PD ASIAN DEVELOPMENT BANK RRP: MLD 33218 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF THE MALDIVES FOR THE REGIONAL DEVELOPMENT PROJECT, PHASE II – ENVIRONMENTAL INFRASTRUCTURE AND MANAGEMENT April 2005 CURRENCY EQUIVALENTS (as of 14 April 2005) Currency Unit – rufiyaa (Rf) Rf1.00 = $0.077 $1.00 = Rf12.96 ABBREVIATIONS ADB – Asian Development Bank ADP – atoll development plan EIRR – economic internal rate of return GDP – gross domestic product IsDB – Islamic Development Bank IDC – island development committee IDP – island development plan IEE – initial environmental examination IS – international shopping MEC Ministry of Environment and Construction MHUDB – Maldives Housing and Urban Development Board MOAD – Ministry of Atolls Development MOFAMR – Ministry of Fisheries, Agriculture and Marine Resources MOFT – Ministry of Finance and Treasury MOH – Ministry of Health NPSC – national project steering committee MWSA – Maldives Water and Sanitation Authority O&M – operation and maintenance PHAST – Participatory Hygiene and Sanitation Transformation PIU – project implementation unit PMU – project management unit PPMS – project performance management system RPAC – regional project advisory committee TEAP – Tsunami Emergency Assistance Project UNDP – United Nations Development Programme UNICEF – United Nations Children’s Fund WDC – women’s development committee GLOSSARY Central Regions — Group of 13 atolls, part of the Maldives, between 1o and 6 oN, 72-74 oE. It comprises the South Central, Central, and North Central regions. Community — The community-based approach to management of utility management services and facilities, including sanitation and sewage treatment and solid waste management. Cooperative — Commercial enterprise owned and managed by and for the benefit of customers or workers. Freshwater lens — Convex lens-shaped body of freshwater positioned above seawater, floating within the aquifer and separated from it by a transition zone. The freshwater lens contains the island’s freshwater reserves and is within the island’s shell and coral debris. Focus islands — Selected regional growth centers where pilot environmental infrastructure and planning and environment management initiatives are to take place. In this Project, the islands are Naifaru in Lhaviyani Atoll, Mahibadhoo in Alif Dhaal Atoll and Fonadhoo in Laamu Atoll. Regional growth — Regional urban growth centers, outside Malé and its centers immediate surroundings, where a wide range of employment and investment opportunities are to be created by building on economic, environmental, and social competitive advantages. NOTES (i) The fiscal year (FY) of the Government ends on 31 December. (ii) In this report, "$" refers to US dollars. This report was prepared by a team consisting of T. Gallego-Lizon and E. Mayerhofer (team leaders), M. Subroto, S. Zaidansyah, and H. Ikemoto. CONTENTS Page LOAN AND PROJECT SUMMARY iii MAPS vii I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2 III. THE PROPOSED PROJECT 5 A. Outcome 5 B. Components and Outputs 5 C. Special Features 10 D. Cost Estimates 11 E. Financing Plan 12 F. Implementation Arrangements 12 IV. PROJECT BENEFITS, IMPACTS, AND RISKS 16 A. Expected Project Benefits and Impacts 16 B. Assumptions and Risks 18 V. ASSURANCES 18 A. Specific Assurances 18 B. Conditions for Loan Effectiveness 20 C. Conditions for Loan Negotiation 20 VI. RECOMMENDATION 20 APPENDIXES 1. Design and Monitoring Framework 21 2. Institutional and Sector Analysis 25 3. External Assistance 30 4. General Approach to Community Organization 32 5. Gender Action Plan 34 6. Sanitation Improvements on the Focus Islands 35 7. Summary Initial Environmental Examination 38 8. Cost Estimates and Financing Plan 42 9. Implementation Schedule 45 10. Proposed Contract Packaging 46 11. Outline Terms of Reference for Consultants 47 12. Action Program and Performance Criteria for Regional Development 50 13. Summary Poverty Reduction and Social Strategy 51 14. Economic and Financial Analyses 55 SUPPLEMENTARY APPENDIXES (available on request) A. Detailed Cost Tables B. Detailed Terms of Reference for Consultants C. Analysis of Legal Framework D. Project Management E. Initial Environmental Examination LOAN AND PROJECT SUMMARY Borrower Republic of the Maldives Classification Intervention: Targeted Intervention Sector: Water Supply, Sanitation and Waste Management Subsector: Integrated Theme: Environmental Sustainability, Sustainable Economic Growth Subtheme: Environmental Improvement, Developing Rural Areas Environment Category B: An initial environmental examination (IEE) was Assessment undertaken. The summary IEE is in Appendix 7. Project Description The Project was developed within the context of the Government's 6th National Development Plan, and focuses on poverty reduction; community development; and improvements in water supply, sanitation services, solid waste management, and land management. The Project combines the three principal thrusts of policy improvements, capacity building, and investment facilities. The Project will be implemented on three focus islands (Naifaru- Lhaviyani, Mahibadhoo-Alif Dhaal, and Fonadhoo-Laamu atolls). Naifaru and Fonadhoo islands were reported to have been highly impacted by the 2004 tsunami. The Project will help the Government deliver basic infrastructure services to the outer islands more efficiently through institutional reform, and will consolidate systems to recover costs and provide waste and sanitation management services. The Project has a strong community-based approach to implementation and will provide tangible support to optimize participation of the private sector by establishing cooperatives for operation and maintenance. Rationale Poverty in the Maldives stems primarily from regional disparities in living conditions related to remoteness of the islands and lack of infrastructure and social services in the atolls. The island ecosystems are among the most vulnerable, and suffer rapid depletion and pollution of groundwater, pollution of the coastal environment due to inadequate sewage and solid waste disposal, and marine resource depletion. Environmental degradation can render an island uninhabitable, increase its vulnerability to natural disasters, and impact on key economic sectors, particularly tourism and fisheries. Problem analysis reveals that (i) basic infrastructure is largely inadequate on the outer islands to provide safe drinking water, and to prevent groundwater, marine and terrestrial pollution, and health hazards; (ii) regional planning is deficient due to the absence of implementing basic instruments such as land-use and economic planning, and environmental management for resource protection and health preservation; and (iii) management capacity at the regional, atoll, and island levels requires strengthening. iv Objective The Project’s goal is to increase the standard of living in the Central Regions. The Project’s objective is to improve environmental and land management through a community- centered approach. The Project has three closely interrelated components: (i) improving environmental infrastructure; (ii) strengthening planning and environmental management; and (iii) building management and implementation capacity in the Central Regions. Cost Estimates The total cost of the Project, including physical and price contingencies, is estimated at $7.5 million equivalent. Of the total cost, $5.38 million (71%) comprises the foreign exchange cost, and $2.12 million equivalent (29%) the local currency cost. Financing Plan The Asian Development Bank (ADB) will provide a loan of $6 million equivalent from its Asian Development Fund resources. ADB will finance 80% of the costs, including the entire foreign exchange cost and 29% of the local currency cost. The Government and the beneficiaries will finance the remaining $1.5 million equivalent of local costs. Loan Amount and Terms A loan of $6 million from the Asian Development Bank’s (ADB) Special Funds resources will be provided. The loan will have a term of 32 years, including a grace period of 8 years; an interest charge of 1.0% per annum during the grace period and 1.5% per annum thereafter; and such other terms and conditions set forth in the Loan Agreement. The Borrower will be the Government of Maldives. Period of Utilization Until 31 March 2011 Estimated Project 30 September 2010 Completion Date Implementation The project implementation period is 5 years. A project Arrangements management unit (PMU) under the Ministry of Atolls Development (MOAD) will be set up in Malé, and three project implementation units (PIUs) will be set up on each of the three project focus islands. A national project steering committee will be established to guide policy decisions and operational issues. A regional project advisory committee will be established on each of the focus islands to advise on atoll development coordination. Close coordination with units working on tsunami recovery will be sought. Executing Agency Ministry of Finance and Treasury v Procurement Goods, related services, and civil works to be financed from the loan proceeds will be procured in accordance with Guidelines for Procurement by the ADB and its Borrowers and Government procurement procedures acceptable to ADB. Procurement will be carried out by the PIUs under the PMU’s guidance. The sanitation schemes will be