Kenya - Private Sector Power Generation Support Project

 INTEGRATED SAFEGUARDS DATASHEET APPRAISAL STAGE I. Basic Information Date prepared/updated: 12/21/2011 Report No.: AC5851 1. Basic Project Data Country: Kenya Project ID: P122671 Project Name: Kenya Private Sector Power Generation Support Project Task Team Leader: Karan Capoor Estimated Appraisal Date: January 17, Estimated Board Date: February 28, 2012 2012 Managing Unit: AFTEG Lending Instrument: Sector: General energy sector (100%) Theme: Infrastructure services for private sector development (100%) IBRD Amount (US$m.): 0 IDA Amount (US$m.): 0 GEF Amount (US$m.): 0 PCF Amount (US$m.): 0 Other financing amounts by source: Borrower 0.00 IDA Guarantee 166.00 166.00 Environmental Category: A - Full Assessment Repeater [] Is this project processed under OP 8.50 (Emergency Recovery) Yes [ ] No [X] or OP 8.00 (Rapid Response to Crises and Emergencies) 2. Project Objectives The objectives of the proposed project are to: (i) assist the Borrower to meet growing short term demand in power generation; and (ii) the PRG will directly impact the capacity, efficiency, and in a timely manner, the power supply by adding more generation capacity to the grid by the IPPs. 3. Project Description It is proposed that a series of PRGs with an IDA allocation of US$166 million equivalent be provided in support of payment obligations of Kenya Power and Lighting Company Ltd. (KPLC) under individual PPAs for the IPPs being considered by the Government. The proposed project would support the: (a) installation of three separate 83-87 MW capacity Medium Speed Diesel (MSD) Power Plants; and a third expansion of the existing Olkaria III geothermal power plant. They will be constructed by IPPs under a 20 year Build Own Operate (BOO) arrangement. Each IPP for the respective thermal power plant will be responsible for the construction of a Fuel Storage Facility as well as the construction of an Interconnection Facility at each plant site to transmit the power to the national grid.  One ESMF and separate ESIAs will cover the three thermal IPPs due to their similar size, nature and impact. The geothermal project will follow WB environmental and social safeguards separately. The PRGs will be processed as sub-projects of the Kenya Private Power generation Support Project. The first PRGs are expected to be in support of the PPA between KPLC and Gulf Power Limited (GPL), the IPP developer of an 80 MW MSD plant east of the town of Athi River, for a total estimated Letter of Credit (LC) amount of US$35 million and Euro 7 million along with Thika Power Limited and Triumph Generating Company Limited. Once Board approval is obtained of the first proposed project, based on the PRG framework detailed in the PRG Term Sheet, it is proposed that the balance amount be deployed for the other subsequent three PRGs. 4. Project Location and salient physical characteristics relevant to the safeguard analysis The 3 MSD Plants are to be located at three different sites in the outskirts of Nairobi as follows: (1) Plant 1 will be an 81 MW facility operated by Triumph Power within an Export Processing Zone (EPZ) southwest of Athi River off Athi River-Namanga Road, approximately 30 km south of Nairobi. (2) Plant 2 will be an 80 MW facility operated by Gulf Power east of Athi River town on Mombasa Road approximately 35 km south east of Nairobi. (3) Plant 3 will be an 87 MW facility operated by Thika Power on Thika Road near Thika Town approximately 35 km north east of Nairobi. Key site selection criteria included: a site with minimal environmental and social impacts; a site from which power could be easily evacuated and a site available for sale immediately. KPLC used print media, estate agents, local authorities, and the public to identify suitable candidate sites. Given their respective generating capacities, prevailing winds, and distances from each other, the airsheds of the three MSD projects are not expected to overlap such that cumulative adverse impacts occur on ambient air quality. With a limit of two percent sulfur content in the fuel, the MSD projects are expected to comply with relevant WBG Environmental, Health and Safety Guidelines. The existing Olkaria III geothermal project is located within Hell's Gate National Park, which is designated as a Category II protected area by IUCN; however, the park was established after the Olkaria geothermal fields had been gazetted for geothermal power production, and the first power plant (Olkaria I) had been built. The park is divided into two sections: the western section in which geothermal production is permitted, and the eastern section in which hiking and recreational activities (primarily bird watching) are encouraged. The Olkaria III project currently has an installed capacity of 55 MW and is located in one of seven designated geothermal fields within the western sector of the park. The Olkaria III project was originally designed, assessed, and approved as a 100 MW facility; however, a decision was made to build it in phases. MIGA has insured investments in the Olkaria III project since March 28, 2002, first as part of the project's initial phase of construction and operations, and then again in December 18, 2007, for a subsequent second phase of expansion. The Kenyan environmental authorities on May 21, 2010, amended the September 14, 2007, EIA license to approve the project to the final expansion to 100 MW, as originally proposed in the 2000 EIA for the Olkaria III project. At the Olkaria III project, both spent steam and geothermal brine are re-injected in wells, with over 95% reinjection achieved. Non-condensible gases, primarily carbon dioxide, are piped to adjacent flower farm greenhouses to boost flower production. 5. Environmental and Social Safeguards Specialists Ms Gibwa A. Kajubi (AFTCS) Ms Noreen Beg (AFTEN) Mr Harvey D. Van Veldhuizen (MIGEP) 6. Safeguard Policies Triggered Yes No Environmental Assessment (OP/BP 4.01) X Natural Habitats (OP/BP 4.04) X Forests (OP/BP 4.36) X Pest Management (OP 4.09) X Physical Cultural Resources (OP/BP 4.11) X Indigenous Peoples (OP/BP 4.10) X Involuntary Resettlement (OP/BP 4.12) X Safety of Dams (OP/BP 4.37) X Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) X II. Key Safeguard Policy Issues and Their Management A. Summary of Key Safeguard Issues 1. Describe any safeguard issues and impacts associated with the proposed project. Identify and describe any potential large scale, significant and/or irreversible impacts: There are no significant environmental and social risks associated with the three MSD power plant sites in terms of natural habitat, land use, or other characteristics associated with the site itself. Rather, the likely impacts are associated with the construction and operation of the proposed MSD thermal power plant at each of the three sites, e.g., construction-related impacts, air emissions and impacts on ambient air quality, solid and liquid waste management, noise, and the transport, handling, and storage of fuel, etc. To avoid the potential cumulative environmental impacts of siting three such power plants within the same parcel of land, KPLC and/or sub-project sponsor has acquired land in three separate locations to minimize significant impacts on air quality.  Preliminary and subsequent assessments for all four projects have determined that significant or sensitive physical cultural resources are unlikely to be found; however, as per standard practice, construction contracts will include chance finds procedures. There will not be any resettlement or compensation for lost assets required at the three thermal power project sites. Prior to the award of concessions to successful IPPs, KPLC conducted preliminary environmental and social assessment work for each of the three sites and was able to determine that there were likely to be no significant social risks associated with the three sites in terms of land use, or other characteristics associated with the site itself. There are different agencies responsible for power generation and for electrical transmission and distribution systems. Therefore, transmission lines will be built separately under the authority of a different project proponent, and by law the project proponent must prepare a separate ESIA for its investment. For two of the thermal power plants, the connection to the transmission line grid will occur within the purchased sites. For the third, the transmission lines will follow existing road rights-of-way or cross unoccupied land designated for industrial use. A separate EIA will be prepared by a third party developer responsible for the transmission lines, but preliminary analysis by the thermal power plant IPP has indicated there are no significant adverse environmental or social issues associated with the construction and operation of the associated transmission lines. The proposed expansion of the Olkaria III power project is located within a designated area of a national park that is gazetted for geothermal field development, and the park has been under the management of the Kenya Wildlife Service since the park was established. No resettlement or displacement of livelihood activities will occur as a result of the proposed expansion of the Olkaria III power plant or increase of capacity in the existing transmission lines connecting it to the grid. There are no vulnerable and marginalized ethnic groups on or near the proposed project sites. Screening has occurred, and no groups recognized by the Bank as IPs under OP 4.10 are on or near the project sites. The Olkaria III project site is located within Hell's Gate National Park, which is designated as a Category II protected area by IUCN; however, the park was established after the Olkaria geothermal fields had been gazetted for geothermal power production, and the first power plant (Olkaria I) had been built. The Olkaria III expansion is located within the western sector of the park in which geothermal field development is allowed. The project area is located in a semi-arid landscape occupied predominantly by savanna grassland. The project area itself is characteristic of geothermally altered soils, with sparse vegetation. Hell's Gate National Park is the only national park in Kenya in which hiking is encouraged, given the absence of large predators such as lion and leopard. The primary habitat and recreational value for the park is bird nesting and bird watching, especially large raptors and a large colony of swifts. A gorge separates the eastern and western sectors of the park, and topographical features west of the gorge (Olkaria Hill, Hobbley's Volcano, and Hell's Kitchen) effectively isolate the Olkaria III geothermal field from viewers in the eastern sector of the park. The initial EIA for Olkaria III considered cumulative impacts of the three existing geothermal fields in the park, including the proposed expansion of Olkaria III. Geothermal field development and activities are closely coordinated with the Kenya Wildlife Service (KWS), which is responsible for park management and protection. All geothermal operations within the park are required to enter into an Environmental Management Agreement with the KWS. The Olkaria III project's Environmental Management Plan will continue to be implemented as part of the Environmental Management Agreement with the KWS. 2. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area: There are no long term environmental impacts anticipated as a result of future activities in each of the three project sites at this time. 3. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts. A reasonable range of project alternatives has been evaluated, including a "no-project" alternative. There are constraints, however, on the range of reasonable alternatives that can be discussed because the project consists of concessions awarded to respective IPPs. KPLC initially identified a parcel of land in an Export Processing Zone (EPZ) on the southwest side of the town of Athi River for three proposed MSD thermal power plants to be built by IPPs. Due to the potential cumulative environmental impacts of siting three such power plants within the same parcel of land, KPLC subsequently sought to acquire land in three separate locations. Key selection criteria included: a site with minimal environmental and social impacts; a site from which power could be easily evacuated; and a site available for sale immediately. KPLC used print media, estate agents, local authorities, and the public to identify suitable candidate sites. The three sites selected and purchased by KPLC are: the initial site within an unused part of the EPZ southwest of Athi River town, a site near Thika town, and a site along the Nairobi-Mombasa highway to the east of Athi River. Given their respective generating capacities, prevailing winds, and distances from each other, the airsheds of the three projects are not expected to overlap such that cumulative adverse impacts occur on ambient air quality. 4. Describe measures taken by the borrower to address safeguard policy issues. Provide an assessment of borrower capacity to plan and implement the measures described. Prior to the award of concessions to successful IPPs, KPLC conducted preliminary environmental and social assessment work for each of the three sites and was able to determine that there were likely to be no significant environmental and social risks or impacts associated with the three sites in terms of natural habitat, land use, or other characteristics associated with the site itself. ESIAs have been prepared and have been reviewed by the Bank in their final form for all but one of the IPPs (for which a draft ESIA was reviewed). Draft ESIA reports were prepared for the Triumph Plant in November 2010 and Gulf Power in April 2011, while a detailed scoping report of an ESIA was prepared for the Thika Plant in February 2011. It was determined that the Draft ESIA prepared for the Gulf Power plant could serve as a model of good practice for an ESIA suitable for power plants of this size using Medium Speed Diesel (MSD) engines and Heavy Fuel Oil (HFO). A modified version of Gulf’s ESIA was adapted as an Environmental and Social Management Framework (ESMF) for the other two thermal power plants for which ESIA work was still in progress. The ESMF and the Gulf Power ESIA were disclosed locally and in the InfoShop on May 23, 2011. Subsequently, the finalized ESIA for the Thika MSD thermal power plant was disclosed locally and at the InfoShop on November 3, 2011. The final ESIA for the Triumph MSD thermal power plant is expected by mid-December 2011 and will be disclosed locally and at the InfoShop shortly thereafter. With respect to the proposed Olkaria III project, MIGA has guaranteed an investment in Olkaria III since March 2002, with a second guarantee offered for the second phase expansion in December 2007; therefore, information regarding WBG involvement in the Olkaria III project has been subject to MIGA disclosure policy since 2002. In addition, the Bank disclosed locally and in the InfoShop on June 9, 2011, the following key documents for the Olkaria III project: the initial (August 2000) EIA, which noted that the project would be expanded in phases over time to 100 MW and assessed from that perspective; the supplement to the EIA dated May 2001; and the most recent (2010) environmental audit of the existing Olkaria III project operations. The ESIAs prepared to date describe potentially adverse environmental impacts of the construction and operational phases of the power plants on the built and natural environment. Environmental Management Plans have been prepared or are under preparation specifying mitigation measures and management actions identified in the impact assessments, and include a budget, schedule, and institutional responsibilities for each action. Annexes have been prepared or are under preparation assessing air and soil quality, noise levels, and the hydrogeology, geology, archeology and current land use of the Plant sites and surrounding areas. Borrower capacity to implement environmental mitigation measures is well established, and the IPPs have all hired highly reputable, experienced environmental consultancies to prepare the ESIAs. The IPP management will ensure an environment/social/OSHA officer is based on-site during project construction and operation. 5. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people. Preliminary public consultations with stakeholders (neighbouring industrial and commercial establishments primarily, but also a housing estate on the Mombasa Road near the Gulf Power project site and pastoralists along the road) have been held at all three MSD Plant locations. This first round of consultations occurred as KPLC carried out preliminary environmental and social assessment of the three MSD sites prior to final award of the concession to the respective IPPs. A second round of consultations were held as required by Kenyan regulations regarding scoping, preparation, and disclosure of site- and project-specific ESIAs by the respective IPPs. Details of the outcome of these consultations in preparation of the ESIAs are described in the respective ESIA documents. In the case of Olkaria III, the project proponents will continue to liaise with Kenya Wildlife Service (KWS), which is responsible for Park management. B. Disclosure Requirements Date Environmental Assessment/Audit/Management Plan/Other: Was the document disclosed prior to appraisal? Yes Date of receipt by the Bank 04/21/2011 Date of "in-country" disclosure 05/23/2011 Date of submission to InfoShop 05/23/2011 For category A projects, date of distributing the Executive 12/12/2011 Summary of the EA to the Executive Directors Resettlement Action Plan/Framework/Policy Process: Was the document disclosed prior to appraisal? N/A Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop Indigenous Peoples Plan/Planning Framework: Was the document disclosed prior to appraisal? N/A Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop Pest Management Plan: Was the document disclosed prior to appraisal? Date of receipt by the Bank Date of "in-country" disclosure Date of submission to InfoShop * If the project triggers the Pest Management and/or Physical Cultural Resources, the respective issues are to be addressed and disclosed as part of the Environmental Assessment/Audit/or EMP. If in-country disclosure of any of the above documents is not expected, please explain why: C. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the ISDS is finalized by the project decision meeting) OP/BP/GP 4.01 - Environment Assessment Does the project require a stand-alone EA (including EMP) report? Yes If yes, then did the Regional Environment Unit or Sector Manager (SM) Yes review and approve the EA report?  Are the cost and the accountabilities for the EMP incorporated in the Yes credit/loan? OP/BP 4.04 - Natural Habitats Would the project result in any significant conversion or degradation of No critical natural habitats? If the project would result in significant conversion or degradation of other N/A (non-critical) natural habitats, does the project include mitigation measures acceptable to the Bank? The World Bank Policy on Disclosure of Information Have relevant safeguard policies documents been sent to the World Bank's Yes Infoshop? Have relevant documents been disclosed in-country in a public place in a Yes form and language that are understandable and accessible to project-affected groups and local NGOs? All Safeguard Policies Have satisfactory calendar, budget and clear institutional responsibilities Yes been prepared for the implementation of measures related to safeguard policies? Have costs related to safeguard policy measures been included in the project Yes cost? Does the Monitoring and Evaluation system of the project include the Yes monitoring of safeguard impacts and measures related to safeguard policies? Have satisfactory implementation arrangements been agreed with the N/A borrower and the same been adequately reflected in the project legal documents? D. Approvals Signed and submitted by: Name Date Task Team Leader: Mr Karan Capoor 12/15/2011 Environmental Specialist: Mr Harvey D. Van Veldhuizen 12/05/2011 Social Development Specialist Ms Gibwa A. Kajubi 12/05/2011 Additional Environmental and/or Ms Noreen Beg 12/15/2011 Social Development Specialist(s): Approved by: Regional Safeguards Coordinator: Ms Alexandra C. Bezeredi 12/15/2011 Comments: Sector Manager: Mr Lucio Monari 12/15/2011 Comments: