Report No. PID9676
Project Name             ZAMBIA-Copperbelt Environment (@)
Region                   Africa Regional Office
Sector                   Mining and other extractive (100%-)
Project ID               P070962
Borrower(s)              GOVERNMENT REPUBLIC OF ZAMBIA
Implementing Agency
Address ZCCM - INVESTMENTS HOLDINGS
PLC (ZCCM-IH)
Address:
ZCCM - Investments Holdings Plc
(ZCCM-IH)
Mukuba Pension House
5309 Dedan Kimathi Road
PO Box 30048
Lusaka 10101, Zambia
Contact Person: Joseph Makumba
Tel: 260-2-245054
Fax: 260-2-245363
Email: makumbaj@zccm-ih.com.zm
Environmental Council of Zambia (ECZ)
Address: Suez Road, PO Box 35131
Lusaka, Zambia
Contact Person: James Phiri
Tel: 260 1 254130
Fax: 260 1 223123
Email: jsphiri@zamnet.zm
Environment Category     A
Date PID Prepared        November 5, 2002
Auth Appr/Negs Date      March 7, 2002
Bank Approval Date       December 3, 2002
1. Country and Sector Background
The Copper Industry in Zambia and its Privatization
Copper mining has been a significant economic activity in Zambia since the
development of the first copper mines in late 1920's. By the time Zambia
gained independence in 1964, copper mining was the backbone of the
country's economy and a powerful force in shaping the Copperbelt Province
where the mines are concentrated. Copper mining and processing of copper
led to the establishment of urban centers that drew workers from rural
areas with a promise of jobs and access to infrastructure, housing and a
range of social services. Throughout the 1970's and 1980's, the copper
industry was the second largest employer after the Government, and
generated about 85 percent of foreign exchange earnings, 30 percent of
Government revenues and 15 percent of GDP.
The Government of Zambia gained control of the copper mines in 1973. In
1982, it created the state-owned Zambia Consolidated Copper Mines (ZCCM).
At about that time, the commodity boom ended and copper prices started



falling. Concurrently, external borrowing became more difficult and the
proportion of the resources being generated by the copper industry going
to the Government's budget increased. This was largely done at the
expense of reinvestment in the copper industry itself. The lack of
reinvestment led to declines in productivity and frequent production
problems. It ultimately compromised ZCCM's financial sustainability.
Lacking the resources to revitalize the copper industry, the Government
decided in 1995 to initiate a process to privatize ZCCM assets. It was
envisioned that privatization would increase the efficiency of the copper
industry, attract foreign investment to Zambia and thus boost the
development of the private sector. The mining and other operating assets
of ZCCM were sold to private investors. ZCCM was transformed into an
investment holding company, ZCCM-IH, which became a minority shareholder
with a 10-20 percent share in the newly privatized mining, processing and
power companies in the Copperbelt. Privatization was essentially
completed in March 2000 with the conclusion of deals with: i) Konkola
Copper Mines (KCM), involving Anglo American, the International Finance
Corporation (IFC), and the Commonwealth Development Corporation (CDC), and
ii) Mopani Copper Mines (MCM), involving Glencore International and First
Quantum.
ZCCM's privatization was expected to mark a turning point in Zambia's
economic reform, providing the basis for improved environmental
management, economic stability and growth. However, these improvements
may be compromised by Anglo American's decision in January, 2002 to
withdraw financing from the Zambian copper industries, specifically from
KCM and the Konkola Deep Mining Project (KDMP). Without investment in
KDMP, the life of the mining industry will end within the next 10 years.
KCM shareholders are currently considering all available options,
including the sale, transfer of the assets on a going concern basis, or
closure in a socially and environmentally responsible manner.
Environmental Issues Arising from Mining Activities
Prior to 1980, little attention was paid to the environmental impacts of
mining activities in Zambia. Pollution and environmental degradation, and
their impact on public health and ecosystem functions, were considered to
be an acceptable trade-off given the economic benefits and jobs provided
by mining. This changed, starting from the mid 1970s, as civil society
and governments became increasingly aware of the need to mitigate the
long-term environmental impacts of industrial activities, to maintain
quality of life. However, the poor economic performance of the mining
sector in Zambia in the 1980's and 1990's led to an increasingly
inadequate handling of environmental issues arising from mining
activities. As a result, a massive "environmental mortgage" accrued that
needed to be addressed once the decision was taken to privatize mining
assets (see Annexes 13 and 15 for further details).
The main environmental issues related to mining in the Copperbelt and in
Kabwe are:
Air Pollution. The major environmental issue on the Copperbelt is air
pollution. The copper smelters emit 300,000 to 700,000 tons per year of
sulfur dioxide (S02) into the air. S02 can severely affect the health of
neighboring populations (especially respiratory problems). Refurbishment
of the Nkana smelter has not yet occurred and emissions remain at high
levels. The Mufulira smelter is not currently equipped to capture any of
its S02 emissions.
Soil Contamination. S02 emissions from the smelter convert to HS04
(sulfuric acid) and then impact soils and cause loss of vegetation
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downwind of the smelter stack emissions. Dust particles containing
copper, nitrous oxides and organic acids may also be in the emissions
which may enter streams and affect aquatic fauna. Further soil
contamination from mining operations, chemical and oil spills has also
occurred. Soil from sites contaminated by oil laced with PCBs, by
redundant chemicals or other hazardous waste (including radioactive waste
and asbestos) must be properly removed and disposed of.
Water pollution. Runoff and leakage from existing waste rock dumps and
tailings dams pollute streams flowing out of the mining licenses, causing
widespread negative impacts downstream from the mines that extend as far
as the Kafue River and affect wetlands and tributaries.     The pollution
has an impact on human health and ecological functions that is not fully
determined. Lower water quality leads to increased water treatment
costs. The pollution from the waste rock dumps and the tailings needs to
be contained and the sites rehabilitated.
Catastrophic failure of tailing dams. Some tailing dams are close to
human habitation and failure could cause extensive physical damage,
ecological damage and even loss of life. Dams need to be stabilized and
rehabilitated.
Privatization impacts on environment. Preparing ZCCM for privatization
required a reduction of its work force. This contributed to increased
unemployment in the Copperbelt, which in turn placed a greater burden on
the local environment. Scavenging for timber, fuelwood, metal and
construction materials has increased, leading to habitat destruction.
Such vandalism is compromising the integrity of tailing dams and other
structures and can result in more serious environmental damage, including
the failure of dams.
Lead contamination. In addition to copper mining issues on the
Copperbelt, ZCCM-IH has serious liabilities related to lead zinc mining in
Kabwe. It is estimated tens of thousands of residents (including 9,000
children) may be affected by high lead levels in the soil, both from
naturally occurring mineralization and the impact of the smelting and
mining operations. Lead contamination is particular concerning for young
children as it affects mental development and can cause serious health
problems, including death in serious cases.
According to MENR (1995), the main environmental problems on the
Copperbelt are deforestation, soil acidity, pollution, land dereliction,
poor urban sanitation, unplanned urban development and noxious weeds
arising from eutrophication of waterways by sewage effluent. The impact
of pollution from mining activities is compounded by the fact that nearly
ninety per cent of the population on the Copperbelt is urban. This has
resulted in concentrated demand for natural resources, such as water,
energy and food. Competing demands for water by industry and households
is already constraining the sustainable use of water resources. Mining
and other industrial activities have generated air, water and land
pollution. Over dependence on charcoal fuel by urban households has been
the main cause of deforestation on the Copperbelt.
Environmental Liabilities following Privatization
At the time of the privatization, ZCCM was burdened with a huge
"environmental mortgage" accrued over 70 years of mining operations, which
it could not address because it lacked the necessary resources.
Nonetheless, ZCCM set up an Environmental Services Group in 1993,
following a preliminary review of its environmental liabilities. In
1996-1997, it retained the services of Steffen, Robertson and Kirsten
(SRK) to prepare Environmental Impact Statements (EIS) for each of its
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twelve Mining License Areas (MLAs), to meet the health and safety
requirements for the renewal of mining licenses. These EISs provided an
environmental baseline during privatization negotiations, but they were
never intended to provide a comprehensive overview of the environmental
and social impacts of mining in the Copperbelt.
Not surprisingly, the appropriate handling of environmental liabilities
was a key issue during the negotiations, most particularly in the case of
KCM. In hindsight, the KCM deal was the driving force that shaped the
debate regarding the handling of environmental liabilities following
privatization, in the following manner. Given the extent and seriousness
of environmental and public health impacts documented in the EISs, the KCM
Consortium was unwilling to accept any legal responsibility for historical
environmental liabilities, most notably downstream impacts on populations
and ecosystem functions. As a consequence, GRZ and ZCCM-IH agreed to
retain the historical liabilities associated with assets purchased by KCM,
and to implement adequate mitigation measures to address them.     Most
importantly, GRZ and ZCCM-IH remain responsible for potential future third
party liability claims arising from past environmental damage. In
addition, ZCCM-IH retained all liabilities for defunct assets excluded
from the KCM purchase. Lastly, KCM obtained from GRZ a 15 year period of
stability during which regulatory dispositions cannot be modified.
IFC's involvement created the obligation for KCM to meet IFC's
environmental management guidelines. In response, KCM prepared a pair of
Interim Environmental Management Plans (IEMP), one each for KCM and
ZCCM-IH. These IEMPs identified the actions to bring mining and
processing into compliance with applicable standards. Most importantly,
the IEMP for ZCCM-IH created the obligation for ZCCM-IH to urgently
address a list of issues, including: i) the rehabilitation of the Nkana
smelter, ii) the demolition of the high-grade leach plant in Nchanga,
iii) the clean up of the sites acquired by KCM, iv) the preparation of a
final EMP. Moreover, ZCCM-IH had before privatization agreed to resettle
affected populations in anticipation of the Konkola Deep Mine Project.
The longer term environmental liabilities not addressed by these IEMPs
will be tackled in the final Environmental Management Plans (EMPs), one
each for KCM and ZCCM-IH. KCM's final EMP was completed in the second
quarter of 2001 and approved by the Environmental Council of Zambia
(Zambia's environmental protection agency) in August 2001. The final EMP
for ZCCM-IH is under preparation with funding provided by a PHRD grant.
Similarly to the IEMPs, the pair of final EMPs must be complementary
documents that clarify the division of responsibility for addressing
environmental liabilities between KCM and ZCCM-IH.
The usual practice with EMPs is that they indicate how an investor will
comply with established environmental standards. In the case of the KCM
privatization, there is a strong presumption by the investor that
environmental concessions regarding the applicability of regulatory
dispositions were made at the time of privatization and that these
concessions are now confirmed in their EMP. KCM assumes it is protected
from lawsuits if pollution levels of ongoing mining operations remain
within the targets set in the EMP, even if its mining operations exceed
national standards. Since the statutes establishing these standards
remain in effect, the consequence of these concessions is to transfer part
of the liability for future pollution flows back to ZCCM-IH or to GRZ. It
is thus critical for ZCCM-IH and GRZ to limit the nature and the extent of
the concessions sought by KCM in its EMP.
The KCM privatization set a precedent for handling environmental and
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social issues that has now been transposed to the other privatization
deals. Each investment group (there are currently nine, including KCM) is
expected to prepare an EMP to address its environmental liabilities and
obligations. In counterpart, ZCCM-IH will prepare an EMP indicating how
it will address the liabilities excluded by the investor. Suitable
investor and counterpart EMPs will be prepared for each investment
package, ensuring that all environmental issues are addressed and that the
division of responsibilities between the investor and ZCCM-IH is clearly
defined. Furthermore, the investor and counterpart EMPs will be based on
consultations between each investor and ZCCM-IH, and will be reviewed and
approved by the relevant regulatory bodies.
The set of Investor and Counterpart EMPs will provide a good basis for
addressing environmental issues at the mining sites. However, they will
not provide an adequate understanding of the impact of mining activities
on public health and ecosystem functions downstream from mining
operations, or provide an adequate basis for setting mitigation
priorities. This will require additional work beyond the scope of the
site specific Investor and Counterpart EMPs, or the original Environmental
Impact Statements for MLAs that provided the original baseline.
Regulatory Framework for Environmental Management in the Mining Sector
The extent of the environmental liabilities and obligations incumbent on
investors and ZCCM-IH/GRZ is determined by the Environmental Protection
and Pollution Control Act (EPPCA) of 1990 and the Environmental Impact
Assessment Regulations (EIAR) of 1997, the Mines and Minerals Act of 1995
and the Mines and Minerals Environmental Regulations of 1997.
The EPCCA establishes the Environmental Council of Zambia (ECZ) as the
national body responsible for enforcing environmental regulations and
coordinating sectoral government agencies involved in environmental
management in their sectors. These responsibilities are managed by ECZ's
Technical Secretariat, which effectively constitutes Zambia's
Environmental Protection Agency (EPA). The EPPCA also sets environmental
quality standards and makes the polluter responsible for meeting them.
Thus under the EPPCA, all effluents and emissions from mining operations
are regulated through a system of permits, licenses and fines. Dumps,
including overburden dumps and tailings dams, are similarly regulated.
The Environmental Impact Assessment Regulations require that an
Environmental Impact Assessment (EIA) be prepared for all investments that
have a major impact on the environment. The identification and
implementation of adequate environmental mitigation measures is also
regulated by the EIAR.
The Mines and Minerals Act and the Mines and Minerals Environmental
Regulations (1997) address the environmental, health and safety aspects of
the mining licenses delivered by the Mines and Minerals Development
Department. They regulate environmental protection and pollution control
in the areas where prospecting, exploration and mining operations are
being carried out. They also require that any licensed mining operator
closing down a mining facility must first decommission the site to a level
where it does not pose any danger to public safety and health. The body
mandated with monitoring and enforcing compliance with the Mines and
Minerals Environmental Regulations is the Mines Safety Department (MSD)
within the Ministry of Mines and Minerals Development (MMMD).
The regulation of the environmental impacts of the mining sector also
involves other sectors, each with its own regulatory instruments: water
affairs, tourism, transport, radiation protection, health, energy,
national heritage conservation, local government and land. These bodies
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are responsible for sectoral regulations and constitute Delegated
Authorizing Agencies (DAAs) under the EPPCA. ECZ defers to these agencies
on specific technical issues, but retains the role of overall coordination
of their respective contributions. For example, MSD is the DAA for issues
arising from mining licenses. Close coordination between ECZ and the all
DDAs regarding mining activities, is crucial given the complex
cross-sectoral nature of their environmental impacts.
The capacity of ECZ and of DAAs such as MSD to implement environmental
regulations in the mining sector is very weak. As a result: i)
identification and monitoring of environmental risks resulting from mining
activities is often inadequate, ii) in many instances, the appropriate
permits and licenses are not issued, iii) existing regulations are seldom
enforced, iv) revenue from licenses, permits and fines for mining
pollution are only partially collected. Moreover, the regulatory
dispositions for the mining sector are currently so weak that they do not
deter polluters. The revenue that can be collected from polluters given
the current fee rate only covers part of the cost of the skeleton staff
presently assigned to pollution control, which is woefully insufficient
for the task. The exemption by certain investors from the payment of
environmental fees further undermines the financial sustainability and
performance of the regulatory bodies. The poor handling of environmental
and social safeguards in the mining sector has already led to the lead
poisoning crisis in Kabwe, the demolition of community buildings in
Kansanshi and the stripping of mining assets by an investor in Luanshya.
Furthermore, due to poor maintenance and sometimes poor design, there is a
risk of several major tailings leakages over the next 5 years, unless
preventive measures are taken.
Because of the weakness of its regulatory bodies, GRZ will play from a
weak hand when reviewing, negotiating or monitoring the implementation of
Investor EMPs for the mining sector. Poorly negotiated EMPs are
equivalent to handing out pollution credits, thus further shifting the
environmental and social costs of pollution from the investors to GRZ.
Poor public disclosure of EMPs can lead to misunderstandings or social
conflict. Poor monitoring and enforcement will inevitably result in lax
implementation of agreements.    Without a dramatic increase in the
capacity of ECZ and the DAAs to effectively control pollution, the mining
sector's "environmental mortgage" will continue to accrue. This would be
a worst case scenario.
The ongoing Environmental Support Program (ESP) funded by IDA is already
helping ECZ increase its capacity to fulfill its regulatory role. The ESP
was launched in 1998 to support the Ministry of Environment and Natural
resources (now Tourism, Environment and Natural Resources) in implementing
the environmental priorities defined by the NEAP. In 2001, ESP was
restructured to provide direct support to ECZ for improving enforcement
and compliance with national environmental safeguards. The ESP is set to
close in 2003, but the Copperbelt Environment Project will continue to
support the ECZ capacity building effort started under ESP.
ECZ is also currently supported by NORAD through the Industrial Pollution
Prevention Programme (IPPP). The main objective of the program is the
decrease of industrial pollution in Zambia by: i) strengthening of the ECZ
Pollution Control Division, and ii) support of the Cleaner Production (CP)
at the Zambia Association of Chambers of Commerce and Industry (ZACCI).
The IPPP is set to close in 2003.
The Canadian International Development Agency (CIDA) is financing the
Environmental Management in the Mining Sector Project (EMMS). The initial
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project was "to strengthen the technical and managerial capacity of MSD
and other key mining sector institutions to execute statutory mandates to
regulate, monitor, enforce and/or implement appropriate environmental
management practices in the mining sector." However, during the course of
its implementation EMMS is focusing exclusively on technical capacity
building within MSD as well as on its financial sustainability. It does
not include the resources necessary to monitor the compliance performance
of the mining industry, nor to enforce existing regulations. Furthermore,
it does not include significant support to ECZ, nor to any of the other
DAAs concerned by mining activities. The World Bank and CIDA have agreed
to co-ordinate their respective activities to ensure complementarity until
closure of EMMS in 2003.
The Impact of Anglo-American's Pull out from KCM
Following the announcement by Anglo-American of its decision to pull-out
from KCM and thus cease its involvement in copper mining in Zambia, the
GRZ and the World Bank Group agreed that the uncertainty regarding the
future operations of KCM does not change the importance or timing of the
CEP, since: i) new investors are less likely to consider investing unless
historical liabilities are adequately addressed; ii) in the event of a
pull out by investors, funds will be necessary to implement the closure
plans of affected mines; iii) ZCCM-IH and GRZ must continue managing the
environmental liabilities associated with the assets purchased by KCM,
regardless of the situation with KCM; iv) the CEP covers environmental
issues that are not tied specifically to KCM, but still require urgent
attention to avoid catastrophic failures; and v) significant awareness of
environmental issues has been raised during project preparation, and there
is now strong stakeholder support for environmental mitigation of mining
impacts.
2. Objectives
The development objectives of the CEP are to assist Zambia to: i) address
environmental liabilities associated with the mining sector, following the
privatization of the mining assets, and ii) improve future compliance of
the mining sector with environmental and social regulations.
These objectives will be pursued by two project components: i)
establishing an environmental management facility (EMF) to finance the
implementation of priority environmental and social measures required of
ZCCM-IH and GRZ according to a Consolidated Environmental Management Plan
(CEMP); and ii) strengthening the regulatory and institutional frameworks
to improve compliance of the mining sector with environmental regulations
and Environmental Management Plans (EMPs).
3. Rationale for Bank's Involvement
The Bank has been a major driving force behind the privatization of the
copper mines and is thus in a unique position because of it. There was an
understanding during negotiation discussions that the Bank would welcome a
request by GRZ in mitigating environmental liabilities in order to help
GRZ complete the privatization negotiations. The Bank's support is
critical, both as a front-row source of funds but also to attract other
donors.
The Bank has had a good understanding and relationship with ZCCM-IH, MSD
and ECZ since the 1990s through a series of operations (ERIP, ERIPTA,
Environmental Support Program, Public Sector Reform and Export Promotion
Credit, and the Mines Township Services Project). As a result, the Bank
is familiar with the issues faced by ZCCM-IH following privatization, as
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well as the constraints confronting the institutions responsible for
environmental compliance.
The Bank also has gained experience in similar situations in Bolivia and
in Eastern Europe.
4. Description
The project will comprise two components:
Component 1 - The Environmental Management Facility (EMF). The EMF will
help GRZ and ZCCM-IH address the environmental and social problems
resulting from ZCCM's operations prior to privatization, as well as the
permanent obligations of GRZ and ZCCM-IH under existing Zambian
environmental laws and regulations following privatization. It does so by
helping to define the environmental problems and by financing the costs of
their mitigation. Since EMF funding is limited, the highest priority will
be given to measures that address widespread public health problems or
damage to ecological functions.
One of the first activities funded under the EMF will be the preparation
of a Consolidated Environmental Management Plan (CEMP), which will
identify priority issues to be financed through the EMF and provide
criteria for the selection of sub-projects funded through the EMF. The
CEMP will be a living document, developed in consultation with investors,
to be reviewed and updated after two years. More broadly, it will provide
a blueprint for handling environmental issues related to mining for the
Copperbelt and for Kabwe over the next 25 years, within the broader
context of environmental and social sustainability.
Component 2 - Strengthening of the Environmental Regulatory Framework.
This component will assist the GRZ to ensure that historical and future
environmental liabilities arising from mining activities are handled in
compliance with national environmental and social safeguards. This will
be achieved mainly by strengthening the capacity of ECZ and the delegated
authorizing agencies such as MSD, to review EIAs, negotiate EMPs with
investors and with ZCCM-IH, issue pollution permits, monitor compliance,
and collect fees and fines. The project will also strengthen NGOs and
relevant training institutions, such as the Copperbelt University, to
increase national capacity to address environmental issues associated with
the mining sector.
Environmental Management Facility (EMF)
Strengthening of Regulatory Framework
5. Financing
Total ( US$m)
BORROWER $0.00
IBRD
IDA $40.00
Total Project Cost $55.77
6. Implementation
Institutional framework
Component 1, Environmental Management Facility
The Ministry of Finance and National Planning will finance environmental
mitigation sub-projects related to mining activities from the portion of
proceeds of the IDA credit titled Environmental Management Facility. The
Minister of Finance will establish an EMF Steering Committee with a
measure of autonomy to review the sub-projects to be funded by the EMF,
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screen them for priority ranking, appraise them to ensure compliance with
IDA safeguard policies, approve them for funding, and monitor their
implementation.
The EMF Steering Committee may delegate some of its responsibility to a
technical subcommittee to ensure effective and timely execution of its
functions. The Steering Committee will also ensure that the program of
activities funded by the EMF is consistent with EMF objectives and the
policies approved by GRZ and ZCCM-IH and agreed with the donors, and
provide policy guidance to those involved. It will be chaired by the
Secretary to the Treasury, and comprise as members the Permanent
Secretaries of the Ministries of Environment, Local Government, Mines and
Minerals Development, Energy and Water Development, Health, the General
Manager of ZCCM-IH, the Director of ECZ and a representative each from the
Mine Workers Union of Zambia, the Chamber of Commerce and Industry, the
Chamber of Mines and a prominent member of the universities and of
non-governmental organizations or civil society.
The decisions of the EMF Steering Committee will take into account the
views and interests of all stakeholders, including inhabitants of mine
townships and other members of civil society on the Copperbelt, private
sector investors in the mining industry. The EMF Steering Committee will
authorize funding for a sub-project proposals developed on the basis of an
application prepared by their respective sponsors. The proposal will
fully justify disbursements against particular works or consultant
services contracts designed for the mitigation or remediation of the
environmental liabilities being addressed.
For the EMF Steering Committee to operate on a day-to-day basis, it will
be served by a permanent secretariat called the EMF Secretariat. The
Secretariat will have a Manager with qualifications and experience
acceptable to IDA, assisted by an accountant and support staff (Program
Assistant and Driver), with their operating offices in the Ministry of
Finance and National Planning (MoFNP). The Manager and other staff from
the EMF Secretariat will be supported by a technical assistance budget
from the EMF.
Prior to project effectiveness, the MoFNP will enter into a five-year
Subsidiary Agreement with ZCCM-IH acceptable to IDA, for the preparation
and implementation and EMF sub-projects. The agreement will cover an
on-lent part of the proceeds, to carry out sub-projects addressing its
environmental liabilities, as well a grant part of the proceeds, to carry
out sub-projects addressing GRZ environmental liabilities. GRZ and
ZCCM-IH will establish a mechanism to determine their respective
environmental liabilities and to address potential disagreements on the
division of liabilities.
ZCCM Investments Holdings Plc is a Government owned limited liability
company that is charged amongst other tasks, with the management of: i)
the defunct assets that it has retained following privatization, ii)
environmental obligations agreed with investors as part of privatization
deals, iii) environmental liabilities arising from mining operations prior
to privatization. ZCCM-IH is accountable to the Ministry of Mines and
Minerals Development (MMMD) for its operations. ZCCM-IH has designated
the Environmental Services Group within ZCCM-IH, which will be named the
ZCCM-IH Environmental Coordination Unit (ZECU), to be responsible for the
development of detailed sub-project proposals, their implementation and
their procurement. The ZECU will consist of a Manager supported by
adequately qualified and experienced staff in environmental management,
finance and accounting, procurement, environmental law, communications and
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community development. These functions are to be provided to the
satisfaction of the EMF Steering Committee and of IDA. The sub-projects
will be implemented through contractors supervised by ZECU. The ZECU has
already managed CEP preparation and supervized the implementation of
urgent mitigation measures funded through the Labor Retrenchment Program
(LRP) surplus.
Component 2, Strengthening of the Environmental Regulatory Framework
The activities to strengthen the environmental regulatory framework in the
mining sector will be executed by the Technical Secretariat of
Environmental Council of Zambia (hereafter referred to as the
Environmental Agency). The Agency is a semi-autonomous statutory body
established by an Act of Parliament under the Environment Protection and
Pollution Control Act of 1990 and governed by an independent Council. It
is charged with ensuring, monitoring and enforcing compliance with
Zambia's environmental regulations. The Agency will receive funds
directly from the Ministry of Finance, under a sub-grant agreement.
In fulfilling its regulatory duties, the Environmental Agency will rely on
the delegated authorizing agencies that are responsible for the various
sectoral regulations that touch on relevant issues. The Environmental
Agency will coordinate the contributions of these agencies through an
Interagency Regulatory Committee, that will be established during project
implementation. The delegated authorizing agency for issues related to
mining licenses is the Mines Safety Department (MSD) within MMMD. The MSD
will maintain its lead role in the implementation of the Environmental
Management in the Mining Sector Project funded by CIDA, which focuses on
environmental management issues linked to mining and exploration licenses.
The Agency will ensure that mining activities are compliant with existing
environmental regulations, and that the Environmental Management Plans
(EMPs) of investors and the counterpart EMPs of ZCCM-IH are implemented as
agreed.
Accounting, financial reporting and auditing arrangements
Financial Management will be the respective responsibility of the three
institutions: the EMF Secretariat in Ministry of Finance and National
Planning, and the ZECU for Component 1; and the Environmental Agency for
Component 2.
EMF Secretariat
The EMF Secretariat will have the overall accountability responsibility
for the EMF. It will be organized and staffed to provide efficient
financial management, reporting and administration. Its tasks will
include:
managing the transfer of EMF funds to ZCCM-IH, to prepare sub-project
proposals for applications cleared by the EMF Steering Committee, and to
implement the sub-project proposals approved by the EMF Steering
Committee; these funds will include the cost of project implementation, as
well as the preparation and implementation supervision costs incurred by
ZCCM-IH;
monitoring the use of EMF funds by ZCCM-IH;
establishing accounts for the EMF;
installing appropriate accounting/budgetary and management information
systems, capable of producing timely, understandable, relevant and
reliable financial information that will enable management to plan,
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implement, monitor and appraise overall progress towards the achievement
of EMF objectives;
preparing annual budgets for the EMF;
producing financial statements on a quarterly and annual basis for the EMF
Steering Committee and IDA;
preparing withdrawal applications from IDA and any other source of funding;
undertaking an annual audit by qualified external auditors acceptable to
IDA.
The EMF Secretariat will ensure that these functions are not only
acceptable to the Government, the World Bank and any other Cooperating
Partners, but also are carried out on a day to day basis as prescribed in
the Project Implementation Manual (PIM) throughout project implementation.
ZECU
The subsidiary agreement with ZCCM-IH requires that ZECU to provide
personnel in accounting/financial management. ZECU is obliged to maintain
accurate and systematic accounts in respect of funds that they receive
from the EMF Secretariat to prepare and implement sub-projects, in
accordance with internationally accepted accounting principles. ZECU will
also maintain contract records, audit records, financial information,
financial statements and accounting records. As part of the subsidiary
agreement, ZECU will develop and implement a computerized system to
monitor sub-project preparation and implementation expenditures. Both the
EMF Secretariat and IDA shall have unrestricted access to these records
and data. Provisions have been made to provide both the EMF Secretariat
and IDA, or their authorized representative, to inspect or audit ZECU
accounts, financial information, financial statements and technical
information. ZECU will provide regular reports to the EMF Secretariat, as
proposed in the Subsidiary Agreement. These may include, but are not
limited to: monthly technical and financial reports, quarterly cost
summary tables, quarterly unaudited accounts, annual technical and
financial reports, annual work plans and proposed budgets, and annual
audited accounts.
Environmental Agency
The grant agreement with the Environmental Agency requires that it provide
personnel in accounting/financial management. The Agency will:
establish accounts for Component 2;
install an appropriate financial management system, capable of producing
timely, understandable, relevant and reliable financial information that
will enable management of the Agency to plan, implement, monitor and
appraise the overall progress towards the achievement of CEP objectives;
prepare annual budgets for the Component 2;
produce financial statements on a quarterly and annual basis for ECZ
Board, the Ministry of Finance and National Planning and IDA;
prepare withdrawal applications from IDA and any other source of funding,
on the basis of SOEs;
undertake an annual audit by qualified external auditors acceptable to IDA.
The Environmental Agency will ensure that these functions are not only
acceptable to the Government, the World Bank and any other Cooperating
Partners, but also are carried out on a day to day basis as prescribed in
the Project Implementation Manual (PIM) throughout project implementation.
Procurement
Procurement for the EMF will be delegated to ZECU for expenditures related
to sub-project preparation and implementation. The EMF Secretariat will
undertake procurement for its own expenditures. The Environmental Agency
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will undertake procurement for Component 2.
Procurement of Consultant services. Consultant contracts will be awarded
in accordance with the Guidelines for the Selection and Employment of
Consultants by World bank Borrowers (January 1997, revised September 1997;
Addendum effective January 1, 1999). Most consultant contracts will be
awarded using the Quality and Cost based Selection (QCBS) procedures by
evaluating the quality of the proposal before comparing the cost of the
services to be provided. Short lists of consulting firms for contracts
valued at less than USD100,000 may be comprised entirely of national firms
if at least three qualified national firms are available at competitive
costs.
Procurement of Goods and Works. All contracts will be awarded in
accordance with Guidelines for Procurement of Goods and Services by World
Bank Borrowers (January 1995; revised January 1996, August 1996, September
1997 and January 1999). Civil works would mostly comprise the
rehabilitation of tailings dams, and the decontamination of polluted
sites. Contracts for goods and civil works may be awarded on the basis of
International Competitive Bidding (ICB) for contracts that are valued
USD250,000 or above, or National Competitive Bidding (NCB) procedures for
lesser sized contracts.
Monitoring and Evaluation
Component 1, Environmental management Facility
The EMF Secretariat will be held responsible for monitoring overall
progress of the EMF against agreed performance indicators for the EMF
specified in the Project's Design Summary Matrix (Annex 1), and the
Project Implementation Manual, including the Environment and Resettlement
Framework. In addition, the EMF Secretariat will be required to submit
quarterly reports for IDA review summarizing the utilization of EMF funds
and progress made by ZECU, including applications submitted, the
preparation status of applications cleared by the EMF Steering Committee,
the implementation status of sub-project proposals approved by the EMF
Steering Committee, deviations if any from applications and sub-project
proposals, problems and constraints and corrective measures being taken,
and updated disbursement tables.
In implementing Monitoring and Evaluation, the EMF Secretariat will
utilize a variety of activities to get feedback on progress and
performance. These will include: i) monitoring reports by ZECU, ii)
meetings with EMF stakeholders and target beneficiaries, iii) IDA
supervision missions, iv) quarterly and annual financial reports, v)
mid-term review of project implementation, vi) key performance indicators
at dated implementation milestones, as provided in the Credit Agreement.
Component 2, Strengthening of the Environmental Regulatory Framework
The Council Secretary within the Environmental Agency will be responsible
for monitoring the overall progress of Component 2 against agreed
performance indicators for this component specified in the Project's
Design Summary Matrix (Annex 1), and the Project Implementation Manual.
The Council Secretary will be required to submit quarterly reports for IDA
review summarizing the utilization of Component 2 funds, including the
implementation status of the annual work program, problems and constraints
and corrective measures being taken, and updated disbursement tables.
In implementing Monitoring and Evaluation of Component 2, the Council
Secretary will utilize a variety of activities to get feedback on progress
and performance. These will include: i) meetings of the Interagency
Regulatory Committee, ii) visits of mining sites, including consultations
with investors and mining pollution affected persons (MPAPs), iii) IDA
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supervision missions, iv) quarterly and annual financial reports, v)
mid-term review of project implementation, vi) key performance indicators
at dated implementation milestones, as provided in the Credit Agreement.
7. Sustainability
From a development perspective, the proposed project will increase the
long-term sustainability of environmentally sound and profitable mining
operations in Zambia.
From an operational perspective, ZCCM-IH will in perpetuity be responsible
for managing the environmental liabilities accrued during the years before
privatization. Eventually, the scope of these liabilities will wane, but
in the meantime ZCCM-IH must take measures to address them. The project
will increase ZCCM-IH's longer-term capacity to address environmental
issues, staring from the existing nucleus of core capacity that it has set
up.
The CEP has been designed to address several potential risks to
sustainability. A first risk to the long-term impact of the project is
the willingness of ECZ and delegated authorizing agency to enforce
existing regulations and the power conferred to enforcement agents.
Rigorous enforcement would create a revenue stream that would ensure
longer-term sustainability. Ultimately, this will depend on the
willingness of GRZ to regulate the mining sector and the guaranteed job
security for enforcement agents.
A second risk is that environmental liabilities mitigated through the EMF
might reemerge following project completion, because routine minimal
maintenance is not performed (for example at tailings dams), or because
communities interfere with the sites (cutting down stabilizing vegetation
for example). It is expected that the Environmental Management Facility
established through the project will continue to attract funding after
project completion. The CEP's emphasis on community involvement and
education seeks to address the issue of community ownership and thus
diminish the extent of vandalism, by promoting sustainable uses of
rehabilitated sites. The involvement of local authorities and interest
groups such as downstream users in discussions on long-term maintenance
requirements will also target this issue.
A third risk is that some of the more critical sites fail because of
delays in project implementation. The up-front funding of those most
unstable sites should provide for faster project implementation.
Finally, the profitability of copper mining activities is another major
risk to sustainable management of mining liabilities and obligations, as
fewer resources might be available for environmental management if mining
revenue is low.
8. Lessons learned from past operations in the country/sector
While environmental clean up projects are relatively new for the Bank,
lessons have been drawn from the implementation of other projects in
Zambia, most particularly projects focusing on the environment, and from
the Bank's mine closure and reform activities in other countries. The
Bank has also had considerable experience in mine closure and
restructuring in Romania, Poland, Ukraine and Russia, and mining reform
projects in Bolivia, Ghana, Peru, Argentina, Tanzania, as well as Zambia
itself. Based on this experience, the following lessons have been drawn
and have been incorporated into the design of this project.
The effectiveness and capacity of the implementing agency. ZCCM-IH will
implement Component 1 (EMF) of the Project. ZCCM-IH is intimately
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familiar with the major environmental issues to be addressed. The size of
its management staff was drastically reduced following privatization, in
line with the new company's role as an investment holding company. As a
consequence, ZCCM-IH will need to strengthen its implementation capacity,
including working with and educating communities on proper mine site use,
and reviewing projects for compliance with World Bank safeguards. The EMF
will not finance community projects that extend beyond its mandate to
mitigate adverse social and environmental impacts of mining activities,
such as income generating projects, but it can assist communities to
prepare proposals for funding from other more specialized projects, such
as ZamSIF.
The capacity of the regulatory agency. The experience of the World Bank
shows the importance of separating the implementation of mitigation
measures from regulatory functions, as is the case under the Project. It
also confirms that successful management of environmental liabilities
requires effective regulatory bodies. The Environmental Agency and the
delegated authorizing agencies such as MSD are currently not capable of
fully enforcing environmental regulations and ensuring compliance. In an
effort to help GRZ address the management of the environmental
implications of the mining sector, the Project will include a component to
strengthen the Environmental Agency to fulfill its duties, and will
collaborate closely with the Environmental Management in Mining Sector
(EMMS) project funded by CIDA and with other potential donors. The EMMS
project aims to strengthen the technical and managerial capacity of the
Mines Safety Department of the Ministry of Mines and Minerals Development
(MMMD), and to a lesser extent other key mining sector institutions in
Zambia, to execute statutory mandates to regulate, monitor and enforce
environmental management by mining companies in Zambia.
Complete environmental assessment and management plan. Mine closure and
decommissioning activities typically involve three main concerns: (i)
physical closure, (ii) environment and (iii) social issues. Physical
closure is most often the easiest to define and plan. However, the
environmental and social impacts of long term mining (particularly from
past decades where environmental management was less rigorous or
nonexistent) can be significant. The environmental and social impacts of
the project were reviewed and discussed during preparation. Furthermore,
the project includes the preparation of a Consolidated Environmental
Management Plan that will address environmental issues in a comprehensive
manner.
Selection of Priority Mitigation Measures. The Project will finance the
costs of priority environmental mitigation measures that: i) are located
in properties sold to investors under the condition that ZCCM-IH address
certain environmental issues, ii) are outside properties but rest with
ZCCM-IH, or iii) are incumbent on GRZ by default. The project will
establish a system to identify the issues to be funded as a priority, with
the highest priority given to those measures that address widespread
health problems or environmental damage.
The approach adopted by the CEP is similar to that of the World Bank
Project in Bolivia (Environment, Industry and Mining Project, 1995). This
project used risk-based eligibility criteria tailored to the mining
sector, with the impact on public health as its major criteria.
Similarly, the USEPA Superfund uses a Hazard Ranking System (HRS) by which
the threat to human health of a site can be assessed. The experience of
these operations will be built into the design of the eligibility criteria
for sub-projects. A first working set of criteria will be initially
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applied to sub-projects, and made public. The final risk-based selection
system will be formulated as part of the CEMP. The selection of
sub-projects will also consider suitability in the context in Zambia, to
reduce risk while maximizing the use of the limited funds available.
Social Impacts. The CEMP will test specific sites to assess the degree of
risk from agricultural, fishing and other current or potential site uses.
Sub-project design will include extensive consultations with the
populations currently using the mine sites, as well as cost-benefit
analyses to assess whether the costs of limiting site access, and
therefore denying income sources to those currently using a site, outweigh
the benefits of permitting controlled site use. ZCCM-IH will therefore
minimize potentially negative social impacts by allowing site use as long
as it does not endanger the site stability or human health and safety.
Closed mine sites, if tested for safety, may provide areas for community
gardens or other uses.
A general lack of community understanding of mine pollution issues other
than sulfur dioxide (which is visible and has a strong odor) may be one of
the factors contributing to weak monitoring in the sector. The CEMP and
the sub-projects under EMF will include education and consultation of
communities regarding nearby sites; it may also potentially involve
organization and outreach to residents downstream of defunct mine sites to
raise awareness of the importance of maintaining these sites in order to
have continued access to river water.
It is important to note that the World Bank is funding a separate project,
the Mine Township Services Project, to address the municipal social
services aspects (water, sanitation, and solid waste management) of the
ZCCM privatization.
9. Environment Aspects (including any public consultation)
Issues         The Project consists of a set of environmental and
social mitigation measures in the context of the privatization process.
Given the sensitivity of these issues and the likelihood of intense public
scrutiny, the project was categorized as an A in regards of Environmental
Assessment (EA) requirements. Thus, the project will require a full EA
that must be disclosed prior to project appraisal. This activity is on
the critical path as project appraisal is envisioned for January 2001.
10. Contact Point:
Task Manager
Yves Andre Prevost
The World Bank
1818 H Street, NW
Washington D.C. 20433
Telephone: 202-473-2136
11. For information on other project related documents contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-5454
Fax:        (202) 522-1500
Web: http:// www.worldbank.org/infoshop
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Note: This is information on an evolving project. Certain components may
not be necessarily included in the final project.
This PID was processed by the InfoShop during the week ending
November 15, 2002.
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