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Document of The World Bank

Report No: ICR00002940

IMPLEMENTATION COMPLETION AND RESULTS REPORT

ON A

LOAN

IN THE AMOUNT OF US$100 MILLION

AND A

LOAN FROM THE CLEAN TECHNOLOGY FUND

IN THE AMOUNT OF US$100 MILLION

TO THE

REPUBLIC OF INDIA

FOR A

DEVELOPMENT POLICY LOAN TO PROMOTE INCLUSIVE GREEN GROWTH AND SUSTAINABLE DEVELOPMENT IN HIMACHAL PRADESH I AND II

April 29, 2016

Environment and Natural Resources Global Practice India Country Management Unit South Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 30, 2015)

Currency Unit = Indian Rupee (INR) US$1.00 = INR 63.2

FISCAL YEAR April 1–March 31

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank AGiSAC Aryabhatta Geo-Informatics and Space Application Centre ASA Advisory Services and Analytics BPL Below Poverty Line CAS Country Assistance Strategy CAT Catchment Area Treatment CEIA Cumulative Environmental Impact Assessment CIF Climate Investment Fund CLAP Community Led Assessment, Awareness, Advocacy, and Action

Programme CPS Country Partnership Strategy CTF Clean Technology Fund DEST Department of Environment, Science, and Technology DFID Department of International Development DPL Development Policy Loan DPF Development Policy Financing EMP Environmental Management Plan GDP Gross Domestic Product GHG Greenhouse Gas GIS Geographic Information System GoHP Government of Himachal Pradesh GoI Government of India GP Gram Panchayat HP Himachal Pradesh HP DPL I Himachal Pradesh Development Policy Loan Operation I HPIGG DPL I/II

Himachal Pradesh Inclusive Green Growth and Sustainable DevelopmentDevelopment Policy Lending

IBRD International Bank for Reconstruction and Development ICR Implementation Completion and Results Report IFC International Finance Corporation INR Indian Rupee LADC Local Area Development Committee LADF Local Area Development Fund M&E Monitoring and Evaluation

MDB Multilateral Development Banks MIS Management Information System NLTA Non-lending Technical Assistance NPV Net Present Value PCB Pollution Control Board PDO Project Development Objective PES Payment for Ecological Services PSIA Poverty and Social Impact Assessment REDD+ Reducing Emissions from Deforestation and Forest Degradation TSA Tourism Satellite Account WBG World Bank Group

Senior Global Practice Director: Paula Caballero

Country Director: Onno Ruhl

Practice Manager: Kseniya Lvovsky

Project Team Leaders:Pyush Dogra Muthukumara Mani

ICR Team Leader: Chandra Shekhar Sinha

INDIA

Development Policy Loan to Promote Inclusive Green Growth and Sustainable Development in Himachal Pradesh

CONTENTS A. Basic Information ........................................................................................................................ i B. Key Dates .................................................................................................................................... i C. Ratings Summary ........................................................................................................................ i D. Sector and Theme Codes............................................................................................................ ii E. Bank Staff .................................................................................................................................. iii F. Results Framework Analysis ..................................................................................................... iii G. Ratings of Program Performance in ISR................................................................................... vi H. Restructuring (if any) ................................................................................................................ vi 1. Program Context, Development Objectives, and Design ........................................................... 1 2. Key Factors Affecting Implementation and Outcomes ............................................................ 10 3. Assessment of Outcomes .......................................................................................................... 19 4. Assessment of Risk to Development Outcome ......................................................................... 23 5. Assessment of Bank and Borrower Performance ..................................................................... 24 6. Lessons Learned........................................................................................................................ 25 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ........................... 26 Annex 1: Bank Lending and Implementation Support/Supervision Processes ............................ 28 Annex 2: Beneficiary Survey Results ........................................................................................... 30 Annex 3: Stakeholder Workshop Report and Results................................................................... 31 Annex 4: Summary of Borrower's ICR and/or Comments on Draft ICR ..................................... 32 Annex 5: Comments of Co-financiers and Other Partners/Stakeholders ...................................... 36 Annex 6: HP IGG DPL I & II PDO Indicators ............................................................................. 37 Annex 7: Climate Investment Funds and Clean Technology Fund .............................................. 40 Annex 8: HP IGG DPL I and II PDO Indicators - Actual Performance and Comments .............. 42 Annex 9: Benefit Sharing Mechanism in Himachal Pradesh Hydropower .................................. 52 Annex 10: Poverty and Social Impact Analysis in Himachal Pradesh ......................................... 54 Annex 11: List of Supporting Documents .................................................................................... 59

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A. Basic Information

Country: India Program Name:

Development Policy Loan to Promote Inclusive Green Growth and Sustainable Development in Himachal Pradesh I & II

Project ID: DPL I: P124041 DPL II: P143032

L/C/TF Number(s): P124041: IBRD-81960 P143032: TF-16957

ICR Date: April 29, 2016 ICR Type: Core ICR

Lending Instrument: DPL Borrower: Government of India

Original Total Commitment:

DPL I: US$100 million DPL II: US$100 million

Disbursed Amount: DPL I: US$100 million DPL II: US$100 million

Revised Amount: DPL I: US$100 million DPL II: US$100 million

Implementing Agencies: Department of Environment, Science, and Technology (DEST) of the Government of Himachal Pradesh (GoHP)

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: DPL I DPL II

17-May-2011 13-Dec-2012

Effectiveness: DPL I DPL II

03-Dec-2012 07-Aug-2014

Appraisal: DPL I DPL II

27-Jan-2012 21-Jan-2014

Restructuring(s):

Approval: DPL I DPL II

06-Sep-2012 16-May-2014

Midterm Review:

Closing:

DPL I DPL II

30-Sep-2013 30-Nov-2014

C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome Low or Negligible

Bank Performance: Satisfactory

Borrower Performance: Highly Satisfactory

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C.2 Detailed Ratings of Bank and Borrower Performance Overall program rating Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: n.a.

Quality of Supervision: Satisfactory Implementing Agency/Agencies:

n.a.

Overall Bank Performance:

Satisfactory Overall Borrower Performance:

Highly Satisfactory

C.3 Quality at Entry and Implementation Performance IndicatorsImplementation Performance

Indicators QAG Assessments (if any)

Rating

Potential Problem Project at any time (Yes/No):

HP DPL I: No HP DPL II: No

Quality at Entry (QEA):


Problem Project at any time (Yes/No):


Quality of Supervision (QSA):


DO rating before Closing/Inactive status

Moderately Satisfactory

D. Sector and Theme Codes DPL I (P124041) Original Actual

Sector Code (as % of total Bank financing)

Irrigation and drainage 28 28

Hydropower 28 28

Energy efficiency in heat and power 22 22

Crops 11 11

General information and communications sector 11 11

Theme Code (as % of total Bank financing)

Environmental policies and institutions 35 35

Climate change 24 24

Rural services and infrastructure 22 22

Pollution management and environmental health 19 19 DPL II (P143032) Original Actual

Sector Code (as % of total Bank financing)

Irrigation and drainage 37 37

General energy sector 27 27

General water, sanitation and flood protection sector 18 18

General information and communications sector 9 9

Other social services 9 9

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Theme Code (as % of total Bank financing)

Water resource management 45 45 Pollution management and environmental health 18 18

Natural disaster management 14 14

Climate change 14 14

Social safety nets 9 9 E. Bank Staff Positions At ICR At Approval

Vice President: Laura Tuck DPL I: Isabel M. Guerrero DPL II: Philippe H. Le Houerou

Country Director: Onno Ruhl DPL I: N. Roberto Zagha and Onno Ruhl DPL II: Onno Ruhl

Practice Manager: Kseniya Lvovsky DPL I: Herbert Acquay DPL II: Bernice K. Van Bronkhorst

Program Team Leaders: Pyush Dogra and Muthukumara Mani

DPL I: Charles J. Cormier and Pyush Dogra DPL II: Pyush Dogra and Muthukumara

Mani

ICR Team Leader: Chandra Shekhar Sinha –

ICR Primary Author: Akiko Nakagawa – F. Results Framework Analysis

Program Development Objectives (from Program Document)

The Project Development Objectives (PDOs) were to support Himachal Pradesh in the improved management of its natural resources across growth engines of the economy and to promote inclusive green growth and sustainable development. The focus was on providing the key foundations of the short-term measures necessary to achieve these longer-term objectives. This was to be achieved by promoting the sustainable use of the state’s natural resources—in particular its abundant water resources, forests, and biodiversity. The operations funded by IBRD (DPL I: P124041) and the Clean Technology Fund (CTF) (DPL II: P143032) supported specific policy and institutional reforms within the GoHP’s overall environmental sustainability reform agenda that have been mutually agreed as critical to achieving this transformation.

Revised Program Development Objectives (as approved by original approving authority)

The PDO was not revised during the series, but the key indicators of DPL I were revised during the preparation of DPL II. Among the original 15 indicators for DPL I, 7 indicators were chosen and revised to evaluate the achievements of the program, while the rest were dropped. Indicators were adjusted to reflect evolving thinking on various policy areas. The comparison between the original indicators and the revised indicators and performance is shown in Annex 8.

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(a) PDO Indicator(s) DPL-II :

Indicator Baseline Value Original Target Values

(from approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Objective 1 Increased adoption of environmental and social parameters in hydropower development

Indicator 1.1 Percentage of operational hydropower projects that have the minimum environmental flow policy applicable and have adopted real-time monitoring.

Value (Quantitative or Qualitative)

None 10% out of 112 operational projects

–

64 (84%) out of 76 operational projects have installed the equipment for measurement of minimum environmental flows

Date achieved 6/1/2009 12/31/2014 – 11/30/2014

Comments (including % achievement)

Target value was over-achieved. The 64 hydro projects in operation have adopted real time on line monitoring and State Pollution Control board is receiving this information online on every fifteen minutes interval on line. The projects have used instrumentation or senor to record and transfer the data from dam downstream for this activity.

Indicator 1.2 Number of families benefiting from the direct cash transfer program under the Local Area Development Fund (LADF) policy


None 5,000 – 5482

Date achieved 6/1/2009 12/31/2014 – 03/31/2015 Comments (including % achievement)

Target value was over-achieved. All the eligible 5,482 families have received cash amounting to INR 42.4 million.

Objective 2 Promote sustainable development through climate change-related adaptation and mitigation actions

Indicator 2 Number of departments which begin integrating the State Climate Change Strategy and Action Plan in development plans and Payment for Ecological Services (PES) in their operational strategy.


None Climate Change: 4 Departments PES: 1 Department

–

Climate change: 11 departments began integrating the strategy PES: One department (Forest Department)

Date achieved 6/1/2009 12/31/2014 – December 6, 2014


Target values were over-achieved before the target date. Regarding climate change, as of December 6, 2014, 11 departments began integrating the strategy. As for PES, the Forest Department has included PES implementation in their development plans and operational strategy formulation.

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Objective 3 Increased local communities participation in development of watershed Management

Indicator 3 Number of micro-watershed catchments which have developed integrated community-led watershed development plans in place


None 77 micro-watersheds – 77 micro-watersheds


Target value was achieved. Preparation and adoption of 77 integrated micro-watershed development plans are completed and implementation is underway.

Objective 4 Increased adoption of sound environmental management practices in industrial development

Indicator 4 Percentage of industries that have adopted environmental management systems in the state


10% 20% – 26.5%


Target value was over-achieved. Among the targeted medium and large-scale industries, 26.5% have adopted cleaner production and environmental management systems.

Objective 5 Increased adoption of sound environmental management practices in tourism development

Indicator 5 Number of towns adopting environmentally sustainable tourism development plans and practices


None 3 – 3


Target value was achieved. Three temple towns (Chintpurni, Naina Devi, and Kangra) have adopted environmentally sustainable tourism development plans. The cost estimation of these initiatives is completed and implementation is about to start.

Objective 6 Improved integration of Geographic Information System (GIS) mapping and decision making in the state

Indicator 6 Number of departments using Aryabhatta Geo-Informatics and Space Application Centre (AGiSAC) for their strategy and planning purposes


None 9 – 18

Date achieved 6/1/2009 12/31/2014 – 11/30/2014


Target value was over-achieved. The AGiSAC is fully operational and the GoHP’s 18 departments have links to the AGiSAC, which is twice the original target. The AgiSAC website has been integrated with the individual departments and links have been established for using information directly from the web site through department nodal officers who have been given administrative rights for access and usage.

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(b) Intermediate Outcome Indicator(s) Not Applicable

G. Ratings of Program Performance in ISR

No. Date ISR Archived

DO IP Actual Disbursements(US$, millions)

1 01/02/2013 Moderately Satisfactory Moderately Satisfactory 99.75 2 02/04/2015 Satisfactory Satisfactory 99.55 H. Restructuring (if any) The key indicators of DPL I were reconsidered during the preparation of DPL II, and among the original 15 indicators, 7 indicators were chosen and revised to evaluate the achievements of this program as shown in section F.

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1. Program Context, Development Objectives, and Design

1. The mountain state of Himachal Pradesh (HP) located in northern India is rich in natural resources. Dense forests cover more than 27 percent of its land area, helping define the weather over much of northern India and acting as a carbon sink for greenhouse gases (GHGs). The state’s wide range of altitudes host a number of unique plant and animal species, and parts of the state have been declared as hotspots of biodiversity. Bound by the mighty Himalayas to the north, the state is an upstream macro watershed for the northwest region of India, with three major rivers, the Beas, Ravi, and Chenab originating from here. The ecological criticality of the watersheds formed by these rivers transcends the territorial limits of the state. HP is a provider of significant public goods (watersheds, conserved forests, and associated ecological benefits) to the rest of the country.

2. Sustained and stable growth, and a strong focus on human capital has resulted in HP having some of the best human development indicators in the country, despite its mountainous terrain, severe structural disadvantages of relative remoteness, and growing environmental fragility. When first established as a separate state in 1971, HP was given the status of a special category state due to its difficult topography, making it eligible to receive substantial central grants and incentives. These grants helped the state became one of the fastest growing in India in the 1990s, with a strong focus on human and social development. The state saw a fourfold decline in rural poverty from 25 percent to 8.5 percent between 1993–94 and 2011–12.

3. Today, the state's per capita outlay for the social sectors is the highest among all the states in the country. Key social indicators including levels of educational attainment and female labor force participation are higher than most other states. Despite disadvantages of terrain, the state has also managed to ensure that basic services reach almost all its citizens, and has achieved near-universal coverage for sanitation, child immunization, and access to electricity and drinking water.

4. Even while utilizing the special status, the Government of Himachal Pradesh (GoHP) recognized the emerging challenges that would affect the fiscal aspects relevant to sustain future growth. At that point, the GoHP’s challenges were two-fold. The generous financial transfers from the central government started to dwindle and along with this, some of the generous tax incentives offered by the Government of India (GoI) to industries began to expire. The phase-down of financial transfers from the central government necessitated a rethinking of the GoHP’s fiscal planning and overall development strategy. Further, expectation had been generated by social and economic progress and HP’s development vision required a greater level of fiscal resources to finance the priorities of the state. HP also needed to generate employment for its young and growing educated labor force, almost one-third of which is employed in the public sector, compared to 10 percent nationally. Added to this were problems emanating from rapid urbanization and the growing fragility of its environmental resources.

5. The GoHP realized that the sustainability of the state’s success for the future depended on addressing three major transitions. The first was to shift the growth strategy in HP from one that was heavily dependent on public expenditure, to an increasing focus on the broad-based contributions from other sources of growth, such as sustainable tourism and hydropower development. The second was to create productive employment opportunities for HP's young and increasingly educated labor force, so that reliance on the public sector as an employer of last resort

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decreases. The third critical transition that HP needed was to better manage its environment as well as natural and cultural resources. Therefore, recognizing that it should not solely rely on central finance for its development while better utilizing its comparative advantages, the state government decided to move away from the manufacturing-led growth model that most other states in India had practiced towards a paradigm shift by using natural assets, specifically hydropower, tourism, and horticulture, as engines of growth

6. The GoHP wanted to be a facilitator and regulator rather than a provider. Accordingly, the GoHP sought World Bank involvement through a fiscal development policy loan (DPL) to strengthen its fiscal performance and improve public financial management: improve tax revenues by improving administrative efficiency, simplification and rationalization of tax rates, and introduction of innovative taxes. In addition, given the limitations imposed by the size of the state, the focus also shifted to raising the non-tax revenues, including sustainable development of its huge hydropower potential and the potential revenue from royalty and sale of electricity. Attention also focused on attracting private investments. However, the GoHP wanted to attract investments in the sectors where it had a comparative advantage. Tourism was a natural choice given HP’s comparative advantage. In addition, it wanted to move away from focusing on heavy industries to greener and cleaner industries. A large share of the population was still dependent on agriculture and, given its ecological fragility, HP wanted to ensure that its future growth in this sector was also environmentally responsible.

7. While focusing on fiscal consolidation, the First Himachal Development Policy Loan and Credit (2007-2009), a fiscal DPL also supported the mainstreaming of environmental policy actions. Mindful of the perils and pitfalls of a natural resources-led growth strategy, the GoHP initiated a range of policy measures to ensure that growth does not come at the cost of environmental degradation or social distress. Most notably, this was perhaps the first time that a fiscal DPL recognized and addressed crucial environmental issues in India. The Department of Environment, Science, and Technology (DEST) created under the Fiscal DPL continues to be a strong advocate on environmental issues in the state. Recognizing the importance of hydropower as an engine of growth, a number of actions were taken under the Fiscal DPL to ensure that hydropower development happened in an environmentally sustainable and socially responsible manner. Through this process, the GoHP further realized the need for substantive policy and institutional actions to comprehensively support the green growth and sustainability agenda in the state.

8. To this end, the GoHP focused on (a) identifying environmental aspects of growth sectors which needed the immediate attention of policymakers; (b) redefining strategy, policies, and operational roles to address resource and environment challenges that have implications for the state's economy; (c) defining institutional and policy frameworks, revitalizing capacity and skills and implementable action plans for effective results; (d) ensuring maximum public participation in management of natural resources and protection of the environment; and (e) promoting climate resilient development and achieving carbon neutrality in HP. To meet these broad objectives, the GoHP made a requestto the Bank for a Green Growth and Sustainable Development DPL of US$200 million.

9. The GoHP developed an innovative and ambitious sustainable development policy program. The centerpiece of this program is to institute a paradigm shift toward an environmentally

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sustainable model of economic growth. Recognizing the scope for fueling growth through its natural assets, the GoHP introduced a host of initiatives designed to enhance environmental stewardship and build a new platform for sustainable growth. The four sectors identified by the GoHP as its key drivers of economic growth were hydropower, tourism, industrial development, and agriculture, and the focus of the Himachal Pradesh Inclusive Green Growth and Sustainable Development (HP IGG) DPL was on supporting policy initiatives in these key sectors.

10. The 14th Finance Commission of India made recommendations to Government of India in February 2015 to move away from the “special category states" (to which HP belonged), as a new way of devolving resources from center to states. Instead, it recommended a new formula for devolving resources based on state’s area, population, demography, income, distance and forest cover. The resulted increase of central grants to states with higher intact forest cover now significantly benefits HP. In this respect, GoHP’s decision to focus on generating growth and revenues through sustainable management of natural resources has demonstrated foresight and proved beneficial to the state.

Country Context

11. The India Country Partnership Strategy1 (CPS) for the period FY2013–2017 recognized that while India needs to reduce poverty and create more jobs, it has an opportunity to do so in a way that is sustainable and preserves the country’s natural heritage. It also recognized that India’s economic and human development is among the most significant global achievements of recent times. The CPS outlined, as one of its objectives, the need to focus on developing effective systems and institutions to enable more efficient environment and natural resources management. The HP IGG DPL series, while being fully consistent with the current CPS, was also built on the foundations of the previous Country Assistance Strategy (CAS) for the period of FY2009-2012, which specifically included a pillar on sustainable development. To ensure that development is sustainable, the CAS proposed that the World Bank Group (WBG) would help India to better manage its natural resources and reduce the burden that environmental degradation imposes on the population (particularly vulnerable groups). The CAS further highlighted the importance of helping India to increase resilience of the economy, communities and households to nature-related and man-made shocks, in line with the priorities identified in the National Action Plan on Climate Change, as well as in support of India's comprehensive efforts to reduce the country's vulnerability to natural disasters. 12. The CPS recognized that India was a relatively low-carbon economy and its GHG emissions were projected to grow over the next decades. While India’s GHG emissions in proportion to GDP were on par with the global average, its per capita emissions were among the lowest in the world. Energy was key to India’s climate change challenge, as well as to its ambition to sustain high growth, the CPS noted. The demand for energy, however, far outstripped the domestic supply given India’s continued strong economic performance. To keep emissions in check, the GoI targeted to add 40 to 55 GW of additional renewable energy capacity by 2022. At

1 Report No. 76176-IN, CPS for India for the period FY2013–17, March 21, 2013.

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the Copenhagen Climate Conference in 2009, the GoI voluntarily committed to reduce its emission intensity by 20 percent by 2020.2

13. The 12th Five-Year Plan as in the earlier Five-Year Plans also identified hydropower potential in India as substantial and as one of the few immediate options to address energy shortages and reduce the emissions intensity of the power sector at scale. With a total potential of 148,700 MW (with regard to installed capacity), hydropower remained one of the critical options to address the energy/peak shortages, limit the carbon intensity of the power sector, and achieve the objective of diversification of energy sources for India. In addition, the ability of hydropower plants to respond quickly to demand fluctuations also made them the ideal electricity source to cope with demand peaks and help stabilize system frequency. Hydropower generation also counterbalanced the carbon intensity of the power sector and mitigated the risk of global climate change.

14. Among the Indian states, HP was naturally suited for hydropower generation because of its terrain and because it accounted for over 30 percent of India's total hydropower potential in the northern region. The GoHP had a proactive government that was focused on harnessing hydropower as it was deemed necessary to meet the growing needs of power for industry, agriculture, and rural electrification in the state. It was also seen as a potential source of nontax revenue/income to the state.

15. However, there were a number of challenges in the scaling up of hydropower. Only in the recent past have there been vibrant public debates in India and around the world about the management of the possible environmental and social impacts of hydropower development. Concerns around the cumulative impacts of cascaded development of hydropower projects and the adequacy of environment flows in the rivers being developed for hydropower were at the heart of this public debate, as were questions about balancing the negative impacts on communities living in the immediate vicinity of these large development projects. Therefore, it was obvious that scaling up of hydropower had to be done in an environmentally sustainable and socially responsible manner. The GoHP’s forward thinking on developing hydropower in a sustainable manner is thus closely aligned with meeting the GoI’s ambition and targets.

16. To support its clean energy objectives, the GoI also presented an Investment Plan to the Trust Fund Committee of the Clean Technology Fund (CTF), which was endorsed by the Committee on November 4, 2011. India’s Investment Plan was cited for its innovation and transformative potential, as it sought to build enabling frameworks for clean and inclusive growth at cost and scale. In the Investment Plan, the GoI accorded high priority to supporting the inclusive green growth agenda in HP and the program supported by the HP IGG DPL. In addition, the CTF plan would support the Jawaharlal Nehru National Solar Mission and the National Mission on Enhanced Energy Efficiency.

Design of the Project and Key Outcomes

17. The two-part programmatic HP IGG DPL series was designed to support a subset of the GoHP’s plan that involved enabling policies, institutional actions, and piloting of innovative 2 India further committed to generating 40 percent of its electricity from renewables and other low-carbon sources at the Paris Climate Conference in 2015.

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practices that were deemed catalytic for bringing about the long-term changes needed to achieve the objectives mentioned above. This included the following:

Adoption of environmentally sustainable and socially responsible policies in the state’s ongoing hydropower development program

Promotion of climate change-related adaptation and mitigation actions

Empowering local communities to promote watershed management

Promotion of environmentally sustainable industrial development

Development and adoption of a sustainable tourism development policy and action plans

Instituting mechanisms for integration of information from a spatial Geographic Information System (GIS) in informed decision-making.

18. The GoI sought US$100 million from IBRD resources and an additional US$100 million of CTF resources to fund this programmatic DPL series. This was consistent with the practice of leveraging CTF resources with funds from multilateral agencies. This was the first (and so far the only) instance of a DPL program being financed from the CTF. As such, this operation provides a unique learning opportunity for future potential uses of climate finance through budget support mechanisms.

19. The outcomes of this DPL program included the following:

Socially responsible and environmentally sustainable hydropower development:

o A river basin approach in the assessment and management of the environmental impacts of large hydropower projects was adopted so that it will enable the development of plans to mitigate and manage these impacts. To this end, cumulative environmental impact assessments (CEIAs) have been mandated for all the major river basins in the state.

o To ensure that hydropower projects release the mandated environment flow, HP became the first state in India to establish an online monitoring regime that is accessible by the public.

o The state formulated a new approach to preparing integrated basin wide catchment area treatment (CAT) plans for all river basins, moving away from the project-by-project approach. The integrated CAT plans are based on high quality, disaggregated baseline data, and will aid in effective implementation and monitoring of initiatives toward checking soil erosion and land degradation in the catchments of the rivers being developed for hydropower.

o To ensure that communities in the vicinity also benefit from these projects, the state government mandated that one percent of the revenue from sale of power

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generated from a hydropower project will be distributed to households in the project-affected area in the form of an annuity payment for the life of the project.

To benefit local mountain communities, the state government initiated a massive program of community-led conservation of local watersheds across the state. This will increase the agricultural and horticultural productivity of this fragile mountain region.

An amended water policy was approved paving the way for involving the private sector in distribution of water and collection of water charges through public-private partnership mode and establishing a regulatory mechanism for sustainable use of water sources.

State policy on payment for ecological services (PES) was notified. This is the first of its kind in the region.

A green industrial policy was adopted focusing also on environmentally sustainable industrial development, adoption of cleaner technologies through incentivization, and public disclosure of environmental performance.

A sustainable tourism development policy was adopted which has been framed for achieving sustainable tourism development based on global and national good practices.

State Climate Change Strategy and Action Plan adopted and notified.

A state geo-informatics center was established and operationalized to promote use of integrated GIS mapping in all decision making.

20. In several ways, the HP IGG DPL program broke a new ground, which can have significant demonstration effects in promoting inclusive green growth policies and measures in other resource-rich states in India and beyond. Further, through this program the Bank was able to leverage an innovative and new CTF financing in support of an ambitious policy reform agenda.

1.1 Context at Appraisal

21. The loan aligned well with the CPS for India and was also very much in line with the objectives of the GoI’s 12th Five-Year Plan which was supported by the CPS. The 12th Five-Year Plan stated that staying on a high growth trajectory will require more effective management of natural resources, as rapid growth continues to put pressure on India’s water, land, and forests. Further, it states that the management of India’s water resources is especially critical and requires measures to induce industry, farmers, and households to use water more efficiently. The plan recognized that environmental sustainability is no longer a peripheral issue and must be mainstreamed and ‘addressed squarely’. It further stated that inclusiveness involves empowerment and participation. It meant greater attention to inequality—in both outcomes and opportunities.

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22. Rationale for Bank assistance. Recognizing the unique challenges of sustainable development in the fragile and rugged Himalayan region, HP was seeking policy support for a pioneering effort to promote growth through environmental stewardship. The Bank through its partnership with the state was able to bring a wide spectrum of global best practices and experiences from its environmental support through development policy operations (DPFs) in other countries.

1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved)

23. The project development objectives (PDOs) were to support Himachal Pradesh in the improved management of its natural resources across growth engines of the economy and to promote inclusive green growth and sustainable development. The operations funded in the programmatic Himachal Pradesh Inclusive Green Growth and Sustainable Development Development Policy Loan (HP IGG DPL)—IBRD (DPL I: P124041) and CTF (DPL II: P143032)—included key indicators, which are listed in Table 1.

Table 1. PDO Indicators as Approved in DPL I and DPL II

HP DPL I (P124041) HP DPL II (P143032) PDO Indicators PDO Indicators

A. Sustainable hydropower development1 Review by a panel of experts of the state‘s

compliance with environmental and social/economic development policies supported by this program and Environmental Protection Act of the GoI

2 Avoided thermal generation of 11,300,000 MWh by FY2014 against a 2011 baseline

3 Verification of environmental flows in compliance with policy and regulations

4 Demonstration of actions to address noncompliance with environmental flow requirements

5 Implementation progress of an integrated CAT Plan in the Sutlej

6 Finalization and disclosure of a list of eligible families for cash transfers under the new LADF guidelines for the first hydropower project by FY2014, illustrated through the Aryabhatta Geo-Informatics and Space Application Centre (AGiSAC)

7 Local area development works for 75 percent of funds deposited to the LADF as of March 31, 2012, in the amount of INR 1500 million (US$1 million) were approved by Local Area Development Committees (LADCs) by March 2013

8 Cash transfer of INR 50 million (US$1 million) transferred to project-affected peoples by 2014

1 Percentage of operational hydropower projects that have the minimum environmental flow policy applicable and have adopted real-time monitoring. (Target: 10 percent)

2 Number of families benefiting from the direct cash transfer program under the LADF policy (Target: 5,000)

B. Sustainable development through climate change-related adaptation and mitigation

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9 Reduction in GHG emission intensity in relation to the state GDP, including monitoring of the Community Led Assessment, Awareness, Advocacy and Action Programme (CLAP) for Environment Protection and Sustainable Development

10 Sustainable management of forests according to the agreed methodology for reducing emissions from deforestation and forest degradation (REDD+)

11 Improvements in energy efficiency of designated entities and consumers

3 Number of departments, which begin integrating the State Climate Change Strategy and Action Plan in development plans and PES in their operational strategy (Target: climate change: 4, and PES: 1)

C. Local communities participation in watershed management12 Implementation of 77 integrated micro-

watershed development plans resulting in the following as compared to the baseline as measured in the individual watershed plans:

(a) 15 percent improvement in water pondage in 77 GPs by 2014

(b) 5 percent increase in crop diversification in 77 GPs by 2014

(c) 5 percent increase in productivity of crops in 77 GPs by 2014, if there are no natural disasters that impair yields

(d) Water efficiency in 77 GPs increased by 10 percent by 2014

(e) 77 agribusiness groups established in association with implementation of watershed plans to link products to markets.

13 Enhanced synergy of central- and state-sponsored rural livelihoods, agriculture, forestry, and horticulture programs and implementation of locally appropriate solutions to promote sustainable watershed management

4 Number of micro-watershed catchments, which have developed integrated community-led watershed development plans in place (Target: 77)

GoHP guidelines prepared for integrated micro-watershed development plans by a multi-disciplinary team under the Rural Development Department.

D. Sound environmental management in industrial development14 More than 10 percent reduction in growth

rate of establishment (in HP) of polluting industries on the negative list, compared to 2000–2011

15 Increase of 10 percent in annual growth rate of industries that have adopted environmental management systems (for example, ISO 14000) and/or shown transition to lesser pollution or increased cleaner production by 2014 compared to 2000–2010 annual growth rate

16 Submission of policy for use of economic instruments for addressing industrial

5 Percentage of industries that have adopted environmental management systems in the state (Target: 20 percent)

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pollution to the relevant government body for approval

17 Public availability of database on environmental performance of highly polluting industries

E. Sound environmental management in tourism development18 Commencement of sustainable tourism

intervention in one tourist destination (including wastewater treatment and solid waste management) and finalization of implementation plans for three additional tourist destinations with firm commitment of timely implementation and the government’s financial support wherever needed for actual implementation

6 Number of towns adopting environmentally sustainable tourism development plans and practices (Target: 3)

F. Integration of GIS mapping and decision making in the state19 AGiSAC to develop web-based/desktop

applications for informed decision making for 18 government departments

7 Number of departments using AGiSAC for their strategy and planning purposes (Target: 9)

1.3 Revised PDO (if any, as approved by original approving authority) and Key Indicators, and Reasons/Justification

24. The PDO was not revised, but key indicators of the HP IGG DPL I were reconsidered during the preparation of the HP IGG DPL II to unambiguously reflect the Bank’s contribution to the GoHP Program. This was necessitated because some of the indicators included in HP IGG DPL I were a subset of the broader and more ambitious inclusive Green Growth and Sustainable Development Program of the GoHP. Therefore, these indicators were revised or removed during the HP IGG DPL II preparation, to make the distinction between GoHP’s program indicators and Bank-supported indicators more obvious. Given the innovative nature of the operation, the Bank and the GoHP (and GoI) agreed that there was more value in focusing on fewer policy actions and indicators, while ensuring greater specificity and better measurement of impacts. For each indicator, the baseline and target values were introduced to strengthen the evaluation of impact.. The comparison between the original indicators and the revised indicators is described in Annex 5.

1.4 Original Policy Areas Supported by the Program (as approved):

25. The two-part programmatic DPL series was designed to support a subset of enabling policies, game changing institutional actions, and piloting of innovative practices that are deemed catalytic and will provide the short-term foundational changes that are needed to achieve this objective, including (a) integration of climate change adaptation and mitigation actions in policies, programs, and projects; (b) development of environmentally sustainable and socially responsible hydropower; (c) empowerment of local communities to promote watershed management; (d) promotion of environmentally sustainable industrial development; (e) implementation of an environmentally sustainable tourism program; and (f) instituting mechanisms for integration of spatial GIS-based information in informed decision making.

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1.5 Revised Policy Areas (if applicable)

26. The policy areas remained unchanged throughout the series.

1.6 Other Significant changes

27. There were no other significant changes.

2. Key Factors Affecting Implementation and Outcomes

2.1 Program Performance

28. All the prior actions—as described in Table 2—were completed. US$100 million each were disbursed for the HP DPL I on December 26, 2012 and on September 4, 2014 for the HP DPL II. The Bank-funded analytical and advisory services contributed substantially to achieving these prior actions. The Bank, through this DPL support, helped HP move forward on its green and inclusive development agenda. This was the first time that the Bank has provided support of this nature to a state in India. The key areas where the DPL operation enhanced the environmental and social sustainability of the green growth program of the state are (i) Sustainable hydropower development; (ii) Mainstreaming climate change mitigation and adaptation in development; (iii) Sustainable and inclusive management of watersheds; (iv) Sustainable and green industrial development; and (v) Sustainable tourism development. Table 2 outlines the Goals and achievements in the key areas.

Table 2. Prior Actions for HP DPL I and II

Prior Actions: All prior actions fully achieved. HP DPL I HP DPL II

Goal A: Increased adoption of environmental and social parameters in hydropower development Prior Action #1 The GoHP’s cabinet has approved and issued public notification regarding the requirement to undertake CEIAs for the Sutlej, Beas, Ravi, Yamuna, and Chenab river basins in HP, and such studies to include the review of environmental flows.

Prior Action #1 The GoHP has designed, adopted, and implemented a web-based, real-time monitoring system for project milestones, including those relating to environment and social parameters and environmental flows.

Prior Action #2 The GoHP has approved an integrated CAT plan for the Sutlej river basin, and has started its implementation. CAT plans are now mandatory for all the river basins.

Prior Action #2 The GoHP has (a) carried out an interim review of the ongoing CEIA study of the Sutlej river basin; and (b) developed a concurrent action plan.

Prior Action #3 The GoHP’s cabinet has approved and issued a public notification of amendment to the LADF3 (2009) establishing a long-term benefit-sharing policy requiring the provision of annuities to affected communities during the lifetime of hydropower projects in HP.

Prior Action #3 The GoHP has adopted and implemented a benefit-sharing scheme to complement the LADF, by initiating the payment of cash transfers to eligible beneficiaries

Goal B: Promote sustainable development through climate change-related adaptation and mitigation actions Prior Action #4 Prior Action #4

3 Details of the LADF are described in annex 9.

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The GoHP’s cabinet has made public disclosure of the first state-level GHG inventory, as part of the state’s comprehensive Action Plan on Climate Change that identifies co-benefits in mitigation and adaption, in particular with regard to rural livelihoods improvements.

The GoHP has prepared and publicly disclosed HP’s comprehensive Action Plan on Climate Change.

Prior Action #5 The GoHP’s cabinet has issued a decision to enhance and operationalize the capacities in the Department of Environment and the Department of Energy for effective coordination, monitoring, and evaluation of carbon neutrality objectives.

Prior Action #5 The GoHP has (a) carried out a statewide ecosystems evaluation analysis, and (b) issued notification of a state policy on payments for ecosystem services.

Goal C: Increased local communities participation in development of watershed management Prior Action #6 The GoHP’s Department of Rural Development has adopted the strengthened Integrated Watershed Management Program guidelines to specify an integrated community-led watershed development approach to planning by GPs applicable in hilly terrains.

Prior Action #6 The GoHP has: (a) begun the implementation of the Integrated Watershed Management Program Guidelines, by preparing through a multidisciplinary team, and adopting, integrated micro-watershed development plans (one per block); these plans are publicly monitored and disclosed in AGiSAC’s website; and (b) prepared and commenced the implementation of a capacity-building plan for stakeholders departments.

Prior Action #7 The GoHP’s cabinet has approved and issued the State Organic Farming Policy.

Prior Action #7 The GoHP has amended the HP Water Policy-2005 through the notification of the new HP Water Policy-2013 for the sustainable management of HP’s water resources.

Goal D: Increased adoption of sound environmental management practices in industrial development Prior Action #8 The GoHP’s cabinet has approved and publicly disclosed the amendment to the Industrial Policy (2007) to promote sound environmental management, including (a) promotion of cleaner production and environmental management systems consistent with internationally recognized standards (for example, ISO 14000); (b) adoption of disclosure practices (energy audits); and (c) disincentives to industries on a negative list.

Prior Action #8 The GoHP has designed and issued notification on economic instruments for incentivizing the adoption of cleaner technologies, including disincentives to industries identified in the negative list (which largely consists of polluting industries).

Goal E: Increased adoption of sound environmental management practices in tourism development (No prior actions) Prior Action #9

The GoHP has amended the Tourism Policy-2005 through the adoption of the Sustainable Tourism Development Policy- 2013, which is centered on sustainability.

Prior Action #10 The GoHP has commenced the implementation of sustainable tourism practices in HP.

Goal F: Improved integration of GIS mapping and decision-making in the state Prior Action #9 The GoHP has established AGiSAC to promote integrated GIS mapping and decision making.

Prior Action #11 The GoHP has issued an order operationalizing AGiSAC’s protocols for monitoring and

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evaluation (M&E) of activities in the infrastructure and natural resources management sectors, including the integration of geo-informatics technology.

2.2 Major Factors Affecting Implementation

Adequacy of Government Commitment

29. Strong ownership and commitment within the GoHP and GoI. As described in section 1.1, the green growth agenda had ownership and commitment within the GoHP at the highest levels. The programmatic HP IGG DPL series gave the needed political leverage to the GoHP in formulating and implementing policies to ensure that growth was contingent on responsible management of the environment and natural resources and that there were supporting policies and an institutional framework to deliver results on the ground. At the national level, the programmatic HP IGG DPL series benefited from the sustained commitment of the Department of Economic Affairs, the GoI, and the Ministry of Environment, Forests, and Climate Change. This was critical since CTF resources were linked to this DPL series in accordance to the CTF country Investment Plan. Inclusion of the HP IGG DPL in the CTF country Investment Plan required considerable effort, in which the GoI was instrumental. As this was the first use of CTF resources for a DPL, it was particularly important to demonstrate how a DPL could facilitate transformational changes at both policy and institutional levels. A combination of strong ownership and commitment was a major influencing factor.

30. Sequencing of individual DPL operations under the programmatic series enabled constant dialogue and generated results on the ground. From the outset, it was envisaged that the HP IGG DPL would have two operations of US$100 million each. Sequencing individual operations and continued engagement resulted in a sustained momentum, which contributed to successfully achieving all the prior actions. This contributed to the program’s effective implementation.

Soundness of Background Analysis, Including Lessons Learned

31. Sound background analysis and continued technical assistance supported the GoHP in implementing the HP IGG DPL. During the preparation of the HP DPL I, a strong analytical basis was deemed necessary as the basis for crafting policies and the prior actions that would be catalytic. The GoHP’s familiarity with the DPL instrument (through the earlier Fiscal DPL) and the Bank’s involvement in the state enabled the determination of appropriate policy areas and the respective prior actions (see Table 3). And, during the HP IGG DPL I implementation, a technical assistance program supported by UK’s Agency for International Development (DFID) was implemented to support the GoHP in five areas, namely: (a) Poverty and Social Impact Assessment (PSIA); (b) sustainable tourism; (c) Strategic Environmental Assessment for industrial development; (d) natural capital accounting—forest accounting; and (e) sustainable hydropower development with an initial focus on best practice assessment of environmental flow requirements and monitoring, as well as a stakeholder communication needs assessment. This feedback was also

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reiterated in the borrower’s comments on the Implementation Completion and Results Report (ICR) draft, which is attached as Annex 4.

Table 3. Analytical and Advisory Support for Each Policy Area

Goal A: Increased adoption of environmental and social parameters in hydropower development Technical assistance on sustainable hydropower environmental flows. This Non-lending

Technical Assistance (NLTA) reviewed the practices/mechanisms of the state of HP in implementing the environmental flow regime, compared with approaches across other hydro endowed states in the Himalayan region in India as well as across other countries (including South Asia), and recommended practical mechanisms for its monitoring in the long term. This NLTA contributed to the subsequent installation of real-time environmental flow monitoring system.

Benefit sharing. To support policy and institutional reforms in benefit sharing, a two-stage ethnographic study was conducted during April–July 2012 and November 2012, respectively, to understand the perceptions of citizens on hydropower development and the benefit-sharing schemes, which included cash transfers and community-driven local development projects. A total of 124 interviews were conducted by sociologists in Shimla, Mandi, Kinnaur, Bilaspur, and Solan, using structured and unstructured interview methods. The findings were summarized in two extensive field reports. Interviews by sociologists were useful for the GoHP officials to understand the social and economic background of the project-affected families, which was crucially important when officials subsequently developed the beneficiary list and operationalized cash transfer to individuals.

Goal B: Promote sustainable development through climate change-related adaptation and mitigation actions

South-South exchange. As part of the preparation of DPL II, a knowledge exchange program with Mexico’s pioneering role in green growth and climate change agenda was organized. The balance between conservation of the nature reserve and sustainable tourism was one of the lessons learned through this learning event.

Goal C: Increased local communities participation in development of watershed management Natural capital accounts. Building on India’s well developed practice of valuing forests

through an Net Present Value (NPV) approach and too support the well-informed decision making by the GoHP to fully use its natural assets such as hydropower potential, forests, and water, this NLTA convened sensitization workshops, training workshops, invited experts from the European Forest Institute and Indian Institute of Technology (Mumbai), and provided a background report. This was useful for the GoHP officials to deepen the understanding about the value of natural resources, which is background information for the GoHP departments to integrate PES in their operational strategy.

Goal D: Increased adoption of sound environmental management practices in industrial development Strategic assessment of industrial development. This work assessed the industry

development strategy of HP, which resulted in the: (a) Revised Green Industrial Policy in 2012; (b) introduction of economic instruments to incentivize compliance with environmental regulations in 2013; and (c) public disclosure system for industrial emitters through a website.

Goal E: Increased adoption of sound environmental management practices in tourism development Capacity building on destination management and sustainable tourism. The NLTA

supported the GoHP by helping to review and center the 2005 Tourism Policy on sustainability and inclusion, and adopting a new 2013 Sustainable Tourism Policy in 2013; developing two sustainable tourism development plans for established and emerging destinations; establishing a monitoring system to track results in tourist destinations; and strengthening public-private-community relationships and collaborative institutional arrangements.

Tourism satellite accounts (TSAs). The primary objective of the TSA study was to provide detailed and analytical information on all aspects of tourism. It covers the product composition of tourism consumption, the industries most concerned with the activities of visitors, and their relationships with other industries, and so on. These types of aggregates are extremely useful because they provide summary indicators of the size of tourism. Estimates using TSA

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methodologies indicate that the contribution of inbound tourists (foreign and domestic) to HP’s GDP may be as high as 26 percent; with the specific contribution of foreign tourists in the state estimated to be significantly the largest and over 20 percent.

Goal F: Improved Integration of GIS mapping and decision making in the state Management information system (MIS). The Bank has been supporting the DEST/AGiSAC

team to develop the MIS related to the monitoring of the results indicators during the implementation of the HP DPL and after the closing date.

Relevance of Risks and Effectiveness of Mitigation Measures

32. A strong partnership between the GoHP and the Bank was a key constituent to mitigation of risks and the timely achievement of the prior actions. The risks identified in the original project design document were appropriate and realistic. The task team benefited from strong client and partner relationship with clients and also across sectors and units within the Bank.4 This enabled the identification of key issues, engagement with the key agencies and officials, and sustained dialogue and coordination with the government and development partners. The GoHP has had extensive experience in Bank-funded operations through different projects that included hydropower, state roads, rural roads, watershed development, and fiscal support. Due to the multiple past/ongoing engagements, there was a strong partnership between the GoHP and the Bank that also contributed to the smooth implementation of this programmatic HP IGG DPL.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

M&E Design

33. The HP IGG DPL M&E framework was designed to provide feedback and adjust approaches on the overall policy reform agenda. The technical meetings and sectoral engagements produced a rich understanding of the issues and challenges in a range of high priority areas, as well as some understanding of the pros and cons of different approaches and the reactions to the approaches at different levels in critical agencies. The mix of actions was focused through dialogue on a fairly tight set of issues and performance indicators. This was very useful, as the CTF committee required a clear long-term M&E framework as well. It was decided and agreed with the GoHP that a more focused and effective monitoring system, developed, owned, and implemented by the government was necessary to monitor policy outcomes and performance indicators better.

M&E Implementation

34. The GoHP assigned the M&E role to DEST, which decided to use the services of AGiSAC to coordinate the collection, collation, and compilation of the MIS data/information from the different GoHP departments. AGiSAC also provided GIS information to facilitate informed decision making in the different GoHP departments. The M&E design focused on the GoHP program, which included the key indicators under HP IGG DPL I and II as a subset. The M&E design was implemented during the program period and the data/information was utilized by the respective GoHP departments, and also as a whole. Technical support to assist the GoHP

4 The team was a recipient of the Vice Presidential Unit Team Award for fostering collaboration across many different Global Practices in the Bank.

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streamline the overall M&E mechanism was also provided by the Bank. The GoHP is now committed to submit quarterly reports according to the Bank/CTF requirements until June 2017.

M&E Utilization

35. The NLTA associated with the DPL series provided knowledge that helped the state to make course correction on utilizing the M&E framework. In addition, learning from DPL-I about effective monitoring of watersheds and related aspects helped to strengthen M&E for the second DPL. Further, according to CTF requirement for the hydropower sector, the GoHP’s Directorate of Energy has designed and is implementing a more detailed web-based real-time monitoring system with support from the National Informatics Centre. The detailed MIS has real-time information, including environmental and social aspects, pertaining to each of the hydropower projects, both in the construction and operational stages. The system includes not only compiling raw data/information from the hydropower project developers, but also providing web linkages to the data/information residing with the other departments such as the Forest Department, PCB, and AGiSAC. Through this system, the GoHP is able to now monitor, at the project level as well as the state level, the status of project development, understand challenges being faced in development (including on environmental and social parameters), and take the necessary corrective action to help improve the quality of hydropower development. The information pertaining to CAT plan implementation and environmental flow requirements are also included. The system has been effective to monitor the status in a cost-efficient way, and improve transparency. Section 7 summarizes the borrower’s views on the utility of this web-based system. Additional information is provided in Annex 4.

2.4 Expected Next Phase/Follow-up Operation (if any)

36. Building on the HP IGG DPL, the GoHP has identified four priority areas for support from the Bank. This includes (a) urban decongestion; (b) forest management and nature-based tourism; (c) sustainable transport; and (d) monitoring of the green growth program.

2.5 Significant Achievements of Program Performance

Environmentally and Socially Sustainable Hydropower

37. Hydropower is HP’s largest source of revenue and the state holds a quarter of India’s total potential. The adoption of environmentally and socially responsible hydropower policies is aimed at ensuring that the state develops its hydropower resources in a sustainable manner well into the future. The following are actions which have gone beyond the DPL’s prior actions and moved toward an environmental sustainability and green growth path.

CEIAs for river basins. The hydropower sector in India has of late been caught in a

debate on the possible cumulative impacts of cascaded hydropower development. Responding to these concerns, HP became the first hydro-rich state to move away from the conventional method of assessing impacts on a project-by-project basis and instead adopted a river basin approach to impact assessment. These CEIAs are a significant step forward in mitigating and managing the cumulative impacts of

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developing a number of hydropower projects on a river basin. Out of five river basins in the state, CEIAs for four basins (Sutlej, Ravi, Beas, and Chenab) were initiated during the DPL program period. The state has also sought to enhance public participation in the CEIA process by holding extensive consultations in the river valleys during the preparation of these CEIAs.

Independent panel of experts. The state has also appointed an independent panel of two experts from the environment and social sectors to advise the government on relevant aspects of hydropower development to ensure that the sector develops in an environmentally and socially sustainable manner. The CEIAs were also reviewed by experts from various government departments including those with expertise on forestry, hydrology, fisheries, agriculture, floral and faunal biodiversity, pollution control, hydropower development, and social development.

Basin wide CAT plans. It is mandatory in hydro catchments to implement CAT Plans. In HP, instead of individual project specific CAT Plans, basin-wide CAT plans were prepared and are being implemented. Because a river basin is one natural, ecological unit, any degradation in the upper reaches can have major downstream impacts. Integrated CAT plans for an entire river basin are deemed global best practice for managing impacts. The state formulated integrated CAT plans for all river basins to enable planners to stabilize entire catchments and avoid fragmented prescriptions. They are based on high quality disaggregated baseline data on forest cover and quality, erosion intensity, and silt load.

Maintaining minimum environmental flows. To address a common concern that hydropower projects reduce the flow of water in the rivers on which they operate, HP has mandated that all projects leave a minimum amount of water in rivers at all times—15 percent of their lean season flow—becoming the first state in the country to do so. These environmental flows—or e-flows—help maintain the river’s delicate aquatic balance and protect the rights of downstream communities. In HP, e-flows are monitored at various points along the river by the state’s Pollution Control Board (PCB) through an online monitoring tool, and the information is made publicly available on the web, enabling the public to monitor compliance on a real-time basis. Out of 76 operational projects, 64 projects (84 percent) have installed the equipment for measurement of minimum environmental flows.

Sharing project revenues with the local people

o HP’s Hydropower Policy of 2006 mandated the project developer to provide 1.5 percent of the final construction cost to the LADF. The process of streamlining the use of these funds was facilitated under the HP DPL. The GoHP’s LADF guidelines have informed the draft national guidelines prepared by the Ministry of Power in November 2013.

o To further enhance community benefits, the GoHP, in 2009, launched an innovative benefit-sharing policy, under which revenues from the sale of 1 percent of free power provided by the developers to the HP government are now

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shared in a prescribed formula with local communities. Half the total amount is divided equally among all families in the project-affected area with below poverty line (BPL) families getting 15 percent more. The rest is divided among families in the ratio of land acquired from them—again with BPL families getting 15 percent more. These cash transfers will be disbursed every year throughout the project’s life. During the course of the DPL II operation, Chamera III became the first hydropower project to move into generation phase and implement this policy. As of December 31, 2015, all 5482 eligible families have received cash transfers amounting to INR 42.4 million. The operationalization of cash transfers to project-affected families was an important milestone in India’s journey to ensure that hydropower development is socially sustainable. HP thus became the only state to operationalize guidelines in the National Hydropower Policy, 2008 on sharing revenues from the sale of 1 percent of free power from hydropower projects with affected communities.

Hydropower producers’ forum. Because it is usual for multiple project developers to work along a river basin, the state constituted a Hydropower Producers’ Forum for the Sutlej basin to coordinate their activities, especially with regard to maintaining the minimum environmental flows of water in the rivers and protecting common catchment areas.

Responsible disposal of debris. Because large infrastructure projects generate sizeable quantities of debris, hydropower projects in HP are required to ensure that all debris is disposed of in a manner that does not deface the mountainside or obstruct the river’s natural flow, and has a minimum impact on the people. Safe disposal sites are therefore required to be chosen, strong retaining walls built, and once filled, the sites are to be planted over with native vegetation to enable them to merge seamlessly with their surroundings.

Mandating outreach for all hydropower projects. Based on its consultations with local people, the state government mandated that all hydropower developers listen to and address people’s concerns about projects in their vicinity. Hydropower developers are required to follow a structured communications protocol that lays down what the developer needs to do at each stage of project development such as consulting with local people, making information publicly available, addressing grievances, and so on.

GIS-based mapping of the hydropower potential of all river basins. To ensure that future sites for hydropower development are chosen on the basis of solid scientific evidence, the state mapped the hydropower potential of all its river basins using GIS technology.

Web-based real-time monitoring. To ensure transparency at all stages of project development, HP has designed and implemented a web-based monitoring system to monitor the progress of hydropower projects before, during, and after construction. Authorities can now monitor the milestones reached by a project and ascertain whether CAT plans and other environmental and social activities are being duly

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implemented. The system also helps decision makers understand the challenges a project is facing, enabling them to take corrective action promptly.

Green Accounting

38. Usually, the value of forests is determined by the revenue they generate through the sale of timber. However, because forests make a vital contribution to the larger well-being of people and the planet—such as stabilizing weather patterns, binding precious topsoil, giving rise to springs and rivers, providing fodder and fuelwood to local communities, and sequestering carbon—HP made a commitment under the DPL program to draw up forest accounts to better understand their vital contribution. The state is now seeking to place a monetary value on its forests, and forest accounts are being piloted in Mandi district. These accounts will enable policymakers to measure how forest goods are being used, who is benefitting from these goods, and how the forest wealth is changing, enabling planners to make more appropriate decisions.

Payment for Ecosystem Services

39. HP became the first state in the country to adopt a policy on PES that will compensate people for maintaining vital natural resources. Until now, communities had little incentive to protect natural resources such as forests, biodiversity, and the catchment areas of river basins, where the land was mostly government owned. Under its PES policy adopted as a DPL prior action, the state now seeks to provide economic incentives to communities to conserve natural resources.

Sustainable Tourism Development

40. The state shifted its focus from increasing the number of visitors to ensuring that tourism contributes to the state’s broader green growth goals. The state’s tourism policy was reviewed and centered on sustainability and inclusion principles. A new Sustainable Tourism Development Policy was adopted as a part of the DPL program after taking into account global and national good practices, analyses of key destinations, and participatory planning exercises. In addition, for the first time, various stakeholders were brought together to prepare an Integrated Sustainable Tourism Development Plan for an established destination (Greater Dharamshala) in the state. Under the plan, residents, the private sector, visitors, and civil society, at large, share responsibility with the government in planning and managing tourist enterprises and monitoring impacts.

Sustainable Industrial Management

41. Recognizing the importance of sustainable industrial development, the state government, drew up a list of priority or ‘thrust’ industries that are deemed clean and had high economic potential—such as sustainable tourism, information technology, biotechnology, and fruit processing. The DPL program helped the state review its industrial scenario through the Strategic Environmental Assessment of the industries sector—identifying the major polluting industries and their pollutants, the key hotspots of pollution, as well as the impact on people’s health and the environment. In the wake of this study, a joint government-industry body was created to review and update the state’s industrial policy. Under the revised industrial policy, HP is now incentivizing its industries to adopt cleaner technologies and providing government land as an incentive for establishing common effluent treatment plants in industrial clusters. It has also made

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it mandatory for all industrial units and clusters to disclose their pollution status because public disclosure is often the best means for ensuring industrial compliance.

Empowering Communities to Develop Micro-Watershed Plans

42. The Bank has been helping the state improve its natural resources base with the strong involvement of the local people through a succession of watershed development projects. Under the DPL program, micro-watershed plans were drawn up for one micro-watershed in each of the state’s 77 development blocks by a multidisciplinary team from various government departments, together with strong community involvement. Community ownership becomes all the more important in fragile mountain ecosystems where areas are generally remote and isolated. To ensure transparency, the micro-watershed plans are disclosed publicly, allowing them to be monitored on a regular basis. Field agencies are now able to track results on the ground through Global Positioning System coordinates. At a later date, it will be possible to monitor the implementation of these plans through remote sensing.

Aryabhatta Geo-informatics and Space Application Centre—Improve Integration of GIS

43. AGiSAC is the state’s central repository for all digital data on the environment, natural resources, climate change, and so on. It was set up by the GoHP in 2011. AGiSAC’s multidisciplinary team of scientists, planners, and software developers, offers government departments a wide variety of consultancy services. Remote sensing, global navigation satellite systems, and more can help departments plan, monitor, and evaluate their activities on a scientific basis; GIS solutions can also be tailor-made to suit a department’s specific needs.

44. Significant achievements of the HP IGG DPL Program were also attributed to an extensive non-lending technical assistance (NLTA) program (see details in Table 3) which provided a solid analytical basis for the reform agenda. Various donors contributed to making these analytical underpinnings and support possible.

3. Assessment of Outcomes

45. In this section, outcomes will be rated based on the achievements of HP IGG DPL I against the original PDO indicators and HP IGG DPL II against the revised PDO indicators. Since HP IGG DPL I and HP IGG DPL II are both US$100 million each, the two ratings were equally weighed to derive the overall rating of the entire program of two operations.

3.1 Relevance of Objectives, Design, and Implementation

46. The objectives of this programmatic HP IGG DPL were and continue to be highly relevant and closely aligned with the priorities of the GoHP, the GOI and the WBG. The HP IGG DPL was identified in India’s CTF Country Investment Plan as the top priority to receive CTF funding. Access to the Clean Technology Fund (CTF) was sought to help remove barriers and scale up the deployment of renewable energy and energy efficiency in support of the country’s voluntary objective to lower carbon intensity. The objectives of promoting green growth and sustainable development were reinforced by the GOI in its INDC submission to the COP21. The support of this DPL series to establish a framework for local benefit sharing, and sound watershed management aimed promote the social acceptability and environmental sustainability of renewable

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energy, including hydropower development as a way to facilitate and accelerate deployment of renewable energy. As shown in section 5.2, the GoHP has achieved prior actions, and furthermore, is proactively implementing a number of follow-up actions

47. The Bank’s Country Assistance Strategy (FY2009–2012) highlighted the HP IGG DPL as an exception to the trend of focusing DPLs on lagging states, and the rationale for the exception was HP being the first state to commit to develop a comprehensive green growth strategy and the GoI expressing strong interest in the HP IGG DPL, in the hope that it could serve as an example for other mountainous states in India. The Bank’s CPS (FY2013–2017) also placed HP IGG DPL II in the Strategic Engagement Area 2 ‘Transformation’, as one of the programs to reduce the intensity of GHG emissions, which is one of the GoI’s strategic objectives under its 12th Five-Year Plan (2012–2017).

48. Overall, the HP IGG DPL’s design and implementation remain highly relevant in the current context. The recent Development Policy Financing Retrospective of the Operations Policy and Country Services5 and Independent Evaluation Group’s Review of DPFs6 recognized that Green Growth DPFs are increasingly in demand globally. The green growth program of the state was ambitious and a development policy instrument was the right tool to assist the state government with moving forward and solidifying multi stakeholder support around this agenda. To that extent, the HP IGG DPL design is relevant not only for India but also for other countries. The use of DPF-type instrument to channel climate finance is an example of global significance.

3.2 Achievement of Program Development Objectives

49. All aspects of the PDO were substantially achieved, as shown in Table 4 below. This has led to other mountain/hill states being interested in learning from this successful HP IGG DPL operation. While HP IGG DPL I had some indicators that did not reach the target level, HP IGG DPL II is satisfactory in general, and has a number of over performing indicators. The improved performance between HP IGG DPL I and II also demonstrated the GoHP’s sustained ownership and leadership and increasing momentum toward policy reform.

3.3 Justification of Overall Ratings

50. As summarized in Table 4 and detailed in Annex 8, the ratings of HP IGG DPL I and II were equally weighed, to derive the overall rating of the entire program of two operations, and is rated as Satisfactory. This is based on the substantial achievement of the PDO, and the continued high relevance of the HP IGG DPL series to the GoHP’s priorities and the Bank‘s CPS.

5 World Bank (2015). 2015 Development Policy Financing Retrospective: Results and Sustainability, Operations Policy and Country Services, Washington DC: The World Bank. 6 Independent Evaluation Group (2015). Managing Environmental and Social Risks in Development Policy Financing. IEG Learning Product, July 27, 2015, Washington DC: The World Bank.

21

Table 4. Rating of Individual Policy Areas and Their Goals

Goals Rating Justification Increased adoption of environmental and social parameters in hydropower development

Satisfactory The GoHP approved and issued a public notification on the

benefit-sharing policy in the form of annuity payments for the lifetime of the project;

mandated environmental flows in the river, of a minimum of 15 percent of the average lean flow in all hydropower developments in the state;

pioneered the use of the CEIA tool and developed a framework for undertaking comprehensive CEIAs in the Sutlej river basin as the first study; and

moved toward the development and implementation of integrated basin wide CAT plans.

Promote sustainable development through climate change-related adaptation and mitigation actions

Satisfactory State Climate Change Strategy and Action Plan was developed.

Mainstreaming climate change considerations into the 11-line department’s operational strategies was initiated.

Increased local community participation in development of watershed management

Satisfactory Preparation of 77 integrated watershed development plans were completed as scheduled, and implementation is underway.

The GoHP announced a new HP State Water Policy 2013 to include an emphasis on the sustainable management of state water resources.

The GoHP announced the State Organic Farming Policy to promote unique production systems that can be accomplished by using on-farm agronomic, biological, and mechanical methods in exclusion of all synthetic off-farm inputs.

Increased adoption of sound environmental management practices in industrial development

Satisfactory The GoHP revised and announced its new Industrial Policy in 2012 to clarify that the industries they promote are clean, non-polluting, and has high economic potential.

The GoHP initiated public disclosure of pollution performance on a pilot basis (first of its kind in India) with a view to demonstrate the use of disclosure and transparency leads to better pollution management.

Increased adoption of sound environmental management practices in tourism development

Satisfactory A new Sustainable Tourism Policy was adopted in 2013.

In addition to the new policy, the GoHP took the initial steps to make it operational by preparing, in a participatory manner, an inclusive and sustainable tourism development plan.

The GoHP also initiated a pilot TSA to provide detailed and analytical information on all aspects of tourism.

Improved integration of GIS mapping and decision-making in the state

Satisfactory To mainstream the use of GIS in all its developmental work, the GoHP committed to develop web-based applications for informed decision making across 18 government departments

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3.4 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

51. To provide feedback on implementation, a PSIA was initiated during the HP IGG DPL I to understand the impacts of the reforms undertaken through the HP IGG DPL series, particularly in the clean energy and watershed development sectors. Apart from providing useful implementation insights, the study concluded that the state has successfully reduced the incidence of poverty regardless of gender and caste, both in the rural and urban areas (see Annex 10 for details). The recent Bank report ‘Scaling the Heights’ also highlighted that the poverty level in HP had declined from 36.8 percent in 1993 to 8.5 percent in 2011, which is a fourfold decline and better than in any other state in the country.

52. The PSIA also generated considerable interest within the state and opened space for new forms of cooperation between the Bank and the state government. The state government has acknowledged the areas of concern listed by the PSIA report from the first phase. These include, for instance, high child malnutrition in the state, adverse child sex ratios, youth employability, and environmental sustainability. In fact, these concerns are reflected in the 2015 and 2016 budget speeches of the chief minister, which justifies several budgetary allocations on the basis of recommendations from the report.

(b) Institutional Change/Strengthening

53. The programmatic HP IGG DPL significantly strengthened the institutional capacity within the GoHP, particularly with a view to implement and operationalize innovative new policies. Selected typical cases are summarized here:

As described in section 1.1, DEST was a new organization established through engagement in the earlier Fiscal DPL. For the programmatic HP IGG DPL, DEST was the lead agency that implemented and coordinated across departments such as the Directorate of Energy, Forest Department, and the Industries, Tourism, and Rural Development Departments. Through their role, DEST’s institutional capacity was substantively strengthened. Similar feedback is also found in the borrower’s comments on the draft ICR, which is attached as annex.

In 2005, the GoHP issued a regulation for minimum environmental flows, which stated that hydropower operations needed to allow sufficient amount of water for uses other than power generation. Before the HP IGG DPL, there was no credible means to validate compliance of this regulation by hydropower projects and there were concerns expressed by different stakeholders. None of the hydropower projects had environmental flow monitoring equipment. After the HP IGG DPL, through strengthening of monitoring capacity of the Directorate of Energy and DEST, 84 percent of the hydropower projects had equipment in place to monitor environmental flows.

Benefit sharing in the form of direct cash transfer to individuals was stated in a notification issued in 2011, but the Directorate of Energy and district administrations

23

could operationalize the annuity cash transfer only during the HP IGG DPL. Further details are given in Annex 9.

As the HP IGG DPL required constant and close interaction between the different line departments, the capacity of the GoHP to coordinate on policy and institutional reforms was substantively enhanced.

(c) Other Unintended Outcomes and Impacts (positive or negative)

54. The HP IGG DPL served as a catalyst to GoI’s engagement in the CTF program. Further, this was also the first (and only, so far) global example of a DPL being financed by the CTF; thus providing an important learning opportunity for potential future uses of climate finance. It was also the first application of the DPF instrument to support green growth policies and reforms in India and the South Asia region, opening a possibility of similar operations in other states or/and countries.

55. Many achievements in this HP IGG DPL are actually opening up the scope of positively influencing the governance within key sectors. For example, (a) the benefit-sharing mechanism is providing cross-sector learning on how cash transfer schemes can be effectively implemented; (b) web-based environmental flows data/information has demonstrated how disclosure/transparency can drive compliance/performance improvements; and (c) basin wide integrated CAT plans are resulting in optimal use of human and monetary resources, and reducing redundancy in planning processes.

56. A delegation of the GoHP visited Mexico under a South-South Exchange program where they were able to share their experience in promoting green growth and sustainable development and learn similar lessons from the Mexican experience.

57. The Additional Chief Secretary (Finance), Government of Himachal Pradesh also presented the green growth story and associated development of the state in two knowledge sharing events at Cape Town (South Africa) and Washington, DC (USA) in 2015 and 2016 respectively.

3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

58. The GoHP regularly convened technical working groups and the steering committee that invited cross-sectoral participation. Meetings were used to clarify the nature and rationale for the HP IGG DPL program and track progress against indicators. Many of the recommendations in the areas of watershed micro planning, downstream hydro impacts and their management and a good communication strategy for hydro power development helped the state to refine the program.

4. Assessment of Risk to Development Outcome Rating: Low or Negligible

59. The rating is based on the fact that the GoHP has very strong ownership of the reforms supported the HP IGG DPL. Given that HP was faced with a situation of depleting federal grants and given the state’s fragile ecosystem, the GoHP’s commitment to a strategy of green growth and sustainable development was both timely and well intentioned. The financial benefit to the state from these reforms as a result of changes in the allocation of central grants by the GOI, described

24

above, further reduces the risk of deviating from the inclusive green growth reform path. The GoHP has further committed to monitor the results indicators beyond the closing date of the programmatic HP IGG DPL, and will submit quarterly reports until June 2017. The GoHP’s proactive follow-up action in all policy areas is clear evidence of the strong momentum toward inclusive green growth and sustainable development. Further, the programmatic HP IGG DPL significantly strengthened the institutional capacity within the GoHP, particularly with a view to implementing and operationalizing innovative new policies. The Bank is discussing with the government a follow-on engagement to support implementation of the innovative approaches to natural resource management.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory

60. The Bank’s task team had identified, facilitated preparation of, and appraised the operation using the information available from the activities of the Fiscal DPL, existing analytical underpinnings and other sector projects supported in the state. All of this was effective in designing the policy areas that were most likely to achieve planned development outcomes. However, since this was the first instance of a cross-sectoral DPL in India involving sectors like energy, environment, rural development, industry, tourism, and agriculture, the inter-sectoral coordination was a big challenge. As shown in Annex 8, the PDO indicators were revised during the preparation of HP IGG DPL II, which was useful to clarify how the actions contribute to the achievement of the PDO. Considering both HP IGG DPL I and II, the quality at entry is rated as Moderately Satisfactory.

(b) Quality of Supervision Rating: Satisfactory

61. The Bank’s task team conducted periodic missions during the implementation period to ensure that both operations were on track. Consultants and experts for multiple Advisory Services and Analytics (ASAs) also visited HP for technical missions, and carefully monitored the implementation of the ASAs and the program. The proactive supervision efforts of the task team also helped in improving outcome indicators during preparation of the DPL-II. The task team invited GoHP officials to many seminars/workshops in Delhi and elsewhere to share their achievements and challenges under the HP IGG DPL, and such interactions were also useful to improve communication and monitor progress. The NLTA—that was concurrently implemented—provided substantial technical support to advising the Bank’s task team and this strengthened the quality of supervision as well. This also led to innovative initiatives such as forest accounting and tourism accounting, which the GoHP pioneered in the country.

(c) Justification of Rating for Overall Bank Performance Rating: Satisfactory

62. This is based on the substantial achievement of the PDO, and the continued high relevance of the HP IGG DPL series to the GoHP’s priorities and the Bank‘s CPS. Even though the quality

25

at entry was Moderately Satisfactory, the Bank made substantial effort to identify and influence the key actions that could contribute to the achievement of the PDO. This facilitated the streamlining of the result indicators of HPIGG DPL I. As a consequence of the responsiveness to the experience from HP IGG DPL I, and as the rating of the quality of supervision was Satisfactory, the overall Bank performance is rated as Satisfactory. 5.2 Borrower Performance

(a) Government Performance Rating: n.a. (only an overall rating is necessary for development policy lending operations)

(b) Implementing Agency or Agencies Performance Rating: n.a. (only an overall rating is necessary for development policy lending operations)

(c) Justification of Rating for Overall Borrower Performance Rating: Highly Satisfactory

63. The GoHP demonstrated strong and sustained ownership of the inclusive green growth agenda, and significant progress was made toward adopting and implementing the actions as agreed in the two HP IGG DPL operations. As shown in Annex 9, most indicators reached the target values. The watershed activities, however, will take four to five years to be implemented fully. The watershed guidelines for integrated development with involvement of communities in the planning stage were established after HP IGG DPL I, and the targets will be fully achieved in four to five years. However, the activities were on track as was the progress on the indicators. Similar target values for the number of people benefiting from the direct cash transfer under the LADF are also showing gradual increase.

64. Nevertheless, the GoHP should be commended for being a leading state in piloting cash transfers under the LADF. Many initiatives such as real-time monitoring of environmental flows, annual cash transfer as a form of benefit sharing, basin wide CAT plans, and state-level GHG inventories are innovative and the first-of-its-kind in India. These achievements were positively influencing the governance of key sectors.

6. Lessons Learned

65. Experience from implementing sector investment projects provided substantive inputs in designing the policy reforms targeted under DPF. An important lesson from the HP IGG DPL is that the externally funded sector investment projects, for example, in the hydropower sector or watershed sector, have enabled the identification of policy and institutional gaps. This sector project experience helped the Bank immensely to work collaboratively with the GoHP in designing the right combination of policy and institutional reforms that was required to scale up and carry the agenda forward. For instance, pertaining to the LADF policy reforms, the experience gathered from implementing the Bank-funded Rampur Hydropower Project provided one of the key inputs in designing what is required at the policy and institutional level. Similarly, the Mid-Himalayan Watershed Development Project’s lessons were helpful to suggest changes to watershed level planning.

66. Programmatic DPF operations are more effective in supporting a new forward-looking policy agenda. The HP IGG DPL was designed as a series of two operations. This enabled greater engagement and collaborative effort between the GoHP and the Bank. This was

26

beneficially leveraged to achieve the development outcomes. After HP IGG DPL I, the level of familiarity/understanding with this instrument was substantially higher within the GoHP, and this enabled more focused interventions and effective delivery of development outcomes. If this were designed to be a one-off DPL, it would have been more challenging to achieve the development outcomes to the same extent.

67. A relationship of trust and constant communication between the Bank team and the client was key to the success of this innovative DPF initiative. The level of communication between the Bank team and the client on this operation was exceptional with strong mutual respect and understanding. This was achieved by a combination of a locally based task team leader and highly skilled and senior staff from Washington, D.C. The team was able to respond to critical needs of the state, which is evidenced by frequent visits and close interaction with government officers. Complementing the local team with senior experts from Washington, D.C. ensured that the right support could be provided at the appropriate time. This was highly appreciated by the client.

68. Advisory Services and Analytics provided vital technical support to borrower’s policy actions. A number of ASAs were conducted to support the HP IGG DPL. The findings/results of each of these ASAs provided technical support for policy reform formulation and, subsequently, implementation. In other words, without these ASAs, it would have been difficult for the borrower to formulate and implement policies, complete prior actions, and reach the indicator target values within a tight time frame. Therefore, planning for concurrent ASAs could be gainfully used to support the borrower with DPL design and implementation.

69. Delivering climate finance through budget support instruments can be very beneficial to both development and global environmental objectives. In the case of HP, CTF financing through the HP IGG DPL series supported a reform program that has led to sustained GHG emission reductions and other environment and social improvements. However, the process of reconciling and coordinating processing requirements for the CTF and IBRD DPF operations was not easy. Greater harmonization of processes and procedures will be needed for increasing the replication potential of this innovative use of the CTF or other climate finance instruments.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/Implementing Agencies 70. The GoHP provided comments on the draft ICR which were subsequently incorporated into the ICR. Comments are included in Annex 4. A summary of the key comments are as follows:

These policy support loans have helped the GoHP sharpen its focus on the environment and promote inclusiveness in a big way. These loans have accelerated the process of policy reforms. Greener policies have been defined and adopted for the state’s main revenue earning sectors. These include hydropower, tourism, industry, as well as rural development, because the vast majority of the state’s people are small

27

and marginal farmers who stand to benefit from the better management of natural resources.

While the first Himachal Pradesh Development Policy loan and credit (Himachal Pradesh Development Policy Loan I) 2007–09 helped establish DEST, which played a key role under the follow up DPL’s support for green growth and sustainability, by becoming a strong advocate of environmental issues in the state by coordinating the efforts of various government departments, enabling them to plan their development activities in an integrated and environment-friendly manner.

The GoHP has designed and implemented a web-based monitoring system to monitor the progress of hydropower projects before, during, and after construction. This has ensured transparency at all stages of project development. Authorities can now monitor the milestones reached by a project and ascertain the implementation status of hydropower projects including key environmental and social activities, such as implementation of CAT plans, benefit sharing, and local area development work. This web-based system also helps decision makers understand the challenges a project faces and enables them to take prompt corrective action. The initiatives of real-time environmental flow monitoring, CEIAs on major river basins, communication strategy work, and basin wide CAT for major basins helped the state improve environment and social sustainability of hydropower development. One important aspect of this HP IGG DPL, especially during HP IGG DPL II, was strong support for knowledge products in the form of technical assistance to the state.

Constant association over the past five years between the GoHP and the task team has resulted in steering the state’s Green Growth Program and attaining its objectives. This has also boosted the GoHP’s own Green Growth Program to a great extent.

(b) Co-financiers

Not applicable

(c) Other partners and stakeholders Not applicable

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Annex 1: Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Lending Charles Cormier Country Sector Coordinator (TTL) SASDI Ernesto Sanchez-Triana Lead Environmental Specialist SASDI Pyush Dogra Senior Environmental Specialist

(Co-TTL) SASDI

Lakshmi Narayanan Program Assistant SASDI Poonam Rohatgi Program Assistant SASDI Yewande Aramide Awe Senior Environmental Engineer ENV Urvashi Narain Senior Environmental Economist ENV Richard Damania Lead Environmental Economist LCSEN Kishor Uprety Senior Counsel LEGEN Juan Carlos Alvarez Senior Counsel LEGEN Mohan Nagarajan Senior Economist PREM I.U.B. Reddy Senior Social Development

Specialist SASDS

Rohit Mittal Senior Energy Specialist SASDE Ashish Khanna Lead Energy Specialist SASDE Paul Singh Sidhu Senior Agricultural Specialist SASDA Ranjan Samantaray Senior Natural Resources

Management Specialist SASDA

Severin Kodderitzsch Country Sector Coordinator SASDA Ulrich Bartsch Senior Economist SASEP Dan Biller Lead Economist SASSD Tanuj Mathur Senior Financial Management

Specialist SARFM

Sona Thakur Senior Communications Officer SAREX Maitreyi Das Lead Social Development

Specialist SDV

Emcet Oktay Tas Consultant SDV Implementation Support

Names Title Unit Pyush Dogra Senior Environmental Specialist

(TTL) SASDI

Muthukumara Mani Senior Environmental Economist (Co-TTL)

SASDC

Alan David Lee Young Professional SASDC Pamela Patrick Program Assistant SASDC Marie Elvie Program Assistant SASDC Urvashi Narain Senior Environmental Economist AES Rohit Mittal Senior Energy Specialist SASDE Martin Serrano Senior Counsel LEGEN Mohan Nagarajan Senior Economist SASGP Denis Medvedev Senior Country Economist SASEP Smriti Seth Research Analyst SASEP I.U.B. Reddy Senior Social Development

Specialist SASDS

Stefania B. Abakerli Senior Social Development Specialist

SASDS

29

Names Title Unit Tanuj Mathur Senior Financial Management

Specialist SARFM

Sona Thakur Senior Communications Officer SAREX Maitreyi Das Lead Social Development

Specialist SDV

Emcet Oktay Tas Social Development Specialist SDV Vaideeswaran Sankaran Consultant SASDI Pyush Dogra Senior Environmental Specialist GENDR Muthukumara Mani Senior Environmental Economist

(Lead Economist at SARCE after Nov.2014)

GSURR

Rohit Mittal Senior Energy Specialist GEEDR I.U.B. Reddy Senior Social Development

Specialist GSURR

Sona Thakur Senior Communications Officer SAREC Maitreyi Das Lead Social Development

Specialist GSURR

Stefania B. Abakerli Senior Social Development Specialist

GSURR

Urvashi Narain Senior Environmental Economist GENDR Juan Pablo Castaneda Consultant GENDR Martin Serrano Senior Counsel LEGEN Anand Kumar Srivastava Procurement Specialist GGODR Tanuj Mathur Senior Financial Management

Specialist SARFM

Mohan Nagarajan Senior Economist GGODR Emcet Oktay Tas Social Development Specialist GSURR Pamela Patrick Program Assistant SASDC Lakshmi Narayanan Program Assistant SACIN Sarita Rana Senior Program Assistant SACIN Vaideeswaran Sankaran Consultant GENDR Chandra Shekhar Sinha Lead Climate Change Specialist GSURR Akiko Nakagawa Senior Environmental Specialist GSURR

Note: TTL = Task Team Leader.

(b) Staff Time and Cost

Number of Staff Weeks Bank Budget (US$) HP IGG DPL I (P124041) Lending FY2011 9.64 22,950.65 FY2012 74.29 291,670.48 FY2013 7.68 30,188.37 Supervision FY2013 18.16 94,849.13 FY2014 11.98 46,742.86 HP IGG DPL II (P143032) Lending FY2013 49.33 228,383.66 FY2014 65.00 260,302.33 Supervision FY2014 0.00 0.00 FY2015 17.46 60,157.68

30

Annex 2: Beneficiary Survey Results

Not available.

31

Annex 3: Stakeholder Workshop Report and Results

None.

32

Annex 4: Summary of Borrower's ICR and/or Comments on Draft ICR

33

34

Letter from Director Environment, Science and Technology, Government of Himachal Pradesh

Government of HP’s Inclusive Green Growth and Sustainable Development Program - Big Catalyst of Green Environment Management in the State of Himachal Pradesh The two Development Policy Loans (DPL)–$100 million each during the period 2010-2014 to promote inclusive green growth and sustainable Development were disbursed to Himachal Pradesh from The World Bank. These policy support loans have helped the government of Himachal Pradesh to sharpen its focus on the environment and promote inclusiveness in a big way. These loans have accelerated the process of Policy Reforms Greener policies have been defined and adopted for the state’s main revenue earning sectors. These include hydropower, tourism, industry, as well as rural development, since the vast majority of the state’s people are small and marginal farmers who stand to benefit from the better management of natural resources. While first DPL in 2007-09 helped establish the Department of Environment Science and Technology (DEST), the decision which emerged a great initiative of the government to strengthen the green growth framework in the state. Under the follow up DPL support on Green Growth and sustainability, the current DEST has become a strong advocate of environmental issues and coordinates the efforts of various government departments, enabling them to plan their development activities in an integrated and environment-friendly manner. In 2013, DEST developed an Environmental Master Plan (EMP) that establishes baseline data for the state’s natural and physical resources. The plan identifies ecologically sensitive zones and the critical issues that impact them, while outlining corrective measures, together with the manpower and regulations needed to implement them. Since HP is vulnerable to climate change -rising temperatures, altered precipitation, and retreating glaciers can unleash their fury in the form of cloudbursts, flash floods, landslides, avalanches and so on -the DPL has helped establish a State Centre on Climate Change. The State Action Plan on Climate Change identifies the sectors that are the most vulnerable– particularly water resources and agricultural yields. The plan also suggests various adaptation measures, among them being the adoption of an integrated approach to watershed management. As part of its Action Plan on Climate Change, Himachal Pradesh is among the first states in India to have conducted an inventory of GHG emissions, and publicly disclosed its findings. Two reports -for 2008-2009 and 2012-2013 –analyze the volume of GHGs emitted by a wide range of sectors and sub-sectors, as well as the carbon sequestered by HP’s forests and grasslands. The study uses the guidelines laid down by the Intergovernmental Panel on Climate Change to capture emissions for a variety of sectors - power generation, transportation, buildings, industries, agriculture, as well as for solid and liquid waste. To ensure transparency at all stages of project development, HP has designed and implemented a web-based monitoring system to monitor the progress of hydropower projects before, during and after construction. Authorities can now monitor the milestones reached by a project and ascertain implementation status of hydro projects including key environmental and social activities, such as implementation CAT plans, benefit sharing and local area development work. The system also helps decision makers understand the challenges a project is facing, enabling them to take corrective action in a timely manner. The initiatives of real time e-flow monitoring, cumulative impact assessments studies on major river basins, communication strategy work and basin wide catchment area management plans for major basins helped state to move on the path of environment and social sustainability of hydro development.

35

HP is the first state in India to adopt a unique benefit-sharing practice that shares project earnings with local people throughout a project’s life. Under this practice, revenues generated from the sale of 1 percent of additional free power provided by the developers to the state are to be distributed annually among the long-term residents of a project-affected area. The residents, including those who lost their land as well as those in the larger community living in the project-affected area, are to receive these amounts - based on a pre-defined formula for different categories - through direct cash transfers into their bank accounts every year for the project’s entire lifetime. These best practices were a by-product of the DPL operation in the state. An important step has been the establishment of the Aryabhatta Geo-informatics and Space Application Centre (AGiSAC). The centre is a technical hub that serves as a repository for all data on the state’s environment, natural resources, and climate change. It uses satellite maps, remote sensing and GIS based services to help planners in various government departments to make evidence-based decisions while planning their development activities, as well as to monitor impacts. The efforts towards Sustainable Tourism Development Policy and Sustainable Industrial sector were worth quoting under the program. One important aspect of this DPL especially during Second DPL was strong support on knowledge product in the form to technical assistance to the state. Himachal became a leading state to initiate green accounting of forests, tourism accounts and benefitted with the work on integrated tourism development plans for Dharmshala, Lahul and Kinnaur. Thanks to the WB Support, Today, HP is seized with the issues and equipped with the tools to lead the way in the sustainable development of the Himalayan region. Many lessons have been learned by the State while implementing the Program. The exemplary partnership; the constant and regular association for past five years between the Government of HP and the World Bank Support Team have resulted in the perfect steering of the Green Growth Program and attaining its objectives as well as outcomes satisfactorily and boosted government’s own green growth plan to great extent.

(Ajay Kumar Lal) Director Environment, Science and Technology Government of Himachal Pradesh

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Annex 5: Comments of Co-financiers and Other Partners/Stakeholders

Not applicable.

37

Annex 6: HP IGG DPL I & II PDO Indicators

HP IGG DPL I HP IGG DPL II Issues

PDO Indicators PDO Indicators

Revised in DPL II A. Sustainable Hydropower Development

1 Review by a panel of experts of the state’s compliance with environmental and social/economic development policies supported by this program and the Environmental Protection Act of the GoI



4 Demonstration of actions to address noncompliance with environmental flow requirements.


6 Finalization and disclosure of a list of eligible families for cash transfers under the new LADF guidelines for the first hydropower project by FY2014 illustrated through AGiSAC

7 Local area development works for 75 percent of funds deposited to the LADF as of March 31, 2012, in the amount of INR 1500 million (US$1 million) were approved by the LADCs by March 2013



2 Number of families benefiting from the direct cash transfer program under the LADF policy (Target: 5,000)

The PDO indicators were revised to focus on concrete steps with hydro-sustainability toward the environment and the social sector and thus two critical compliances on real-time e-flow and cash transfer to families were included as other indicators and compliance was subsumed in the overall hydro-sustainability actions.

B. Sustainable Development through Climate Change-related Adaptation and Mitigation 9 Reduction in GHG emission

intensity in relation to the state GDP, including monitoring of the CLAP for Environment Protection and Sustainable Development

10 Sustainable management of forests according to the agreed methodology for REDD+


3 Number of departments which begin integrating the State Climate Change Strategy and Action Plan in development plans and PES in their operational strategy (Target: climate change: 4, and PES: 1)

The indicator was revised to reflect measurable policy and institutional reforms.

C. Local Communities Participation in Watershed Management12 Implementation of 77 integrated

micro-watershed development plans resulting in the following as

4 Number of micro-watershed catchments which have developed integrated community-

Watershed development is an area, which usually

38



Revised in DPL II compared to the baseline as measured in the individual watershed plans:






13 Enhanced synergy of central- and state-sponsored rural livelihoods, agriculture, forestry, and horticulture programs and implementation of locally appropriate solutions to promote sustainable watershed management

.

led watershed development plans in place. (Target: 77)

takes four to five years for completion. Therefore, the indicators were revised to reflect progress in all the agreed micro-watersheds with the involvement of communities in microplanning.

D. Sound Environmental Management in Industrial Development14 More than 10 percent reduction in

growth rate of establishment (in HP) of polluting industries on the negative list, compared to 2000–2011


16 Submission of policy for use of economic instruments for addressing industrial pollution to relevant government body for approval

17 Public availability of database on environmental performance of highly polluting industries.


The indicator was revised to reflect overall achievements of the targets outlined in HPIGG DPL I.

E. Sound Environmental Management in Tourism Development

39



Revised in DPL II 18 Commencement of sustainable

tourism intervention in one tourist destination (including wastewater treatment and solid waste management) and finalization of implementation plans for three additional tourist destinations with firm commitment of timely implementation and the government’s financial support wherever needed for actual implementation

6 Number of towns adopting environmentally sustainable tourism development plans and practices (Target: 3)

To align more toward policy results than activity oriented results

F. Integration of GIS Mapping and Decision-making in the State19 AGiSAC to develop web-based/

desktop applications for informed decision making for 18 government departments

7 Number of departments using AGiSAC for their strategy and planning purposes (Target: 9).

To align more toward policy results than activity oriented results

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Annex 7: Climate Investment Funds and Clean Technology Fund

1. Climate Investment Funds (CIFs) were established in 2008 as a multi-donor trust fund to scale up climate financing, and five Multilateral Development Banks (MDBs) were chosen to channel the resources. For governance and funding purposes, CIFs are structured as two trust funds: the CTF and the Strategic Climate Fund. A total of 14 contributing countries pledged US$8.1 billion as of 2014. The details are shown in Table 7.1.

Table 7.1. Climate Investment Funds

US$8.1 billion

CTF US$5.3 billion

Pilot Program for Climate Resilience US$1.2 billion

Forest Investment Program

US$785 million

Program for Scaling Up Renewable Energy in Low

Income Countries US$796 million

Scaling up the demonstration, deployment, and transfer of low carbon technologies in renewable energy, energy efficiency, and sustainable transport

Mainstreaming resilience in development planning and action investments

REDD+, sustainability in managing forests, and enhancing forest carbon stocks

Demonstrating the economic, social, and environmental viability of renewable energy in low-income countries

Chile Colombia Egypt India Indonesia Kazakhstan Mexico Morocco

Nigeria Philippines South

Africa Thailand Turkey Ukraine Vietnam

Bangladesh Bolivia Cambodia Mozambique Nepal

Niger Tajikistan Yemen Zambia

Brazil Burkina

Faso Congo Ghana

Indonesia Laos Mexico Peru

Armenia Bangladesh Benin Cambodia Ethiopia Ghana Haiti Honduras Kenya Kiribati Liberia Lesotho Madagascar

Malawi Maldives Mali Mongolia Nepal Nicaragua Rwanda Sierra

Leone Tanzania Uganda Yemen Zambia

Caribbean Region Pacific Region

Pacific Region

Strategic Climate Fund Source: CIF Annual Report 2014/15.

India’s CTF Investment Plan

2. CTF countries are requested to develop a country investment plan, and India’s investment plan was approved by the CTF committee in November 2011. The plan included the following activities, which were planned to be prepared in two phases. As shown in Table 7.2, the HP IGG DPL was ranked the highest among all the activities.

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Table 7.2. India's CTF Investment Plan

No. Name of Project MDB Partner Financing Sought from CTF (US$,

millions) Phase 1

1 Himachal Pradesh Environmentally Sustainable Development Policy Loan

World Bank 100

2 National Mission on Enhanced Energy Efficiency - Super Efficient Equipment Programme

World Bank 50

3 Partial Risk Guarantee Scheme for New Technologies in Energy Efficiency

World Bank 25

4 Rajasthan Solar Park ADB 200 5 Gujarat Solar Park ADB 150 6 Maharashtra Solar Park ADB 150 7 Integrated Solar-hybrid Pilot Project ADB 50 8 National Mission on Enhanced Energy

Efficiency - Perform, Achieve, Trade - Phase I

World Bank 50

Phase 2 1 National Mission on Enhanced Energy

Efficiency - Perform, Achieve, Trade - Phase II

World Bank 150

2 Support to National Solar Mission World Bank 150 3 Northeast Transmission World Bank 100 4 Rajasthan Urban ADB 100 5 Net-Energy Positive Wastewater

Technologies for the Cleanup of the Ganga River

World Bank 100

6 Eastern Dedicated Freight Corridor World Bank 500 7 Private Sector Financial

Intermediation ADB 75

8 Energy Efficiency and Renewable Energy Guarantee Facility

ADB 200

9 Scaling-up Renewable Energy and Energy Efficiency in Private Sector

IFC 100

Note: ADB = Asian Development Bank; IFC = International Finance Corporation.

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Annex 8: HP IGG DPL I and II PDO Indicators - Actual Performance and Comments

HP IGG DPL I HP IGG DPL II Comments PDO Indicators Actual PDO Indicators Actual

A. Sustainable hydropower development1 Review by a panel of

experts of the state’s compliance with environmental and social/economic development policies supported by this program and the Environmental Protection Act of the GoI



4 Demonstration of actions to address noncompliance with environmental flow requirements


6 Finalization and disclosure of a list of eligible families for cash transfers under the new LADF guidelines for the first hydropower project by FY2014 illustrated through AGiSAC

7 Local area development works for 75 percent of funds deposited to the

HP IGG DPL I is rated as Moderately Satisfactory.

1 The GoHP constituted a national level panel of experts on hydropower development including social and environmental experts. The panel and peer reviewers have expert members from technical, environment, and social streams.

The panel and peers also reviewed the CEIAs of the Sutlej and Chenab river basins. The GoHP also initiated CEIA of the other two river basins of the state.

The panel of experts was also encouraged to participate in consultation meetings with local communities along River Sutlej during CEIA preparation. More than 25 public hearings with local communities were organized.

2 The Directorate of Energy was appointed the state agency to promote


2 Number of families benefiting from the direct cash transfer program under the LADF policy. (Target: 5,000)

HP IGG DPL II is rated as Satisfactory.

1 As of November 2014, 84 percent of total projects have equipment to measure e-flow, which is more than eight times the target value (64 among 76 projects).

2 By December 31, 2015, all of the 5,482 eligible families received cash transfer amounting to INR 42.4 million.

Targets achieved with no shortcomings. Most of the indicators have been met according to the targets and within timelines. Some of the indicators have been surpassed as well. The GoHP has gone beyond expectation in achieving all targets under the hydropower sustainability objective. Developing CEIAs for four river basins, preparing integrated comprehensive CAT plans of these basins, developing communication strategy for consultations with communities, and conducting 27 public consultations against one CEIA along the Sutlej basin are examples of best practices of

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LADF as of March 31, 2012 in the amount of INR 1500 million (US$1 million) were approved by the LADCs by March 2013


conservation of energy and its efficient use. About 109,620,000 MWh was avoided by FY2014, which is almost 10 times the target value.

3 Web-based e-flow monitoring is already operationalized and disclosed.7

4 Penalties were regulated under the Environmental Protection Act 1986. The GoHP, through the PCB, ensured installation of the equipment before granting the consent to operate and renewal of the consent to operate the hydroelectric project.

5 CAT plans were formulated for four basins, including the Sutlej. Implementation was initiated on the River Sutlej CAT Plan. The GoHP has incurred expenditure on the Sutlej CAT Plan in conformity with the broad framework of the integrated Sutlej CAT Plan ensuring scientific and strategic use of CAT Plan funds in

developing responsive and basin approach-based hydropower development which is unique in India. The benefit sharing of hydropower revenue with communities is an example, which the GoI is appreciating. The GoHP took some time to implement this scheme but has been duly mainstreamed in the process for all future hydropower projects being commissioned. However, the overall performance was evaluated Moderately Satisfactory considering the following shortcomings in HP IGG DPL I: Depositing of the funds with LADF was delayed by about two years. Cash transfer to affected families was delayed.

7 http://admis.hp.nic.in/doe/Citizen/WaterDischargeDate.aspx

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comparison to earlier process.

6 A website, with a module for monitoring physical milestones of hydropower projects, is already operational. The disclosure of list of families eligible for cash transfers under the new LADF guidelines for the first hydropower project by FY2014, is illustrated through the AGiSAC and Directorate of Energy website.

7 Local area development works for 75 percent of funds deposited to the LADF as of March 31, 2012 in the amount of INR 1,357 million (US$21 million) were approved by s LADCs by April 2015.

8 This annuity as cash transfer is to be continued financial year-wise for the entire life of the project. INR 4.06 crore (INR 40 million) stands disbursed through LADC to the 5256 families until June 30, 2015. The receipt of revenue generated for the FY2014–15 is under the process of finalization for further disbursement to

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eligible beneficiary families.

Sustainable development through climate change related adaptation and mitigation

9 Reduction in GHG emission intensity in relation to the state GDP, including monitoring of the CLAP for Environment Protection and Sustainable Development

10 Sustainable management of forests according to the agreed methodology for REDD+


HP IGG DPL I is rated as Moderately Satisfactory.

9 The GoHP was the first state to have developed a GHG inventory (2009 and 2013), and GHG emission intensity decreased during this period. The second GHG inventory has reference to community-led actions such as sustainable tourism and organic agriculture. However, monitoring was not included in the inventory. The GoHP has prepared and publically disclosed a GHG inventory, as part of the state’s comprehensive Action Plan on Climate Change that identifies co-benefits in mitigation and adaptation particularly with livelihood improvements in the rural areas.

10 The Forest Department established a cell for REDD+ implementation but it was unable to begin management because of an agreed methodology at the national level. The

3 Number of Departments which begin integrating the State Climate Change Strategy and Action Plan in development plans and PES in their operational strategy (Target: climate change: 4, and PES: 1)

HP IGG DPL II is rated as Highly Satisfactory.

3 Target values were over- achieved before the target date. Regarding climate change, as of December 6, 2014, a total of 11 departments began integrating the strategy. As for PES, the Forest Department has included PES implementation in their development plans already.

Targets achieved with no shortcomings. Both targets were fully achieved and the GoHP has moved beyond these initiatives towards systematic eco system management involving communities. Exercise on developing forest accounts to understand contribution of forests to GDP beyond tangible knowledge and also on various models on developing target catchment area management with ultimate objective of small investments with wider results. On energy efficiency, the state has started a drive in mission mode by reaching out to all stakeholders and focusing on rural communities

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GoI however, has initiated pilots in some states and Himachal is one of the states where pilot on REDD+ has been initiated under USAID. The GoHP has adopted the policy to institutionalize PES and ecosystem approaches as instruments of sustainable development. The strength of the policy lies in its approach to protect and manage natural resources for sustained production of ecosystem services, to address the impacts of climate change on such services, and for generating traditional economic incentives for the communities to conserve natural ecosystems. Operational guidelines have been formulated and are in the final stages of implementation

11 The Directorate of Energy reached out to industries, panchayats, and universities to promote the use of solar, building codes, and LED bulbs. The database of all the industries having a connected load of 100 kW and above has been

involving academic institutions. On REDD+, the GoHP could not move forward for decision at the GoI level. However, HP was part of the REDD+ pilot of the GoI.

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prepared and an incentive scheme announced to conduct an Investment Grade Energy Audit. The energy audit cost has been proposed to be given to each industry on implementation of the recommendation of the Investment Grade Energy Audit

C. Local communities participation in watershed management12 Implementation of 77

integrated micro-watershed development plans resulting in the following as compared to the baseline as measured in the individual watershed plans:






12 HP IGG DPL I is rated as Moderately Satisfactory

(a) Target 15 percent accounts for 1,633 pondage. The actually improved pondage was 362 and the improvement rate was 4 percent.

(b) The rate of crop diversification was 2 percent.

(c) The average increase of productivity was 3 percent.

(d) Water efficiency increased by 5 percent.

(e) 28 agribusiness groups were established.

4 Number of micro-watershed catchments which have developed integrated community-led watershed development plans in place (Target: 77)


4 Preparation and adoption of 77 integrated micro-watershed development plans were completed and implementation is underway.

Targets achieved with no shortcomings Most of the indicators have been met according to the targets and within timelines. Preparation and adoption of 77 integrated micro-watershed development plans are completed and implementation is underway. Watershed activities will take four to five years to treat the micro-watershed fully hence, percentage impact indicators can only be achieved with slightly longer period. The GoHP is monitoring these

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13 Enhanced synergy of central- and state-sponsored rural livelihoods, agriculture, forestry, and horticulture programs and implement locally appropriate solutions to promote sustainable watershed management

13 GoHP guidelines prepared for integrated micro-watershed development plans by a multi-disciplinary team under the Rural Development Department.

watersheds through AGISAC. The overall performance was evaluated moderately satisfactory considering that all the indicators (as of February 2015) did not reach the target value by the target date. However, these indicators are showing progress toward targeted value.

D. Sound environmental management in industrial development14 More than 10 percent

reduction in growth rate of establishment (in HP) of polluting industries on the negative list, compared to 2000– 2011


16 Submission of policy for use of economic instruments for addressing industrial

HP IGG DPL I is rated as Satisfactory. 14 A reduction of greater

than 10 percent of the negative list industries was achieved.

15 An increase in the annual growth rate of more than 10 percent of environmentally friendly approaches such as ISO 14001 was achieved.

16 Notification issued on November 16, 2013, provided economic incentives for cleaner production (grant of INR 500,000 or 20 percent to install pollution control devices)


HP IGG DPL II is rated as Highly Satisfactory.

5 The target was to have 20 percent of industries to adopt environmental management systems, but the actual value exceeded the target and reached 26.5 percent

Targets achieved with no shortcomings. All the indicators have been met according to the targets and within timelines. The percentage of industries which have adopted environmental management systems increased from 10 percent (2009) to 26.5 percent (currently November 2014), which is ahead of the result target of 20 percent until

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pollution to relevant government body for approval

17 Public availability of database on environmental performance of highly polluting industries

17 The PCB established a website to disclose pollution status of industries.8

December 2014. The GoHP has further implemented the process of structured data disclosure by (a) creation of a joint environmental and industries team for the environmental rating and disclosure program; (b) introduction of an appropriate government order regarding the introduction of the environmental rating and disclosure program; and (c) beginning of a the process to develop the rating methodology with industries. The GoHP has disclosed data of the pharmaceutical industry and is in process for other industries in a phased manner.

E. Sound environmental management in tourism development18 Commencement of

sustainable tourism intervention in one tourist

HP IGG DPL I is rated as Satisfactory

6 Number of towns adopting environmentally


Targets achieved with no shortcomings.

8 http://hpspcb.performeks.com/.

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destination (including wastewater treatment and solid waste management) and finalization of implementation plans for three additional tourist destinations with firm commitment of timely implementation and the government’s financial support wherever needed for actual implementation

18 The Dharamshala Sustainable Tourism Action Plan was approved by the government on November 18, 2013. Some proposals in the action plan were included in the ADB-funded project. Three temple towns (Chintpurni, Naina Devi, and Kangra) have adopted sustainable tourism development plans. On January 13, 2014, the GoHP amended the tax on luxuries (hotel and lodging) to promote tourism in tribal/hard areas. It exempted hotels in such areas from luxury taxes for ten years.

sustainable tourism development plans and practices (Target: 3)

6 As targeted, three temple towns (Chintpurni, Naina Devi, and Kangra) have adopted sustainable tourism development plans.

All the indicators have been met according to the targets and within timelines. The HP Sustainable Tourism Policy was approved in 2013. Two large destinations and three towns have adopted sustainable tourism development plans and practices as agreed under the result indicator of the program with clear fund linkages with state funds and through other multilateral agencies such as ADB and so on, in the state.

F. Integration of GIS mapping and decision-making in the state19 AGiSAC to develop web-

based/desktop applications for informed decision making for 18 government departments

HP IGG DPL I is rated as Satisfactory.

19 AGiSAC is being used by 18 government departments for their strategy and planning purposes.

7 Number of departments using AGiSAC for their strategy and planning purposes (Target: 9)


7 The revised target was 9 departments, but the original target was 18 departments, and hence this is rated as Satisfactory instead of Highly Satisfactory.

Targets achieved with no shortcomings. All the indicators have been met according to the targets and within timelines. Even though the target of the coverage of the departments was lowered in HP IGG DPL II, the GoHP met the original

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8 18 government departments are using AGiSAC for their strategy and planning purposes.

target of 18 government departments.

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Annex 9: Benefit Sharing Mechanism in Himachal Pradesh Hydropower

1. Benefit-sharing mechanism in hydropower projects. Benefit sharing in hydropower projects can be defined as systematic efforts by project developers to share the electricity revenue with communities and families who were affected by hydropower projects so that project-affected communities and families will benefit as a supplement to compensation. This is easier said than done, but because one of the policy areas in this HP IGG DPL was ‘increased adoption of environmental and social parameters in hydropower development’ and to ensure hydropower development in HP will become sustainable, the GoHP’s actions, related to the benefit-sharing mechanism, LADF, are included in both prior actions and PDO indicators.

2. Benefits to the community during project construction. Facing the pressure to increase hydropower capacity, but also to acknowledge the need to mitigate negative impacts, the GoHP mandated in a notification issued in December 2006 that developers of hydropower projects of more than 5 MW should provide 1.5 percent of the construction cost to the LADF (1 percent if less than 5 MW). The resources were intended to be used for constructing community-driven infrastructure in project-affected areas during the construction phase. As of October 2014, 87 projects in 12 districts were implemented, and constructed items included permanent paths, retaining walls, playgrounds and fencing, footbridges, drinking water pipelines, rooms for schools, and community halls. HP is the first state to implement such a policy in India to share benefits with project-affected communities in the form of community infrastructure.

3. LADC. In HP, funds can be accessed by communities through LADCs, which are composed of representatives from relevant government departments, project developers, and project-affected areas. Notifications in 2009 and 2011 were issued to promote local participation in LADCs and increase the transparency of decisions on the use of funds.

4. Benefits to the community after projects are commissioned. In addition to the resources during the hydropower construction phase, the GoHP issued notifications in November 2009 and March 2010 so that 1 percent of additional free power will be earmarked for the LADF so that resources may be provided annually after the projects are commissioned. The use of resources is intended to be revenue for activities such as income generation and welfare schemes, creation of additional infrastructure, and common facilities. The notifications further stated that the GoHP may also provide a matching 1 percent from its share of 12 percent free power through plan/budgetary provisions for schemes where the normal plan/budgetary provisions and the 1 percent free power provided by the developer(s) to the LADF is insufficient.

5. LADF cash transfers directly to families after commission. The GoHP issued a notification in October 2011, which includes comprehensive policy guidelines for funding toward management of the LADF to be received out of sale of 1 percent additional free power provided by the project developer toward the LADF. Section 8.2 in the notification states that after projects are commissioned, 100 percent of LADF resources will be allocated to affected families in the form of cash transfers.9 First, all the families in the affected areas will receive equal amounts,

9 2011–1005 Notification reads “Additional 1 percent free power after commissioning of hydropower projects shall be earmarked for the LADF to provide a regular stream of revenue for income generation and welfare schemes, creation of additional infrastructure and common facilities, and so on in a sustained and continued basis over the life of the project” (1.2a). However, section 8.2 states 100 percent will be allocated to families.

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which account for 85 percent of the total resources. Then, the remaining 15 percent will be distributed to BPL families, which they will receive in addition to the equally distributed amount.

6. Amendment of LADF allocation. Finally, in the notification issued in July 2013, the GoHP amended the allocation ratio after commission as follows. The amendment was intended to balance the allocation based on the size of the land utilized for the projects:

50 percent of the total revenue is to be disbursed equally among all families residing in the affected areas, giving 15 percent benefit to the BPL families of affected areas

Balance of 50 percent of the total revenue realized, is to be disbursed in proportion to the panchayat-wise percentage of land utilized/acquired for the project.

7. Status of the pilot activity. The Chamera III Hydropower Project (14 GPs in two subdistricts Chamba and Bharmour) was chosen as the pilot to implement the amended LADF rules for cash transfer to families. As of December 31, 2015, 5,482 eligible families received the cash transfer amounting to INR 42.4 million. HP has become the first state in India to commence a unique benefit-sharing practice that gives project revenues to the families in project-affected areas in the form of annuity cash transfer throughout the life of hydropower projects.

8. Conclusion. As such, the starting process is slow, but the GoHP should be commended for a number of achievements: (a) HP is the first state to operationalize the LADF system at scale; (b) the draft LADF guidelines prepared by the Ministry of Power in November 2013 is mainly drawn from guidelines in HP; and (c) the GoHP is carefully observing the progress so that when the need arises, notifications for amendments may be issued promptly.

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Annex 10: Poverty and Social Impact Analysis in Himachal Pradesh

Background

1. HP is a state that is richly endowed with natural resources, which provide economically valuable environmental services for much of the country. The state is home to three major river basins, and serves as a watershed, which is critical to support the livelihoods of more than 200 million people in Haryana, Punjab, Uttar Pradesh, and Rajasthan. It has one of the main sources of clean energy—hydropower—which accounts for 15 percent of India’s hydropower potential. The watersheds of HP also act as an important carbon sink for GHGs.

2. However, rapid infrastructure development in HP over the past few years has raised concerns about the sustainability of its development model. The GoHP has an ambitious plan to develop 10 GW of hydropower over the next 10 years; but considering the magnitude, this needs to be done without social and environmental impacts. With regard to economic development, and similar to other hill states, the GoHP has attempted to attract industries, some of them known to be highly polluting and resource intensive (such as cement, chemicals, and pharmaceuticals), through a variety of tax concessions and subsidies. These industries, however, are largely concentrated in an enclave in the border districts near Punjab and Haryana, with the state’s ability to further diversify its economy being limited by topography and poor market access, which renders large-scale industrialization costlier and more difficult in HP than elsewhere in India.

3. The objective of the programmatic HP DPL was to promote inclusive green growth in the state, so it can make a paradigm shift toward an environmentally sustainable model of economic growth by promoting improved management of its natural resources. As part of the DPL, the Bank also carried out an extensive NLTA, both to support prior actions and to ensure quality of implementation.

4. A key component of the NLTA was a PSIA, which aimed to capture the poverty, social, and perceived impacts of the policies undertaken by the GoHP as part of its inclusive green growth agenda. The next section of this note describes the process undertaken for the PSIA, and the final section concludes with results from the PSIA, which have helped the GoHP align its green growth agenda.

The PSIA Process

5. A PSIA is essentially an analytical approach used for assessing the multidimensional impacts of policy reforms, with an emphasis on poor and vulnerable groups. When undertaken during or after the reform process, it can help assess or monitor the actual impacts of policy reforms, suggest ways to mitigate adverse effects, and help understand the likely impacts of future reforms.

6. In HP, the PSIA was originally envisaged as a tool for assessing the welfare impacts of the cross-sectoral reforms being proposed as part of the first HP Environmental Sustainability DPL. The three pillars of the DPL to be assessed were (a) welfare impacts of a benefit-sharing program initiated by the GoHP to complement hydropower projects; (b) rural income and agricultural

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productivity impacts of decentralized water and land management systems; and (c) income and employment impacts of the value-added tourism sector.

7. The eventual design of the PSIA, however, was influenced by the complexity of the transition taking place across HP, which posed a number of methodological challenges. First, since the implementation of policy reforms had taken place over time, their welfare and social impacts were likely to unfold continuously, making it difficult to capture them through a single study or to attribute observed changes to any particular policy. Second, the attribution challenge was complicated by possible mixed impacts stemming from the multisectoral nature of the change taking place across HP, which is targeting rural development along with a major effort to transform and shift the economy toward secondary and tertiary sectors. Third, some of the sectors under reform were geographically dispersed and were more likely to produce statewide impacts (such as productivity and employment effects of watershed and tourism reforms), whereas others were heavily concentrated in certain districts and blocks whose impacts were more likely to be felt at the community level (such as social and environmental impacts of hydropower development). Finally, it was felt that assessing the income and employment impacts of value-added tourism required consultations with stakeholders other than local residents (for example, officials in the state’s tourism department, taxi unions, and so on). Assessment of tourism reforms was therefore carved out as a separate study.

8. In light of these considerations, the PSIA was designed as a two-stage, mixed-method study. The first phase of the PSIA in HP is a macrosocial analysis of the state’s overall development record. It focuses on three main questions, based on looking back, understanding why, and prognosticating about the future. First, it examines HP’s track record of policy and implementation toward social inclusion, by documenting the economic, social, and human development outcomes in which HP has made considerable progress: poverty reduction, health and education, and labor market outcomes for different groups. Second, it identifies the possible drivers of success that may have enabled the state to reach these outcomes, highlighting HP’s cohesive social fabric, equitable economic structure underpinned by land distribution, and a long tradition of responsive governance. Finally, it considers whether good outcomes and their underlying drivers will remain robust to change and to the new phase of infrastructure-driven growth. It argues, on the one hand, that the state’s past development trajectory offers confidence in its track record of delivery and policy adaptation to changing development needs. On the other hand, it also documents areas in which future interventions might be required, including skewed sex ratios, youth unemployment, and the social and economic consequences of urbanization.

9. Findings from the first phase of the PSIA were published in a report titled ‘Scaling the Heights: Social Inclusion and Sustainable Development in Himachal Pradesh’ in January 2015. The report documented the state’s development outcomes over time, drawing on national surveys, relevant literature, qualitative accounts, and ethnographic interviews held across HP to understand citizen perceptions about hydropower development and the benefit-sharing scheme (including cash transfers and community-driven local development projects). It also presented an account of the challenges that HP is likely to face as it ramps up its growth trajectory.

10. While the first phase describes the state’s previous accomplishments and captures residents’ perceptions regarding the new development trajectory, the second phase was designed to assess community- and household-level responses specific to hydropower and watershed

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reforms, which are expected to be key drivers of growth in HP going forward. Focusing on districts and blocks affected by these two reforms and a control group, this phase included an intensive household survey with 1400 households to assess the extent to which key household outcomes (for example, agricultural productivity, income, and access to infrastructure) changed over the course of reform implementation. The surveys also capture spillover effects (for example, social and environmental externalities, community coping mechanisms), if any, associated with the reforms. In addition, qualitative interviews with key informants and focus groups in the sampled areas capture the experiences of local populations with the reforms, their implementation, and multidimensional impacts that might be more difficult to capture through surveys.

11. Data collection from the second phase is complete and the survey firm has prepared a report summarizing the impacts of watershed management schemes and benefit sharing under hydropower projects in the selected districts.

Impact of the PSIA

12. The outputs of the PSIA are likely to serve as a valuable knowledge resource both for HP as well as other states in India and other countries. First and foremost, findings from the primary survey and those emerging from consultations undertaken during the first phase are likely to deepen the government’s understanding on the two engines of green growth that it is currently focusing on and that have been supported by the DPL, namely hydropower and watersheds. Primary data gathered have revealed, for instance, both perceived and actual impacts of these policy actions on local residents and community preferences on what can be done to mitigate discontent around policy/program implementation. Such data, including on indicators such as rural income levels, crop productivity and diversification, and perceptions about innovations such as benefit sharing can serve as a useful baseline for monitoring both ongoing and proposed reforms.

13. Second, while HP is recognized among the top performing Indian states in relation to maintaining good human and social development outcomes over time, and is taking steps to ensure that the fruits of growth are equitably shared, literature that can help understand why the state’s outcomes are better, or how reform programs undertaken by the state government have contributed to good outcomes, is thin. The report from the first phase of the PSIA identifies the kernels of success that may have enabled the state to achieve good outcomes, while simultaneously considering whether these drivers will remain intact in a new phase of infrastructure-led growth. In doing so, it serves as a useful resource to the state of HP (in thinking through areas of concern), as well as to other states and countries that are trying to achieve sustainable and inclusive growth. In addition, findings from the second phase, particularly on benefit sharing, can help inform efforts at a national framework on benefit sharing for hydropower projects in India.

14. Finally, and besides assessing the perceived and actual impacts of policies and reform actions undertaken by the GoHP, the dialogue around the PSIA has generated considerable interest within the state and has opened avenues for new forms of cooperation between the Bank and the state government. The state government has been candid in acknowledging the areas of concern listed by the report from the first phase. These include, for instance, high child malnutrition in the state, adverse child sex ratios, youth employability, and environmental sustainability. In fact, these concerns are reflected in the chief minister’s 2015 budget speech, which justifies several budgetary allocations on the basis of recommendations from the report.

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15. Findings from the report have also been discussed with the GoHP and local stakeholders at several formal workshops and at a meeting with top officials of the GoHP during the India country director’s visit to HP in September 2014. The visit included a meeting with the chief minister of HP who has requested the Bank’s support for other projects, including sustaining the program on inclusive green growth; sustainable hydropower development and forest management; and skill development of youth to improve their employment prospects.

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Annex 11: List of Supporting Documents

World Bank Documents

Country Strategy for FY2009-2012 (November 14, 2008)

Country Partnership Strategy for FY2013-2017 (March 21, 2013)

HP IGG DPL I Program Document (August 6, 2012)

HP IGG DPL II Program Document (April 21, 2014)

HP IGG DPL I Program Agreement (September 29, 2012) *Prior Actions in Section I

HP IGG DPL II Program Agreement (June 11, 2014) *Prior Actions in Section I

CTF Loan Agreement (June 11, 2014) *Definitions in the Appendix

IMF Public Information Notice: Article IV Consultation with India (March 9, 2012)

Borrower Documents

Documents provided during the ICR mission