Ukraine - Coal Sector Adjustment Loan Project

Report No. PID6034 Project Name Ukraine-Coal Sector Adjustment Loan (+) Region Europe and Central Asia Sector Mining & Other Extractive Project ID UAPA40564 Borrower Government of Ukraine Implementing Agency Ministry of Finance 12/2 Hrushevsky St. Kyiv, Ukraine 252008 Environment Category B Date This PID Prepared 02/12/98 Projected Appraisal Date N/A Projected Board Date 03/31/98 Background. On 12/12/1996 the Loan Agreement for the US$ 300 million Coal Sector Adjustment Loan (Coal SECAL) was signed. The first tranche of US$ 150 million was disbursed before the end of 1996. The Coal SECAL is quick-disbursing and provides budget and balance of payments support, linked to the conditionality specified for tranche release. Disbursements are not linked to any specific purchases, but are subject to a standard negative list of ineligible goods and countries of origin. On December 25, 1997, the Government of Ukraine requested an extension of the original closing date and a restructuring of the second tranche into several smaller tranches, with conditionality entirely directed towards the implementation of mine closures and associated social and environmental mitigation. Objectives. The proposed restructuring of the second tranche maintains the central objective of the Coal SECAL, i.e., reduction of the large operating subsidies for the coal industry through fast restructuring. Description. The original second tranche would be restructured into four smaller tranches of US$ 37.5 million each, disbursable in 1998 with conditionality relating to mine closure and associated social/environmental mitigation measures. The redesign would allow targeted actions, on the national and regional level, for social mitigation of mine closures, including strengthening of employment creation and transfer of social assets, and for accelerated safe and environmentally acceptable physical closure. Financing. The entire amount of all four new tranches (US$ 150 million) would be financed by the World Bank. Implementation. The Ministry of Finance, the National Bank of Ukraine, participating commercial banks, the Ministry of Coal Industry and the Ukrainian Company for Coal Industry Restructuring (UDKR) would be involved for implementing the adjustment program. Sustainability. To ensure sustainability of the social mitigation program, the Government would provide a written commitment to the  Bank to continue implementing activities beyond the period of the disbursement of the SECAL. Lessons learned from past operations in the country/sector. The adjustment program builds on the lessons learned from the Coal Pilot Project and the initial implementation of the Coal SECAL. It also takes into consideration the results of an independent survey of 1,200 ex-miners and their families. Poverty Category. The proposed redesign of the original second tranche enhances Government policies and actions to mitigate the social impact of coal sector restructuring through timely settlement of social liabilities, employment creation measures and social asset transfer in coal mining municipalities. The proposed redesign is therefore a poverty-focussed operation. Contact Point: Heinz Hendriks, IENIM The World Bank 1818 H Street N.W. Washington, DC 20433 Telephone No.: (202) 458-2887 Fax No.: (202) 522-0396 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the InfoShop week ending February 27, 1998. - 2 -  Annex Environmental Aspects The category B status previously adopted for the loan would be maintained, together with the applicable environmental management procedures. Under the amended SECAL agreement, more uneconomic mines would be closed than under the original agreement. The negative impact of the coal sector on the environment would therefore be further reduced. In accordance with the original SECAL agreement, the Government adopted an action plan for environmental mitigation measures to be undertaken in connection with mine closures. Under this action plan, the Government is committed to apply the procedures and measures developed under the Bank-financed Coal Pilot Project for safe and environmentally acceptable mine closure. - 3-