\ 2557 May Iq;S The World Bank and the Environment in Central and Eastern Europe and the Commonwealth of Independent States: 1995-1998 3 The World Bank In this brochure the term "Central and Eastern Europe and the Commonwealth of Independent States" refers to the countries of Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania, Federal Republic of Yugoslavia, FYR Macedonia, Moldova, Poland, Romania, Russia, Slovak Republic, Slovenia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. This group of countries is a subset of the Europe and Central Asia Region in the World Bank, which includes all of the above as well as Turkey, Cyprus, and Portugal (the last two are no longer active borrowers). The World Bank Group comprises the World Bank (the International Bank for Reconstruction and Development, IBRD), and its affiliated institutions: the International Finance Corporation (IFC), the International Development Association (IDA), the International Centre for Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency (MIGA). This report focuses on the activities of the IBRD and IDA. This publication has been prepared by the staff of the Environment Group, Rural and Environment Sector, in the Europe and Central Asia Region. Any judgments expressed are those of its authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or the members of its Board of Executive Directors of the coun- tries they represent. © The World Bank, May 1998 For the past eight years, the countries of Central and East- ern Europe and the Commonwealth of Independent States have undertaken great efforts to understand the breadth of their inherited environmental problems. They have worked hard to establish and strengthen institutions as well as to cre- ate policies to prevent future environmental degradation. At the same time, the people of these countries have had to face social hardship and extraordinary changes in their lives asso- ciated with political and economic transition. The people of this region are poised for success-in the economic and political transition, and in improving the qual- ity of their environment. I am pleased that the World Bank has been able to assist them in their transition efforts, and specifically, in their efforts to improve the environment. The development of national strategies and priority-setting efforts in these countries in recent years has helped to define future challenges. The World Bank is committed to expand- ing our assistance for investments and institution-building efforts, in line with the demand of our clients. As a way to document the results of our collaboration and the challenges ahead, I present this brief report of the World Bank's envi- ronmental activities in the region since 1995. Johannes F. Linn Vice President Europe and CentralAsia Region The World Bank The World Bank and the Environment in Central and Eastern Europe and the Commonwealth of Independent States: 1995-1998 TABLE OF CONTENTS EXECUTIVE SUMMARY ..... ......................................... I. INTRODUCTION AND CONTEXT OF THE REPORT ......... ..1............... II. ACCOMPLISHMENTS SINCE 1995 .............................. 2 A. Overall Reporting of the Environmental Portfolio ....... ................. 2 Environmental Projects .............. ................................. 2 Chart 1: Distribution of the World Bank's Lending for "Environmental Projects": 1990-1998 ...... ................ 2 Projects with Environmental Components ....... .................... 3 Table 1: Number of Projects with Environmental Components 1995-98 ................................. 4 Box 1: What Does the Classification "Environmental Project" Mean? .............. ................................. 4 Projects with Significant Environmental Benefits- Including Energy Sector Projects ......... ............................. 6 B. Results from Joint NEAP Work with Clients ........ ....................... 7 Chart 2: World Bank Involvement in National Environmental Action Plans in Central and Eastern Europe and the CIS .... 8 Table 2: Countries in the Region where the World Bank has used IDF Grants for Environmental Objectives: 1995-98 ..................................................... 8 C. Results from Regional and International Partnerships ...... .............. 9 Chart 3: Regional Map of Collaborative Efforts where the World Bank Is Engaged .......... ............................ 9 IFC and the Environment ............. ................................ 10 Table 3: World Bank/GEF Projects in the Regionl995-98 ..... ...... 10 Administering GEF Projects . .......................................... 11 III. RESPONDING TO THE EMERGING AGENDA .................. 12 A. World Bank Assistance for EU Accession Countries ... .......... 12 B. The World Bank's Role in Helping Countries, Mainly in the CIS, Move from Plan to Action ................................................. 12 Box 2: An Assessment of Environmental Problems in the CIS ......... 13 C. Descriptions of New Financial Mechanisms Introduced by the World Bank ....... ......... ................... 13 ANNEXES A. The World Bank's Environment Project Portfolio in the Region ..... ..... 1 5 B. Summary of World Bank Projects in the Region with Environmental Components . .................................................... 17 C. Selected World Bank Projects with Significant Environmental Benefits .................................................... 18 Selected World Bank Publications of Interest (inside back cover) Listing of World Bank Offices in the Region (back cover) EXECUTIVE SUMMARY ince 1995 the World Bank has ects in 19 countries, dealing with continued to work with clients power sector rehabilitation (18 to foster the right policies and projects), oil and gas sector institutions for promoting sustain- improvements (12), district heat- able environmental growth. These ing/energy efficiency (7), coal sec- efforts continue to be matched with tor improvements (4), and green- investment projects dealing with house gas reductions (3). past environmental problems and Since 1995 the World Bank has better environmental management. continued to place importance on In the area of Project Finance, National Environmental Action the past two and a half years have Plans (NEAPs) and Institutional seen: Strengthening, and has * continued growth in our portfolio * worked with clients in Armenia, of environmental projects with Azerbaijan, Georgia, Kazakhstan, the Board approval of the Bulgar- and Uzbekistan to develop NEAPs. ian Environmental Remediation Our work in Azerbaijan directly led Pilot Project, the Croatian Coastal to an investment project, which is Forest Reconstruction and Protec- currently being appraised. tion Project, the Slovenian Envi- helped Russia prepare two ronment Project, the Latvian regional environmental action Municipal Solid Waste Manage- plans erolga anUl mentProject, and the Environment plans (Upper Volga and Ural Project and the Klaipeda Geother- regions) ndnfour setr ala mal Demonstration Project, both (ferrous, nonferrous, chemical, in Lithuania. (The World Bank's and petrochemical industries). portfolio of "environmental pro- * provided Institutional Devel- jects" since 1990, stands at 19 pro- opment Fund grants for envi- jects in this region.) ronmental institutional strength- * 21 projects with "environmental ening in Albania, Armenia, com1projects,of which eleven Azerbaijan Bulgaria, Georgia, components," of which eleven Kazakhstan, Latvia, FYR Macedo- address water quality issues, seven nia, and Ukraine. address air quality or energy effi- ciency issues, and three deal with The World Bank, working with better environmental manage- clients, will continue to promote ment practices. NEAP efforts because they integrate environmental concerns into each * several projects "with significant country's overall national develop- projects bring improvements to ment policies and programs, and will environmentalbring qaity,o sthou help ensure that environmental and teyvronmenota sially design economic objectives are achieved they are not specifically designed siutnolywevrpsib. for such an objective. Most of simultaneouslywhereverpossible. these projects are in the energy The World Bank continues its sector, where since 1990, World participation in several regional Bank lending in this region has collaborative efforts designed to reached US$4.8 billion for 44 proj- improve the Baltic, Black, Aral, and The World Bank and the Environment in Central and Eastern Europe and the Commonwealth of Independent States: 1995-1998 i Caspian Seas, and the Danube River on immediate accession to the Euro- Basin. Working with other donors pean Union face serious environ- and government agencies, these pro- mental challenges. Faced with the grams are moving from regional challenge of building institutions problem identification and priority- while, at the same time, ensuring setting efforts to project preparation that current investments and transi- and financing investments. tion actions do not create future Looking at future actions and environmental problems, these needs, the World Bank is defining countries will undergo significant iteds,ro intheWorlpng clies defocusi change in the area of environmental their emerging agenda. To this management. The World Bank sees end, the World Bank believes that in its role as helping our clients to iden- the near future it will need to tify their priorities, develop institu- thenearfueinth wal ntional capacity and then move from respond to clients plan to action. First 10 client countries are in Third, all clients are increasingly the process of European Union lo accession. Achieving EU air and ooking to the World Bank for sup- water quality standards will require port not only for traditional infra- structure financing, but also for major investments and a strong lo commitment on the part of client ngterm instiution-building pov- governments, businesses, and peo- erty alleviation projects such as p le. In collaboration with other urban upgrading, and transfers of ple.In ollbortio wih oher new technologies. Borrowers want bilateral and multilateral donors and rapid response to their development especially the EBRD, EIB, and Euro- prespond they develope pean Commission, the World Bank problems and they want to have the will continue to help these countries World Bank "stay with it" for the tillontassess ohelp thefiail comintmien long term. We are adapting our prod- toandpssiblte opionsnci formEU ces- ucts and services to provide this kind and possible options for EU acces- of flxblt an. uprtadhv sion environmental comnpliance of flexibility and support and have schedules. introduced two new financial mech- anisms, the Learning and Innovation Second, the CIS countries and Loan and Adaptable Program Loans many of the countries not planning to meet this challenge. ii Executive Summa'y Summary from "The World Bank and the Environment in Central and Eastern Europe: 1990-1995," written in October 1995 Since 1990, the World Bank has assisted the countries of Central and East- ern Europe and the former Soviet Union (termed CEE) in implementing actions to improve the environment. The World Bank and OECD, in collaboration with the European Commission, took a leading role in preparing the Environmental Action Programme for Central and Eastern Europe (EAP) in 1993. The EAP rec- ommends a methodology for identifying priority environmental problems and immediate actions. The World Bank is committed to helping the CEE countries implement the EAP. This assistance covers four areas: * Formulating National Environmental Strategies. The World Bank has assisted 11 countries develop environmental strategies and action plans. * Reformning Policies, Strengthening Institutions, and PublkicPartic- ipation. Through adjustment, sectoral, and project activities, the World Bank is facilitating the development of appropriate economic incentives and regulation. * Financing Environmental Investments. The World Bank has commit- ted US$1.3 billion to help finance 12 stand-alone environmental projects in this region. In addition, it has supported environmental components or objectives in 27 other projects. As an implementing agency of the Global Environment Facility, the World Bank is also financing US$119 million for 19 projects in biodiversity protection, climate change preven- tion, and phase-out of ozone-depleting substances in this region. * Collaborating with Donors. The World Bank is committed to working with other donors to allocate external resources more effectively. Through such partnerships, the World Bank is helping to finance several international programs addressing regional environmental issues. This progress report summarizes the World Bank's activities in support of the CEE countries' efforts to reverse environmental degradation. Many of these problems have taken decades to develop, and solutions will not appear overnight. The CEE countries have made much progress in identifying and addressing their national environmental priorities. The continuing challenge is to translate these priorities into discrete poli- cies, institutional reforms, and investments. Improved human health will remain a key concern. Partnerships among the CEE countries, international financial institutions, bilateral donors, domestic intermediaries, and private investors will facilitate the most effective use of the resources available. The World Bank and the Environment in Central and Eastern Europe and the Commonwealth of Independent States: 1995-1998 I. INTRODUCTION AND CONTEXT OF THE REPORT T he summary box on the previ- Bank. project finance helps clients ous page, written two and a put in place lasting changes to solve half years ago, presents the previous environmental problems essence of the World Bank's and, equally important, to prevent approach to helping clients in Cen- future problems. tral and Eastern Europe and the CIS In all of this work the World Bank solve serious environmental prob- nott alonetSem obvi- lems-both problems inherited fromn does not act alone. Seemingly obvi- lemst soial structrems indtheritedram ous, all efforts and actions revolve past social structures and their prac- arouInd our clients' commitment. tices, and problems associated with C lientcn gement,ebsi Ongoig ecnomi tranitio The Client country governments, busi- ongoing economic transition. The World Bank's overall approach has nesses, non-governmental organiza- not changed We still emphasize in tions, and people decide on their pri- notchaged Westil ephaizein orities and how they will fund our work with clients the need to .iement the wold Bank prioritize environmental problems, Improvementse The World Banki with special attention paid to workng closely with donor organiza- human health-related concerns, tions, ensures that clients have the "hot spots," and problems leading to means to realize their commitments. irreversible damage. This is the context for the fol- We still emphasize the need to get lowing report. The next few pages government policies, private sector describe briefly the activities of the management, and the overall eco- World Bank, working with our nomic situation in such a form that clients, focused on environmental environmental problems are handled problems and improvements. It is with an eye for the long term. important to note that the period for the described activities is only two Institutional development, capa- and a half years. (This report and the city building, and public participa- previous version were prepared to tion are important elements in this coincide with the "Environment for approach. National Environmental Europe" Ministerial Conferences Action Plans (NEAPs) and national which took place in October 1995 environmental strategies are tools and June 1998.) Moreover, environ- that comprise the first step of the mental project work with clients in above approach. Ultimately, priority this region only began in 1990. In setting must be implemented many ways, serious and lasting through action, and here World actions are just now under way. The Wortcd Bank and the Environment in Central and Eastern Europe and the Commonwealth of Independent States: 1995-1998 1 II. ACCOMPLISHMENTS SINCE 1995 A. Overall Reporting of the strenthening), 12 percent for forestry Environmental Portfolio projects, and 6 percent for GEF-relat- ed work on the reduction of ozone ENVIRONMENTAL PROJECTS depleting substances. The World Bank's portfolio of More important, these projects environmental projects in this region, represent improvements in urban since 1990, includes 19 projects (in environmental management, oil addition to 18 Global Environment spill remediation, urban air pollution Facility, or GEF projects). These pro- control, coastal zone management, jects are in Bulgaria, Croatia, the forestry management and biodiver- Czech Republic, Estonia, Latvia, sity conservation, energy efficiency Lithuania, Poland, Russia, and Slove- and the use of alternative energy nia. They represent total World Bank sources, and improved water supply support of roughly US$1.6 billion out and sanitation. of a total project cost of $3.3 billion. Looking only at fiscal years 1996, As Chart 1 shows, more than 60 per- 1997, and 1998 (i.e., from July 1995 cent of the World Bank s hfancsal until the publication of this report), assistance for these projects has been the World Bank committed financ- to improve air quality and energy use. ing for two stand-alone environ- Sixteen percent has been for general g for etw snd-ane enin mental projects in Lithuania, one in environmental improvements (in- Bulgaria, one in Lativa, one in Croat- cluding remediation and institutional ia, and one in Slovenia, These six Chart 1: Distribution of World Bank's Lending for "Environmental Projects": 1990-1998 16% Other Environment Forestry 63% Air/Energy GEF - other gg|| GEF - Ozone Depleting Substance Phase-Out 1% Water 2 Accomplisbments since 1995 projects represent a commitment of area, while developing a knowledge $125 million of World Bank funds base for improved management and and a total project cost of $206 mil- the protection of coastal forests. lion (see Annex A). The Latvian Municipal Solid In Lithuania, the Siaulai Envi- Waste Management Project will ronmental Project, the seventh demonstrate self-sustaining modern World Bank pollution project for the waste management techniques. The Baltic Sea region, will improve water project will remediate an existing quality by improving wastewater disposal site, establish a recyclable treatment. It also provides for materials separation unit, segregate improved environmental manage- hazardous waste from municipal ment in other areas, such as waste waste, collect methane gas and the management. The World Bank/GEF- use of energy cells for the enhanced supported Klaipeda Geothermal degradation of biodegradable waste, Demonstration Project will pro- and generate electricity from waste vide technical assistance and invest- by-products. Because of the signifi- ment for the construction of a geot- cant reduction of methane, a green- hermal demonstration plant to house gas, the project is being co- provide energy for a district heating financed by the GEF. system. The plant will bring about The Slovenia Environment reductions of 56,000 tons of CO2 Project is designed to reduce partic- and 1,200 tons Of SO2 annually, and ulate and SO2 emissions in some of will demonstrate the value of devel- the country's most heavily polluted oping indigenous geothermal ener- cities. The project involves institu- gy resources. tional strengthening and an envi- The Bulgarian Environmen- ronmental management scheme for tal Remediation Pilot Project the Soca Valley. An Air Pollution will assist the government in reduc- Abatement Fund (APAF) will be ing environmental problems at a established as a trust fund managed recently privatized copper smelter as by the Slovenian Ecofund to finance well as improve prospects for private conversion from coal to cleaner investment in the company. The fuels or district heating systems. Ulti- main enviromental benefits will mately, the APAF will become a self- derive from addressing a leaking, sustaining revolving loan fund for arsenic-laden lagoon that threatens similar projects in other polluted a drinking-water reservoir. The pro- Slovenian cities. ject will also address contaminated groundwater, solid waste disposal, PROJECTS WITH ENVIRONMENTAL and the management of slag tailings COMPONENTS and industrial sludge. During this same period (i.e., from In Croatia, the Coastal Forest July 1995 until May 1998), 21 World Reconstruction and Protection Bank projects in the region included Project aims to restore and protect components which address environ- forest land in the coastal zone in mental quality and management (see order to enhance the landscape and Table 1, Annex B). These components recreation values of the region, serve to identify and create measures thereby contributing to restored to mitigate possible negative environ- tourism use. This five-year project mental consequences, fully capture will protect soil and water as well as potential environmental benefits, restore the natural vegetation of the and create an institutional base to The World Bank and the Environment in Central and Eastern Europe and the Commonwealth of Independent States: 1995-1998 3 Table 1: Number of Projects stimulate the linking of environmen- with Environmental tal objectives with sectoral develop- Components: 1995-98 ment. __ __ __ _ _ Brief descriptions of a few of these Water Quality/Usage I I projects follow Air Quality/Energy Efficiency 7 Projects with Components General Environment to Improve Water Quality Management and Practices 3 and Usage TOTAL 21 Poland's Bielsko-Biala Water - and Wastewater Project is de- Box 1: What Does the Classification "Environmental Project" Mean? In this report we classify each project as an "environmental project," a "project with environmental components," or a "project with significant environmental benefits." What does this distinction mean, and is it too artificial? We classify as "environmental projects" those projects in which the focus, design, and all aspects of implementation are clearly targeted to provide envi- ronmental benefits. The Croatian Coastal Forest Reconstruction and Protection Project is such a project. Very often, however, a World Bank project has multi- ple objectives and aims to achieve a set of goals that are not exclusive to one sector, such as the environment. In these projects, such as the Bielsko-Biala Water and Wastewater Project in Poland, one objective or component of the project is designed to improve the environment (in this case to improve water quality) while other objectives and components are designed for other purpos- es (i.e., to restore and develop municipal infrastructure). These projects are the ones we classify as "projects with environmental components." Lastly, a "pro- ject with significant environmental benefits" is a project in which no specific component has been designed to improve the environment, yet by the imple- mentation of the project itself, there will be significant and lasting environ- mental improvements. Projects such as the Russian Coal Sectoral Adjustment Loan are included in this category, because the financial restructuring and incentives provided by sensible energy pricing will have a wide-scale and sig- nificant effect on air quality In many ways, the goal of "mainstreaming the environment" is to produce envi- ronmental benefits from nearly all projects. We would expect, then, that the World Bank's portfolio would include a growing number of projects with "envi- ronmental components" and "significant environmental benefits," thereby ensuring that environmental improvements are widespread and lasting. Environmental projects Mainstreaming the Environment Projects with environmental components Projects with significant environmental benefits 4 Accomplishments since 1995 signed to support rehabilitation and ponent to finance water supply and improved management of the coun- distribution and institutional reform try's water and wastewater sector. The action plans. This "learning-by- project aims to improve the Biala and doing" piloting approach, incorpo- Vistula Rivers' environmental quality rating community participation, by reducing industrial waste dis- should lead to full-scale projects charges into the rivers. The project addressing the greater problems in initiates combined sewer overflow these countries. control programs, introduces a more effective monitoring program for Projects with Components to industrial waste discharges, and insti- Promote Energy Efficiency and tutes a technical assistance and an ImprovedAirQuality institutional strengthening program. In Lithuania, the Energy Effi- Through the rehabilitation of the ciency/Housing Pilot Project is a wastewater treatment system, the demonstration effort to support and Croatian Municipal Environ- enable private initiative to improve mental Infrastructure Project residential energy efficiency; this will reduce municipal wastewater effort is coupled with support for the discharge into the environmentally implementation of government sensitive Kastela and Trogir Bays. The policies to sustain housing privatiza- project will also improve the safety, tion. The project also will rehabili- reliability, and delivery of drinking tate schools in selected municipali- water in the project area as well as ties to increase energy efficiency. improve the operational and finan- Two energy sector projects in cial performance of the water utiliry Moldova and Romania have included In Kazakhstan, the Irrigation measures to improve efficiency in and Drainage Improvement power production, reduce leaks and Project will improve existing waste, and curb air pollution. The drainage technology and reduce Moldova Energy Project would water losses, waterlogging and salin- also upgrade financial management ity problems, and help reduce pesti- systems to reduce non-technical loss- cide use through farmer training and es, facilitate better financial decision- information dissemination. The pro- making, and induce subsequent sec- ject will also help strengthen legisla- tor reforms. The Romania Power tive, monitoring, and enforcement Sector Rehabilitation Project capacities in the Ministry of Environ- envisages technical and efficiency ment; and it will prepare a wetlands measures that would result in signifi- management strategy, in coopera- cant reductions in NOX, SO2 and par- tion with the World Wide Fund for ticulate emissions. The project would Nature, finance laboratory equip- also provide technical assistance for ment for environmental monitoring, institutional strengthening in envi- and fund environmental studies for ronmental management and health future drainage investments. and safety imprbvements. The Pilot Water Supply Engi- The Urban Transport Project neering Projects in Uzbekistan in Turkmenistan includes provision and Kazakhstan are designed to for the purchase of new buses; it also develop operational methods and addresses traffic management im- capability in all aspects of project provement programs. The project will processing and cost recovery by significantly improve the air quality in using a small-scale investment com- the urban environment by improving The World Bank and the Environment in Central and Eastemn Europe and the Comrnmonwealth of Independent States: 1995-1998 5 the condition of buses and by more inappropriate to classify the project efficient traffic management. as an "environmental project." Projects with Components to There are a few projects outside Promoj eBetwtherComponmentsa the energy sector that also have ancil- Proagemoteentt Environmticen lary environmental benefits. An Enterprise Housing Divestiture pro- In Kazakhstan, the Uzen Oil ject in Russia and an Irrigation Reha- Field Rehabilitation Project will bilitation Project in FYR Macedonia, assist in assessing the impact of past approved in 1996 and 1997, are operating practices on the present examples where benefits will accrue condition of the reservoirs, wells, from project implementation, even and the environment of the field. though components are not specifi- The project will contribute to the cally designed to address environ- redemption of past environmental mental issues. (Annex C presents a damage and the strengthening of selection of World Bank projects with environmental monitoring and significant environmental benefits.) management systems for ongoing Energy sector projects, however, activities. provide the majority of "projects with Also, the Oil Institution Build- significant environmental benefits." ing Project in Georgia includes fea- Certainly, some energy projects are sibility studies of a major oil export considered "environmental projects" pipeline from Baku, Azerbaijan to or projects with "environmental com- Supsa, Georgia, and of a related ter- ponents" (see Annexes A and B and minal and storage facility. Training in the previous discussion), because they environmental impact assessment, have a strong focus on specific envi- including stockholder analysis and ronmental issues or contain specific public consultation, are included in environmental components. Many this project. energy projects, however, indirectly provide environmental benefits. PROJECTS WIMN SIGNIFICANT Looking at the energy projects in ENVIRONMENTALE BENEFITS- the region since 1990, not classified INCLUDING ENERGY SECTOR PROJECTS earlier as "environmental" or proj- Although not specifically de- ects with "environmental compo- signed to address environmental nents," there are 23 energy projects issues, many projects will result in in 12 countries. They represent a improved environmental conditions World Bank commitment of US$3.9 solely because of their implementa- billion. The projects include: tion. For example, the Russian Coal 13 projects in the power subsector Sector Adjustment Loans (the sec- focusing on the rehabilitation and ond one signed in 1997) will con- construction of power plants and tribute to improved air quality solely transmission/distribution lines, and because of the fuel pricing compo- the modernization of dispatching nents inherent in the loan agree- and communication facilities; ment. The end result-e.g., the quan- tity of S02 emissions reduced-may * 5 projects in the oil/gas subsector be just as significant as with a project focusing on the rehabilitation of designed to address air emissions. oil and gas fields, the construction That is to say, the environmental of pipelines, and the cleanup of oil benefits are there, but it would be spills; 6 Accomplisbments since 1995 * 5 projects in the coal mining sub- mental Action Plans (for the Upper sector focusing on the mitigation Volga and Aural regions) as well as of the social and environmental four Sector Environmental Action consequences of the closure of Plans (focusing on the following uneconomic mines. industrial sectors: ferrous metals, non- ferrous metals, chemicals, and petro- B. Results fromJoint NEAP chemicals). Work with Clients The World Bank puts a great deal The World Bank is currently help- of emphasis on NEAPS because they ing Armenia, Azerbaijan, Geor- provide a basis for prioritizing future gia, Kazakhstan, and Uzbekistan actions as well as a means for dis- identify environmental priorities as cussing problems with civil society. part of the National Environmental They also provide a basis for World Action Plan (NEAP) process. All of Bank assistance in line with country these countries inherited an ineffec- assistance strategies, because environ- tive environmental management sys- mental priorities can often be mapped tem and a number of critical environ- to specific investment actions. The mental problems from the former Urgent Environmental Investment Soviet Union. Project in Azerbaijan, currently under * Azerbaijan has severe health- appraisal, for example, is a direct result related effects due to industrial of our earlier joint NEAP efforts. pollution and threats to the Caspi- More important, these NEAP an sea coast. efforts will integrate environmental • Kazakhstan suffers from acute concerns into each country's overall urban air pollution and solid national development policies and wasten managemenlut1 and water programs, and will help ensure that qualite management andwater environmental and economic objec- quality problems. tives are achieved simultaneously * Uzbekistan's problems lie in the wherever possible. area of water resource manage- n a ment,air quality, urban infrastruc- In addition to NEAPS, regional tene, air qualityiun ifrastrurc policy work and research under- ture, and sustainable resource taken by the World Bank has also management in the face of rapid contributed to integrating environ- population growth. mental concerns and economic * Armenia faces urban water pollu- management. New policy reviews tion and sanitation problems, land and programs, such as the Gas Sector erosion, unsustainable forestry, and Review for Poland, Coal Sector the degradation of Lake Sevan. Review for Ukraine, Oil and Gas * Georgia's problems include poor Issues Study for Uzbekistan, Agricul- water resource management, air tural Sector Review for Georgia pollution, energy inefficiency and Transport Sector Review for Kaza- pollution, energ ineffkhstan, and Energy Sector Review solid waste management. for FYR Macedonia, are likely to con- Chart 2 shows where we have tribute positively to closer coordina- worked and where we continue to tion of environmental and econom- work with clients in the region to ic development objectives. develop NEAPs. Finally using the World Bank's In- In Russia, the World Bank is also stitutionalDevelopnentFund, we have assisting on two Regional Environ- provided small grants to several coun- The World Bank and the Environment in Central and Eastern Europe and the Commonwealth of Independent States: 1995-1998 7 Chart 2: World Bank Involvement in National Environmental Action Plans in Central and Eastern Europe and the CIS National Environmental Strategies Completed with World Bank Support: - Completed In Preparation .', ' Planned MI' Xs. ... Russian Fedarotton - . '..; 'oista 7~~~~~ 0~~ Table 2: Countries in the Region Where the World Bank Has Used IDF Grants for Environmental Objectives: 1995-98 Albania Preparation of National Environmental Action Plan Armenia Strengthening Institutional Capacity for Environmental and Natural Resource Management Integrated Planning to Prepare an Action Plan for Lake Seven .................................... ........ ... ..............*..................................................................................................... ...... Azerbaijan Institutional Capacity Building in Environmental Management Bulgaria Instititional Development for Preparing and Implementing Environmental Projects Georgia Strengthening Institutional Capacity for Environmental and Natural Resource Management Kazakhstan Institutional Capacitv Building in Environmental Management and Planning FYR Macedonia Preparation of National Environmental Action Plan Ukraine Strengthening Local Environment, Environmental Policy Development 8 Accomplisbnents since 1995 tries to work on management and 130 identified "hot spots," and has institutional strengthening compo- recommended policy and legislative nents outside of investment projects reforms and supported institutional (see Table 2). strengthening, research, and public environmental education. C. Results from Regional and The Black Sea Environmental International Partnerships Program has analyzed transbound- The World Bank is participating ary and local environmental issues, in several collaborative efforts in the identified urgent investment actions region to improve the Baltic, Black, and supported the Urgent Invest- Aral, and Caspian Seas, and the ment Portfolio, facilitated multi- Danube River Basin (see Chart 2). sector coordination, and provided The Baltic and Black Sea Envi- technical assistance for local institu- ronmental Programs have moved tional capacity-building. Through quickly from regional problem iden- the program's integrated coastal zone management and biodiversity tification and priority-setting to pro- ject preparation and financing components, the World Bank has investments. The Baltic Sea Envi- strengthened institutional capacity ronmental Program has focused through training, establishing activi- on preventative and restorative ty centers, expanding information actions to protect the sea based on networks, and supporting national reports and pilot projects. Chart 3: Regional Map of Collaborative Efforts Where the World Bank Is Engaged Dan.ube RI... Bas,m The World Bank and the Environmnent in Central and Eastern Europe and the Commonwealith of Independent States: 1995-1998 9 The Caspian Sea Environmen- paign for the Bucharest water supply tal Program has encouraged, accel- project. Work on this program con- erated, and helped to guide the coop- tinues and future objectives are erative efforts of the five Caspian being discussed. littoral states (i.e., Azerbaijan, Iran, Kazakhstan, Russia, and Turkmen- IFC AND THE ENVIRONMENT istan) to establish a functioning Interational Finance Corporation regional program. All five countnes the World Bank, UNDP, UNEP -(IFC) is the part of the World Bank EU-TACIS and other government and Group which finances private-sector privACte an s to eprgesnt es hav projects that contribute to sustain- private sector representativeshave able development, including new met, are considering the overall pro- ventures and the modernization, gram framework and are: expansion, and privatization of * establishing a Caspian Bio- existing enterprises. All of IFC's pro- Resources Network, jects must meet IFC's and host coun- . identifying urgent, high-priority tries' environmental and social investment projects, review guidelines. IFC also identifies and implements projects with spe- * establishing a Program Coordina- cific environmental objectives, and a tion Unit, and new group, the Environmental Pro- * setting up Activity Centers in each jects Unit, was formed in 1996 with country to coordinate capacity the objective of catalyzing and de- building measures. veloping such investments. Exam- building*measure. ples of IFC's recent environmental For the Environmental Man- investments in the region include: agement of the Danube River Co-financing of an US$ 832 mi- Basin Project, the World Bank was lion project to refurbish the steel and mining operations of two pri- Moldova, pre-investment work for g i p the udapst wstewter reatent vate firms in Kazakhstan near the the Budapest wastewater treatment towns of Karaganda and Temirtau, project, and a public awareness cam- Table 3: World Bank/GEF Projects in the Region: 1995-98 Ozone Depleting Substance Pbaseout/Greenbouse Gas Country Reduction Projects Biodiversity Strategies/Projects Albania X Belarus X Bulgaria X Croatia X Georgia X Hungary X Kyrgyz Republic X Latvia X Lithuania X X Poland X Russia x X Slovenia X Ukraine X 10 AccomplisOments since 1995 including over US$ 100 million in able water supply and wastewater environmental improvements. treatment services to the city. * Privatization of Nova Hut, the Finally, IFC is extending its reach Czech Republic's largest steel mill, beyond its own portfolio by training where the sponsor allocated US$ financial institutions in developing 86 million to reduce air emissions, countries to take environmental and construct a biological wastewater social issues into account when con- treatment plant, and upgrade the sidering investments. facility sewer system. * Modernization of Kunda Nordic ADMINISTERING GEF PROJECTS Cement A/S in Estonia where US The World Bank is one of three $7.5 million was earmarked for implementing agencies of the Glob- environmental improvements in- al Environment Facility. Since 1995, cluding a 98 percent reduction in 16 Bank/GEF projects were ap- particulate emissions. proved by the World Bank in the * The Hungary Energy Efficiency Co- Region. These include eight projects Financing Program, which will use addressing the phase-out of ozone- US$ 5 million from the Global depleting substances, five projects Environment Facility (GEF) to (including two with IFC) in climate provide partial guarantees to local change, two projects in the interna- tional waters area, and one biodiver- funding energy efficiency projects sity project (See Table 3). This brings to a total of 30 projects financed at • The Poland Efficient Lighting Pro- least in part with GEF funding since gram, a US$ 5 million project 1993. The Bank/GEF is also funding funded by the GEF to stimulate nine biodiversity strategies and the Polish market for compact flu- action plans throughout the Region orescent lamps. (see Annex A). An additional 10 pro- . Advising the city of Bucharest, jects in biodiversity, climate change, Romania on pri n tand international waters have been Romania on privatizing the muni- aprvdbthGEconiadae cipal water and sewerage com- approved by the GEF council and are pany to bring a cleaner, more reli- under appraisal by the World Bank. The World Bank and the Environment in Central and Eastern Europe and the Commonwealth of Independent States: 1995-1998 11 III. RESPONDING TO THE EMERGING AGENDA In the five years between the Envi- Slovakia, and Slovenia) are candidates roninenztalActioiz Pogr-ainmefor for acceding to a larger European Central and Eastern Europe and Union. This process will undoubtedly today, profound changes have take some time, and it needs to be occurred in the region. First, there is phased in accordance with the specif- a growing difference among coun- ic circumstances of each country. tries in the speed and type of their There is one important element, how- economic transition. Second, envi- ever, that the process provides to each ronmental priority-setting efforts of the 10 countries: a set of environ- have highlighted the complex needs mental standards to be applied con- of each country. And third, regarding sistently across countries, i.e., adher- environmental needs and invest- ence to the acquis communautaire. ments, there are now two major . . groups of countries in the region. ity angaEU arlandqwater qaj- tystandards will require major One group of client countries is investments and a strong commit- focusing on accession to the Euro- ment on the part of client govern- pean Union. This group has a clear ments, businesses, and people. framework and goals for future envi- In collaboration with donors ronmental standards, but important and the European Commission, questions regarding the timing, cost, including the PHARE program, the and implementation of significant World Bank is helping these coun- environmental investments remain. tries to assess ways in which the A second group of client countries, Bank can provide assistance for the mainly in the CIS, have started to an cans ofvEU assisnc identify their environmental priori- process o accession. ties and are now facing the challenge In addition, the World Bank can to move from plan to action. provide financing to undertake the The World Bank is responding necessary investments to comply The orldBankis rsponing with EU environmental standards, flexibly to the needs of our clients in . . e these two groups. In response to should our clients request it. client demand, we offer policy B. The World Bank's Role in advice, institutional strengthening Helping Countries, Mainly assistance, and project financing. In in the CIS, Move from Plan addition, new financial mechanisms recently introduced by the World toActon Bank may be a cost-effective way of The CIS countries, and many of helping our clients build institution- the countries not likely to join the al capacity while implementing pri- European Union in the near future, ority actions on the path to achiev- face serious environmental chal- ing long-term environmental goals. lenges. Inheriting a common envi- ronmental management system and A. World Bank Assistance for ethic, many of the CIS countries are EU Accession Countries faced with the challenge of building Ten client countries (i.e., Bulgaria, institutions while, at the same time, Czech Republic, Estonia, Hungary, ensuring that current investments Latvia, Lithuania, Poland, Romania, and transition actions do not create 12 Responding to the Emerging Agenda future environmental problems. In World Bank provides, upon request, addition, the magnitude of existing the necessary financing to imple- environmental degradation is enor- ment each client country's program mous (see Box 2). of investments. The World Bank sees its role as C. Descriptions of New helping our clients to identify their priorities, develop institutional ca- Fint cea bychas pacity, and then move from plan to Introduced by the action. We can assist at any stage of World Bank the process. First, we can assist Borrowers are increasingly look- clients in assessing environmental ing to the World Bank for support not problems and setting priorities by only for traditional infrastructure developing a NEAP. The NEAP financing, but also for long-term insti- process helps ensure that support tution-building, poverty alleviation for priority actions is broad and projects such as urban upgrading, and widely debated. Second, we can transfers of new technologies. Bor- assist clients in developing the insti- rowers want a rapid response to their tutional capacity to handle past and development problems and they future environmental problems and want to have the World Bank "stay improvements for the long term- with it" for the long term. We are including the prudent management adapting our products and services to of natural resources. And third, the provide this kind of support. Box 2: An Assessment of Environmental Problems in the CIS The scope and magnitude of environmental problems in the CIS are immense. Despite numerous similarities with the countries of Central and East- ern Europe (CEE), the CIS face a set of environmental issues that are qualitative- ly and quantitatively different. With regard to water, these include alarmingly high rates of infant mortality, which seem to be related to the poor quality and the limited access to drinking water; the widespread scarcity of water; and the deteriorating quality of a number of regional water bodies governed by unclear or unenforceable transboundary arrangements following the break up of the Soviet Union. Severe health risks are caused by high localized concentrations of hazardous waste in industrial hot spots. Moreover, rich biodiversiry resources are at risk from unsustainable land use patterns. Ambient air quality problems from stationary sources in the CIS are comparable to those in the CEE, but pollution from mobile sources has not yet reached CEE levels. The economic decline that has accompanied the first phase of economic transition has also brought about a decline in -air and water pollution. This decline is only temporary, however. Given their rich endowment of natural resource and the high quality of their labor forces, the CIS have all the potential for economic recovery. The key challenge is thus to institute appropriate envi- ronmental management now, in order to grow in an environmentally sustain- able manner. The alternative approach of "growing first and cleaning up later" has proven costly for countries that have adapted it. Economic reform alone will not be sufficient, however, as reforms need to be accompanied by the creation of stronger environmental institutions. High priorities for the CIS include improving monitoring, compliance, and enforce- ment; streamlining regulations; decentralizing environmental management, and building broad-based public support for environmental goals. The World Bank and the Environment in Central and Eastern Europe and the Commonwealth of Independent States: 1995-1998 13 The first new instrument, the building. In these cases, sustained Learning and Innovation Loan (LIL), effort, partnership, and continuity would be used: are important in the face of chang- (i) when institutional capacities ing interests, priorities, and person- need to be built up in prepara- nel in the borrower countries, the need to be built up inprepara- World Bank, and the rest of the tion for a large-scale program; donor community (ii) in uncharted but promising ter- ritoy i whch iabl tehnial, In usingy these two new invest- financial, social, and environ- ment instruments, we expect our finanial,socil, an envron-clients to realize the following: mental solutions are not yet known; or * greater flexibility in adapting pro- (iii) to pilot a potentially good devel- ject design and financing over opment effort when the time is time to meet agreed development right and the ground has already objectives as borrower conditions been laid through a local initia- and partnerships evolve; tive, a social assessment, other * more support for projects entail- participatory exercises or anoth- ing behavioral change on the part er partner's efforts. of beneficiaries and other affected It would be applicable in circum- parties and where clear and stances where experimentation and proven models are not available piloting are needed to determine the for project design; best course of action and to assess * encouragement of a results culture, the borrower's capacity before mov- based on learning, partnership and ing as warranted to a larger scale experimentation; and reduction of intervention. the risks to the borrower and the The other new investment in- Bank under conditions of uncer- strument is the Adaptable Program tainty. Loan (APL). The underlying notion These new lending mechanisms, of the APL is that some development in conjunction with traditional loans processes cannot be addressed in the and approaches, will help ensure context of a single investment oper- that the World Bank has the means ation. Some efforts are long term. to respond to our client's emerging This is particularly true of capacity agenda. 14 Responding to the Emerging Agenda Annex A. The World Bank's Environmental Project Portfolio in the Region Approved World Bank Total Country Project Name in FY Loan/Credit Cost (min USS) (mln US$) Albania Biodiversity Strategy, Action Plan and National Report* 97 0.1 0.1 Belarus Phase-out of Ozone-Depleting Substances' 97 7 16 Bulgaria Ozone Depleting Substances Phase-out* 96 7 14 Environmental Remediation Pilot Project 98 16 25 Croatia Biodiversity Strategy, Action Plan and National Report 97 0.1 0.1 Coastal Forest Reconstruction and Protection Project 97 42 60 Czech Republic Biodiversity Protection' 94 2 3 Power and Environment Improvement 92 246 558 Estonia District Heating Rehabilitation 94 38 65 Haapsalu and Matsalu Bays Environment 95 2 8 Georgia Biodiversity Strategy, Action Plan and National Report* 97 0.1 0.1 Hungary Phase-out of Ozone Depleting Substances 96 7 8 Kyrgyz Biodiversity Strategy, Action Plan Republic and National Report* 97 0.1 0.1 Latvia Liepaja Environment 95 4 21 Latvian Municipal Solid Waste Management Project 98 13 25 Lithuania Biodiversity Strategy, Action Plan and National Report 97 0.1 0.1 Klaipeda Environment 95 7 23 Klaipeda Geothermal Demonstration 96 6 18 Klaipeda Geothermal Demonstration' 96 7 18 Siaulai Environment 96 6 23 Poland Coal-to-Gas Project 95 25 48 Energy Resource Development 90 250 590 Environment Management 90 18 27 Forest Development Support 94 146 335 Heat Supply Restructuring and Conservation 91 340 739 Katowice Heat Supply 95 45 93 Phase-out of Ozone Depleting Substances! 97 6 20 Romania Danube Delta Biodiversity' 95 5 5 Continued The World Bank and the Environment in Central and Eastern Europe and the Commonwealth of Independent States: 1995-1998 15 Annex A. The World Bank's Environmental Project Portfolio in the Region (continued) Approved World Bank Total Country Project Name in FY Loan/Credit Cost (mln US$) (min USS) Russian Federation Biodiversity Conservation* 96 20 26 Emergency Oil Spill 95 99 140 Environmental Management 95 110 195 Greenhouse Gas Reduction' 96 3 131 ODS Consumption Phase-out 96 35 44 Slovak Republic Biodiversity Protection 94 2 3 Slovenia Environment 96 35 55 Phase-out of ODS' 96 6 10 Ukraine Biodiversity Strategv, Action Plan and National Report' 97 0.1 0.1 Danube Delta Biodiversit,' 94 1.5 1.7 Total 1,557 3,352 Environmental Projects in bold since July 1995 Descriptions of these projects can be found on the World Bank's Web page at (www.worldbank.org/html/pic/waissrch.htm) 'Global Environment Facility Project Annex B. Summary of World Bank Projects in the Region with Environmental Components Approved World Bank Country Project in FY Loan/Credit (mln USS) (mln US$) Albania Durres Water Supply Rehabilitation 94 12 Albania Forestry Project 96 8 Albania Irrigation Rehabilitation Project 95 10 Armenia Irrigation Rehabilitation Project 95 43 Azerbaijan Greater Baku Water Supply Rehabilitation 95 61 Belarus Forestry Development 94 42 Bulgaria Water Companies Restructuring and Modernization 94 98 Croatia Croatian Municipal Environmental Infrastructure Investment Project 98 36 Estonia Financial Institutions Development 95 10 Estonia Agriculture Project 96 15 Georgia Municipal Infrastructure Rehabilitation 95 18 Georgia Power Rehabilitation 97 52 Georgia Oil Institution Building 97 1.4 Hungary Budapest Urban Transport Project 95 38 Hungary Energy and Environment 94 100 Kazakhstan Pilot Water 97 7 Kazakhstan Irrigation and Drainage Improvement Project 96 80 Kazakhstan Uzen Oil Field Rehabilitation 96 109 Kyrgyz Republic Power and District Heating Rehabilitation 96 20 Latvia Jelgava District Heating Rehabilitation 95 14 Lithuania Energy Efficiency/Housing Pilot Project 97 10 Moldova Energy Project 96 10 Poland Emergency Flood Recovery 98 200 Poland Port Access 97 67 Poland BLelsko-Biale Water Supply 96 22 Romania PetroLeum Sector Rehabilitation 94 176 Romania Bucharest Water Supply 97 25 Romania Power Sector Rehabilitation 96 110 Russia Coal Sector Imp. Assistance Project 96 25 Russia Gas Distribution Rehabilitation and Energy Efficiency 95 107 Turkmenistan Urban Transport 97 34 Thrkmenistan Water Supply 97 30 Uzbekistan Cotton Sub-sector Improvement Project 95 66 Uzbekistan Pilot Water 97 5 Uzbekistan Rural Water Supply and Sanitation 98 75 Projects in bold since July 1995 Descriptions of these projects can be found on the World Bank's Web page at (www.worldbank.org/html/pic/waissrch.htm) The World Bank and the Environment in Central and Eastern Europe and the Commonwealth of Independent States: 1995-1998 17 Annex C. Selected World Bank Projects with Significant Environmental Benefits Country Project FY Approved Albania Power Transmission and Distribution 96 Albania Power Loss Reduction 95 Armenia Power Maintenance 95 Azerbaijan Gas System Rehabilitation 97 Azerbaijan Petroleum Technical Assistance Project 95 Bulgaria Energy Project 93 Bosnia Emergency Gas System Rehabilitation 98 Bosnia Emergency Electric Power Reconstruction 97 Hungary Quick Start Gas Turbine 97 Hungary Energy Development 89 Kazakhstan Financial and Enterprises Development Project 95 Kazakhstan Petroleum Technical Assistance 94 Kazakhstan Urban Transport Project 94 Kyrgyz Republic Private Enterprise Support 95 Latvia Enterprise and Financial Sector Restructuring 95 Lithuania Enterprise and Financial Assistance 95 Lithuania Power Rehabilitation 94 FYR Macedonia Power System Improvement Project 98 FYR Macedonia Irrigation Rehabilitation 98 Poland Power Transmission 96 Russia Coal Sector Adjustment I 96 Russia Coal Sector Adjustment Loan II 98 Russia Community Social Infrastructure 96 Russia Enterprise Housing Divestiture 96 Russia Urban Transport 95 Russia Oil Rehabilitation Project 93 Russia Second Oil Rehabilitation 94 Russia Electricity Sector Reforms 97 Ukraine Electricity Market 97 Ukraine Coal Sector Adjustment Loan 97 Ukraine Coal Pilot 96 Ukraine Hydropower Rehabilitation and System Control 95 Projects in bold since July 1995 Descriptions of these projects can be found on the World Bank's Web page at (www.worldbank.org/html/pic/waissrch.htm) 18 Annex C Selected World Bank Publications of Interest Albania Environmental Strategy Study. 1993. Report No. 11784-ALB Alternative Policies for the Control of Air Pollution in Poland. 1994. ISBN 0-8213-2753-4 Belarus Environment Strategy Study. 1993. Report No. 11926-BY Bulgaria Environmental Strategy Study. 1992. Report No. 10142-BUL Bulgaria Environmental Strategy Study Update and Follow-Up. 1994. Report No. 13493-BUL Czech and Slovak Federal Republic Joint Environmental Study. 1992. Report No. 9623-CS Economic and Ecological Benefits of Reducing Emissions of Sulfur Oxides in the Sostanj Region of Slovenia. 1995. Paper No. 009. Environment and Health in Central and Eastern Europe. 1995. ISBN 0-8213- 3173-6 Environmental Action Programme for Central and Eastern Europe. 1994. ISBN 0-8213-3179-5 Environmental Liability and Privatization in Central and Eastern Europe. 1994. ISBN 0-8213-3181-7 Foreign Direct Investment and Environment in Central and Eastern Europe-A Survey. ISBN 0-8213-3180-9 Hungary Environmental Strategy Study. 1992. Report No. 10882-HU Kyrgyz Republic National Environmental Action Plan. 1995. Report No. 13990-KG Moldova National Environmental Action Plan. 1995. Municipal Wastewater Treatment in Central and Eastern Europe. 1998. Report No. ISBNO-8213-4085-9 Municipal Wastewater Treatment in Central and Eastern Europe: Present Situation and Cost-Effective Development Strategies. 1995. Report No. 12440-ECA Phasing Out Lead from Gasoline in Central and Eastern Europe: Health Issues, Feasibilityand Policies. 1997. Report No. ISBNO-8213-3915-X Poland Environmental Strategy. 1992. Report No. 9808-POL Priorities for Enviromental Expenditures in Industry: Eastern Europe and the Former Soviet Union. 1998. Report No. ISBNO-8213-4086-7 Romania Environmental Strategy Paper. 1992. Report No. 10613-RO The World Bank and the Environment in Central and Eastern Europe: 1990-1995. 1995 Ukraine Suggested Priorities for Environmental Protection and Natural Resource Management. 1994. 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