Building Efficient and Low-Carbon Rural Settlements in ... · Building Efficient and Low-Carbon Rural Settlements in Uzbekistan. Uzbekistan | United Nations Development Programme

Building Efficient and Low-Carbon Rural Settlements in Uzbekistan

Uzbekistan | United Nations Development Programme (UNDP)

17 August 2017

Project/Programme Title: Building Efficient and Low-Carbon Rural Settlements inUzbekistan

Country/Region: Uzbekistan

Accredited Entity: UNDP

National Designated Authority: Centre of Hydrometeorological Service at the Cabinet ofMinisters of the Republic of Uzbekistan (Uzhydromet)

PROJECT / PROGRAMME CONCEPT NOTE GREEN CLIMATE FUND | PAGE 1 OF 51

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A. Project / Programme Information A.1. Project / programme title Building Efficient and Low-Carbon Rural Settlements in Uzbekistan

A.2. Project or programme Project

A.3. Country (ies) / region Republic of Uzbekistan A.4. National designated authority(ies)

Centre of Hydrometeorological Service at the Cabinet of Ministers of the Republic of Uzbekistan (Uzhydromet)

A.5. Accredited entity UNDP

A.6. Executing entity / beneficiary

Executing Entity: State Committee on Architecture and Construction of the Republic of Uzbekistan (Gosstroy)

Beneficiaries: rural families (estimated 30,388 individual family houses/apartments in multi-apartment rural houses for rural households and 151,940 people directly and at least 62,000 homes and 310,000 people indirectly during the project period); private companies providing energy-efficient products and services; companies providing renewable energy technologies; architects; mortgage providers; and Gosarchitectstroy (central and regional offices)

A.7. Access modality Direct ☐ International ☒

A.8. Project size category (total investment, million USD) Micro (≤10) ☐ Small (10<x≤50) ☐ Medium (50<x≤250) ☒ Large (>250) ☐

A.9. Mitigation / adaptation focus Mitigation ☒ Adaptation ☐ Cross-cutting ☐

A.10. Public or private public

A.11. Results areas (mark all that apply)

Which of the following targeted results areas does the proposed project address?

Reduced emissions from: ☒ Energy access and power generation

(E.g. on-grid, micro-grid or off-grid solar, wind, geothermal, etc.)

☐ Low emission transport (E.g. high-speed rail, rapid bus system, etc.)

☒ Buildings, cities, industries and appliances (E.g. new and retrofitted energy-efficient buildings, energy-efficient equipment for companies and

supply chain management, etc.)

☐ Forestry and land use (E.g. forest conservation and management, agroforestry, agricultural irrigation, water treatment and management, etc.)

Increased resilience of: ☐ Most vulnerable people and communities

(E.g. mitigation of operational risk associated with climate change – diversification of supply sources and supply chain management, relocation of manufacturing facilities and warehouses, etc.)

☐ Health and well-being, and food and water security (E.g. climate-resilient crops, efficient irrigation systems, etc.)

☐ Infrastructure and built environment (E.g. sea walls, resilient road networks, etc.)

☐ Ecosystems and ecosystem services (E.g. ecosystem conservation and management, ecotourism, etc.)

A.12. Project life span Six years (72 months)

A.13. Estimated implementation start and end date

Start: 6/2018 End: 5/2024

1 Please use the following naming convention for the file name: “[CN]-[Agency short name]-[Date]-[Serial number]” (e.g. CN-ABC-20150101-1).

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B. Project/Programme Details

The Fund requires the following preliminary information in order to promptly assess the eligibility of project/programme investment. These requirements may vary depending on the nature of the project/programme.

B.1. Project / programme description (including objectives)

Objective

The proposed project seeks to transform new rural settlements in Uzbekistan into energy-efficient low-carbon communities while significantly reducing greenhouse gas (GHG) emissions.2 Support for an upstream approach to green procurement of energy-efficient low-carbon building- and village-level energy solutions, in parallel with financial incentives and enabling policies, will put Uzbekistan’s rural communities on a new, scalable trajectory. The implementation of this new approach will lead to sizable GHG emission reductions – approximately 1 million tCO2eq reduced or avoided during the 6-year project implementation period and nearly 4.9 million tCO2eq over an assumed technology and materials lifetime of 20 years – while ensuring that the country does not lock into inefficient buildings in this rapidly growing rural housing market. The project will benefit from at least USD 183 million in additional private and public sector funding in the form of financing from national funds committed from the national budget, the Islamic Development Bank (IsDB); and Asian Development Bank (ADB). Additional investments in rural buildings and infrastructure, and private equity in the form of mortgage down payments and mortgage payments from homebuyers, will also be leveraged. A focus on entire rural settlements will allow the project to capture economies of scale when proposing energy solutions thereby generate greater GHG emissions reductions in the most cost effective manner possible. Significant co-benefits of the proposed project include improved access to energy, green job creation and energy security.

Overview

Globally, GHG emissions from the building sector have more than doubled since 1970 to reach 9.18 GtCO2e in 2010, representing 19% of all global GHG emissions. The building sector offers the greatest abatement potential: increasing the energy-efficiency of buildings has an estimated mitigation potential of 3.3-4 GtCO2e/year. The countries in Eastern Europe and Central Asia have some of the world’s highest levels of per capita energy use in buildings.

In Uzbekistan, a lower middle-income country, residential buildings consume the largest amount of energy and are responsible for half of all energy-related GHG emissions (approximately 80 million tCO2e annually). With growth of new construction, residential energy consumption is projected to rise by over 30% by 2050. Figure 1 shows the housing stock’s projected need for space heating – which is the primary driver of residential energy demand – from 2010 to 2050. Continued investment in inefficient housing will lock Uzbekistan into a high emission trajectory, threaten national energy security and contribute to global GHG emissions.

Rural housing is particularly important because it dominates new housing construction: 76% of new housing in Uzbekistan is in rural areas. Half of the country’s population (~16.8 million people) currently live in rural areas. Of these, approximately 4.5 million people (~1.5 million families) also need improved living conditions.3 According to UN estimates, the population of Uzbekistan will increase by more than 20% over the next 15 years and the rural population is projected to grow by 2.7% annually.

Current Investment in Rural Settlements

The Government of Uzbekistan is investing significantly in new rural and peri-urban settlements through its State Programme on Housing for Sustainable Rural Development (also known as the Rural Housing Programme, or RHP). Between 2009 and 2014, the RHP constructed over 1,000 new rural settlements, including 44,600 individual houses (over 6.5 million m2) based on standard designs.

2 In the context of the proposed project, “low-carbon” refers to the use of a combination of energy-efficient materials / technologies and renewable energy technologies. 3 Institute of Social Studies in Uzbekistan, 2014


Figure 1. Trends in Baseline Residential Energy Use – space heating, 2010-2050

(thousand tonnes of coal-equivalent) Source: UNDP (2014), Energy Efficiency in Buildings: Untapped Reserves for Uzbekistan Sustainable Development

The Government plans to increase investment in new rural housing and infrastructure and, by 2020, is planning: 2,500 new settlements; 87,000 new houses; 1,400 new social facilities (schools/hospitals); 2,000 km of gas supply pipeline; 1,700 km of roads and 2,000 km of water supply networks. Figure 2 shows the RHP’s planned housing construction through 2020, which emphasizes affordability and a more diverse mix of housing types.

Figure 2. Government targets for standard rural houses to be constructed under the RHP through 2020 (number of housing units) Source: State Committee for Architecture and

Construction The RHP, coupled with the Presidential Decree “On Additional Measures for Scaling-up Housing Construction in Rural Areas” in 2009, have led to the rural housing market’s exponential growth. Since its launch in 2009, the RHP has invested more than US$ 2.5 billion in rural housing: from US$ 25.4 million in 2009 to $ 886.3 million in 2014. Investments in the rural housing market have continued to accelerate. The Government has adopted a new RHP for 2017-2021 to improve access to affordable, modern and comfortable housing for rural residents. In 2017, the programme plans to allocate more than US$ 692 million in Government funds and leveraging commercial bank lending for more than US$ 690 million. This initiative includes continued support to the RHP from the ADB through its Affordable Rural Housing Programme (its Program Preparatory Technical Assistance project was launched in 2016) and through the IsDB.


Under the RHP, the IsDB has prepared financial support of at least US$ 300 million for the construction of rural housing and rural infrastructure for 2017-2019 (Phase 2, Tranche 1, 2 and 3). In 2018, IsDB has proposed supporting the construction of at least 2,242 housing units in the Namangan and Bukhara Regions of Uzbekistan, 2,073 housing units in 2019 in Andijan and Djizzakh Regions of Uzbekistan, and in 2020 an additional 2,089 housing units in the Navoy and Syrdarya Regions of Uzbekistan. During 2015-2016, the IsDB provided US$ 100 million in funding for rural housing and infrastructure, and has previously supported projects in street lighting and electricity metering in Uzbekistan.

In April 2017, a UNDP-led, Global Environmental Facility (GEF)-funded project began implementation and is working with the Government of Uzbekistan through Gosstroy to promote more efficient rural housing (GEF grant: US$ 6 million). The project is developing and piloting a green mortgage mechanism for rural houses; developing efficient designs and domestic supply chains for rural housing and infrastructure; scaling-up efficient housing by supporting the introduction of stricter energy performance standards in rural houses through revision of building codes; and raising awareness of low-carbon housing. Early lessons and initial outputs from this project are expected in 2018.

Energy Supply and Demand in Rural Settlements

In the last decade, energy shortages in rural areas have been increasing. Power and gas supply, particularly in the winter, is unreliable and intermittent causing poor living conditions, and health and social problems. A secondary effect of these power and gas shortages has been a switch to coal, which increases rural GHG emissions. Energy reliability issues also hinder long-term economic and social development. The low energy efficiency of rural housing, combined with a lack of compliance with and enforcement of minimum energy performance standards (MEPS), have exacerbated the need for fuel and increased GHG emissions from the housing sector.

Land-use planning and construction practices are a root cause of the relatively high energy consumption in rural areas. Traditionally, Uzbek villages were built ad hoc using traditional materials such as unfired clay bricks. Rural houses did not use standard designs, and most were built without blueprints. While the RHP uses standard designs and land-use planning procedures for all new settlements constructed, the characteristics of standard house design fall short of the potential for energy savings and GHG emissions reduction. In addition, land-use plans for new areas do not take low-carbon considerations into account.

The Government’s main policy tool to reduce GHG emissions in the buildings sector has been the Energy Performance Building Codes. Beginning in 2009 with a UNDP-led GEF-funded project, nine building codes regulating the thermal performance of various building elements (roofs, heating, ventilation) were revised, and energy efficiency requirements were strengthened, implying potential reductions in energy consumption of 30% in retrofitted buildings and up to 60% in newly constructed buildings. While the revised codes were approved and entered into force in June 2011, the standard designs of rural houses have not been adjusted in line with these new requirements due to the increase of the construction cost of rural houses associated with compliance to strengthened energy requirements. It needs to be noted that the key focus of the Government’s RHP is to provide affordable yet improved housing for the rural population. Renewable resources are not currently addressed in building codes for rural housing and its application in Uzbekistan, especially in rural areas, remains extremely rare.

Research conducted by UNDP has indicated that (Figure 3) energy consumption in typical rural houses could be reduced by up to 50% (106-128 kWh/m2/yr) with a ~5% increase in construction costs. Up to 60% savings can be achieved cost-effectively in new houses with a 10% increase in construction costs if additional energy efficiency and renewable energy measures are introduced, such as passive solar design techniques and taking full advantage of the local climate.

Despite the long-term direct and indirect benefits, most households cannot afford this additional upfront cost, cannot secure additional financing or cannot accept longer payback periods. In addition, while Uzbekistan currently has policies to keep the internal prices for energy at low levels, in part as a social protection mechanism, low domestic energy prices do not stimulate investment into renewable energy sources.


Regarding energy tariffs, electricity tariffs have increased by approximately 16% in UZS terms to planned UZS204.30 (US$c5.2) per kWh as of 15 July 20174 from UZS120 (US$c5.6) of 1st October 2013. However, in US$ terms, the tariff has declined during the period, including from the highest US$c6.4 in October 2015, due to faster UZS depreciation against US$ in 2017. Assuming that the tariff in UZS continues rising in the same rates and the UZS/US$ rate holds the trend, the tariff in US$ terms is estimated to stay around US$c5.2 per kWh level (Figure 3).

Figure 3. Electricity tariff (per kWh) Source: Uzbekenergo JSC, UNDP consultant estimates

Natural gas tariffs have risen by approximately 17% in UZS terms to planned UZS263.40 (US$c6.7) per cubic meter as of 15 July 2017 from UZS151.74 (US$c7.0) of 1st October 2013. However, in US$ terms, the tariff has fallen during the period, including from the highest US$c8.2 in October 2016, due to faster UZS depreciation against US$ in 2017. Holding the same assumption that the tariff in UZS continues rising in the same rate and the UZS/US$ rate tends to weaken, the tariff in US$ terms is estimated to stay around US$c6.7 per cubic meter (Figure 4).

Figure 4. Natural gas tariff (per cubic meter) Source: Uzbekneftegas NHC, UNDP consultant estimates

As the “Analysis of results of energy monitoring over the heating season of 2014-2015 after application of energy-efficient measures and renewable energy in a pilot four-room rural house”5 showed, estimated electricity consumption for lighting of a pilot house was 81 kWh

4 The Ministry of Finance register №19-03-22-06-RUz-29-2017 dated 29 June 2017 5 Report by the joint project of UNDP, GEF and the State Committee for Architecture and Construction of Uzbekistan (Gosarchitectstroy) “Promoting Energy Efficiency in Public Buildings in Uzbekistan”, 2015 (pp 28-29)


annually vs 1,170 kWh by a standard house, resulting 93% saving from installing PV sets, translating to annual saving by households, at current electricity tariff, and the UZS/US$ exchange rate, to around US$56.60 (Table 1). Table 1. Electricity consumption saving

Standard home LC home (PV) Electricity consumption (lighting only), annual, kWh

1,170 81

Electricity tariff, per kWh (starting 15 Jul 2017)

UZS 204.3 (US$c5.2) UZS 204.3 (US$c5.2)

Electricity consumption (lighting only), annual, UZS

239,031 16,548

Electricity consumption (lighting only), annual, US$

60.81 4.21

Saving, annual, UZS 222,483 Saving, annual, US$ 56.60

Source: UNDP consultant estimates From the perspective of homebuyers, these savings are at incomparable levels with initial investments required to construct energy efficient or low carbon houses. Apart from energy efficient construction materials, the cost of a PV system for a similar standard house is up to US$ 1,488. Therefore, if a consumer loan for a 3-year period with 10% down-payment is sought from local banks to finance the purchase of PV system costing US$1,475, at current interest rates of 19%, this would cost the homebuyer monthly interest payments of US$51.7, which is additional to the repayment of the principal amount.6 The total cost of a PV system in this case would be US$ 1,907 (without discounting), equivalent to a 33-year payback period. These calculations are also supported by the findings of existing literature on the topic. A recent UNECE report stated that most households still do not think that implementing energy-saving measures is economically feasible. The price of heating energy is still too low compared to the price of improvements; in many countries, there are almost no incentives to make large-scale investments for energy saving. The payback period of investments is also not always attractive to financial institutions or households; for comprehensive renovations the payback time may exceed 20 years.7

6 Graphs and calculations can be provided as supporting materials and will be shown in extended format in the Funding Proposal. 7 “Good Practices for energy-efficient housing in the UNECE region”, United Nations, New York and Geneva, 2013, p. 133

Box 1. Barriers to energy efficiency investments in the region UNECE report (2013): • Energy availability and cost. For political and social

reasons energy prices are kept artificially low in some countries in the region. Low energy prices and subsidized energy tariffs distort the actual cost of fuel and energy supply and production. Such low energy prices do not encourage the efficient use of energy.

• Economic barriers. Not every energy efficiency investment is actually cost-effective and some measures come with very long payback periods. Also, due to the lack of finances, not every investment to renovate a building is affordable for the owner or tenant. Further, commercial banks may not be aware of the business potential of energy efficiency investments, so loans and other financial instruments are not available to individuals or associations.

• Social challenges. As energy efficiency interventions are, to a large extent, behavior-related, the lack of awareness of energy consumption and possibilities to reduce it is a major barrier. Not having individual electricity and heat meters installed can contribute to this. In addition, concerns about covering investment costs and lack of support mechanisms also reduce or hinder investments in energy efficiency.

“At present, a range of market failures and information barriers discourage developing countries from increasing their energy productivity, even with high energy prices. Capital constraints, particularly for low-income households, are a major hurdle. Consumers also tend to lack the information they need to make the right choices. Many companies, insulated from the true price of energy, have relatively little incentive to identify and invest in the fragmented energy savings opportunities that are available. And today’s tighter credit markets are squeezing the financing of all investments—even less risky ones, such as those in energy efficiency.” (McKinsey&Company)


The combination of low energy tariffs for consumers and relatively high costs of energy efficient construction materials and PV systems, does not create any incentives for potential homebuyer to invest in energy efficient housing solutions. Rather, under the current conditions, there are strong economic disincentives to invest in energy efficient houses.8 At a recent national Round Table discussion on “Enhancing innovations in green energy promotion” (19 May 2017), organized by the Chamber of Commerce and Industries in Uzbekistan, Association of “Enterprises of Alternative Fuels and Energy” and the Tashkent State Technical University, some of the major local producers of energy efficient materials and PV sets (e.g. Siemens and MirSolar), stressed that national manufacturing capacity is in place but its further increase and development is hampered by low market demand due to lack of systemic orders both from the public buildings and private residential sectors, e.g. within RHP. If signals of sustainable demand for EE materials and PV sets are observed, local producers are ready to invest in their production capacities to meet such demand. Therefore, without additional funding support or other forms of financial incentives that serve to compensate for additional risks and are designed to stimulate investments in buildings with high GHG savings and socio-economic benefits potential, it is unlikely that the transition to low-carbon rural housing will occur. Indeed, it is likely that the country will be locked into an unsustainable trajectory and, should tariff reform occur, significant additional financial and social hardship will be felt by the rural population.

Figure 5. Transition potential for new rural houses in Uzbekistan – comparison of

annual energy consumption (kWh/m2/yr) and energy/GHG savings for standard vs. potential low-carbon performance) Source: UNDP estimates

(**Note: new (2017) additional cost estimates for three typologies of housing now, but performance estimates are being finalized and will be available soon.)

Shifting to low-carbon rural housing (i.e. housing that takes full advantage of existing energy-saving potential but also incorporates renewable energy systems), will further reduce the carbon footprint of the sector while helping to address the urgent energy reliability and security issues in rural areas. An additional shift to low-carbon rural communities (i.e. rural settlements where local energy solutions consider water supply and treatment facilities and waste disposal, and integrate waste-to-biogas technologies and efficient pumps and treatment options) could yield additional GHG emissions reductions while being highly beneficial to rural communities. Currently, these technologies are largely unavailable in rural settlements, and are not usually considered in rural planning and construction decisions. Furthermore, the government lacks experience in procurement procedures that support green technologies.


Project Objectives and Outcomes

The proposed project uses a comprehensive approach to place new rural settlements onto an energy-efficient and low-carbon trajectory. The project objectives are: • To reduce the carbon footprint of new rural settlements by facilitating demand for energy

efficient solutions and stimulating supply of low-cost energy efficient constructionmaterials

• To develop policy, advocacy and awareness, and related institutional capacity to promoteenergy efficiency and renewable energy in rural settlements.

Project outputs are: • Green procurement and financial incentives for new energy-efficient, low-carbon rural

settlements constructed under the Rural Housing Programme (RHP)• Policy de-risking and strengthened institutional capacities to promote the implementation

of energy efficiency requirements in rural housing, and wide awareness amonghomeowners regarding the environmental, economic and social benefits of green ruralhouses and settlements.

Output 1. Green procurement and financial incentives for new energy-efficient, low-carbon rural settlements

The proposed project will enable the construction of approximately 23,370 energy-efficient and low-carbon individual family rural houses/apartments in multi-apartment rural houses through the implementation of a green procurement mechanism for energy-efficient building materials, equipment and low-carbon electricity systems, as well as related services and works. This work will be carried out jointly with the IsDB within the framework of its three-year investment program based on their soft loan financing, as well as in cooperation with local banks involved in mortgage lending under the national program for the construction of rural housing.

Green procurement can bring additional gains (see Box 1). UNDP is currently implementing an agency-wide sustainable ‘Procurement Strategy’9, which includes sustainability criteria in purchasing evaluations, pilots innovative technologies and integrates procurement at the design stage. UNDP has specific experience in procuring and deploying solar technologies in rural areas, particularly for rural health clinics10.

Successful application of green procurement processes would form the basis of the Governmental-led rural green housing initiative, and would generate demand for energy-efficient and renewable energy technologies and services. UNDP has estimated that green procurement approaches have the potential to save over 500,000 tCO2eq per annum in the new housing sector alone based on findings from a rural housing project 11 . The green procurement approach will encourage settlement planners to consider village-wide energy solutions in addition to making individual houses more energy-efficient.

Overall, this output would mitigate GHG emissions directly and indirectly by mainstreaming efficient and low-carbon materials into construction and strengthening piloting green procurement mechanisms for rural housing and infrastructure.

9 UNDP Procurement Strategy (2015-2017). http://www.undp.org/content/dam/sweden/Procurement%20Strategy%20Final%20July%201%202015.pdf 10 Practitioners Guide to Sustainable Procurement (2016). UNDP http://www.greeningtheblue.org/sites/default/files/Practitioner's%20Guide%20to%20Sustainable%20Procurement-1.pdf 11 “Analysis of results of energy monitoring over the heating season of 2014-2015 after application of energy-efficient measures and renewable energy in a pilot four-room rural house” study done by a joint project of UNDP, the GEF, and the State Committee for Architecture and Construction of the Republic of Uzbekistan (Gosarchitectstroy)

Box 2. Green Procurement • Based on maximizing environmental,

social and economic considerations inthe procurement process, whereverand whenever possible

• Includes environmental performancein the procurement process in additionto traditional selection criteria such ascost, performance, quality andavailability

• Uses life-cycle costing to evaluatepurchasing options

• Considers larger-scale purchasingsolutions in addition to small-scale(e.g. individual house)


Activity 1.1 Develop and implement green procurement for efficient low-carbon rural houses

• Pilot green procurement for energy-efficient low-carbon rural housing. UNDP’s green procurement mechanism, with modifications and specifications made for the Uzbekistan housing market, will be used as the basis to identify and procure additional green products and related services.

• Develop capacity building materials on green procurement. Based on the pilot experiences with green procurement for rural housing, appropriate information modules, training and knowledge resources will be developed specifically for rural housing.

• Design and launch a governmental green procurement mechanism. The pilot green procurement mechanism and resources developed would be used to train government officials in green procurement procedures. Training sessions, and other capacity strengthening support initiatives will be provided for regional and country-level programs to ensure wider impact.

Activity 1.2 Incentivize energy-efficient low-carbon rural housing

Funding from IsDB and others is currently used for construction of the standard (not energy-efficient and low-carbon) designs. Despite the efficiency gains and higher comfort levels of efficient low-carbon housing, significant economic disincentives exist including the additional cost compared to standard housing and the associated higher mortgage down payments. With support from GCF grant funding targeting those additional costs, and the IsDB’s commitment to construct energy-efficient and low-carbon housing based on the new designs, this project will move the market towards a more energy-efficient and low-carbon trajectory.

• Stimulate the construction of energy-efficient and low-carbon housing through targeted incentives. The current consideration is that GCF grants (US$21.5M) will cover the additional costs of the green procurement of energy-efficient building materials and equipment, low-carbon electricity and heat supply systems (using renewable energy sources), and will gradually transfer the additional costs to the homebuyers through the mortgage system implemented under the RHP; and the main cost of houses are financed by IsDB loans and mortgages of homebuyers through local banks.

The project will lever significant financing from commercial and state banks, and development banks active in this sector. By covering only 3.6-10% of the corresponding additional cost of energy-efficient low-carbon rural housing, the project will ensure significant reductions of energy consumption and associated GHG emissions by 40-60%. This approach is temporary and targeted to promote the construction of, and market demand for, energy-efficient and low-carbon housing that is affordable for the rural population. Supported by the policy de-risking activities (Output 2), the project will contribute to increasing the market penetration of energy-efficient low-carbon technology and driving down costs through economies of scale.

Cooperation scheme with IsDB (see also Annex II):

1. Based on the agreement with the IsDB to cooperate in development of this funding proposal for GCF, the target is that 4,162 rural houses planned by IsDB during 2019-2020 will be constructed as energy efficient (80%) and low-carbon (20%).

2. GCF funds of US $21.5M will be invested into green procurement for construction of rural houses (energy efficient (80%) and low-carbon (20%)) in cooperation with the IsDB. During 2019-2020, this will be done by blending IsDB ($206.75M loan for basic cost) and UNDP ($3.37M of GCF grant funding for additional cost of EE/LC designs) by UNDP (Implementation scheme provided in Annex A).

3. During the same period, $8.63M will be invested by UNDP into green procurement for construction of EE/LC (80%/20%) rural houses through greening national (government) investments and GCF grant funding (standard cost will be covered by national funds and additional EE/LC cost will be covered by UNDP, i.e. GCF grant) (Implementation scheme provided in Annex B). Such synergy is believed to build national capacities to mainstream green procurement, and ensure sustainability through government ownership and commitments for the further replication and scaling-up of green procurement in rural housing beyond the project timeframe.

4. During 2021-2023, $9.5M will be invested by UNDP into green procurement for construction of EE/LC (80%/20%) rural houses through greening national


(government) investments and GCF grant funding (standard cost will be covered by national funds and additional EE/LC cost will be covered by UNDP, i.e. GCF grant). The implementation scheme of such collaboration is provided in the Annex C.

5. This will also serve as demonstration and argument for other donors (e.g. ADB) toprovide their loans for construction of EE/LC houses within the National Rural HousingProgramme.

6. M&E and Quality assurance will be done jointly by IsDB and UNDP in line withnational regulations prior to commissioning of the newly constructed buildings.

• Developing leasing scheme to de-risk PV sets for lighting in rural houses(US$1.5M). An instrument for de-risking green (renewable energy) solutions will bedevelopd targeting homeowners in regions that suffer from frequent lack of electricity andblackouts. UNDP experience in rural areas has showed that many households would bewilling to invest in PV sets to ensure uninterrupted power supply. The leasing scheme willbe developed to supply up to 1,000 PVs through UNDP procurement (current cost of onePV set is $1,488) and will be implemented in collaboration with the Leasing InternationalJoint Stock Company. 12 Using recovered funds from the leasing scheme, LeasingInternational will be able to sustain and further build upon this work beyond the projecttimeframe. Equipment purchased by the project will essentially serve as the initialcapitalization that will generate income and will be available for further lease based on thedemand in the regions.

Output 2. Policy de-risking and strengthened institutional capacities to promote the implementation of energy efficiency requirements in rural housing, and wide awareness among homeowners regarding the benefits of green rural houses and settlements

Output 2 introduces mechanisms to promote wide implementation of energy efficiency and renewable energy regulations in the residential buildings sector, and strengthening the capacity to implement them in rural areas. Measures will focus on green settlement and housing design (see Box 3), which will introduce or promote the expansion of appropriate technologies related to energy efficiency of buildings, renewable energy options, and waste and water that will be evaluated and piloted in project regions. For example, stakeholder consultations have indicated that there is strong demand for solar PV units in existing rural houses, which could be scaled up considerably. In addition, the planning and siting of new rural settlements will be considered.

Technical assistance and capacity strengthening for Gosstroy and other relevant authorities will be undertaken to enhance the implementation of building codes related to energy efficiency of houses.13. This output will include capacity building for Gosstroy staff to be able to undertake compliance checks for energy-efficient and low-carbon houses and energy systems that are procured under the RHP. This output will also mitigate GHG emissions indirectly by strengthening initiatives that support more efficient buildings and infrastructure in rural settlements, and by providing information for effective decision-making in the construction sector.

12 Leasing International JSC was established in accordance with the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan # 6 dated January 5, 1995 (http://www.uzbekleasing.com/en/about/history/). Its shareholders are National Bank for Foreign Economic Activity of the Republic of Uzbekistan, Maybank (Malayan Banking Berhad), Malaysia, Uzbek-Oman Investment Company 13 Next round of revision of the building codes is envisioned in 2017-2019, whereby the GEF funded “Market transformation to energy-efficient rural housing in Uzbekistan” project will work in parallel to ensure that energy efficiency and low-carbon considerations are taken into account.

Box 3. Green Housing and Settlement Design • Considers energy efficiency and

renewable energy measures, in additionto economy, utility, durability and comfort

• Range of options: passive solar designtechniques, additional externalinsulation, additional socle (foundationwall) insulation, thermal valves andreflectors on radiators, rooftop solar PVsystems

• Takes full advantage of the local climateand settlement siting. Considers larger-scale solutions (e.g. settlement-wideenergy solutions) in addition to small-scale (e.g. individual house)


Activity 2.1 Develop and implement a countrywide advocacy programme on economic/financial and environmental benefits of shifting to energy efficient housing practices.

• Develop cost-benefit analysis of introducing energy-efficient solutions in the residential housing sector by highlighting long-term sustainability benefits

• Produce various media based advocacy products aimed at promoting the benefits of energy efficient solutions in housing construction

• Generate analysis and showcase the results of the green procurement pilots in rural housing jointly undertaken with the IsDB.

Activity 2.2 Strengthen capacity of energy managers and officials responsible for energy and resource issues at the settlement level

• Provide training to energy managers, officials and professionals regarding energy management at the settlement level, leading to upstream savings of energy and resultant reductions in GHG emissions. Training participants will include staff from Gosstroy (both in headquarters and in regional branches) and architects from leading design agencies. In this way, the project will draw directly upon the lessons learned from code enforcement under the UNDP-led GEF-funded project on energy efficiency in public buildings. That project found that more assistance was needed to increase the capacity of local/rural authorities to undertake compliance checks and other measures to improve the implementation of building codes in rural areas, such as incentives and penalties (see Lessons Learned Report submitted as an annex). When stricter building codes enter into force (see Activity 2.3), Gosstroy will be responsible for ensuring that all standard designs used in state-funded construction programmes (such as the standard rural housing units) comply with the requirements of the new code.

• Develop house settlement level ‘green designs’. Existing settlement designs will be reviewed and revised, consistent with local and international best practice, to develop a range of new green designs. Consideration will be made of energy efficiency, renewable energy options, cost, utility/practicality, durability, materials, etc. Design guidelines for settlements will be produced, including design methods and criteria (location, siting, landscape design, house design, detail design, etc.).

• Capacity strengthening for village-level resource planning. These activities would include targeted training and analysis to improve resource planning at the ‘Genplan’ (rural master plan) level. Training and technical assistance would be provided to improve rural settlement infrastructure, including water supply and treatment and organic waste treatment and utilization, at the planning stage. Research and analysis under this activity could also highlight and quantify the climate benefits of upstream low-carbon planning for rural settlements.

• Provide training to Gosarchitektstroy to strengthen its capacity of support compliance with the adopted building codes for residential buildings, as well as in implementing the policy of designing and building energy-efficient and low-carbon buildings in Uzbekistan.

Activity 2.3 Pilot an Energy Performance Monitoring System for rural housing

• Pilot an Energy Performance Monitoring System (EPMS) in one of the new rural settlements in Uzbekistan to quantify and verify the transition to more resource efficient and low-carbon buildings. The intent is to quantify and thereby verify the rationale for the piloted interventions by using an EPMS to enable monitoring, reporting and verification of relevant indicators on actual energy consumption, energy efficiency, potential of corresponding energy saving and reductions of GHG emissions at the building and settlement level. The system will build on UNDP’s extensive experience with establishing EMIS for buildings. 14 While EMIS is usually used for energy management related to energy efficiency in public buildings, given the settlement approach taken by this project the pilot EPMS will offer an important tool to strengthen the settlement-level energy reduction efforts by providing vital energy information for the government and policy makers, energy managers, and individual households.

14 UNDP first piloted and scaled-up EMIS in the public sector in Croatia, where the project freed-up US$18 million of public budget annually

http://www.tr.undp.org/content/undp/en/home/ourwork/environmentandenergy/projects_and_initiatives/energy-efficiency-programme-in-croatia.html


Coordination with existing initiatives and additionality of the proposal: The proposed project complements the existing UNDP-led GEF-funded project, and will benefit from the outputs planned therein. In particular, the GEF-funded project consists of four inter-linked outcomes related to introducing a green mortgage scheme for rural housing (Outcome 1), strengthening domestic supply chain and the capacity to design and construct efficient and low-carbon housing (Outcome 2), strengthening policies and regulations, particularly building codes for rural housing and rural settlements (Outcome 3), and raising public awareness about benefits and advantages of energy-efficient and low-carbon housing (Outcome 4).

The GEF-funded project is beginning to establish the enabling environment for low-cost energy-efficient rural housing. Green designs are focused on consideration of energy efficiency, renewable energy options, cost, utility/practicality, durability, comfort, materials, etc. Design guidelines for houses will be produced, including design methods and criteria (location, siting, landscape design, house design, detail design, etc.).

In addition, the project will support Gosarchitectstroy regarding building code revisions (2017-2019) that will cover residential buildings and providing policy advice on gradual shift to market based setting of energy tariffs. The project aims to work closely with Gosarchitectstroy, providing technical assistance to ensure that the next round of building code revisions includes more stringent provisions with regard to energy efficiency.

While the above outputs are extremely important to create the enabling policy and financing environment for promotion of energy efficient houses, the proposed GCF project will transform and scale-up rural housing by strongly stimulating demand for and supply of energy efficient, low-carbon solutions in rural housing. The proposed GCF project will also address settlement-level energy efficient planning and energy performance monitoring. Figure 6 graphically conveys the focus areas, relationship and sequencing of activities anticipated under the GEF-funded project and the proposed GCF project.

Figure 6: Relationship between the GEF-funded project and the proposed GCF project

B.2. Background information on project/programme sponsor

The project will build on UNDP’s experience supporting the Government of Uzbekistan in reducing the barriers for energy efficiency in public buildings, including stricter building codes, audits and training for auditors; broader support for low-carbon development, including drafting a low-carbon development strategy for Uzbekistan; and projects that support improved local governance and climate resilience in rural areas. UNDP has more than a decade of experience with energy efficiency and renewable energy markets in Uzbekistan. In 2002, the Government of Uzbekistan approached UNDP with a request to provide electricity for household energy needs and for water pumping in off-grid areas of Karakalpakstan. The project reduced local air pollution and allowed developers to


assess rural energy needs and preferences. In 2012, building on the success of the UNDP-GEF project in promoting energy efficiency in public buildings, 15 particularly the construction/retrofitting of eight demonstration public buildings and adoption of new building codes, Gosarchitectstroy and the Ministry of Economy asked the project team to consider energy efficiency in rural housing. In response, the project team analysed and revised the three existing standard designs for rural houses (3-, 4- and 5-bedroom designs) to increase their energy efficiency. Using these designs, the project piloted the construction of a new ‘green’ rural home in partnership with the national organisations involved in the rural housing programme.

UNDP will support the Government of Uzbekistan in project management and operations by using a National Implementation Modality (NIM). In addition, existing projects in the UNDP Uzbekistan portfolio will provide complementary capacity strengthening. For example, the ‘Local Governance Support Programme – Phase II’ project supports strengthened public administration and enhanced effectiveness and inclusiveness of Government at both the central and local levels. It will therefore provide opportunities to cooperate on capacity strengthening activities carried out under this project. UNDP will also provide project outreach support and sharing of best practices at a regional and global level.

UNDP and IsDB signed a Memorandum of Understanding in May 2016. This MOU identifies climate change, sustainable energy, and capacity development as priority areas for cooperation. The MOU also emphasizes trilateral partnerships with governments to build capacity and design and implement development results effectively. IsDB began its work in Uzbekistan in 1991 with the reconstruction of several historic buildings, and Uzbekistan became a full member of IsDB in 2003. In-country programming to date includes a variety of infrastructure projects including public buildings, houses, and energy. As of 2013, financial agreements worth more than US$ 991 million had entered into force, and over US$ 400 million had been financed (note: more recent numbers have been requested).

B.3. Market overview

Housing Market for Rural Homebuyers The very rapid growth in rural housing has been underpinned by an accompanying rapidly growing mortgage market. All houses under the RHP are transferred to home owners (100% private ownership), with homeowners purchasing the home via preferential mortgages offered through Qishloq Qurilish Bank (Rural Construction Bank), National Bank and Ipoteka Bank (Mortgage Bank). These fifteen-year mortgages for standard rural houses are offered at a fixed interest rate of 7% for the first five years of the mortgage followed by a rate that is set at 90% of the inter-bank interest rate of the Central Bank for the rest of the loan lifetime.16 The down payment necessary for the mortgage has decreased over the past several years, yet it currently stands at 22.9% of total home value. A breakdown of financing for the first six years of the RHP is provided in Table 1 below. Table 2. Construction and financing of new rural houses under the RHP on Housing for Sustainable Rural Development (2009-2014)

2009 2010 2011 2012 2013 2014

Rural houses built under programme 874 6,800 7,400 8,510 10,000 11,000 Total cost of rural houses USD m 25.4 214.5 288.3 453.0 692.7 886.3

FinancingTotal mortgages. Financed from: USD m 15.7 127.3 182.5 266.0 398.0 528.6

ADB loan USD m - - - 171.2 125.3 123.5 Government budget funds USD m 15.7 127.0 160.5 65.3 231.4 353.4 Kishlok, Ipoteka banks. USD m - 0.3 22.0 29.5 41.3 51.8

Total financing by homeowners USD m 9.7 87.2 105.8 187.1 294.6 357.7 Source: State Committee For Architecture and Construction

15 From mid-2013 to mid-2014, 892 public buildings (including schools and hospitals) were constructed using the more stringent energy codes developed by the UNDP-GEF project, ’Promoting Energy Efficiency in Public Buildings’. 16 As of January 2016, this rate was 8.1%.


Market for Energy Efficiency and Renewable Energy Products and Services The domestic supply chain for the construction industry in Uzbekistan is relatively well developed and is constantly growing. From 2009 to 2013, over 1,000 new local enterprises were established, and 839 existing companies upgraded their production base. These included firms focused on manufacturing energy-efficient materials/equipment such as ceramic bricks, foam-concrete and basalt wool insulation, double/triple-glazed plastic windows and doors, gypsum-pasteboard, sandwich-panels, energy-efficient boilers and stoves, etc. The national database of energy-efficient materials and technologies was established in 2012 with UNDP support and is being updated annually by Gosarchitectstroy. As of 2014, the database includes more than 50 national enterprises specialising in energy-efficient materials/equipment. In addition, there are about 30 local companies engaged in manufacturing, assembling, installation and after-sale servicing of renewable equipment/systems. Apart from domestic companies, there are a number of joint ventures that have recently been established in the sector that are engaged in manufacturing technical silicon (total capacity of 17,000 tonnes per year), assembling PV panels (50 MW) in Navoi province and solar water heating collectors (50,000 units per annum), as well as energy-efficient LED lamps in Jizzak province. Nevertheless, it is important to highlight that energy efficient construction materials are mainly used in construction of public buildings but to a limited extent. Due to relatively higher prices of such materials and PV systems, as well as given the low energy tariffs, there is very limited demand for such products from the residential buildings sector. Scarcity of demand and limited product space in the local market practically do not allow producers of energy efficient materials and especially PV systems significantly expand their sales and thus reduce unit costs through economies of scale.

Market for Fuel and Power

While residential tariffs for fuel and power have increased moderately in recent years, they do not cover costs, and they remain much lower than export prices for fuel. This leads to a market distortion where homeowners do not have price signals that encourage the efficient use of resources, and therefore current prices act as a disincentive to invest in energy-efficient or low-carbon homes. However, should tariff reform occur, significant additional financial and social hardship will be felt by the rural population if they are locked into inefficient homes. In addition, utilities not only lack funding for grid maintenance and fuel distribution, they also do not have access to residential pricing options that would allow them to offset generation costs by stimulating investments in energy efficiency.

B.4. Regulation, taxation and insurance

The Executing Entity is Gosstroy, the national agency that oversees building codes and permits. Gosstroy is mandated by the Government to undertake a revision of building codes every five years. The next code revision is taking place (2017-2019) and covers residential buildings. The project will work closely with Gosarchitectstroy to ensure that the next round of revised residential building codes include more stringent energy-use requirements. No special permitting process is required to launch the project. Once the revised building codes are adopted, Gosstroy will ensure that all standard designs used in state-funded construction programmes (such as those in the RHP) comply with the requirements of the latest code. The project will support Gosarchitectstroy by strengthening the capacity of its staff regarding new regulations.

B.5. Implementation arrangements

The project will be implemented following UNDP’s National Implementation Modality (NIM), according to the Standard Basic Assistance Agreement between UNDP and the Government of Uzbekistan, the Country Programme Action Plan (CPAP), and policies and procedures outlined in the UNDP Programme and Operations Policies and Procedures (POPP, https://info.undp.org/global/popp/ppm/Pages/Defining-a-Project.aspx). The Implementing Partner (GCF Executing Entity) for this project is the State Committee on Architecture and Construction of the Republic of Uzbekistan (Gosstroy). Goskomarchitectstroy is accountable to UNDP for managing the project, including the monitoring and evaluation of project interventions, achieving project outcomes, and for the effective use of UNDP resources. The proposed management arrangements for the project are summarized in the chart below.

https://info.undp.org/global/popp/ppm/Pages/Defining-a-Project.aspx


The Project Board will be responsible for making, by consensus, management decisions when guidance is required by the Project Manager. Project Board decisions will be made in accordance with standards that shall ensure management for development results, best value money, fairness, integrity, transparency and effective international competition. The Project Manager will run the project on a day-to-day basis on behalf of Goskomarchitectstroy within the constraints laid down by the Project Board. The Project Manager function will end when the final independent evaluation report and other documentation required by the GCF and UNDP have been completed and submitted to UNDP. The Project Manager is responsible for day-to-day management and decision-making for the project. The Project Manager’s prime responsibility is to ensure that the project produces the results specified in the project document, to the required standard of quality and within the specified constraints of time and cost.

Figure 7. Project sequencing


C. Financing / Cost Information

C.1. Description of financial elements of the project / programme

The proposed project will support Uzbekistan to transform new rural settlements into energy-efficient low-carbon communities while significantly reducing GHG emissions. Grant-based financing provided by the GCF will stimulate the construction of energy-efficient and low-carbon housing by providing targeted incentives. The project will work through two main outputs.

Output 1 – Green procurement and financial incentives for new low-carbon rural settlements

The project will include technical assistance to develop the necessary capacity and establish the enabling environment for investment in energy-efficient low-carbon settlements through two key activities:

1.1 Develop and implement green procurement for energy-efficient low-carbon rural houses – Technical assistance will be provided to pilot green procurement for energy-efficient low-carbon rural housing, develop capacity building materials on green procurement, and design and launch a governmental green procurement mechanism.

1.2 Incentivize energy-efficient low-carbon rural housing – Grant-based financing provided by the GCF will be used to address the barriers to the relatively high cost of new rural housing based on mortgage lending and limited access of homeowners to consumer loans for purchase of energy-efficient homes and renewable energy systems, and the lack of incentives for homeowners to build/purchase low-carbon housing and energy-efficient household appliances and renewable energy systems. The project will stimulate the construction of energy-efficient and low-carbon housing through targeted incentives. The current consideration is that GCF grants (US$21.5M) will cover the additional costs of the green procurement of energy-efficient building materials and equipment, low-carbon electricity and heat supply systems (using renewable energy sources), and will gradually transfer the additional costs to the homebuyers through the mortgage system implemented under the RHP; and the main cost of houses are financed by IsDB loans and mortgages of homebuyers through local banks.

The majority of the requested budget (US$ 21.5 million) will be allocated for this activity (i.e. to piloting green procurement as part of the Government’s rural housing programme to generate demand for energy-efficient housing construction, inter-alia through stimulation of lower cost supply of energy efficient materials). The indicated amount is needed to cover the incremental cost of constructing around 8,784 energy efficient rural houses (mix of all three typology houses) benefiting 30,388 housing units or households. These 8,784 new rural houses represent just above 13% of the total number (65,911) of rural houses (i.e. buildings) planned to be built under the Government’s RHP in 2017-2023. This also means that on average over 675 rural houses (buildings) will be built with energy efficient solutions in each of Uzbekistan’s 13 provinces. Targeting 13% of all new rural houses with energy efficient solutions is considered to be the minimum required to achieve sustainable and scalable results in the rural housing market in terms of creation of real demand for, and supply of, energy efficient and low-carbon options in rural housing construction. The targeted percentage of market penetration required will be further verified during Funding Proposal development. As the summary of subsidy/grant support practice in Central European countries in the Box 4 show17, many countries provided subsidies to cover the costs of energy efficient renovation of residential buildings in the range between 10 to 30%. Under the proposed project, it is requested to use the GCF grant to cover the 13% of all newly constructed rural houses with energy-efficient solutions. This figure is taken as an equivalent of subsidizing the 13% cost of building new energy efficient houses within the RHP. One needs to bear in mind that these

17 “Good Practices for energy-efficient housing in the UNECE region”, UNITED NATIONS, New York and Geneva, 2013, pp 102-134.


grants will only cover the additional cost of newly built houses borne by energy efficiency and low carbon components. The main cost of houses are financed by IsDB loans and mortgages of homebuyers through local banks. Such blending is the key factor of sustainability of the proposed project. While 13% subsidy is at the lower end compared to those used in Eastern European countries, it is believed sufficient to show the benefits of energy efficient construction both to the Government and homeowners, and to stimulate the sector’s market mechanisms. Currently, the local market supply of energy efficient materials, PV sets in particular, is low. For instance, imported supply of solar panels in 2011 was 405 units and only reached 1,220 in 2014.18 Another example is heat insulation material, where the import volume in 2016 provided for only 0.8% of the total floor area of the residential buildings sector19 in the country. Hence, given the small supply of energy efficient materials in the local market, injection of grant funds are expected to make a significant difference allowing suppliers increased production and economies of scale. Overall, the GCF project will ensure that transformational impacts are achieved in the construction of EE/LC housing in the residential housing sector in Uzbekistan. Moreover, it will ensure highly efficient of using GCF funds to achieve significant GHG emission reductions within the project lifecycle and over at least 20 years of EE/LC material/equipment (Figure 8): Figure 8. Cost per ton of CO2 reductions from $21.5M GCF grant invested in green procurement Cost per ton of CO2 emission reductions during project lifetime due to green procurement component (US$21.5M) (direct) $ 16.83 Cost per cumulative ton over 20 year equipment lifetime due to green procurement component (direct) $ 3.59

The above serves as a convincing argument for the Government to further investing in, and to replicate, green procurement in rural housing as it provides large energy saving opportunities (natural gas savings) at the national level, and reduced energy bills, more stable power supply for lighting needs, increased comfort, and better health for rural homeowners. To ensure sustainability of the impact to be generated from the proposed grant funding mechanism, the project, starting the year 2020, will gradually transfer the additional costs of constructing energy efficient or low carbon houses to homebuyers through the mortgage system implemented under the RHP (see

18 18 http://tradeuzbekistan.com/ru/content/information/analiticheskie-materialy/obzor-mirovogo-rynka-solnechnyh-paneley-1233 19 Estimates by “Knauf” company office in Uzbekistan

Box 4. Use of grants and subsidies to enhance energy efficiency of residential buildings in Eastern Europe As experience of Central and Eastern European countries show, targeted programmes for housing stock rehabilitation and modernization can be used to enhance the energy efficiency in residential buildings. State or municipal support has encouraged homeowners to act and leverage market financing to relieve the financial burden of improving their homes. This support was provided in the form of grants or preferential interest rates.

Budget subsidies to homeowners’ associations for capital upgrading repairs contribute to the renovation initiatives of residential property owners. These subsidies are in the form of non-repayable grants to co-finance the costs of capital repair upgrades, or as partial compensation for the costs incurred by the owners. For example, in Estonia, Lithuania and Poland, subsidies have been provided equal to: 10% of the cost in Estonia; 18 to 20 % of the cost in Poland; and 15 to 30 % of the cost in Lithuania.

http://tradeuzbekistan.com/ru/content/information/analiticheskie-materialy/obzor-mirovogo-rynka-solnechnyh-paneley-1233


Figure 9 below). The project is designed to cover the additional costs of energy efficient and low carbon construction at the ratio of 80% to 20%, i.e. 80 percent of the GCF grant will be used to cover the additional cost of energy efficient housing construction, while the 20 percent will cover the additional costs of low carbon housing. Figure 9. Schedule for declining coverage of additional costs

Year 2019 2020 2021 2022 2023 TOTAL grant

funding UNDP (GCF grant funding), USD mln.

6 6 4 3.5 2 21.5

% of additional cost of EE/LC construction transferred to homebuyers under mortgage system

0 1 1.5 1.5

1.5

Given the efforts under the project to bring the costs of energy efficient materials down by stimulating the supply and thereof reaching economies of scale, a gradual shifting of additional costs to homebuyers starting from 0% (full additional cost coverage) 1% and ending 1.5%, is intended to lead into the uptake (replication) of energy efficient housing construction within the mortgage system under RHP. This approach will lead to scaling up of expenditures, both public and private, on energy efficient construction and also lead to financial competitiveness of energy efficient rural houses. The leasing scheme for PV will be developed to supply up to 1,000 PVs through UNDP procurement (current cost of one PV set is $1,488) and will be implemented in collaboration with the Leasing International Joint Stock Company. 20 Equipment purchased by the project (US$1.5M) will serve as the initial capitalization that helps the Company to generate income that ensures future investments in PVs and their further lease based on increased demand in the country.

Output 2 – Policy de-risking and strengthened institutional capacities to promote the implementation of energy efficiency requirements in rural housing, and wide awareness among homeowners regarding the benefits of green rural houses and settlements

The project will provide technical assistance to introduce viable mechanisms to promote the wide implementation of energy efficiency and renewable energy regulations in the residential buildings sector, and strengthening the capacity to implement them in rural areas. Focus will also be given to ensuring wide advocacy of energy efficient solutions in rural housing through showcasing of energy performance of rural houses built through green procurement scheme in partnership with IsDB:

2.1 Develop and implement a countrywide advocacy programme on economic/financial and environmental benefits of shifting to energy efficient housing practices. 2.2 Strengthen capacity of energy managers and officials responsible for energy and resource issues at the settlement level – Training will be provided to energy managers, officials and professionals to allow them to manage energy effectively, leading to upstream savings of energy and resultant reductions in GHG emissions. 2.3 Pilot an Energy Performance Monitoring System (EPMS) for rural housing – The project will seek to quantify and verify the transition to more resource efficient and low-carbon buildings by introducing a pilot EPMS in one of the new rural settlements in Uzbekistan.

20 Leasing International JSC was established in accordance with the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan # 6 dated January 5, 1995 (http://www.uzbekleasing.com/en/about/history/). Its shareholders are National Bank for Foreign Economic Activity of the Republic of Uzbekistan, Maybank (Malayan Banking Berhad), Malaysia, Uzbek-Oman Investment Company


Table 3. GCF Financing by output

Component Output (if applicable) Amount (million US$)

Currency of disbursement

Component 1: Building Efficient and Low-Carbon Rural Settlements in Uzbekistan

1. Green procurement ($21.5M) and financial incentives for new low-carbon rural settlements (leasing scheme $1.5M)

23.00 million USD ($)

2. Policy and regulatory de-risking of investments in new rural settlements 2.50 million USD ($)

3. Project Management 2.50 million USD ($)

Total 28.00 million USD ($)

Estimates of national co-financing (parallel financing within the indicated national program) include: • The State Committee for Architecture and Construction of the Republic of

Uzbekistan (Gosarchitektstroy), including the Design Institute “Qishloq Qurilish Loyiha”: US$ 33 million

• Commercial Banks “Qishloq Qurilish Bank” and “IPOTEKA BANK”: US$ 57 million • Islamic Development Bank within the framework of the state program for the

construction of rural housing: US$ 93 million.

Additional parallel co-financing will also be provided by homebuyers in the form of equity (i.e. down-payments) and other entities (TBD). The total financing requested from the GCF and expected from other sources is outlined in the table below.

C.2. Project financing information

Financial Instrument Amount Currency Tenor Pricing

Total project financing (a) = (b) + (c)

211 million USD ($)

(b) Requested GCF amount

(vi) Grants * 28 million USD ($) Not applicable

Not applicable

* Affordability is the principal barrier hindering demand for energy-efficient and low-carbon houses: increased upfront costs and higher monthly mortgage payments act as a disincentive and are difficult for rural households to afford. Therefore, the GCF grant is required to overcome these barriers. Also, grant resources are requested to facilitate implementation of required policy changes to remove non-market barriers and facilitate the scaling-up of EE and low-carbon settlements.

Total Requested (i+ii+iii+iv+v+vi) 28 million USD ($)

(c) Co-financing

Financial Instrument Amount Currency Name of

Institution Seniority

Loans21

Loans

Grant

Options

93

57

33

…………

million USD ($)

million USD ($)

million USD ($)

Options

Islamic Development

Bank

Qishloq Qurilish Bank, Ipoteka

Bank

Gosarchitektstroy

…………………

Options

Options

Options

Options

21 The IsDB extends loans to its member countries for the financing of infrastructural and agricultural projects both in the public and private sectors, which have an impact on the economic and social development of the member countries and are accorded priority by the Governments concerned. Such loans, in conformity with Shariah, are interest-free and the Bank recovers its administrative expenses by levying a service fee. See: www.isdb-pilot.org


Lead financing institution: Islamic Development Bank within the framework of the state program for the construction of rural housing

(d) Covenants

(e) Conditions precedent to disbursement

. Expected Performance against Investment Criteria

Please explain the potential of the Project/Programme to achieve the Fund’s six investment criteria as listed below.

D.1. Climate impact potential

[Potential to achieve the GCF's objectives and results]

In terms of Fund-level impact M3.0 (reduced emissions from buildings, cities, industries and appliances), the project will result in direct GHG emission reductions of 7.7 million tCO2e over the investment lifecycle (20 years) from the construction of 44,347 energy-efficient and low-carbon housing units. These estimates are conservative and simplified, and are based on the construction of a mix of residential buildings: one-storey, 3-room family house; two-storey, 4-room housing units in semi-detached building; 2- and 3-room housing units in two-storey multi-apartment buildings (16 apartments). The characteristics of these residential buildings are noted in the table below.

Housing type Family House 3-

Room Semi-detached

4-room Multi-unit with 2- and 3-room housing units

Average space per unit (m2) 62.36 121.5 47.7 Total EE+LC savings potential (kWh/year/unit) 3,792 7,104 2,935

The project will leverage GHG emission reductions in a highly cost-effective manner: by covering only up to 3.6-10% of the additional cost of EE house construction. For Fund-level impact M7.0 (lower energy intensity of buildings, cities, industries and appliances) the project will reduce GHG emissions from a building by ~40-60% (depending on measures adopted).

Approximately 221,735 people in rural settlements will benefit directly. In addition, at least 62,000 homes and 310,000 people will benefit indirectly from project activities, such as the strengthened residential codes, during the project period. Families will continue to experience project benefits after the conclusion of the project, because efficient building performance will continue to bring improved comfort and reduced utility bills, throughout the building lifetimes.

The project will also generate business for private companies providing energy-efficient products and services and companies providing renewable energy technologies. The project will provide capacity strengthening to numerous architects, and to many officials in the central and regional offices of Gosarchitectstroy.

D.2. Paradigm shift potential

[Potential to catalyze impact beyond a one-off project or programme investment]

The proposed project has a significant paradigm shift potential due to (i) scale-up and replication across the country, (ii) contribution to the regulatory framework and policies, (iii) contribution to the enabling environment, and (iv) knowledge creation related to new energy-efficient and low-carbon housing and construction: (i) Scaling up and replication • Project seeks to develop new market segments related to low-carbon housing, including

adopting technologies new to the sector • Potential scalability of the proposed project is nationwide once key policies, market actors

and capacity are in place (ii) Regulatory framework / policies • Project will strengthen regulatory frameworks / policies to drive investment in energy-

efficient low-carbon technologies • Households will have incentives in favour of low-carbon housing/settlements • Climate change considerations will be mainstreamed into settlement/housing design and

procurement practices (iii) Creation of an enabling environment • Market development and transformation is core to this proposed project’s design. The intent

is to creates new markets and business activities related to energy-efficient low-carbon housing at both the local and national levels

(iv) Creation of knowledge and learning • Contribution to knowledge will be primarily be in green design, green procurement and

construction. Within the country, in addition to the Government, the Institute of Energy and


Automation (which operates under the Academy of Sciences) will be consulted on technologies. Effort will be made to liaise with similar ongoing and prospective activities within the region. Cooperation on knowledge activities is being explored with the European Commission, in particular Italy which coordinates the EU Member State efforts to address environmental challenges in Central Asia and the Working Group on Environmental Governance and Climate Change.

D.3. Sustainable development potential

[Potential to provide wider development co-benefits]

Rural communities provide a unique entry-point into sustainable development. The project is explicitly designed to mainstream environmental sustainability by introducing more efficient and less resource-intensive housing throughout rural areas in Uzbekistan. Efficient homes will reduce the amount of non-renewable resources consumed in rural areas and – when minimum energy performance standards are introduced for residential buildings – in all new housing constructed. Environmental co-benefits are better air quality due to the reduced use of fossil fuels, charcoal, and wood-burning stoves (as compared to existing housing stock). Important economic co-benefits will be the development of domestic production of energy-efficient building materials, and subsequent opportunities for job creation and economic growth in rural areas, which will be spurred by the adoption of new building codes and higher energy performance requirements. There will be improved skills and job creation potential of rural residents on eco-building construction, installation and maintenance of modern technologies in buildings, production of eco-materials and products (9.3% of jobs in Uzbekistan are already in the construction sector).22 Energy bills will be reduced and energy reliability, which hinders long-term economic (and social) development, will be supported. Because buildings are responsible for over 50% of domestic energy use, the project will help improve energy security not only for this group, but also for the country in general. Benefits may also accrue to national energy providers in the form of lower costs for transmission and distribution and the possibility of deferring system upgrades or ‘right-sizing’ new generating capacity given that the same amount of energy will be able to service more consumers.23 Key social co-benefits include the reduced impact of potential energy shortages in rural areas, particularly in the winter, thereby improving living conditions, and minimizing health and social problems. Improved health of the rural population is anticipated through better outdoor and indoor air quality due to the reduced use of fossil fuels, charcoal, and wood-burning stoves (as compared to existing housing stock). An anticipated co-benefit is better quality of life and access to essential services (housing, energy, water, sanitation) for the rural population, resulting in decreased disparities and inequalities. Strengthened local governance may increase in such areas as land-use planning, building/construction permit issuance. The project’s gender-sensitive development impacts reflect that “integration of gender issues remains limited in hard sectors such as infrastructure development, transport, and energy.”24 Still, certain energy-related tasks (e.g. such as boiling water to kill bacteria), are done primarily by women and require a reliable energy supply.25 Labour-saving devices for housework, which primarily benefit women due to the distribution of household duties, may not be purchased when power supply is unreliable.26 Women in rural areas can particularly benefit from reliable and affordable energy supplies because they enable the establishment of home-based businesses, particularly in food preparation. Adult women tend to spend more time in the home than adult men, and thus benefit more from improvements indoor air quality and climate. These findings indicate that sustainable energy in rural households may produce a variety of benefits that accrue to women. In addition, the project will include gender-specific activities, such as working to maximize women’s participation in capacity-development training in energy management and services; it will also include targets for women’s participation; and the project monitoring and evaluation budget will support the collection of gender-disaggregated data. The project will monitor the share of women and men who are direct project beneficiaries, and it will also monitor the nature of these benefits.

22 State Committee on Statistics (2013). 23 An IEA report identifies these benefits in addition to secondary benefits related to the affordability of energy services, which will become increasingly important as tariffs rise during the project implementation period. Source: IEA (2014): 22. 24 ADB (2014): 7. ‘Country Gender Assessment for Uzbekistan’ 25 Ibid: 41. 26 ADB (2011) Uzbekenergo Advanced Electricity Metering Project, cited in ADB (2014): 48.


D.4. Needs of recipient

[Vulnerability to climate change and financing needs of the recipients]

The target population – rural residents – have lower incomes than their urban counterparts, and the poverty rate in rural areas is higher (17.3%) than in urban areas (10.6%).27 Furthermore, approximately 1.5 million residents need improved housing.28 Rural dwellers lack the upfront capital to be able to invest in energy-efficient housing measures and, furthermore, lack access to affordable financing instruments to overcome these capital constraints. The project will address these economic and social needs while also building the capacity of key institutions – Government and private sector – to continue addressing these needs long after the GCF project has ended.

D.5. Country ownership

[Beneficiary country ownership of project or programme and capacity to implement the proposed activities]

National Climate Strategy and Plans Uzbekistan's national planning processes clearly state the goal of ensuring that principles of sustainable natural resource use are effectively integrated into policy-making, legislation and institutions; to allow the country to ensure water, energy and food security for the population; and to ensure that its development is economically, environmentally and socially sustainable. • The National Low-Emission Development Strategy of Uzbekistan is under preparation by the

Ministry of Economy with technical assistance from UNDP. The Strategy identifies the building and energy sectors (demand- and supply-sides) as the key sectors where investments should be focused.

• The current draft version of Vision 2030, which will serve as the primary development plan for Uzbekistan, directly acknowledges environmental challenges to development and the need to manage social and environmental risks that can be concurrent with rapid economic development. As the draft background paper on environmental sustainability for the Plan states: “It is clear that whatever growth strategy is chosen, it will have to envisage fundamental changes to the way in which energy and water are used and managed.” The environmental elements of the Vision include the reduction of energy intensity across all sectors and the introduction of institutional reforms to ensure sustainable resource management. 29

• The Initial National Communication to the UNFCCC30 (1999) ranks measures to improve energy efficiency in the building sector as the most cost-effective option to reduce GHG emissions in Uzbekistan, being more cost-effective than the power sector, industry or transport. The Second National Communication31 (2008) notes that energy consumption in the residential sector remained the second-highest source of GHG emissions in the country (after the energy sector) between 1994 and 2005, the latest year for which figures were then available.

• Uzbekistan's Development Strategy for 2017-2021 adopted by the President in February 2017 includes overall focus on reducing energy consumption and resource intensity of the economy, widespread introduction of energy-saving technologies, increasing the share of renewable energy sources but also particularly targeted at further improvement of living conditions of the population, especially of young families, residents of dilapidated houses and other citizens in need of better housing by providing mortgage loans on preferential terms and construction of affordable housing in urban and rural areas.32

Coherence with existing policies and programmes • The National Programme for Increasing Energy Efficiency in Buildings (2015-2020) is

designed to reduce energy consumption, improve competitiveness and to catalyse economic transformation and well-being through the following: strengthening norms; the development of prototype efficient buildings; research and development; the production of efficient construction materials and air conditioning equipment; tax and customs incentives; the creation of favourable conditions for attracting investment in energy-efficient buildings and facilities; the construction of energy-efficient buildings and facilities; training for architects, engineers, and energy auditors; and other activities.

• The Government has adopted Presidential Resolutions to support rural housing:

27 Center for Economic Research (2015), Millennium Development Goals Report: Uzbekistan 2015. http://www.uz.undp.org/content/dam/uzbekistan/docs/Publications/mdg/mdg_report_2015/un_uzb_mdg_report_eng.pdf:` 18. 28 UNDP (2014). Energy Efficiency in Buildings: Untapped Reserves for Uzbekistan Sustainable Development 29 http://www.cer.uz/upload/iblock/8d5/uzbekistan%20towards%202030%20-%20transition%20to%20resource-efficient%20growth%20model_2014.pdf 30 Government of Uzbekistan (1999), Initial National Communication to the United Nations Framework Convention on Climate Change, http://unfccc.int/essential_background/library/items/3599.php?rec=j&priref=2445#beg 31 Government of Uzbekistan (2008), Second National Communication to the United Nations Framework Convention on Climate Change, http://unfccc.int/essential_background/library/items/3599.php?rec=j&priref=6568#beg 32 http://www.tashkenttimes.uz/national/541-uzbekistan-s-development-strategy-for-2017-2021-has-been-adopted-following-discussion

http://www.uz.undp.org/content/dam/uzbekistan/docs/Publications/mdg/mdg_report_2015/un_uzb_mdg_report_eng.pdf

http://www.tashkenttimes.uz/national/541-uzbekistan-s-development-strategy-for-2017-2021-has-been-adopted-following-discussion


Resolution PP-1167 ‘On additional measures on expansion of housing construction in rural areas’ (adopted August 2009);

Resolution PP-1354 ‘On additional measures on expansion of individual housing construction in rural areas on basis of standard designs’ (June 2010);

Resolution PP-1403 ‘On additional measures on development of planning and improvement of housing construction in rural areas’ (September 2010);

Resolution PP-1683 ‘On first-priority measures on realisation of the Programme of multi-tranche financing of the project ‘Housing construction development in rural areas’’ (January 2012).

Resolution PP-2343 ‘On a programme of activities to reduce energy intensity [and] the implementation of energy-saving technologies in branches of the economy and the public sector” (May 2015), which outlines several priorities to generate energy savings for 2015-2019, such as ensuring energy efficiency in the residential buildings sector and accelerating the development of renewable energy resources, in particular solar energy.

Resolution “On additional measures on effective realization of the programme on construction and reconstruction of affordable apartment houses in the cities for 2017-2020” (January 2017).

Resolution “On the program of measures for further development of renewable energy, improving energy efficiency in economic and social spheres for 2017-2021” (May 2017).

Capacity of Executing Entity The executing entity for the project will be the State Committee for Architecture and Construction (Gosarchitectstroy). Gosarchitectstroy has the required track record and relevant experience / expertise because of: (1) its mandate for, and expertise in, developing and enforcing state policies in the building sector; (2) its leading role in implementing all state-funded construction programmes, including the RHP; and (3) its prior experience and leading role in designing and implementing successful international projects and initiatives on sustainable buildings, including the completed UNDP-led GEF-funded “Energy Efficiency in Public Buildings” project and the ongoing UNDP-led GEF-funded “Market Transformation for Sustainable Rural Housing in Uzbekistan” project. Stakeholder Engagement The proposed project is the result of substantive, ongoing communication with many stakeholders in Uzbekistan. In addition to working closely with the project implementation unit for the UNDP-GEF EEPB project, the national implementing partner (Gosarchitectstroy), the project board members, and the National Designated Authority (Uzhydromet), several missions have provided an occasion to discuss and formulate the most effective means of improving energy efficiency in rural houses. Section G of this document provides an overview of the proposed roles of stakeholders in the implementation of the proposed project. Organizations that have contributed their insights in meetings to date include: • Government of Uzbekistan: A discussion of this funding proposal was held with the First

Deputy Prime Minister (the Minister of Finance) beginning in June 2015. Other government officials have been consulted at the Ministry of Economy; the Ministry of Foreign Affairs; the Ministry of Foreign Economic Relations, Investment and Trade; the State Committee for Nature Protection; and members of Parliament.

• Banks: Meetings have been held with the National Bank of Uzbekistan, QQB, and Ipoteka Bank. The project development team has also consulted extensively with the Islamic Development Bank and with the Asian Development Bank. Furthermore, the project has met with representatives of the Fund for Reconstruction and Development of Uzbekistan.

• Utilities: Meetings have been held with Uzenergo, the national utility, and the government agency that oversees municipal communal services (utilities).

• Business: The Chamber of Trade and Industry and a trade association for alternative energy have been consulted.

• Other: Meetings have also been held with the National University of Uzbekistan, the Academy of Sciences of Uzbekistan, and the Environmental Movement of Uzbekistan.33

D.6. Effectiveness and efficiency

The project presents a cost-effective and efficient way to reduce future GHG emissions in rural buildings and infrastructure for several reasons: • Sector has a high potential for cost-effective mitigation efforts. • Sector offers entry points for renewable energy (such as solar) of interest to homeowners.

33 http://www.eco.uz/en


[Economic and financial soundness and effectiveness of the proposed activities]

• Capacity building on improving the implementation of regulatory requirements, such as work to increase code compliance for residential buildings and to monitor energy use systematically, will generate large and lasting effects on emissions by ensuring that all future buildings are more efficient.

The project will leverage significant co-financing with a ratio of 1:6.5 (GCF funding: co-financing), and total resources of US$ 211,000,000 (including US$ 183,000,000 in co-finance). The project will support the development of green technologies and supporting services in the construction sector. Summary of estimates

(a) Requested GCF amount US$ 28,000,000

(b) Expected emissions reductions during project lifetime (direct) 1,000,000 tCO2eq

(c) Expected emissions reductions over 20-year equipment lifetime (direct) 4,900,000 tCO2eq (d) Estimated cost US$ per tCO2eq (d=a/b) over project lifetime for the whole project US$ 28.00 tCO2eq

(e) Estimated GCF cost US$ per tCO2eq (e=a/c) over equipment lifetime for the whole project US$ 5.71 tCO2eq

Note: The estimated costs are consistent with the range of mitigation costs observed in the UNDP-GEF project “Increasing Energy Efficiency in Public Buildings.”34

E. Brief Rationale for GCF Involvement and Exit Strategy Funding by the GCF is essential for the implementation of the proposed project as it will transform the rural housing sector by setting it on a low-carbon trajectory by overcoming the following barriers that prevent private sector investment in the construction and purchase of modern energy-efficient and low-carbon rural housing: • Relatively high cost of new rural housing based on mortgage lending and limited access of homeowners to

consumer loans for purchase of energy-efficient homes and renewable energy systems; • Lack of incentives for homeowners to build/purchase low-carbon housing and energy-efficient household

appliances and renewable energy systems; • Lack of capacity and related incentives to implement green design that includes consideration of renewable

energy solutions at the house and settlement level. Additional costs of planning and siting are not being met. • Lack of capacity and related incentives to conduct green procurement in the rural housing sector. • Regulatory and legislative framework, which requires further development and improvement, for development of

designs of energy-efficient and low-carbon buildings, including planning of sites for their construction. While the project is designed to encourage the growth of a market for efficient rural homes and uses IFIs and the commercial banking sector to leverage financing, it will not be possible to undertake it without GCF support. Indeed, in the absence of GCF support, none of the proposed additional project activities will be implemented: i.e. while the National Rural Housing Programme will construct over 51,000 rural houses, these units will comply only with existing energy performance requirements. Overall, this will result in a higher amount of energy consumed, renewable energy sources will not be used, higher fuel costs for owners will be incurred over the building lifetimes, and significant potential GHG emission reductions will go unrealised.

Exit strategy

Long-run financial viability will result from two factors: 1) the project will increase economies of scale in the market for EE and renewable technologies, which will increase their availability and lower their cost; 2) the project will create demand for these technologies by strengthening compliance with energy performance requirements in rural areas, that will affect all new residential buildings. Furthermore, materials and technologies that are installed during project implementation will remain in place for many years following project completion.

The exit strategy for the project is there built into the project design and project activities: the project interventions will create capacity in the Government; and the market for energy-efficient and low-carbon housing that is created through the project activities will function on its own. Examples include the following:

• In Output 1, the materials used in the EE and low-carbon houses will stimulate the market and rapidly become commodity items for standardised homes rather than specialty products. Support for the use of solar PV units will 34 See UNDP (2014), Results of Implementation of Energy-Efficient Solutions in Eight Pilot Buildings.


increase demand for those technologies, and higher volumes of sales in the market will lead to lower prices for consumers.

• In Output 1, direct financial support for more efficient and low-carbon housing will effectively ‘build in’ lower emissions in homes that will be occupied for decades. Emission reductions will be realised long after the project concludes.

• In Output 1, developing of leasing scheme for PV sets and gradual shift of the additional costs of construction of energy efficient and low carbon houses to homebuyers through the RHP mortgage mechanisms, will serve instrumental in sustaining the energy efficient construction practices without significant financial burden on homebuyers.

• In Output 2, the proposed policy measures, particularly the Minimum Energy Performance Standards for residential buildings, are designed to be self-sustaining. They will not only remain in effect after the project concludes, they will be updated at specific intervals in the future, which will allow them to become even more rigorous as technologies, materials, and practices advance.

• Outputs 1 and 2 include activities to increase capacity in government agencies and the private sector in the construction and land planning sectors, and this capacity will remain after the GCF intervention ends.

To ensure that project activities maintain a focus on post-project sustainability, the mid-term independent review will make specific recommendations on the exit strategy, and the project management team will discuss this issue explicitly with the Project Board.

Finally, it should be noted that energy tariffs are increased twice a year by state utilities, and these increases are expected to continue. This means that, throughout the project period, the savings accrued by investing in efficient and renewable technologies will continue to increase, thereby further promoting uptake.

F. Risk Analysis The table below provides an overview of project-related risks and their UNDP risk rating, and an explanation of how they will be addressed. Table 4. Overview of Project Risks

Description of Risk Risk Rating Explanation of how risks will be addressed

Financial Risk Moderate

Due to current interest rates and loan terms, there is a moderate risk that the financial incentive offered by the project could experience low uptake by borrowers. The project will mitigate this risk by working closely with commercial banks to design a financial incentive that is responsive to the sensitivities of both lenders and borrowers.

Market risk Moderate

Low residential energy tariffs and the subsidised domestic price of natural gas may limit demand for EE/RE technologies in the rural housing sector. However, this risk is countered by the fact that the rural population is already suffering from chronic energy shortages and unstable supply of energy from centralised sources (gas and power network). Therefore, the demand and motivation for more EE houses and use of RE stems from the need to improve living conditions: i.e. consumers are willing to pay to ensure a secure supply of energy.

Technical Risk Low-Moderate

There is a low-to-moderate risk that the technologies in the project could experience difficulties in operations or in maintenance. This risk will be mitigated by thorough screening of technologies, on-going support to manufacturers and distributors, and monitoring.

Political Risk Low

There is only a low risk that energy efficiency and renewable energy might cease to become a priority for the Government of Uzbekistan. Resource efficiency is a pillar of the country’s strategic planning documents, and the Government is currently very supportive of on-going projects in this area.

Climate Change Risk Low

The climate-related risk of the project is considered low because long-term climate impacts (i.e. temperature extremes, higher average temperatures, and reduced precipitation) will be directly addressed through housing units that will be more resource-efficient and comfortable (and yet more affordable) at both high and low temperatures.


Environmental and Social Risks Low

No substantial environmental and social risks have been identified that the project may face. The project will be implemented in accordance with UNDP’s environmental and social policies to ensure that any environmental risks are minimised. A preliminary Environmental and Social Impact Assessment in included as an annex to this Concept Note.

G. Multi-Stakeholder Engagement A stakeholder assessment has been conducted and discussions have been held with the National Designated Authority, the UNFCCC Focal Point, the Executing Entity and other key stakeholders. The table below provides an overview of relevant stakeholders and their proposed roles in the project. Table 5. Overview of Project Stakeholders and their Proposed Engagement in Project Implementation

Type of Stakeholder

Name of Stakeholder Relevance to Project and Role in Preparation

Government

Gosstroy

Gosstroy will be the executing partner for project activities due to the following factors: 1) its mandate for, and expertise in, developing and enforcing state policies in the building sector; 2) its leading role in implementing all state-funded construction programmes, including the RHP; and 3) its prior experience and leading role in designing and implementing successful international projects and initiatives on sustainable buildings, such as the UNDP-GEF ‘Energy Efficiency in Public Building’ project.

Ministry of Economy

The Ministry defines the exact geographical and financial scope of the RHP on an annual basis. It also approves the final technical design of houses to be constructed and the investment from the national budget.

Ministry of Finance

The Ministry of Finance provides the annual allocation in the state budget for the RHP and is the Government agency that handles sovereign lending and ODA. The project will work with the Ministry to reflect planned expenditures in rural housing and rural development.

The State Committee of the Republic of Uzbekistan on Land Resources, Geodesy, Cartography and State Cadastre

The State Committee oversees land-use planning issues in Uzbekistan and will be consulted regarding baseline capacity and capacity needs in land-use management and land-use planning in rural areas, particularly housing development siting issues.

Regional and district municipal authorities

This group will be consulted on their training and capacity strengthening needs around land-use planning and zoning, particularly regarding the integration of climate change considerations into local decision-making.

Local self-governance units; i.e. Makhallas and Village Citizen Assemblies

These groups will also be consulted on their training and capacity strengthening needs around land-use planning and zoning, particularly regarding the integration of climate change considerations into local decision-making.

Private Sector

Commercial Banks such as Qishlok Qurilish Bank (Rural Construction Bank) and Ipoteka Bank (Mortgage Bank)

Qishloq Qurilish Bank (Rural Construction Bank) is responsible – in conjunction with Gosarchitectstroy – for providing financing for rural housing under the Housing for Sustainable Rural Development investment programme. Ipoteka Bank is a major mortgage provider and a source of construction financing in Uzbekistan. Both banks will be consulted during the project preparation period on the most feasible type of financing mechanism or mechanisms to support low-carbon rural housing.

Homeowners taking out green mortgages

Homeowners are a critical stakeholder group, particularly as they will provide a 40% down-payment on the EE and low-carbon homes.


Other Organisations in Uzbekistan

Organisations supporting the dissemination of efficient technologies

These organisations, such as Energy Centre Uzbekistan, the Association of Producers of Renewable Energy, and the Chamber of Commerce and Industry of Uzbekistan, will be consulted regarding their experiences in technologies for rural housing, rural infrastructure and the construction sector.

Research organisations

The Institute of Energy and Automation, which operates under the Academy of Sciences, will be consulted on technologies and current R&D efforts. The Centre for Economic Research (CER) and the Institute of Forecasting and Macroeconomic Research will also be consulted.

NGOs

Organisations such as the Ecological Movement of Uzbekistan and the Uzbek Club on Alternative Energy will be consulted regarding their experiences with awareness-raising activities at the sub-national level that will be relevant to Component 4 of the project.

Multilateral Organizations

Islamic Development Bank

IsDB will serve as a key partner and source of co-financing for the green procurement activities. They will participate in the project as a member of the Project Board and will serve as a source of experience with renewable energy projects for rural areas.

Asian Development Bank

The project will maintain on-going contact with ADB, and it will consult ADB regarding lessons learned to date under the rural housing loan and its proposed future activities in Uzbekistan. The project will also consult ADB’s gender action plan and experience with gender mainstreaming in its RHP-related lending. In turn, lessons learned from the proposed project will be shared with ADB.

Global Environmental Facility (GEF)

The GEF ongoing project in residential buildings will serve as a conduit for good practice and lessons-learned in the course of project implementation. The GEF funding being considered as potential co-financing for the project in the form of grants for both technical assistance activities in Outputs 1 and 2, and investment activities in Output 1.

United Nations Economic Commission for Europe (UNECE)

The project will work with UNECE in the context of the Country Profile on Housing and Land Management for Uzbekistan, the Inter-Agency Working Group on the development of the Profile, and on information that will be collected for the Profile that may be of use to the project.

UNDP

The project management unit will work closely with the UNDP-GEF project management unit on Sub-Component 3 of the project and on capacity strengthening measures to be implemented in partnership with Gosstroy in Sub-Components 1 and 2. The project will also work closely with the LGSP-II project on the selection of municipalities piloting the low-carbon settlement approach.

H. Status of Project/Programme

1) A pre-feasibility study is expected to be completed at this stage. Please provide the report in section J.

2) Please indicate whether a feasibility study and/or environmental and social impact assessment has been

conducted for the proposed project/programme: Yes ☒ No ☐ (If ‘Yes’, please provide them in section J.)

3) Will the proposed project/programme be developed as an extension of a previous project (e.g. subsequent phase), or based on a previous project/programme (e.g. scale up or replication)? Yes ☒ No ☐ (If yes, please provide an evaluation report of the previous project in section J, if available.)

I. Remarks

☒ Map indicating the location of the project/programme (Annex I) ☒ Financial Model (Annex II – provided separately) ☒ Pre-feasibility Study (Annex III)


☐ Feasibility Study (if applicable) ☒ Environmental and Social Impact Assessment (if applicable) (Annex IV) ☒ Evaluation Report (if applicable) (Annex III)


Annex I. Map The areas in green indicate areas where the State Programme on Housing for Sustainable Rural Development can operate and where project activities may take place. Specific sites for technical assistance related to rural land-use and settlement planning will be selected in the initial phase of the project.

Karakalpaksta

Navoi

Bukhara Samarkand

Kashkadarya

Surkhandarya

Djizzakh Syrdarya

Tashkent

Aral Sea


Annex II. Financial Model

1. Housing Mix

Year* 2019 2020 2021 2022 2023 TOTAL Number of 3-room family houses 684 839 632 550 316 3,022 3,022 buildings

Number of 4-room housing units in semi-detached (2-apartments) building 1,850 2,518 2,057 1,806 1,029 9,260 4,630 buildings

Number of 2 and 3 housing units in multi-apartment buildings (16 apartments in total) 3,913 5,000 3,871 3,387 1,935 18,107 1,132 buildings Total number of housing units* 6,447 8,357 6,560 5,743 3,280 30,388 8,784 buildings

Total Number of Households

Households 2019 2020 2021 2022 2023 TOTAL HHs in 3-room family houses 684 839 632 550 316 3,022

HHs in 4-room housing units in semi-detached (2-apartments) building 1,850 2,518 2,057 1,806 1,029 9,260

HHs in 2 and 3 room housing units in multi-apartment buildings (16 apartments in total) 3,913 5,000 3,871 3,387 1,935 18,107

Total Number of Households** 6,447 8,357 6,560 5,743 3,280 30,388

Total Number of Beneficiaries

People 2019 2020 2021 2022 2023 TOTAL

32,236 41,787 32,802 28,715 16,401 151,940

*Housing unit is single family house and/or apartment in semi-detached (2-apartments) building and in multi-apartment buildings

** Household is a rural family living in the housing unit


2. List of Measures and their Cost and Energy Savings (by Housing Type)

A. Measures, Costs, and Savings: 3-Room Family Houses

Estimated Cost of Measures Selected (cost per house)*

Measure 2019 Unit Cost 2020 Unit Costs 2021 Unit Costs 2022 Unit Costs 2023 Unit Costs

Exterior wall insulation $966.00 $966.00 $966.00 $966.00 $966.00 Socle insulation $182.00 $182.00 $182.00 $182.00 $182.00 Efficient heating system $193.00 $193.00 $193.00 $193.00 $193.00 Solar PV Unit $1,649.00 $1,649.00 $1,649.00 $1,649.00 $1,649.00

EE rural house $1,341.00 $1,341.00 $1,341.00 $1,341.00 $1,341.00

LC rural house $2,990.00 $2,990.00 $2,990.00 $2,990.00 $2,990.00

Estimated Savings from Measures per house (heat area of house is 62.36 m2) Measure Saving through

EE measures Saving through

EE+LC measures

kWh kWh

Exterior wall insulation 2,054 2,054 Socle insulation 749 749

Efficient heating system 749 749


Solar PV Unit (electric energy) for lighting 240

TOTAL 3,552 3,792

*Estimated for 2019 with considering inflation rate and increase of market prices. Remaining years are considered as having the same

inflation rate and price increase as 2019 but will be adjusted based on analysis of situation in 2018-2019

B. Measures, Costs, and Savings: Semi-Detached Family Houses - 4-room housing units - one in each of 2 blocks of building

Estimated Cost of Measures Selected (cost per housing unit)*


Exterior wall insulation $1,142.00 $1,142.00 $1,142.00 $1,142.00 $1,142.00 Socle insulation $108.00 $108.00 $108.00 $108.00 $108.00 Efficient heating system $335.00 $335.00 $335.00 $335.00 $335.00 Solar PV Unit $1,649.00 $1,649.00 $1,649.00 $1,649.00 $1,649.00

EE rural house $1,585.00 $1,585.00 $1,585.00 $1,585.00 $1,585.00 793 per apartment

TOTAL (LC rural house) $3,234.00 $3,234.00 $3,234.00 $3,234.00 $3,234.00 2,442 per apartment

Estimated Savings from Measures per house (heat area of apartment is 121.5 m2)

Measure Saving through EE measures

Saving through EE+LC measures

kWh kWh


Exterior wall insulation 3,971 3,971

Socle insulation 1,446 1,446

Efficient heating system 1,447 1,447


TOTAL 6,864 7,104

*Estimated for 2019 with considering inflation rate and increase of market prices. Remaining years are considered as having the same inflation rate and price increase as 2019 but will be adjusted based on analysis of situation in 2018-2019

C. Measures, Costs, and Savings: Muli-Unit Rural House, 2-storey with 2 and 3 housing units in multi-apartment buildings (16 apartments in total)

Estimated Cost of Measures Selected (cost per housing unit)*


Exterior wall insulation $498.00 $498.00 $498.00 $498.00 $498.00 Socle insulation $126.00 $126.00 $126.00 $126.00 $126.00 Efficient heating system $204.00 $204.00 $204.00 $204.00 $204.00 Solar PV Unit $824.00 $824.00 $824.00 $824.00 $824.00

EE rural house $828.00 $828.00 $828.00 $828.00 $828.00

TOTAL (LC rural house) $1,652.00 $1,652.00 $1,652.00 $1,652.00 $1,652.00


Estimated Savings from Measures per house (heat area of apartment is 47.7 m2) Measure Saving through

EE measures Saving through

EE+LC measures

kWh kWh

Exterior wall insulation 1,559 1,559

Socle insulation 568 568

Efficient heating system 568 568


TOTAL 2,695 2,935

*Estimated for 2019 with considering inflation rate and increase of market prices. Remaining years are considered as having the same inflation rate and price increase as 2019 but will be adjusted based on analysis of situation in 2018-2019

3. Overview of Project Outputs

Year* Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 TOTAL

Total Number of houses(units) 6,447 8,357 6,560 5,743 3,280 0 30,388

Total Number of Households 6,447 8,357 6,560 5,743 3,280 0 30,388

Total Number of Beneficiaries 32,236 41,787 32,802 28,715 16,401 0 151,940

Total Green Procurement Costs (mln USD) 2.0 6.0 4.0 3.5 2.0 0.0 17.5

Energy Savings (kWh) per particular year of constructed housing units 25,728,048.74 31,131,420.22 26,841,220.46 23,513,753.56 13,420,610.23 0.00

Energy Savings (kWh) constructed in previous years 0 25,728,048.74 56,859,468.96 83,700,689.42 107,214,442.97 120,635,053.20


Energy Savings (kWh) cumulative during project lifetime 25,728,048.74 56,859,468.96 83,700,689.42 107,214,442.97 120,635,053.20 120,635,053.20 514,772,757

Total GHG Reductions during project lifetime (t CO2) 51,960.37 114,833.38 169,041.91 216,530.29 243,634.55 243,634.55 1,039,635

Energy Savings (kWh) during equipment lifetime of 20 years 514,560,975 622,628,404 536,824,409 470,275,071 268,412,205 0 2,412,701,064

Total GHG Reductions during equipment lifetime (t CO2) 1,039,207.34 1,257,460.33 1,084,170.58 949,767.53 542,085.29 0.00 4,872,691

*Assumes no project-related construction in first six months or last eighteen months

Cost per ton during project lifetime (direct) 16.83

Cost per cummulative ton over 20 year equipment lifetime (direct) 3.59

(a) Requested GCF amount (US$)

28,000,000

(b) Expected emissions reductions during project lifetime (direct) tCO2eq

1,000,000


(c) Expected emissions reductions over 20-year equipment lifetime (direct) v

4,900,000

(d) Estimated cost US$ per tCO2eq (d=a/b)

28.00

(e) Estimated GCF cost US$ per tCO2eq (e=a/c)

5.71

4. Data on Houses Planned for Construction within Rural Housing Programme during 2017-2023 Type of houses 2017 2018 2019 2020 2021 2022 2023 Total number of housing

units/buildings during 2017-2023

TOTAL (housing units) 15,040 16,000 17,000 18,000 19,000 20,000 21,000 126,040 (housing units)

including by IsDB 2,242 2,073 2,089 6,404 (housing units)

One-story, 3-room family house 3,878 4,060 4,320 4,610 4,910 5,200 5,490 32,468

including by IsDB 468 737 859 2,064

Two-story, 4-room housing units in semi-detached (2-apartments) building, (housing units/buildings) 3,736/1,868 3,910/1,955 4,150/2,075 4,430/2,215 4,720/2,360 5,000/2,500 5,280/2,640 31,226/15,613

including by IsDB 696/348 440/220 302/151 1,438/719

Two-story, 2 and 3 housing units in multi-apartment buildings (16 apartments in total), (housing units/buildings) 4,564/285 6,030/377 6,530/408 6,960/435 7,370/461 7,800/488 8,230/514 47,484/2,968 including by IsDB 560/35 896/56 928/58 2,384/149


*3,4,5-room individual family houses 2,862 2,000 2,000 2,000 2,000 2,000 2,000 14,862

Total (housing units/buildings) 126,040/65,911 *as they are quite expensive will not be covered by project activities

5. Cost and number of houses estimates by years (2019-2023)

2019

TOTAL planned 17,000 TOTAL planned by IsDB 2,073

# of houses (units)

cost of standard

house (unit) (USD)

additional costs to standard house(unit) Green procurement covered by GCF funds

Total Green procureme

nt

# of houses(unit) covered by GCF funds

Total # of houses(units)*

EE house(unit) LC house(unit) EE house (unit) (90%)

LC house (unit) (10%)

EE house(unit)

LC house(unit)

USD % vs standar

d

USD % vs standar

d

USD mln

% USD mln % USD mln

One-story, 3-room family house (constructed by IsDB)

4,320(737)

$26,319 $1,341 5.1 $2,990 11.4 $0.81 15 $0.24 40 $1.05 604 80 684

Two-story, 4-room housing units in semi-detached (2-apartments) building (constructed by IsDB)

4,150(440)

$22,335 $793 3.6 $2,442 10.9 $1.35 25 $0.36 60 $1.71 1,702 147 1,850

Two-storey, 2 and 3 room housing units in multi-apartment buildings (16 apartments in total); (constructed by IsDB)

6,530(896)

$17,818 $828 4.6 $3.24 60 $3.24 3,913 0 3,913

Sub-total $2,962 $5,432 $5.40 $0.60 6,219 228

TOTAL $6.00 6,447


*green procurement amounted to $6M will cover additional costs of all houses constructed by IsDB (2,073) and 4,374 constructed nationally, i.e. 38% of total will be constructed in 2019. This also indirectly reflects that 4,374 green mortgages have been demanded and provided to mortgage borrowers (through QQB) in 2019; and 2,073 of green mortgates will be provided in 2020 (as soon they will be handed over by IsDB to the Government, through QQB).

2020

TOTAL planned 18000

IsDB 2,089

# of houses (units)

cost of standard

house (unit) included 1% of additional cost of EE

house (USD)**

additional costs to standard house(unit) Green procurement covered by GCF funds Total Green procurement,

USD mln

# of houses (unit) covered by GCF funds

Total # of houses (units)*

EE house (unit)

LC house (unit)

EE house (unit) (90%)


EE house (unit)

LC house (unit) USD % vs

standard USD % vs

standard USD mln % USD mln %


4610(859) $26,579 $1,078 4.1 $2,727 10.3 $0.81 15 $0.24 40 $1.05 751 88 839


4430(302) $22,555 $573 2.5 $2,222 9.9 $1.35 25 $0.36 60 $1.71 2,356 162 2,518

Two-story, 2 and 3 room housing units in multi-apartment buildings (16 apartments in total) (constructed by IsDB)

6960(928) $17,998 $648 3.6 $3.24 60 $3.24 5,000 0 5,000

Sub-total $2,299 $4,949 $5.40 $0.6 8,107 250

TOTAL $6.00 8,357

*green procurement amounted to $6M will cover all houses constructed by IsDB (2,089) and 6,268 constructed nationally, i.e. 46% of total will be constructed in 2020. This also indirectly reflects that 6,268 green mortgages have been demanded and provided to mortgage borrowers (through QQB) in 2020; and 2,089 of green mortgates will be provided in 2021 (as soon they will be handed over by IsDB to the Government, through QQB).


**cost of standard house included 1% of additional cost of EE house that will be paid by a mortgage borrower

2021

TOTAL planned 19,000

# of houses (units)

cost of standard

house (unit) included 1.5% of

additional cost of EE

house (USD)**

additional costs to standard house (unit) Green procurement covered by GCF funds

Total Green procurement,

USD mln


Total # of houses (units) EE house (unit) LC house (unit) EE house (unit)

(90%) LC house (unit)

(10%) EE house (unit)


standard USD % vs



4,910 $26,710 $947 3.5 $2,596 9.7 $0.54 15 $0.16 40 $0.70 570 62 632


4,720 $22,665 $463 2.0 $2,112 9.3 $0.90 25 $0.24 60 $1.14 1,944 114 2,057

Two-story, 2 and 3 room housing units in multi-apartment buildings (16 apartments in total) (constructed by IsDB)

7,370 $18,088 $558 3.1 $2.16 60 $2.16 3,871 0 3,871

Sub-total $1,968 $4,708 $3.60 $0.40 6,385 175

TOTAL $4.00 6,560

*green procurement amounted to $4M will cover 6,560 constructed nationally, i.e. 35% of total will be constructed in 2021. This also indirectly reflects that 6,560 green mortgages have been demanded and provided to mortgage borrowers (through QQB) in 2021.

**cost of standard house included 1.5% of additional cost of EE house that will be paid by a mortgage borrower


2022


# of houses (units)

cost of standard

house (unit) included 1.5% of additional cost of EE

house (USD)**

additional costs to standard house (unit) Green procurement covered by GCF funds

Total Green procurement

USD mln


Total # of houses (units)*

EE house (unit) LC house (unit) EE house (unit) (90%)


EE house (unit)


standard USD % vs

standard USD mln % USD

mln %

One-story, 3-room family house

5,200 $26,710 $947 3.5 $2,596 9.7 $0.47 15 $0.14 40 $0.61 496 54 550

Two-story, 4-room housing units in semi-detached (2-apartments) building

5,000 $22,665 $463 2.0 $2,112 9.3 $0.79 25 $0.21 60 $1.00 1,706 99 1,806

Two-story, 2 and 3 room housing units in multi-apartment buildings (16 apartments in total)

7,800 $18,088 $558 3.1 $1.89 60 $1.89 3,387 3,387

Sub-total $1,968 $4,708 $3.15 $0.35 5,590 153

TOTAL $3.50 5,743

*green procurement amounted to $3.5M will cover 5,743 constructed nationally, i.e. 29% of total will be constructed in 2022.This also indirectly reflects that 5,743 green mortgages have been demanded and provided to mortgage borrowers (through QQB) in 2022.



2023


# of houses (units)

cost of standard

house (unit) included 1.5% of

additional cost of EE

house (USD)**

additional costs to standard house Green procurement covered by GCF funds Total Green procurement

USD mln

# of houses(unit)covered by GCF funds

Total # of houses(units)*

EE house(unit) LC house(unit) EE house (unit) (90%)

LC house(unit) (10%)

LC house (unit)


standard USD % vs


One-story, 3-room family house

5,490 $26,710 $947 3.5 $2,596 9.7 $0.27 15 $0.08 40 $0.35 285 31 316

Two-story, 4-room housing units in semi-detached (2-apartments) building

5,280 $22,665 $463 2.0 $2,112 9.3 $0.45 25 $0.12 60 $0.57 972 57 1,029

Two-story, 2 and 3 room housing units in multi-apartment buildings (16 apartments in total)

8,230 $18,088 $558 3.1 $1.08 60 $1.08 1,935 1,935

Sub-total $1,968 $4,708 $1.80 $0.20 3,193 88

TOTAL $2.00 3,280

*green procurement amounted to $2M will cover 3,280 constructed nationally, i.e. 16% of total will be constructed in 2023. This also indirectly reflects that 3,280 green mortgages have been demanded and provided to mortgage borrowers (through QQB) in 2023.



Annex III. Pre-feasibility Study / Evaluation Report The pre-feasibility study was formed as part of the work undertaken, from 2009 to mid-2015, by UNDP and the State Committee for Architecture and Construction of the Republic of Uzbekistan, with financial support from the Global Environment Facility through the project entitled Promoting Energy Efficiency in Public Buildings in Uzbekistan. The final report and lessons-learned study from the UNDP-GEF Promoting Energy Efficiency in Public Buildings project is available here: http://www.eurasia.undp.org/content/rbec/en/home/library/environment_energy/energy-efficiency-in-public-buildings-in-uzbekistan/

http://www.eurasia.undp.org/content/rbec/en/home/library/environment_energy/energy-efficiency-in-public-buildings-in-uzbekistan/

http://www.eurasia.undp.org/content/rbec/en/home/library/environment_energy/energy-efficiency-in-public-buildings-in-uzbekistan/

Annex IV. Environmental and Social Impact Assessment Project Information 1. Project Title Building Efficient and Low-Carbon Rural Settlements in Uzbekistan 2. Project Number TBD 3. Location

(Global/Region/Country) Uzbekistan

Part A. Integrating Overarching Principles to Strengthen Social and Environmental Sustainability QUESTION 1: How Does the Project Integrate the Overarching Principles in order to Strengthen Social and Environmental Sustainability?

Briefly describe in the space below how the Project mainstreams the human-rights based approach • The project development process will involve the active participation of both rights-holders (rural families) and duty-bearers (government

officials at the local, provincial, and country level). Analysis in the project development process explicitly focused on structural causes of the non-realization of rights; in this case, access to affordable, modern, and comfortable housing with a reliable supply of heat and power. Project activities and outcomes have been developed to support the implementation of national and international commitments in the area of environment and climate change.

• All project components include activities to build the capacities of duty-bearers to fulfill their obligations, including the ability to monitor the performance of buildings and verify savings. The project also includes activities to build the capacity of rights-holders to claim their rights by increasing the awareness of homeowners of energy-efficient and renewable home features and increasing financing options for realizing those features.

• Project monitoring and evaluation will examine project processes and outcomes with a view to human rights standards and principles. Briefly describe in the space below how the Project is likely to improve gender equality and women’s empowerment

• The proposed project will analyze any gender-based differences in access to housing and financing, and in the project outputs and will work to address them. The project will involve an in-country gender expert and will maintain open lines of communication with relevant ministries in this area. Project indicators will be designed to explicitly measure the representation of women in trainings and other project-related activities.

Briefly describe in the space below how the Project mainstreams environmental sustainability

• The project is explicitly designed to mainstream environmental sustainability by introducing more efficient and less resource-intensive housing throughout rural areas in Uzbekistan. Efficient homes will reduce the amount of non-renewable resources consumed in rural areas and – when minimum energy performance standards are introduced for residential buildings – in all new housing constructed in Uzbekistan.

3

Part B. Identifying and Managing Social and Environmental Risks QUESTION 2: What are the Potential Social and Environmental Risks? Note: Describe briefly potential social and environmental risks identified in Attachment 1 – Risk Screening Checklist (based on any “Yes” responses).

QUESTION 3: What is the level of significance of the potential social and environmental risks? Note: Respond to Questions 4 and 5 below before proceeding to Question 6

QUESTION 6: What social and environmental assessment and management measures have been conducted and/or are required to address potential risks (for Risks with Moderate and High Significance)?

Risk Description Impact and Probability (1-5)

Significance (Low, Moderate, High)

Comments Description of assessment and management measures as reflected in the Project design. If ESIA or SESA is required note that the assessment should consider all potential impacts and risks.

Risk 1: Generation of Non-Hazardous Construction Waste

I = 2 P = 1

Moderate This issue is addressed through Section 9, Para. 33 of Appendix 1 of Asian Development Bank’s Safeguard Policy Statement, which applies to construction undertaken with ADB sectoral loan funds, which are used to underwrite houses constructed under the RHP. Only investments in housing and infrastructure construction are expected to generate waste.

Recipients of financing for EE housing will be required to dispose of the waste generated from construction consistent with the applicable local regulations. Management of waste/construction debris will be part of the assurances/conditions in granting the loan. Project staff will monitor construction activities financed by the project in order to provide an additional layer of monitoring (in addition to existing government and ADB monitoring of RHP housing construction).

Risk 2: Potential to exclude affected stakeholders from fully participating in decisions that may affect them

I = 3 P = 1

Low Inadequate and/or lack of consultation may exclude stakeholders like women committees, citizens’ organization, female-headed households, poor rural residents, etc. in providing inputs on issues such as eligibility criteria to access financing,

Stakeholder assessment has been conducted to identify the parties to be involved in the project; they include the government, the private sector, home owners, research organizations, NGOs, organizations supporting the dissemination of efficient technologies, and multilateral and local banks.

4

zoning in rural areas, etc.

Risk 3: Duty-bearers may not have the capacity to meet their obligations in the Project and rights-holder not have the capacity to claim their rights

I = 3 P = 1

Low Lack of institutional and technical capability to address issues related to providing energy-efficient rural housing (duty bearers) and lack of knowledge and information on access to financing of energy-efficient initiatives in rural housing (rights-holders)

Trainings of Gosstroy will be included in Output 2 . Other agencies involved in planning will have training to strengthen their capacity on zoning and site planning that incorporates efficient use of resources in rural areas.

Risk 4: Potential to reproduce discrimination against women on participation and access to opportunities and benefits

I = 2 P = 1

Low Access to housing finance by women is constrained by lack of awareness and understanding of the financial services, lack of regular income or collateral, and gender stereotypes.

Project components will be designed to incorporate opportunities to enhance women participation not only in capacity building but also on access to financing and employment. A variety of opportunities to enhance women’s participation. Outreach will be required to focus on women’s perceptions and uptake of EE / LC housing and experiences, and the preparatory analysis for the project will consider possible gender implications of green procurement initiatives.

Risk 5: Vulnerability to potential climate change

I = 3 P = 1

Low Events of extreme weather conditions such as dust storms or flooding may adversely affect the housing units funded by the Project

• Housing units and infrastructure will be designed to be more resource-efficient and climate-resilient

• Strict compliance with residential and institutional building codes will be a condition for disbursement of funds.

• Gosstroy will monitor and report on construction works and will issue building permits at commissioning stage certifying the compliance of each unit with EE or low-carbon design.

Risk 6: Susceptibility to geological hazards such as earthquake

I = 3 P = 1

Low Incidence of earthquake and other geological hazards may affect the integrity of the housing

• Strict compliance with residential and institutional building codes and their seismic performance standards will be a condition for

5

units disbursement of funds, and training on building codes compliance monitoring provided to Gosstroy employees will enhance compliance.

QUESTION 4: What is the overall Project risk categorization?

Select one (see SESP for guidance) Comments Low Risk ☐

Moderate Risk X Although the project will not be directly responsible for the construction of rural housing and infrastructure, it will provide financing for the procurement of materials and equipment in rural houses and will support community planning related to housing and infrastructure design. The project will involve a series of small-scale investments to new rural housing construction designed to be energy-efficient and climate resilient with minimal social and environmental impacts. Good practice in pollution prevention and abatement and in gender-sensitive participation is already mandated through bilateral agreements pertaining to rural housing construction under the Rural Housing Programme between the Government and ADB. The project will monitor all house construction activities under the green procurement sub-component in addition to the on-going RHP monitoring that is being undertaken by the Government.

High Risk ☐ QUESTION 5: Based on the identified risks and

risk categorization, what requirements of the SES are relevant?

Check all that apply Comments Principle 1: Human Rights

X Lack of institutional and technical capacity of the executing agency to meet its obligation to the Project

http://www.undp.org/content/undp/en/home/librarypage/operations1/undp-social-and-environmental-screening-procedure.html

6

Lack of knowledge and information on access to financing of energy-efficient initiatives in rural housing markets by rights-holders

Principle 2: Gender Equality and Women’s Empowerment X

May discriminate women in opportunities such as training, determining eligibility criteria for housing finance, participation in employment opportunities, etc.

1. Biodiversity Conservation and Natural Resource Management ☐

2. Climate Change Mitigation and Adaptation x Vulnerability of housing units to extreme weather

conditions 3. Community Health, Safety and Working

Conditions x Susceptibility of housing units to geologic hazards such as earthquake.

4. Cultural Heritage ☐ 5. Displacement and Resettlement ☐ 6. Indigenous Peoples ☐ 7. Pollution Prevention and Resource

Efficiency x Generation of waste during construction of housing units

Final Sign Off Signature Date Description QA Assessor

UNDP staff member responsible for the Project, typically a UNDP Programme Officer. Final signature confirms they have “checked” to ensure that the SESP is adequately conducted.

QA Approver

UNDP senior manager, typically the UNDP Deputy Country Director (DCD), Country Director (CD), Deputy Resident Representative (DRR), or Resident Representative (RR). The QA Approver cannot also be the QA Assessor. Final signature confirms they have “cleared” the SESP prior to submittal to the PAC.

PAC Chair UNDP chair of the PAC. In some cases, PAC Chair may also be the QA Approver. Final signature confirms that the SESP was considered as part of the project appraisal and considered in recommendations of the PAC.

7

SESP Attachment 1. Social and Environmental Risk Screening Checklist Principles 1: Human Rights

Answer (Yes/No)

1. Could the Project lead to adverse impacts on enjoyment of the human rights (civil, political, economic, social or cultural) of the affected population and particularly of marginalized groups?

No

2. Is there a likelihood that the Project would have inequitable or discriminatory adverse impacts on affected populations, particularly people living in poverty or marginalized or excluded individuals or groups? 35

No

3. Could the Project potentially restrict availability, quality of and access to resources or basic services, in particular to marginalized individuals or groups?

No

4. Is there a likelihood that the Project would exclude any potentially affected stakeholders, in particular marginalized groups, from fully participating in decisions that may affect them?

Yes

5. Are there measures or mechanisms in place to respond to local community grievances? Yes∗ 6. Is there a risk that duty-bearers do not have the capacity to meet their obligations in the Project? Yes

7. Is there a risk that rights-holders do not have the capacity to claim their rights? Yes

8. Have local communities or individuals, given the opportunity, raised human rights concerns regarding the Project during the stakeholder engagement process?

No

9. Is there a risk that the Project would exacerbate conflicts among and/or the risk of violence to project-affected communities and individuals?

No

Principle 2: Gender Equality and Women’s Empowerment

1. Is there a likelihood that the proposed Project would have adverse impacts on gender equality and/or the situation of women and girls?

No

2. Would the Project potentially reproduce discriminations against women based on gender, especially regarding participation in design and implementation or access to opportunities and benefits?

Yes

3. Have women’s groups/leaders raised gender equality concerns regarding the Project during the stakeholder engagement process and has this been included in the overall Project proposal and in the risk assessment?

No N/A

3. Would the Project potentially limit women’s ability to use, develop and protect natural resources, taking into account different roles and positions of women and men in accessing environmental goods and services?

For example, activities that could lead to natural resources degradation or depletion in communities who depend on these resources for their livelihoods and well being

No

Principle 3: Environmental Sustainability: Screening questions regarding environmental risks are encompassed by the specific Standard-related questions below

Standard 1: Biodiversity Conservation and Sustainable Natural Resource Management 1.1 Would the Project potentially cause adverse impacts to habitats (e.g. modified, natural, and critical

habitats) and/or ecosystems and ecosystem services? For example, through habitat loss, conversion or degradation, fragmentation, hydrological changes

No

1.2 Are any Project activities proposed within or adjacent to critical habitats and/or environmentally sensitive areas, including legally protected areas (e.g. nature reserve, national park), areas proposed for protection, or recognized as such by authoritative sources and/or indigenous peoples or local communities?

Yes∗

1.3 Does the Project involve changes to the use of lands and resources that may have adverse impacts on habitats, ecosystems, and/or livelihoods? (Note: if restrictions and/or limitations of access to lands would apply, refer to Standard 5)

No

1.4 Would Project activities pose risks to endangered species? No

1.5 Would the Project pose a risk of introducing invasive alien species? No

1.6 Does the Project involve harvesting of natural forests, plantation development, or reforestation? No

35 Prohibited grounds of discrimination include race, ethnicity, gender, age, language, disability, sexual orientation, religion, political or other opinion, national or social or geographical origin, property, birth or other status including as an indigenous person or as a member of a minority. References to “women and men” or similar is understood to include women and men, boys and girls, and other groups discriminated against based on their gender identities, such as transgender people and transsexuals. ∗Social and Environmental Standards effective on 1 January 2015 provide guidance on setting-up project-level grievance redress mechanism (see Stakeholder Engagement and Response Mechanisms, paragraphs 12-20, and Monitoring, Reporting and Compliance, paragraphs 22-27.). Quality assurance procedures undertaken as part of the standard project implementation (i.e. regular UNDP monitoring, annual meetings, and independent monitoring) would also provide an opportunity to address grievances. ∗ However, NO infrastructure or investment activities will be undertaken in these areas (or in any others) in the course of the proposed project. Activities will be limited to awareness raising, training, and outreach.

8

1.7 Does the Project involve the production and/or harvesting of fish populations or other aquatic species?

No

1.8 Does the Project involve significant extraction, diversion or containment of surface or ground water?

For example, construction of dams, reservoirs, river basin developments, groundwater extraction

No

1.9 Does the Project involve utilization of genetic resources? (e.g. collection and/or harvesting, commercial development)

No

1.10 Would the Project generate potential adverse transboundary or global environmental concerns? No 1.11 Would the Project result in secondary or consequential development activities which could lead to

adverse social and environmental effects, or would it generate cumulative impacts with other known existing or planned activities in the area?

For example, a new road through forested lands will generate direct environmental and social impacts (e.g. felling of trees, earthworks, potential relocation of inhabitants). The new road may also facilitate encroachment on lands by illegal settlers or generate unplanned commercial development along the route, potentially in sensitive areas. These are indirect, secondary, or induced impacts that need to be considered. Also, if similar developments in the same forested area are planned, then cumulative impacts of multiple activities (even if not part of the same Project) need to be considered.

No

Standard 2: Climate Change Mitigation and Adaptation 2.1 Will the proposed Project result in significant36 greenhouse gas emissions or may exacerbate

climate change? No

2.2 Would the potential outcomes of the Project be sensitive or vulnerable to potential impacts of climate change?

Yes

2.3 Is the proposed Project likely to directly or indirectly increase social and environmental vulnerability to climate change now or in the future (also known as maladaptive practices)? For example, changes to land use planning may encourage further development of floodplains, potentially increasing the population’s vulnerability to climate change, specifically flooding

No

Standard 3: Community Health, Safety and Working Conditions 3.1 Would elements of Project construction, operation, or decommissioning pose potential safety risks

to local communities? No

3.2 Would the Project pose potential risks to community health and safety due to the transport, storage, and use and/or disposal of hazardous or dangerous materials (e.g. explosives, fuel and other chemicals during construction and operation)?

No

3.3 Does the Project involve large-scale infrastructure development (e.g. dams, roads, buildings)? No 3.4 Would failure of structural elements of the Project pose risks to communities? (e.g. collapse of

buildings or infrastructure) No

3.5 Would the proposed Project be susceptible to or lead to increased vulnerability to earthquakes, subsidence, landslides, erosion, flooding or extreme climatic conditions?

Yes

3.6 Would the Project result in potential increased health risks (e.g. from water-borne or other vector-borne diseases or communicable infections such as HIV/AIDS)?

No

3.7 Does the Project pose potential risks and vulnerabilities related to occupational health and safety due to physical, chemical, biological, and radiological hazards during Project construction, operation, or decommissioning?

No

3.8 Does the Project involve support for employment or livelihoods that may fail to comply with national and international labor standards (i.e. principles and standards of ILO fundamental conventions)?

No

3.9 Does the Project engage security personnel that may pose a potential risk to health and safety of communities and/or individuals (e.g. due to a lack of adequate training or accountability)?

No

Standard 4: Cultural Heritage 4.1 Will the proposed Project result in interventions that would potentially adversely impact sites,

structures, or objects with historical, cultural, artistic, traditional or religious values or intangible forms of culture (e.g. knowledge, innovations, practices)? (Note: Projects intended to protect and conserve Cultural Heritage may also have inadvertent adverse impacts)

No

4.2 Does the Project propose utilizing tangible and/or intangible forms of cultural heritage for commercial or other purposes?

No

Standard 5: Displacement and Resettlement 5.1 Would the Project potentially involve temporary or permanent and full or partial physical

displacement? No

36 In regards to CO2, ‘significant emissions’ corresponds generally to more than 25,000 tons per year (from both direct and indirect sources). [The Guidance Note on Climate Change Mitigation and Adaptation provides additional information on GHG emissions.]

9

5.2 Would the Project possibly result in economic displacement (e.g. loss of assets or access to resources due to land acquisition or access restrictions – even in the absence of physical relocation)?

No

5.3 Is there a risk that the Project would lead to forced evictions?37 No

5.4 Would the proposed Project possibly affect land tenure arrangements and/or community based property rights/customary rights to land, territories and/or resources?

No

Standard 6: Indigenous Peoples 6.1 Are indigenous peoples present in the Project area (including Project area of influence)? No 6.2 Is it likely that the Project or portions of the Project will be located on lands and territories claimed

by indigenous peoples? No

6.3 Would the proposed Project potentially affect the rights, lands and territories of indigenous peoples (regardless of whether Indigenous Peoples possess the legal titles to such areas)?

No

6.4 Has there been an absence of culturally appropriate consultations carried out with the objective of achieving FPIC on matters that may affect the rights and interests, lands, resources, territories and traditional livelihoods of the indigenous peoples concerned?

No

6.4 Does the proposed Project involve the utilization and/or commercial development of natural resources on lands and territories claimed by indigenous peoples?

No

6.5 Is there a potential for forced eviction or the whole or partial physical or economic displacement of indigenous peoples, including through access restrictions to lands, territories, and resources?

No

6.6 Would the Project adversely affect the development priorities of indigenous peoples as defined by them?

No

6.7 Would the Project potentially affect the traditional livelihoods, physical and cultural survival of indigenous peoples?

No

6.8 Would the Project potentially affect the Cultural Heritage of indigenous peoples, including through the commercialization or use of their traditional knowledge and practices?

No

Standard 7: Pollution Prevention and Resource Efficiency 7.1 Would the Project potentially result in the release of pollutants to the environment due to routine or

non-routine circumstances with the potential for adverse local, regional, and/or transboundary impacts?

No

7.2 Would the proposed Project potentially result in the generation of waste (both hazardous and non-hazardous)?

Yes

7.3 Will the proposed Project potentially involve the manufacture, trade, release, and/or use of hazardous chemicals and/or materials? Does the Project propose use of chemicals or materials subject to international bans or phase-outs? For example, DDT, PCBs and other chemicals listed in international conventions such as the Stockholm Conventions on Persistent Organic Pollutants or the Montreal Protocol

No

7.4 Will the proposed Project involve the application of pesticides that may have a negative effect on the environment or human health?

No

7.5 Does the Project include activities that require significant consumption of raw materials, energy, and/or water?

No

37 Forced evictions include acts and/or omissions involving the coerced or involuntary displacement of individuals, groups, or communities from homes and/or lands and common property resources that were occupied or depended upon, thus eliminating the ability of an individual, group, or community to reside or work in a particular dwelling, residence, or location without the provision of, and access to, appropriate forms of legal or other protections.

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