Case Study Report - USAID Adapt Asia-Pacificadaptasiapacific.org/sites/default/files/events/Lao EPF Case Study... · Case Study Report: ... The rules and standards of the EPF’s

Environmental Protection

A case study providing inputs to discussions in Asia

National Climate Funds, jointly pepared by UNDP and

Case Study Report:

Environmental Protection Fund in Lao PDR

A case study providing inputs to discussions in Asia-Pacific region on the design and management of

, jointly pepared by UNDP and the EPF.

Case Study Report:

in Lao PDR

Pacific region on the design and management of

2 Case Study Report: Lao Environmental Protection Fund

Table of Contents

Introduction ................................................................................................................................................................................................................................................. 3

The design of the EPF at a glance ....................................................................................................................................................................................................... 4

The role of the EPF in financing environmental protection in Lao PDR .......................................................................................................................... 4

The legal status ...................................................................................................................................................................................................................................... 4

The EPF model ....................................................................................................................................................................................................................................... 4

Governing body and beneficiaries ................................................................................................................................................................................................ 6

Fiduciary standard................................................................................................................................................................................................................................ 7

The establishment process of the EPF............................................................................................................................................................................................... 8

The management of the EPF ................................................................................................................................................................................................................. 8

Granting Program................................................................................................................................................................................................................................. 8

The monitoring and evaluation ......................................................................................................................................................................................................... 10

Social and environment safeguard .................................................................................................................................................................................................. 10

Lessons learned ........................................................................................................................................................................................................................................ 10

Different types of funds ................................................................................................................................................................................................................... 10

Meeting standards in financial integrity and social environment safeguard ............................................................................................................. 11

Reaching local beneficiaries ........................................................................................................................................................................................................... 11


Introduction

This paper aims to enrich knowledge sharing about the establishment and management of national climate funds (NCFs), which is

organized by the Asia-Pacific Community of Practice on Climate Finance. To provide a technical input to the knowledge sharing, UNDP

commissioned seven case studies on existing national funds in the fields of environment, conservation, energy, climate change and

development. Thispaper reports the lessons learned extracted from the establishment and management of the Lao Environmental

Protection Fund (EPF), which is one of seven national funds across the Asia-Pacific region selected as a case study.1

The EPF is selected to provide an interesting case for countries in Asia-Pacific due to the following characteristics:

1. The existing structure of the EPF that managesboth endowment and sinking funds. The EPF received a US$ 5.7 million loan

from the Asian Development Bank (ADB), which is then invested as an endowment fund to generate interests to finance the

operation costs of the EPF. The World Bank also provided US$ 7 million for a grantproject that is managed as a sinking fund, where

the entire amount of the grant will be disbursed to intended beneficiaries within a certain period of time. The existing structure of

the fund allows the EPF to receive and manage different types of financial resources (both in the form of an endowment and a

sinking fund) for environmental protection in Laos.

2. The capacity to meet international standards in financial integrity and social environment safeguards.Having the

experience to manage a grant project financed by the World Bank, the EPF has proven its capacity to meet the World Bank’s

standards in financial integrity and social environment safeguards. With the established system and the capacity of staff to

administer a fund according to theinternational standards, the EPF can serve as an intermediary to channel financial resources

provided by development partners to intended beneficiaries in Lao PDR.

3. The provision of reaching local beneficiaries to provide financial support in environmental protection. Specific

windowswere created under the EPF where priorities of granting programs are set, including providing financial assistance to

beneficiaries at the local level. The uptake of grants provided for local beneficiaries (including NGOs and local governments)

hasbeen significantdue to continuous support provided by the EPF for beneficiaries to access grants through training, assistance

in developing project proposal and simplification of reporting mechanisms.

This report provides the summary of the overall design of the EPF and ashort description about the process of the establishment and

the management of the EPF. A brief analysis of the lessons-learned from the establishment and management of the EPF are then

presented.The case study analysis involved: literature review to set the scope of the study and in-depth interviews with relevant

stakeholders: 1) the Fund Manager and Staff from the EPF; 2) board members: the Ministry of Finance (Deputy Director General,

International Cooperation), and the Ministry of Natural Resources and Environment (Director General, Department of Environmental

Quality and Pollution Control); 3) development partners: ADB and the World Bank; and 4) beneficiaries: representatives from National

University of Lao, Khammuane Province, Wildlife Conservation Society, and the Biodiversity Association. Prior to finalization, the report

has been reviewed by the EPF team and the UNDP Lao Country Office.

1 National funds selected for the case study analysis are: Bhutan Trust Fund for Environmental Conservation, China CMD Fund, Cambodia Climate Change

Alliance Trust Fund, Thailand Energy Conservation Promotion Fund, Lao Environmental Protection Fund, Micronesian Conservation Trust and Tuvalu

Trust Fund: http://www.snap-undp.org/elibrary/default.aspx


The design of the EPF at a glance

The role of the EPF in financing environmental protection in Lao PDR

The assessment of the role of the EPF in overall environmental finance in Lao PDR has been constrained by lack of quantitative data on

government spending in environment protection.It is therefore problematic to understand the magnitude of financial resources

managed by the EPF compared to the overall spending on environmental protection in the country. The latest available data on the

spending in environment in 2005 showed that the annual public environment expenditure was LAK 19 billion (approximately US$ 2.4

million). As a comparison, the total grants provided to beneficiaries by the EPF in 2006-2010 were US$ 3.4 million.This comparison,

however, should be conducted with caution as the figure of total public environment expenditure may have changed in the recent

years. During interviews with the stakeholders, it was mentioned that the government budget has mainly been used to finance

government administrative costs including civil service wages. This means that the investment and capital spending in environment

are mainly financed by external sources.

The role of the EPF is very specific and unique as it provides direct financial assistance to local stakeholders, including local

governments, NGOs, universities, and local communities, in biodiversity conservation, pollution control, water resources management

and sustainable land resources management. Throughout the interviews with stakeholder in Lao PDR, this specific role has been highly

appreciated as the EPF’s main contribution to environmental management in the country.

The legal status

The EPF has been established as an autonomous organization, both financially and administratively, operating under the laws in Lao

PDR. The EPF was established through the issuance of Prime Ministers Decree 146 in2005 aiming at strengthening environmental

protection, sustainable natural resources management, biodiversity conservation and community development in Lao PDR. Under the

existing legal status, the EPF can absorb all kinds of contributions from donors and the private sector, although it cannot access a direct

fiscal transfer from line ministries due to its off-budget nature.The EPF is also not under the government monitoring system and

procedures. The rules and standards of the EPF’s fund management are regulated by the EPF Charter and its Operations Manual.

The fund is currently housed within the Prime MinisterOffice. The Deputy Prime Minister, who is the Chairman of the Board of Directors

(BoD), takes lead of the overall fund, while the Director of the Executive Office (EO) has the authority to sign-off for all expenditure

items for which the Chairman of the BoDhas approved. All expenditures are made in line with the Operations Manual and audit

requirements. Regular sixmonthly plans and reports are submitted to the BoD for records and approval (See the Governing Body and

Beneficiaries section for details on the roles of the BoDand the Director of the EO).

The EPF model

According to the EPF Decree, the five main sources of income for the EPF are: national and international endowment funds; national

taxes or levies from environment and natural resources; contributions by development projects; contributions by business and private

sector and interests generated by EPF capital. The EPF is also authorized to receive transfers from revenues that may be generated from

environmental and natural resources fees, such as wastewater discharge fees, pollution fees, and eco-tourism surcharges.As of today,

the main sources of EPF income are contributions from development partners and businesses as well as the interests generated from

the endowment fund.Income sources of the EPF are shown in Table 1.


Table 1 EPF income 2006-10

Sources of income US$ LAK (million)2

Grant 7,023,000 56,184

World Bank sinking fund 7,000,000 56,000

UNESCO sinking fund 23,000 184

ADB endowment fund 5,798,194 46,386

Contributions from businesses 265,878 2,127

Interest from the capital 896,756 7,174

Total 13,983,828 111,871

The EPF is currently managing two different types of funds: endowment and sinking funds. The endowment fund, which is financed by

the capital provided by an ADB loan of US$ 5.7 million, providesa return to cover the operational costs of the EPF. According to the

Operations Manual, the Board should develop investment guidelines to minimize risk of the investment of the EPF capital, while

ensuring a sustainable return for financing administration and operation of the EPF. The EPF capital can be investment both within and

outside Lao PDR to maximize investment returns at minimal risks. The Board can also hire a professional asset manager such as a firm or

commercial bank to manage and invest the capital of the EPF according to the investment guidelines developed by the Board.

Currently the endowment fund is deposited in a bank and generates around 6 percent of interests. The EPF has not hired a fund

manager due to the limited value of the endowment fund. Only when the endowment fund exceeds US$ 10 million,it is regarded

justified for the EPF to hire a fund manager so that the minimum return can offset the overhead costs of hiring the manager.

The EPF currently manages a sinking fund, which is funded by a US$ 7 million grant from the World Bank Environment and Social

(LENS) Project. The grant should be channeled to intended beneficiaries, including government agencies, NGOs and communities,

for:mainstreaming environmental and social safeguards in infrastructure development, strengthening biodiversity conservation in

Central Laos, and increasing the publics knowledge of and support for environmental management. To manage this grant project, the

EPF created two specific windows to channel the grants to intended beneficiaries, which will be discussed in detail below.

Three possible instruments that can be used by the EPF to providefinancial support in the field of environmental protection in Lao PDR

are non-refundable grants, loans with low interest for environment management (i.e. wastewater treatment, recycling process) and

subsidies.As of now, the EPF has only channelled financial resources through grants underfive windows that were created to set the

scope of priorities areas to be financed. The windows are:

• Window 1: Policy implementation and capacity enhancement (PICE).

• Window 2: Biodiversity and community investment (CBI).

• Window 3: Pollution Control.

• Window 4: Water Resources Management.

• Window 5: Sustainable Land Resources Management.

The first two windows (PICE and CBI) were created to channel the World Bank grant to intended beneficiaries, while the other three

windows are financed by the interests generated from the endowment fund (Figure 1). In 2006-2010, projects implemented under the

2Note: US$ 1 = LAK 8,000

6 Case Study Report: Lao Environmental Protection

CBI and PICE windows were 105 and 47 projects respectively with the total amount of approximately US$ 3 million,representing

per cent of the total grant. The remaining three windows made up for the remaining 11.25 per cent (approximately US$ 380,

Figure 1. EPF Special Financing Windows

Governing body and beneficiaries

The management of the EPF consists of the Board of Directors (BoD), and the Executive Office (EO).

establish EPF’s policies, strategies and priorities and to provide guidance to and monitor the Executive Office in performing its duties

and functions. Other roles and responsibilities of the BoD include: 1) direct the Executive Office to prepare five strategic program,

manuals, action plans and annual reports and to submit them for approval; 2) select and appoint the Director of the EPF Executive

Office; 3) approve or reject funding requests submitted to the EPF, following the appraisal by the Executive Office and the

recommendation by the Director; and 4) mobilize additional contributions to the EPF from all eligible providers of such

contributions.The BoD, which is chaired by the Deputy Prime Minister and co

seven other members from the Ministry of Natural Resources & Environment (MONRE), the Ministry of Energy and Mining(MEM),

National Council for Science and Technology, Lao Women Union, Bolikham

Commerce and Industry.

The Executive Office(EO)wasestablishedbythePrime MinisterDecree

Director appointed by the EPF Board will lead the management of the EO. In the beginning of the operation, the EO consists of

units (financial and administrative unit, sub-projects operations unit, public information unit, and monitoring and evaluation unit) and

recently restructured in two units (finance and administrative Unit, and technical Unit).The roles and responsibilities of th

1) implement all daily operations, management and administration of the EPF according to the Charter and Manuals; 2) prepare

Five-Year Strategic Program, Annual Plans and Manuals, rules and other manuals for approval by the Board; 3)prepare quarterly

annual reports, annual plans of Revenue and Expenditure for approval by the Board; and 4) formulate management and administra

procedures, manuals and other operational document of EPF for approval by the Board.

The selection of grant projects up to LAK 500million (or US$ 60,000) are be made directly by the EPF Executive Director, with guidance

and advice from the EO Technical staff. The Executive Office, under the responsibility of the Executive Director, will comple

standard evaluation form for each small proposal, including a matrix scoring appropriateness of the proposal to the fund objectives

and selection criteria. A brief justification of the decision will be required whether the proposal is accepted or rejected b

Lao Environmental Protection Fund

CBI and PICE windows were 105 and 47 projects respectively with the total amount of approximately US$ 3 million,representing

per cent of the total grant. The remaining three windows made up for the remaining 11.25 per cent (approximately US$ 380,

Figure 1. EPF Special Financing Windows

The management of the EPF consists of the Board of Directors (BoD), and the Executive Office (EO).

orities and to provide guidance to and monitor the Executive Office in performing its duties

Other roles and responsibilities of the BoD include: 1) direct the Executive Office to prepare five strategic program,

ual reports and to submit them for approval; 2) select and appoint the Director of the EPF Executive


and 4) mobilize additional contributions to the EPF from all eligible providers of such

The BoD, which is chaired by the Deputy Prime Minister and co-chaired by the Minister of Ministry of Finance,consists of

nistry of Natural Resources & Environment (MONRE), the Ministry of Energy and Mining(MEM),

National Council for Science and Technology, Lao Women Union, Bolikhamxay Provincial Administration and the Chamber of

EO)wasestablishedbythePrime MinisterDecreeto support the BoD in the administration of the EPF. An Executive

Director appointed by the EPF Board will lead the management of the EO. In the beginning of the operation, the EO consists of

projects operations unit, public information unit, and monitoring and evaluation unit) and

recently restructured in two units (finance and administrative Unit, and technical Unit).The roles and responsibilities of th

1) implement all daily operations, management and administration of the EPF according to the Charter and Manuals; 2) prepare

Year Strategic Program, Annual Plans and Manuals, rules and other manuals for approval by the Board; 3)prepare quarterly

annual reports, annual plans of Revenue and Expenditure for approval by the Board; and 4) formulate management and administra

procedures, manuals and other operational document of EPF for approval by the Board.

to LAK 500million (or US$ 60,000) are be made directly by the EPF Executive Director, with guidance

and advice from the EO Technical staff. The Executive Office, under the responsibility of the Executive Director, will comple

or each small proposal, including a matrix scoring appropriateness of the proposal to the fund objectives

and selection criteria. A brief justification of the decision will be required whether the proposal is accepted or rejected b

CBI and PICE windows were 105 and 47 projects respectively with the total amount of approximately US$ 3 million,representing 88.75

per cent of the total grant. The remaining three windows made up for the remaining 11.25 per cent (approximately US$ 380,000).

The management of the EPF consists of the Board of Directors (BoD), and the Executive Office (EO). The EPF BoDis responsible to

orities and to provide guidance to and monitor the Executive Office in performing its duties

Other roles and responsibilities of the BoD include: 1) direct the Executive Office to prepare five strategic program,

ual reports and to submit them for approval; 2) select and appoint the Director of the EPF Executive


and 4) mobilize additional contributions to the EPF from all eligible providers of such

chaired by the Minister of Ministry of Finance,consists of

nistry of Natural Resources & Environment (MONRE), the Ministry of Energy and Mining(MEM),

xay Provincial Administration and the Chamber of

to support the BoD in the administration of the EPF. An Executive

Director appointed by the EPF Board will lead the management of the EO. In the beginning of the operation, the EO consists of four

projects operations unit, public information unit, and monitoring and evaluation unit) and

recently restructured in two units (finance and administrative Unit, and technical Unit).The roles and responsibilities of the EOinclude:

1) implement all daily operations, management and administration of the EPF according to the Charter and Manuals; 2) prepare the

Year Strategic Program, Annual Plans and Manuals, rules and other manuals for approval by the Board; 3)prepare quarterly and

annual reports, annual plans of Revenue and Expenditure for approval by the Board; and 4) formulate management and administration

to LAK 500million (or US$ 60,000) are be made directly by the EPF Executive Director, with guidance

and advice from the EO Technical staff. The Executive Office, under the responsibility of the Executive Director, will complete a

or each small proposal, including a matrix scoring appropriateness of the proposal to the fund objectives

and selection criteria. A brief justification of the decision will be required whether the proposal is accepted or rejected by the EO.


Proposals for grant projects larger than LAK 500million (or US$ 60,000) will have to be reviewed and decided by the BoD. Apeer-

reviewwill be conducted to allow for a more extensive proposal evaluation.After receiving peer reviewers’ recommendations, the

Executive Director would decide to accept, reject or suggest amendments to each proposal and then submit the proposal evaluation to

the EPF Board of Directors for approval. If the Director’s decision would be overturned by the EPF Board of Directors, a short

justification of this reversal would be required.

Particularly for grants provided by donors, the allocation of grants to beneficiaries is according to the plan agreed between the donors

and the EPF and the plan agreed between the EPF and the recipients. For instance, for the windows funded by the World Bank, a

steering committee willalso oversee the proposal screening process.

Fiduciary standard

Three main elements of the fiduciary standards set by the EPF Operations Manual are discussed below,including those related to

financial management, procurement and audit.

Financial management - The EO applies a basic computerized accounting system with chart of accounts to provide sufficient financial

information for managing and monitoring project activities by windows, projects or components, procurement categories and clients.

The accounting system is in compliant with government structures but also capable to produce financial monitoring reports, annual

financial statements and statutory requirements in a format agreed and acceptable to the Board of Directors and respective donors.

Procurement -the procurement guidelines and procedures included in the Operations Manualare customized from the government

procurement regulations and were tailored to fit both Government Procedures and Donor requirements. The following standards and

procedures applied for the EPF procurement:

• EPF-level Procurement: All procurement for the operation and management of the Executive Office of the EPF follows standard

Government procurement procedures to be conducted by the Procurement Officer of the Executive Office.

• Project Level Procurement: All principal procurement for all projects is conducted by the Executive Office. If considered

appropriate, procurement activities are delegated to implementing partners according to the project agreement.

• Community Participation in Procurement: Based on the proposals and budgets prepared with the assistance by the EPF staff and

local governments, the most efficient procurement process is determined considering the capacity and capability of the villagers.

• Procurement under Specialized Financing Windows: If requested by a donor agencysupporting a special financing window,

different procurement methods haveto be agreed between the EPF and the donor agency. The procedures will be formulated in a

separate document to be approved by the EPF BoD.

Audit – the EPF has to go through an annual independent financial auditof the finances, financial administration, and operations of the

EPF. The Executive Office ishiring an independent external auditing firm to prepare the audit, in accordance with generally accepted

international auditing practices and standards. The audit includes a review of all EPF bank accounts, a review of the internal accounting

and operations of the specialized financing windows administered by the Executive Office, a review of the investment activities

undertaken by the asset manager of the EPF and others.


The establishment process of the EPF

The establishment of the EPF was initiated as one of the conditions of the ADB Environment and Social Program (ESP) program loan

(US$ 20 million) to the Government of Lao PDR. The program loan, which waswasapproved in 2001, aimed to support the policy reform

agenda of the Government of Lao PDR for improved environmental management and social safeguards in the energy and transport

sectors. Twenty conditions were set for the release of the loan tranches, including: strengthening national policy and the regulation

framework for environmental and social safeguards and enhancing policy implementation measures and capacity of the provinces and

sectors in environmental management. The condition for the third (final) tranche included the establishment of a national environment

fund, which should materializeafter 36 months of the loan utilization. The government was required to establish the fund through the

issuance of the prime minister’s decree, the appointment of members of board of directors and the director of the executive office, and

the approval of fund charter (including the authorization to set up bank accounts locally and overseas and the authorization to invest

the funds by the BoD). In June 2005, the EPF was established by the issuance of Prime Ministers Decree 146. In November 2005, the

Prime Minister issued the Decree 72/PM appointing the EPF board of directors, whilein January 2006 the EPF board adopted and

approved the EPF charter.The establishment of the EPF was considered very prompt due to the government’s commitment in meeting

the conditions set by the development partners. From the development of the idea to the operations of the EPF, it took around 5-6

years.

The management of the EPF

Granting Program

In 2006-2010, the EPF has received more than 400 proposals and provided grants to 202 proposals submitted by the central and local

agencies, the mass organizations and civil society, community based organizations and others. The grants were provided under the

five windows,amounting of US$ 3.4 million with the average total value of around US$ 28,000 per project.

The allocation of grants under the EPF is guided by Five-Year Strategic Programs, which provide direction, focus, and priority to the

allocation of the resources of the EPF. The Five-Year Strategic Program identifies key priority activities in the fields of: environmental

protection, natural resources and biodiversity conservation, and pollution control. The Executive Director, with support of the BoD and

the EO staff,is responsible for the preparation of the Five-Year Strategic Program. The program should also support key priorities

identified in the National Strategy on Environment to the Years 2020 and Action Plan for the Years 2006-2010, the National Biodiversity

Strategy and Action Plan, the Forestry Strategy and Action Plan, and other strategic programs. Moreover, annual planning documents

also provide a direction for the allocation of the financial resources. The annual plan of action,which details the Five-Year Strategic

Program,is approved by the BoD on an annual basis for each calendar year. Project proposals submitted by local governments should

be developed based on provincial priorities and also aligned with the objectives of the EPF. The proposal can only be prepared

following the approval of the concept note by local authorities.

All project applications can be submitted to the Executive Office anytime.Prior to the submission of project applications, an initial

discussion is usually conducted with all potential applicants, and the EPF will provide assistance in developing a proposal particularly

when the capacity is found lacking. Small project proposals of up to LAK500million (or US$ 60,000) can be submitted in Lao with a

standard application form, which is around five to six pages in length.Upon the submission of proposals, the Executive Director will

reviewand decideupon within one month. Projects larger than LAK500million (or US$ 60,000) would require a more extensive proposal

to be submitted in English.The Executive Office will follow a defined and transparent process for evaluating and selecting proposals

using a standard formof proposal evaluation and assessment. See Figure 2 for the project selection process.


There has been no public-wide call for all proposals (including for grants financed by the World Bank), instead potential applicants are

invited to submit project proposals depending on the availability of fund for a specific window. The reason of no public advertisement

or call for proposal is due to the limitation of financial resources available to provide grants, particularly under the windows financed by

the interests of the endowment fund. In practice, fund awarding is based on the proposal’s expected outputs. However in 2012 the

Director has decided to distribute equally the total fund allocated for the current fiscal year, which is decided by the BoD, to all

provinces in Lao PDR. Provinces will implement the project for one year and then the EPF will assess the outcome of the projects. This

approach is pursued with the intention to invest in developing the capacity of provincial governments in managing projects in the field

of environmental protection. This approach focuses on assessing the results of project implementation, where the subsequent

allocation of resources can be based on the performance of the provinces.

Figure 2. The Sub-Project Application Process

Source: EPF, 2011


The monitoring and evaluation

EPF has developed its own information and database system to monitor the technical and financial implementation of all

its funded projects and activities. Details on the M&E procedures are well defined in the Operations Manual. The Executive

Office should prepare quarterly reports(within 30 days of the end of the quarter) and an annual financial report(within 3

months of the end of the period). The financial year of the EPF begins on October 1t and ends on September 30 of the

following year All reports should be approved by the Board prior to the submission to the government, donor

organizations and other stakeholders. The annual report will include at least: the status and activities of the EPF, the list of

all projects and activities that have received EPF financial support, the financial status of the EPF. This report should be

made available in the press media, the electronic media (radio and television), and in the Environment Newsletter of the

Science, Technology and Environment Agency.

Due to limited capacity of beneficiaries particularly at the local level, the EPF has simplified the monitoring and reporting system. Since

the capacity to write a progress report is still low amongst local stakeholders, the EPF arranges a stakeholder meeting periodically at

the provincial level, where all beneficiaries receiving funds from the EPF will be invited. In the meeting, which is usually chaired by the

Vice Governor, all beneficiaries will verbally report the progress of their projects. A representative from the EPF will then prepare a

minutes of meeting where details of the verbal discussion will be noted down. Following the meeting, the minutes will be circulatedto

all beneficiaries for them to agree on what is written, including the progress of the projects and their future action plans. Based on the

agreed minutes, the EPF will conduct regular monitoring of project implementation. The EPF also has a number of facilitators working

at the provincial level to oversee the technical progress of project implementation.

Social and environment safeguard

In the Operations Manual of the EPF, social and environment safeguard has been elaborated thoroughly. Procedures to ensure

compliance with environmental and social safeguards regulations have been described in the EPF Environmental and Social Safeguard

Framework (ESSF), which will be applied to all projects.The objective of the ESSF is to ensure that projects are designed to be beneficial

to the environment and that negative environmental and social effects are minimized or avoided. The ESSF will also identify any

negative effects and appropriate mitigation measures to be implemented as part of the project.In the case that possible environmental

and social impacts are expected, a proper assessment will be conducted, according to the EPF Safeguard Framework and Lao PDR

regulations.

Lessons learned

Different types of funds

The case of the EPF has proven that it is beneficial to create a structure of a national fundthat can accommodate different types of

funds. Due to its reliance on external support, the structure of the EPF allows it to serve as an institution that provides financial service

particularly for donor agencies to delivertheir financial assistance to support environmental protection in Lao PDR. Many donors would

prefer to channel their financial assistance in the form of a sinking fund, where the amount of resources should be spent entirely at the

end of the project. Under the existing structure, the EPF can directly receive the financial assistance by a creating of a specific window

under which the money can be managed according to rules and standards required by donors.


An endowment fund was created to ensure sustainable income to finance the operations of the EPF, which is crucial particularly when

a sustainable source of capital has not been identified. The sense of sustainability for a national fund, beyond and above a particular

project duration, is imperative to reduce the turn over rate of staff (particularly those who are non civil servants) and also to increase

confidence of donor agencies in providing contributions to the fund. The sense of sustainability will also allow for capacity building as

it requires time for a fund to be mature and well-functioning. Specifically in the case of the EPF, the EO and the BoD need to identify a

sustainable source of revenue to ensure, otherwise it is crucial to increase the total amount of the endowment fund to generate

sufficient interests to finance the operation costs and providing grants for environmental related projects.

Meeting standards in financial integrity and social environment safeguard

The EPF has established the necessary institutional structure and developed the capacity of human resources to manage a fund

according to international standardsin financial integrity as well as social and environment safeguard.Institutionally, the inclusion of

detailed procedures of financial management and social environment safeguard both in the EPF Charter and in the Operations Manual

has provided a strong basis for effective management and implementation of the fund.Particularly for grants financed by the World

Bank, the EPF manages the fund according to the Bank’s standards, while government standardsare applied to other windows

currently financed by the interests from the endowment fund. However, given the portion of the World Bank grant is currently around

90 per cent, most of the grants have therefore been managed by the EPF according to the World Bank’s standards.

Since all these procedures have been established in the Manual, staff are therefore obliged to implement them in their day-to-day

project management activities. The capacity of the staff has been developed over time to implement these standards. However, there

has been a concern about the high turn over rate of staff in the Executive Office of the EPF, which will eventually affect the capacity of

the office to manage the fund. However, with the established system in place, building the capacity of human resources would be

faster compared to the process of establishing a system from scratch.

Reaching local beneficiaries

The EPF has received acknowledgement by stakeholders interviewed in this study for its success to channel financial assistance for

local stakeholders in the field of environmental protection. The success of the inclusion of local stakeholders to access grants provided

by the EPF is due to a continuous support provided by the EO in the form of training, assistance in developing project proposals and

simplification of the reporting mechanism.

A number of clauses in the Operations Manual have also provided specific attention favoring local communities. For community grants,

training on procurement procedures will be provided to communities and the procurement process will be determined considering

the capacity and capability of the villagers. In the implementation of grant projects, the community will be the owner of the project

and will make any decision related to the projects. In order to simplify the reporting mechanism for projects at the community level,

the community will discuss the completion and closure through a community “accountability meeting”. Furthermore, a community

account can also be opened at a district bank where the payment for expenses will be disbursed.The EPF can also support local

communities in setting up the necessary accounting and financial management procedures for handling grants received from the EPF.


Authors: Silvia Irawan, Soukata Vichit, Bounphama Phothisane, Douang Lopaying, Singha Ounniyom, Alex Heikens

Cover Photo: Lien Heikens.

Acknowledgements: the authors would like to express their gratitude to representatives from government, development partners

and grantees of the fund sharing their views and experiences with the Lao EPF.

Disclaimer: The views expressed in this publication are those of the authors and do not necessarily represent those of the United

Nations, including UNDP, or its member states.

Citation: Irawan et al. (2012) Case Study Report: Environmental Protection Fund in Lao PDR. A UNDP/EPF working paper.

http://www.snap-undp.org/elibrary/default.aspx

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