Ukraine - Donetsk Environment Project

Report No. PID7148 Project Name Ukraine-Donetsk Environment Project (+) Region Europe and Central Asia Sector Environment Project ID UAPE43880 Borrower Donetsk Oblast Implementing Agency Donetsk State Department of Environment, Donetsk, Ukraine Mariupol Water and Sewerage Organization (Mariupol Vodokanal), Mariupol, Ukraine Environment Category B Date This PID Prepared October 5, 1998 Projected Appraisal Date March, 1999 Projected Board Date October, 1999 Country and Sector Background In the six years following independence, little has been done in Ukraine to begin reducing pollution and addressing structural problems of public and private entities affecting environmental quality. Although Bank involvement in the environmental field has been substantial over the past four years, willingness to borrow for environmental investment was limited, mainly due to weak institutional capacity and the slow pace of economic reforms. However, after laying the ground with two IDF Grants for environmental policy development at the local and central government level and with two very successful GEF-funded biodiversity projects in the Carpathians and in the Danube Delta, and a GEF project for eliminating ozone depleting substances, the country is ready for a lending project that addresses some of the outstanding priorities and builds on the foundation laid by the IDF projects. The success of this project is therefore key to the continuation of a dialogue with the country in terms of environmental investment, and key to the solution of some of the most pressing environmental problems in Ukraine. Objectives The objective of the proposed project is to establish effective and sustainable systems for reducing emissions into air and water in the Donetsk Oblast. Key performance indicators for the project include: Reduction in pollution levels due to industrial point sources; Reduction in water contamination from poorly maintained water supply and wastewater systems; Improved and enforceable environmental management policies at the regional level. Description The proposed project will (1) support priority investments to reduce pollution affecting human health; (2) in the coastal city of Mariupol, support rehabilitation investments in water supply and wastewater systems and related  institutional strengthening; (3) support improvements in environmental management and related regulatory infrastructure at the local level. The project would be implemented over four years and would consist of a pollution abatement facility; a Black Sea water quality component focused on Mariupol; a solid waste management plan development component; and an environmental management component. The project is designed to be a base for encouraging investment in environmental protection and clean-up and as a model for introducing financing mechanisms for environmental investments in Ukraine. Component 1): Donetsk Pollution Abatement Facility (DPAF) The proposed project would establish the Donetsk Pollution Abatement Facility (DPAF), capitalized at over US$ 25 million to co-finance improvements in environmental management in enterprises, including pollution abatement investments in the Oblast. Contributions to the DPAF would come from the World Bank loan (US$ 20 million), from the Oblast budget (US$ 5 million over three years from environmental fees and fines), and, possibly, from donor grant. General conditions for eligibility for DPAF would be: i) project proposals must be made by an industrial enterprise on the basis of an environmental audit and after preparing an enterprise environmental management plan that identifies a wide range of managerial, materials management, processes change and direct investments; ii) the enterprise must demonstrate its medium term financial viability and the ability to co-finance the proposed investment, iii) the enterprise should at least be corporatized with a definite timetable for privatization, iv) the fund could finance preparation of the environmental management plan and any investment in equipment, and must result in significant, measurable environmental performance improvements, v) the investment should preferably be self-supporting with respect to return on investment and pay back capacity; vi) the investment should utilize proven technologies that are readily applied; vii) municipal service utilities and research and development projects would not normally be eligible. Component 2): Black Sea Water Quality Management (Mariupol) Major concerns in water quality management along the Black Sea and Azov Sea coast include the need to address operational and financial performance of water utilities and intervene with urgent rehabilitation of wastewater systems in areas where recurrent failures are likely to have a severe impact on human health. The problem is at once institutional and infrastructural and some emergency works are required while a parallel financial management plan for the water utility is developed. This component will support the development of a utility management plan addressing operational and financial issues; priority investments; and equipment needs to improve water supply/wastewater treatment services in the industrial city of Mariupol. The water supply rehabilitation sub-component will include: rehabilitation investments and network improvements in water supply/wastewater treatment systems; and related investments encouraging energy and water demand management (e.g. metering) and pre-treatment of industrial effluents. Given repayment limitations and the management emphasis of the component, -2 -  investments will mostly consist of small-scale rehabilitation of existing assets, including the use of more durable materials, as well as leakage reductions and efforts to maintain a continuous supply. In addition, twinning arrangements or a management contract will be explored to further strengthen the Mariupol Vodokanal (MVK) Component 3): Solid Waste Management Master Plan Development Solid Waste Management (SWM) has been identified as a priority throughout the Oblast, and a coordinated, region-wide planning effort to define and develop critical institutions and to strengthen related infrastructure is a necessary first step in addressing the problem. Many of the problems registered with SWM at the city level reflect the lack of a consistent approach to solving solid waste management problems at the Oblast level. Thus, the component is intended to develop an overall plan for the management of municipal and industrial non-hazardous solid waste at the Oblast level. The long term vision for the plan is to foster the identification of a cost efficient investment portfolio for waste management. Component 4): Environmental Management This component is the logical continuation of the World Bank-funded IDF Grant for Strengthening Local Environmental Management for Donetsk Oblast, which was completed in 1997. The IDF Grant provided initial funding for essential work in regulatory programs and concentrated on pilot activities in air focusing on the city of Mariupol. Special attention was given to monitoring capacity, in order to allow local environmental agencies to make a case for increased compliance and enforcement on the basis of reliable pollution data and health risk assessments. As that work comes to a conclusion, follow up activities should be undertaken to strengthen compliance and enforcement at the Oblast level and to extend the lessons learned in Mariupol to Donetsk Oblast. To increase the reach and effectiveness of this component, a public awareness program has also been included, to be implemented as a second phase of the UK Know How Fund-funded program which has run in parallel with the IDF Grant for the past three years. It is envisioned that the environmental management component would be articulated along the following areas of activity: i) monitoring; ii) information systems, iii) public awareness; iv) environmental planning; v) institutional strengthening (staffing and training); vi) compliance and enforcement; and vii) environmental financing. Financing The total project cost is tentatively estimated at US$ 60.8million. The World Bank is expected to finance US$ 36 million, or about 60- of total project cost. Suggested financing by component is set out below, and includes donor financing already secured or currently under discussion: Component Total Cost Bank Donor Support Counterpart (US$ million) Financing Financing Donetsk 30 20 5 TBD 5 (Donetsk Pollution Oblast) -3-  Abatement Facility Black Sea 25.8 15 6 Water (Switzerland 3 Quality approved) Management 1.8 (EU-TACIS- (Mariupol) approved) Solid Waste 1.5 0 1.5 0 Management (Netherlands- Master Plan approved) Environmental 4.5 1.0 3.0 TBD 0.5 Management (part of this amount under discussion with the UKKHF for public awareness) Total 61.8 36 17.3 8.5 Implementation Implementation Period: 4 years Implementing Agency(ies): Donetsk State Department of Environment (DSDE), Mariupol Vodokanal (Water utility) Project Coordination: Project Implementation Units in the DSDE and Mariupol Vodokanal (MVK) Accounting, Financial Reporting and Auditing Arrangements: PIUs in coordination with World Bank / Agent Bank for DPAF, following accounting and auditing practices acceptable to the World Bank. Monitoring and Evaluation Arrangements: The PIUs will hold primary responsibility for monitoring agreed project performance indicators. Sustainability For utility services, improvements in revenue collections are a pre-condition for inclusion of the Black Sea component; further improvements will be required as conditions of Negotiations/Board/Effectiveness, and revenue targets will be dated covenants. For DPAF, repayment will be encouraged by: careful selection of financially viable enterprises; a preference for investments which are profitable for the enterprise; strengthened efforts in enforcement of environmental laws; and, use of repayments to build up a loss reserve in the DPAF. Any remaining liabilities would be met by the Oblast from its budget. Lessons learned from past operations in the country/sector -4 -  Project Design Issues: THIS TABLE IS AVAILABLE IN THE INFOSHOP Poverty Category N/A Environmental Aspects The project is intended to produce substantial local and global environmental benefits. Each sub-project under Component 1 would be screened for potential negative impacts and a mitigation plan developed. Impacts of Component 2 would be those associated with infrastructure-related rehabilitation, i.e. construction noise, dust, sediment and precautions to prevent damage to cultural property. Environmental category: B Program Objective Categories N/A Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Peter W. Whitford, ECSSD The World Bank 1818 H Street N.W. Washington, DC 20433 Telephone No.: (202) 473-2504 Fax No.: (202) 614-0696 Alternate: Paola Meta, ECSSD The World Bank 1818 H Street N.W. Washington, DC 20433 Telephone No.: (202)-458-5702 Fax No.: (202)-614-0655 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending December 11, 1998. - 5 -  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. -6-