Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: 54430 - EG

CARBON FINANCE ASSESSMENT MEMORANDUM

ON A

PROPOSED CARBON OFFSET PROJECT

WITH

THE MINISTRY OF FINANCE OF THE ARAB REPUBLIC OF EGYPT

FOR THE

VEHICLE SCRAPPING AND RECYCLING PROGRAM

April 19, 2010

Transport and Energy Sector UnitSustainable Development DepartmentNorth Africa and Middle East Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTSExchange Rate Effective March 10, 2010

EGP 5.43 = USD 1.00FISCAL YEAR

July1 – June 30

ABBREVIATIONS AND ACRONYMS

AEL Asian Electronics Limited NPV Net-present valueBOOT Build Own Operate Transfer O&M Operations and MaintenanceCBP Community Benefit Plan PDD Project Design Document CDCF Community Development Carbon

FundSO2 Sulfur dioxide

CDM Clean Development Mechanism SSC Small-scaleCDM EB CDM Executive Board tCO2e tons of carbon dioxide equivalentCER Certified Emission Reduction UNFCCC United Nations Framework Convention on

Climate Change CFAM Carbon Finance Assessment

MemorandumCIDA Canadian International

Development AgencyCO2 Carbon dioxideDNA Designated National AuthorityDOE Designated Operational Entity DSM Demand-Side ManagementEA Environmental AssessmentEE Energy EfficiencyEII Econoler InternationalEMP Environment Management Plan EPC Energy Performance ContractER Emission ReductionERPA Emission Reduction Purchase

Agreement ESCO Energy Service CompanyFTL Fluorescent Tub LightsGHG Green House GasIRR Internal rate of returnLMS Load Management SystemM&V Monitoring and VerificationMC Municipal CorporationMW MegawattMWh Megawatt hourNOx Nitrogen oxide

Vice President: Shamshad Akhtar, MNAVPCountry Director:

Sector DirectorDavid Craig, MNC03Laszlo Lovei, MNSSD

Sector Manager: Jonathan Walters, MNSSDTask Team Leader:

Deal Manager:Ahmed EiweidaHolly Krambeck

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Arab Republic of Egypt

VEHICLE SCRAPPING AND RECYCLING PROGRAM

TABLE OF CONTENTS

1 STRATEGIC CONTEXT AND RATIONALE.................................................................41.1 Country and Sector Context................................................................................................41.2 Rationale for World Bank Involvement and Contribution to Sustainable Development. . .6

2 CARBON FINANCE PROGRAM.....................................................................................72.1 Overview.............................................................................................................................72.2 Description of the Carbon Finance Program......................................................................82.3 Economic and Financial Analysis.....................................................................................182.4 Program Implementation and Institutional Arrangements................................................202.5 Safeguards.........................................................................................................................292.6 Environmental Analysis....................................................................................................302.7 Carbon Finance Stakeholder Consultations......................................................................332.8 Risks..................................................................................................................................352.9 ERPA Main Terms/Conditions.........................................................................................35

Annex 1: Country and Sector Background...................................................................................36Annex 2: Participating Entities in the PoA and CDM Project Cycle...........................................41Annex 3: Emissions Reduction Calculation Methodology..........................................................42Annex 4: Implementation Arrangements and GHG Monitoring Plan.........................................55Annex 5: Program Protocol .........................................................................................................67Annex 6: Risk Identification Worksheet.....................................................................................71Annex 7: Documents in the Project File......................................................................................77Annex 8: Program Participating IBRD Staff................................................................................79

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1 STRATEGIC CONTEXT AND RATIONALE

1.1 Country and Sector Context1.1.1 Aging Mass Transport Vehicle Fleet The Egyptian mass transport fleet is aging – the average age of a taxi in Egypt is 32 years old, and more than 64,000 microbuses are greater than 20 years old. The aging fleet is prone to frequent break-downs and, because older vehicles are typically unequipped with modern catalytic converters, low quality emissions.

Figure 1: Distribution of Age of All Registered Vehicles in Egypt1

Under 15 Years 15 to 25 Years 25 to 35 Years More than 35 Years0%

5%

10%

15%

20%

25%

30%

35%

40%

33%35%

21%

11%

Figure 2: Distribution of Model Years of Registered Taxis in Egypt and the Greater Cairo Region2

1 Egypt Environmental Affairs Agency. September 2009. “Egypt State of the Environment Report 2008.” http://www.eeaa.gov.eg/english/reports/SoE2009en/Egypt%20State%20of%20Environment%20Report.pdf2 Ministry of Interior of Egypt. World Bank interview with Deputy Minister. September 10, 2009.

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The aging fleet is a contributing factor to Egypt’s high road fatality rates and poor air quality levels. To illustrate, the average number of fatalities per 100,000 registered vehicles in OECD countries is 13, whereas the national average in Egypt is 286 fatalities per 100,000 registered motor vehicles– more than 2000% higher than the OECD average.3,4 Further, according to the most recent Egypt State of the Environment Report prepared by the Egypt Environmental Affairs Agency in 2009, vehicle emissions in the Greater Cairo Region account for 26% of total PM10 pollution, 90% of total carbon monoxide emissions, 90% of total hydrocarbon emissions, and 50% of total nitrogen oxide emissions.5

1.1.2 Greenhouse Gas Emissions It is estimated that by the end of 2009, the Egyptian transportation sector will have been responsible for more than 40 million metric tons of global greenhouse gas emissions, most of which will have been emitted by road-based vehicles.6

Figure 3: Estimated Annual Metric Million Tons CO2e Emitted per Year in the Egypt Transportation Sector7

19801982

19841986

19881990

19921994

19961998

20002002

20042006

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

Domestic aviation Road Domestic navigation Other (Transport)

Annu

al M

illio

n M

etric

Ton

s CO

2e

About 40 percent of national transport emissions, or 14 million tons CO2e, may be attributed to the Greater Cairo Region (GCR) alone, where nearly half of all motorized vehicles in Egypt operate. The rapidly growing population in the Greater Cairo Region (GCR) --16 million in 2006 to 27

3 OECD International Traffic Data and Analysis Group. November 2009. “IRTAD Database, November 2009 -- Risk Indicators.” http://www.internationaltransportforum.org/irtad/pdf/risk.pdf. 4 World Health Organization. 2009. “Global Status Report on Road Safety.” http://www.gtkp.com/uploads/public/documents/Themes/9789241563840_eng.pdf.5 Egypt Environmental Affairs Agency. September 2009. “Egypt State of the Environment Report 2008.” 6 Data sources: International Energy Administration. 2008. "IEA World Energy Statistics and Balances" ISSN 1683-4240; International Panel on Climate Change. 2006. "2006 IPCC Guidelines for National Greenhouse Gas Inventories." http://www.ipcc-nggip.iges.or.jp/public/2006gl/index.html; Analysis: World Bank Carbon Finance Unit, 2009.7 ibid

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million by 2027 – is expected to exacerbate conditions unless significant interventions are made in transport infrastructure and/or technology. 8

1.2 Rationale for World Bank Involvement and Contribution to Sustainable DevelopmentThe proposed Egypt Vehicle Scrapping and Recycling Program will establish a mechanism through which owners of taxis, microbuses, trailer trucks and buses may voluntarily surrender their vehicles for managed scrapping and recycling, in exchange for financial incentives that may be used towards the purchase of new vehicles from participating vehicle dealers, under a closely monitored process.

The program is fully consistent with the World Bank CAS objective of expanded supply and improved efficiency of infrastructure services (CAS Outcome 2.2). The FY09-11 lending program (CAS Progress Report, June 2008) includes the proposed Urban Transport Development Program (P115837) in the amount of USD 150 million IBRD financing. Working with the Government of Egypt, the World Bank has also secured an additional USD 100 million from the Clean Technology Fund (CTF) in the form of an IDA-like credit.

The Egypt Vehicle Scrapping and Recycling Program, while not supported by these funding sources, will complement, as a stand-alone carbon finance operation, the proposed Urban Transport Development Program and provide incentives to address the cost of new technologies and support national scalability.

Per the request of the Government of Egypt’s Ministry of Finance, the IBRD is providing the following assistance (Letter of Intent signed by the World Bank Country Director and Minister of Finance on September 3, 2009):

As Trustee of the Carbon Funds, purchasing a pre-determined number of Certified Emissions Reductions (CERs) generated by the program, upon United Nations Framework Climate Change Convention (UNFCCC) registration and annual verification. Specifically, only those CERs generated by the Greater Cairo Region taxis participating in the program shall be purchased by the Carbon Funds through the Bank as Trustee. For purchasing terms, see Section on Emissions Reduction Purchase Agreement Main Terms and Conditions. Revenue generated through the purchase of these CERs shall be used to support program implementation;

Preparation, review, and submittal of all relevant documentation required for registration and verification under the UNFCCC process;

Advisory on the development of a Framework Environment and Social Assessment (FESA) and pubic bidding process for the recycling facility, thus enhancing the environment and social development and safeguards compliance dimensions of the program; and

Development of an on-going, auditable monitoring plan for measuring annual greenhouse gas emissions associated with the program.

8 Japan International Cooperation Agency. March 2008. “The Strategic Urban Development Master Plan Study for Sustainable Development of the Greater Cairo Region in the Arab Republic of Egypt.

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Carbon finance plays a critical role in ensuring the sustainability of the Egypt Vehicle Scrapping and Recycling Program by ensuring that the program’s social and environmental objectives are met. Specifically, the Clean Development Mechanism will support:

Monitoring of greenhouse gas emissions reductions associated with the program, which otherwise would not be undertaken;

An advance payment derived from carbon finance that shall be used towards the site preparation for the development of a recycling facility. At present, scrapped vehicles are only set aside for storage. As space is limited and prolonged storage could pose environmental hazards, this is only short term solution. With carbon finance support and the program’s FESA, a recycling facility will ensure that scrapped vehicles neither take up land that could be used for other purposes, nor pose unnecessary environmental hazards; and

Pending a short-term funding shortfall, the subsidy that the Ministry of Finance uses to encourage vehicle owners to surrender their old vehicles for managed scrapping and recycling.

2 CARBON FINANCE PROGRAM

2.1 OverviewThe Egypt Vehicle Scrapping and Recycling Program of Activities (PoA) has been designed by the government of Egypt to support the enforcement of Traffic Law #121 (2008), 9 which states that owners of mass transport vehicles that are greater than 20 years old are not eligible for new operating licenses or license renewal. “Mass transport vehicles” are henceforth defined to include: taxis, microbuses, trailer trucks, and buses. The Law was designed to accelerate the rate of fleet replacement, which would improve air quality (including the reduction of greenhouse gas emissions) and reduce the number of traffic accidents involving these older vehicles.

Because the Law does not specify how affected vehicles are to be disposed of, vehicle owners have strong incentives to either: a) sell vehicles to regions where the law does not apply; b) convert vehicles to private use (private vehicles are not affected by the Law); and/or c) dismantle the vehicles and sell the engines for use in other vehicles. Without a scrapping and recycling program component that ensures that the older vehicles are taken off the road and that the vehicle components are permanently (and safely) disposed of, the Law cannot have its intended impact on safety, air quality, and greenhouse gas mitigation.

The Egypt Vehicle Scrapping and Recycling PoA fills this gap, without contradicting other regulations. The PoA establishes a national program through which owners of taxis, microbuses, trailer trucks, and buses affected by the law may voluntarily surrender their vehicle for managed scrapping and recycling, in exchange for financial incentives that may be used towards the purchase of a new vehicle from a participating vehicle dealer,10 under a closely monitored process.

9 The Government of the Arab Republic of Egypt. 9 June 2008. Law #121 for the Year 2008 Concerning the Amendment of Select Traffic Law Articles Issued by Law #66 for the Year 1973. Article 4, Paragraph 2.10 “Participating Vehicle Dealer” shall refer to those dealers that have signed a Protocol with the Ministry of Finance, in which the vehicle dealer indicates its understanding and agreement of responsibilities under the PoA.

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As Trustee of the Carbon Funds, the IBRD shall enter an agreement with the Egypt Ministry of Finance to purchases Certified Emissions Reductions (CERs) generated by participating taxis from the Greater Cairo Region only. Revenue generated through the sale of these CERs shall be used to offset the significant up-front cost burden on the Ministry of Finance.

2.2 Description of the Carbon Finance Program 2.2.1 Program Development Objective The development objective of the program is to reduce greenhouse gas (GHG) emissions and air pollution associated with the aging fleet of taxi, microbuses, minibuses and buses in Egypt, starting with taxi replacement in the Greater Cairo Region as the first set of projects under a Clean Development Mechanism (CDM) Program of Activities (PoA).

The PoA shall contribute to the GoE’s package of financial incentives to vehicle owners in the Greater Cairo Region to purchase fuel efficient and less polluting vehicles, and put in place an environmentally sound system of scrapping and recycling old vehicles. This shall, in turn, encourage increased number of voluntary participation from old vehicle owners, accelerate the implementation of the program and ensure the program is implemented within an environmental sustainable framework.

Currently, the only projects included in the PoA, and for which IBRD as Trustee of the Carbon Funds, has committed to purchase Certified Emissions Reductions (CERs), are 11 taxi projects in the Greater Cairo Region. According to the most recent vehicle registration data provided by the Ministry of Interior, more than 49,000 vehicles in the GCR’s taxi fleet are more than 20 years old. These vehicles have fuel efficiencies, on average, of about12.87 liters gasoline or 12.23 m3 CNG per 100 km.11 Taxi owners will trade in their old vehicles for scrapping and recycling, in exchange of new low emissions vehicles with average fuel efficiency of 9.4 liters gasoline or 8.3 m3 CNG per 100 km.12 Due the large scale of the program, the taxi scrapping program has been divided into eleven separate projects, called “CDM Project Activities” (CPAs) according to UNFCCC PoA guidance. These CPAs are expected to be completed according the following schedule:

11 Based on surveys of 600 old vehicles conducted for the preparation of the Program of Activities Design Document. 12 Fuel efficiency data, based on typical taxi driver usage (i.e. primarily urban conditions), has been provided directly by the respective auto manufactures.

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Figure 4: Greater Cairo Region Expected Taxi CPA Schedule

CPA # Months Included Year # Vehicles001 April 2009 763002 May, June 2009 4,781003 July August 2009 4,793004 September, October 2009 5,000005 November, December 2009 5,000006 January, February 2010 5,000007 March, April 2010 5,000008 May, June 2010 5,000009 July August 2010 5,000010 September, October 2010 5,000011 November, December 2010 5,000

2.2.2 Additional Projects under the Program of Activities At any given time, within a period of 28 years from PoA registration, the Ministry of Finance may submit additional projects for consideration by the UNFCCC Executive Board.

As of time of writing, the following additional projects are under consideration by the Ministry of Finance for inclusion under the PoA at a later stage.

Additional Old Taxi Scrapping Projects The Ministry of Finance is considering expansion of the Greater Cairo Region taxi projects to the following regions:

o Alexandria: serving West Delta governorates and Matrouh Governorate;o Dakahleya: serving East and Central Delta governorates;o Ismailia: serving Suez Canal and South and North Sinai governorates; ando Assiut: serving Southern governorates and the Red Sea Governorate.

Old Microbus Scrapping Projects According to the Ministry of Finance, there are about 64,000 eligible private microbuses registered country-wide that would be affected by Law #121. If implemented, the private sector microbus program would be run in a manner very similar to the taxi scheme described above.

Old Bus and Minibus Scrapping Projects The Ministry of Finance, working with the Cairo Transport Authority (CTA), is also considering the scrapping of old buses (~1,100 buses) and minibuses (~613 minibuses) that are currently owned and operated by the CTA. The CTA has proposed scrapping and recycling the following vehicles which are more than 20 years old:

o 600 NASR#81buses (50-80 PAX) (model year: 1987)o 805 NASR #871 buses (50-80 PAX) (model year: 1978)

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o 203 Mercedes OM314 minibuses (20-25 PAX) (model year: 1986)o 200 NASR #974 minibuses (20-25 PAX) (model year: 1986)

The CTA is considering the following new bus vehicle types for replacement. Final decision on replacement vehicle type is pending final financial analysis and approval of CDM participation:

o Diesel hybrid;o Compressed natural gas (CNG);o EURO III Diesel.

Any additional project(s) must meet the following criteria in order to be considered by IBRD under the PoA:

1) The proposed project meets the applicability requirements of baseline and monitoring methodology AMS III.C “Low Emissions Vehicles,” Version 11, and uses associated methodologies and tools required by AMS III.C.

2) The Ministry of Finance is the Project Entity, responsible for coordinating and managing the proposed project, as well as assurance that there is no overlap between the proposed projects and all other proposed projects that fall under the PoA.

3) The proposed project is approved by the coordinating entity prior to consideration in the PoA.

4) Participating owners of taxis, microbuses, trailer trucks, and/or buses are directly implicated in Traffic Law #121 (2008), 13 which states that owners of mass transport vehicles (including taxis) greater than or equal to 20 years old in a given year may not receive new operating licenses or license renewals.14 By definition, this means that the project boundary includes only those vehicles that are registered in the Arab Republic of Egypt.

5) The proposed project will involve vehicle owners the surrendering their old vehicle for managed scrapping and recycling in exchange for incentives on voluntary basis that may be used towards the purchase of a new vehicle from a participating vehicle-dealer under a monitored scheme. The new vehicles are pre-approved by the Ministry of Finance, in accordance with the Protocol (Annex 5 of the PoA-DD).

6) Replacement vehicles used in the proposed project have been pre-approved by the Ministry of Finance (see section A.4.2.1 of the PoA-DD)

7) The mechanism considered under proposed project is publically advertised and is voluntary for vehicle owners.

13 The Government of the Arab Republic of Egypt. 9 June 2008. Law #121 for the Year 2008 Concerning the Amendment of Select Traffic Law Articles Issued by Law #66 for the Year 1973. Article 4, Paragraph 2.14 See full Arabic text and English translation of the stipulation and description of 3-year grace period in Annex 13, provided to the DOE.

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8) The proposed project includes an initial inspection of the participating vehicles to ensure eligibility. Inspection criteria include:

a. The vehicle is affected by Traffic Law #121;

b. The owner holds legal title to the vehicle; c. The vehicle is legally licensed and registered in Egypt; d. The vehicle’s original chassis and engine serial numbers are intact; ande. The vehicle (and/or its engine) is operational.15

9) A Processing and Storage site is available for conducting project activities, as described in Section A.4.1 of the PoA-DD.

10) The Ministry of Interior provides support for security, licensing, and monitoring at the Processing and Storage Site.

11) A facility for vehicle recycling, which has successfully completed an Environmental Impact Assessment process in accordance with national regulations, shall be available at some date to recycle project vehicles. For national interim guidelines on environmental standards vehicle recycling facilities, see Annex 19 of PoA-DD.

12) The CPA project database management is overseen by the Project Entity (Ministry of Finance), and the following data is collected and managed for all participating vehicles in the proposed project:

a. Vehicle owner name;b. Vehicle owner contact information, including home and mobile phone numbers;c. Date of proposed project participation registration;d. Model and model year of old vehicle;e. License, and engine and chassis serial numbers of old vehicle;f. Scrapping certificate number;

15 If the vehicle is non-operational, it may still be eligible to participate in the program, but it would not be counted towards the annual CER calculations. In very few cases, an old vehicle could be non-operating due to an accident. In such cases, the taxi owner submits a request to The Ministry of Finance, and a date is set for inspection by a certain technical committee assigned to determine the actual value of the old vehicle. The technical committee is comprised of three members: two from the Ministry of Interior and one from the General Authority for Government Services, which is under the Ministry of Finance (See Decree #1 in Annex 2). Based on the inspection, if the actual value of the vehicle is less than EGP 5,000 (which is paid by the Ministry of Finance for each scrapped vehicle), the Ministry of Finance issues a cheque that corresponds with the actual value, and the taxi owner pays the difference to the bank and then continues with the remaining procedures. Since inception of the project, there have been only seven such cases until December 2009 and a separate database is kept for such cases. For example: An owner of an old taxi vehicle had an accident before surrendering the vehicle for scrapping. Accordingly, the vehicle is not operating and cannot be accepted by the Ministry of Interior staff, who inspect vehicles before scrapping. This taxi owner has submitted a request to the Ministry of Finance, and the aforementioned technical committee has inspected his old vehicle and decided it is worth only EGP 2,000. Thus, the vehicle owner paid EGP 3,000 to the bank and provided the Ministry of Finance with a copy of the bank receipt of the EGP 3,000 paid. He then went to the scrapping site where his old vehicle has been scrapped and Ministry of Finance issued him a cheque for EGP 2,000 only so that he submits it at the bank and accordingly this would add up to a total of EGP 5,000 which is the down-payment . Then all other procedures continue as usual.

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g. Model and model year of new vehicle;h. License, and engine and chassis serial numbers of new vehicle; i. Name of bank issuing loan for new vehicle (if applicable);j. Record of survey results; andk. Record of complaints from participants.

13) The proposed project is uniquely identified in an unambiguous manner by providing the project registration date of the vehicle owner for all participating vehicles in the proposed project.

14) Vehicle dealers offering eligible replacement vehicles, the Ministry of the Interior, banks, and the insurance company have signed a Protocol with the Project Entity (Ministry of Finance) to signify their understanding of the PoA and willingness to participate (Annex 5 of PoA-DD).

15) Vehicle owners were not required by Law to surrender their vehicles for scrapping and recycling.

16) Section A.4.6 of the proposed project provides information showing that the proposed project is not a de-bundled component.

17) Proposed project crediting period does not exceed PoA end date.

18) Additionality assessment criteria for each proposed project (as per section E.5.2) are met.

19) Monitoring requirements as presented in PoA-DD monitoring plan (see Annex 4 of PoA-DD) are met.

20) All supporting documentation for each proposed project are provided.

2.2.3 Expected Results Implementation of the Greater Cairo Region taxi replacement and recycling projects is expected to achieve the following:

2.2.3.1 Reduction in Greenhouse Gas Emissions and Improvement in Air Quality

Overall emissions reductions from participating taxis in the Greater Cairo Region are expected to be 1.3 to 2.3 million tons CO2e from 2010 through 2019. Please see Program of Activities Design Document (PoA-DD) Section E.6 Estimation of Emissions Reductions of a CPA for details on how these estimates are derived. Since the new vehicles will have catalytic converters not present in the scrapped vehicles and because the new vehicles are more fuel efficient that the vehicles to be scrapped (see survey results in the Program of Activities Design Document --PoA-DD – for further details), then the project will likely improve air quality as well.

2.2.3.2 Improvement in Traffic Conditions

Traffic congestion in Greater Cairo can be mitigated by means of removing from roads frequently broken old vehicles, which would not only improve air quality, but also reduce economic and GDP losses associated with increased trip time during traffic congestion. To illustrate, according to project implementation data provided by the Ministry of Finance for the first three Greater Cairo

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Region taxi projects,16 the average age of the 8,845 vehicles that have participated in the scheme from April 21, 2009 through August 13, 2009 is 31 years-old, indicating that many of the 20-year-old vehicles (and/or their engines) targeted by the law are likely to continue operations (as private vehicles, in areas not affected by the law, etc.) in absence of incentive for scrapping created by the PoA. The Ministry of Interior has provided the following data, which indicates the success of the PoA to date (April 2009 through August 2009) in aiding the enforcement of Law #121:

Indicator Value% of Greater Cairo Region (GCR) taxis that have been replaced through the program: 18.5%% reduction in traffic-offence citations among GCR taxis affected by Law #121 over the same period last year: 4.0%% reduction in number of accidents involving GCR taxis affected by Law #121 over the same period last year: 6.5%

2.2.3.3 Support of Socioeconomic Livelihood for Vehicle Owners Affected by Law #121

Without the program, in addition to the environmental and traffic safety consequences, many drivers could lose their economic livelihoods. Through the program, owners are offered the following incentives, which are outlined in both Prime Minister Decree #471: Guidelines for Incentive Program and the Protocol, signed by the Ministry of Finance and the Ministry of Interior, as well as participating banks, vehicle dealers, insurance company, and advertising firm. These incentives include:

Up to EGP 5,000 (EUR 621; 1 EGP = EUR 0.124) payment for the surrendered operational vehicle, provided by the Ministry of Finance; Payment of vehicle sales taxes by the Ministry of Finance; Exemption of customs fees on imported vehicle components from the Ministry of Finance; Below market-rate interest loan from participating banks;17,18

Loan-guarantee from the Ministry of Finance against default in special cases; Below market-price for new vehicle; Option to participate in advertising scheme, where a portion of advertising revenues are directly-paid by an advertising agency to the lending bank towards vehicle owners’ debt service payments;19

Reduced maintenance and spare parts cost; Insurance for all new taxi vehicles against all standard causalities (theft, fire, accidents, etc.).

In the event of a funding shortfall, Decree #471 includes a provision by which the value of incentives may be cut by up to 50 percent. The Ministry of Finance intends to apply CDM revenues, in part, to make up for these gaps if they arise.

16 CPA#1: April 2009; CPA#2: May-June 2009; CPA#3: July-August 200917 “Participating Bank shall refer to those banks that have signed a Protocol with the Ministry of Finance, in which the bank indicates its understanding and agreement of responsibilities under the PoA – Annex 5.18 As of time of writing, the three participating banks – the Bank of Alexandria, Banque Misr, and the National Bank of Egypt – are offering a rate of 6.24%, which is less than typical commercial rates of 8% to 9% (commercial rates confirmed by representatives from each of the three banks during the DOE validation site visit on December 7, 2009). 19 As of time of writing, the participating advertising firm (which has signed a contract with participating banks, in which the firm indicates its understanding and agreement of responsibilities under the PoA) offers a fixed rate of EGP 550 per month for a period of up to five years (which is the loan term).

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The following table summarizes the program costs and benefits from the perspective of the vehicle owners:

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Figure 5: Participating Vehicles in the Greater Cairo Region Taxi Scrapping Projects (as of March 2010)

Vehicle Type Fuel

Price after Scrapping

and Discount

(EGP)

Total Monthly Loan

Installment Including Insurance

(EGP)

Installment Paid by

Advertising Company

(EGP)

Installment Left to be

Paid by the Owner (EGP)

Sperenza A113 Motor Gasoline 37,000 940 550 390

Sperenza A113 CNG 40,000 1,01

0 550 460

Sperenza A516 Motor Gasoline 48,400 1,22

0 550 670

Sperenza A516 CNG 51,900 1,31

0 550 760

Hyundai Verna 1.6 Motor Gasoline 48,900 1,23

5 550 685

Hyundai Verna 1.6 CNG 53,200 1,34

0 550 790

Hyundai Verna GLS 1.6 Motor Gasoline 52,400 1,32

0 550 770

Hyundai Verna GLS 1.6 CNG 56,700 1,42

7 550 877

Chevrolet Lanos Motor Gasoline 48,475 1,22

0 550 670

Chevrolet Lanos (Full Option) Motor Gasoline 50,925 1,284 550 734

Lada 2107 1.6 Motor Gasoline 37,000 94

0 550 390

Peugot Pars 405 1.6 Motor Gasoline 69,750 1,7

55 550 1205

These prices and installment rates have been widely advertised in local newspapers and made available to all taxi drivers in Greater Cairo.

2.2.3.4 Generation of New Employment and Contribution to the Economy

Since all participating vehicle models must be assembled locally, the program also acts as an economic stimulus program, supporting the local auto industry. The PoA requires employment of professionals and workers in each step of the vehicles’ retirement-replacement activities, vehicle assembly, finance, insurance, scrapping and recycling, vehicle inspection, etc.

2.2.4 Alternatives Considered A typical project under the PoA will be a two-month project, where eligible vehicle owners may voluntarily surrender their vehicles for scrapping, in exchange for an array of incentives, many of which may be used towards the purchase of a new and more energy efficient vehicle. The projects will support the enforcement of Traffic Law #121 (2008), by ensuring that vehicles affected by the law are surrendered and scrapped, rather than being converted to private use, sold to areas

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unaffected by the Law, or partially disassembled, with the motor being resold for future use. Following are alternatives that have been considered: 1) Do NothingIn the event that there is no program to support Traffic Law #121 (2008), no reasonable means would exist to ensure that vehicles affected by the law are actually fully taken out of service – and therefore no means to ensure that the Law is having any material effect on improving traffic conditions, air quality or GHG emissions.

2) Establish Mandatory Scrapping ProjectsUnder this alternative, the Ministry of Interior would establish a mandatory scrapping regime, whereby non-compliance would be heavily penalized. The difficulty with a mandatory scheme is enforcement. That is, while the Ministry could readily identify violators who continue to drive old mass transport vehicles affected by the law, the Ministry would not be well positioned to monitor re-sale of vehicles for private use, re-sale to other regions, or re-sale of the vehicle engines. Thus, a mandatory scheme would not have the same impact on GHG emissions mitigation as the proposed projects could.

3) Establish Voluntary Scrapping Projects, without IncentivesUnder this alternative, vehicle owners with vehicles that are affected by Traffic Law #121 (2008) would have a choice – they could either generate revenue from their old vehicle (e.g., convert their vehicle to private use (to keep or to sell); sell their vehicle to a region unaffected by the Law; sell individual parts, including the engine, etc.) or voluntarily surrender their vehicle for scrapping, without any fiscal incentive. It is clear that under this alternative, the level of participation would be very low, compared to participation with the proposed PoA, which could contribute to the financial compensation to participants.

4) Establish Voluntary Scrapping Project, with Incentives but without CDM SupportThis alternative would describe current conditions, where projects are implemented, but only partially, because carbon finance would directly support the PoA in three respects that would not occur otherwise: 1) Carbon finance supports the on-going monitoring of GHG emissions reductions associated with the program, which otherwise would not be undertaken; and more importantly, 2) The advance funding derived from carbon finance support shall be used towards the development of a recycling facility. At present, scrapped vehicles are only set aside for storage. As space is limited and prolonged storage could pose environmental hazards, this is only short term solution – with carbon finance support, a recycling facility will ensure that scrapped vehicles neither take up land that could be used for other purposes, nor pose unnecessary environmental hazards.

5) Establish Voluntary Scrapping Project, with Incentives and with CDM SupportUnder this alternative, vehicle owners may voluntarily surrender their old vehicles in exchange for a range of financial incentives that may be used towards the purchase of a new vehicle from a participating auto dealer. With the CDM support, the old vehicles are transferred to a monitored recycling facility, where vehicles and their components are safely and permanently scrapped.

Selected alternative: Given the short-comings of alternatives 1-4, the selected alternative is #5: Establish Voluntary Scrapping Project, with Incentives and with CDM Support, above. The

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selected alternative is in compliance with all mandatory applicable legal and regulatory requirements, including those laws and regulations that have objectives other than greenhouse gas reductions.

2.2.5 Global Experience and Lessons Learned Considered in Program Design Although the Egypt Vehicle Scrapping and Recycling Program of Activities will be the first registered transport-sector Program of Activities under the UNFCCC Clean Development Mechanism (CDM) system worldwide, and only the third transport sector CDM activity to be registered in the world, the IBRD and Carbon Finance Unit has been able to draw upon its 10-years of carbon finance project development experience to enhance the design of the program and mitigate risks occasionally inherent in the CDM registration and monitoring process. Specifically, the following lessons and measures have been taken into consideration:

Close collaboration with the Designated Operational Entity (DOE): Prior to submittal to the UNFCCC Executive Board for consideration, all Clean Development Mechanism projects and programs must be validated by a third-party independent UNFCCC accredited auditor, called a Designated Operational Entity, or DOE. The DOE validation is a multi-step process that, if not well managed, can result in significant registration delays. Based on past experience, to mitigate delays, the following actions have been taken: 1) The DOE was consulted before program preparation began, to ensure that the DOE team was aware of and in agreement with proposed program parameters and procedures; 2) Rather than submit program supporting documentation on a piece-meal, per-request basis, the Carbon Finance Unit prepared a full 200+ page annex of all supporting program documentation for DOE review prior to the validation site visit; 3) The Carbon Finance Unit organized a meeting with the DOE and Program Coordinator (Ministry of Finance) on the last day of the validation site visit to go over the DOE’s preliminary findings, to ensure agreement and understanding of how each finding could be addressed; and 4) The Carbon Finance Unit has maintained close communications with the DOE throughout the process.

Ensuring ownership of the program design documents by the national Program Coordinator:Often, consultants will prepare CDM program design documentation and monitoring plans on behalf of the Program Coordinators, requiring their participation only to review final drafts. Lessons learned show that without the Program Coordinator participation in not just the final review, but also the preparation of the program design documents, there is a risk that the Program Coordinators will not fully understand the implementation and monitoring responsibilities that they are undertaking, thus increasing the risk of non-compliance. For the Egypt Vehicle Scrapping and Recycling Program, the Carbon Finance Unit prepared the program design documents and monitoring plan in full collaboration with the Program Coordinator (Ministry of Finance) -- the Coordinator contributed to sections of the design documents as it was being prepared. As a result of this process, the Coordinator has strong ownership over the documents, which ensures that there is a full understanding of what the requirements are of the Coordinator through the CDM process.

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2.3 Economic and Financial Analysis2.3.1 Accounting Costs and Revenues According to a Prime Ministerial decree, the Ministry of Finance is authorized to disburse a subsidy of up to EGP 5,000 (USD 911) per eligible surrendered vehicle. This amount may be less, in the event: a) the vehicle is determined to be non-operational by the on-site engineer inspector; or b) in the even financial resources are insufficient to continue offering the full subsidy. A copy of the relevant decrees outlining these procedures (as well as their English translations), may be found in Annex 2 of the Program of Activities Design Document (PoA-DD). For 49,000 vehicles, assuming not all vehicles will receive the maximum subsidy, the total cost burden on the MoF may be close to USD 40 million.

As a point of comparison, the Egyptian vehicle subsidy is relatively conservative compared to vehicle scrapping subsidies offered by other countries as shown in Figure 4:

Figure 6: Average Vehicle Scrapping Subsidies in 2009 20

United St

ates

German

y

Morocco

*

Czech Rep

ublic

Portugal

Greece

Austria

Japan

Britain

Netherl

ands

Slova

kia Italy

Swed

enFra

nceEgy

pt

Norway

Canad

a0

500

1000

1500

2000

2500

3000

3500

4000

4500

US$

at P

PP (2

009)

* Morocco taxi scrapping program is currently under design; a ~ US$3,000 subsidy (figure does not account for PPP) has been proposed by the government.

20 Extrapolated from: The Economist. 19 November 2009. “Vehicle-Scrapping Subsidies.” (Original Data Source: OECD; Egypt scrapping subsidy adjusted for PPP using PPP conversion factors from: The International Monetary Fund. October 2009. “World Economic Outlook Database, October 2009.”)

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The Ministry is also responsible for site preparation activities for the Recycling Facility, estimated to be approximately USD 11.7 million. The combined accounting cost, then, to the Ministry of Finance is approximately USD 52 million.

As with other vehicle scrapping programs around the world, the Ministry’s investment is expected to have a positive multiplier income effect across the economy in various industries. For example, in an addition to the benefits of additional vehicles sales by local vehicle manufacturers, participating vehicle dealers, banks, insurance companies, advertising firm, and recycling facility all generate profits from the program activity that may not have otherwise been realized during the program period.21

Through carbon finance, the Greater Cairo Region taxi projects are expected to generate additional revenue. Expected emissions reductions from 2010 through 2018 from 49,000 participating vehicles are: 1,305,480 to 2,287011 tons CO2e (range is dependent on the actual vehicle-kilometers traveled by project vehicles each year). Assuming a market price of US$11 per Certified Emissions Reduction (CER) generated through 2013 and a price of USD 6 per CER generated after 2013, these tons are worth between USD 10 and USD 18 million. Of this total, the IBRD as Trustee of the Carbon Funds shall purchase at least USD 4.9 million worth of CERs through 2013, with the option to purchase more. The Ministry of Finance may secure other buyers for the remaining CERs.

2.3.2 Opportunity Costs and Economic Benefits Attributed to Stakeholders Since the monetary equivalent of the economic costs and benefits associated with the program are unknown (these analyses are outside the scope of the IBRD as Trustee on behalf of the Carbon Funds for the carbon finance engagement, as completion and approval of the framework environment and social assessment are considered sufficient evidence), a more meaningful qualitative analysis of opportunity costs (i.e., economic costs) and economic benefits associated with the Program is provided.

The caveat of an opportunity cost presentation is that without the program, these opportunity costs would not necessarily have been revenues. For example, while the Ministry of Finance forgoes tax and VAT revenue from each new vehicle sold, in absence of the program, it is unknown whether the new vehicle would have been sold within the program period and thus whether the forgone tax revenue can truly be stated as an opportunity cost. The same caveat applies to the following opportunity costs borne by all stakeholders:

Ministry of Finance: tax and VAT revenue from vehicle imported components; staff time and resources; Commercial banks: Additional interest-rate income associated with non-discounted interest rates; and Auto Dealers: Additional revenue from non-discounted vehicle prices.

21 The actual profit per vehicle by private sector entities is proprietary. Participation in the program is voluntary, and these entities have reduced prices/interest rates such that they can still meet their business goals while simultaneously ensuring the program is affordable to drivers (the program is also voluntary for drivers, and annual instalment payments, by vehicle type, have been widely published throughout the local media – samples of these advertisements have been audited by the Designated Operational Entity and are included in PoA-DD Annex 14.

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In terms of economic benefits, in addition to the accounting revenues earned by private stakeholders, generated employment, and stimulus to the local vehicle assembly industry, a monetary value could potentially be applied to the total reduction of air pollution associated with the PoA as well as accidents.

For example, in a study entitled “Arab Republic of Egypt Cost Assessment of Environmental Degradation,”22 the estimated cost of air pollution in the Greater Cairo Region and Alexandria was about 2.1 percent of GDP in 1991. Assuming this percentage has not significantly changed over time (i.e., the cost of air pollution has grown at the same rate as GDP), then the cost of air pollution would be about USD 4.4 million today. 23 Assuming about 75 percent of this pollution was generated in Cairo, and assuming 26 percent of this 75 percent was generated from road-based transport, then the annual cost of air pollution from road transport in the Greater Cairo Region would be about USD 850 million. If, each year, the 49,000 vehicles participating in the program reduced air pollution from transport by one percent due to their inclusion of modern catalytic converters and average 44 percent improvement in fuel efficiency, then over 10 years, the program would pay for itself though air pollution reduction alone.

2.4 Program Implementation and Institutional Arrangements2.4.1 Program Implementation -- Logistics Under each project, vehicles greater than 20 years old are replaced with new vehicles that are, by virtue of the more modern technologies employed, more energy efficient, less polluting, and safer. All eligible new replacement vehicles are pre-approved by the Ministry of Finance, in agreement with the respective vehicle dealer.

The vehicle replacement happens in two phases, or sites, in all project activities implemented under the PoA. As of time of writing, for the Greater Cairo Region taxi projects, these two sites are in separate locations (an active Vehicle Processing and Storage Site and a proposed Scrapping and Recycling Site), but they may be combined at a later stage into a single area, already identified by the Ministry of Interior, for all Greater Cairo Region projects, with additional satellite Processing and Storage Sites in other regions (which would feed into the central recycling facility in the Greater Cairo Region):

Alexandria: serving West Delta governorates and Matrouh Governorate; Dakahleya: serving East and Central Delta governorates; Ismailia: serving Suez Canal and South and North Sinai governorates; and Assiut: serving Southern governorates and the Red Sea Governorate.

For the purpose of describing each site’s functionality, they are described separately, below, even though these two sites may be located on the same land parcel. Processing and Storage Site

22 World Bank. 29 July 2002. “Arab Republic of Egypt Cost Assessment of Environmental Degradation: Sector Note.” Report #25175-EGT23 Estimated Egypt 2010 GDP = USD 208 billion: International Monetary Fund. October 2009. “World Economic Outlook Database: Egypt.”

http://www.imf.org/external/pubs/ft/weo/2009/02/weodata/weorept.aspx?sy=2007&ey=2014&scsm=1&ssd=1&sort=country&ds=.&br=1&c=469&s=NGDPD&grp=0&a=&pr.x=91&pr.y=6

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The majority of PoA activities undertaken by Project Participants in the Greater Cairo Region occur at the Processing and Storage Site, which, as of time of writing, is located on Cairo-Alexandria Desert Road, about 20 km west of downtown Cairo (see map below).

Figure 7: Location of Processing and Storage Site for Greater Cairo Region

The following activities take place at this site:

Inspection of old vehicles for program eligibility; Preparation of surrendered vehicles for temporary on-site storage (liquids are drained and batteries are removed); Distribution of subsidy for surrendered vehicles; Purchase of new vehicles from independent vendor representatives; Storage of new vehicles in parking lot; Inspection of new vehicles; Licensing; Advertising procedures (issuance of a letter from the advertising firm indicating approval for licensing of each new vehicle); First-aid kit distribution; Program security and monitoring; and Ancillary services (café, on-site fire trucks and staff, administration, etc.).

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Processing and Storage Site

1) On-site bank office; 2) New vehicle inspection and recording of motor and chassis serial number; 3) On-site auto-dealer office; 4)Advertising on new vehicle; 5) Various on-site stations; 6) World Bank team inspects site; 7) New vehicles (foreground) and scrapped vehicles (background).

1 2 3

4 5

6 7

Following are some photographs taken on site in 2009, illustrating these multiple functions:

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As of time of writing, the Recycling Site has not yet been constructed – advance payment funding from CER generation is expected to be used towards the cost of site preparation. The site itself, which is already government-owned, has been identified and reserved for this purpose.

Both of these sites – the Processing and Storage Site and the Scrapping and Recycling Site -- are located on government-owned property, outside of the city-proper. It is expected that, pending CDM registration, the Processing and Storage Site in the Greater Cairo Region will be relocated to the proposed Scrapping and Recycling Site.

On December 31, 2008, five auto dealers signed a Protocol with the Ministry of Finance, indicating their understanding of and willingness to participate in the Greater Cairo Region taxi projects under the PoA.

For the Greater Cairo Region taxi projects, the Ministry of Finance has authorized the following project replacement vehicles offered by these five dealers:

Figure 8: New Vehicles to be Used in Greater Cairo Region Taxi CPAs, and Corresponding Fuel Efficiency24

Vehicle Type FuelEstimated Fuel Efficiency(L or m3 / 100 km)

Sperenza A113 Motor Gasoline 9.7

Sperenza A113 CNG 8.7

Sperenza A516 Motor Gasoline 10.3

Sperenza A516 CNG 9.3

Hyundai Verna 1.6 Motor Gasoline 8.5

Hyundai Verna 1.6 CNG 7.7

Hyundai Verna GLS 1.6 Motor Gasoline 8.5

Hyundai Verna GLS 1.6 CNG 7.7

Chevrolet Lanos Motor Gasoline 9.2

Chevrolet Lanos (Full Option)

Motor Gasoline 9.2

Lada 2107 1.6 Motor Gasoline 11.1

Peugot Pars 405 1.6 Motor Gasoline 8.8

Additional vehicles may be added over time, through amendment to the Protocol.

24 Fuel efficiency data, based on typical taxi driver usage (i.e. primarily urban conditions), has been provided directly by the respective auto manufactures.

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Important note: the manufacturers’ fuel efficiency estimates are used only as a starting point for ex-ante emissions reduction estimates (see PoA-DD Section E.7.1 – Parameter FEv,y) and as a check for monitoring quality control (see PoA-DD Section E.7.2). Actual emissions reduction calculations are based on annual fuel efficiency surveys, conducted in accordance with sampling guidance presented in EB 50 Report, Annex 30, “General Guidelines for Sampling and Surveys for Small-Scale CDM Project Activities” (see PoA-DD Section E.7.2).

At any stage in the PoA, the Ministry may approve additional new taxi, microbus, trailer trucks, or bus models for inclusion (but as of time of writing, the IBRD, as Trustee on behalf of the Carbon Funds, shall only purchase emissions reductions from the Greater Cairo Region taxi projects). New models, as they are approved, shall be reported to the UNFCCC.

2.4.2 Organizational Structure and public-private-partnerships To limit the cost-burden on the government, the program has been structured as a public-private partnership (PPP), with the provision of incentives spread across both the public sector (e.g., Ministry of Finance and Ministry of Interior) and the private sector (e.g., vehicle dealers, commercial banks, insurance companies, advertising agencies).

The organizational structure of program, hence, involves various government and private sector parties contributing to its overall operation. Key parties have voluntarily signed a cooperative agreement to participate in the program, including the Ministry of Finance, Ministry of Interior (Traffic Police), three participating commercial banks, five vehicle companies (who assemble locally), an advertising firm, and an insurance agency. Ministry of Environment plays an important independent role of program oversight from environment perspective, approving framework environment and social assessment (FESA) and environmental management plan (EMP), giving permits to the private sector entity which will operate the scrapping and recycling facility, carry out regular inspections to ensure environment compliance to EMP. Furthermore, the Egypt Environment Affairs Authority (EEAA), affiliated to the Ministry of Environment, is Egypt’s Carbon Finance Designated National Authority (DNA), which is responsible for preparing a Letter of Approval (LoA) that indicates whether the program supports sustainable development in Egypt. The following diagram summarizes the functions of the different participants.

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Figure 9: Program Institutional Organization

The Ministry of Finance is responsible for the management and monitoring of all projects that fall within the proposed PoA. In addition to providing on-site general management and oversight of all recording and monitoring of project activities, the Ministry of Finance is also responsible for providing vehicle owners with financial incentives, coordinating the activities of all the PoA Participants, publicly advertising the projects, guaranteeing the loan against default in the case vehicles cannot be recovered/re-possessed, conducting quarterly QA/QC surveys among vehicle owners, and managing complaints and comments that are received via a hot-line and survey.

The Ministry of Interior has provided land to be used for all projects that fall within the Greater Cairo Region. For each project, the Ministry of Interior is responsible for on-site security and regulation enforcement, licensing, registration, and vehicle inspection. The Ministry of Interior is also responsible for finding vehicles in case of loan default.

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The vehicle dealers, advertising firm, insurance firm, and commercial banks work directly with the vehicle owners and report directly to the Ministry of Finance to implement the vehicle replacement and financial incentive scheme.

The recycling firm shall be hired by the Ministry of Finance to manage all recycling activities, which shall be monitored by the Ministry of Interior for security and safety purposes, as well as the Ministry of Environment on a random audit-basis to ensure the facility is operating within the firm’s environmental management plan (as presented in the approved Environmental Impact Assessment) and relevant regulations.

While the Ministry of Environment is not a PoA Partner (i.e., it has not signed the Protocol for PoA implementation), it will still play a critical role in the projects by:

Reviewing and approving Environmental Impact Assessments, per Egyptian law, for each Processing and Storage Site and Recycling Facility Site; Approving environmental monitoring plans submitted by PoA (and/or project) Participants; and Performing random spot-checks / audits of on-going operations of these facilities and enforcing monitoring plans presented in the Framework Environment and Social Assessment (FESA); and As the Designated National Authority (DNA), prepare a Letter of Approval for the program, confirming that it supports Egyptian sustainable development objectives.

The following table provides a summary of these duties.

Figure 10: Program Stakeholder Responsibilities

PoA Participant RoleMinistry of Finance Oversees PoA management and on-site

Processing and Scrapping Site management; Provides vehicle owners with payment for surrendered eligible vehicles; Pays vehicle sales taxes on behalf of the owner; Exempts customs on imported components of the vehicle; Guarantees the loan against default in select cases; Places program advertising in local and national media Manages comments and complaints from participants (via hotline and periodic participant survey); Maintains registered project database; Upon PoA registration, shall oversee CDM project monitoring activities, as presented in this PoA-DD.

PoA Main Stakeholders Role

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Government EntitiesMinistry of Interior Provides land for Processing and

Scrapping Site and for Recycling Facility Site for GCR projects; Manages initial vehicle inspection; Manages licensing of new vehicles; Provides security and monitoring services for Processing and Scrapping Site; and Locates vehicles in case of loan default.

Ministry of EnvironmentEEAA Program oversight from environment

perspective Approving FESA and EMP Giving environment permit to the private sector entity to operate the scrapping and recycling facility Carry out regular inspections to ensure environment compliance to EMP. As DNA, prepare Letter of Approval for program

Commercial BanksNational Bank of Egypt; Provide loans to eligible vehicle owners

who have surrendered their old vehicles (due to scale, banks were able to charge interest rate slightly below market ref); Provide branch office representatives at Processing and Scrapping Site.

Banque Misr; and Bank of Alexandria

Vehicle DealershipsSperanza Provide discounted vehicles to eligible

vehicle owners who have surrendered their old vehicles; Prepare vehicles for mass transport use (e.g., install meters and paint exteriors); Provide up-to 3-year warranty on vehicles; Provide routine maintenance; Guarantee loans against default, where the dealer repossesses the vehicle and pays the outstanding loan to the Bank; Provide branch office representatives at Processing and Scrapping Site; and Shall cooperate with Ministry of Finance on arranging annual monitoring surveys after PoA registration (but shall not be responsible for conducting surveys).

Hyundai

Chevrolet

Peugeot

Lada

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Insurance CompanyMisr Insurance Provides insurance for all replacement

vehicles;25

Provides branch office representatives at Processing and Scrapping Site.

Advertising FirmInstant Media Provides loan supplements plus monthly

cash payment to vehicle owners in exchange for use of internal and external advertising space; Provides branch office representatives at Processing and Scrapping Site; Shall cooperate with Ministry of Finance on arranging annual monitoring surveys after PoA registration (but shall not be responsible for conducting surveys).

Owners of project vehicles (i.e., vehicles which, according to Traffic Law #121 (2008), are no longer eligible for license issuance or renewal due to the vehicle’s age) are considered to be the Activity Implementers, since they are ultimately responsible for the ownership and operation of the new vehicles. It should be noted that when participating vehicle owners sign their bank loan documentation, they also sign an agreement waiving their rights to any CERs generated from a project.

2.4.3 Monitoring Plan See Annex 4 for description of the program monitoring plan, per UNFCCC guidelines.

2.5 SafeguardsThe project triggers the IBRD’s Environmental Assessment Policy (OP/BP 4.01) and is designated a Category A.

Figure 11: Safeguard Policies Triggered by the Program

Safeguard Policies Yes NoEnvironmental Assessment (OP/BP 4.01) [X] [ ]Natural Habitats (OP/BP 4.04) [ ] [X]Pest Management (OP 4.09) [ ] [X]Physical Cultural Resources (OP/BP 4.11) [ ] [X]Involuntary Resettlement (OP/BP 4.12) [ ] [X]Indigenous Peoples ( OP/BP 4.10) [ ] [X]Forests (OP/BP 4.36) [ ] [X]Safety of Dams (OP/BP 4.37) [ ] [X]Projects in Disputed Areas (OP/BP 7.60) [ ] [X]

25 Per commercial banks requirements, all vehicles participating in the program are insured under the vehicle owner’s name.

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Projects on International Waterways (OP/BP 7.50) [ ] [X]Piloting the Use of Borrower Systems to Address Environmental and Social Issues in Bank-Supported Projects (OP/BP 4.00) [ ] [X]

The Ministry of Finance contracted an independent consulting firm, EcoConServ, to carry out Framework Environmental and Social Assessment (FESA), of which the IBRD reviewed and cleared the TORs.

The full substantially completed report was disclosed on the Ministry of Finance website: <http://www.mof.gov.eg/English/PDF/Draft%20Report.pdf>, as well as on the InfoShop on December 29, 2009. Based on comments raised by the IBRD Safeguards team, the final draft FESA was prepared by the consulting firm received by the IBRD from Ministry of Finance on February 7, 2010.

The overall objective of the FESA was to assess the impacts of the different proposed design elements of Egypt Vehicle Scrapping and Recycling Program, and to propose measures to enhance its environmental and social performance. The FESA study aimed to (a) supply relevant data concerning the environmental and social impacts of the Program, (b) assess and compare the impacts taking into account the relevant national and international requirements and guidelines, (c) consult the relevant stakeholders on such impacts and their management, (d) analyze the program alternatives, and (e) provide a set of mitigation measures, monitoring plan, and institutional capacity program to manage the environmental and social impacts. One important element of the study was to prescribe a series of conditions and good practices to be followed at the program level, which would further be elaborated for each specific project, for which an Environmental and Social Impact Assessment would be required, once the specific arrangements for each component under this program were identified.

A public consultation was held in December 28, 2009, with representatives of the Ministry of Finance, participating commercial banks, participating car manufacture companies, and representatives of the Egyptian Environmental Affairs Agency. An announcement for the public consultation was published in governmental newspapers on December 21, 2009. The public consultation began with a presentation from the project coordinator and then a presentation from the consulting firm. All viewpoints of the participants had been taken into consideration in preparation of the final study.

2.6 Environmental Analysis According to Egyptian law, a Framework Environmental and Social Assessment (FESA) is required. The Ministry of Finance contracted an independent consultant, EcoConServ, to conduct the assessment in accordance with relevant environmental and social regulations (and relevant subsequent decrees, as outlined in the FESA report):

Law 4/1994 for Environmental Protection; Law 12/2003 for Labor Work; Law 93/1962 for Discharge of Wastewater; and Law 38/1967 for General Cleanliness.

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The full report was disclosed on the Ministry of Finance website on December 21, 2009 as well as in the World Bank InfoShop on December 29, 2009. The FESA has been prepared by the Government of Egypt (GoE) and will be implemented by the project entity, Ministry of Finance.

2.6.1 Positive Impacts The program will result in several environmental benefits, such as:

Reduction of CO2 emissions: 1,305,480 to 2,287011 tons CO2e from 2010 through 2018; Reduction of CH4 and N2O emissions over the program period; and Reduction of traffic congestion in Greater Cairo by means of removing from the roads old vehicles, which frequently break down.

The program will result in socio-economic benefits, such as:

Raising the income of the drivers through: ownership of a vehicle in good condition that can work longer hours, reduction of fuel consumption, and reduction of maintenance costs; Providing more job opportunities to the drivers, and to workers in vehicle factories and storage facilities; Increasing business for the companies and banks during the financial crisis; Increasing the prices of the old vehicles in order to improve participation in the program; Improved economic conditions will have a positive effect on drivers’ living conditions. Providing job opportunities for the scrapping and intermediate storage facilities’ employees and for their transportation to and from the site; and Reducing economic and gross domestic product losses associated with increased travel time during traffic congestion.

Regarding potential indirect and/or long term impacts due to anticipated future activities in the project area, as the project components become more defined during the implementation phase, further detailed environmental and social impact assessments, especially for the Recycling Facility, will be carried out as necessary.

2.6.2 Potential Adverse Impacts Potential adverse impacts during construction include:

Handling and Disposal of Solid Waste at the Scrapping & Recycling Planto The soil is to be excavated and not used in earth filling. The environmental impacts of soil waste focus on changing the landscape of the dumping site and dust dispersion during transportation.o The environmental impacts of garbage are changing of the landscape of the site, as well as bad odors and insects.

Handling and Disposal of Liquid Waste

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o Regarding the construction of the permanent scrapping and intermediate storage facility, the environmental impact of domestic wastewater of the construction staff will be avoided due to the use of the public sewer system and toilets at the nearest camp for the Ministry of Interior.o Regarding the construction of the scrapping and recycling facility, domestic wastewater of the construction staff will be isolated so as to avoid any impacts in terms of the landscape, odors and insects, etc.

Air Emissionso Dust emissions are expected during earth moving and filling and during the transport of soil waste to the temporary storage facility site.o Impact of gaseous emissions from construction equipment (generators, cranes, loaders and trucks), will be extremely minor.

Noiseo Although the construction activities include noise, the impact upon the cumulative noise levels is insignificant.

Socio-Economic Impactso Possible traffic congestiono Possibility of increasing noise levelso Possibility of injury on site

Potential adverse impacts during operations include:

Management of Solid Wasteso Scrapped Vehicles

The environmental impact of scrapped vehicles is rare. It happens only when there is heavy rainfall on rusty metals, which leads to soil and underground water contamination.

o BatteriesThe only battery management practice that will take place at the scrapping and intermediate storage facility will be the removal of the batteries. All other management practices will be performed at the recycling facility. Improper storage of batteries is a fire hazard.

o GarbageThe environmental impacts of garbage are change of the landscape of the site, and bad odors and insects.

Management of Liquid Wastes:The main environmental impacts for the fuel are release of fuel due to improper handling or storage. Improper handling could occur during the draining of fuel from vehicles, and may lead to seepage of fuel, resulting in soil contamination or underground water contamination.

Traffic Flow

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The truck round-trip time will depend on the location of the recycling plant, and accordingly the distance between the recycling plant and the current scrapping and intermediate storage facility site as well as sites to be determined later when the project expands and starts implementation in other governorates.

Socio-Economic Impactso Insufficient space for the scrapped vehicleso The potential of pollution due to oil and other substances in the batterieso Possibility of an increase in noise levels due to the compressoro Possibility of theft in the siteo Job opportunities for informal mechanics may be reduced

The FESA includes a clear EMP that deals which each of the above mentioned potential adverse impacts, which will be implemented by the Ministry of Finance and monitored by the Ministry of Environment. Egypt has a reasonably good legal and regulatory framework related to environmental and social protection, including requirements for environmental assessments and mitigation.

2.6.3 Alternatives Regarding alternatives for the site, four options were studied under the FESA and recommendations made.

2.6.4 Stakeholder Consultations and Disclosure A public consultation was held in 28 December 2009 with representatives of the Ministry of Finance, banks, car manufacture companies, and representatives of the Egyptian Environmental Affairs Agency. An announcement for the public consultation was published in governmental newspapers on 21 December 2009. The public consultation began with a presentation from the project coordinator and then a presentation from the Chief Supervisor of the FESA. All viewpoints of the participants have been taken into consideration in preparation of the final study. Additional audited stakeholder consultations, as per the requirement of the UNFCCC guidelines for carbon finance projects, have also been carried and described in Section 2.7.

The FESA has been disclosed in the website of Ministry of Finance, as well as in the World Bank InfoShop on December 29, 2009.

2.7 Carbon Finance Stakeholder ConsultationsAn additional set of audited stakeholder consultations are required under UNFCCC guidelines for carbon finance projects. Following is a summary of this process, as reported to the UNFCCC. Two sets of stakeholder consultations have been arranged for the PoA: PoA Partner meetings and vehicle owner meetings.

Program StakeholdersFor the PoA stakeholders, there has been a two-part stakeholder consultation process. First, a consultation was held in December 2008, when the PoA stakeholders signed a Protocol indicating their understanding of the program and their willingness to participate (see PoA-DD Annex 5 for a

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copy of the signed Protocol). A second consultation was held on October 25, 2009, in which PoA stakeholders were made aware of the Ministry of Finance’s intent to partially finance the PoA through carbon finance. Presentations by the Ministry of Environment, the Ministry of Finance, and the IBRD were given about the process, and attendees signed a document indicating their understanding of the PoA as a carbon finance activity and that they have no objection to the leveraging of this funding source (see PoA-DD Annex 18 for a signed copy of the agreement).

Vehicle OwnersFor vehicle owners, a different stakeholder consultation approach was used that leverages the extensive public advertising and survey work already undertaken by the Project Entity (Ministry of Finance) with regards to all eleven taxi projects planned for the Greater Cairo Region. The Ministry:

Beginning on March 12, 2009, before the first project was implemented on April 21, 2009, press releases were published in a wide array of local and national newspapers, advertising the program, including rules and conditions. A selection of advertisements, notices, and articles are presented in PoA-DD Annex 14. Full versions of these materials are available upon request from the Ministry of Finance. New vehicle Bank loan documents include language about carbon finance – when vehicle owners sign for their bank loans, they indicated their willingness to waive their right to any of the emissions reduction credits associated with the PoA (PoA-DD Annex 17). In March 2009, a hot-line number was established and published in the newspapers, the Ministry of Finance website, and posted on the Processing and Scrapping Site, which vehicles owners could use to express complaints with the system. All complaints are managed by the Ministry of Finance (PoA-DD Annex 10). In April 2009, the Ministry began a quarterly telephone survey program of vehicle owners for quality assurance purposes (PoA-DD Annex 8 and Annex 9). In September 2009, the telephone survey script was revised to include information about carbon finance, and a question was added to ensure that vehicle owners were aware that carbon finance is being used to help fund the program. Also in September 2009, advertisements were posted at the Processing and Scrapping Site enabling any vehicle owner to voluntarily participate in a telephone survey (as opposed to awaiting random selection) to provide input (PoA-DD Annex 10).

In summary, for reference, the following documentation may be found in PoA-DD Annexes 8, 9, 10, 14, 17, and 18, which have been provided to the Designated Operations Entity (DOE) for the purpose of validation:

Copy of PoA Partner Protocol (PoA-DD Annex 5); Copy of invitation to PoA Partners (PoA-DD Annex 18); Copy of PoA Partner meeting attendance record (PoA-DD Annex 18); Copy of PoA Partner agenda (PoA-DD Annex 18) Copy of PoA Partner meeting minutes (PoA-DD Annex 18); Copy of PoA Partner attendee signatures (PoA-DD Annex 18); Sample selection of public notices advertising the project (PoA-DD Annex 14); Copy of notice posted notice advertising the comment hot-line (PoA-DD Annex 10); Website link for hotline info and program guide:

<www.mof.gov.eg/Arabic/PDF/whatnews-a-10-5-09.pdf>;

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Copy of the survey given to vehicles owners (PoA-DD Annex 8); List of complaints received through survey as of May 2009 (PoA-DD Annex 9); Bank loan language describing waiver of CER ownership rights (PoA-DD Annex 17); and Copy of loan contract with CER rights waiver (PoA-DD Annex 17).

2.8 Risks

See Annex 6, the Program’s Risk Identification Worksheet.

2.9 ERPA Main Terms/Conditions

Contract Volume

Contract CERs are: At least seventy-five percent (75%) of the first 464,548 CERs generated by the Program, as set out in ERPA, shall be generated by no later than December 31, 2012.

The Contract CERs will be allocated by the Nominated Representative pro rata to the Trustees as follows:

IBRD as Trustee of the DCF –232,274 CERs

IBRD as Trustee of the SCF –232,274 CERs

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Annex 1: Country and Sector Background

The total population of Egypt over the ten-year period between 1996 and 2006 increased from 59 million to 73 million, with an average annual growth rate at 2.04%. The Greater Cairo Region (GCR) comprises five governorates and is home to a rapidly growing population – 16 million in 2006, increasing to more than 27 million by 2027. 26

The Urban Transport Strategy for Greater Cairo Region has identified the following urban transport, traffic management and environment issues as the most critical challenges associated with sustaining urban transport sector growth in the GCR: 27

Institutional Fragmentation & Insufficient financial resources: Overlaying all of the above problems are serious institutional fragmentation, duplication and inadequate financial arrangements leading to under investment in transport facilities.

Poor public transport system: GCR relies on under developed, overcrowded and unreliable passenger transport services.

Aggravated traffic congestion: GCR is experiencing very high traffic congestion. This has serious economic consequences on reducing labor productivity, leading to loses in GDP, and contributes to deteriorating air pollution conditions.

High accident rate: The road transport death rate in GCR is very high. At least 1,000 residents die each year in motor vehicle accidents, more than half of them pedestrians, and over 4,000 are injured.

Air and noise pollution: Mobile source air pollution in GCR is serious both with regard to particulate matter as well as noxious chemicals. Noise levels are high and aggravated by very large and old proportion of the microbuses, minibuses and taxi fleet.

It is estimated that by the end of 2009, the Egyptian transportation sector will have been responsible for more than 40 million metric tons of global greenhouse gas emissions, most of which will have been emitted by road-based vehicles.28 About 40 percent of national transport emissions, or 14 million tons CO2e, may be attributed to the GCR alone, where nearly half of all motorized vehicles in Egypt operate (Figure 10).

26 Japan International Cooperation Agency (JIKA), March 2008. “The Strategic Urban Development Master Plan Study for Sustainable Development of the Greater Cairo Region in the Arab Republic of Egypt: Draft Final Report.”27 World Bank, Greater Cairo Urban Transport Strategy, 2006. 28 IEA. 2007; Analysis: World Bank Carbon Finance Unit, 2009

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Figure 12: Estimated Annual Metric Million Tons CO2e Emitted per Year in the Egypt Transportation Sector29

19801982

19841986

19881990

19921994

19961998

20002002

20042006

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The overall investment program in the GCR urban transport is defined in the Greater Cairo Urban Transport Master Plan (JICA 2003). The Master Plan studies have provided a new framework for consideration of an integrated urban transport system that emphasized putting “people’s mobility before that of vehicles.” The Master Plan took account of three “missions” for the urban transport:

A safe and environment-friendly transport system that would significantly reduce the carbon signal, focusing on modal shift toward low carbon public transport systems; An economically effective urban transport system; and An equitable people’s mobility.

The Master Plan includes investments for the period 2003 to 2022 in the amount of US$17 billion (Figure 11).30

29 Data sources: International Energy Administration. 2008. "IEA World Energy Statistics and Balances" ISSN 1683-4240; International Panel on Climate Change. 2006. "2006 IPCC Guidelines for National Greenhouse Gas Inventories." http://www.ipcc-nggip.iges.or.jp/public/2006gl/index.html; Analysis: World Bank Carbon Finance Unit, 2009.30 This cost may appear as high, but when expressed as a % of the gross income of the metropolitan area over the same period it is actually as low as only 0.5%.

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Figure 13: Investments Proposed in the Transportation Master Plan until 2022

Million US$

Share of investment

Mass Rapid Transit (Metro) 2,725 15.7%LRTs 1,475 8.5%Suburban Railway 2,550 14.6%Clean Technology Buses 1,100 6.2%Priority Bus Facilities (BRTs) 500 2.9%Nile Ferry 10 0.1%Regional Roads 325 1.9%Primary Roads 325 1.8%Intersections 525 3.0%Expressways 7,875 45.3%Total 17410 100.0%

However, the high cost of clean technology and lack of a clear investment prioritization mechanism have been a major hindrance to scalability. As the GCR continues to expand, the demand will continue to increase faster than the availability of funding. While it is possible to develop lists of projects that, if implemented, would address the lack of transport capacity and other deficiencies in the present supply of transport services, it is more difficult to determine how they would best be funded. To address these issues, the IBRD has provided assistance to the Government, under the Greater Cairo Urban Transport Strategy,31 to prioritize investment needs. A sound analytical and scoring method has been applied to assess priority needs and provide reliable evidence and advice to support the making of political decisions on which investments to approve and implement. These efforts have included cost-effectiveness, economic and social returns, environmental impact and potential to attract the private sector participation. Identified investments as high priorities are those proposed for financing under this project.

Meantime, the Government has already completed lines # 1 and 2 of the underground Metro totaling 65km, is currently constructing line # 3 for completion by 2012 and line # 4 for completion by 2017, totaling 70 km. Several Expressways and Nile Ferry transport are under final stage of studies.

The adopted Urban Transport Strategy for GCR is driven by the good practice principles/integrated building blocks, as shown in the chart below (Figure 12).

31 World Bank. 2006.

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Figure 14: Building Blocks of the Greater Cairo Transport Strategy

Do Nothing Scenario: Vehicle ownership rates, congestion, and emissions are expected to significantly increase through the next 20 years. Without immediate investment in urban transport, by 2022, GHG emissions will increase to at least 16 million tons (and this is very conservative), average trip speed (of all modes) will decline from 19 kph to 12 kph, and an average roundtrip journey to work will take more than 1.5 hours. The economic cost of a “do nothing” scenario would be at least LE 7.5 billion (US$ 1.6 billion) per annum (Figure 13).

Figure 15: Consequences of a “Do Nothing” Scenario

Speed in km/h

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EfficientPublic Transport System

• Road-based high capacity masstransit systems

•Restructured bus network (formalize the informal)

•Efficient Operators (contracting out and PPPs)

EfficientPublic Transport System

• Road-based high capacity masstransit systems

•Restructured bus network (formalize the informal)

•Efficient Operators (contracting out and PPPs)

Improved Traffic Management Practices

•Traffic/Parking inst. Capacity•Traffic Management Plans•Parking Strategies/Policies•Implementation/Monitoring

•Enforcement of Traffic Rules•Priority Toll corridors

Improved Traffic Management Practices

•Traffic/Parking inst. Capacity•Traffic Management Plans•Parking Strategies/Policies•Implementation/Monitoring

•Enforcement of Traffic Rules•Priority Toll corridors

Sustainable Urban Transport Funding

•Pricing Policy of UT services•Streamlined Subsidies

•Other Financing sources

Sustainable Urban Transport Funding

•Pricing Policy of UT services•Streamlined Subsidies

•Other Financing sources

Objective: Efficient, Environmental Friendly and Affordable

Urban Transport Services in GCR

Efficient Urban Transport Institutions

•Planning / Policy Formulation•Priority Investments

•Monitoring and Information Systems• Regulations and PPP framework

BUILDING BLOCKS OF THE STRATEGY

The FY09-11 lending program (CAS Progress Report, June 2008) includes the proposed project in the amount of US$150 million IBRD financing. Working with the GoE, the IBRD has also secured an additional US$100 million credit from the Clean Technology Fund (CTF), which is a at IDA-like terms, and its investment plan has been approved by the CTF Trust Fund Committee in January 2009. The Bank is also assisting the Government in leveraging Carbon Funds, whose value would be proportional to the emissions reductions associated with these investments.

This is not business as usual. Despite large investments made in metro lines and urban road capacity over the last two decades in the GCR, the level of investment in transport infrastructure and services has failed to keep pace with the increasing demands. With the IBRD, CTF and the subject Carbon Finance Program, the consolidation and acceleration of programs that promote more efficient transport systems and accelerated GHG emission reduction (ER) would be possible. The IBRD is indeed committed to climate change and global mitigation measure to reduce GHG emissions. Implementation of the combined urban transport program (IBRD, CTF and CF) is expected to result in about 17.7-19.5 million tons CO2e emissions reduction over the next ten years period.

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Annex 2: Participating Entities in the PoA and CDM Project Cycle

Egypt Ministry of Finance Program Coordinator and recipient of revenues generated from sale of Certified Emissions Reduction (CER).

The IBRD as Trustee of the Carbon Funds Preparation of UNFCCC documentation; Technical assistance provision to the Program Coordinator for project preparation.

TuV Nord The Designated Operational Entity (UNFCCC accredited Clean Development Mechanism auditing firm) responsible for validating the PoA and the first CPA. The same DOE or another DOE may be responsible for validating the remaining CPAs and/or on-going verification of annual emissions reductions.

Egypt Environmental Affairs Agency (EEAA) The Designated National Authority (DNA) responsible for ensuring Clean Development Mechanism projects registered in the Host Country support national sustainable development goals. The PoA cannot be registered with the UNFCCC without a Letter of Approval from the DNA indicating compliance.

The United Nations Framework Convention on Climate Change Executive Board

The UNFCCC is responsible for registering CDM projects (and PoAs) and certifying annual emissions reduction credits.

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Annex 3: Emissions Reduction Calculation Methodology

1) Baseline Emissions CalculationUsing a combination of default parameters and data collected from vehicle owner surveys, the annual emissions from baseline vehicles are estimated as follows:

(1) BE y=∑

v=1

V

CC v , c×FE v×VEHv , y×VKT v , y

Where V refers to the set of baseline vehicle types to be replaced. Each vehicle type, v, shares the following characteristics:

Fuel type used; The average fuel efficiency; and Average annual vehicle-km travelled.

Parameter Unit DescriptionBEy tons CO2e Baseline emissions in year yCCv,c tons CO2e / unit of fuel Carbon-equivalent content of fuel (used in a given vehicle

type v) per unit of fuel combusted (calculated – see Formula 2)

FEv unit of fuel / km Fuel efficiency of a baseline vehicle, type v, measured in terms of average number of units of fuel combusted (e.g., litres) per km travelled

VEHv,y # vehicles Number of baseline vehicles, type v, to be replaced in a given project year, y

VKTv,y km Average annual vehicle-km travelled by baseline vehicles, type v, in a given project year, y

(2) CC v , c=EFv×HV v , c×FV v

Parameter Unit DescriptionCCv,c tons CO2e / unit of fuel Carbon-equivalent content of fuel (used in a given vehicle

type v) per unit of fuel combusted (calculated – see Formula 2)

EFv tons CO2e / kJ IPCCC emissions factors for tons CO2e per unit of combusted fuel used in vehicle type v

HVv,c kJ / kg International Energy Agency (IEA) country (lower) heating values for fuel in country c used in vehicle type v

FVv kg / unit of fuel kg of fuel used in vehicle type v per unit of fuel (e.g., liters for motor gasoline; m3 or kg for CNG) used in vehicle type v

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2) Project Emissions Calculation

(3) PE y=∑

v=1

V

CC v , c×FEv , y×VEH v , y×VKT v , y

Where V refers to the set of project vehicle types to replace the baseline vehicles. Each vehicle type, v, shares the following characteristics:

Fuel type used; The average fuel efficiency (per year); and Average annual vehicle-km travelled (per year).

Parameter Unit DescriptionPEy tons CO2e Project emissions in year yCCv,c tons CO2e / unit of fuel Carbon-equivalent content of fuel (used in a given vehicle

type v) per unit of fuel combusted (calculated – see Formula 2)

FEv,y unit of fuel / km Fuel efficiency of project vehicle, type v, measured in terms of average number of units of fuel combusted (e.g., liters) per km travelled in a given year, y

VEHv,y # vehicles Number of project vehicles, type v, to be replaced in a given project year, y

VKTv,y km Average annual vehicle-km travelled by project vehicles, type v, in a given project year, y

(4) CC v , c=EFv×HV v , c×FV v

Parameter Unit DescriptionCCv,c tons CO2e / unit of fuel Carbon-equivalent content of fuel (used in a given vehicle

type v) per kJ (calculated – see Formula 2)EFv tons CO2e / kJ IPCCC emissions factors for tons CO2e per unit of

combusted fuel used in vehicle type vHVv,c kJ / kg International Energy Agency (IEA) country (lower) heating

values for fuel in country c used in vehicle type vFVv kg / unit of fuel kg of fuel used in vehicle type v per unit of fuel (e.g., litres

for motor gasoline; m3 or kg for CNG) used in vehicle type v

3) Emissions Reduction Calculation

(5) BE y−PE y=ER y

Parameter Unit DescriptionBEy tons CO2e Baseline emissions in year yPEy tons CO2e Project emissions in year yERy tons CO2e Emissions reductions in year y

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E.6.3. Data and parameters that are to be reported in CDM-SSC-CPA-DD form:

Data / Parameter: EFv

Data unit: tons CO2e / kJDescription: IPCCC emissions factors for tons CO2e per unit fuel combusted (fuel used in

vehicle type v (project and baseline vehicles)Source of data used: Unless internationally-accepted, government provided national data is available,

use: International Panel on Climate Change. 2006. "2006 IPCC Guidelines for National Greenhouse Gas Inventories." http://www.ipcc-nggip.iges.or.jp/public/2006gl/index.html

Value applied: For the purpose of estimating project and baseline emissions for the Greater Cairo Region taxi CPAs associated with the proposed PoA, the following IPCC factors have been used:

 FuelCO2e Default Factor

(kg/TJ)Motor gasoline 69,300 Diesel 74,349Liquefied petroleum gases (LPG) 63,100 CNG 56,100

Justification of the choice of data or description of measurement methods and procedures actually applied :

The entity managing SSC-CPA preparation should always refer to IPCC Guidelines for National Greenhouse Gas Inventories for the most up-to-date factors (no such internationally-recognized GHG emissions factors for fuels are maintained by the Egyptian government).

In the event the project vehicle is powered entirely by electricity, then the emissions factor must be determined in accordance with the relevant sections for category I.D. projects, as per AMS-III.C requirements.

If the project vehicle is a hybrid, then both the fossil fuel and electricity emissions factors must be used, with the allocation ratio (e.g., x% electricity and y% fossil fuel used per kJ of work) based ex-ante on data provided by the manufacturer (which is collected along with other data already collected from the manufacturer, such as fuel efficiency data – thus, no additional activity is required) and ex-poste based on fuel consumption surveys (which are already conducted for the monitoring scheme ).

Any comment:

Data / Parameter: HVv,c

Data unit: kJ / kgDescription: International Energy Agency (IEA) country (lower) heating values for fuel in

country c used in vehicle type v (project and baseline vehicles)Source of data used: Unless internationally-accepted, government provided national data is available,

use: International Energy Administration. 2008. "IEA World Energy Statistics

43

and Balances" ISSN 1683-4240. http://lysander.sourceoecd.org.libproxy-wb.imf.org/vl=5267889/cl=24/nw=1/rpsv/statistic/s35_about.htm?jnlissn=16834240

Value applied: For the purposes of estimating project and baseline emissions for the Greater Cairo Region taxi CPAs associated with the proposed PoA, the following IEA factors have been used:

FuelHeating Values

(kJ/kg)Motor gasoline 44,800 Diesel 43,300Liquefied petroleum gases (LPG) 47,300 CNG 47,143

Justification of the choice of data or description of measurement methods and procedures actually applied :

The entity managing SSC-CPA preparation should always refer to the country-specific data contained in the IEA World Energy Statistics and Balances for the most up-to-date factors.

Any comment:

Data / Parameter: FVv

Data unit: kg / unit of fuelDescription: kg of fuel used in vehicle type v per common unit of fuel (e.g., litres for motor

gasoline; m3 or kg for CNG (project and baseline vehicles)Source of data used: US Environmental Protection Agency. 2000. "Inventory of U.S. Greenhouse

Gas Emissions and Sinks: 1990–1998: Annex Q." http://www.epa.gov/climatechange/emissions/downloads06/00CR.pdf

Value applied: For the purposes of estimating project and baseline emissions for the Greater Cairo Region taxi CPAs associated with the proposed PoA, the following US EPA factors have been used (since fuel volume factors do not tend to change over time, fuel volumes for most commonly used transportation fuels have been provided):

Fuel 1 kg = x litresMotor gasoline 1.36 Diesel 1.18Biodiesel (100%) 1.36 Biodiesel (20%) 1.36 Biogasoline (100%) 1.18 Fuel Cell 1.00 Natural gas liquids 1.60 Ethane 1.26 Ethanol (100%) 1.26 Liquefied petroleum gases (LPG) 1.84 Aviation gasoline 1.42

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Kerosene type jet fuel 1.26 CNG 1.00 * CNG is expressed in terms of kg, not litres

Justification of the choice of data or description of measurement methods and procedures actually applied :Any comment:

Data / Parameter: FEv

Data unit: unit of fuel / kmDescription: Fuel efficiency of a baseline vehicle, type v, measured in terms of average number

of units of fuel combusted (e.g., litres) per km travelledSource of data used: Baseline vehicle owner survey

Value applied: The baseline fuel efficiency and the project fuel efficiency may vary between CPA types. For example, the baseline fuel efficiency figures established for the Greater Cairo Region taxi CPAs may differ from those associated with an Alexandria microbus CPA.

The following values are those that have been applied for the purpose of calculating expected emission reductions in section B.5 (CDM SSC-CPA-DD), for the first Greater Cairo Region taxi CPA.

Motor Gasoline Vehicle: 12.87 litres/100kmCNG Vehicle: 12.23 m3/100kmDiesel Vehicle: 14.14 litres/100km

Justification of the choice of data or description of measurement methods and procedures actually applied:

Vehicle owner survey is conducted in accordance with sampling method presented in approved SSM AMS III-AA, which corresponds with EB 50 Report, Annex 30, “General Guidelines for Sampling and Surveys for Small-Scale CDM Project Activities.”:

“Measurements shall be undertaken on representative sample of vehicles in accordance with the statistical methods (Use 90% confidence interval and ±10% error margin to determine the sample size)…”

Relevant survey questions for this parameter include:

Fuel Type (e.g., motor gasoline, CNG, etc.) Average Fuel Efficiency (e.g., L/100km)

The survey is conducted on the project site, where vehicle owners apply for entrance into the program, surrender their old vehicles, and receive their new vehicles

Any comment: As previously discussed in the PoA-DD Section E.4, baseline fuel efficiency

45

remains constant through the CPA project duration.

Data / Parameter: VEHv,y

Data unit: # vehiclesDescription: Number of baseline vehicles, type v, to be replaced in a given project year, ySource of data used: Project participant registration data, maintained by the Project Entity (Egypt

Ministry of Finance)Value applied: The number of participating vehicles is expected to vary by CPA.

The following values are those that have been applied for the purpose of calculating expected emission reductions in section B.5 (CDM SSC-CPA-DD), for the first three Greater Cairo Region taxi CPAs. They have been collected from the project participant registration database, maintained by the Project Entity (Ministry of Finance).

Justification of the choice of data or description of measurement methods and procedures actually applied :

The Project Entity (Ministry of Finance), which is responsible for all CPAs within the PoA, maintains a record of vehicle scrapping certificates issued to vehicle owners, whose approved vehicles have been surrendered for scrapping. The Project Entity uses these certificates as the basis for providing vehicle owners with a payment for the surrendered vehicle. Through this regularly updated database, the number of baseline vehicles – i.e., the number, age, and type of scrapped vehicles – can be reliably tracked.

See Annex 7 for project database screen-shot and sample daily report on the number of participating vehicles.

Any comment:

Data / Parameter: VKTv,y

Data unit: kmDescription: Average annual vehicle-km travelled by baseline vehicles, type v, in a given

project year, ySource of data used: Baseline vehicle owner surveyValue applied: The average annual vehicle-km travelled is expected to vary by CPA.

The following value has been applied for the purpose of calculating expected emission reductions in section B.5 (CDM SSC-CPA-DD), for the Greater Cairo Region taxi CPAs.

Average annual vehicle-kilometres travelled: 38,816 km per year.

As mentioned previously, the actual value applied in ex-post emissions reduction estimates will be based on actual vehicle-kilometres travelled by project vehicles (see section E.7.1 for further details).

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CPA # Months Included Year # Vehicles0 April 2009 763 1 May, June 2009 4,781 2 July August 2009 4,793

Justification of the choice of data or description of measurement methods and procedures actually applied :

Vehicle owner survey is conducted in accordance with sampling method presented in approved SSM AMS III-AA, which corresponds with EB 50 Report, Annex 30, “General Guidelines for Sampling and Surveys for Small-Scale CDM Project Activities”:

“Measurements shall be undertaken on representative sample of vehicles in accordance with the statistical methods (Use 90% confidence interval and ±10% error margin to determine the sample size)…”

Relevant survey questions for this parameter include:

Vehicle model year Average weekday distance traveled (km/day) Average weekend distance traveled (km/day) Odometer reading (if available)

The survey is conducted on the project site, where vehicle owners apply for entrance into the program, surrender their old vehicles, and receive their new vehicles.

Additional comments (if any):

E.7. Application of the monitoring methodology and description of the monitoring plan:

E.7.1. Data and parameters to be monitored by each SSC-CPA:

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An independent consultant had surveyed 600 participating vehicle owners (590 valid sample observations) to determine whether they would be willing to have monitoring devices installed in their vehicles as a prerequisite to project participation, and the overwhelming majority indicated that they would be against this practice (see Chart 1 below).

Chart 1: % Surveyed Vehicle Owners Willing to Have an Electronic Monitoring Device Installed in Vehicle for Purposed of Tracking Greenhouse Gas Emissions

No86%

Yes14%

Although monitoring devices could provide more accurate results, the potential negative effect on project participants, combined with the additional cost, the Project Entity shall manage monitoring activities using the same method employed to collect baseline data – vehicle owner surveys.

Data / Parameter: FEv,y

Data unit: unit of fuel / kmDescription: Fuel efficiency of project vehicle, type v, measured in terms of average number

of units of fuel combusted (e.g., litres) per km travelled in a given year, ySource of data to be used:

Annual vehicle owner survey

Value of data applied for the purpose of calculating expected emission reductions in section B.5

The baseline fuel efficiency and the project fuel efficiency may vary between CPA types. For example, the baseline fuel efficiency figures established for the Greater Cairo Region taxi CPAs may differ from those associated with an Alexandria microbus CPA.

The following values are those that have been applied for the purpose of calculating expected emission reductions in section B.5 (CDM SSC-CPA-DD), for the first Greater Cairo Region taxi CPA.

Starting Values (Averages Based on Data Provided by the Manufacturer) Motor Gasoline Vehicle: 9.39 litres/100kmCNG Vehicle: 8.34 m3/100km

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Schedule for Ex-Ante Estimation of Values through CPA DurationWhile a vehicle’s fuel efficiency will begin to plateau after many years, as is the case with the baseline vehicles, vehicles will experience wear and tear associated decline in the early years. Although actual data for this parameter will be collected through surveys throughout the duration of the SSC-CPA, the following schedule may be used to estimate, ex-ante, declines in fuel efficiency for all SSC-CPAs.

Project Year

Fuel Efficiency % Change from

Baseline 0 0%1 0%2 0%3 0%4 1%5 2%6 3%7 4%8 5%9 6%

10 7%

Note: this schedule is only intended to be used for estimates prior to project implementation. Upon project commencement, this table is not used – actual measured parameters are used. This table is intended only to serve as a general ex-ante reference point only.

Calculated Ex-Ante Estimation of Values through CPA Duration

Project Year

Fuel Efficiency(Motor Gasoline)

L/100 km

Fuel Efficiency

(CNG) m3/100 km

0 9.39 8.341 9.39 8.342 9.39 8.343 9.39 8.344 9.48 8.425 9.58 8.516 9.68 8.597 9.77 8.688 9.87 8.769 9.97 8.85

10 10.07 8.94

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Description of measurement methods and procedures to be applied:

A vehicle owner survey shall be conducted in accordance with sampling method presented in approved SSM AMS III-AA, which corresponds with EB 50 Report, Annex 30, “General Guidelines for Sampling and Surveys for Small-Scale CDM Project Activities”.

Relevant survey questions for this parameter include:

Fuel Type (e.g., motor gasoline, CNG, etc.) Average Fuel Efficiency (e.g., L/100km)

The survey, which is nearly identical to the survey used in the baseline, shall be conducted in one of three locations: 1) the participating advertising agency, where drivers are required to go each month to pick up advertising supplement payment and receive new ads for the vehicle; 2) the participating auto dealerships, where drivers are required to receive inspections and maintenance services; and 3) over the phone, as part of a regular quarterly survey conducted by the Project Entity as part of its quality assurance program. 32 The survey shall be the sampling guidance presented in approved methodology AMS-III-AA, which is most relevant to the presented CPAs and corresponds with EB 50 Report, Annex 30, “General Guidelines for Sampling and Surveys for Small-Scale CDM Project Activities”:

QA/QC procedures to be applied:

Measurements shall be undertaken on representative sample of vehicles in accordance with the statistical methods (use 90% confidence interval and ±10% error margin to determine the sample size).

Any comment:

Data / Parameter: VEHv,y

Data unit: # vehiclesDescription: Number of project vehicles, type v, to be replaced in a given project year, ySource of data to be used:

Project participant registration data, maintained by the Project Entity (Egypt Ministry of Finance)

Value of data applied for the purpose of calculating expected emission reductions in section B.5

The number of participating vehicles is expected to vary by CPA.

The following values are those that have been applied for the purpose of calculating expected emission reductions in section B.5 (CDM SSC-CPA-DD), for the first three Greater Cairo Region taxi CPAs. They have been collected from the project participant registration databse, maintained by the Ministry of Finance.

Description of measurement methods

The Project Entity (Ministry of Finance), which is responsible for all CPAs within the PoA, maintains a daily record of new vehicles issued to participating

32 As of time of writing, discussions are underway between the Ministry of Finance and Ministry of Interior regarding the integration of data collection as part of the annual vehicle license registration process.

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CPA # Months Included Year # Vehicles0 April 2009 763 1 May, June 2009 4,781 2 July August 2009 4,793

and procedures to be applied:

vehicle owners. Through this regularly updated database, the number of project vehicles – i.e., the number and type – can be reliably tracked.

See Annex 7 for project database screen-shot and sample daily report on the number and type of replacement vehicles introduced to a Greater Cairo Region taxi CPA.

QA/QC procedures to be applied:

As indicated in the Project Monitoring Plan (Section E.7.2), numbers checks and balances are in place to ensure the identity of each vehicle in the Project Vehicle Database is verifiable.

Any comment:

Data / Parameter: VKTv,y

Data unit: kmDescription: Average annual vehicle-km travelled by project vehicles, type v, in a given

project year, ySource of data to be used:

Annual vehicle owner survey

Value of data applied for the purpose of calculating expected emission reductions in section B.5

The average annual vehicle-km travelled is expected to vary by CPA.

The following values, based on the baseline survey, have been applied for the purpose of calculating expected emission reductions in section B.5 (CDM SSC-CPA-DD), for the Greater Cairo Region taxi CPAs.

Average annual vehicle-kilometres travelled: 38,816 km per year.Description of measurement methods and procedures to be applied:

A vehicle owner survey shall be conducted in accordance with sampling method presented in approved SSM AMS III-AA, which corresponds with EB 50 Report, Annex 30, “General Guidelines for Sampling and Surveys for Small-Scale CDM Project Activities”: Relevant survey questions for this parameter include: Program participation start date Average weekday distance traveled (km/day) Average weekend distance traveled (km/day) Odometer reading

The survey, which is identical to the survey used in the baseline, shall be conducted in one of three locations: 1) the participating advertising agency, where drivers are required to go each month to pick up advertising supplement payment and receive new ads for the vehicle; 2) the participating auto dealerships, where drivers are required to receive inspections and maintenance services; and 3) over the phone, as part of a regular quarterly survey conducted by the Project Entity as part of its quality assurance program. 33

QA/QC procedures to be applied:

Measurements shall be undertaken on representative sample of vehicles in accordance with the statistical methods (use 90% confidence interval and ±10% error margin to determine the sample size).

Any comments:

33 As of time of writing, discussions are underway between the Ministry of Finance and Ministry of Interior regarding the integration of data collection as part of the annual vehicle license registration process.

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Important note: the manufacturers’ fuel efficiency estimates are used only as a starting point for ex-ante emissions reduction estimates and as a check for monitoring quality control. Actual emissions reduction calculations are based on annual fuel efficiency surveys, conducted in accordance with UNFCCC sampling guidance.

At any stage in the PoA, the Ministry may approve additional new taxi, microbus, trailer trucks, or bus models for inclusion in the CPAs. New models, as they are approved, shall be reported in the UNFCCC CPA project design documents.

For the purpose of describing each site’s functionality, they are described separately, below, and throughout the remainder of the CFAM.

Processing and Storage Site

The majority of PoA activities undertaken by Project Participants in the Greater Cairo Region occur at the Processing and Storage Site, which, as of time of writing, is located on Cairo-Alexandria Desert Road, about 20 km west of downtown Cairo (see map, below).

The following activities take place at this site:

Inspection of old vehicles for program eligibility;

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Preparation of surrendered vehicles for temporary on-site storage (liquids are drained and batteries are removed); Distribution of subsidy for surrendered vehicles; Purchase of new vehicles from independent vendor representatives; Storage of new vehicles in parking lot; Inspection of new vehicles; Licensing; Advertising procedures (issuance of a letter from the advertising firm indicating approval for licensing of each new vehicle); First-aid kit distribution; Program security and monitoring; and Ancillary services (café, on-site fire trucks and staff, administration, etc.).

Scrapping and Recycling Site

As of time of writing, the Scrapping and Recycling Site has not yet been constructed – advance payment funding from certified emissions reduction (CER) credit generation is expected to be used towards the cost of site preparation.

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Annex 4: Implementation Arrangements and GHG Monitoring Plan

The monitoring for all SSC-CPAs is managed by the Project Entity (Ministry of Finance).

Sampling Plan for Project Emissions MonitoringAccording to AMS III.C., “Monitoring shall track the number of low-emission vehicles operated under the small-scale CDM project activity and the annual units of service for a sample of the vehicles (and emissions from electricity generation shall be taken into account for electric vehicles), as well as the quantity of fossil fuel used.”

Estimated emissions reductions are derived from annual measurements of average annual vehicle distance driven and average fuel efficiency. These parameters are estimated through sampling, according to the Sampling Plan presented below.

Average annual vehicle distance driven and average fuel efficiency data are collected from project vehicles by a vehicle owner survey, which is conducted in accordance with sampling method presented in approved SSM AMS III-AA, which corresponds with sampling guidance presented in EB 50 Report, Annex 30, “General Guidelines for Sampling and Surveys for Small-Scale CDM Project Activities.”

Sampling Objective The objective is to determine the mean annual value of parameters FEv,y and VKTv,y. Measurements shall be undertaken on representative sample of vehicles, determined in accordance with statistical methods, based on a 90% confidence interval and ±10% error margin.

Field Measurement Objectives and Data to be Collected The following data shall be collected specifically to estimate the FEv,y and VKTv,y

parameters:

o Vehicle registration number;o Program participation start date;o Odometer reading; o Fuel Type (e.g., motor gasoline, CNG, etc.); ando Average Fuel Efficiency (e.g., L/100km).

Surveys shall be conducted over a two week period on an annual basis, beginning 8 months after PoA registration and every 12 months thereafter.

Target Population and Sampling Frame The target population comprises the new vehicles registered under the program. The Project Vehicle Database, which is managed by the Ministry of Finance (see below), contains a full list of population members, including date of program participation, model type, fuel type, registration number, and vehicle owner contact information.

Sample Method

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For the purpose of SSC-CPA project emissions monitoring, a simple random sample shall be taken.

Desired Precision / Expected Variance and Sample Size Samples are collected per program stage (as defined in the decrees that give the Ministry of Finance the legal power to coordinate the program, e.g., Greater Cairo Region taxis, Alexandria microbuses, Luxor buses) -- this is because the new technology employed in each stage is the same.

Based on EB 50 “General Guidelines for Sampling and Surveys for Small-Scale CDM Project Activities” 90/10 guidelines for estimating project sample size, the following minimum number of samples must be collected:

n=[Z2×p×(1−p ) ]

e2

Where: o n = sample sizeo Z = z critical value (1.645 for 90% confidence level)o p = estimated portion of an attribute present in a population (0.5, since this is unknown)o e = confidence interval (10%)

68=[1 .6452×0. 5×(1−0 .5) ]

0 . 102

The survey team must use either the number of samples resulting from this formula or 1% of the estimated un-segmented population size – whichever is greater.

Standard deviation for project vehicle data is expected to be less than the deviation observed for baseline data. This is because baseline data cover a wide range of vehicle models and model years, whereas project vehicles are limited to only a few models over one or two model years. If project monitoring standard deviation is 10% greater than that of the baseline, additional observations shall be collected.

Procedures for Administering Data Collection and Minimizing Non-Sampling Errors The annual surveys (see above and Annex 4), which are identical to the survey used in the baseline, are conducted in one of three locations: 1) the participating advertising agency, where drivers are required to go each month to pick up advertising supplement payment and receive new ads for the vehicle; and 2) the participating auto dealerships, where drivers are required to receive inspections and maintenance; and/or 3) the Processing and Scrapping Site, where owners pay monthly loan installments in person. 34

34 As of time of writing, discussions are underway between the Ministry of Finance and Ministry of Interior regarding the integration of data collection as part of the annual vehicle license registration process.

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An independent consulting firm carries out the survey at these sites over a two-week period each year, and the firm’s credentials, as well as the survey results, are monitored and verified by the Designated Operations Entity (DOE) on an annual basis.

For quality control purposes, survey results shall be compared against the Ministry of Finance’s Project Vehicle Database, which includes project vehicle license numbers and date of program registration. Since each vehicle has a unique registration and license number, even if the driver of a vehicle owned by another party were to change, the vehicles are still trackable through survey results.

Also for quality control purposes, in addition to checking for outliers, fuel efficiency figures shall be measured against manufacturer-estimated fuel efficiency, provided to the Ministry of Finance prior to participation in the program. In the event that reported fuel efficiency is more than 25 percent greater than manufacturer-stated fuel efficiency (e.g., 25% fewer liters of fuel are required per 100 km than the manufacturer’s stated vehicle fuel efficiency), a red flag is raised and survey results are re-evaluated. These survey results shall accompany the sample survey results for annual verification. Further, upon PoA registration, the Ministry shall consider the addition of a survey question for quality control purposes – what drivers have spent on fuel, as a check to their fuel usage estimates.

Implementation Surveys shall be conducted over a two week period on an annual basis, beginning 8 months after PoA registration and every 12 months thereafter. The data collection is managed by an independent consulting firm and results, as well as qualifications of the consulting firm are monitored and verified by the Designated Operating Entity (DOE).

Special CasesSome project vehicles may cease to operate during the 10-year SSC-CPA crediting period, due to accident or need for extensive repairs. In this event, one of the following events will occur:

1) The Vehicle Owner will receive a new vehicle, according to procedures developed by the Ministry of Finance; or2) In the event of loan default, the Ministry of Finance will coordinate the necessary steps to repossess the vehicle / license.

Thus, in both of these events, the vehicles are accounted for, and the annual number of participating vehicles may be adjusted accordingly.

System of Checks and Balances for Processing and Storage SiteThe SSC-CPA structure, which is the same for all SSC-CPAs, contains many duplicative efforts that serve the purpose of checks and balances for monitoring. The following detailed process description illustrates the large number of built-in redundancies that ensure that there is a large, auditable trail for registration documentation.

Step 1: Application for Bank Loan

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First, the vehicle owner approaches a participating bank branch at the Processing and Storage Site, where the following transactions occur:

The vehicle owner receives information about the scheme, upon which the owner can make an informed decision regarding participating and new vehicle choice, including:

o Frequently Asked Questions guide (provided to the DOE);o Loan application form; o Loan requirements;o List of prices and models of available new vehicles (also published in newspapers, provided to the DOE, in addition to full hardcopies);o Contact information for participating vehicle dealers;o Pricing sheet for maintenance and spare parts costs and vehicle warranty.

Upon receipt of the information above, the owner may complete a loan application form and sign an authorization for a credit rating check. Upon completion, the owner is expected to submit the following documentation to the participating bank:

o Completed loan application form;o Copy of the vehicle owner’s national ID card; o Copy of a current and valid vehicle license (associated with the old vehicle); o A recent utilities bill; ando An authorization document signed by vehicle owner for the credit rating check.

Upon completion of a positive credit rating check (maximum of five working days), the vehicle owner is informed, and the bank opens a current account on behalf of the owner. In this step, the following documents are issued and signed:

o Preliminary approval letter issued by the bank;35 o Loan contract to be signed by the vehicle owner; ando Signing of promissory notes for the vehicle loan and insurance loan.36

Step 2: Designation of New Vehicle Next, the vehicle owner visits one of the participating vehicle dealers at the Processing and Storage Site and submits:

Preliminary loan approval letter from the participating bank.

35 “Preliminary” does not mean that the bank can cancel the approval, but means that there is another “final approval”, by which the vehicle owner can receive and license the new vehicle)36 The insurance premium is paid on annual basis by the bank to the insurance company. This premium is divided into monthly instalments, which are part of the monthly loan instalment paid by the vehicle owner. Thus, the participating bank opens two parallel loans for each vehicle owner: one primary loan for the vehicle and another for the insurance. However, this is an internal process executed by the bank – from the perspective of the vehicle owner; there is one loan with one monthly payment, which includes the insurance payment.

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The owner then requests a new vehicle, and the vehicle dealer reserves a vehicle for the owner by designating/specifying the new vehicle’s chassis and engine number. By specifying the engine and chassis number, the vehicle dealer is obligated to have this specific car manufactured and ready to be delivered to its owner within a reasonable timeframe.37 When the vehicle is ready for delivery, (timing depends on the level of demand on the vehicle model), the vehicle dealer contacts the vehicle owner and issues:

New vehicle designation letter (which specifies the new vehicle’s chassis number, engine number, model, and fuel type).

Step 3: Old Vehicle Inspection and ScrappingWhen vehicle owners bring their vehicles to the Processing and Scrapping site, a Technical Engineer, hired by the Ministry of Interior (Traffic Department) conducts a vehicle inspection. Inspection criteria include:

The vehicle is affected by Traffic Law #121;

The owner holds legal title to the vehicle; The vehicle is legally licensed and registered in Egypt; The vehicle’s original chassis and engine serial numbers are intact; and The vehicle (and/or its engine) is operational.38

Technical Engineer demonstrates how motor and chassis numbers are recorded from old vehicles at a Processing and Storage Site in the Greater Cairo Region

Upon successful completion of the inspection, the vehicle owner submits:

A traffic violation report for the old vehicle; Preliminary approval letter issued by the bank; New vehicle designation letter;

License plates from old vehicle; Old vehicle for scrapping and recycling.

In return, the owner receives:

Scrapping certificate (original plus one copy); and

37 Originally, the designation was a one-week period; however, experience with the Greater Cairo Region Taxi Scrapping and Recycling Program has indicated that demand for some models can be so great, that it is not possible for vehicle manufacturers to produce enough vehicles to meet this one-week turnaround.38 In some cases, non-operational vehicles are eligible to participate in the program; however, these vehicles are not included in CER calculations.

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Inspection report (two copies).39, 40 Sample Scrapping Certificate and Inspection Report, issued upon successful completion of

surrendered vehicle inspection

Vehicle storage is executed by the Ministry of Interior. This process includes:

Destruction of old vehicle’s chassis number and engine number; Drainage of vehicle liquids (fuel, oil, etc.); and

39 If the vehicle is non-operational, it may still be eligible to participate in the program, but it would not be counted towards the annual CER calculations. In very few cases, an old vehicle could be non-operating due to an accident. In such cases, the taxi owner submits a request to The Ministry of Finance, and a date is set for inspection by a certain technical committee assigned to determine the actual value of the old vehicle. The technical committee is comprised of three members: two from the Ministry of Interior and one from the General Authority for Government Services, which is under the Ministry of Finance. Based on the inspection, if the actual value of the vehicle is less than EGP 5,000 (which is paid by the Ministry of Finance for each scrapped vehicle), the Ministry of Finance issues a cheque that corresponds with the actual value, and the taxi owner pays the difference to the bank and then continues with the remaining procedures. Since inception of the project, there have been only seven such cases until December 2009 and a separate database is kept for such cases. For example: An owner of an old taxi vehicle had an accident before surrendering the vehicle for scrapping. Accordingly, the vehicle is not operating and cannot be accepted by the Ministry of Interior staff, who inspect vehicles before scrapping. This taxi owner has submitted a request to the Ministry of Finance, and the aforementioned technical committee has inspected his old vehicle and decided it is worth only EGP 2,000. Thus, the vehicle owner paid EGP 3,000 to the bank and provided the Ministry of Finance with a copy of the bank receipt of the EGP 3,000 paid. He then went to the scrapping site where his old vehicle has been scrapped and Ministry of Finance issued him a cheque for EGP 2,000 only so that he submits it at the bank and accordingly this would add up to a total of EGP 5,000 which is the down-payment . Then all other procedures continue as usual.40 The vehicle owner submits the original scrapping certificate to the auto dealer in order to receive the new vehicle. The vehicle dealer, in turn, shows the original scrapping certificates to MoF (the Fund for Financing Purchase of Transport Vehicles) on monthly basis in order to get its customs exemption and payment of the sales tax. As for the inspection report, the vehicle owner receives two copies where s/he keeps one and submits the other to MoF representatives at the Processing and Storage Site for issuance of scrapping subsidy check.

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Removal of engine battery.

Specific details regarding this process may be found in the Framework Environmental Management Assessment (see Section C).

Step 4: Ministry of Finance Issuance of Subsidy Check After completion of vehicle surrender, the vehicle owner submits the following documents to the Program Coordinator (Ministry of Finance) representative at the Processing and Storage Site (typically on the same day) in exchange for receipt of the vehicle subsidy check:

Copy of the vehicle owner’s national ID card; Copy of a current and valid vehicle license (associated with the old vehicle);

Copy of scrapping certificate; Copy of inspection report; Preliminary loan approval letter from the participating bank; and New vehicle designation letter.

An on-site representative from the Ministry of Finance enters data from these documents into a database, which is centrally managed by the Ministry of Finance. Further details on this process may be found towards the end of this Section.

Step 5: Participating Advertising Agency (Optional)Next, the driver submits the following documents to the advertising agency:

Copy of scrapping certificate; Copy of inspection report; Preliminary loan approval letter from the participating bank; Copy of the vehicle owner’s national ID card; and Copy of a current and valid vehicle license (associated with the old vehicle).

Upon approval, the agency then gives the vehicle owner a letter indicating his/her participation in the ad program.

Step 6: Bank Loan Final ApprovalUpon receipt of the subsidy check from the Ministry of Finance and the (optional) approval letter from the advertising firm, the vehicle owner returns to the on-site participating bank branch, where the vehicle owner submits:

Subsidy check, which is deposited in the vehicle owner’s new current account as the loan down payment; and Letter from advertising agency.

After the owner signs an official general power of attorney for the vehicle, with the bank as the beneficiary, the bank issues the driver:

Final loan approval letter.

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The Bank, at this point, also submits the following materials to its headquarters:

Copy of the vehicle owner’s national ID card; Copy of a current and valid vehicle license (associated with the old vehicle);

Letter from the advertising agency; New vehicle designation letter; and

Final loan approval letter.

Step 7: Receipt of New Vehicle Next, the vehicle owner submits the following documentation to the vehicle dealer:

Scrapping certificate (original); Inspection report (copy); and Final loan approval letter.

In return, the vehicle dealer issues the driver:

Receipt for purchase of new vehicle.

Step 8: Licensing of New Vehicle and Final Document ProcessingTo prevent bottlenecks with the on-site Ministry of Interior Traffic Department, the vehicle dealer is responsible for assisting drivers in the licensing process. Specifically, the vehicle dealer prepares the following documentation on behalf of the owner:

New vehicle technical inspection certificate; Certificate for meter; Certificate for fire extinguisher; and Certificate for first aid kit.

The dealer also receives payment from the vehicle owner for compulsory insurance (in accordance with national law) and license tax and prepares:

Tax payment receipt; and Insurance payment receipt.

The dealer then submits the following package to the on-site Ministry of Interior Traffic Department for licensing:

Copy of letter from the advertising agency; Tax payment receipt; Insurance payment receipt; Scrapping certificate (copy);

New vehicle designation letter; New vehicle technical inspection certificate;

Receipt for purchase of new vehicle;

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Final loan approval letter; Certificate for meter; Certificate for fire extinguisher; and Certificate for first aid kit.

Upon receipt and review of these materials, a new vehicle license is issued by Ministry of Interior and given to the taxi owner on-site (owner is called, by phone, when license is ready for pick-up). The original materials are sent to the Ministry of Interior for filing, and the Department provides daily reports on the number of new vehicles licensed to the Ministry of Finance representative on-site.

With all paperwork in order, the vehicle owner is given his/her new vehicle. The vehicle dealer then proceeds to send out the following materials to complete the process:

To Ministry of Finance representatives on-site:

Periodic vehicle report.

To the dealer’s headquarters, copies of the following:

Scrapping certificate; Inspection report;

Vehicle owner’s national ID card; Preliminary approval letter issued by the bank; New vehicle designation letter; Receipt for purchase of new vehicle;

Final loan approval letter; and Letter from the advertising agency.

Step 9: Advertising Application (Optional)Upon receipt of new license and registration, the vehicle owner can then take their vehicle to the participating advertising agency to have ads applied to the vehicle.

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The following diagram summarizes these steps from the perspective of the vehicle owner:

Process Flow Diagram from perspective of the vehicle owner

Verification of Scrapped Vehicle and Replacement Vehicle NumbersRegarding the monitoring of vehicle scrapping, AMS III.C states that, “In case the project activity involves the replacement of equipment, and the leakage effect of the use of the replaced equipment in another activity is neglected, because the replaced equipment is scrapped, an independent monitoring of scrapping of replaced equipment needs to be implemented. The monitoring should include a check if the number of project activity equipment distributed by the project and the number of scrapped equipment correspond with each other. For this purpose scrapped equipment should be stored until such correspondence has been checked. The scrapping of replaced equipment should be documented and independently verified.”

Upon PoA registration, the Ministry of Finance shall be responsible for hiring an independent auditor to verify that the number of project activity vehicles distributed and the number of scrapped vehicles correspond with each other.

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After the chassis and motor identification numbers are physically removed from a submitted old vehicle, owners receive a “scrapping certificate” (see Annex 11, provided to the DOE). Hard copies of these certificates are kept by the Ministry of Finance, and scrapped vehicle identification details are periodically entered into a database, also maintained by the Ministry of Finance. Because the Ministry is responsible for providing subsidies to each vehicle owner that has voluntarily scrapped his or her vehicle as part of the program, the Ministry has a strong incentive to ensure that each owner only receives one, correct payment per scrapped vehicle.

Auto dealers are required to report the motor and chassis numbers of allocated new vehicles to participating Banks, as well as to the Ministry of Finance, for entry into the Program Database. Duplicate copies of vehicle allocation and loan documents that specify the specific vehicle allocation are kept by the auto dealers and participating Banks.

Finally, the recycling facility shall be required to report recycling activities to the Ministry of Finance for inclusion in the Program Database. Specifically, the facility will need to maintain copies of scrapping certificates for each participating vehicle.

Upon PoA registration, independent auditors shall be able to compare the following records against each other to verify the number of scrapped vehicles:

Ministry of Finance Program Database; Physical copies of the scrapping certificates maintained by the Ministry of Finance; Physical copies of scrapping certificates maintained by the recycling facility; and New vehicle allocation and loan documentation maintained by participating banks and auto dealers.

General Program Management Quality Assurance and Quality ControlThe Ministry of Finance conducts periodic QA/QC surveys among vehicle owners and manages complaints and comments that are received via a hot-line and survey. Copies of the hotline advertisements and the survey have been provided to the DOE and are included in the Program of Activities Design Document (PoA-DD).

On-Site SecurityThe Ministry of Interior de-registers the scrapped vehicles and provides vehicle owners with new operating licenses and registration for their new vehicles. The Ministry also maintains patrols at the storage facility to ensure vehicles are properly prepared for storage (fluids drained, batteries removed, and air removed from tires) before the vehicles are shipped to the recycling facility. Further, the Ministry provides the following security services:

Security against theft: for old surrendered scrapped vehicles, new vehicles to be licensed, rooms used by all partners’ employees, the room(s) where batteries of old vehicles are stored; Security against fire: having 2 fire brigades and their staff (an additional brigade was added in December 2009) for any fire that might occur due to any reason at any part of the site -- offices, old vehicles, new vehicles, stored batteries, etc; Having security towers overseeing the site and the surrounding area;

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Security at the entrance of the site.

Monitoring of Environmental Management Plan ComplianceUpon PoA registration, the Ministry of Environment will be responsible for ensuring that the recycling facility carried out its operational mandate and environmental monitoring plan as agreed upon during the permitting process.

Standardization of Process for All SSC-CPAsUpon registration of the PoA, the Ministry of Finance has agreed to complete the following activities prior to the first certification of emissions reduction credits:

Complete a standardized process-flow diagram that auditors could use to more easily follow the paper-trail of activities leading up to new vehicle registration and include in the existing guidelines prepared for taxi drivers; Prepare standardized check-lists for each participant, including drivers, at the Processing and Storage Sites and the Scrapping and Recycling Site; Prepare standardized job descriptions, and, where appropriate, training guidance for all participants; Require on-site data collection activities to be reviewed twice against hard-copy documentation prior to submittal to the Ministry of Finance program head office. At the head office, data shall be compared on a regular basis against data supplied by auto manufacturers. While this process already exists to some extent, it shall be formalized and auditable upon registration; and Prepare, in writing, a back-up plan in the event on-site data entry experiences unforeseen technical difficulties or staff changes.

3

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Annex 5: Program Protocol

Translation of the Program Protocol to implement the Taxi Vehicle Replacement and Recycling Project

On 31/12/2008, among:

1. The Ministry of Finance (the Fund for financing purchase of transport vehicles), (address), represented in signing this protocol by H.E. Dr. Youssef Boutors-Ghali – Minister of Finance.

2. Ministry of Interior, (address), represented in signing this protocol by...........

3. ……Bank, .... (address), represented in signing this protocol by...........

4. ……Bank, .... (address), represented in signing this protocol by...........

5. ……Bank, .... (address), represented in signing this protocol by...........

6. … .Ban.., .... (address), represented in signing this protocol by...........

7. ....... company, .... (address), represented in signing this protocol by...........

8. ....... company, .... (address), represented in signing this protocol by...........

9. ....... company, .... (address), represented in signing this protocol by...........

10. ....... company, .... (address), represented in signing this protocol by...........

11. ....... company, .... (address), represented in signing this protocol by...........

12. ....... company, .... (address), represented in signing this protocol by...........

13. ....... insurance company, .... (address), represented in signing this protocol by...........

Preamble

The traffic law number 66 for the year 1973, amended by the law number 121 for the year 2008, states in the text of Article 4/2 that licensing cannot be renewed for taxi vehicles and mass transport vehicles that have passed twenty years since the year of manufacturing, and the vehicle owner can transfer the license of his vehicle to the new vehicle replacing it. As per Article five of the law # 121/2008, this is effective 3 years from expiry of the license. And with the purpose of supporting taxi vehicles’ owners referred to above, and helping them replace their old vehicles with new ones through financial incentives to motivate them to replace their vehicles in a timely manner and through simple quick procedures that do not disturb the livelihood of owners of such vehicles, knowing that these vehicles represent a primary or sole source of income for its owner/driver(s).

Accordingly, partners signing this protocol have agreed to participate in implementing the taxi vehicle replacement and recycling project suggested by the Ministry of Finance and approved by the Prime Minister, each party in relation to their obligations, and believing in the importance of this project and its positive impact in general and in relation to the partners, including old taxi vehicles’ owners who are willing to participate in this project and enjoy its financial incentives and simplified procedures and surrender their old vehicle for scrapping in exchange for a EGP 5000 cheque from the Ministry of Finance to be delivered to the bank issuing the loan as the down-payment for purchasing

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the new vehicle and he will have to pay other obligations associated with the loan contract and bearing the consequences of violating these obligations. As such, partners signing this protocol have agreed to be accountable for their obligations stated hereinafter and that the taxi vehicle owner will be accountable for his obligations mentioned in the First article of this protocol. These obligations are as follows:

First - Obligations of the old taxi vehicle1. Surrendering the old vehicle for scrapping in exchange for EGP 5000 cheque issued by the Ministry of Finance (the Fund for financing purchase of transport vehicles) to be delivered to the bank issuing the loan for the vehicle owner as a down-payment.2. Signing a contract with the bank to finance the purchase of a new car from the auto dealer and bearing the obligations stated in it, especially the obligation to issue an insurance policy (stated in Article 2/1), and paying the monthly installments to the bank including the insurance policy installment in a timely manner. In addition, he commits that in case of not paying the installments in the due dates mentioned in the loan contract, the bank will transfer the ownership of the vehicle to the auto dealer after receiving the value of its outstanding loan amount and the traffic department will cancel his vehicle license and transfer it to whomever the auto dealer decides, or the bank can transfer the vehicle license to the Ministry of Finance (the Fund for financing purchase of transport vehicles), depending on each case.41

Besides, if he doesn’t pay bank installments then the installments he has already paid are the bank’s.

3. Doing a power of attorney at the notary public once the new vehicle is assigned to him by the auto dealer that the bank has the right to transfer the ownership of the vehicle to the auto dealer and the vehicle’s license to whomever the auto dealer specifies and after taking the banks’ outstanding amounts from the auto dealer, or to the Ministry of Finance (the fund for financing purchase of transport vehicles) according to the Ministry’s obligation number 4. All these procedures would be in the case of not paying two consecutive loan installments. It is noteworthy that it should be stated in the power of attorney that it cannot be cancelled without both parties’ consent. 4. After receiving the new vehicle and licensing it, he should let the advertising company put the advertisement on the vehicle or inside it and maintain these ads according to the timing and way specified by the advertising company’s contract with the bank. He should also keep the ad outside or inside the vehicle in good shape.5. Doing the vehicle maintenance at the auto dealer every 10,000 km or two months whichever is sooner, according to the list of prices attached to the purchase contract. 6. Renewing the vehicle license every three months during the first year and every six months starting from the second year, as long as the bank has not notified the traffic department that he has not paid the installments before renewing the license. 7. Sticking to the obligation of banning usage of the vehicle for purposes other than being a taxi vehicle for a duration of five years from the date of licensing except after paying the custom duties that has been exempted for the imported components in addition to paying the sales tax amount that has been paid for the vehicle by the Ministry of Finance (the Fund for financing purchase of transport vehicles) and paying all outstanding installments and other due amounts to the bank.8. In the case of death of the vehicle owner, legal heirs are held liable for the deceased liabilities; otherwise, previous points will be applicable.

Second – Obligations of the bank providing the loan1. Coordinate the necessary steps to issue an insurance policy for the new vehicle against accidents, theft and fire with the beneficiary being the bank in the case of total loss and with the

41 i.e. if the vehicle is found by the Ministry of Interior, then the ownership and license are transferred to the auto dealer, while if the vehicle is not found then the transfer is done to MoF.

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beneficiary being the auto dealer in the case of accidents that can be repaired. This is applicable for the entire duration of the loan contract. 2. Issuing a contract with the owner of the old scrapped vehicle and providing him with a loan to purchase a new vehicle from the auto dealer to use it as a taxi vehicle, after doing the necessary inquiry about the vehicle owner. The bank should pay the loan amount directly to the auto dealer in three days time after delivery of the new vehicle to the owner and providing the bank with all required documents. This contract should include obligations of both parties especially the loan term which is five years, the return due on the loan, the timing of paying installments including the insurance installment and the consequences of delay in paying installments. 3. Issuing a contract with the company advertising outside and inside the vehicles referred to above, and collection of the amounts paid by the company with the borrower being the beneficiary. 4. Paying the insurance premium against accidents, theft and fire to the insurance company and adding this premium to the loan installments collected from the vehicle owner. 5. Notifying the traffic department in the case of the vehicle owner’s default for two consecutive months, or not doing the regular maintenance of the vehicle as specified earlier (every 10,000 km or two months whichever is sooner) if the auto dealer notifies the bank. And the traffic department should accordingly refuse renewal of the vehicle license and take the necessary steps to find it. After finding the vehicle, if its owner pays during two days or delivers the vehicle for maintenance at the auto dealer in addition to paying the amount to be determined by the Ministry of Interior in coordination with the Ministry of Finance in both cases for finding the vehicle, then the vehicle is released.6. Taking the necessary steps to transfer the ownership of the vehicle found to the auto dealer, as specified in the power of attorney done by the vehicle owner to the bank, in the case of not releasing it, and transferring its license to the auto dealer or whomever it specifies in one week at most from the date payment of the amounts due to the bank by the auto dealer and any returns or expenses as a result of delay. 7. Taking the necessary steps to claim the amount to be paid by the insurance company in the case of occurrence of any of the risks insured against (accidents, theft and fire) that has lead to the vehicle’s total loss. 8. Sending a letter to the traffic department to remove the ban on it in case the owner pays all the amounts due or settles the loan amount as an early settlement, with the condition of sticking to the owner’s obligations towards the advertising company until the contract expires or according to what parties agree to (vehicle owner, advertising company and the bank). 9. Transferring the ownership of the vehicle to the auto dealer after having it pay the installments to the bank, in addition to the license in the case of death of the vehicle and the incapability of his legal heirs to fulfill the deceased obligations mentioned in this protocol.

Third – Obligations of the insurance company1. Issuing an insurance policy for the vehicle with the beneficiary being the bank against accidents, theft and fire.2. Paying the amount of the policy to the bank in the case of total loss of the vehicle in order to cover the unpaid installments and any other related due amounts, if any, and paying the extra amount to the vehicle owner. 3. Approving the quotation for repairing the vehicle during three days after being notified by the auto dealer in the case of occurrence of accidents that can be repaired. 4. Paying the amount due for repairing the vehicle to the auto dealer in case of occurrence of accidents that can be repaired.

Fourth – Obligations of the auto dealer1. Selling the new vehicle to the owner of the old vehicle bearing all legal obligations in this regard, including delivering the new vehicle within five days at most from the date of the letter from

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the bank to the auto dealer, and deducting from the price the value of the customs on the imported components that have been exempted and the value of the sales tax applicable on the vehicle which will be paid by the Ministry of Finance. 2. Delivering the vehicle with the specifications and prices approved by MoF where prices will be valid for six months.3. Doing the regular maintenance for the vehicle (every 10,000 km or 2 months whichever is sooner) and making the spare parts available with the specifications and prices and timeframes mentioned in the purchase agreement with the buyer. In addition, such vehicles will be given priority in the service centers and the auto dealer should inform the bank in the case that the vehicle owner does not abide by the regular maintenance. 4. Payment of the outstanding amount of loan installments and delay interest due on the vehicle owner within a week from the date of being informed by the bank that the vehicle has been found, where the bank will then transfer the ownership of the vehicle in the following week to the auto dealer using the power of attorney done by the vehicle owner to the bank and also transfer the vehicle license. Accordingly, the auto dealer can sell the vehicle to be used for any purpose it wishes and it can also sell its license for others without any prohibition.5. Paying the fees due for transferring the ownership in the case of transferring the ownership to it by the bank.6. Doing the irregular maintenance as requested by the vehicle owner and making spare parts available upon request.

Fifth – Obligations of the Ministry of Interior1. Preparing three areas at least to issue licenses for the new vehicles and renewing them, and they are the traffic department of Tebbin in Cairo Governorate, Al Salam in Cairo Governorate and Nekla in Giza Governorate.42

2. Licensing the new vehicle to its owner as a taxi vehicle and stating in the license a ban for the benefit of the bank which cannot be removed unless the bank approves.3. Making the license valid for 3 months in the first year and for 6 months starting from the second year for vehicles owners who pay their installments regularly to the banks and unless the bank has notified the traffic department of their default.4. Taking necessary procedures to find the vehicle in case the bank notifies the traffic department that the owner has not paid 2 consecutive loan installments, or that he has not done the regular maintenance every 10,000 km or 2 months whichever is sooner as per the purchase agreement with the auto dealer. 5. Issuing a certificate of “stopping the search” for the vehicle after 3 months from the date of notifying the traffic department by the bank that the vehicle owner has not paid 2 consecutive loan installments. This will be done in case the Ministry of Interior was not able to find the vehicle.6. Releasing the vehicle if the owner pays the due amounts in 2 days to the bank which in turn notifies the Ministry officially, or that he has gone to the auto dealer to do the regular maintenance. This will be done after paying the amount specified by the Ministry of Interior in coordination with the Ministry if Finance for finding the vehicle. 7. Taking necessary steps to license the vehicle for the auto dealer in case of finding it and that the bank has transferred its ownership to the auto dealer as per item 5 of the banks obligations and in the case of not releasing the vehicle as per item 6 of obligations of the Ministry of Interior. 8. Transferring the license of the vehicle to the Ministry of Finance (the fund for financing purchase of transport vehicles) or whomever the Ministry specifies and issuing new license plates in the case of issuing a certificate of “stopping the search” for the vehicle as per item 4, in addition to removing the original license plates from the traffic department file.

42 Upon implementation, a traffic unit has been represented at the scrapping site to license new vehicles so as to facilitate the delivery and licensing process for the vehicles’ owners at one site.

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9. Refusing to renew the license of the vehicle or transferring it to others in case of using it for a purpose other than being a taxi vehicle within 5 years from the date of licensing unless he pays to the Ministry of Finance the customs that have been exempted on the imported components as well as the sales tax that has been paid to the Ministry of Finance.10. Approving usage of the vehicle in advertising and specifying the rules that should be followed by the advertising company after getting the governors approval.11. Allocation of a suitable area to turn in old vehicles and scrap them (which is Cairo Alexandria desert road, behind the general department for Giza security, Giza Traffic Soldiers Camp.)

Sixth – Obligations of the Ministry of Finance (the Fund for financing purchase of transport vehicles)

1. Taking necessary steps to exempt imported components used in manufacturing the vehicles from customs as per article 3/5 of the customs exemptions law.2. Paying the sales tax applicable on the new vehicle on behalf of the vehicle owner.3. Coordination with the Ministry of Interior to find the vehicle in case the owner does not pay 2 consecutive loan installments to the bank.4. Guaranteeing paying the outstanding installments amount to the bank after 3 months from the date of being notified by the bank that the client is not paying. This will be in return for transferring the license of the vehicle, using the power of attorney done by the vehicle owner to the bank, to whomever the Ministry of Finance specifies. 5. In the case of finding the car after the payment is done by MoF to the bank, the vehicle would be the Ministry’s and the bank should transfer its ownership to the Ministry using the power of attorney done by the vehicle owner to the bank.6. If pertinent governors issue any decrees related to issuing new taxi vehicles licenses, MoF (the Fund for financing purchase of transport vehicles) will pay EGP 20,000 to the auto dealer in the case the bank notifies the traffic department that the vehicle owner has not paid 2 consecutive loan installments. And in such case, the vehicle license will be transferred to the Ministry of Finance (the Fund for financing purchase of transport vehicles) using the power of attorney done by the vehicle owner to the bank.

In the case of any dispute arising between participating parties, settlement should be done by the board of directors of the Fund for financing purchase of transport vehicles and its decisions are binding to all parties.

Signatures

1. Ministry of Finance, represented by H.E. Dr. Youssef Boutros-Ghali, Minister of FinanceSignature: ………………………………. Date: / /

2. Ministry of Interior, represented by ………………………….Signature: ………………………………. Date: / /

3. Insurance Company, represented by ………………………..Signature: ………………………………. Date: / /

4. ….…. Bank, represented by ……………………………………Signature: ………………………………. Date: / /

5. ….…. Bank, represented by ……………………………………Signature: ………………………………. Date: / /

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6. ….…. Bank, represented by ……………………………………Signature: ………………………………. Date: / /

7. ….…. Bank, represented by ……………………………………Signature: ………………………………. Date: / /

8. ….…. Company, represented by ……………………………………Signature: ………………………………. Date: / /

9. ….…. Company, represented by ……………………………………Signature: ………………………………. Date: / /

10. ….…. Company, represented by ……………………………………Signature: ………………………………. Date: / /

11. ….…. Company, represented by ……………………………………Signature: ………………………………. Date: / /

12. ….…. Company, represented by ……………………………………Signature: ………………………………. Date: / /

13. ….…. Company, represented by ……………………………………Signature: ………………………………. Date: / /

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Annex 6: Risk Identification Worksheet

Risk factors Description of risk Ratinga

of riskMitigation measures Ratinga of

residual riskI. Country and/or Sub-National Level Risks

Macroeconomic Framework

Inflation regained momentum reaching double-digit levels in January-February 2008, after slowing down in Sept-Dec 2007 which underscore the importance of consistent economic policies. This increase was initially driven by soaring international food prices. The first and second round effects of the measures adopted by the government last May (increase in civil servants salaries and partial elimination of subsidies) also contributed to the acceleration of the price level. M2 growth dropped to 17 % (year-on-year basis) in May 2008 after peaking to 23.9 percent in April. The large (expected to remain stable despite these measures) budget deficit and the high domestic debt raises its vulnerability to market perceptions although FDI and capital inflows have been substantial recently. Exports of hydrocarbons, tourism and Suez Canal revenues are vulnerable to regional political turmoil.

Oil prices reached record levels - and should they increase- are not expected to do so significantly (in an extent to harm Egypt’s exports). Also, the domestic economy has proven to be somewhat resilient to regional turmoil.

Moderate The economy grew by about 7% and tax revenues should be buoyant. In addition, management of Government assets and sizeable privatization proceeds help reduce the need to borrow. Government plans to reduce deficits gradually by at least 1 percentage point every year for the next five years, and the deficit fell by more last year.

The CBE is taking monetary policy actions to react to the situation and has already increased its overnight deposit and facility interbank interest rates four times since Feb-08 by a cumulative 1.75 percentage points to 10.5 percent and 12.5 percent, respectively.

Egypt’s substantial foreign exchange reaching US$33.8 billion at end-February 2008 and moderate (mostly concessional) external debt of $34.5 b or 21.6% of GDP reduces its vulnerability to external shocks.

Moderate

Country Engagement With IBRD

Interest in Bank products and advice could wane. Management of the social and political tensions that may come into play during the course of the reform. (The current administration is reform-oriented and owns Bank-supported programs). Mobilizing popular support for reforms remains a considerable concern to reformers.

Low Demonstrated speed and flexibility in use of Bank instruments. Reduction in cost of IBRD finance has enhanced WB competitiveness.

Strong partnership behavior, e.g. in CAS Progress Report.

Some reassurance can be drawn from the fact that in the last two years, Egypt has been successful in implemented an ambitious reform program.

Low

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The Bank Group will continue to promote policy debate on reforms to keep the strong partnership with the Government.

Country Governance

Possible deficiencies in the institutional capacity to implement the reform program Voice and participation not too strong

Low In January 2007, the Government signed a fee-based technical assistance agreement aimed at reviewing options for improving governance, with a focus on: (i) systemic regulatory/red tape reform; (ii) review of Freedom of Information Act; and (iii) public offering of State-owned enterprises

Low

Systemic Corruption

The country ranks 105 (out of 180) on the Transparency International corruption perceptions index for 2007 (a net decline from its position in 2006: 70 out of 163). There is a risk that this perception can have a negative impact on new investment in particular and business environment in general.

Moderate Since late 2005, the Government has increased its focus on anti-corruption issues and has asked for Bank support to that effect. As cited above, the Government signed a fee-based technical assistance agreement aimed at reviewing options for improving governance, including fighting corruption. Egypt has been successful in receiving significant capital inflows (both FDI and portfolio investments), and the Government has been working towards improving business environment.

Bank program supports reform and capacity building in fiduciary systems, e.g. FM, procurement and PPP.

Low

II. Sector Governance, Policies and Institutions Sector Specific Risks This is the first CF transaction in Egypt in the Urban

Transport sector. Sector is known be fragmented in responsibility, with several duplication of efforts.

Substantial This carbon finance program is clearly led by Ministry of Finance in Egypt. In the advice of the Bank, MoF informed the CF National Designated Authority within Ministry of Environment and held in December 28, 2009, a public consultation workshop with the participation of the Ministry of Finance, participating commercial banks, participating car manufacture companies, and representatives of the Egyptian Environmental Affairs Agency.

Moderate

III. Operation-specific Risks Technical Design Being a Program of Activities (PoA), the program

could be complex to design and implement. Substantial Program is phased in a flexible way, giving

emphasis to first component, to taxi scrapping, which is well prepared and conceptualized. Subsequent components will be implemented at the pace that is suitable for Government’s

Moderate

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action/priority. Implementation Capacity and Sustainability

Ministry of Finance, which is the Project Coordinating Entity, does not have any prior experience with implementing carbon finance projects.

Substantial Bank and Carbon Finance team provides substantial hand-holding support in each step to a core team assignment for this program within MoF.

GoE expressed in several letters to the Bank its commitment to low carbon technology and sustainability of efforts beyond this CF program.

Moderate

Financial Management

This is a stand-alone CF program NA This is a stand-alone CF program NA

Procurement This is a stand-alone CF program NA This is a stand-alone CF program NA Social And Environmental Safeguards

Although the program is expected to result in major GHG ER and improvement in Cairo air quality, and several other socioeconomic benefits, as identified in the completed Framework Environmental and Social Assessment report (FESA), the program also involves potential adverse impacts during the construction and operation of a scrapping & recycling facility, related to the following (see FESA in InfShop for full details):

Handling and Disposal of Solid Waste at the Scrapping & Recycling Plant.

Handling and Disposal of Liquid Waste.

Air Emissions

Noise

Possible traffic congestion

Possibility of increasing noise levels

Possibility of injury on site

High The nature and significance of the environmental and social impacts expected to result from these aspects of the Program have been discussed and addresses in an integrated Framework Environmental and Social Assessment report (FESA), which was disclosed in December 29, 2009.

The overall objective of the FESA was to assess the impacts of the different proposed design elements of the Program, and to propose measures to enhance its environmental and social performance. The FESA (a) supplied relevant data concerning the environmental and social impacts of the Program, (b) assessed and compare the impacts taking into account the relevant national and international requirements and guidelines, (c) consulted the relevant stakeholders on such impacts and their management, (d) analyzed the program alternatives, and (e) provided EMP, incl a set of mitigation measures, monitoring plan, and institutional capacity program to manage each of the mentioned potential adverse the environmental and social impacts.

One important element of the study was to prescribe a series of conditions and good practices to be followed at the program level, which would further be elaborated for each specific project, for which an Environmental and Social Impact Assessment would be required,

Substantial

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once the specific arrangements for each component under this program were identified. The EMP will be implemented by the Ministry of Finance and monitored by the Ministry of Environment.

Egypt has a reasonably good legal and regulatory framework related to environmental and social protection, including requirements for environmental assessments and mitigation.

Program Validation Prior to submittal of program documents to the UNFCCC Executive Board for review, such documents must be validated by an independent third-party auditor accredited by the UNFCCC.

As of time of writing, such documents have been submitted to the DOE. The DOE has completed its review and issued a “PoA Findings Report” and a “CPA Findings Report”. These reports are precursors to the draft and final Validation Reports.

Moderate The Carbon Finance Unit had been working closely with the DOE before preparation of program documentation. This ensures prior agreement on the survey techniques and program design methods and avoids delays or substantial revisions in the long run. The Carbon Finance Unit maintains an open line of communication with the DOE, to ensure the validation process is on track.

Based on comments received to date from the DOE, it would seem that there is a strong likelihood that the program will be successfully validated.

Low

UNFCCC Registration

Upon validation, the Egypt Vehicle Scrapping and Recycling Program will be the first of its kind – the first transport PoA, and the first scrapping program – to start the process of registration under the UNFCCC CDM program. Given such a pioneer nature, there are uncertainties as to how the UNFCCC Executive Board will react.

Substantial The Carbon Finance Unit has prepared all of the program documents in-house to ensure high standard technical preparation of the documents and sufficient quality assurance and control. The CF Unit has also maintained consistent communication with the DOE, DNA and Program Coordinator to ensure full understanding and compliance with the UNFCCC requirements.

Moderate

IV. Overall Risk (including Reputational Risks) Overall Risk Moderate

Memo items:

a Rating of risks on a four-point scale – High, Substantial, Moderate, Low – according to the likelihood of occurrence and magnitude of potential adverse impact.

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Annex 7: Documents in the Project File

1 Coordinating Entity and PoA Participants Contact Information2 Public Funding

Prime Minister’s Decree Number 470 for the Year 2009 Regarding Organizing the Fund for Financing Purchase of Transport Vehicles – Arabic (Final) and English (DRAFT) Prime Minister’s Decree Number 471 for the Year 2009 Regarding Regulation of Providing Financial Incentives for the Buyers of Transport Vehicles Replacing Trailer Trucks, Taxi Vehicles and Mass Transport Vehicles – Arabic (Final) and English (DRAFT)Decree Number 1 for the Year 2009 -- issued by the Head of the Board of Directors of The Fund for Financing Purchase of Transport Vehicles (regarding management of non-operational old vehicles)

3 Baseline Model for Ex-Ante Baseline Estimation for 11 Greater Cairo Region Taxi CPAs Ex-Ante Estimated Vehicle Replacement Schedule for 11 Greater Cairo Region Taxi CPAs

4 Monitoring Plan Monitoring Plan Baseline and Project Monitoring Survey (English)

5 PoA Protocol (Original signed version and English translation)6 Documentation of Prior Consideration of Carbon Finance7 Sample Daily Monitoring Report and Registered Vehicle Database Screenshot8 Vehicle Owner QA/QC Survey -- Arabic (Final) and English (DRAFT)9 Summary of Vehicle Owner QA/QC Survey Complaints and Corresponding Bank -- Arabic (Final) and English

(DRAFT – complaints only)10 Complaint Hotline Number Public Notice11 Processing and Storage Site Driver Documentation12 Program Overview Q&A Prepared by the MoF – Arabic (Final) and English (DRAFT)13 Traffic Law #121 14 Select Newspaper Articles and Advertisements about the PoA15 Original Vehicle Data Received from the Ministry of Interior (Arabic) and Analysis (English)16 Baseline Survey Reports (September 2009 and December 2009)17 Vehicle Owner CER Rights Waiver18 Stakeholder Meeting Documentation

Attendance sign-in sheet and agreement (original Arabic and English translation) Stakeholder consultation agenda Meeting minutes Stakeholder consultation letters of invitation

19 FESA Documentation20 Recycling Facility Public Tender (original and English translation)21 IBRD Documentation

Project Idea Note (ENVCF) QAT Project Idea Note Review (ENVCF) Letter of Intent (ENVCF)

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Draft ERPA (ENVCF) Project Concept Note (MENA) ISDS (MENA) PID (MENA) Risk Identification Worksheet (MENA)

22 UNFCCC Process Documentation UNFCCC Form for Early Consideration of CDM PoA-DD CPA-DD Template CPA-DD Filled-in for First CPA PoA Preliminary Findings Report PoA Validation Findings Report CPA Validation Findings Report PoA Draft Validation Report (DVR) Modalities of Communications Form (signed by all parties)

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Annex 8: Program Participating IBRD Staff

Ahmed Eiweida Task Team Leader, Lead Urban SpecialistHolly Krambeck Deal Manager, Carbon Finance SpecialistHarikumar Gadde Methodology SpecialistHocine Chala Regional Safeguards AdvisorMaged HamedKnut Opsal

Senior Environmental SpecialistSenior Social Specialist

Ahmed Mostafa Carbon Finance Regional CoordinatorGael Gregoire MENA CF CoordinatorMaya Karam Monica Teresa Restrepo

Counsel, LEGCFCounsel, LEGCF

Eduardo Dopazo Spanish Carbon Fund ManagerSidney Nakahodo Spanish Carbon Fund AnalystMartina Bosi Danish Carbon Fund ManagerMegan Meyers Danish Carbon Fund AnalystRama Reddy Methodology Team LeaderClaudia Barrera Methodology Specialist Laila Kotb Country Office Program Assistant

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