Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 430 17-TH

CARBON FINANCE ASSESSMENT MEMORANDUM

THAILAND LIVESTOCK WASTE MANAGEMENT PROGRAM

FOR A

COMMUNITY DEVELOPMENT CARBON FUND EMISSION REDUCTION PURCHASE AGREEMENT

IN THE AMOIJNT OF APPROXIMATELY US$3.45 MILLION

WITH

ADVANCE ENERGY PLUS CO. LTD (Thailand)

June 26,2008

Rural Development, Natural Resources and Environment Sector Unit Sustainable Development Department East Asia and Pacific Region

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.

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CURRENCY EQUIVALENTS

Exchange Rate Effective May 13,2008

AEP BOD BP BTU CBP

CDCF CDM CDP

CDP-E CER CFO CH4 COD co2 DLD DNA DOE EAF'

EAPVP EIA ElRR EMP EPPO ER

ERDI

Currency Unit = Baht Baht31.51 = US$1 US$0.03 1 = Baht 1

FISCAL YEAR October 1 - September 30

ABBREVIATIONS AND ACRONYMS

Advance Energy Plus Co. Ltd Biochemical Oxygen Demand Bank Policy British Thermal Unit Community Benefit Plan Community Development Carbon Fund Clean Development Mechanism Channel Digester Plus Country Development Partnership - Environment Certified Emission Reduction Carbon Finance Operation Methane Chemical Oxygen Demand Carbon Dioxide Department of Livestock Development Designated National Authority Designated Operational Entity East Asia and Pacific Region East Asia and Pacific Regional Vice President Environmental Impact Assessment Economic Internal Rate of Return Environmental Management Plan Energy Policy and Planning Office Emission Reduction Energy Research Development Institute of Chiangmai University

ERDI

ERPA GEF GHG HQs H2S IEE kwh

LWMEA m2 m3 M&E Moo M2M OP PDD PID PIN PIP PMO tC02e TOR MC- UASB

UNFCCC

Energy Research Development Institute of Chiangmai University Emission Reduction Purchase Agreement Global Environment Facility Greenhouse Gas Headquarters Hydrogen Sulfide Initial Environmental Evaluation Kilowatt Hour Livestock Waste Management in East Asia Project Square Meter Cubic Meter Monitoring and Evaluation Village in Thai language Methane to Market Operational Policy Project Design Document Project Information Document Project Idea Note Project Implementation Plan LWMEA Project Management Office Tons of Carbon Dioxide Equivalent Terms of Reference Medium Channel Up-flow Anaerobic Sludge Blanket United Nations Framework Convention on Climate Change

Vice President: James W. Adams, EAPVP Country Director: Ian C. Porter, EACTF

Sector Director: Christian Delvoie, EASSD Sector Manager: Rahul Raturi, EASRE

Task Team Leader: Weimo Zhou. EASRE

THAILAND

LIVESTOCK WASTE MANAGEMENT PROGRAM

TABLE OF CONTENTS

A . STRATEGIC CONTEXT AND RATIONALE .................................................................. 1

1 . Country and Sector Context ..................................................................................... 1

2 . Rationale for World Bank Involvement ................................................................... 2

B . CARBON FINANCE OPERATION ................................................................................... 3

.................................................................................................................. . 1 Overview 3

............................................................................ 2 . Financial and Economic Analysis 6

3 . Institutional Arrangement ........................................................................................ 9

.............................................................................................................. 4 . Safeguards 11

............................................................................. 5 . ERPA Main Terms/Conditions -13

................................................................................... Annex: 1: Project Technical Description 15

Annex: 2: Community Benefit Plan ........................................................................................... 19

...................................................................... Annex: 3: Economic Analysis and Project Costs 23

Annex: 4: Monitoring and Evaluation Plan .............................................................................. 26

Annex: 5: Safeguards Issues ....................................................................................................... 29

................................................................................... Annex: 6: Documents in the Project File 34

...................................................................... Annex: 7: Project Preparation and Supervision 35

............................................................................... Annex: 8: Statement of Loans and Credits 36

.................................................................................................. Annex: 9: Country at a Glance 37

Map No . 36205

THAILAND

LIVESTOCK WASTE MANAGEMENT PROGRAM

CARBON FINANCE ASSESSMENT MEMORANDUM

EASRE

Date: June 26,2008 Team Leader: Weiguo Zhou Country Director: Ian Porter Sectors: Pollution Management and Sector Managerrnirector: Rahul Raturil Environment Health Christian Delvoie Themes: Climate Change Project ID: P 1077 16 Financing Instrument: Carbon Finance Environmental screening category: B

For LoansICreditsl

Project implementation period: 5 years (2009-2014) Expected effectiveness date: May 1, 2009 Expected closing date: December 3 1,2014 Does the project depart from the CAS in content or other significant respects? Re$ Section A.2 [ ]Yes [XI No

Does the project require any exceptions from Bank policies? Re$ Section 0 . 7 No Have these been approved by Bank management? NA Is approval for any policy exception sought fiom the Board? NA Does the project include any critical risks rated "substantial" or "high"? Re$ Section C.4 [ ]Yes [XI No

Does the project meet the Regional criteria for readiness for implementation? Re$ Section D. 7 and Annex 3 [XIYes [ ] No

Project development objective Re$ Section B.1. The project development objectives are to (a) reduce methane emissions from improved livestock waste management practices through a carbon finance transaction between the World Bank and the project sponsor and (b) serve as a demonstration for other livestock producers. The project aims to improve livestock waste management practices and take advantage of the captured renewable energy in the form of biogas at participating farms. Project description Re$ Section B.1. and Annex 1 This Carbon Finance Operation (CFO) was initiated by the Department of Livestock Development (DLD) and the Advance Energy Plus Co., Ltd. (AEP) in 2006 as part of a replication strategy for Livestock Waste Management in East Asia (LWMEA) project. The farms participating in this CFO are dispersed in two largest pig producing provinces in Thailand but the amount of Certified Emission Reduction (CERs) achieved at individual participating farms is relatively modest. To meet the Community Development Carbon Fund (CDCF) requirements for minimum CERs, the farms have been "bundled" for project administration, technical standardization, and CER transactions. Which safeguard policies are triggered, if any? Re$ Section B.4 and Annex 5 This project triggers the World Bank's Environmental Assessment policy (OPBP 4.01) and was designated a Category B as the potential negative environmental impacts of the project are site- specific and manageable with the proposed mitigation measures. Covenants applicable to project implementation:

1. Registration of the Project with the CDM Executive Board

2. Annual certification of ERs, including implementation of the Environment Management Plan, and Community Development Plan.

A. STRATEGIC CONTEXT AND RATIONALE

1. According to Thailand's Initial National Communication under the United Nations Framework Convention on Climate Change (UNFCCC), more than half of the country's greenhouse gas (GHG) emissions are fiom the energy sector. Thailand is not self-sufficient in energy and the potential for certain forms of renewable energy such as hydropower are hindered by environmental and social constraints. While Thailand has emphasized diversification of its energy sources, the country relies heavily on imports to meet much of its primary energy demand including oil, natural gas and coal.

2. Thailand views renewable energy as an important option in mitigating GHG emissions as the impacts of climate change threaten many of country's development gains of the last several decades. While the potential for some renewable energy sources such as hydropower are difficult to pursue, there is significant untapped potential for other renewables such as biogas produced fiom livestock waste.

3. The rapidly growing livestock sector in Thailand plays an important role in the economy, but a number of practices and activities employed in the sector result in adverse environmental impacts, threats to human health, and significant sources of the country's GHG emissions. Methane fiom pigs represents the largest source of such livestock GHG emissions in Thailand and the number of pigs in the country is expected to more than double between 2000 and 2020. The contribution of livestock to global GHG emissions was echoed by a recent publication' by the Food and Agriculture Organization of the United Nations which stated that livestock account for about 37 percent of global anthropogenic emissions of methane and 65 ercent of global anthropogenic emissions of nitrous oxide, another highly potent GHG. P 4. Thailand ratified the Kyoto Protocol under the UNFCCC in August 2002.~ The treaty entered into force in February 2005 and Thailand has demonstrated a strong interest in participation in the emerging market for Certified Emission Reductions of Greenhouse Gas (GHG) which is reflected in the growing portfolio of Clean Development Mechanism (CDM) projects in the country. This Carbon Finance Operation will result in CERs fiom the collection and combustion of methane and electricity generation at 10 medium and large pig f m s in Thailand. See Table 1 for

1 Livestock's Long Shadow - Environmental Issues and Options, December 2006. GHGs differ in their ability to trap heat in the atmosphere. C02 has the least ability to trap gases, while

SFs has the greatest. Each molecule of methane traps 2 1 times more heat than a single molecule of C02 while a single molecule of NzO traps 3 10.

The Kyoto Protocol commits Annex I (industrialized) countries to reduce their collective GHG emissions by about 5 percent below their 1990 levels on average during the period fiom 2008-2012. In fulfilling these commitments, Annex I countries can achieve some of their emission reductions through several means including the Clean Development Mechanism (CDM) which provides a financial incentive to companies or entities in Non-Annex I (developing) countries to undertake projects that lead to reductions of GHG emissions. The resulting emission reductions can then be sold to entities in Annex I countries to offset some of their commitments under the Kyoto Protocol.

details. The CERs will be sold to the World Bank-managed Community Development Carbon Fund. This CFO is expected to play an important role in demonstrating the use of market mechanisms such as the CDM to scale-up renewable energy projects and improved livestock waste management systems that reduce GHG emissions.

2. RATIONALE FOR WORLD BANK INVOLVEMENT

5. The World Bank has been a pioneer in the carbon market under the Kyoto Protocol, helping to develop policy, regulatory, fiscal, and financial instruments across sectors and countries to generate incentives to reduce GHGs. Over the past decade, the World Bank has managed twelve Carbon Funds including the CDCF established in 2003. These Carbon Funds do not finance projects, but contract to purchase CERs in a commercial transaction, with annual or periodic payments following verification by a third party auditor. These transactions have provided an additional revenue stream to reduce financial risks and to leverage new private and public investment into projects that reduce GHG emissions.

6. Support for client countries to address the objectives of international environmental conventions such as the Kyoto Protocol is an identified priority in the World Bank's Environment Strategy and was reaflinned in the 2005 Environment Strategy for the East Asia and Pacific Region (EAP). The World Bank has supported Thailand's environmental sustainability objectives for many years, and is also associated with a major program of environmental cooperation including Analytical and Advisory Activities. The objective of this CFO is consistent with the Country Partnership Strategy for Thailand (25077-TH, January 22, 2003) which supports one pillar of Thailand's National Development Agenda - protection of natural resources and the environment. This CFO is directly supporting the Water Quality Theme of the first phase of the Country Development Partnership - Environment (CDP-E) which, successfully completed in 2007, outlined the partnership framework between the Royal Thai Government and the World Bank. The first phase of the CDP-E focused on five major themes namely, air quality, water quality, solid waste management, global environment commitment, and institutional and regulatory framework. This project is also included in the second phase of the CDP-E which is under preparation.

7. The CERs will provide not only a revenue stream, but a market-based incentive to the participating farmers to support and improve their livestock waste management practices. The CDCF also requires the development of Community Benefit Plan (CBP) that promotes the World Bank's mission of reducing poverty as well as encouraging economically and socially sustainable development.

8. The World Bank as a trustee of various Carbon Funds has undertaken a pioneering role in developing the CDM market in Thailand, including awareness raising, capacity building and an emerging portfolio of CDM projects. The World Bank has played a key role in the development of other programs that seek to improve conditions in the livestock sector in Thailand e.g. the Livestock Waste Management in East Asia ~ ro jec t .~ This CFO will help accomplish some of the goals set under the LWMEA project

4 In 2006, the Bank approved a Global Environment Facility (GEF) grant of US$7 million to support the improvement of livestock waste management for Thailand, China and Vietnam under the International

by facilitating the transfer of technology and capacity building to operate new systems and by providing an opportunity to participating farms to take advantage of the financial incentives from the sale of CERs to implement improved solid waste management systems.

B. CARBON FINANCE OPERATION

9. This CFO was initiated by the Department of Livestock Development and the Advance Energy Plus Co., Ltd. in 2006 as part of a replication strategy for LWMEA project. The f m s participating in this CFO are dispersed in two largest pig producing provinces in Thailand but the amount of CERs achieved at individual participating farms is relatively modest (see Table 1). To meet the CDCF's requirements for minimum CERs, the farms have been "bundled" for project administration, technical standardization, and CER transactions.

10. The project development objectives are to (a) reduce methane emissions from improved livestock waste management practices through a carbon finance transaction between the World Bank and the project sponsor; and (b) serve as a demonstration for other livestock producers. The project aims to improve livestock waste management practices and take advantage of the captured renewable energy in the form of biogas at participating f m s .

Description of the Carbon Finance Operation

1 1. This CFO is composed of three project components which are described below.

12. Component A: Construction of Livestock Waste Management Facilities. This CDM project proposes to use Channel Digester Plus '(CDP) technology to produce biogas for electricity generation at all participating f m s . GHG emission reductions will be achieved from the offset of baseline livestock waste management (open anaerobic lagoon) emissions plus offsetting carbon dioxide emissions from the combustion of fossil fuels to produce the equivalent level of electricity. The principle fuel used for base load electricity generation in Thailand is natural gas which provides the basis to calculate these carbon offsets. Table 1 shows the project's annual average pig population and the estimated emission reductions by f m . The total emission reductions are estimated at about 58,000 tons of Carbon Dioxide (CO2) equivalent per year (tC02elyear).

Water window. The LWMEA project supports a comprehensive approach to reduce the major negative environmental and health impacts of rapidly increasing concentrated livestock production on water bodies and the people of East Asia. Its global environment objective is to reduce livestock-induced, land-based pollution and environmental degradation of the South China Sea where the three countries are a part of.

The CDP system is a modified MC-UASB design established by the Energy Research and Development Institute (ERDr) at Chiang Mai University in Thailand. This institute has been responsible for the development and implementation of over 200 successful MC-UASB systems at medium and large pig farms in Thailand since 2004.

Table 1: Participating Farms

13. Component activities include (a) construction of physical facilities i.e. channel digester, electricity generation, on-farm electricity transmission lines, flaring pipes, sludge storage tank and drylng beds, and a series of ponds; (b) installation of monitoring equipment and devices; and (c) farmer training. Detailed project technical description is provided in Annex 1. A complete technical description of these activities and the subsequent emission reductions are included in the Project Design Document (PDD).

The CDP system is a concrete tank structure, where both the channel digester and up-flow anaerobic reactor are housed and are covered with a flexible top to store biogas. Electricity will be generated by using biogas produced fiom the anaerobic process and combusted in an internal combustion engine and generator set. The number, size, and capacity of generators vary by farm but all electricity generated is expected for on-farm consumption. The electricity output is expected between 87 to 95 percent of the engines rated capacity. Flaring devices will be installed at farms to avoid venting of biogas when engines are repaired or serviced and provide a level of farm safety as biogas is flammable.

5

6

7

8

9

10

Monitoring equipment and devices consisting of largely biogas flow meters and groundwater sampling wells will be installed for monitoring purposes.

Paktor

Chombueng

Chombueng

Chombueng

Chombueng

Koh Chan

K.O.S.

Maneerat

Supparuek

Veetai

Wanchai

Phanusumpom

Training needs for the participating farms would include mainly system operation and maintenance, monitoring and evaluation (M&E), record keeping and filing. Specifically, three types of training will be provided: (a) training on "The Fundamental of Environmental Management for Pig Farm" which will include the code of good practice in pig farm and biogas management; responsible by DLD; (b) on-site training for the operators of the specific waste treatment and electricity generating system for each specific farm; by equipment suppliers with supervision fiom AEP; and (c) on-site training on the proper handling of monitoring equipment, by equipment suppliers with supervision from AEP. AEP, with support from DLD, will ensure that all participating farms understand how to (a) operate the equipment, (b) maintain the equipment, (c) take samples, and (d) keep a data record of the equipment operations.

57,993 Total

2,324

3,591

13,578

5,273

7,905

8,391

131,187

Ratchaburi

Ratchaburi

Ratchaburi

Ratchaburi

Ratchaburi

Chonburi

6,927

9,994

30,802

6,9 12

19,203

5,011

14. Component B: Carbon Finance Transaction. This Component will facilitate the purchase of the CERs. The CDM enables the creation, issuance, and sale of CERs from projects undertaken in non-Annex 1 countries6 that reduce emissions of GHGs. Ths CFO will facilitate the transaction of the bundled CERs from the participating farms. The transaction will be between AEP (serving as the project sponsor) and the World Bank-managed CDCF. The terms and conditions will be agreed in the Emission Reduction Purchase Agreement (ERPA) to be signed by the two parties. The purchase will be a performance-based contract under which payments are triggered by successful registration with the UNFCCC and verification of the reduction of GHG emissions by an independent, accredited international entity, Designated Operational Entity DOE)^ under CDM rules. The quantity of CERs to be contracted, the length of time over which the purchase will be made, and the price to be paid will be agreed between the World Bank and AEP during ERPA negotiations. The CER revenue will be electronically transferred to the farmers' account within 15 days after AEP receives the payment from the Bank. In addition, as part of its responsibilities, the CDCF will ensure registration of the project with the CDM Executive Board. The Project Design Document (PDD) as well as the Monitoring Plan which contain details of how the CDCF will monitor the outcomes for the CFO is attached as part of the CFAM package.

15. Component C: Community Benefit Plan. To meet the CDCF's requirements, this CFO will support activities to improve the quality of life in selected communities living around the participating farms through a CBP. The CBP will be funded from a premium separate fiom the payments for the CERs and the value of the premium will be agreed during negotiations of the ERPA and recorded in the final signed ERPA. The design of the CBP was based on consultation with residents of communities near the participating farms and will address the needs of up to four communities at different times, during the duration of the CBP. Moo 10 in Chonburi province has been selected as the first community that will benefit fi-om the CBP based on a set of selection criteria agreed among AEP, DLD, and the World Bank. Specific component activities for the first community were proposed by the selected community through a consultation process and agreed with the World Bank and include (a) street lighting; (b) access to drinking water; (c) scholarships; (d) mosquito spray machine; (e) community shop; and (f) capacity building. See Annex 2 for more details.

16. Specific activities for future communities will be developed during the implementation stage of this CFO and are likely to be similar in design and scope. For consistency, selection of other benefiting communities will follow the same screening approach and the agreed criteria used for the selection of Moo 10 including:

defined as a village with a population no less than 500;

6 Under the Kyoto Protocol, governments are separated into two general categories: developed countries, referred to as Annex 1 countries (who have accepted GHG emission reduction obligations); and developing countries, referred to as Non-Annex 1 countries (who have no GHG emission reduction obligations and must submit an annual greenhouse gas inventory). 7 All DOES have to be accredited by the CDM Executive Board, and have either of three functions: 1) to validate and subsequently request registration of a proposed CDM project activity; and 2) to venfy preparation of a registered CDM project, or 3) to certify the amount of emission reductions generated and to request the Executive Board to issue CERs.

community residents live under provincial poverty line established by National Economic and Social Development Board or its equivalent, or limited access to economic infrastructure andor social services;

located within participating provinces;

willingness of 80 percent or more of the population in the community to participate and share cost with CDCF grant in cash andor in lund; and

decision jointly made by AEP and DLDIPMO.

Performance Indicators

17. The key performance indicators for the Construction of Livestock Waste Management Facilities component are: (a) biogas flow volume (m3) and methane content (%) in combination with the baseline emission to determine the annual methane captured; (b) electricity generation (kwh) and fossil fuel offsets, where kwh produced by the engine generator are measured and used to calculate annual values; and (c) the value of the CER credits created and traded (tCOze). See Annex 3 for details. The key performance indicators for the CBP component are shown in Table 8 in Annex 2.

Alternatives Considered

18. In designing this project, the following alternatives were considered but rejected.

Alternative 1: The baseline scenario of open anaerobic la~oons. This is designed and operated to combine livestock waste treatment and storage which is the most common, efficient, and economical management system in Thailand. However, this option will continue to emit GHGs without generating any CERs or renewable energy.

Alternative 2: compost in^ and anaerobic la~oons. This option separates the solid manure fiom the liquid before it enters the lagoons. This alternative requires smaller lagoons and generates market value for the solid manure. However, this option will continue to emit GHG, generating minimal CERs but no renewable energy.

Alternative 3: Aeration of the existing lagoons to reduce emissions. This option uses electricity to provide enough oxygen to satisfy the biological oxygen demand of the livestock waste. This option increases fossil fuel emissions as it requires electricity and could promote emissions of nitrous oxide as nitrogen in livestock waste could undergo nitrification and de-nitrification. This option is also very costly as the electricity requirements are large and any CERs generated would be small or possibly even show a net increase in GHG emission.

2. FINANCIAL AND ECONOMIC ANALYSIS

19. This CFO will not finance the construction andor operation of any part of the activities that will generate CERs. Financial and economic analysis was conducted to: (a) evaluate AEP and the participating f m s based on available financial information, and (b) assess the viability of the proposed project activities that will result in emission reductions. The financing of the CBP is discussed separately in Annex 2.

20. Due Diligence of the Project Sponsor

AEP, serving as the project sponsor, was established in March 2007 by a group of experts (see Table 2), experienced in energy and environment project development and management. The management of AEP has considerable project experience in Thailand including collaboration on previous World Bank projects in the country and has demonstrated its proven technical capacity to implement this CDM project. At the end of 2007 the company had total assets worth 4.8 million baht. For its first year of operations the company reported a net loss as operating expenses were slightly higher than revenues which is not uncommon during a new company's first year of operations.

Table 2: AEP Ownership

AEP has several product lines including CDM project development which includes developing CDM Project Idea Notes, and PDDs as well as documentation for environmental due diligence of project sites. These types of services accounted for most of the company's first year revenues. Revenue is expected to increase as the carbon market in Thailand matures and the first emission reduction transactions result in CER revenues. For example, as the project sponsor, AEP will be receiving ten percent of the CER revenues from this CFO. The company also plans to strengthen its long-term viability by expanding its financial services operations.

21. Due Diligence of Participating Farms

Ten pig farms have been identified by the project sponsor including nine in Ratchaburi province and one in Chonburi province with a total annual average pig population of around 131,200. These farms are considered to be medium and large sized farms in Thailand with an annual average pig population ranging between 5,000 and 30,800 on each farm. See Table 1 for farm details. Annual CER are estimated at about 58,000 tC02e ranging between 2,300 and 13,600 tCOze for each individual farm.

a Pig farms in Thailand in general are currently experiencing low prices for pork products while at the same time coping with a rapid rise in the costs of feed that have significantly affected pig farmers' financial bottom lines. Fortunately, most participating farms are in a financial position relatively better than the national

average for pig farms. Most participating farms have a history of loan transactions with local banks with good creditability. Each participating farm had the credit- worthiness to secure loans to participate in the CFO and received generally favorable loan terms and condition. Due diligence and screening of the participating farms was also conducted as part of their inclusion in the LWMEA project. It is therefore unlikely that the financial situation of the participating farms as a whole poses a major risk to the proposed project.

22. Project Costs. The total project costs are estimated at 243.26 million baht (US$ 7.72 million equivalent) including costs for both components A and C. Physical construction is expected to take about 4 months for individual facilities on each individual farm and to be completed over a period of about 9 months. The implementation period for activities under Moo 10 is two years. A detailed summary of the project costs are in Annex 3.

23. Financing Plan. The financing plan is based on total project costs for all farms which will be jointly financed by the Thai government, Global Environment Facility (GEF), M ~ M ~ , participating farms and local banks: (a) DLD will co-finance the technical design costs for each participating farm, some training for participating farmers and project management expenses; (b) Energy Policy and Planning Office (EPPO) of the Ministry of Energy, Thailand, is expected to provide an Energy Conservation Fund to cover some of the costs of technical design and partial construction cost in the form of a financial subsidy; (c) GEF will finance technical design, training and about 15% of the total cost of component A; (d) A total of about US$0.7 million from M2M will be used to support the purchase of electricity generators for participating farms; and (e) Participating farmers will cover the remaining costs with their equity contribution and loans from local banks. The financing plans for each participating farm are included in individual mini- PIPS and are summarized in Annex 3. Activities under Community Benefit Plan component will be jointly financed by CDCF, AEP and benefiting community members in cash andlor in kind. An indicative financing plan is provided in Table 3 below.

M2M is "Methane-to-Markets", a multi-national partnership focused on reducing global methane emissions from agriculture, coal mines, landfills, and oil and natural gas systems with a secretariat based in Washington D.C. of the United States of America.

Table 3: Project Financing Plan

24. limits farms

EPPO

CDCF

GEF

M2M

Farmersnocal Banks

AEP

Community Members

Project Economic Analysis. The scale of most farms and their biogas output the potential to sell electricity directly to the grid. At present, the participating plan to generate electricity for on-site use. The farms will realize some revenue

fiom the sale of dried sludge as fertilizer. Without revenue fiom the sale of CERs, the farmers would have little incentive to construct improved livestock waste management systems.

25. A costhenefit analysis was carried out to analyze the economic viability of the CFO. Benefits include energy savings fiom on-site electricity generation, fertilizer produced fiom sludge, and the reduced emissions of GHGs. Investment and operating and maintenance costs were also included in the analysis. Without the benefit of reduced carbon emissions, the Economic Internal Rate of Return (EIRR) was only 8.4 percent, well below the 12 percent social discount rate considered acceptable for energy projects. When the CDM benefits are included, the EIRR rises to 24.3 percent. This analysis is discussed in more detail in Annex 3.

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26. There are three institutional requirements for clearing a project through the CDM Executive Board i.e: (a) validation that the project as designed is consistent with approved methodologies, workable, and may be registered; (b) verification that the project as implemented is consistent with the approved design; and (c) certification that CERs have been generated as designed and may therefore be "certified." The draft validation protocol has been received by the Bank fiom TUV-SUD which has been selected as the DOE for this project. The LOA fiom the Thailand DNA is expected before December 2008. The PDD and validation report together with the Letter of

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Approval from the Host Country (Thailand) and the purchasing country will be submitted to the UNFCCC for project registration which is expected to be completed by the end of March 2009. Verification and certification of emission reductions will take place after the project is commissioned.

27. Given the current average number of pigs at each farm and the total number of pigs for this CFO, the CDM approved small scale methodology AMS 111. D version 14, "Methane recovery in animal manure management systems" and approved small scale methodology AMS I. D version 13, "Grid connected renewable electricity generation" with the pig weight adjustment apply. Under these methodologies, emission reductions are subject to periodic ex-post monitoring, to determine whether the reductions have been achieved in compliance with applicable CDM rules and procedures and specific terms of the ERPA.

28. Advance Energy Plus Co. Ltd, Department of Livestock Development, and Institute of Chiangrnai University (ERDI) are involved in the proposed project. Their respective roles and responsibilities are described below. To specify responsibilities, a Memorandum of Understanding between DLD and AEP was signed on December 14, 2007.

AEP, serving as the project sponsor representing participating farms, has overall responsibility for project preparation and implementation. Specifically, AEP will (a) sign an ERPA with the World Bank and make CER revenue payments to the participating farmers; (b) cooperate with the World Bank in the due diligence aspects of the project including safeguards, validation, registration, verification, and CER issuance; (c) prepare an Initial Environmental Evaluation (IEE); (d) assist the farmers in using appropriate technology and procurement of works and equipment as required; (e) cooperate with DLD and the World Bank to monitor the implementation of the improved waste treatment and electricity generation; (f) coordinate farmers and collect data for verification and training; and (g) implement the CBP in consultation with the selected communities.

DLD, established on May 5, 1942 and as the implementing agency for the LWMEA project, serves as a project supervisor for this project. DLD is the main government agency responsible for research and development of technology in livestock production and has been working with other government agencies, international organizations such as the World Bank and the Food and Agriculture Organization of the United Nations, and the pig farmers to promote improved livestock waste management practices. DLD is the implementing agency for the ongoing GEF-funded LWMEA project and will provide technical advice and guidance to AEP and ensure that the participating farmers' interests are respected during the course of project preparation and implementation. DLD will also make sure that the requirements and procedures under the LWMEA project are closely followed.

9 The Bank is purchasing the CER on behalf of the CDCF fund participants including the Government of Netherlands. To get the project registered with the UNFCCC, Letters of Approval fiom the Host country (Thailand) and the Annex 1 country (the Netherlands) are needed.

ERDI, acting on EPPO's behalf: (a) reviews and endorses technical design of livestock waste management systems to be adopted on participating farms; and (b) provides financial support from the Energy Conservation Fund to partially cover cost of installing the new livestock waste management and electricity generation facilities.

29. The farms will transfer their ownership of the CERs to AEP who has signed individual agreements with all participating farms to act on their behalf and oversee the collective sale of CERs. AEP will then distribute shares of revenue among the participating farms. AEP will keep a portion of the CER revenue for its role in developing and assembling the CER transactions.

30. Monitoring and Evaluation. M&E of project activities consists of three elements:

M&E Plan. The M&E Plan, established under the PDD, provides the methodology and tools for measuring and calculating CERs generated by the project. AEP will ensure that all participating farms collect and archive all relevant data necessary for calculating emission reductions from the project activities in accordance with the M&E Plan;

Monitoring and evaluation arrangements under LWMEA. Since all participating farms will also benefit from the GEF grant, they will also follow monitoring and evaluation arrangements under LWMEA project. The monitoring requirements under the LWMEA project for environmental baseline measurement before and after wastewater treatment system construction will be covered by the LWMEA project for all participating farms. DLD will ensure that all participating farms conduct the environmental baseline measurement and monitoring activities; and

Monitoring requirements of ERDI. Monitoring requirements of ERDI will be satisfied by all participating farms.

3 1. This project triggers the World Bank's Environmental Assessment policy (OPBP 4.01) and was designated a Category B as the potential negative environmental impacts of the project are site-specific and manageable with the proposed mitigation measures. Table 4 below lists the applicable World Bank's safeguard policies.

Table 4: Safeguard Policies

32. Environmental Analysis. Overall, this project will contribute to reducing environmental impacts associated with the current pig f m operations (methane and odor generation from the open lagoons). No major negative environmental impacts of the project are envisaged. Potential negative impacts during construction of the waste management facilities may include vegetation clearance and inappropriate transportation and disposal of earth excavation and temporary disturbance due to dust, noise, wastes, and other construction-related activities. These concerns however will be short term and localized and can be mitigated through good construction practices and specific requirements to be included in construction contracts. Potential negative impacts during operation are not anticipated if the treatment facilities are operated and maintained properly. This will be ensured through the application of good farm operation and management practices which are being developed for the LWMEA project as well as training of the farm owners and operators that will be provided during the implementation of the project. Close monitoring of the safeguards performance (safety, noise, dust, odor, and waste disposal) will be conducted at the following units: (a) biogas generation and storage; (b) electricity generation; (c) processing and storage of digested sludge; and (d) application of digested sludge. See Annex 5 for more detail.

[ 1 [ 1 [ 1 [ 1 [ 1 [ 1

33. Preparation and submission of an IEE to the Thailand Greenhouse Gas Management Organization (Public organization)'' is required as part of the Letter of Approval process. The IEE was prepared by AEP with assistance from an independent environmental specialist and in close consultation with the f m owners, the technical design consultant, and the World Bank environmental specialist in the Bangkok office. The IEE describes: (a) the existing environmental situation; (b) environmental assessment of each participating farm; and (c) proposed monitoring and mitigation measures. The World Bank has reviewed the draft IEE and provided specific comments for improvement. The final IEE in Thai language was disclosed on June 13,2008 to the general public in Thailand at the World Bank's Office in Bangkok and at the InfoShop at the World Bank in Washington D.C. The final IEE in English will also be disclosed at the Infoshop at the World Bank in Washington D.C once it is available. The Project Information Document (PID) and ISDS were disclosed on June 16,2008 at the InfoShop at the World Bank in Washington D.C.

Cultural Property (OPBP 4.1 1)

Involuntary Resettlement (OPBP 4.12)

Forests (OPBP 4.36)

Safety of Darns (OPBP 4.37)

Projects on International Waterways (OPBP 7.50)

Projects in Disputed Areas (OPBP 7.60)

34. Potential negative impacts of the CBP component are not expected. It is confirmed that activities to be implemented during the first two years will not involve any

Note:

'O Thailand Greenhouse Gas Management Organization (Public Organization) serves as the Designated National Authority (DNA) in Thailand for the Kyoto Protocol.

infrastructure works. Given the selection criteria and small budget (US$52,000 per year maximum), similar activities are expected for the following years for other communities to be selected. AEP will send a confirmation on this assumption before approving the CBP for the following years.

35. Social Analysis. Based on the current project design, field visits and information provided, the World Bank team concluded that none of the World Bank's policies on Indigenous Peoples (OP/BP 4.10), Involuntary Resettlement (OP 4.12) and Cultural Property (OP/BP 4.11) is triggered under the Construction of Waste Management Facilities Component and for the selected first community under the CBP component. Though construction of livestock waste treatment facilities under the project will require land, it is understood that all farmers are participating on a voluntary basis and their facilities will be built on their own farmland. Neither resettlement nor land acquisition is considered necessary. The CBP component will result in small investments in each selected community and the fhding is not expected to finance any capital investment that will require land acquisition or resettlement. The project is also not expected to have any impact on physical cultural resources under either component.

36. Legacy and Reputational Risk Issues. No legacy or reputational risks have been identified with this CFO.

5. ERPA MAIN TERMS/~ONDITIONS

37. The World Bank's CER purchase from the project will be on behalf of the CDCF. The estimated amount of CERs to be purchased will be negotiated between the project sponsor and the World Bank and recorded in the ERPA, based on the calculations in the PDD that will be submitted to the UNFCCC. The exact number of CERs transacted will be subject to periodic verification by an independent accredited DOE, and the final project outcome will be the annual amount of delivered CERs which have been certified and issued by the CDM Executive Board.

38. As designed, a fixed 10 year crediting period has been chosen for this project. The estimated amount of CERs over 10 years will be up to 580,000 tC02e. At present, the CDCF intends to purchase the first 230,000 tC02e of these CERs generated between 2009 and 2014, with at least 75 percent of total CERs required to be delivered by the end of 2012 and 25 percent of the total CERs will be delivered during 2013 - 2014.

Table 5: Estimated Amount of Emission Reductions by Year

2009 (from May) 2010

201 1

2012

2013 2014 2015

2016 2017

57,993

57,993

57,993

57,993 57,993

57,993 57,993

57,993

39. The CDCF will finance an additional CBP component that will be funded fiom a premium over and above the CERs value. Moo 10 in Chonburi province has been selected to be the first community that will benefit fiom the CBP and up to four poor communities near the participating farms will benefit fiom the additional carbon fund resources earmarked for the CBP during 2010-2015 periods. The final size, design, performance indicators, and implementing responsibilities of this component will be agreed and recorded in the ERPA. The ERPA payments will be conditioned on performance and contingent on the successful delivery of the CBP.

2018 20 19 (until April)

Total estimated ERs Total number of crediting period (year) Annual average ERs over crediting period

57,993 19,33 1

579,925 10

57,993

Annex: 1: Project Technical Description

Thailand: CDM Livestock Waste Management

Anaerobic digester technologies capture methane for use in energy applications and provide other environmental benefits related to water and air quality, human health, and GHG reduction. An anaerobic digestion system consists of the following general components which are illustrated in Figure 1 below.

Figure 1: Components of an Anaerobic Digester System

1. The proposed project will reduce methane emissions fiom pig waste management and is based on the installation of anaerobic treatment systems that recover biogas for use as energy. A technical discussion follows based on a process flow diagram (see Figure 1 in the main text) which identifies the specific unit processes used in this project for all farms.

Waste Collection

2. Waste collection from all farms described in this project are collected daily or every other day by hose flushing all material through a series of canals. These canals currently connect to open anaerobic lagoons at these farms. The project plans to connect these canals to: (a) a screen,; (b) a sand trap; and (c) a collection tank. The purpose of the screen and sand trap is to remove the undesirable inert material which could accumulate in the digester causing problems over time. The collection tank is to collect all separated waste material at one central point to be then pumped to the anaerobic digester following a daily digester charging schedule. A flow meter is also installed to measure the volume of process water and waste. These data provide for improved management of the digester, as volume can vary fiom confinement buildings, and allow the operator to balance the daily digester charging requirements. At larger farms, there will be more than one sand trap and collection tank depending on the farms configuration.

Channel Digester plus System

3. From the collection tank, waste is transferred to the anaerobic digester. This project plans to install CDP systems at medium and large scale pig farms. The CDP system is a concrete tank structure, where both the channel digester and up-flow anaerobic reactor are housed and are covered with a flexible top to store biogas.

4. The CDP technology meets ERDI's MC-UASB design and technical criteria but adds the following enhancements: (a) extended hydraulic retention time; (b) separate sludge storage; (c) reduced size of drying beds; (d) a back-up pump; (e) flaring unit; (f) monitoring instrumentation; and (g) an enclosed electricity generator room. This design consists of two parts as follows:

A channel digester first receives the separated waste material from the collection tank. The channel digester is rectangular and about 4 times longer than it is wide. This configuration serves three purposes: (a) it initiates the anaerobic process and establishes methanogenic activity; (b) it allows solids settling, which increases the Solids Retention Time; and (c) the extended Solids Retention Time maximizes gas production while allowing the remaining Chemical Oxygen Demand (COD) in the solid fraction to be desorbed into the liquid phase.

After the channel digester reduces solids content and concentrates remaining COD in the liquid phase, the liquids flow into a high rate up-flow reactor. This type of reactor requires dilute wastes and can tolerate fine solids which form the biomass where the majority of microbial populations operate and convert the remaining COD into methane.

Gas Use

5 . Electricity will be generated by combusting the biogas produced from the CDP system in a medium British Thermal Unit (BTU) reciprocating engine with an attached generator. These engines are spark ignited and are assembled to operate on medium BTU gas. Engine generator sets will also be equipped with the necessary controls to regulate engine performance and meet other criteria.

6 . The electricity produced is expected for on-farm consumption. The number, size, and capacity of generators will vary depending on the standing pig population, pig type, and size at each farm. The electricity output will also vary depending on f m operational efficiency and management. The following table illustrates the farm energy and fossil fuel offset for this project.

Table 6: Base Load Electricity Energy Production ~stimates"

7. Biogas will be transmitted from the CDP system to the engine generator through a gas handling and transmission system which includes pipes, blower, and gas meter. A biogas sampling port is provided to take biogas samples for methane analysis required under the CDM reporting methodology.

8. Hydrogen sulfide (H2S) will be removed with a biological scrubber to reduce the corrosive effects on the engine's critical parts when combusted. Biological scrubbers contain sulfur oxidizing bacteria (Thiothrix, Thiobacillus, and Beggiatoa) to remove H2S and a number of commercial scale scrubbers have been used successfully in Thailand on pig waste produced biogas.

9. Flaring units will be included in the gas use system to avoid venting of biogas, a form of leakage (and reduction of potential CERs), when engines are repaired or serviced. Flaring units are also equipped with safety requirements and automatic ignition mechanisms to ensure gas combustion and provide a level of f m safety as biogas is flammable. Specifications are highly advisable as part of this project.

Efluent Management and Storage

10. The CDP system will produce two separate effluent streams. The first is solid, which due to biological activity will be reduced to sludge. However this material accumulates in the channel digester and will need to be removed periodically. The solids are removed via a pump and stored in a sludge storage tank during the wet season. During the dry season, all sludge material is dried in the sludge drying bed and sold as fertilizer and soil amendment.

11. The second eMuent stream will be stabilized liquid from the up-flow anaerobic reactor. These liquids are proposed to flow to a clarifier and then flow to a series of storage ponds. The project also plans to reduce nutrients in these ponds by introducing

" These values are based on on-farm consumption arrangement.

aquatic biomass for nutrient uptake and removal to meet the water quality objectives of the LWMEA project.

Annex: 2: Community Benefit Plan

Thailand: CDM Livestock Waste Management

A. General Background of Moo 10

1. Based on the consultations with the local stakeholders, Moo 10 in Koh Chan District of Chonburi province was identified as the priority community to receive support under the CBP.

2. Comparatively, Moo 10 not only fell below per capita poverty threshold of THB 16,068 per year'2, but also lacked many essential economic infrastructure and social services such as schools, health center, and convenient access to markets that commonly exist in other communities. Thus, the development potentials and opportunities of Moo 10 are much more limited.

Table 7: Population Characteristics of Moo 10

3. Moo 10 can be socio-economically characterized as an agriculture-based community. The majority of villagers grow commercial crops such as sugar cane and cassava. Few villagers maintain rice fields, vegetable gardens, or livestock for household consumption. Villagers have relied on monetary income from the sales of their commercial crops to make purchases of food and other consumer goods.

4. In recent years the quality of the soil has deteriorated. Villagers have mentioned that the cultivated sugar cane fields used to be able to last about 3 years (i.e.3 harvests), but now since the soil has deteriorated so much, the sugar cane fields can only last 2 years. Thus villagers incurred additional cost of replanting sugar cane plants (every 2 years instead of 3 years). Villagers also relied more and more on chemical fertilizers to nourish their crops, adding to production costs.

B. Activities and Financing

5 . As agreed with Moo 10 and supported by local government, the project activities under the CBP would include: (a) street lighting; (b) safe drinking water; (c) scholarships; (d) mosquito spray machine; (e) community shop; and (f) capacity building.

'' Based on the National Economic and Social Development Board, 2004, "Poverty in Thailand," data for the Central Region of THB 1,339 per person per month

Table 8: Activities under the CBP Support

6. A capacity building activity is planned to provide knowledge development in the "sufficiency economy" and may include study tours of other communities that are implementing the sufficiency economy based activities, and provide forums for communities to discuss and plan for the applications of the principle in Moo 10. After this activity is implemented in 201 1, Moo 10 is expected to propose and implement pilot projects which will help them increase their income and improve their quality of life. Some funds fiom 2012 budget year under the CBP will be used as seed funds for this purpose.

village do not have

out from school after

7. Total budget for the CBP is estimated at US$253,500 including about US$230,500 fiom CDCF for the period 2010-201 5 based on the CDCF premium of US$l

(9 Capacity building and projects piloting for sufficiency economy practices

Participating or interested groups

from having to travel outside the community - More interest from the community to utilize cooperatives shop - More profitable operation of the cooperatives - Extra income for cooperative members - Increased knowledge and skills on sufficiency economy and self reliance practices - Plan and implement pilot projects

No knowledge and activities that enable villagers to plan or implement sustainable development projects by themselves

of CBP activities to CDCF grant. However, expenses associated with the independent evaluator and the water supply system expert will be covered by CBP budget

Annex: 3: Economic Analysis and Project Costs

Thailand: CDM Livestock Waste Management

1. Project Costs. The total project costs are estimated at 243.26 million baht (US$ 7.72 million equivalent) including costs for both components A and C. For component A, this includes the cost of civil works, equipment (including generators and gas storage and purification units), other facilities to operate the CDP, and monitoring equipment to measure the emission reductions (see Table 10). Costs for technical design, profit of contractors and taxes are also included. For component C, this includes the cost of canying out community benefiting activities, consultant services and miscellaneous costs. Total operating and maintenance costs are estimated to be 10.7 million baht per year for all 10 farms.

Table 10: Detailed Project Cost (in baht)

2. Financing. Component A is financed fiom a variety of hnding sources. These include the Thai government, GEF, M2M, participating farms and local banks:

(a) DLD will co-finance the technical design costs for each participating farm, some training for participating farmers and project management expenses;

(b) Additional government support in the form of a financial subsidy will come from the EPPO in the Ministry of Energy of Thailand to cover most cost of technical design and partial construction cost;

(c) The GEF will finance about 15 percent of the total costs;

(d) A total of about US$0.7 million from M2M will be used to support the purchase of electricity generators for participating farms which will typically cover about 60 percent of the cost of generators and

(e) On average, the farms will be responsible for about 50 percent of total financing. Participating farmers will cover these remaining costs with their equity contribution and loans from local banks. Most local bank loans have similar terms of 10 percent interest to be repaid over three years. In addition, a bank guarantee for ERDI has been included in the total cost of loans that is equal to 24 baht maximum per estimated annual pig population (not annual average pig population) at each farm. Each farm's financing plan is included in its mini-PIP.

3. Economic Analysis. This CFO is expected to result in the generation of 6,257 MWh of electricity per year. As this total amount will result from generating units at 10 different farms, the scale of generation is too small to justify initial sale to the grid. Therefore, the individual farms will be offsetting their current consumption of grid-based power with biogas generated electricity. The benefit of these savings was calculated by multiplying the total annual electricity to be generated by the electricity tariff of 3 baht per kWh. The figure was then converted to US dollars using the current exchange rate. The benefits from the use of sludge were similarly calculated using the value of the fertilizer. In addition to energy savings, the C02 emission reductions are a major contributor to total benefits. The carbon emission reductions were valued at the recent market price of US$15 per tC02e. Without the added benefit of C02 reductions the EIRR is only 8.4 percent, but when it is included the return improves significantly to 24.3 percent. The detailed analysis of the EIRR estimate for the project is in Table 1 1.

Table 11: Net Present Value (US$m) and EIRR (%) with and without the Benefit of C02 Reductions

NPV @ 10% discount rate 1 0.7'0 $3.24 million US$

NPV without CDM @ 10% discount rate (10.29) miilion US$

NPV @ 12% discount rate 12% $2.49 million US$

NPV without CDM @ 12% discount rate (Sfl.38) million US$

EIRR 24.32%

EIRR without CDM 8.38%

Aasumptlona

FIX

CER Rice

Electricity Price

Net Benefits

Net Benefits without CDM

51.00

$0.42

51.00

$0.42

43.32

43.32

$1.00

$0.42

$1.00

$0.42

$0.21

$0.21

$1.00

$0.42

$1.00

$0.42

$1.00

$0.42

$1.00

$0.42

$1.00

$0.42

$1.00

$0.42

$1.00

$0.42

$1.00

$0.42

$1.00

$0.42

$1.00

$0.42

Annex: 4: Monitoring and Evaluation Plan

Thailand: CDM Livestock Waste Management

1. Since all participating farms will also benefit fiom the GEF grant, those farms will follow an M&E arrangement under both GEF requirements and CDM requirements. The monitoring budget for the GEF requirements will be covered by the LWMEA project and DLD will ensure that all participating farms conduct the baseline study and monitoring. The budget for CDM requirements will be borne by the farm owners. The M&E terms have been agreed as following:

The monitoring plan has been developed based on AMS 111. D version 14, "Methane recovery in animal manure management systems" and approved small scale methodology AMS I. D version 13, "Grid connected renewable electricity generation". The monitoring plan is subjected to revision with the latest version of AMS 111. D and AMS I. D.

There are eleven indicators to be monitored under small scale CDM projects as follows:

(a) biogas flow (m3/day);

(b) methane content of the biogas (%);

(c) electricity generation (kWday);

(d) electricity consumption (kWday);

(e) amount of biogas flared (m3/day);

(f) flare efficiency (%) a default value has been provided but a continuous check of compliance with the manufacturers' specification on the flare device will be done;

(g) sludge from channel digester (kg);

(h) animal population (head);

(i) daily feed intake per head (MJIday);

(j) grid emission factor (tCOz/Mwh); and

(k) average weight of livestock in each category (kg);

The biogas flow and electricity generated meter should be included in the design. The design would need to have a biogas sampling point in between the pipeline to allow the biogas sample to be collected for analysis of methane content.

The farm owners will take responsibility to measure all parameters on their own farms at their own expense. According to the current versions of the CDM methodologies that apply to the project, only the methane content is required to be measured by a third independent party i.e. a certified laboratory that meets the CDM requirements. Other indicators need to be monitored and recorded by the farmers on a daily basis. It is important that the owners of all participating farms maintain all monitoring equipment in good condition.

Table 12: Monitoring Indicators

Participating farms

will be made, most likely employing specialist contractors and

procedures

3. Frequency

equipped with a gas analyzer probe or gas sample collectior for measurement with chromatography. Quarterly (or more)

Participating farms

Participating farms (c) Electricity generated (kWh/day)

1. Data Source

2. Measurement methods and procedures

3. Frequency (d) Electricity Consumption

Data Source

2. Measurement methods and procedures

3. Frequency

Meter readings Standard electricity metering devices integrated with the power generating sets will be the basis for collection of data on these parameters. It is not envisioned that these devices would perform unduly badly relative to any other electricity meter. Daily

(kWh/day) Farm record on the utilization of electrical appliances under the project activity

No. of hours electrical appliances are in use daily

Daily

Participating farms

Participating farms

Participating farms

Participating farms

Participating farms

Participating farms (e) Biogas flared (m31day)

1. Data Source 2. Measurement

methods and procedures

3. Frequency

(f) Flare efficiency (%: 1. Data Source

2. Measurement methods and procedures

3. Frequency

(g) Sludge from the 1. Data Source 2. Measurement

methods and procedures

3. Frequency (h) Animal Population

Flow meter Biogas sent to the flare will be monitored through the use of biogas flow meter. The biogas flow meter shall be the equivalent of Orifice Plate or better This parameter will only be monitored when there is surplus gas fiom the Project and a flare is installed

Default value 90% Continuous check of compliance with the manufacturers' specification on the flare device (temperature, biogas flow rate) will be done. If in any specific four any parameters is out of the range of specification 50% of default value should be used for this specification hour. This parameter will only be monitored when there is surplus gas fiom the Project and a flare is installed

Participating farms

Participating farms

Participating farms

Participating farms

Participating farms

Participating farms

system (kg) Farm record every time sludge is remove from the system

1) Amount of sludge removed fiom the system 2) Density of sludge removed

When the sludge has been removed fiom the system

Participating farms

Participating farms

Participating farms (head)

Participating farms

1. Data Source

rgy Development and

2. Measurement

2. To satisfy GEF requirements for M&E, key performance indicators described in the LWMEA project Grant Agreement and in Annex 5 of this CFAM will apply.

3. A monthly monitoring report will be prepared by participating farms.

Annex: 5: Safeguards Issues

Thailand: CDM Livestock Waste Management

Existing conditions

1. The participating farms are located in the provinces of Ratchaburi and Chonburi and are within the two major river basins i.e. the Mae Klong (Ratchaburi) and the Bang Pakong (Chonburi) discharging water into the Upper Gulf of Thailand which is a part of the South China Sea. The participating farms are located on flat land and no natural reserveslparks, indigenous people, andlor important natural habitats are identified in these areas. During appraisal, it was confirmed that these farms are located in agriculture area (corn, sugar cane, cassava, vegetable crops, etc.) or open space and fairly distant from residential areas.

2. Current Operation of Pig farms: The project consists of ten participating farms with a total annual average pig population of about 131,000 ranging from 5,000 and 30,800 among participating farms. The total volume of wastewater is 5,372 cubic meters per day (m3lday). The pig manure and waste water are discharged into the respective open lagoons for digestion with the supernatant used for irrigation of the nearby agricultural land. All the existing open lagoons are without any lining and may result in adverse impacts for ground water. However, wastewater is not discharged directly into surface waterways. Currently, untreated waste runoff from many pig farms in these area filters into local streams as well as emitting GHGs. Offensive odors and other nuisances have been a subject for local complaints. Within the farms, wastewater is discharged into ponds while solid pig manure is collected on drylng grounds and sold or used as fertilizer. Water pollution often occurs due to runoff, especially during the rainy season. The construction sites are within the existing premises of the participating farms.

3. All participating farms under this project will also be supported by the LWMEA project which aims at reducing the major negative environmental and health impacts of rapidly increasing concentrated livestock production. The environmental and social assessment studies conducted in 2004-05 for LWMEA project indicated that although complying with national environment regulations, most large farms in the project areas have not followed best livestock waste management practices and the assessments concluded that proper management and treatment of pig waste in these farms will significantly improve the local environmental quality (especially odor, flies, and water quality). The project's negative impacts are expected to be small, but it is important that the livestock waste management facilities are properly located, constructed, and operated. It is also important that due attention is given to reducing the impacts of liquid and solid wastes and safe disposal.

A. Applied Policies and EA preparation

4. Based on the current project design, field visits, and information provided, none of the World Bank's policies on Indigenous Peoples (OPBP 4.10), Involuntary Resettlement (OP 4.12) and Cultural Property (OP/BP 4.1 1) is triggered. Though

construction of livestock waste treatment facilities under the project will require land, it is understood that all farm households are participating on a voluntary basis and their lagoons will be built on their own farmland. Neither resettlement nor land acquisition is considered necessary. The project is not expected to have any impact on physical cultural resources. The CBP component will have small investments in each selected community and the funding is not expected to finance any capital investment that will require land acquisition or resettlement.

5 . This project triggers the World Bank's Environmental Assessment policy (OP/BP 4.01). It is assigned as a Category B project since the potential adverse environmental impacts of the project are temporary, site-specific, and manageable with readily available mitigation measures. During the safeguard review meeting, it was agreed that a specific mitigation plan for each participating farm, including consultation with local authorities and community, can be prepared based on the Environmental Management Plan (EMP) developed for the LWMEA project. Preparation of an IEE is however required for the Government's endorsement of the carbon finance project. The IEE was thus prepared in line with the Government's guidelines on IEE preparation. A brief summary of the potential negative impacts and the proposed mitigation measures are given in Section D below.

B. Project description

6. The project comprises three components i.e. Component A: Construction of livestock waste management facilities, Component B: Carbon finance transaction, and Component C: CBP. Only the activities to be carried out under the Components A and C may cause negative impacts to the local community and environment. Detailed description of the Components A and C are given in Annex 1 and Annex 2. The construction period would be about 9 months comprising two months preparation, four- five months civil works, and two months installation of equipment and testing.

C. Potential impacts andproposed mitigation measures for Component A

7. Overall impact of this component will be positive. It will contribute to reducing environmental impacts associated with the current pig f m operations (methane and odor generation from the open lagoons). No major negative environmental impacts due to the project are envisaged. Potential negative impacts during construction of this component would include vegetation clearance, inappropriate transportation and disposal of earth excavation and construction materials, and temporary disturbance due to dust, noise, waste, and other construction-related activities. These concerns however will be short term and localized and can be mitigated through good construction practices. Specific requirements that will be included in construction contract. The f m owners will be required to:

Inform the nearby communities of the construction activities and take prompt actions if there are complaints from the local communities;

Ensure proper disposal of the earth excavation, construction wastes, and adequacy of sanitation and hygienic conditions of the worker camps if a worker camp is needed;

Maintain close cooperation with AEP during supervision and monitoring; and

Include the following requirements in the construction contract and ensure that the contractor complies with: (a) work only during the daylight hours; (b) avoidance of creating noise, dust, vibration, traffic congestion, and truck overload; (c) periodically spraying water over the construction sites and dirt stockpiles; (d) covering the truck during the transportation of material and dirt, and (e) the use of construction machines with low noise and good maintenance.

8. Potential negative impacts during operation are not anticipated if the treatment facilities are operated and maintained properly. The CDP system has been designed to reduce the problems related to noise, air and water pollution, and safety risk at the critical units/activities: (a) waste collection; (b) biogas generation and storage; (c) electricity generation; (d) processing and storage of digested sludge; (e) the application of digested sludge; (f) effluent management and storage. To minimize potential spills and leakage of fiesh manurelwastewater that may occur during collection and transportation to the anaerobic digester or CDP system, the waste will be collected and transported via a concrete channel connecting the farm houses and waste collection tank with an installation of a screen and sand trap to remove undesirable inert materials that might cause problems in the digester system. From the collection tank, waste is transferred to the anaerobic digester (CDP system) where biogas is generated while the effluent wastewater and solid waste will be collected and disposed. The CDP technology has been designed and tested successfully in Thailand with additional features (i.e. extended retention time, separate sludge storage, reduced size of the drylng beds, including a back- up pump and flaring unit, monitoring instrument, and an enclosed electricity generator room) that will improve environmental and safety performance. The sewer line is designed separately fiom storm water line which will enhance the efficiency of the CDP system. Emission of air pollutants (NOx and SOX) from the generator is expected to be small since it is fueled with biogas (not fossil fuel). To reduce the potential impacts on surface and groundwater pollution due to storage and application of treated sludge (effluent and residue), all farms have agreed to use the treated waste and wastewater for land application of the nearby agriculture land. Code of good practice conducted by DLD on the proper digested sludge application will be followed. The negative impacts on groundwater are not anticipated, however, monitoring will be conducted as part of the Environmental Management Plan (see Section G below).

9. Training: To ensure that the participating farm owners and operators have knowledge and capacity to implement the good farm operation and management practices, a training program has been included in the project design as follows:

Training needs for the participating farms would include mainly system operation and maintenance, M&E, record keeping and filing. Specifically, three types of training will be provided: (a) training on "The Fundamental of Environmental Management for Pig Farm" which will include the code of good practice in pig farm and biogas management; responsible by DLD; (b) on-site training for the operators of the specific waste treatment and electricity generating system for each specific farm; by equipment suppliers with supervision fiom AEP; and (c) on-site training on the proper handling of monitoring equipment, by equipment suppliers with supervision from AEP. AEP, with support from DLD, will ensure that all participating farms understand how to: (a) operate the equipment; (b)

maintain the equipment; (c) take samples; and (d) keep a data record of the equipment operations.

D. Potential impacts and proposed mitigation measures for Component C

10. Review of the proposed selection criteria for the activities suggested that the overall impact of the CBP component will be socially positive and the potential negative impacts will be small due to the nature of the community activities and the small amount of fimding (about US$52,000 per year maximum). Activities identified by the selected community for the first two years include installation of street lights; improve access to drinking water, scholarship, a mosquito spraying machine, community shop, and capacity building. AEP agreed to make an effort to increase knowledge and awareness of the selected communities of environmental issues during monitoring and supervision and will provide adequate information on the environmental and social actions and safeguard issues (if any) as a separate section in the project progress report. To ensure that negative impacts will not occur during the following phases (2012-2015), before approval of the CBP for the future communities, AEP will send a letter to the World Bank confirming that the CBP activities will not: (a) involve any land acquisition, relocation, andfor indirect loss of access and assets; (b) involve ethnic minority; and (c) create significant impacts on the local environment and local communities during construction and operation phases. If the infrastructure related civil works are involved, AEP will also provide information related to the site selection criteria, a screening checklist to identify likely environmental impacts, standard mitigation measures for construction-related impacts, monitoring arrangements, and the process for public consultation.

E. Supervision, monitoring, and reporting

11. AEP will be responsible for supervision and monitoring and prepare a semi- annual report for the project. AEP will take actions to ensure that: (a) during construction, the farm owners and their contractors are aware of and comply with the proposed measures to mitigate the potential negative impacts on the local environment and local communities and will participate in the training provided by the project; (b) during operations, the farm owners carry out good farm operation practices and take action to ensure safety of the system operation and respond to complaints from local communities if any; and (c) the safeguards performance of the farm owners are provided in the project progress report. DLD is responsible to provide training to the farm owners on the manual for good farm management practices developed under the LWMEA project.

F. The EMP and implementation arrangement

12. An EMP for the Component A is being finalized in consultation with the farm owners and the final version will be submitted to the Government for approval. It is anticipated that the EMP will comprise the proposed mitigation measures highlighted above, including staff training plan, environmental monitoring plan, reporting mechanisms, and occupational safety plan. The EMF will be attached to the ERPA. ,. The farm owners will be responsible for ensuring compliance of the proposed mitigation measures during construction and operation. As part of the LWMEA project, DLD will be responsible for undertaking the ambient environmental monitoring (see below) before and after construction. During operation, the farm owners (with assistance from DLD

and AEP) will be responsible for monitoring of the influent and effluent wastewater and sludge. The World Bank will review the results and selectively monitor the implementation during supervision.

Table 13: The Environmental Monitoring Plan

13 BOD (Biochemical Oxygen Demand); CODt (Total Chemical Oxygen Demand); CODf (Filtered- Chemical Oxygen Demand); TKN (Total Kjeldah Nitrogen);DO (Dissolved Oxygen); SS (Suspended Solid); VSS (Volatile Suspended Solid);

at site and down

Efluent: From effluent pond Post-treatment pond: From polishing pond

pH, BOD, total COD, filtered-COD, SS

pH, BOD, Total COD, TKN, SS

One time during 3-6 month operation and one time after 9- 1 1 month of the operation

One time during 3-6 month operation and one time after 9-1 1 month of the operation

Annex: 6 Documents in the Project File

Thailand: CDM Livestock Waste Management

Community Profile and Priorities Report, December 2007

Project Development Document, May 2008

Initial Environmental Evaluation Report, June 2008

Environmental Management Plan, June 2008

Monitoring Operational Manual, May 2008

Subsidiary Agreement on the Transfer of Rights to Emission Reductions, December 2007

Mini-Project Implementation Plans, May 2008

Methane to Market Partnership Project Network Project Proposal, April 2008

ISDS, May 2008

Livestock Waste Management in East Asia Project Appraisal Document, February 2006

Memorandum of Understanding between Department of Livestock Development and Advance Energy Plus Co., Ltd.

Annex: 7: Project Preparation and Supervision

Thailand: CDM Livestock Waste Management

Preparation Schedule

Bank staff and consultants who worked on the project included:

ERPA signing Planned effectiveness Planned closing date

June 2008 May 2009 December 20 14

Annex: 8: Statement of Loans and Credits

Thailand: CDM Livestock Waste Management

STATEMENT OF IFC's Held and Disbursed Portfolio

In Millions of US Dollars

1996

2001

1987

Thai Pekochern

True Corp

UPOIC

Total portfolio:

0.00

62.50

0.00

130.46

0.00

0.00

0.58

44.30

6.56

29.76

0.00

58.93

146.91

0.00

0.00

146.91

0.00

62.50

0.00

126.01

0.00

0.00

0.58

35.30

6.56

29.76

0.00

58.21

146.91

0.00

0.00

146.91

Annex: 9: Country at a Glance

Thailand: CDM Livestock Waste Management

POVERTY and SOCIAL

2006 Popdatfon.mld+ (milbns) GNlper caplta (Atlas method, US) GNI (Atlas mefhod. l5S biW1ons)

Average annual growth. 2000-06 I I

East Lower- Asla & middle-

Populalmn (% 09 Labor force fW 12

M ost recent e l t imate [latest year available, 2000-06)

Poverty (%of po~lonbebwnetlonalpovartyheJ Uban popuhton (%of toWpopulet1on) 33 bfe expeclaneyet butti f@am) 71 hfant mor(aMy (per W l i r e bMhs) 8 ChM mahutmmnr#of chddmn under5) Accms to an hnpmved~~~er source (%of popdstbn) Be L~teracyC%afpopu/atlonege Sy 93 rjross pnmarymllment (XofschooCegepoputatbn) 06

Male 98 Female 84

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1086 IS96

GDP (USS Nions) 431 B17

Gmss capltaltonatmnlGDP 259 418 Emrts of goods end serv~ceslGDP 258 393 rjrossdomeslk savngs/QDP 27.9 355 Gross flEli0MlSaVlng6lWP 264 23.7

Cllnem account balancelGDP 08 -79 Interest payments1GDP 24 17 T otal debUGDP 429 82 1 TOWI d s ~ servcelexpxts 301 P.3 Prssem value of deMlGDP Present valueof debilagons

1986-96 l996-06 20QS (eversge annualgmwth) GDP 96 3 3 45 GOppercapaa 8.1 2 3 3 8 E q ~ ~ r t s of goods andsenrlces S 3 7 8 4.3

Thatland PaeWe Income

GNI Gross per primary capita nrollment

Davelopmant diamond*

Access lo impmvedwatersource

T h a i l a n d

--Lo bwr-middlsincome gmup

Economic ratios'

Trade

Domestic , , Capital savlng6 formation

-

Indebtedness

-Thailand -- Low-middlsiicame gmup

STRUCTURE of the ECONOMY

(%of GDP) Agriculture hdustry

Manufacturing Services

Household final consumption e-ndiure General gov't f i ~ l consumption e-diture hports of goods and services

(average annualgmnth) Agriculture Industry

Manufacturing Services

Household final consumption expendnure General gov't final consumption expenditure Gmss capital formation Imports of goods and services

Growth o f capltal and GDP (K) I

G C F -GDP

Growth o f exports and Imports (K)

Note: 2006 data are preliminaryestimates. This taMewas produced fmm the Development Economics LDB database.

'Thediamonds showfourkeyindicators inthecountry(in bold)comparedwithils incomegroupaverage. If dataare missing,thediamonddll

Thailand

PRICES and GOVERNM ENT FINANCE

Domestlc pr lces (%change) Consumer prices Implicit GDP deflator

Government flnance (%of WP, includes cunwt grants) Current revenue Current budget balance Overall surplusldeficR

TRADE

(US$ millions) Totalexports (fob)

Rice Rubber Manufactures

Total Imports (cif) Food Fuel and energy Ca~ital aoods . -

w o r t price index (mO=W) hport price index (2000=W) Terms of trade (2t?CC=tW)

2005 2008 Export and Import levels (US$ mlll.)

DeZll Q8220 m.m7

BALANCE o f PAYMENTS

Eqorts of goods andservices Imports of goods andservices Resource balance

Net income Net current transfers

1°06 1ss6 c u r r e n t account balance to GDP (%) I

Current account balance 247

Financing items (net) Changes In net reserves

Memo: Reserves including gold (US$ millions) 3.776 Conversion rate (DEC, local/US$) 26.3

EXTERNAL DEBT and RESOURCE FLOWS lo06

(US$ mlllionsj Total debt outslanding and disbursed 8,492

BRD 2,781 IDA 09

Total debt service IBRD IDA

Composition of net resourceflows Official grants 152 Official creditors 295 Private creditors -506 Forelgn direct investment (net inflows) 263 Portfolio equity(net inflows) 86

Wolid Bank pmgram Commitments Dbbursements Principal repapents Net flows hterest papents Net transfers

l ~ o m p o r l t l o n o f 2005 debt (US$ mlll.)

Note: This table was pmducedfrom the Development Economics LDB database. 9/28/07

Project Map

MAP No. 36205

THAllAND

LIVESTOCK WASTE MANAGEMENT PROGRAM

PROJECT PIG FARMS

PROJECT PARTICIPATING C O M U N I M *

PROJECT PROVINCES

EXPRESSWAYS

PRINCIPAL HIGHWAYS

PROVINCIAL ROADS - RAILROADS

o SELECTED CITIES AND TOWNS

PROVINCE CAPITALS

@ NATIONAL CAPITAL

- PROVINCE BOUNDARIES --- INTERNATIONAL BOUNDARIES

' U p to t r e e more communities are expected to portic~pate in h e Project.

Th~r mop ws pmduced by k Map &rrgn Unil ol rhe WorU Bonk. The boundoriel, m h . deoominotiws and any o h e i mhmmlion s h o r n w Air m p do not ~mpty, on he wri of of Ww!d Bank Group, any judgment M h e 1-1 slobs ol ony krribv, or ony endonemeol oroccephnce of lwh boundones

I I JUNE 2008