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Implementation Completion Report (ICR) Review - Medec Low-carbon Dpl Loan


  
1. Project Data:   
ICR Review Date Posted:
03/24/2014   
Country:
Mexico
Is this review for a Programmatic Series?
 No
First Project ID:
P121800
Appraisal
Actual
Project Name:
Medec Low-carbon Dpl Loan
Project Costs(US $M)
 401  401
L/C Number:
Loan/Credit (US $M)
 401  401
Sector Board:
Energy and Mining
Cofinancing (US $M)
   
Cofinanciers:
Board Approval Date
  11/23/2010
 
 
Closing Date
06/23/2012 06/23/2012
Sector(s):
Energy efficiency in power sector (37%), General transportation sector (25%), Forestry (25%), Housing construction (13%)
Theme(s):
Climate change (50%) Environmental policies and institutions (25%) Pollution management and environmental health (19%) Urban planning and housing policy (6%)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Victoria Alexeeva
Kristin Hallberg Christopher David Nelson IEGPS1

2. Project Objectives and Components:

a. Objectives:
The statement of objectives of the Low- Carbon Development Policy Operation (DPO) in the Loan Agreement is "increasing renewable energy supply, promoting energy efficiency, and reducing gas flaring and venting; improving the efficiency of the vehicle fleet and road transport operations in the Borrower's Territory; promoting energy- efficient housing; and promoting sustainable forest management".

The DPO objectives as stated on page 31 of the Program Document (PD) are more specific, i.e., "to support sector-specific, high-priority policy and regulatory reforms that have been identified as critical to achieve Mexico’s climate change mitigation targets under the PECC [the Government of Mexico's Special Program for Climate Change] for: (1) increasing renewable energy supply, promoting energy efficiency through cogeneration, reducing gas flaring and venting, and piloting the reform of the rural agricultural electricity subsidy; (2) improving the efficiency of the vehicle fleet and road transport operations in Mexico; (3) strengthening the market for energy-efficient housing; and (4) mainstreaming climate change considerations into land-use and forestry activities". As the PD lists an additional sub-objective of the rural agricultural electricity subsidy reform, the project team confirmed that it was subsequently decided not to include it in the DPO.

The project will be assessed against the objectives stated in the Loan Agreement.

b. If this is a single DPL operation (not part of a series), were the project objectives/key associated outcome targets revised during implementation?
No

c. Policy Areas:
The program included five policy areas, with eight prior actions taken by the Government.

(i) Cogeneration and Small- Scale Renewable Energy Development. To increase the production of
electricity from co-generation and small-scale renewable energy (RE) suppliers, the operation supported the Government’s climate change program (PECC) through the following prior action in this area: (1) the adoption of a net-metering regulation, a wheeling tariff covering transmission and distribution charges, and a model interconnection contract for co-generation and RE-based electricity generation.

(ii) Gas Flaring and Venting Reduction in Oil and Gas Production. To reduce gas flaring and
venting associated with oil and gas production, the DPO supported the PECC through (2) the issuance of the official resolution and specifications for gas flaring and venting reductions at Pemex and (3) the submission by Pemex of a number of Manifests to the National Hydrocarbons Commission (CNH), outlining the process and timeline for reducing gas flaring and venting at Cantarell (the largest) and other fields.

(iii) Fuel Efficiency in Vehicles and Transport Operations. To help create a regulatory framework and incentives for increased energy efficiency and lower vehicle emissions, the operation supported the government's program through (4) the initiation of a national fuel efficiency standard for new light duty vehicles as part of the 2010 National Standardization Program, and (5) the adoption by the Ministry of Environment and Natural Resources (SEMARNAT) and the Ministry of Communications and Transport (SCT) of a Voluntary Clean Transport Program to help long-distance freight and passenger operators and freight transport service users to assess their fuel performance and to provide them with technical assistance to improve it.

(iv) Energy Efficient Housing Development. To assist the Government in meeting its climate change goals through the promotion of energy-efficient housing, the DPO selected as a prior action (6) the establishment of a Sustainable Housing Program by the National Housing Commission (CONAVI) in December 2009 to help create a market for energy efficient housing through "green mortgages".

(v) Sustainable Forest Management. In support of the Government's regulatory reforms to incorporate 2.95 million hectares of forests under sustainable management, the operation targeted the streamlining of procedures for the approval of forest management initiatives by landowners through (7) the publication by the Ministry of Environment and Natural Resources (SEMARNAT) of an agreement that eliminates requirements, simplifies administrative procedures, and presents standardized forms that must be completed to carry out forest management activities in the Diario Oficial de la Federación. The other prior action of the DPO supported the development of a REDD+ strategy of Reduced Emissions from Deforestation and Forest Degradation toward forest conservation, sustainable forest management and the enhancement of carbon stocks through (8) the recent creation of a REDD+ Working Group (GT-REDD), a permanent sub-committee within the Inter-secretarial Commission on Climate Change, led jointly by CONAFOR and SEMARNAT.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
The IBRD Loan was approved by the Board on 11/23/2010, and became effective on 11/03/2011. The Loan of US$ 401,002,507 was disbursed in a single tranche at the end of 2011. The operation closed as scheduled on 06/23/2012.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:
High.
The DPO objectives were well aligned with the Government's policy on environmental sustainability that included the strategy for climate change adaptation and mitigation (ENACC) and its Special Climate Change Program (PECC). The objectives were also relevant to the World Bank Group's Country Partnership Strategy (CPS) for Fiscal Years 2008-2013 that featured support for environmental sustainability as one of its pillars.

b. Relevance of Design:
Substantial.
Outcome indicators were aligned with the five policy areas addressed in the DPO. For example, in the policy area of increased production of electricity from co-generation and small-scale RE suppliers, the prior actions targeted the adoption of a net-metering regulation, a wheeling tariff covering transmission and distribution charges, and a model interconnection contract for co-generation and RE-based electricity generation.

The ICR acknowledges that the targets for the second objective related to improved energy efficiency of the vehicle fleet were over-ambitious, in particular in terms of timing (24 months), and the ones under the sustainable forest management policy area were described as "stretch" targets (ICR, pages 14-15).


4. Achievement of Objectives (Efficacy) :

(1) Increased renewable energy supply, promotion of energy efficiency, and reduced gas flaring and venting. High.

Targets were achieved and surpassed:
  • the Federal Electricity Commission (CFE) increased the number of new co-generation permits awarded from 59 in 2009 to 80 in 2012, exceeding the target of 70.
  • There was an increase in the combined capacity of grid- connected small-scale producers from 25 MW photovoltaic (2009) to 36.1 MW photovoltaic in 2011 (source: National Solar Energy Association estimate), exceeding the target of 35 MW for 2012.
  • 2 Pemex projects complied with the new co-generation rules exceeding the target of 1.
  • Pemex reduced total gas flaring and venting for associated natural gas (excluding Cantarell) by 98.5 MMCFD, exceeding the target of 50 MMCFD between 2009 and 2012. In the case of Cantarell, Pemex reduced gas flaring and venting by 473.6 MMCFD, exceeding the target of 457 MMCFD.

Renewable energy development has been stimulated by a new net-metering regulation (prior action) that allows RE-based producers to either receive credits, which can be used to offset periods when they are net electricity consumers, or be paid for surplus electricity that is supplied to the grid; a wheeling tariff covering transmission and distribution charges; and a model interconnection contract for cogeneration and RE-based electricity generation. According to the ICR, the data from the Solar Energy Association in Mexico confirm that there has been an increase in the installation of solar PV equipment, both for large-scale arrays, and for smaller rooftop systems.

There exists a substantial untapped potential for new power generation capacity for the increase in large-scale cogeneration plants by PEMEX (Gas and Petrochemicals). A key to realizing investments in cogeneration within Pemex has been the ability to sell surplus electricity to CFE under the Electric Energy Public Service Law (Ley de Servicio Público de Energía Eléctrica), Article 36.

At the beginning of the operation, Pemex was venting and flaring almost as much natural gas as was imported, which amounted to about 25% of Mexico’s natural gas use in 2008. As prior actions, the National Hydrocarbons Commission (CNH) published a Resolution to reduce Pemex gas flaring and venting and Pemex responded by submitting publicly to CNH non-binding recovery goals in line with the goals outlined by CNH. Pemex is ahead of schedule in its gas flaring and venting reductions, both at Cantarell and other fields (Cantarell is Mexico’s largest oil field).

(2) Improved efficiency of the vehicle fleet and road transport operations in Mexico. Modest.

Targets were partially achieved:
  • The energy efficiency and CO2 emission control standard for new light duty vehicles issued by SEMARNAT/SENER/SE was not in force as planned by program closure due to the court challenge by two vehicle manufacturers. The ICR argues that it is likely that the legal challenge will fail and the regulatory change will be implemented. Since the regulatory authority has been allowed to continue the process of developing the standard while the outcome of the litigation is being determined, a positive decision could lead to rapid implementation of the law (ICR, pages 13-14).
  • The number of vehicles covered by transport operators’ action plans under the new Voluntary Clean Transport (VCT) program reached 18,488 vehicles, which is 62% of the target of 30,000.
  • The number of freight service users who adopted action plans reached 6% of the targeted 50 companies.

(3) Promoting energy- efficient housing. High.

The prior action included the establishment of a Sustainable Housing Program by the National Housing Commission (CONAVI) in December 2009 to help create a market for energy efficient housing through "green mortgages".

Targets were achieved and surpassed:
  • The number of newly constructed housing units that qualify for the National Housing Commission's (CONAVI) new energy efficient housing subsidy increases to 375,956 surpassing the target of 200,000. The housing subsidies from CONAVI go to qualifying houses with energy efficient designs and eco-technologies, such as insulation, efficient lighting, and efficient appliances such as refrigerators and air conditioners.
  • The number of new housing units that qualify for international carbon credits under the Clean Development Mechanism (CDM) programmatic methodology for sustainable housing reached 351,444 surpassing the target of 100,000. The green mortgage (Hipoteca Verde) program, however, is not registered with the CDM so no carbon revenues have flowed to Mexico. Mexico is continuing to work on this area and is preparing a NAMA (National Appropriate Mitigation Actions) that would qualify green housing in Mexico for carbon credits.
  • The recipients of CONAVI’s housing subsidy that participate in the green mortgage (Hipoteca Verde) program reached 351,444 surpassing the target of 140,000.

The ICR adds that a model construction code was introduced by CONAVI in in 2012. The code is designed so that it can be adapted for use in any Mexican State, and to date four states are in the process of adapting their codes to this model.

(4) Promoting sustainable forest management. Modest.

Target was partially achieved:
  • 4, 298 permits for forest management were granted between September 2008 and April 2012; the target for the increase in number of forest management permits was 2,600 for the period of 2010- 2012. In terms of the total area, however, only 2.18 million hectares were covered under the permits not yet reaching the PECC's target of 2.95 million hectares by 2012.

The objective of the forestry policy area was to accelerate sustainable forestry management by simplifying the permitting process. According to the ICR, the variability in the size of the production areas impacted by the permits is very high, indicating the program is reaching a wide diversity of landholders. The regulatory reform identified as a prior action helped improve the efficiency of processing permits for forest management activities; a lack of streamlined procedures was identified under the program as one of the main barriers preventing the incorporation of land under sustainable forest management.
  • The second target area for sustainable forest management was the advancement of Mexico’s REDD (reducing emissions from forest degradation and deforestation) program. The GoM reaffirmed its commitment to reduce emissions from deforestation and forest degradation in Mexico’s REDD+ Vision, launched during the session of the 16th Conference of the Parties to the UNFCCC in December 2010 in Cancún (COP 16). The REDD+ Vision is a milestone of the government-social sector cooperation and represents the first step towards the National REDD+ Strategy (ENAREDD+). The GoM issued the first vision of the ENAREDD+ in January 2012 for comments. The draft version of ENAREDD is planned to be widely disseminated and shared with relevant stakeholders, and it is expected to be published in 2014.

The ICR also adds that the Mexican Senate and Chamber of Deputies approved reforms to the General Law of Sustainable Forest Development allowing forest-land owners who manage their land to benefit from the observance of international legislation and social and environmental safeguards. Also, the Climate Change General Law was approved on April 17, 2012 explicitly calling on CONAFOR to design strategies and actions for a transition towards a zero percent carbon loss rate, with the purpose of including the strategies in planning and defining forestry policy.

5. Efficiency (not applicable to DPLs):

6. Outcome:

Relevance of objectives was high and that of design substantial. The program contributed to an increased renewable energy supply and reduced gas flaring, including promotion of energy- efficient housing, to a high extent. While the results for improved efficiency of the vehicle fleet and road transport operations in Mexico as well as sustainable forest management were modest at operation closure, they are likely to be achieved. Overall outcome is rated to be satisfactory.

a. Outcome Rating: Satisfactory

7. Rationale for Risk to Development Outcome Rating:

  • The Government of Mexico has consistently demonstrated a strong commitment to its climate change agenda. The change in administration has not had deleterious effects on Mexico’s climate change policy.
  • The enactment of the new Climate Change General Law in 2012 ensures that this program will not be undone by subsequent administrations.
  • The targets that were not reached under the policy areas on fuel efficiency in transport operations and sustainable forest management by operation closure are likely to be achieved.

    a. Risk to Development Outcome Rating: Negligible to Low

8. Assessment of Bank Performance:

a. Quality at entry:
The DPO benefitted from the World Bank’s extensive program of assistance supporting the Government of Mexico on a range of climate change issues. This included previous cross-sectoral DPOs, and other operations in Mexico on both climate mitigation and adaptation. The operation was prepared on the analytical foundation of a study on low-carbon development for Mexico (México: Estudio sobre la Disminución de Emisiones de Carbono, MEDEC), which was carried out by the Bank in coordination and consultation with a number of environmental and sectoral institutions in Mexico and external partners. The DPO was developed to assist in meeting PECC goals while incorporating information from the MEDEC study, which identified a number of high-priority interventions in key sectors of the Mexican economy energy, transport, urban housing, and forestry.

Quality-at-Entry Rating: Satisfactory

b. Quality of supervision:
According to the ICR, there were periodic missions throughout the implementation period focusing on making progress toward meeting the operation’s targets. Following the disbursement of loan proceeds, the agreed funds flow arrangements were complied with, and the required documentation confirming such arrangements was received by the Bank from the government.

The final supervision mission carried out shortly before the loan closed in June 2012 recommended
that the period of analysis for the target indicators be extended from 18 months to 24, because of
the short time to meet the targets and of the difficulty of evaluating the targets in mid-year (June), whereas data for most of the indicators was assessed at year end.

Quality of Supervision Rating: Satisfactory

Overall Bank Performance Rating: Satisfactory

9. Assessment of Borrower Performance:

a. Government Performance:
The Government of Mexico’s strong commitment to its climate change strategy had a positive impact on implementation of this DPO. Although this operation was implemented in the wake of an economic crisis, the Government has remained committed to the operation and progress was not delayed or impacted by budget shortfalls.

The project effectiveness was delayed for nearly one year. However, this did not affect implementation under the policy areas.

Government Performance Rating: Satisfactory

b. Implementing Agency Performance:
The Ministry of Environment and Natural Resources, SEMARNAT, was responsible for coordinating the activity under this DPO. Other agencies in addition to SEMARNAT involved in implementing the operation included: Energy Regulatory Commission (CRE), National Hydrocarbons Commission (CNH), National Commission for the Efficient Use of Energy (CONUEE), Ministry of Energy (SENER), and National Housing Commission (CONAVI).

While all the agencies are to be commended, SEMARNAT deserves special recognition; in addition to responsibilities for the forestry related activities, it played an important role in coordinating and assuming responsibility for the broader global environmental goals of the DPO.

Implementing Agency Performance Rating: Satisfactory

Overall Borrower Performance Rating: Satisfactory

10. M&E Design, Implementation, & Utilization:

a. M&E Design:
The project’s M&E was integrated in the PD’s Operation Policy Matrix (Annex 2). The outcome indicators associated with prior actions were specific, relevant and measurable.

Each participating governmental institution was responsible for the monitoring and evaluation of the policy areas they addressed. The Ministry of Environment (SEMARNAT) was responsible for the coordination among the agencies under the DPO.

b. M&E Implementation:
The responsible Governmental units shared progress on the monitoring indicators with Bank staff.

a. M&E Utilization:
As the ICR reports, the majority of the monitoring steps involved one-step evaluation of program achievements completed by the time of ICR.

M&E Quality Rating: Substantial

11. Other Issues:

a. Safeguards:
No safeguards policies were triggered by this operation.

b. Fiduciary Compliance:
No fiduciary issues arose from this operation.

c. Unintended Impacts (positive or negative):

d. Other:



12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Satisfactory
Satisfactory
 
Risk to Development Outcome:
Negligible to Low
Negligible to Low
 
Bank Performance:
Satisfactory
Satisfactory
 
Borrower Performance:
Satisfactory
Satisfactory
 
Quality of ICR:
 
Satisfactory
 
NOTES:
- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.

13. Lessons:
The following lessons were selected from the ICR, with adaptation of language:
  • Meaningful targets are difficult to define within a short time period of implementation of a single-tranche development policy operation. As a partial solution under this DPO, and given the lack of mid-year data for many of the indicators, the time period for measuring the targets was extended from 18 to 24 months.
  • With multiple implementing agencies involved, it may help assign a coordinative role to one of the agencies. For example, the coordination under this operation was carried out by the Ministry of Environment that had an overall understanding of Mexico’s broad climate change program and could assume responsibility for the broader global environmental goals of this DPO.

14. Assessment Recommended?

Yes
Why?
There have been a number of DPOs carried out in Mexico related to environment and climate change. It may be helpful to assess them as a group including this DPO.

15. Comments on Quality of ICR:

The ICR text is concise. The analysis is outcome- oriented. The lessons, however, could have been more specific; to a large extent, they were rather generic statements for a development program implementation.

a. Quality of ICR Rating: Satisfactory

(ICRR-Rev6DPL-Jun-2011)
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