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									                   INTEGRATED SAFEGUARDS DATASHEET
                           APPRAISAL STAGE

I. Basic Information
Date prepared/updated: 04/12/2007                                   Report No.: AC2820
1. Basic Project Data
Country: Bhutan                               Project ID: P073458
Project Name: Bhutan Private Sector Development
Task Team Leader: Asya Akhlaque
Estimated Appraisal Date: April 2, 2007       Estimated Board Date: June 21, 2007
Managing Unit: SASFP                          Lending Instrument: Specific Investment
Sector: General industry and trade sector (70%);Information technology (15%);Other
industry (10%);Payment systems, securities clearance and settlement (5%)
Theme: Infrastructure services for private sector development (P)
IBRD Amount (US$m.):             0.00
IDA Amount (US$m.):              8.00
GEF Amount (US$m.):              0.00
PCF Amount (US$m.):              0.00
Other financing amounts by source:
         BORROWER/RECIPIENT                                             0.00
Environmental Category: B - Partial Assessment
Simplified Processing                         Simple []           Repeater []
Is this project processed under OP 8.50 (Emergency Recovery)       Yes [ ]     No [X]

2. Project Objectives
The objective of the project is to increase productive employment opportunities in Bhutan
through promotion of enterprise development in the IT and IT enabled-services (ITES)
sector, enhanced IT skills, and improved access to finance. The project shall pursue these
objectives by supporting interventions in three complementary areas:

  (i)   establishing an IT Park;
  (ii) development of a three-tiered skills program for promoting the IT/ITES industry;
  (iii) strengthening and modernizing the financial sector through deployment of

 Suggested key performance indicators include:
 -     increased job creation in the IT/ITES sector supported by the project, and
elsewhere in Bhutan;
 -     increased number of IT skilled workforce in Bhutan;
 -     Number and value of financial transactions by using ATMs; and
 -     Volume of fund transfer transactions among banks channeled through the EFT
3. Project Description
The project has two components: (i) development of IT/ITES sector by establishing an IT
Park and related infrastructure, developing IT skills, and IT promotion services; and (ii)
strengthening the financial sector through IT investments.

 Component 1: Development of IT/ITES Sector (US$5.0 million)

 This component focuses on the development the IT/ITES sector in Bhutan, using an
integrated approach that includes (i) provision of infrastructure, and (ii) IT promotion.
The two complementary and mutually reinforcing sub-components shall be structured
and financed as follows:

 (i) Infrastructure - Establishment of the IT Park
 This sub-component shall help set up an IT Park close to Thimphu that has been
recommended by the IT Park Feasibility study as an ideal location in view of being the
administrative capital of the country, the largest city and with existing demand for IT
services. The Park shall have four elements: (a) plug and play office infrastructure for
IT/BPO companies; (b) shared technology center; (c) incubation center; and (d) space for
data center.

  Business model for the IT Park: The business model being adopted involves helping
RGoB attract private sector investments into the development of the IT Park.
Involvement of the private investors is considered a better option for attracting IT/BPO
firms to Bhutan as the private sector is expected to bring in greater speed and efficiency
in designing, constructing and managing the Park to suit requirements of IT/BPO
companies, and is more likely to be active in marketing the Park to prospective tenants.

  Given the nascent stage of Bhutan IT industry and the challenges and constraints in
attracting IT firms to locate in Bhutan, the RGoB will share some of the investment risks
by (i) making land available for the Park as an equity contribution from the government,
with the equity amount being determined through a competitive bidding process; (ii)
investing in ancillary infrastructure for the Park e.g. roads, power, water/sewage etc.; and
(iii) ensuring a fixed annual revenue stream for the private sector for a period of 5 years
with government agreeing to lease in about 10,000 SFT of space in the Park. The lease
amount shall not exceed US$2 million. The proposed business model for the IT Park
would be incorporated into an RFP for launching the bidding process.

 The leased shell space from the Park would be used by RGoB for the purposes
mentioned above i.e. establishing an incubation facility, a shared technology center and a
data center. The RGoB will invest in developing a shared technology center and
incubation centre with investment of about US$1 million and US$330,000 respectively.
The investment may be in the shape of software testing tools and/or a render farm. The
exact nature of the investment in technology infrastructure will be determined in
consultation with the Park developer and other stakeholders.
 The construction cost for IT Parks in India is estimated at about $30 to $35 per SFT.
Assuming the most pessimistic scenario, the construction cost in Bhutan should not
exceed $80 per SFT. With the provision of $2 million under the project for the IT Park, it
should be possible for a private sector developer to build 25,000 SFT without undertaking
any significant risk. RGoB will be leasing-in 10,000 SFT from the IT Park for 5 years.
The remaining 15,000 SFT will necessarily have to be leased/sold to IT/ITES companies
by the developer. This in itself should constitute a strong motivation for getting
companies to locate in the Park. In the more optimistic scenario, the private sector would
invest in the vicinity of $5 million and would be able to attract global players to set up
operations within the Park.

 Ancillary infrastructure: In addition, the RGoB shall invest in providing ancillary
infrastructure like water, sewerage, power from alternative feeders and high speed
connectivity. The connectivity proposed for the Park would have to include both fiber
optic and VSAT so as to provide redundancy. Moreover, the proposed data center in the
IT Park would need to be connected with the Government Wide Area Network (WAN),
while the shared technology center would be connected to the RUB WAN to allow wider
use of the facility.

 (ii) IT Promotion
 For the successful design and implementation of the project, coordination with different
government agencies and with the private sector is a key imperative. Under the Bhutan
Information, Communications and Media Act 2006, the MoIC as the lead ministry is
empowered to direct, coordinate, encourage, advise and support ICT development in the
country. An IT promotion unit within the MoIC for coordinating on the IT Park project
and also for carrying out market intelligence and initiating contacts with potential
investors would be established. This sub-component shall support the costs of
consultancy support, staff training and travel, and IT infrastructure and applications for
the agency.

 This agency would initially be an extremely lean organization that can use consultants,
academic institutions, private sector personnel and government resources to aggressively
reach out to IT investors and present Bhutans value proposition. For managing the
immediate task of coordination and IT promotion for setting up the IT Park, the functions
shall be assumed by the senior functionary of MoIC.

 Component 2: Development of IT Skills Program (US$2.0 million)

 Availability of a stream of trained IT manpower is a pre-requisite for the success and
sustainability of the IT Park in Bhutan. This component shall focus on development of
skills, through collaboration with international institutions, at the following three levels
(a) Generic Skills for the IT/ITES Sector; (b) Distance learning facilities/CMS for IT
Skills development; and (c) IT Entrepreneurship Development Program.

 Generic Skills for IT enabled services: This level of program would focus on improving
skills required for IT enabled services including English language i.e. listening and
speaking - analytical ability, mathematical ability, computer skills and inter-personal
skills. The project would support the following activities: introduction and
implementation of an assessment of competency test that would entail assessing
candidates on key IT skills through a standard assessment, thus making it easier for firms
to screen candidates and also provide training need analysis to candidates; training of
teachers in institutions under Royal University of Bhutan (RUB); introduction of
remedial training for students in government/private institutions; and conducting Just-in-
Time (JIT) training for potential candidates for employment with identified investors.

 Development of skilled IT Professionals through Distance learning facilities/CMS: To
help develop skilled IT professionals in Bhutan, this sub-component would support (a)
setting up of distance learning infrastructure in institutions imparting higher-level
IT/ITES skills training; and (b) the adoption of Course Management Systems (CMSs) to
facilitate a better learning environment for students.

 Distance learning infrastructure: IT programs are currently being conducted in RIM and
in Sherubtse College. Introduction of engineering courses in IT at the College of Science
and Technology in Phuentsholing are also underway. In addition to these courses, the
Samtse College of Education offers a Distance Teacher Education Program which would
be used to develop competencies in generic skills for the IT/ITES sector. The College
will also be offering Post Graduate Diploma in School Guidance and Counseling through
distance mode towards the latter part of 2007. This sub-component would finance
videoconferencing (VC) facilities for facilitating distance learning initiatives in IT skills
being imparted at the above four institutions, under the RUB.

 Course Management Software: Recent trends in higher education are veering towards a
hybrid approach of complementing face-to-face teaching with on-line learning. This has
meant that the use of Course Management Systems (CMSs) is becoming critical for
posting course content, assessment and course discussion. RUB is keen to develop in-
house competencies for using CMS solutions. However course management systems are
still maturing as a market. A careful review of the market products, as well as their match
with own strategies of RUB, will therefore be necessary. A number of open source and
commercial CMS software are currently available. Open source solutions like Moodle
and Sakai are becoming increasingly popular, while many institutions are adopting
homegrown solutions around tools such as Microsoft SharePoint and Xythos. In view of
the fact that use of CMS would provide a richer learning environment for students and
would allow linking up with resources like MIT Open courseware this component shall
be included under the current Project.

 An IT entrepreneurship development program would be conducted under the project in
collaboration with a leading business school. The program will aim at helping potential
entrepreneurs to work on their own business ideas and ventures, and concretize their
plans to become real world entrepreneurs. The program would have a short academic
component combined followed by a corporate attachment module. The academic module
would focus, among other things, on areas such as identification and evaluation of
opportunities for new ventures; concept analysis and business plan development;
establishing and managing an IT business; and live case studies with successful IT
entrepreneurs. The Corporate attachment would involve embedding each student with
one of the leading IT companies most relevant to their future business, so that they gain
an understanding of how business is managed in real life, and also develop networks for
helping them once they get started on their own. An attachment could also be arranged
with a reputed venture capital firm to get a better understanding of how to access capital.
The total program duration would be for about a year and could rotate between the
business school and the attachment modules, so that candidates can be properly equipped
to venture on their own.

 Component 3: Strengthening and Modernizing the Financial Sector through Deployment
of Technology (USD1.0 million)

 A strong financial sector is critical for the growth of private sector in Bhutan. This
second component of the PSD Project supports strengthening of financial sector through
the use of IT. The two components of the project i.e. the development of the IT/ITES
sector and the IT development in the financial sector have complimentary linkages in
both IT and financial industries. The development and application of IT for private sector
development and financial sector strengthening is the common link between the two
components. While the first component aims to support government efforts to develop
IT/ITES industries to generate income and employment in the private sector; the second
component reinforces these efforts through improved access to finance for PSD growth.
The two components also offer strong synergies: shared IT infrastructure such as data
centers in IT Park, coupled with the improvement of IT human skills and connectivity,
can further enhance financial IT development, and vice versa.

 The aim of this component is to achieve greater efficiency in the financial sector,
through gradual growth of IT use, thereby leading to better financial services for the
private sector, bank customers and the government. This component comprises the
following three main activities:
 (i)    IT system up-gradation in the Bank of Bhutan (BOB);
 (ii) developing a Financial sector IT development strategic plan for 5 years; and
 (iii) establishing the Inter-bank Electronic Fund Transfer Clearing System (EFTCS) at

 (i) Modernization of Bank of Bhutan through IT system upgrade (US$200K)

 Notably unbalanced IT development exists between BNB and BOB, which has been
hampering the development of nationwide financial IT infrastructures including inter-
bank electronic funding transfer system. All the operation and financial transactions in
BOB are currently being carried out manually, which is time-consuming and contributes
additional costs to BOB. This underdeveloped IT system in BOB, further leads to
operational inefficiency in the banking sector, which in turn has been impeding the
private sector growth in Bhutan.
  As the nationwide financial IT infrastructure cannot be efficiently built up without
enhancing the level of IT system in BOB, the project places its priority to support IT
system upgrade in BOB in a way to enable BOB to accommodate the newly designed
inter-bank Electronic Fund Transfer Clearing System, and at the same time, to streamline
its operational procedures and data flow within and among the branches. Details of IT
system upgrade and capacity building will be guided by a bilateral complimentary TA
provided by the IFC/SEDF on a cost-sharing basis.

 (ii) TA: Developing Financial sector IT development strategic plan (US$50K)
 Given the rapid changes and growth in the financial and IT industry, IT development in
the financial sector needs to be carried out from the inception stage in a more holistic way
and an innovative manner. Among other things, it involves development of a concrete
strategy, regulatory & legal framework and institutional arrangements, coupled with a
detailed technical implementation plan for financial IT infrastructure.

  This sub-component shall support the formulation of a Financial sector IT development
strategic plan (the PLAN) with the main focus on the development of an electronic retail
payment system in Bhutan. The PLAN shall comprise of two elements: (i) policy
framework for the electronic financial transactions; and (ii) technical framework for
development of e-payment system.

  In terms of the policy framework, the PLAN will set out a comprehensive and detailed
IT development strategy with a clear vision, and spell out all necessary legal, regulatory
and institutional arrangements for the electronic financial transactions. Technical
framework will cover the assessment of the current payment system and financial IT
system at both national and institutional level, which will be accompanied by the detailed
EFTCS development plan and recommendation on the expansion of e-payment
instruments for commercial banks with a year-wise implementation action plan spanning
over 5 years. This sub-component shall be carried out in collaboration with IFC/SEDF,
which will also provide resources for technical assistance.

  (iii) Establishing an Inter-bank Electronic Fund Transfer Clearing System (US$750K)
  Payment system in Bhutan is still heavily dependant on cash and the paper-based
instruments, of which transactions must be followed by the physical movement from
region to region. In order to support private sector growth by expanding the e-payment
services in Bhutan, this component will support the establishment of the inter-bank
Electronic Fund Transfer Clearing System (EFTCS) within the RMA. Given the current
rudimentary stage of e-payment system in Bhutan, EFTCS will be developed in different
phases guided by the Financial sector IT development strategic plan (the PLAN). It will
first start from the basic EFTCS with key features within the IDA budget allocation
coupled with counter funding from participants, then moving on to a highly developed e-
payment system with more advanced IT applications in the future. The details of
development EFTCS will be spelled out in the PLAN.

 EFTCS will process high-volume and low-value financial transactions occurring in
participating commercial banks at a low cost. In this scheme, participating banks will
electronically submit its payments instruments to EFTCS installed in RMA and inter-
bank clearing and settlement will be carried out on the basis of electronic data and files.
Settlements will be made at the end of each clearing and settlement cycle through the
posting of net balances into a single settlement account of each participating bank held in

4. Project Location and salient physical characteristics relevant to the safeguard
The IT Park will be established on the 5 acre land located in Wangchutbata on the
outskirts of Thimphu, of which 4 acres were owned by the Ministry of Agriculture and 1
acre by the Thimphu City Corporation. The land has been transferred to the Ministry of
Information and Communication. The results of the environmental and social screening
indicate that it is stable, has a gentle slope (10-15 degrees) and shows no signs of scars or
erosion. The construction of the IT Park will require no acquisition of privately owned
land or displacement of people.

5. Environmental and Social Safeguards Specialists
   Ms Zarafshan H. Khawaja (SASES)
   Mr Malcolm A. B. Jansen (SASES)

6. Safeguard Policies Triggered                               Yes          No
Environmental Assessment (OP/BP 4.01)                          X
Natural Habitats (OP/BP 4.04)                                              X
Forests (OP/BP 4.36)                                                       X
Pest Management (OP 4.09)                                                  X
Physical Cultural Resources (OP/BP 4.11)                                   X
Indigenous Peoples (OP/BP 4.10)                                            X
Involuntary Resettlement (OP/BP 4.12)                                      X
Safety of Dams (OP/BP 4.37)                                                X
Projects on International Waterways (OP/BP 7.50)                           X
Projects in Disputed Areas (OP/BP 7.60)                                    X

II. Key Safeguard Policy Issues and Their Management
A. Summary of Key Safeguard Issues
1. Describe any safeguard issues and impacts associated with the proposed project.
Identify and describe any potential large scale, significant and/or irreversible impacts:
Environmental safeguard

 The establishment of the Project IT Park poses limited potential adverse environmental
impacts during the construction and operational phases. An initial environmental
screening of the proposed IT site suggests that the land identified for this purpose in
Thimpu is stable and has a gentle slope (10-15 degrees) and shows no signs of scars or
erosion. The Environmental Screening of the site was based on a simple questionnaire
that attempted to identify specific characteristics of the proposed site for the IT Park and
any specific environmental issues that need to be considered in the construction and
operation of the IT Park. The Environmental Screening recognizes that the potential
environmental impacts during the construction and operation of the IT Park would be
small, very localized and could be easily managed with proper design of buildings and
facilities as well as the provision of proper environmental services during the operation of
the facility. In addition, the Environmental Screening indicated that the IT Park has direct
road and electricity access that would pose no additional environmental concerns as there
would be no necessity for additional land to provide road and electricity access to the site.
Water supply to the IT Park is available 4kms away and would also not need any
additional acquisition of land as it is expected that water would be conveyed to the site by
underground pipes.

 An EA will be undertaken and an Environmental Management Plan (EMP) will be
developed once the Private IT developer has been identified. The EMP for the IT park
and associated infrastructure will incorporate design and operation of solid and liquid
waste disposal facilities, drainage and erosion control measures, and other mitigation
measures for other environmental concerns that might be identified during the
preparation of the EA. The preparation of the EA and EMP will be guided by the existing
RGoB policies and procedures as outlined in the EA Act of Bhutan, 2000 and its
Regulations that require all projects to obtain environmental clearances, before their
commencement. The Bank has confirmed equivalence of Bhutan EA policies and
procedures. The private sector developer will be responsible for implementation of the
EMP, the conditions of which will be inscribed as part of its contractual obligations to

 Social Safeguard

  To more precisely assess the nature and magnitude of potential social impacts RGoB
has carried out a social screening of the final site selected for the location of the IT Park.
The 5 acre site located in Wangchutbata on the outskirts of Thimphu is public land of
which 4 acres is owned by the Ministry of Agriculture (MoA) and 1 acre by the Thimphu
City Corporation (TCC). This land will be transferred to the Ministry of Information and
Communication prior to the appraisal of the project. The results of the social screening
indicate that no acquisition of privately owned land or displacement of people is expected
under the project, including any land for access roads or ancillary infrastructure. The site
selected will be serviced by existing roads. In addition, the social screening also
indicates that the land designated as commercial by TCC is free of any structures,
livelihood support activities or religious or cultural structures. OP 4.12 on Involuntary
Resettlement and OP 4.10 on Indigenous Peoples are not triggered by the project.

2. Describe any potential indirect and/or long term impacts due to anticipated future
activities in the project area:

3. Describe any project alternatives (if relevant) considered to help avoid or minimize
adverse impacts.
4. Describe measures taken by the borrower to address safeguard policy issues. Provide
an assessment of borrower capacity to plan and implement the measures described.
The Environmental Assessment (EA) Act of Bhutan 2000 establishes procedures for the
assessment of potential effects of strategic plans, policies, programs, and projects on the
environment. It also stipulates the process for the determination of measures to reduce
potential adverse effects and to promote environmental benefits. According to the EA
Act, an Environmental Clearance (EC) shall be a prerequisite for the issuance of a
Development Consent (DC) from a Competent Authority or National Environment
Commission (NEC). In addition, RGoB is required to ensure that environmental
concerns are fully taken into account when formulating, renewing, modifying and
implementing any policy or program as per regulations that may be adopted within the
appropriate provision of the Act. The Act outlines: the information required to be
publicly disclosed in the EA during and after the EA process; the functions and powers of
agencies charged with implementing the EA; monitoring and control of offenses and
penalties; and appeals and dispute resolution procedures under the Act.

  The existing EA clearance process, which is centralized under NEC Secretariat (NECS),
is increasingly robust and efficient since the enactment of the Environmental Assessment
Act (EAA) in 2000 and in particular, since the issuance of the Regulation for the
Environmental Clearance of Projects (RECP) in 2002 clarifying NECS roles and
responsibilities for EA review and clearance. NECS, which has a number of qualified
environmental specialists for each major sector, has been able to carry out its internal
screening and review processes generally within the time frames set forth in the RECP.
Based on a review of previous Bank and RGoB funded projects, NEC has effectively met
its regulatory responsibilities with respect to the procedural and substantive requirements
of the EAA and the RECP including the requirements for public consultation as part of
the EA process.

5. Identify the key stakeholders and describe the mechanisms for consultation and
disclosure on safeguard policies, with an emphasis on potentially affected people.
- Ministry of Information and Communication

 Given the short period of time since its establishment in July 2003, MoIC, the key
ministry of IT Park development, seems to have relatively limited capacity for addressing
safeguard policies. However, until capacity is developed within MoIC, it is anticipated
that NEC will provide technical support to MoIC to undertake the Environmental
Screening, EA and other related activities.

B. Disclosure Requirements Date
Environmental Assessment/Audit/Management Plan/Other:
 Date of receipt by the Bank                          01/31/2007
 Date of "in-country" disclosure                      02/15/2007
 Date of submission to InfoShop                       04/12/2007
  For category A projects, date of distributing the Executive
  Summary of the EA to the Executive Directors
* If the project triggers the Pest Management and/or Physical Cultural Resources,
the respective issues are to be addressed and disclosed as part of the Environmental
Assessment/Audit/or EMP.
If in-country disclosure of any of the above documents is not expected, please
explain why:

C. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the
ISDS is finalized by the project decision meeting)

OP/BP/GP 4.01 - Environment Assessment
Does the project require a stand-alone EA (including EMP) report?              No
If yes, then did the Regional Environment Unit or Sector Manager (SM)          N/A
review and approve the EA report?
Are the cost and the accountabilities for the EMP incorporated in the          N/A
The World Bank Policy on Disclosure of Information
Have relevant safeguard policies documents been sent to the World Bank's       N/A
Have relevant documents been disclosed in-country in a public place in a       N/A
form and language that are understandable and accessible to project-affected
groups and local NGOs?
All Safeguard Policies
Have satisfactory calendar, budget and clear institutional responsibilities    N/A
been prepared for the implementation of measures related to safeguard
Have costs related to safeguard policy measures been included in the project   N/A
Does the Monitoring and Evaluation system of the project include the           N/A
monitoring of safeguard impacts and measures related to safeguard policies?
Have satisfactory implementation arrangements been agreed with the             N/A
borrower and the same been adequately reflected in the project legal
  D. Approvals

Signed and submitted by:                             Name                           Date
Task Team Leader:                   Ms Asya Akhlaque                             03/26/2007
Environmental Specialist:           Mr Malcolm A. B. Jansen
Social Development Specialist       Ms Zarafshan H. Khawaja
Additional Environmental and/or
Social Development Specialist(s):

Approved by:
Regional Safeguards Coordinator:    Mr Frederick Edmund Brusberg                  04/11/2007
  Comments: Cleared and transferred to SASFP for safeguards management oversight.
Sector Manager:                     Mr Simon C. Bell                              04/10/2007
  Comments: APPROVED by me.

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