INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Public Disclosure Copy Report No.: ISDSC1704 Date ISDS Prepared/Updated: 11-Feb-2013 Date ISDS Approved/Disclosed: 26-Feb-2013 I. BASIC INFORMATION A. Basic Project Data Country: Lebanon Project ID: P143594 Project Name: LB-Environmental Pollution Abatement Project (P143594) Task Team Alaa Ahmed Sarhan Leader: Estimated 12-May-2013 Estimated 16-Jul-2013 Appraisal Date: Board Date: Managing Unit: MNSEN Lending Financial Intermediary Loan Instrument: Sector: General industry and trade sector (100%) Theme: Pollution management and environmental health (100%) Financing (In USD Million) Financing Source Amount Borrower 0.00 Public Disclosure Copy International Bank for Reconstruction and Development 15.00 Financing Gap 5.00 Total 15.00 Environmental F - Financial Intermediary Assessment Category: Is this a No Repeater project? B. Project Objectives The development objective of the proposed project is to (a) reduce industrial pollution in targeted industrial enterprises; (b) strengthen the monitoring and enforcement capabilities of the MOE; and (c) establish a financial mechanism for environmental investments. C. Project Description Three alternatives were considered for project design: (a) a technical assistance project which would put in place effective environmental monitoring and enforcement mechanisms to induce demand for environmental investments; (b) an investment project which would reduce exposure to hazardous pollution in a particular geographical area (such as Bourj Hammoud or the Northern suburbs of Beirut) or in a polluting industrial sector (fertilizers in Selaata and cement in Chekka) and (c) a pilot project which would strengthen the monitoring and enforcement mechanism in the industrial sector, introduce integrated pollution prevention as a tool, and put in place, on a pilot scale, a financial Public Disclosure Copy mechanism for industrial pollution control. The first and second alternatives were not selected because of the availability of grant funds for technical assistance (Paras 13 and 14) and the unavailability of large capital funds to mitigate the numerous pollution problems in all polluting industrial sectors. The third alternative was specifically requested by the GOL as it would promote cost-effective and voluntary pollution prevention and abatement during the compliance period (to be determined in light of the Environmental Compliance Decree 8471-2012) and establish a pollution abatement fund in the local banks to finance a limited number of pollution abatement sub-projects, while the environmental regulatory and enforcement capacity is being reinforced. A similar operation, the Egypt Pollution Abatement Project I and II has been in implementation from 1996-to date. Its first phase included a pilot project of US$ 35 million financed by IBRD and IDA and a US$ 5 million TA financed from Finland. The first phase evolved into to a second phase of US$ 160 million which is co- financed by AfD, EIB/EU, JICA , Finland and the World Bank. The project will be comprised of two components and are described as follows: • Component 1: Technical Assistance. (US$ 2.0 million soft loan through Development Partner Co-finance; if donor finance is not secured, CBL will consider committing to finance the US $ 2 million for technical assistance by drawing from profits generated from the World Bank loan. See Para 27). The objective of this component is to strengthen the capacity of MOE and other key stakeholders and provide project management support through the setting up of a Project Management Unit (PMU). It will consists of: (i) strengthening the monitoring and enforcement capacity in the industrial sector by establishing guidelines for enforcement and on-the-job training at the national and local levels in close coordination with the € 8 million EU-StREG Project; (ii) providing technical support to selected polluting enterprises to prepare their compliance action plans in accordance with the Environment Compliance Decree; (iii) working closely with the Central Bank of Lebanon (CBL), the Association of Lebanese Industrialists, and the Association of Lebanese Public Disclosure Copy Banks to market the program and providing technical assistance for the development of guidelines and training in selecting and evaluating environmental loans; and (iv) conducting environmental awareness and communication campaign with the help of NGOs. • Component 2: The Pollution Abatement Investment (IBRD US$ 15 million, CBL and/or other Development Partner, at least US$ 3.0 million to leverage the IBRD loan). The objective of this component is to introduce a market mechanism for pollution control for an estimated 15-20 public and private enterprises to bring their effluent discharges and/or air emissions towards compliance with the Environmental Compliance Decree 8471 / 2012 in a cost-effective manner. The sub-projects would include waste minimization, pollution prevention, resource recovery, clean technology adoption, fuel substitution and, end-of-pipe environmental control where no other alternatives are available. This component will provide, on a first come-first serve basis, sub-loans and grants through selected local participating banks. The following two alternatives will be considered and a final decision will made prior to appraisal: Alternative A: In the event that there will be no Development Partners other then the World Bank, the CBL (acting as the Apex Bank) will provide sub loans to industrial enterprises with a tenor of up to 7 years (with up to 2 years grace) at an interest rate of about 5%. This interest rate will, however, be reduced to zero upon CBL authorizing the participating commercial banks to release a portion of their mandatory monetary reserves. Alternative B: In the event that other Development partners will provide additional concessionary Public Disclosure Copy financing, this component will consist of two sub-components: (a) a Credit Facility to provide sub- loans with an expected maturity of up to 7 years with up to 2 year grace period, at market interest rates; and (b) a Grant Facility to provide a one-time grant issued to the borrower (industrial enterprise) upon successful implementation and completion of pollution abatement equipment, technology and / or practice. The flat rate grant of the investment cost will be determined during project preparation and would be provided to all sub-projects. A grant element, taken as a percentage of the investment cost, would be included as a temporary feature of pollution abatement financing during the compliance period allowed in the Environmental Compliance system. The rationale for the reduction of the interest rate to zero (Alternative A) or a grant element (Alternative B) is the failure of the market to internalize the social cost of pollution. Specifically, such incentive would: (i) provide an incentive for pollution abatement during the compliance period, in recognition of the substantial social costs of current environmental pollution; (ii) demonstrate least-cost opportunities for pollution abatement which would have external benefits in terms of information and lessons learned for the industrial sector as a whole; and (iii) reduce resistance to enforcement of the Environmental Compliance Decree 8471 / 2012. The CBL, acting as an APEX Bank, will be the recipient of the World Bank loan of US$ 15 million that would be made available to selected participating commercial banks. The latter will assess the creditworthiness of the borrower (enterprise) before the request is sent to the PMU (housed at MOE but contracted by CBL for all administrative, technical, environmental and social requirements) to assess whether the borrower (industrial enterprise) meets the technical requirements and environmental merits to qualify for financing and if need be, provide technical guidance to the borrower. The funds will then be channeled through the participating commercial banks, which will be remunerated through a percentage of the interest rate that will be agreed upon between the World Bank, MOE, and CBL as well as through other potential co-financiers that could join in at a later Public Disclosure Copy stage to leverage this market intermediation mechanism. As stated above, the beneficiary enterprise will then receive a subloan from a commercial bank at market rate with a percentage grant (to be determined at project preparation) released only after the targeted environmental performance has been achieved and verified by the PMU. Grants and interest rate reduction will be financed with capital generated by implementing the following financial mechanism: While the project’s lifespan is 7 years, the loan tenor is anticipated to be 18 years. From Year 8 to Year 18 of the World Bank loan, CBL will have received US$ 15 Million repayment from commercial banks. A portion of profits generated from these investments can then be shared with the borrower (industrial enterprise) as a one-time grant upon confirmation of compliance. Currently, a financial analysis is being undertaken as part of the ongoing LEPAP activity (TA), in order to assess and recommend a sustainable financing mechanism following discussions with MOE and CBL during project pre-appraisal. The 13 industrial enterprises already identified by EFL as a pipeline of priority sub-projects (which LEPAP could finance as soon as the project becomes operational) demonstrate the local demand for environmental loans. The sub-projects cover the textile, paper, food and beverage, pharmaceutical, cement, metallic and chemical sectors for a total amount of US$ 5.6 million. Beyond the 13 industrial enterprises already identified, discussions with local industries; the Beirut and Mount Lebanon Chamber of Commerce, Industry and Agriculture (CCIA); and the Association of Lebanese Industrialists (ALI) have also revealed the following incentives which make pollution abatement loans attractive for industrial enterprises: Public Disclosure Copy a. Technical Assistance (Free-of-Charge). Technical assistance will be provided free-of-charge to industrial enterprises participating in LEPAP, by the PMU housed within MOE. Items to be delivered include an environmental audit or environmental impact assessment as well as a compliance action plan. An audit, assessment and plan can help identify efficiency gains in production, while an environmental compliance certificate can add monetary value to the industrial facility. b. Increased Efficiency of Production. In discussions with industry leaders and individual industrial enterprises, a number of pollution abatement activities are associated with increased production efficiency. Fmple, energy efficiency improvements would likely result in near-immediate savings in production, while wastewater treatment and recycling could reduce costs associated with water usage, a particular concern expressed by food processing and agro-industries. Reducing and / or reusing solid waste also bears its benefits, specifically with regards to reducing disposal costs while possibly generating revenues from new products created from waste. c. Value-Added Associated with Compliance. An environmental compliance certificate holds value to an industrial enterprise as it not only frees the enterprise from potential penalties associated with polluting practices, but also enables a firm to (a) enter specific export markets, (b) raise domestic and international profiles as an environmentally-friendly enterprise, and (c) demonstrate corporate social responsibility. d. Sub-loan terms. The sub-loans will be offered at very attractive terms and conditions which would provide the incentive for industries to participate and also make up for any additional (or opportunity) costs that will be incurred during the commissioning, training, etc. for the new hardware that will be procured under the project sub-loan. D. Project location and salient physical characteristics relevant to the safeguard analysis (if known) Public Disclosure Copy The project will be implemented on a pilot scale through a financial intermediary (that is, the CBL). In accordance with the Bank’s safeguards policies for financial intermediaries, safeguards related analysis will be conducted prior to approval of any sub-projects to be financed by the project. Project locations are currently indefinite and will be identified in an assessment carried out following project commencement. E. Borrowers Institutional Capacity for Safeguard Policies A PMU housed within the MOE will need to ensure that the participating banks adopt and implement the Environmental and Social Management Frameworks (ESMF). ESMF is often used in the case of FI and other operations with multiple sub-projects. ESMF spells out corporate environmental and social safeguard policy frameworks, institutional arrangements, general mitigation measures for the typical sub-projects envisioned under the project as well as the available capacity to identify and mitigate potential environmental and social safeguards issues and impacts of each sub-project. The ESMF (as well as the Operations Manual) will also include a capacity assessment of the implementing agency (MOE) to carry out the necessary environmental requirements for the identified sub-projects (i.e. the necessary environmental audits, environmental statements, implementation of mitigation measures and monitoring plans). While a full capacity assessment of MOE was conducted during the preparation of the 2010 Lebanon CEA, this assessment will be updated given that both the EIA and environmental compliance decrees were issued after the capacity assessment was conducted. To ensure successful safeguards implementation, the World Bank’s 2011 Country Environmental Public Disclosure Copy Analysis (CEA) analyzed Lebanon’s EIA system to determine national equivalence with that of the World Bank’s 11 operational principles (in accordance with its policy for the use of country systems). The 2011 CEA showed the World Bank's EA policy, the EC Directive on EIA, and the Lebanese EIA system have many common features and are comparable in many aspects. There are however two significant gaps: namely, (a) the lack of standard TORs and guidelines for specific sectors and (b) a lack of public consultation and public disclosure of the EIA summary and Initial Environment Examination (IEE) as required by Articles 13 and 14 of the Environment Protection Law. The acceptability assessment – which reflects the application of the EIA system in Lebanese projects – indicated that Lebanon has a modest institutional and legal EIA infrastructure at the national level as well as a weak track record of implementing, monitoring and enforcing environment management plans despite a relatively thorough EIA review process and EIA reports which are of adequate comprehensiveness and quality. The gaps related to public consultation and public disclosure as well strengthening the capacity of MOE staff on EIA will be addressed in this project and in the EU-funded Support to Reforms Environmental Governance (StREG) program. CBL, through the PMU housed at MOE, will be held responsible for the necessary compliance of borrowers and participating banks. Selection criteria will be outlined in the Operational Manual (OM). With regards reporting on compliance with the ESIA / ESMF, the PMU will maintain the staff capacity (with the required technical and social skills) to undertake an annual environmental and social compliance and performance audit, which CBL will share with the World Bank. Furthermore, during the first two years of project implementation, the project will require that developed environmental assessments and/or environmental statements (as known in Lebanon for Category B projects) are reviewed and cleared by the World Bank, in addition to their review by MOE. After Year 2 of project implementation, the review and clearance responsibility of the environmental statements will be delegated to the MOE, with a spot check by the World Bank of some of these Public Disclosure Copy environmental statements to ensure the quality of the review process. As OP 4.12 on Involuntary Resettlement is not triggered, the World Bank will ensure that all pollution abatement measures (e.g. industrial wastewater treatment) are placed and / or construct on the site of the industrial facility in question, or on public land adjacent to it. This requirement will be clearly defined in the Operations Manual and may be stipulated in the Loan Agreement F. Environmental and Social Safeguards Specialists on the Team Sherif Kamel F. Arif (GEFVP) Nina Bhatt (MNSSO) II. SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered? Explanation (Optional) Environmental Assessment OP/ Yes BP 4.01 Natural Habitats OP/BP 4.04 No Forests OP/BP 4.36 No Pest Management OP 4.09 No Physical Cultural Resources OP/ No Public Disclosure Copy BP 4.11 Indigenous Peoples OP/BP 4.10 No Involuntary Resettlement OP/BP No 4.12 Safety of Dams OP/BP 4.37 No Projects on International No Waterways OP/BP 7.50 Projects in Disputed Areas OP/BP No 7.60 III. SAFEGUARD PREPARATION PLAN A. Tentative target date for preparing the PAD Stage ISDS: 15-Feb-2013 B. Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timing1 should be specified in the PAD-stage ISDS: Update of the Lebanon Country Environmental Analysis (CEA) section of the EIA system in Lebanon will be done prior to appraisal. The Operational Manual will be completed before Board approval. IV. APPROVALS Task Team Leader: Name: Alaa Ahmed Sarhan Approved By: Public Disclosure Copy Regional Safeguards Name: Maged Mahmoud Hamed (RSA) Date: 26-Feb-2013 Coordinator: Sector Manager: Name: Caroline van den Berg (SM) Date: 13-Feb-2013 1 Reminder: The Bank's Disclosure Policy requires that safeguard-related documents be disclosed before appraisal (i) at the InfoShop and (ii) in country, at publicly accessible locations and in a form and language that are accessible to potentially affected persons.