Mid-Term Review Report of Japanese ODA Loan Project for FY2012
External Evaluator: Tadayuki Kanazawa (OPMAC Corporation)
Field Study: October-November 2012
Project Name: Egypt “Environmental Pollution Abatement Project” (EPAP II) (L/A No.EG-P29)[Project Description]
Loan Amount / Disbursed Amount
Loan Agreement Signing Date
Original Date of Project Completion
Project Completion after Review
Loan Expiry Date
Executing Agency
Operation and Maintenance Organization: 4,720 Million Japanese Yen / 2,298 Million Japanese Yen (as of 30 November 2012): May 2006
: August 2011
: August 2014
: August 2014
: Egyptian Environmental Affairs Agency (EEAA): Project Management Unit (PMU) within EEAA is responsible for technical and financial management of project
implementation in cooperation with National Bank of Egypt (NBE). Under Two Step Loan: TSL scheme, NBE is
the apex bank to finance participating enterprises for investing in their sub-projects together with the otherparticipating commercial banks. NBE is responsible for reporting to the PMU on the status of its fund utilization
including those of the other participating banks.

[Project Objectives]
The Project aims at abating pollutants emitted by factories in Greater Cairo (Qalyobia Governorate in particular) and the Alexandria Area by providing
finance by way of local intermediary financial institutions to enable Egyptian firms to install pollution abatement facilities and equipment, thereby
contributing to environmental improvement in the target areas.
Consultant
Contractor1: Technical assistance provided by other donors including EIB and the Government of Egypt.
: Not applicable because of TSL

1

The names and nationalities of consultants and contractors are entered only when they have been made public in JICA’s annual statistical report, “List of Names of Major Companies
and their Contract Amount of Japanese ODA Loan” (these are names for which the contract amount is not less than 1 billion Japanese Yen for contractors and not less than 100 million
Japanese Yen for consultants were entered). Where the names have not been entered in JICA’s annual statistical report, they are described only as “local contractors/consultants” or“Japanese contractors/consultants”. These names can be provided by JICA.

1

Item
Relevance

Ex-Ante Evaluation (2006)(1) Relevance to Development Policy
The Government of Egypt has valued equallyboth economic development and environment
conservation in its Fifth Five-year Plan forSocio-Economic Development (2002-2007). The
National Environmental Action Plan of Egypt(2002-2017) prepared in 2002 has placed apriority on such as reducing air and waterpollution, and improving industrial pollution
especially in the urbanized areas along the Nile
River and the Greater Cairo.

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)(1) Relevance to Development Policy
The Fifth Five-Year Plan for Socio-Economic Development (2002-2007) has been
updated as the Sixth Five-Year Plan for Socio-Economic Development (2007-2012).
The plan aims to achieve high and sustainable economic development and poverty anddisparity reduction. It values equally economic development and environmental
conservation. The National Environmental Action Plan of Egypt (2002-2017) remains
valid, determining that environment conservation with community participation isimportant for sustainable growth. The first Environmental Law 4/1994 was updated as
the Environmental Law 9/2009. Some important changes include:· Setting the emission standards with qualitative loads;· strengthening industrial pollution control for the coastal zone;· increasing penalties;· strengthening Environment Impact Assessment (EIA) requirements;· setting compensation requirements that include reparation for the costs of therestoration of the environment to its original state or the rehabilitation thereof;and· extending the definition of environmental pollution to cover “causing damage
and/or destruction to natural habitats, or living organisms”.
In accordance with the Law 9/2009, EEAA has prepared a policy action forindustrial pollution control through the Project. The policy aims to:· Promote the use of cleaner fuels and energy conservation;· require the enterprises to obtain environmental assessment by EEAA prior totheir investments;· strengthen public disclosure of information;· continue the monitoring of emission to effectively regulate pollutant discharges;
and· support introduction of new facilities for environmental conservation to existing
pollution hot spots.

2

Item

Ex-Ante Evaluation (2006)

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)
EEAA issued the revised EIA guidelines in January 2009 to control comprehensively
the pollution from new investment. Main modifications include requirement forcommunity participation and public disclosure of EIA reports. As stated above, thegovernment policy for environmental pollution has been strengthened, compared withthat at the time of the ex-ante evaluation. The Project is, therefore, highly relevant tothe current government environment policy.

(2) Relevance to Development Needs
Egypt suffers from various kinds of pollutions
such as air, water and solid waste pollutions due torapid economic growth and increased population.
Pollution is particularly significant in the Greater
Cairo area (Cairo, Giza and Qalyobia
Governorate) and Alexandria areas (Alexandria
and Beheira), where a large number of the
population and industrial factories exist. Under thecircumstances, a wastewater and polluted air
abatement program has been prepared to
substantiate the First Five-Year Plan (2002-2007)
of The National Environmental Action Plan of
Egypt 2002/2017. Reducing polluted air and water
emission along the River Nile and the Greater
Cairo area is one of the important purposes of the
program.

(2) Relevance to Development Needs
Environmental pollution in Egypt is still serious, especially with polluted air,wastewater and solid waste. EEAA set up the ambient Air Quality Monitoring Network(AQMN) in 1997 across the country with 87 air-monitoring stations. EEAA plans toincrease the number of AQMN to 120, of which 48 will be placed in the Greater Cairo,
most populated area.
In addition, EEAA started the Industrial Emission Monitoring Network (IEMN) withtelemetry network in 2004 to strengthen its monitoring system for industrial pollution.
EEAA considers that financial support is essential to the Greater Cairo and Alexandria,
where a large number of polluting factories and potential end-users who have keeninterest in pollution abatement investment exist. The Project is therefore, consideredhighly relevant to the current development needs.

3

Item
Effectiveness

Ex-Ante Evaluation (2006)(1) Quantitative Effects
Operation and Effect Indicators(1) Quantitative Effects
Operation and Effect Indicators
Indicator

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)

Target (2013)(2 years after
completion of the
Project)
50-75
4,720*

Indicator
Status at Mid-Term Review(Nov. 2012)

Target year
(2016)(2 years after completionof the Project)
30-40

Total number of sub-loans
Total number of sub-loans
25
Total value of sub-loans
Total value of sub-loans
3,108
4,720*(million Japanese Yen)(million Japanese Yen)
Emission standards clearance rate
100
Emission standards clearance rate
100
100
(%)
(%)
Note:*Japanese ODA loan portion out of 13,334 million Note: * Japanese ODA loan portion out of 14,393 million Japanese Yen equivalent in total from theJapanese Yen equivalent in total from the participating participating donors.
donors.

The total loan amount available for the Project was estimated at 13,334 million
Japanese Yen (JPY) equivalent at the ex-ante evaluation. With participation of Agence
Française de Développement (AFD), thereafter, the total loan amount has increased andthe total amount is estimated at 14,393 million JPY (or $184 million) at the Mid-Term
Review (MTR). According to EEAA’s estimate at MTR, the number of sub-loans willreach around 35 with the total lending amount of 14,393 million JPY, of which 4,720
million JPY will be financed from Japanese ODA loan until the loan expiry date ofAugust 2014. To date, all the factories that have installed new equipment under the
Project have successfully met the emission target required under the sub-loan
agreements.
(2) Qualitative Effects(a) Increased Assessment Capacity of theParticipating Banks on Environmental
Sub-Projects(2) Qualitative Effects(a) Increased Assessment Capacity of the Participating Banks on Environmental
Sub-Projects
According to information from EEAA and the participating banks, i.e. National Bankof Egypt (NBE) and National Societe General Bank (NSGB), the capacity of both NBE
and NSGB for assessing environmental sub-projects has been strengthened through theguidance and assistance provided by EEAA and the consultant. They have been

4

Item

Ex-Ante Evaluation (2006)

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)assessing and processing sub-loan applications in accordance with the Operation
Manual without serious delays. With support of PMU and the consultant, NBE
developed an Environmental Policy and Environmental Management Framework,
under which NBE has conducted screening and financing pollution abatement
sub-projects proposed by the end users.

(b) Increased Ability of EEAA to Advise
Enterprises on Installation of Pollution
Abatement Equipment(b) Increased Ability of EEAA to Advise Enterprises on Installation of Pollution
Abatement Equipment
Though the implementation of World Bank (WB) financed EPAP I (1997-2004),
EEAA has acquired sufficient knowledge about equipment and technology forpollution abatement, and therefore EEAA’s ability to advise end-users on equipment
and facilities are considered to be satisfactorily developed. With assistance by the
consultant, EEAA has been providing end-users with technical advices, based on which
end-users have submitted their proposals for borrowing a sub-loan. EEAA has acquired
broader knowledge and experience regarding installation of pollution abatement
equipment through the implementation of the Project and their ability for advisory
services is being strengthened.

(3) Impact
There is nothing to mention.

(3) Impact
There is a significant reduction in air pollutants achieved from the 11 sub-projects
with an overall 79% reduction in particulates and 83% reduction in SO2. In addition,
the following impacts are, among others, anticipated as a result of the implementationof the Project:· Strengthened monitoring of end-users to implement the agreed actions throughthe introduction of the Compliance Action Plan (CAP) as a tool;· reduced emissions from polluting factories through the engagement ofcommunities as a “watchdog” on polluters;· involvement of commercial banks in lending enterprises for their pollution
abatement programs and increased funds for installation of pollution abatement
equipment, resulting in reduction of pollution as a whole; and

5

Item

Ex-Ante Evaluation (2006)

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)· reduced pollution through improved laws, regulations and standards related tothe pollution control and management.

(4) Other Items Influencing Effectiveness(a) Project implementation structure, technical andfinancial aspects of the Executing Agency
Executing agency EEAA was established in
1982. EEAA organization was strengthened under
the Environmental Law No. 4 enacted in 1994.
Given
its
experienceinsatisfactorily
implementing EPAP I with an aggregate sub-loan
amounting to $35 million equivalent to 25
sub-projects, the capacity of EEAA for
implementation of EPAP II will be sufficient.
EEAA will be able to secure adequate counterpart
fund, given the Government of Egypt (GOE)’s
priority placed on the Project and sufficient fundallocated for EPAP II.
Within EEAA, a Project Management Unit
(PMU) was established by ministerial decree
dated December 18, 2005. The PMU consists of aTechnical Support Unit (TSU) and a Financial
Unit (FU). TSU is in charge of advising andassessing the pollution abatement equipment
installed for sub-projects etc. TSU is also incharge of monitoring the pollution level after
completion of each sub-project. FU is in charge of
operating the special accounts of Two Step Loan,follow-up of sub-loan disbursements as well as
grant disbursement (technical assistance portion)(4) Other Items Influencing Effectiveness(a) Project implementation structure, technical and financial aspects of the Executing
AgencyEEAA was established under the Environmental Law No. 4 enacted in 1994. The
Law was amended in September 2009. Through the issuance of Decrees 1741/2005,
1095/2011, and 7/10/2012, EEAA has been strengthening its authority; it has been
given the power to set criteria and conditions for pollution control, monitor complianceand take actions against violators of these criteria and conditions. The ProjectManagement Unit (PMU) consists of 13 qualified personnel who have experienced in
the implementation of EPAP I, and is therefore considered to possess sufficient
capacity to implement the Project. On the top of the EEAA, there is the Project Steering
Committee (PSC), which convenes a meeting once a year to provide policy guidance tothe PMU regarding budgets, sub-project selection, appraisal and inter-ministerial
coordination for project implementation.
NBE and the other participating banks have been processing sub-loan applications
from the interested end-users without serious delays. Given their experience in EPAP I,
their capacity is considered sufficient to assess the applications from the end-users inaccordance with the appraisal criteria as stated at Effectiveness (2).

6

Item

Ex-Ante Evaluation (2006)

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)and other financial consolidation in cooperation
with an environment unit of NBE.
In addition, a Steering Committee (SC) will beestablished to oversee the overall progress of the
Project and to coordinate with government
agencies concerned and participating donors.
(b) Cooperation with NGO, universities, etc.
There is nothing to mention.

(b) Cooperation with NGO, universities, etc.
There is nothing to mention.

(c) Cooperation with Japanese grant aid/and or
Technical Cooperation
JICA provided Egypt with a technicalassistance “Regional Environmental Management
Improvement Project” (hereafter “TA”) on a grantbasis since November 2005. At the time, JICA
considered to provide technical assistance for the
Project such as strengthening the capacity of
EEAA for project implementation, using part ofTOR given in the TA.

(c) Cooperation with Japanese Grant Aid and/or Technical Cooperation
The Regional Environmental Management Improvement Project was implemented
under technical assistance by JICA. According to the terminal evaluation report dated
July 2008, the project was implemented from November 2005 to November 2008,
aiming at developing EEAA’s capacity such as the capacities for advising on
environment conservation measures, conducting seminars and awareness campaigning.
Actually, the project assisted EEAA in building capacity of gathering, organizing, andanalyzing air and water pollution data, suggesting improvement measures, publicawareness campaigning and disclosure of information. The staff of the PMU and Air
Quality Department were provided with various local trainings including computerizedsoftware called “SCREEN 3” and “AERMOD 7”, which have subsequently been
applied for the evaluation of sub-projects in the Project. In addition, a total of 17 EEAA
staff were dispatched to Japan to get trained on environment management, noxious
chemicals, air pollution issue management, and public awareness. The project has
improved the ability of EEAA for data gathering, analyses and pollution abatement
planning, and accordingly served to implement EPAP II in a satisfactory manner.

(d) Cooperation with Other Donors(d) Cooperation with Other Donors
EPAP II consists of two components, investment and technical assistance
EPAP II will be jointly financed by World Bank
(WB), European Investment Bank (EIB) and components. At the ex-ante evaluation, the investment component was scheduled to be

7

Item

Ex-Ante Evaluation (2006)

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)

Japan International Cooperative Agency (JICA).
For project implementation and supervision,
comprehensive and cooperative approach isenvisaged though participation of all the donors in
the co-financiers mission regularly upon thearrival of WB review mission. The co-financiersmission will review the progress of the investment
components as well as the technical assistancecomponents.

financed by WB, JICA and EIB in a total amount of 13,334 million JPY ($114 million)
equivalent. The technical assistance component was scheduled to be financed as grantassistance by the Government of Finland, EIB, Global Environmental Fund (GEF) and
GOE. With the participation of AFD in the investment component, thereafter, the totalfund available for the Project becomes about 14,393 million JPY ($184 million)
equivalent, as of November, 2012.
Project supervision is conducted comprehensively through the co-financiers mission
upon the arrival of WB review mission, which is regularly conducted twice a year, withparticipation of all the donors including JICA.
In accordance with the Environmental Law 4/2009, EEAA is planning to implement
EPAP III, for which some donors have already expressed their interest to contribute.

(e) Effect on the Natural Environment
The Project aims to finance through financing
intermediaries
thepollutingenterprises(end-users) to help their effort to reduce theemissions. Because of this reason, theenvironmental impact is considered minimal, and
the Project is categorized FI in accordance with
“JBIC’s Guidelines for Environmental and Social
Consideration” (April 2001).

(e) Effect on the Natural Environment
EEAA has required the end-users to submit an Environmental Impact Assessmentand obtain EEAA’s approval in accordance with GOE guidelines. The guidelines
categorize projects into A, B and C. With some adjustments under the Use of Country
System, the GOE guidelines are acceptable to WB. All the sub-projects to date havebeen categorized as Category B and approved as consistent with the GOE guidelines by
EEAA. EEAA monitors the sub-project implementation and prepare a monitoring
report based on the Environmental Management Plan (EMP) with assistance of theparticipating banks.

(f) Land Acquisition(f) Land Acquisition
As at MTR, no land acquisition and resettlement were needed under the Project.
Not applicable as the end-users are assumed
responsible for this.
(g) Operation and Maintenance Structure and the Technical and Financial Aspects of(g) Operation and Maintenance Structure and thethe Executing Agency
Technical and Financial Aspects of the
EEAA prepares a monitoring plan on a monthly basis in accordance with the
Executing Agency
EEAA will prepare a monitoring plan on a Environmental Law and regulations and let the Centre Inspection Department (CID)

8

Item

Efficiency

Ex-Ante Evaluation (2006)

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)

monthly basis to monitor the discharged pollutantsfrom industries. The EEAA’s monitoring plan will
also cover the industries who have borrowed the
sub-loans to see if they have cleared and are stillclearing the emission standards as required under
their sub-loan agreements.

and Regional Branch Offices (RBOs) carry out inspection and monitoring of emissions
from factories continuously. Based on the monitoring result, EEAA imposes penalty tothose factories that are non-compliance with the regulations. Of those factories
inspected in Cairo and Alexandria areas, over 80% were found non-compliant and,
therefore referred to EEAA legal department to determine follow-up actions. For thoseindustries such as cement and steel factories that are producing a large amount ofemission, continuous self-monitoring and reporting are imposed.
Every end-user who has improved the facilities under the Project is required tomonitor the emission for one year after the completion of the sub-project. EEAA has
given a 20% grant to those end-users who have cleared the targeted level of emission
reduction as planned. Furthermore, a Compliance Action Plan (CAP) should besubmitted by the end-users for approval by EEAA. If any slippage is observed in the
CAP, then the notice is brought to the inspection department for appropriate action.

(1) Project Outputs(a) Project Scope
1) Investment component(1) Project Outputs(a) Project Scope
1) Investment component
The loan agreement stipulates that the location of the end-users should be Greater
Cairo and Alexandria. At present, EEAA considers that there are sufficient numbers ofpotential enterprises, which will have interest in borrowing sub-loan and therefore no
problem to utilize the loan funds fully by the end of 2014.
According to EEAA, 25 sub-projects so far implemented or approved by August2012 are categorized into the following sectors:· Cement factories: 6 sub-projects· Chemical fertilizers: 5 sub-projects· Food production factories: 5 sub-projects· Others including steel, paper, petrochemicals, etc.: 9 sub-projects
From the interviews with some end-users, it was learned that end-users are in generalsatisfied with the lending conditions from participating banks to end-users (interest

9

Item

Ex-Ante Evaluation (2006)

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)
rate, collateral, etc.) that were softened since 2009. The interviewed end-users informed
the reasons why they decided to take EPAP II financing as follows:(i) Technical support free of charge and available from the PMU such as technicaladvices, preparation of technical specifications and bidding documents, andevaluation;(ii) favorable sub-loan conditions such as interest rates, repayment period andincentive of 20% grant; and(iii)limited financial resources of the companies to improve their facilities.
The MTR mission visited three factories, one located in Cairo and the other two in
Alexandria. The sub-project in Cairo was completed, whereas the one in Alexandria
was completed and is under commissioning test, and the other is in process of
preparation of a sub-loan agreement. The following were found during the site visit:(i) Some factory in Cairo- after the completion of the new systems installed upon
EEAA’s advice, the end-user has achieved the reduced quantity and theimproved quality of wastewater and cleared the targeted level.
(ii) Some factory in Alexandria-the newly installed equipment under the
sub-project has brought the improved quality of wastewater and cleared therequired standard. In addition, production cost has been reduced and the profit
has been increased by the reduced use of water and recycling.
(iii)Some factory in Alexandria-with the proposed installation of a wastewater
treatment system, untreated wastewater currently being discharged to Lake
Mariout will be treated to the allowable level.

2) Technical Assistance Component

2) Technical Assistance Component
The consultant referred in item (b) below has been engaged by other donor thatprovided a grant from the beginning of the Project. The consultant has been providing
technical advices to EEAA and its regional offices, supporting their conduct ofmonitoring and inspection activities.

10

Item

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)

Ex-Ante Evaluation (2006)
3) Lake Mariout Water Quality Improvement
Component(separate component but implemented
parallel with EPAP II)

3) Lake Mariout Water Quality Improvement Component
No information and data were obtained as this is separate component not financed byin JICA, while implemented in parallel with EPAP II.

(b) Consulting Services
A team of consultants will be engaged undertechnical assistance program financed as a grantfrom the Government of Finland, EIB and theothers. The team will support EEAA for project
implementation and advise the end-users on theselection and installation of pollution abatement
equipment and facilities.

(b) Consulting Services
The consultant has been engaged for project implementation services, the cost ofwhich is financed as a grant by donors such as EIB. In addition to an international
expert fielded on a long-term basis, other experts in the fields of environment,
wastewater treatment, procurement, etc. have been dispatched on a short-term basis toprovide EEAA with whatever support as required. The performance of the consultants
is well appreciated by EEAA. The services by the consultants include, among other, thefollowing:(i) Advise end-users on selection and installation of equipment and facilities toreduce pollution;(ii) assist end-users in procurement;(iii)assist EEAA in project implementation including coordination with donors;
and(iv) assist EEAA in conducting awareness campaigns on pollution to the public
and enterprises.

(2) Project Inputs(a) Project Cost

(2) Project Inputs(a) Project Cost
At the ex-ante evaluation, the total loan amount available was 13,334 million JPY
equivalent, of which Japanese ODA loan amounted to 4,720 million JPY. With
participation of AFD, the total loan amount was 14,393 million JPY ($184 million)
equivalent. The disbursement status from the donors as at November 2012 is asfollows:

11

Item

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)

Ex-Ante Evaluation (2006)
Component

Investment component
JICA
World Bank
EIBTechnical AssistanceComponent
Government of Finland
EIB
GOE
Lake Mariout water quality
improvement (GEF)
Total

Unit: Million Japanese Yen
AmountTotal
Japanese
ODA Loan
13,334
4,720(4,720)(4,720)(2,360)(6,254)
1,137
0
(118)
(655)
(364)
926

0

15,397

4,720

Donor
Total

Unit: Million Japanese Yen
AmountJapanese ODA
Disbursed
Loan
Amount4,720
2,298(4,720)(2,298)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

Investment component
14,393JICA(4,720)WB(1,567)EIB(4,053)AFD(4,053)
Technical Assistance Component
600.9
Government of Finland(89.9)
EIB
(283)
GOE
(228)
Lake Mariout water quality
614.9
improvement (GEF)
Total
15,608.8
4,720
Note: Exchange rates: October 2012
$1.0=JPY78.38=EGP6.1; EGP1.0=JPY12.8; EUR1.0=JPY101.35

2,298

The loan expiry date is August 23, 2014. As of June 2012, 2,032 million JPY or 45%
of total loan amount has been disbursed, and 3,523.7 million JPY or 75% of total loan
amount is scheduled to be disbursed by December 2013. EEAA informed that a low
level of disbursements is attributed to the following:(i) External factors such as global financial crisis in 2009, resulting in temporarily
declined number of applications by potential enterprises;(ii) popular uprising (Arab Spring) in January 2011, which has adversely affected
the local economy, resulting in temporary delays in sub-project
implementation;(iii)reduced incentive for local industries to invest in pollution abatement project
under the economic downturn, while the lending conditions are better orcompetitive with those of commercial lending conditions; and(iv) lengthy procurement, in particular, procurement under international
competitive bidding (ICB) in comparison with national competitive bidding

12

Item

Ex-Ante Evaluation (2006)

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)(NCB).
Of these four factors, the first two were considered major. In order to recover thedelays in implementation, sub-loan lending conditions were modified to attract
potential end-users in applying the lending during the co-financiers mission in
November 2009. The following were salient points of modifications:(i) Modification or softening of lending conditions such as collateralrequirements;(ii) increase of the lending amount from $15 million to $20 million at the
maximum;(iii)exempting 20% of the repayment amount right after the completion of
sub-project, when complying with the emission standards; and(iv) increase of the threshold of ICB procurement from $5 million to $8 million toaccelerate procurement.
Eligible items for financing from the donors are goods and works, while the end-user
shall pay 10% of the total cost. However, the loan agreement between WB and theGOE stipulates that the cost of civil work will normally be limited to those civil works
required for the installation of equipment provided it is part of a turnkey project andtheir cost represents a minor fraction of the overall contract price. As a result, theend-user has to shoulder the excess of the cost of civil works. Given the cost ofwastewater treatment system for which the civil work will share more than 50% of thetotal project cost, this condition will be a heavy burden on the end-user who plans tobuild wastewater treatment plant through the Project.

(b) Implementation Schedule
June 2006-August 2011(b) Implementation Schedule
The project implementation period originally established was from June 2006 to
August 2011. At MTR, it is anticipated that the Project will be completed in August
2014.

13

Item

Ex-Ante Evaluation (2006)

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)
While the delays in completion were due to those reasons stated above, anotherreason that has affected the delay in disbursement, in particular, of the Japanese ODA
loan portion was the appreciation of Japanese Yen value. At the ex-ante evaluation, thevalue of Japanese Yen was 118 against $1.0 and parris passu ratio was determined tocomplete each donor`s disbursement simultaneously. At the November 2012
co-financiers meeting, it was estimated that the loan funds from all the donors except
JICA would be totally disbursed by December 2013, whereas Japanese ODA loan willremain undisbursed in the amount of 1,196 million JPY or 25.3% of the total loan
amount. In terms of US dollars, total amount of Japanese ODA loan is $58.2 million
equivalent as in November 2012, compared with $40 million equivalent at the ex-anteevaluation.

(3) Internal Rate of Return: N/A(3) Internal Rate of Return: N/A

Lessons
Learned and[Lessons Learned]
 Procurement by the end-user is required to follow the Operations Manual. When procurement exceeds $8 million (initially $5 million), it
must follow ICB procedures given in the WB Guidelines for Procurement. The use of ICB involves WB approval on every step ofRecommendations
activities, which took 20-30 calendar months from bid call to the award of contract. Given the project, i.e. a Two Step Loan for the private
sector where efficient and speeding implementation is considered imperative, the use of rules and procedures normally applied for the
implementation of public sector projects need to be reconsidered from the points of Project purpose (investment by private enterprises inpollution abatement equipment) and the acceleration of project implementation.
 In establishing an implementation schedule, time needed for application by the end-users, consultation about selection of equipment andprocurement should be fully taken into account to minimize delays in implementation.
 The number of enterprises not complying with the environmental standards is still increasing. Carrot (concessional finance) and stick (lawenforcement) approach has been effective to achieve the objectives of the Project. Given this fact, increased legal enforcement will be
critical for the success of the implementation of similar projects in future.
[Recommendations to JICA and EEAA] As in November 2012, the disbursed loan amount was 2,218 million JPY against total loan amount of 4,720 million JPY. In order to have

14

Item

Ex-Ante Evaluation (2006)

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)

the remaining loan amount fully disbursed by the loan expiry date of August 2014, it is essential that all the on-going sub-projects are
implemented in a timely manner and the 8 projects on board are processed early 2013. Therefore, EEAA together with the participatingbanks should make every effort to meet the schedule. Given the increased number of sub-projects and corresponding disbursements
expected early 2013 and thereafter, it is recommended that the ceiling of initial disbursement to the special account is raised from 10%
agreed under the loan agreement to the level as appropriate.
 EEAA prepares a monitoring plan on a monthly basis to monitor industrial pollution from factories. Basically, self-monitoring is required
for all polluting factories. In particular, large factories discharging a large amount of emission like cement, steel and fertilizer factories are
imposed to carry out self-monitoring on a continuous basis. The end-users of EPAP II are required to submit monitoring reports based on
the Compliance Action Plan (CAP). In case that the end-user failed to follow the CAP, a notice is issued and simultaneously brought tothe inspection department for appropriate action. Given a weak ability of the end-users for monitoring and its report, their quality is notsatisfied level. EEAA’s continued effort to assist the end-users in preparation of the reports is essential.
[Recommendations for Implementation of Similar Projects]
 EPAP II is financed by four external donors including WB, JICA, EIB and AFD. The parris passu ratio among the donors (WB: 12.5%,
JICA: 25%, EIB: 31.25% and AFD: 31.25%) was determined based on the respective loan amounts and the sub-projects are financed
accordingly. Given, however, the different loan expiry dates among the donors, it is complicated to manage disbursements. For example,
AFD had disbursed fully its loan amount by March 2012 as their loan expiry date for disbursements including liquidation is December
2013. As a result, the original parris passu ratio was temporarily amended between AFD and EIB to accelerate the use of AFD fund. Both
AFD and EIB have used tranche transfer payment ahead of expenditure. Because of the JPY strength over the USD since projectcommencement, the financing arrangement applied for EPAP II, i.e. financing each sub-project, jointly by all the four co-financiers basedon the predetermined parris passu ratio has posed a question whether it is appropriate for the implementation of EPAP III. Parallel
financing scheme will be one of the options.
 Eligible items for financing originally planned under EPAP II were equipment and installation works. Accordingly, the WB loan
agreement stipulates that the cost of civil work component should be a minor fraction of the sub-project cost. As a result, the end-user has
to shoulder the excess of the cost of civil works. This condition will be a heavy burden on the end-user. Given that the civil work involvedin the construction of a wastewater treatment plan will cost more than 50% of the total cost, it is recommended that all the items including
civil work are considered eligible for financing in the follow-on project.
 Disbursements of loan proceeds by WB and JICA are made against the Statement of Expenditures (SOE) prepared and submitted by NBE
and are deposited into the Special Account (S/A). Payments by EIB and AFD are made by tranche transfer, followed by reconciliationand liquidation of actual expenditure after final SOE submission. In view of the nature of the Project and for acceleration of project

15

Item

Ex-Ante Evaluation (2006)

Mid-Term Review results and Ex-Post Evaluation results estimated at the time of
Mid-Term Review (2012)

implementation, the disbursement procedures used by EIB and AFD are recommendable for implementation of similar projects.
 There are a number of national and public owned enterprises that discharge a large amount of emission. Given their financial weakness,
however, these factories were sometimes disqualified for lending by the bankers. It is therefore recommended that the donors discuss andconsider with EEAA how to accommodate these enterprises when discussing a long-term pollution abatement strategy for the country.
 The application of 20% grant was effective to attract the enterprises in pollution abatement investment, whereas 90% of the remaining
sub-project cost are financed from the loans. However, the adoption of flexible financing ratio based on type of emission, emission
quantity or unit cost per reduction, etc. should be considered as one of the options to attract more potential end-users for investment.
Indicators for
the Ex-post
Evaluation

Indicators set at the ex-ante evaluation:(i) Number of sub-loans(ii) Amount of sub-loan(iii) Ratio of sub-loans that cleared the emission
standards

 The selection of sub-projects was initially undertaken based on the predetermined
criteria at the ex-ante evaluation. However, some procurement criteria were softened
and modified during the November 2009 co-financiers meeting by the donors toaccelerate project implementation progress. Projects in an amount of above $15
million could be financed subject to co-financier approval. To date, however, there is
only one sub-project that amounted to about $20 million. It is anticipated that the
total number of sub-projects will decrease while those with high value will increaseat project completion. At MTR, the total number of sub-projects was estimatedaround 35 at the completion. The ex-post evaluation should take into account thisfact when conducted.
 No other modification is needed.

16