Hydroelectric Project was the only one that materialized as an ERPA contract. The proposed PDO would now be “to support the National Power and Light Company (Compania Nacional de Fuerza y Luz) in developing initial experience with the Clean Development Mechanism of the Kyoto Protocol by supporting the development of a 6.95 MW capacity hydroelectric project in Costa Rica”. Consequently, the Project title is proposed to be changed to “Costa Rica- Cote Hydroelectric Project” consistent with the updated PDO and the name in the Project Design Document (PDD).

(iv) The ERPA will be amended to reflect the Project restructuring.

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D. APPRAISAL SUMMARY

Safeguard Policies

8. The CR Umbrella Project was classified as Category B. Two safeguard policies were triggered at project appraisal (OP 4.01 Environmental Assessment and OP 4.04 Natural Habitats) and these safeguards will continue to be applicable during the entire project implementation period.

9. OP 4.12 on Involuntary Resettlement was not triggered at appraisal. At that time it was determined that for the subprojects under consideration, the social screening criteria that were built into the environmental assessment process (including a public consultation procedure, mechanisms for public input, and screening for resettlement and indigenous peoples) were sufficient. The results of the screening indicated that none of the identified subprojects were expected to threaten downstream water users' rights or cause involuntary resettlement, and a statement to this effect was included in the Project Appraisal Document (PAD). Furthermore, the environmental impact assessments prepared for all subprojects under the Umbrella Project were expected to reflect Bank standards relating to the proper management of environmental and social issues.

10. CNFL submitted its final abbreviated Resettlement Plan to the World Bank. This Plan describes the resolved land acquisition cases, the one pending case, and follow-up actions, along with supporting documentation. The Plan and the supporting documentation have been considered acceptable by the World Bank. The one remaining land dispute will require continued supervision until the case is resolved in Costa Rica’s national judicial system.

11. In 1997, the Cote Project, proposed to increase the crest of an existing ICE (National Utility) dam (3.5 m height x 19 m long) by about 1m to increase the storage capacity of the Cote Lake (3 million cubic meters). In 2001, the project contractors reviewed the conditions of the existing Cote dam and proposed that it was better to build a new dam behind the existing small dam. The engineers of CNFL and ICE reviewed the proposal and approved the construction of a new dam (4.6 m height x 24 m long). The Cote project was built between 2001 and 2002 and entered operation in March 2003. The Bank teams that approved this carbon finance did not trigger the Safety of Dams (OP/BP 4.37) safeguard.

12. The World Bank is now proposing to trigger OP4.37 Safety of Dams for the case of small dams to ensure adequate dam safety measures are in place. In October 2011, a dam safety inspection was performed and found that: (i) the dam was designed and constructed to an acceptable engineering standard and supervised by local and international civil engineers, complying with the safeguard policy for small dams; (ii) it is necessary that CNFL implements an action plan to address the lack of dam safety plans and to establish dam maintenance and monitoring plans; and (iii) increase institutional capacity to deal with dam safety issues. An action plan has been agreed with CNFL to implement the dam safety measures recommended by the dam safety specialist, which has been cleared by the Bank’s

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Regional Safeguards Advisory Team (SAT). In response to CNFL’s request, the Bank team is supporting a capacity building activity within the company relating to managing safety of dams.

13. The Cote EMP was updated in November 2010 and it will be updated once again to include appropriate measures according to the new safeguards policies triggered. The sponsor will send the revised EMP to the Bank for review/approval and disclosure at the Bank’s Infoshop. The sponsor will also disclose the updated EMP locally.

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Cote Project location in Costa Rica.

Annex

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