Report and Recommendation of the President to the Board of Directors

Project Number 53082-001 November 2020

Proposed Grant Republic of the Marshall Islands: Ebeye Solid Waste Management Project Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Access to Information Policy.

CURRENCY EQUIVALENTS

The currency unit of the Marshall Islands is the United States dollar.

ABBREVIATIONS

ADB – Asian Development Bank CDL – Container Disposal Legislation COVID-19 – coronavirus disease EMP – environmental management plan GHG – greenhouse gas KALGOV – Kwajalein Atoll Local Government MWIU – Ministry of Works, Infrastructure, and Utilities O&M – operation and maintenance OP – operational priority PAM – project administration manual PIU – project implementation unit RMI – Republic of the Marshall Islands SWM – solid waste management US – United States

NOTES

(i) The fiscal year (FY) of the Government of Republic of the Marshall Islands and its agencies ends on 30 September. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 30 September 2020.

(ii) In this report, "$" refers to United States dollars.

Vice-President Ahmed M. Saeed, Operations 2 Director General Leah C. Gutierrez, Pacific Department (PARD)

Deputy Director General Emma M. Veve, Deputy Director General, PARD

Director Jingmin Huang, Urban Development, Water Supply, and Sanitation Division (PAUW), PARD

Team leader Yuki Ikeda, Public Management Economist, PAUW, PARD Team members Flordeliza R. Asistin, Financial Management Specialist, Portfolio,

Results, and Quality Control Unit (PAOD-PRQ), PARD Herzl Erin F. Banacia, Operations Assistant, PAUW, PARD

Stephen Blaik, Principal Urban Development Specialist, PAUW, PARD

Cindy Bryson, Safeguards Specialist, PAOD-PRQ, PARD Taniela Faletau, Safeguards Specialist, PAOD-PRQ, PARD Mairi MacRae, Social Development Specialist (Gender and

Development), Social Sectors and Public Sector Management Division (PASP), PARD

Rafael R. Nadyrshin, Senior Procurement Specialist, Procurement Division 2, Procurement, Portfolio and Financial Management Departmenta

Noelle O’Brien, Principal Climate Change Specialist, Energy Division, PARD

Ellen E. Paul, Senior Country Officer, Office of the Director General, PARD

Ryan Bert C. Peralta, Associate Project Officer, PAUW, PARD Maria Carina Tinio, Economics and Statistics Analyst, PASP,

PARD Melinda T. Tun, Counsel, Office of the General Counsel Peer reviewer Ron H. Slangen, Principal Urban Development Specialist, Urban

Development and Water Division, Central and West Asia Department

a Outposted to the Papua New Guinea Resident Mission.

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

PROJECT AT A GLANCE

MAP

I. THE PROPOSAL 1

II. THE PROJECT 1

A. Rationale 1 B. Project Description 3 C. Value Added by ADB 5 D. Summary Cost Estimates and Financing Plan 5 E. Implementation Arrangements 6

III. DUE DILIGENCE 7

A. Technical 7 B. Economic and Financial Viability 7 C. Sustainability and Climate Change 8 D. Governance 8 E. Poverty, Social, and Gender 9 F. Safeguards 9 G. Summary of Risk Assessment and Risk Management Plan 10

IV. ASSURANCES 11

V. RECOMMENDATION 11

APPENDIXES 1. Design and Monitoring Framework 12 2. List of Linked Documents 15

Project Classification Information Status: Complete

PROJECT AT A GLANCE

Source: Asian Development BankThis document must only be generated in eOps. 10112020082200555123 Generated Date: 13-Nov-2020 14:45:13 PM

1. Basic Data Project Number: 53082-001Project Name Ebeye Solid Waste Management Project Department/Division PARD/PAUW

Country Marshall Islands, Republic of Executing Agency Ministry of Finance, Banking and Postal Services

Recipient Republic of Marshall Islands

Country Economic Indicators

https://www.adb.org/Documents/LinkedDocs/?id=53082-001-CEI

Portfolio at a Glance https://www.adb.org/Documents/LinkedDocs/?id=53082-001-PortAtaGlance

2. Sector Subsector(s) ADB Financing ($ million)Water and other urban infrastructure and services

Urban policy, institutional and capacity development 1.80

Urban solid waste management 4.70

Total 6.50

3. Operational Priorities Climate Change Information1

Addressing remaining poverty and reducing inequalities

Accelerating progress in gender equality

Tackling climate change, building climate and disaster resilience, and enhancing environmental sustainabilityMaking cities more livable

Strengthening governance and institutional capacity

GHG reductions (tons per annum) 2,688Climate Change impact on the Project

High

ADB Financing

Adaptation ($ million) 1.29

Mitigation ($ million) 0.00

Cofinancing

Adaptation ($ million) 0.00

Mitigation ($ million) 0.00

Sustainable Development Goals Gender Equity and MainstreamingSDG 5.aSDG 10.4SDG 11.6, 11.bSDG 12.4, 12.5SDG 13.a

Effective gender mainstreaming (EGM)

Poverty TargetingGeneral Intervention on Poverty

4. Risk Categorization: Low.

5. Safeguard Categorization Environment: B Involuntary Resettlement: C Indigenous Peoples: C

.

6. Financing

Modality and Sources Amount ($ million)

ADB 6.50

Sovereign Project grant: Asian Development Fund 6.50

Cofinancing 0.00

None 0.00

Counterpart 0.57

Government 0.57

Total 7.07

Currency of ADB Financing: US Dollar

1 The project reduces greenhouse gas emissions. However, it does not fall under the eligibility criteria for climate mitigation finance as defined by thejoint multilateral development bank methodology on tracking climate finance, which notes that not all activities that reduce greenhouse gases in the shortterm are eligible to be counted towards climate mitigation finance. Accordingly, greenfield fossil fuel projects are excluded, and climate mitigation financeis considered zero.

8°47′N 8°47′N

167°44′E

167°44′E

N O R T H P A C I F I C O C E A N

Ebon

Arno

Erikub

Jaluit MAJURO Mili

Aur

Maloelap

Namorik

Namu

Ailinglaplap

Wotje

Ujae

Wotho

Lae

Kwajalein

Ailinginae

Ujelang

Rongerik

Taka

Likiep

Ailuk

Utirik

Bikar

Taongi

RongelapBikiniEnewetak

Majuro

LIB JABAT

MEJIT

KILI Knox

Ebeye Island

S O U T H P A C I F I C O C E A N

N O R T H P A C I F I C O C E A N

NEWCALEDONIA

FRENCH POLYNESIA

GUAM

A U S T R A L I A

N E W Z E A L A N D

HAWAIINORTHERN

MARIANA ISLANDS

REPUBLIC OF

PALAU

FEDERATED STATES

OF MICRONESIA

K I R I B A T IPAPUA

NEW GUINEA

NAURU

VANUATU

FIJI

TUVALU

COOK

ISLANDS

SOLOMON

ISLANDS

TONGA

NIUE

SAMOA

MARSHALL ISLANDS

ADB'S DEVELOPING MEMBER COUNTRIES IN THE PACIFIC

Project Island

National Capital

Road

Manufactured Structure

Reef/Atoll

International Boundary

Boundaries are not necessarily authoritative.

EBEYE SOLID WASTE MANAGEMENT PROJECT

MARSHALL ISLANDS

2001000

Meters

N

200814B 20RMI ABV

This map was produced by the cartography unit of the Asian Development Bank. The boundaries, colors, denominations, and any other information shown on this map do not imply, on the part of the Asian Development Bank, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries, colors, denominations, or information.

DUMP SITE

I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed grant to the Republic of the Marshall Islands (RMI) for the Ebeye Solid Waste Management Project. 2. The project will establish a sustainable and effective solid waste management (SWM) system in Ebeye by (i) building a high-temperature incinerator and upgrading the dump site, (ii) upgrading and replacing equipment for municipal SWM, and (iii) strengthening institutional capacity to sustain SWM services. The project will help prevent the spread of transmissible diseases, including the coronavirus disease (COVID-19) and waterborne diseases, through improved medical waste disposal and strengthened medical waste management capacity. A project-readiness financing grant was approved in 2019 to prepare the project and expedite the smooth transition to project implementation.1

II. THE PROJECT A. Rationale 3. The RMI, in the northern Pacific Ocean, is composed of 29 coral atolls and 5 coral islands and has a population of about 53,000. The RMI is highly vulnerable to natural hazards and climate change impacts. It is classified as a fragile and conflict-affected situation.2 Unemployment is high and human development indicators are generally low. The RMI is heavily dependent on external assistance, with annual grants averaging about 60% of gross domestic product, mostly from the United States (US). RMI citizens can live and work in the US without a visa under the RMI’s Compact of Free Association with the US, and a significant portion of the working-age population leaves the RMI to pursue opportunities in the US. As a result, the RMI has a younger population than the rest of the Pacific. Ebeye, on Kwajalein Atoll, is the second-largest urban center in the RMI and one of the most densely populated places in the world, with about 10,000 people living in 0.31 square kilometers, placing pressures on urban services and creating social challenges.3 Because of substantial migration to the US, the population of Ebeye increased by only 0.4% per annum in 1999–2011.4 The island has no airport and most visitors arrive through the US Army Garrison Kwajalein Atoll. The US base is the major employer of Ebeye residents; other jobs are limited because of the lack of any industry. With the ongoing support of the Asian Development Bank (ADB), Ebeye residents receive improved water supply and sanitation services.5 Municipal SWM, however, remains one of the most serious challenges. 4. Waste generation and collection. Kwajalein Atoll Local Government (KALGOV) collects municipal solid waste (household, commercial, and office) 6 days a week. At least one garbage bin is provided to each household and waste from a household is collected 2–3 times a week. The solid waste is a mixture of food and organic waste, plastic, paper, metal, diapers, textile, and

1 Asian Development Bank (ADB). 2020. Project Readiness Financing Report: Proposed Grant to the Republic of the

Marshall Islands for Preparing Urban Service Improvement Projects. Manila. 2 ADB. Governance Issues: Fragile and Conflict-Affected Situations (FCAS). 3 ADB. 2015. Report and Recommendation of the President to the Board of Directors: Proposed Grant and

Administration of Grant to the Republic of the Marshall Islands for the Ebeye Water Supply and Sanitation Project. Manila.

4 Government of the Marshall Islands. 2012. The RMI 2011 Census of Population and Housing Summary and Highlights Only. Majuro.

5 Footnote 3; ADB. 2020. Additional Financing: Ebeye Water Supply and Sanitation Project in the Republic of the Marshall Islands. Manila.

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other waste.6 KALGOV collects about 8–12 tons per day of municipal solid waste, or 0.8–1.2 kilograms per person, and transports it to the only dump site in the island, without charging the users.7 KALGOV collects and disposes of most generated waste (90%); only a small portion is reused, as feed for livestock or as firewood. With financial support from donors, KALGOV has managed to provide basic municipal solid waste collection services, and it is planning to develop an SWM tariff framework to collect fees for SWM.8 5. Dump site and equipment. Operated by KALGOV since 2005, the only dump site covers 1.6 hectares in the north end of the island or about 5% of Ebeye. However, collected waste is piled randomly inside the site without any compacting. The dump site is a prime location for mosquito breeding, which led to a major outbreak of dengue fever in 2019.9 It is an environmental nuisance and leachate pollutes the lagoon. The dump site is in danger of being inundated because of sea-level rise resulting from climate change. It needs to be upgraded to a managed landfill if its life is to be extended. Waste collection and management vehicles and equipment operated by KALGOV are inadequate, and often severely damaged or not functional. The operating lifetime of such equipment is shortened by the harsh marine environment and lack of adequate and timely maintenance. The lack of replacement parts exacerbates the problem. KALGOV needs to develop and implement asset management with sufficient financing to maintain equipment performance. 6. Recycling in Ebeye and the solid waste management plan. To encourage recycling and reduce littering, the RMI introduced the Container Disposal Legislation (CDL) system in 2018. The CDL bans some single-use plastic products and introduced a refunding system for beverage containers so they can be sent to the Majuro Atoll Waste Company for recycling. While the necessary law and regulations are in place, KALGOV has not been able to implement the CDL.10 KALGOV approved the Kwajalein Atoll SWM Plan in 2018, which includes an integrated action plan for 2019–2023, to (i) improve waste reduction and recycling through the CDL, (ii) manage and improve the current final disposal dump site, (iii) sustain the operation and maintenance (O&M) of waste collection services, and (iv) improve the financial sustainability of SWM services. These actions require substantial investment. Given the scarcity of land available for a new landfill, KALGOV should take measures to reduce waste volume, extend the lifetime of the existing dump site, and achieve sustainable and effective SWM. 7. Medical waste management. Ebeye Hospital is the only hospital in Ebeye, with 45 beds and 80 staff members, serving the population of the Kwajalein Atoll.11 In 2014, the Secretariat of the Pacific Regional Environment Programme conducted a detailed study on medical waste management in the hospital, and the result showed that the system failed to meet most standards, such as having a waste management policy or a training plan for the staff.12 To improve its

6 Japan International Cooperation Agency. 2016. The Japanese Technical Cooperation Project for Promotion of

Regional Initiative on Solid Waste Management in Pacific Island Countries (J-PRISM) (Solid Waste Management C, D) Project Completion Report. Tokyo.

7 A survey conducted by ADB in 2020 and one by JICA in 2017 estimated varying average amounts of waste collected. ADB. Feasibility Study Report of the Ebeye Solid Waste Management Project. Unpublished; and KALGOV. 2018. Kwajalein Atoll Solid Waste Management Plan, 2019–2028 (Action Plan: 2019–2023). Kwajalein.

8 KALGOV passed Ordinance No. 2014-01 in August 2014 to charge a monthly solid waste collection fee from each household ($10) and business ($30), but no fee had been collected as of August 2020.

9 Commander, US Pacific Fleet. Navy Team Helps Ebeye Defend against Mosquitoes. 16 October. 10 KALGOV has taken some actions toward the implementation of CDL (e.g., an attempt to procure balers for aluminum

cans), but the progress has been limited and slow. It will require further capacity building (e.g., training to recycling officers, establishment of the refund system).

11 ADB. 1999. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Republic of the Marshall Islands for the Ebeye Health and Infrastructure Project. Manila.

12 Secretariat of the Pacific Regional Environment Programme. 2014. Baseline Study for the Pacific Hazardous Waste Management Project—Healthcare Waste in RMI. Apia.

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performance, Ebeye Hospital hired a private contractor in 2019 to manage and process its medical waste. While medical waste is segregated and managed by the contractor at a small temporary incineration unit, safety standards for handling and transporting medical waste need to be improved. The incinerator has limited capacity and performs to low environmental standards. The hospital needs assistance to reduce environmental and health hazards. 8. COVID-19 outbreak and impact. The RMI imposed strict travel restrictions and quarantine requirements early on that had been effective in keeping the country free of COVID-19 until the end of October. However, the country’s first two border cases of COVID-19 have been identified in the US base on the Kwajalein Atoll on 27 October 2020. Once the country reopens, the RMI will be further at risk of the rapid spread of COVID-19 because of the weak public health system. The RMI has received a large amount of personal protective equipment and medical goods for precautions and testing. In Ebeye, medical waste has increased significantly because of COVID-19 testing and prevention; globally, the amount of infectious medical waste has been increasing rapidly, overwhelming medical transport and disposal infrastructure.13 Additional waste management systems must be put in place to help manage the impact of COVID-19 and the emergence of other diseases.

B. Project Description

9. The government requested assistance from ADB to implement the Kwajalein Atoll SWM Plan for the proposed project, which is included in ADB’s country operations business plan for 11 small Pacific island countries, 2020–2022.14 The project will contribute to goals 5, 10, 11, 12, and 13 of the Sustainable Development Goals by reducing waste pollution in Ebeye and protecting the ocean from waste pollution.15 The project is aligned with ADB’s Strategy 2030, specifically operational priorities (OPs) 1, 2, 3, 4, and 6.16 The project is consistent with the strategic priorities of ADB’s Pacific Approach 2016–2020 to manage risk and enable value creation through urban infrastructure investment and ADB’s Oceans Financing Initiative. 17 Following other ADB support to the RMI in response to COVID-19, the project will reduce the environmental and health hazard of increased medical waste during the COVID-19 pandemic.18 10. The project is aligned with the following impact: efficient, effective, resilient, sustainable, and affordable services and facilities that promote sustainable economic growth provided.19 The project will have the following outcome: coverage and sustainability of integrated SWM service delivery improved in Ebeye. The project aims to improve the coverage of the sustainable SWM services to at least 8,400 people (85% of the population) in Ebeye, including at least 4,200 women (85% of the female population). Focusing on integrated municipal SWM and aligned with the Kwajalein Atoll SWM Plan, the project will have three outputs: 20

13 ADB. 2020. Managing Infectious Medical Waste during the COVID-19 Pandemic. Manila. 14 ADB. 2019. Country Operations Business Plan: 11 Small Pacific Island Countries, 2020–2022. Manila. 15 United Nations. Sustainable Development Goals Knowledge Platform. 16 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific.

Manila. OP1: tackling remaining poverty and reducing inequalities; OP2: accelerating progress in gender equality; OP3: mitigating climate change, building climate and disaster resilience, and boosting environmental sustainability; OP4: making cities more livable; and OP6: strengthening governance and institutional capacity.

17 ADB. 2016. Pacific Approach, 2016–2020. Manila; and ADB. ADB Oceans Financing Initiative. 18 ADB support to the RMI includes ADB. 2020. Grant Agreement (Asia Pacific Disaster Response Fund) for Grant

0692-RMI: COVID-19 Emergency Response; and ADB. 2020. ADB Announces More Than $13 Million in Grants to Help Pacific Combat COVID-19. News release. 30 July.

19 Government of the Marshall Islands. 2020. National Strategic Plan 2020–2030. Majuro. 20 The design and monitoring framework is in Appendix 1. The preparation of the project design was partly supported

by regional technical assistance. ADB. 2016. Technical Assistance for Strengthening Urban Infrastructure Investment Planning in the Pacific. Manila.

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11. Output 1: A high-temperature incinerator constructed, and waste disposal site and recycling facility upgraded. The project will accomplish the following:

(i) Upgrade the existing dump site and construct a seawall along the site’s shoreline. The dump site will be converted to a managed landfill for installation and operation of the incinerator and disposal of the bottom ash and construction waste. Existing solid waste will be shaped into a mound and covered with a layer of material in accordance with the RMI SWM regulations. The seawall to be constructed in the western and northern part of the dump site will be about 270 meters long and stop inundation and prevent solid waste from polluting the lagoon.

(ii) Construct a high-temperature incinerator capable of burning 9–13 tons a day in the landfill site using a design–build–manage contract. The incinerator will process all the municipal solid waste in Ebeye and generate bottom ash. The contractor will be responsible for the performance of the incinerator and the training of the KALGOV staff. KALGOV will undertake the daily operation and the contractor will provide remote monitoring and management. In response to COVID-19, the project will ensure that the incinerator will process hazardous medical waste and menstrual waste properly.

(iii) Construct a recycling facility house in the landfill site to store recycling equipment procured by KALGOV.

12. Output 2: Municipal solid waste collection, transport, and disposal operations improved. The project will (i) upgrade and replace vehicles and equipment for solid waste collection, transport, and disposal; and (ii) replace waste collection containers for more efficient operation. KALGOV will adopt cost-effective procurement to ensure the sustainability of vehicles and equipment, such as a multiyear maintenance and repair service agreement for the purchased equipment. In response to COVID-19, specific equipment and supplies will be procured in a timely manner for safe medical waste management, including waste classification, segregation, storage, transport, and disposal. The project will help Ebeye Hospital and its contractor strengthen the existing medical waste management system, starting from the period before construction until the operation of the incinerator, including the first 12 months of project implementation. 13. Output 3: Institutional capacity to sustain solid waste management service delivery and local engagement strengthened. The project will accomplish the following:

(i) Improve the technical capacity of KALGOV, develop and implement a waste collection and transport plan,21 develop and implement an operation plan for the managed waste landfill, and formulate and implement an asset management plan for vehicles and equipment for waste management. The asset management plan will cover O&M of equipment and provisions to secure funding for O&M and capital equipment replacement, and build KALGOV’s capacity KALGOV to implement the CDL.

(ii) Improve KALGOV’s financial sustainability to maintain the services. The project will develop and implement a gender-sensitive institutional reform plan for KALGOV, including actions to support women in leadership and/or technical positions, and help KALGOV develop and implement the SWM tariff framework. As practiced in many countries, an SMW tariff can be charged and collected with the electricity tariff, which exists in Ebeye and has a high collection ratio.

21 Collection operations to be reviewed include operational and safety procedures for collection workers. The plan

covers disaster risk management, including measures to be taken in response to inundation and overtopping.

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(iii) Conduct a gender-sensitive public-awareness campaign on “reduce, reuse, recycle,” and increase public understanding of the importance of paying fees for sustainability.

14. In response to COVID-19, the project will start strengthening institutional capacities for proper handling and management of medical waste within the first 12 months of project implementation. The project will review the current medical waste management procedures, roles and responsibilities, and budget of Ebeye Hospital; develop new medical waste management procedures for the hospital; and design and implement training for the hospital staff and contractors who handle medical waste. C. Value Added by ADB 15. ADB’s value added includes (i) bringing project-readiness financing to accelerate project readiness and build the project implementation capacity of KALGOV and Ministry of Works, Infrastructure, and Utilities (MWIU); (ii) strengthening gender mainstreaming and KALGOV capacity building; and (iii) dealing with medical waste related to COVID-19 in a timely manner. Lessons from previous ADB operations in the urban sector have been incorporated into the project design, including the importance of (i) highlighting financial and technical sustainability, (ii) ensuring that climate-proof designs are adopted, and (iii) ensuring urban service demand and willingness to pay. SWM is a major issue in most island countries. The project will set up integrated SWM, including waste recycling and a pilot sustainable small-scale incinerator. If the project is successful, ADB will work with island country governments to expand integrated SWM in the Pacific, covering ocean waste management and contributing to ocean health initiatives. D. Summary Cost Estimates and Financing Plan 16. The project is estimated to cost $7.067 million (Table 1). Detailed cost estimates by expenditure category and by financier are included in the project administration manual (PAM).22

Table 1: Summary Cost Estimates ($'000)

Item

Description

Amounta

Share of Total (%)

A. Base Cost

Output 1: A high-temperature incinerator constructed, and waste disposal site and recycling facility upgraded

3,748 53.0

Output 2: Municipal solid waste collection, transport, and disposal operations improved

736 10.4

Output 3: Institutional capacity to sustain SWM service delivery and local engagement strengthened

1,885 26.7

Subtotal (A) 6,369 90.1

B. Contingenciesb 698 9.9 Total (A+B) 7,067 100.0

SWM = solid waste management. a Including taxes and duties of $0.57 million. The government will finance all taxes and duties by exempting those

applicable in the Republic of the Marshall Islands. Such amount does not represent an excessive share of the project cost. In mid-2020 prices as of 20 September 2020.

b Physical contingencies computed at 9.4%. Price contingencies computed at an average of 1.7% on foreign exchange costs and 0.8% on local currency costs. External audit costs are eligible for financing under the project.

Source: Asian Development Bank estimates.

22 Project Administration Manual (accessible from the list of linked documents in Appendix 2).

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17. The government has requested a grant not exceeding $6,500,000 from ADB’s Special Funds resources (Asian Development Fund) to help finance the project. The summary financing plan is in Table 2. The government will finance the remaining costs of $567,000 equivalent, including the financing of taxes and duties through exemptions. 18. Climate adaptation is estimated to cost $1.29 million. ADB will finance 100% of adaptation costs. Costs for (i) the construction of a seawall, (ii) management of stormwater at the site, (iii) organization and covering of existing waste, and (iv) construction of the metal beam structure on which the incinerator is to be built are considered adaptation financing (footnote 22).

Table 2: Summary Financing Plan Source Amount ($'000) Share of Total (%)

Asian Development Bank Special Funds resources (Asian Development Fund)a 6,500 92.0 Government 567 8.0

Total 7,067 100.0 a Of the $6,500,000 funded by the Asian Development Fund, $1,500,000 will be funded through the corporate pool for

coronavirus disease (COVID-19) responses. Source: Asian Development Bank estimates.

E. Implementation Arrangements 19. The Ministry of Finance, Banking, and Postal Services will be the executing agency for the project, and MWIU will be the implementing agency. 23 A project implementation unit (PIU) composed of officials from MWIU will be set up to manage day-to-day project activities, including procurement of civil works, materials and equipment, and consulting services. 20. COVID-19. The country’s borders have been closed since March 2020 in response to the COVID-19 pandemic. The pandemic’s duration is uncertain, but the reopening of the country is envisaged to be in stages. The government has prioritized the project to help manage the impact of COVID-19 and support economic recovery. The 7-year implementation period will provide some flexibility for delays in access to the RMI and supply chains. The implementation arrangements are summarized in Table 3 and described in detail in the PAM (footnote 22).

Table 3: Implementation Arrangements Aspects Arrangements

Implementation period January 2021–December 2027

Estimated completion date 31 December 2027

Estimated grant closing date 30 June 2028

Management

(i) Oversight body Project steering committeea (ii) Executing agency Ministry of Finance, Banking, and Postal Services

(iii) Implementing agency Ministry of Works, Infrastructure, and Utilities

(iv) Implementation unit Project implementation unit: (i) head: secretary of works, infrastructure, and utilities; (ii) project implementation assistance consultant; (iii) financial management specialist (consultant); and (iv) construction monitoring consultant. MWIU may allocate additional personnel to the Project Implementation Unit from its staff as needed and if staff members are available.

23 In light of the continuity from the project readiness financing, MWIU is identified as the implementing agency.

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Aspects Arrangements

Procurement Open competitive bidding 2 contracts $3.40 million

Request for quotations 4 contracts $0.68 million

Consulting Services ICS 100 person-months $1.64 million

QCBS 1 contract $0.08 million

Advance contracting Goods and works, and consulting services

Disbursement The grant proceeds will be disbursed following ADB's Loan Disbursement Handbook (2017, as amended from time to time) and detailed arrangements agreed between the government and ADB.

ADB = Asian Development Bank; ICS = individual consultant selection; KALGOV = Kwajalein Atoll Local Government; MWIU = Ministry of Works, Infrastructure, and Utilities; PIU = project implementation unit; QCBS = quality- and cost-based selection. a Comprising representatives from the Ministry of Finance, Banking, and Postal Services; the Ministry of Works,

Infrastructure, and Utilities; the Kwajalein Atoll Local Government; the Environmental Protection Authority; and civil society.

Source: Asian Development Bank.

III. DUE DILIGENCE

A. Technical 21. The project design represents a technically viable approach to SWM based on various donors’ feasibility studies, technology alternatives, cost estimates, and site investigations. Integrated SWM is recommended to adequately extend the lifetime of the landfill, sustain the SWM service, and minimize the impact on ocean health. The incinerator will reduce solid waste volume by about 95% and weight by 80%. As the thermal combustion of the waste in a controlled environment prevents the release of methane into the atmosphere, which occurs during decomposition of organic waste at the dump site, incineration will significantly reduce greenhouse gas emissions (GHG) and, therefore, has considerable environmental benefits. The incinerator’s capacity will be greater than existing solid waste production. Such capacity will provide flexibility to combust more solid waste if the urban population increases or it becomes necessary to reduce volume of existing waste at the site. Comparing the current disposal at the dump site, Incineration of the present quantity of waste will reduce GHG emissions by about 73% or 2,688 tons carbon dioxide equivalent annually.24 B. Economic and Financial Viability

22. Economic analysis. The economic rationale for the government’s intervention is solid, as the project will provide sustainable urban basic SWM services. A least-cost analysis was conducted instead of a cost–benefit analysis because quantifying the project’s economic benefits was difficult.25 The assumed alternative was that KALGOV would transport waste to Majuro as the Ebeye dump site could no longer take in additional waste. This option presupposes that Majuro has either a managed landfill or a high-temperature incinerator, although it has neither. Using a 6.0% discount rate deemed appropriate for a project with significant environmental benefits and in a small, fragile island economy, the least-cost analysis indicated that the project is the least-cost option. The analysis noted that the project will yield significant unquantifiable benefits such as reduced incidence of diseases, translating to avoided medical costs and lost productivity; environmental improvements, including greenhouse gas emissions and benefits from upgraded handling of hazardous medical waste; and additional income from service charges and resale of recyclable materials recovered during waste collection.

24 KfW’s Solid Waste Management Greenhouse Gas Calculator was used to estimate GHG emissions for incineration

and to compare the emissions with the current situation base case. 25 Economic Analysis (accessible from the list of linked documents in Appendix 2).

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23. Financial analysis. A financial analysis was conducted for the project in accordance with ADB’s guidelines.26 While the project will support the establishment of a waste tariff framework enabling KALGOV to collect fees and cover part of O&M costs, KALGOV can fully cover the incremental O&M costs over the incinerator’s 15-year useful life only assuming that KALGOV receives continued financial support from the national government (sourced from US grants under the Compact of Free Association), the Kwajalein Impact Fund, and other potential funding sources.27 Substantial risk accrues to project financial sustainability, arising from (i) insufficient tariff revenue for O&M; and (ii) dependence on limited national budgetary allocations and external grants, and changing national priorities. To mitigate this risk, regular annual budget allocations for O&M costs need to be allocated by the central government. ADB will provide continuous support under the project to build KALGOV’s financial management capacity. C. Sustainability and Climate Change 24. Sustainable operation and maintenance. The O&M responsibility for the incinerator will be shared by KALGOV and the contractor, which will build KALGOV’s capacity and minimize the contractor’s personnel requirement. Building the KALGOV staff’s capacity related to, and raising the public’s awareness of, integrated SWM will strengthen the SWM chain for long-term sustainability. The government will undertake regular and periodic maintenance of the project facilities in accordance with the project’s asset management plan and make adequate resources available through budgetary allocations for O&M of the project facilities. 25. Climate and climate change resilience. Given the island’s exposure to the sea, sea-level rise, and climatic hazards, a climate risk assessment was prepared. 28 To ensure the technical sustainability of the infrastructure, climate and climate change–proofed approaches will be embedded in the project. A seawall will be built to adapt to sea-level rise, protect infrastructure, and prevent solid waste from sliding into the lagoon. Climate and climate change hazards will be thoroughly analyzed as part of the detailed design. Climate and disaster risk measures will be incorporated into the waste collection and transport plan under output 3. If successful, the project will help expand integrated SWM to the Pacific and contribute to ADB’s Action Plan for Healthy Oceans and Sustainable Blue Economies.29 D. Governance 26. The financial management assessment was conducted in June and July 2020, in accordance with ADB’s Financial Management Technical Guidance Note and Financial Due Diligence: A Methodology Note.30 The assessed pre-mitigation financial management risk is high mainly because of the key risks for project implementation, such as limited staff resources, high staff turnover, weak capacity, inadequate financial management system, and lack of internal audit capacity. To mitigate these risks, a dedicated PIU will be established for day-to-day project implementation and management. The MWIU secretary will be the PIU head and certify all eligible payments (invoices and progress claims). A project implementation assistance consultant, a financial management specialist, and a construction monitoring consultant will be recruited to staff

26 ADB. 2019. Financial Analysis and Evaluation Technical Guidance Note. Manila; and Financial Analysis (accessible

from the list of linked documents in Appendix 2). 27 The Kwajalein Impact Fund is a part of the US grants under the Compact of Free Association. 28 Climate Change Assessment (accessible from the list of linked documents in Appendix 2). 29 ADB. 2019. Action Plan for Healthy Oceans and Sustainable Blue Economies. Manila. 30 ADB. 2009. Financial Due Diligence: A Methodology Note. Manila; and ADB. 2015. Financial Management Technical

Guidance Note. Manila.

9

the PIU. MWIU may allocate additional personnel to the PIU from its staff as needed and if staff members are available. The financial management specialist will provide internal audit for project activities. An external auditor will be recruited to audit project accounts and prepare audited project financial statements. 27. ADB’s Anticorruption Policy (1998, as amended to date) was discussed with the government and the Ministry of Finance, Banking, and Postal Services. The specific policy requirements and supplementary measures are described in the PAM (footnote 22). E. Poverty, Social, and Gender 28. The project is classified as having effective gender mainstreaming. Overall, women are largely responsible for managing household waste and the negative health and environmental impacts of poor waste management (e.g., caring for sick family members). Menstrual hygiene and menstrual waste disposal are considered taboo and rarely discussed. Women’s labor force participation is low, with only 26% of women working for pay compared with 48% of men. Women are largely employed in finance and administrative roles and few in technical roles. No women work in technical roles in KALGOV. A gender action plan has been developed to ensure women’s participation in the project and access to project benefits.31 Gender design features include provision of continuous solid waste collection services for at least 8,400 people in Ebeye and surrounding communities, including at least 4,200 women and 200 households headed by women. A new solid waste collection and disposal operation plan will deal with women’s and girls’ issues and recommendations, including menstrual hygiene and waste management. The gender action plan will include women in SWM training, encourage them to apply for new positions, and hire and train them in KALGOV during project operations. Raising high school girl students’ awareness of menstrual health and hygiene will be emphasized. F. Safeguards 29. In compliance with ADB’s Safeguard Policy Statement (2009), the project’s safeguard categories are as follow:32 30. Environment (category B). The project is expected to bring significant positive impacts, including improved public health, because of reduced odor and vector-borne diseases; cleaner near-field marine waters because of better managed stormwater runoff and reduced waste at the dump site; and improved integrated waste management through better operational control and disposal of solid waste. The project’s major civil works components, comprising improved landfill operations and introduction of a high-temperature incinerator system, are consistent with the requirements of ADB’s Safeguard Policy Statement and RMI environmental regulations. 33 The impacts of civil works are site-specific, largely limited to the construction footprint, and can be mitigated and managed to acceptable levels, provided the measures identified in the initial

31 Gender Action Plan (accessible from the list of linked documents in Appendix 2). 32 ADB. Safeguard Categories. 33 The rated heat input capacities of incinerators considered for the project are below the range required by the

International Finance Corporation’s Environmental, Health, and Safety Guidelines (2007). The European Union's guidelines on the limitation of emissions of certain pollutants note that "the emission limit values set out in Annex II should not apply to medium combustion plants located in the Canary Islands, French Overseas Departments, the Azores and Madeira, because of the technical and logistical issues associated with such plants' isolated location." This note will apply to the RMI. EUR-Lex. The Directive (EU) 2015/2193 of the European Parliament and of the Council.

10

environmental examination and environmental management plan (EMP)34 are implemented, monitored, and reported. Monitoring will cover the preconstruction, construction, and operational phases. The EMP requirements and provisions for environmental protection and management will be incorporated into the bid documents for civil works and the construction contract. The contractors will prepare their construction EMP based on the project EMP, and detail their construction methodology and approach to the main construction elements, risk assessment, and mitigation measures. 35 Effective environmental management, monitoring, and reporting responsibilities will be ensured by PIU environmental experts, who will (i) review and clear the construction EMP before any physical works start; (ii) regularly monitor compliance to ensure that all works are implemented in accordance with the approved initial environmental examination, EMP, and construction EMP; and (iii) report on monitoring results—particularly construction EMP implementation, effectiveness of environmental impact mitigations, and the necessary corrective actions—and provide inputs to the project quarterly progress reports and semiannual safeguard monitoring reports. 31. Involuntary resettlement (category C). The project will neither require additional land acquisition nor have any involuntary resettlement impacts. A due diligence report has been prepared. 32. Indigenous peoples (category C). The project is not expected to have impacts on indigenous peoples. The project due diligence confirmed that the people of Ebeye do not meet the ADB criteria (distinctiveness and vulnerability) of indigenous peoples; thus, the project will not directly or indirectly affect the dignity, human rights, livelihood systems, or culture of indigenous peoples. G. Summary of Risk Assessment and Risk Management Plan 33. Significant risks and mitigating measures are summarized in Table 4 and described in detail in the risk assessment and risk management plan.36

Table 4: Summary of Risks and Mitigating Measures Risks Mitigation Measures Country-specific: Weak predictability and control in budget implementation and expenditure; limited accountability of government offices to act on audit findings.

ADB will continue to support the RMI’s effort to improve public financial management through an ongoing project.a

Entity-specific: Lack of financial management capacity to assist the PIU.

Difficulties in finding qualified and experienced financial staff members familiar with ADB project financial management and loan disbursement procedures.

The project includes the contracting of a financial management specialist for project financial management.

A highly experienced financial specialist recruited under the project readiness financing will start working on the project within 3 months of grant effectiveness and train MWIU in financial management and ADB disbursement and financial management requirements.b

34 Initial Environmental Examination (accessible from the list of linked documents in Appendix 2). 35 The construction EMP will include a health and safety plan aligned with World Health Organization. 2020.

Considerations for Public Health and Social Measures in the Workplace in the Context of COVID-19. 36 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

11

Risks Mitigation Measures Inadequate capacity in the internal audit department of MWIU, which may result in greater risk of fraud and corruption.

Accounting policies and procedures for the project are inadequate. Account and bank reconciliations are not performed in a timely manner.

Asset management systems and allocation of budget for O&M are inadequate and not implemented.

MWIU has no internal audit department to conduct tests of internal control processes. The Ministry of Finance will be requested to extend this function to the PIU.

A financial management specialist will be posted to the PIU to ensure proper recording of transactions, record keeping, reconciliations, and financial statement preparation.

The project financial specialist consultant will set up and implement an asset management plan and system. The consultant will train and support relevant KALGOV staff members.

Delays in setting up a solid waste tariff policy pose a high risk to financial and operational sustainability.

The project includes support for policy dialogue on solid waste tariff policy. The consultant teams will help KALGOV set up a tariff structure and policy to achieve partial O&M cost recovery. The government will ensure that KALGOV has sufficient funds to cover O&M costs.

Procurement: Lack of awareness of ADB’s procurement procedures will increase the risk of fraud and corruption.

The PIU will be supported by a procurement specialist trained in ADB procedures; anti-fraud and anticorruption clauses will be included in procurement documents.

ADB = Asian Development Bank; KALGOV = Kwajalein Atoll Local Government; MWIU = Ministry of Works, Infrastructure and Utilities; O&M = operation and maintenance; PIU = project implementation unit. a ADB. 2017. Report and Recommendation of the President to the Board of Directors: Proposed Grant to the Republic of

the Marshall Islands for the Public Financial Management Project. Manila. b ADB. 2020. Project Readiness Financing Report: Proposed Grant to the Republic of the Marshall Islands for Preparing

Urban Service Improvement Projects. Manila. Source: ADB.

IV. ASSURANCES 34. The government and the Ministry of Finance, Banking, and Postal Services have assured ADB that implementation of the project shall conform to all applicable ADB requirements, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, financial management, and disbursement as described in detail in the PAM and grant documents. 35. The government and the Ministry of Finance, Banking, and Postal Services have agreed with ADB on certain covenants for the project, which are set forth in the draft grant agreement.

V. RECOMMENDATION 36. I am satisfied that the proposed grant would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the grant not exceeding $6,500,000 to the Republic of the Marshall Islands from ADB’s Special Funds resources (Asian Development Fund) for the Ebeye Solid Waste Management Project, on terms and conditions that are substantially in accordance with those set forth in the draft grant agreement presented to the Board.

Masatsugu Asakawa President

13 November 2020

12 Appendix 1

DESIGN AND MONITORING FRAMEWORK Impact the Project is Aligned with Efficient, effective, resilient, sustainable, and affordable services and facilities that promote sustainable economic growth provided (National Strategic Plan 2020–2030)a

Results Chain Performance Indicators with Targets and Baselines

Data Sources and Reporting Mechanisms Risks

Outcome By 2028: Coverage and sustainability of integrated SWM service delivery improved in Ebeye

Coverage a. At least 8,400 people (85% of the population) in Ebeyeb covered by the sustainable waste management services, including at least 4,200 women (85% of the female population) (2020 baseline: Of 7,226 people surveyed, at least 6,114 people covered by the collection service by KALGOVc) (RFI A, B)

a.–c. PIU quarterly reports

Delays in the implementation of a solid waste tariff policy might elevate risks to financial and operational sustainability.

Sustainability b. At least 2,200 tons/year of waste, including menstrual and medical waste, incineratedd (2020 baseline: 0)

c. KALGOV recovers at least 25% of its operational cost from user charges (2020 baseline: Not applicable)

d. Total annual greenhouse gas emissions from the dump site reduced by 2,688 tCO2 equivalent/year (2020 baseline: 3,677 tCO2 equivalent/year) (RFI C)

Outputs By 2027:

1. A high-temperature incinerator constructed, and waste disposal site and recycling facility upgraded

1a. A 9–13 tons/day high-temperature incinerator, with the capacity to incinerate menstrual and medical waste safely, constructed and operated using a DBM contract with a 5-year management contract (2020 baseline: No high-temperature incinerator) (RFI D)

1a.–d. PIU quarterly reports

Logistics and price surges of materials are beyond projections due to the COVID-19 pandemic, which might result in cost overruns and delays in project implementation.

1b. A 270-meter seawall constructed along the western and northern shorelines of the landfill site (2020 baseline: 0)

1c. The dump site converted into a managed landfill with a new recycling facility (2020 baseline: Not applicable)

1d. After the installation of the incinerator, at least three women hired and trained for 12 targeted new positions in the incinerator or landfill operations, e.g., waste sorter, thermal plant operator, and workers (Baseline: 0)

2. Municipal solid waste collection, transport, and disposal operations improved

2a. At least 1,020 households in Ebeye (85% of the total households) equipped with wheelie bins with lids and whose waste is collected at least twice a week, including 200 households headed by women (90% of the households headed by women) (2020 baseline: Of 850 households surveyed, 703 households covered, including 137 households headed by womenc)

2a.–c. PIU quarterly reports

2b. One 8 m3 new waste compactor truck purchased and one compact track loader for the operation of the incinerator purchased and operated with spare parts under a 5-year maintenance and repair service agreement (2020 baseline: One old 12.2 m3 compactor truck operated)

2c. Ebeye Hospital receives COVID-19 enhanced and sustainable medical waste collection service (2020 baseline: Not applicable)

Appendix 1 13

Results Chain Performance Indicators with Targets and Baselines

Data Sources and Reporting Mechanisms Risks

3. Institutional capacity to sustain SWM service delivery and local engagement strengthened

Supply-side capacity. For KALGOV’s sustainable operation and maintenance of collection and disposal services and assets:

3a.–e. PIU quarterly reports

3a. A gender-sensitive solid waste collection and disposal operation plan developed and implementede (2020 baseline: Not applicable)

Supply-side capacity. For KALGOV’s sustainable financial management:

3b. An SWM tariff framework established and operational, and a lower tariff levied on poor households, including all households headed by women (2020 baseline: Not applicable) (RFI E)

Demand-side capacity. For community awareness raising:

3c. At least 80% of the Ebeye population, 50% of whom are women, participate in knowledge events and report increased awareness of anti-littering regulations, 3R, handling of batteries, and waste segregation (2020 baseline: 0)

3d. At least 80% of all high school female students in Ebeye receive training in menstrual health and hygiene (including proper menstrual waste disposal and use of reusable pads) and report increased knowledge and awareness on the subject (2020 baseline: 0)

3e. COVID-19–related medical waste management procedures improved and at least 80% of Ebeye Hospital staff members (and 80% of women personnel) receive training and report improved knowledge of and skills in proper handling and disposal of hazardous waste, and in maintaining the safety of patients, personnel, and community (2020 baseline: 0)

Key Activities with Milestones 1. A high-temperature incinerator constructed, and waste disposal site and recycling facility upgraded

1.1 Prepare DBM and civil works bid documents (Q1–Q2 2021). 1.2 Invite and evaluate bids (Q3–Q4 2021). 1.3 Award DBM and civil works contracts (Q4 2021). 1.4 Construct works and install equipment (Q4 2021–Q2 2023). 1.5 Commission, operate, and manage the incinerator (Q2 2023–Q4 2027). 1.6 Train KALGOV staff in daily operation of the incinerator (Q1 2024).

2. Municipal solid waste collection, transport, and disposal operations improved

2.1 Commence procurement of waste collection trucks and heavy machinery for waste treatment operations (Q1 2021).

2.2 Evaluate quotations (Q3 2021). 2.3 Deliver equipment (Q3 2021–Q2 2022). 2.4 Procure 1,500 wheelie bins with lids and 40 wheeled containers with lids (Q3 2022). 2.5 Commence procurement of medical waste-handling equipment (Q1 2022). 2.6 Evaluate quotations (Q3 2022). 2.7 Deliver goods and equipment (Q3 2022–Q2 2023).

3. Institutional capacity to sustain SWM service delivery and local engagement strengthened

3.1 Recruit individual consultants (Q3 2021). 3.2 Field project implementation assistance consultant, financial management specialist, construction monitoring

consultant, and medical waste management specialist (Q4 2021–Q3 2023). 3.3 Recruit nongovernment organization (Q1 2023). 3.4 Field community engagement specialist, community engagement officer (Q4 2021–Q2 2024).

14 Appendix 1

3.5 Field nongovernment organization (Q1 2023–Q2 2024).

Project Management Activities Set up the PIU (Q4 2021). Prepare and submit quarterly project progress reports. Inputs Asian Development Bank: $6.50 million (grant) Government of the Republic of the Marshall Islands: $0.57 million

Assumptions for Partner Financing Not applicable

3R = reduce, reuse, recycle; COVID-19 = coronavirus disease; DBM = design–build–manage; KALGOV = Kwajalein Atoll Local Government; m3 = cubic meter, PIU = project implementation unit, RFI = results framework indicator; Q = quarter, SWM = solid waste management. a Government of the Marshall Islands. 2020. National Strategic Plan 2020–2030. Majuro. b The project covers the following communities of the Kwajalein Atoll: Ebeye Zones 1–5, Ebwaj, Gugeegue

(Guegeegue), North Loi, and South Loi. c The baseline data are based on a survey of 850 households in Ebeye conducted in June 2020. d This translates to 0.7 kg of waste generated per person per day. e “Gender sensitive” means ensuring consultation with women and girls and incorporating key issues and

recommendations into the guidelines, including specific guidelines on menstrual waste management. Contribution to the Asian Development Bank Results Framework: RFI A: People benefiting from strengthened environmental sustainability (number). Target: 8,400 (including at least 4,200 women) RFI B: People benefiting from improved services in urban areas (number). Target: 8,400 (including at least 4,200 women) RFI C: Total annual greenhouse gas emissions reduction (tCO2 equivalent/year). Target: 2,688 tCO2 equivalent/year RFI D: Zones with improved urban environment, climate resilience, and disaster risk management (number). Target 1 RFI E: Entities with improved urban planning and financial sustainability (number). Target: 1 Source: Asian Development Bank.

Appendix 2 15

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=53082-001-2

1. Grant Agreement 2. Sector Assessment (Summary): Water and Other Urban Infrastructure and Services 3. Project Administration Manual 4. Financial Analysis 5. Economic Analysis 6. Summary Poverty Reduction and Social Strategy 7. Risk Assessment and Risk Management Plan 8. Climate Change Assessment 9. Gender Action Plan 10. Initial Environmental Examination Supplementary Documents 11. Due Diligence Report 12. Financial Management Assessment