ENVIRONMENT FOR EUROPE

Transcription

1 ECE/BELGRADE.CONF/2007/INF/24 SIXTH MINISTERIAL CONFERENCE ENVIRONMENT FOR EUROPE BELGRADE, SERBIA October 2007 PROJECT PREPARATION COMMITTEE REPORT TO THE SIXTH MINISTERIAL CONFERENCE ENVIRONMENT FOR EUROPE submitted by the Project Preparation Committee through the Ad Hoc Working Group of Senior Officias BACKGROUND DOCUMENT UNITED NATIONS

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3 PPC Report to the Sixth Ministeria Conference Environment for Europe in Begrade October 2007

4 Acronyms ADB Asian Deveopment Bank IFC Internationa Finance Corporation BSIF Back Sea Investment Support Faciity IFI Internationa financia institution CDM Cean Deveopment Mechanism IPA Instrument for Pre-Accession CER Certified emission reduction ISF Investment support faciity CIS-7 The seven ow-income countries of the Commonweath of Independent States KIDSF Kozoduy Internationa Decommissioning Support Fund DABLAS Danube and Back Sea Initiative MCCF Mutiatera Carbon Credit Fund DISF Danube Investment Support Faciity MDG Miennium Deveopment Goa EAP EAR EBRD Environmenta Action Programme for Centra and Eastern Europe, Caucasus and Centra Asia European Agency for Reconstruction European Bank for Reconstruction and Deveopment MCG NDEP NGO NIB Miennium Chaenge Georgia Fund Northern Dimension Environmenta Partnership Non-governmenta organisation Nordic Investment Bank ECNC EECCA EfE European Centre for Nature Conservation Eastern Europe, Caucasus and Centra Asia Environment for Europe OECD PEIP Organisation for Economic Co-operation and Deveopment Priority Environmenta Investment Programme for South Eastern Europe EIB European Investment Bank PPC Project Preparation Committee EMS Environmenta Management System PPP Pubic-private partnership ENPI European Neighbourhood Partnership Instrument REC Regiona Environmenta Centre EPPF Environmenta Project Preparation Faciity SEE South-eastern Europe ETC Eary transition countries SEI Sustainabe Energy Initiative ETCI Eary Transition Countries Initiative TA Technica assistance EUWI EU Water Initiative UNECE United Nations Economic Commission for Europe GDP Gross domestic product WB Word Bank GEF Goba Environment Faciity WISF Water Investment Support Faciity

5 Preface In the six years since the United Kingdom took on the chairmanship of the Project Preparation Committee (PPC) there have been significant changes in the region in which the PPC operates, and the emergence of a new set of chaenges. Expansion of the European Union, accompanied by a shift in focus of the major internationa financia institutions to the east and south, have moved the PPC s operations into areas with greater investment needs, but aso to areas with more imited capacity to promote and pay for improved environmenta services. This has been accompanied by a progressive decine in the scae of donor biatera support for environmenta programmes. The PPC response to these chaenges has been threefod. First, we have endeavoured to get coser to primary beneficiaries by appointing PPC Officers who are resident in the countries of operation. Secondy, we have increased our efforts to strengthen oca capacity for project identification, prioritisation and preparation. Thirdy, we have deepened our partnerships with parae initiatives and accessed new funding opportunities. A of this has ony been achieved through the continuing generous support of a core group of donors. We wi continue to focus our efforts on deveoping effective partnerships and buiding oca capacity in ways that are responsive to the evoving needs of beneficiary countries, donors and internationa financia institutions. Subject to a renewed mandate, we aim to estabish more secure institutiona and financia arrangements to enabe these activities to continue during the period foowing the Begrade conference. Rodney Matthews UK Chairman

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7 Contents Executive Summary 1 Introduction 5 Background 5 Mandate 6 Organisation 6 PPC strategy Achievements since the Kiev conference 9 Supporting environmenta investment projects 11 Environmenta technica assistance projects 16 Project preparation faciities 17 PPC activities since Kiev 23 Project identification, preparation and financing 23 Coordination, matchmaking and networking 25 Sharing good practice and capacity buiding 30 Options for the PPC after Begrade 35 The evoving context for environmenta investments in EECCA and SEE 35 Impications of the evoving context for the PPC 37 Findings of the 2006 PPC review 37 The PPC after the Begrade Ministeria Conference 38 Annexes Annex 1: IFI Board approved investment projects 40 Annex 2: IFI investment pipeine and TA projects 42

8 Investing in the environment

9 Executive summary Foowing the renewa of its mandate at the Kiev Ministeria Conference in 2003, the PPC has continued to mobiise financia resources for environment improvements, with a strengthened focus on the countries of Eastern Europe, Caucasus and Centra Asia (EECCA) and Southeastern Europe (SEE). Donors have provided significant amounts of funding for PPC activities, incuding staff, project preparation faciities and capacity buiding activities. The pacement of PPC Officers in countries of operation has enabed the PPC to work more cosey with its country partners. Throughout this period the PPC s activities have been guided by its strategy which comprises three piars: project identification, preparation and financing coordination, matchmaking and networking sharing good practice and capacity buiding. Achievements since the Kiev conference Since Kiev the PPC has assisted with the preparation of 37 environmenta projects. Fifteen of these have been internationa financia institution (IFI) Board approved, at a tota project cost of 443 miion, incuding 12 projects in EECCA and SEE ( 277 miion). The sectors supported by the PPC incude municipa and environmenta infrastructure, energy efficiency, renewabe energy and emissions trading, environmenta mainstreaming and biodiversity. PPC invovement in these projects has taken different forms. Donor funded PPC Officers, focusing on specific sectora themes and geographica regions, have provided significant support in the identification and preparation of projects. PPC staff have aso heped to set up a number of dedicated technica assistance (TA) faciities at the European Bank for Reconstruction and Deveopment (EBRD) for project preparation. Through its networking events and direct contact with donors, the PPC has continued to hep in the mobiisation of donor funds and match grant finance with priority IFI projects. The PPC has coaborated cosey with other environmenta initiatives, incuding the Task Force for the Impementation of the Environmenta Action Programme for Centra and Eastern Europe,

10 P P C R E P O R T E N V I R O N M E N T F O R E U R O P E B E L G R A D E PPC supported projects in the region Romania 1 Board approved Russia 4 Board approved 3 Pipeine Sovak Repubic 1 Pipeine Croatia 1 Board approved Bosnia and Herzegovina 1 Pipeine Georgia 3 Board approved 6 Pipeine Serbia 1 Board approved 2 Pipeine 1 TA Bugaria 2 Board approved 1 Pipeine Azerbaijan 1 Pipeine Uzbekistan 1 Board approved Kyrgyz Repubic 1 TA FYR Macedonia 2 Pipeine 1 TA Armenia 1 Board approved Tajikistan 1 Board approved 1 Pipeine

11 E X E C U T I V E S U M M A R Y Caucasus and Centra Asia (EAP Task Force), the Danube and Back Sea Initiative (DABLAS), the Northern Dimension Environmenta Partnership (NDEP) and the EU Water Initiative (EUWI). Capacity buiding for environmenta project identification and preparation has been a major new area of activity for the PPC, with the deivery of a programme of project financing workshops targeting municipaities and pubic utiities in EECCA and SEE. A review of the PPC carried out in summer 2006 demonstrated that whie EECCA and SEE countries have a cear requirement for continuing assistance with environmenta project preparation, this need must be addressed in a way that recognises the changing context in the region. Internaisation of the PPC s functions within the EBRD may be the best way of ensuring that its activities can continue on a more sustainabe basis than is possibe with ad hoc donor support. The future of the PPC after Begrade The context in which the PPC operates has evoved consideraby since the Kiev Ministeria Conference. The shift in focus towards the east and south has raised a new set of chaenges, especiay in the owerincome countries of the Caucasus and Centra Asia, and the Western Bakans. Biatera donor assistance for the environment is progressivey decreasing, and the EU is assuming a more prominent roe as the eading donor in the region. Donors and IFIs have deveoped a range of partnerships, such as DABLAS and the Eary Transition Countries Initiative (ETCI), to coordinate their assistance programmes, which did not exist when the PPC was first estabished.

12 Meeting new chaenges

13 Introduction Foowing the renewa of its mandate at the Kiev Ministeria Conference in 2003, the PPC has continued to support environmenta projects, with a strengthened focus on the countries of EECCA and SEE. Cose cooperation with the EAP Task Force has been achieved through joint annua meetings and a joint governing Bureau. Continued donor support has enabed the PPC to pace more PPC Officers in countries of operation. During the period , the PPC s activities have been guided by a strategy organised under three piars: (i) project identification, preparation and financing; (ii) coordination, matchmaking and networking; and (iii) sharing good practice and capacity buiding. Background The PPC was estabished in 1993 foowing decisions taken by Ministers at the Second Ministeria Conference Environment for Europe (EfE) in Lucerne, Switzerand. It has served as a mechanism for diaogue and coordination between IFIs, donors and beneficiary countries. It has worked to support the identification and deveopment of environmenta investment projects across the region, in a range of different environmenta sub-sectors, paying a compementary roe to its sister organisation under the EfE process, the EAP Task Force. The PPC mandate was renewed at the EfE conferences in Sofia (1995), Århus (1998) and, most recenty, in Kiev (2003). At the Kiev Ministeria Conference the PPC reported that 219 projects had been subject to the PPC mechanism between 1998 and Sixty-nine of these projects, at an accumuated project cost of 3,853 miion, had been Board approved by IFIs at the time of the Kiev conference. These projects had benefited from financia support equa to 1,895 miion in IFI oans and 904 miion in donor grants. Environmenta finance: commitments made at Kiev At the Kiev conference, Ministers agreed a number of goas for the future of the EfE process, incuding: To mobiize financia resources from a sources, inter aia, from governments, IFIs, donors and the private sector, to support the impementation of regiona environmenta instruments and sub-regiona initiatives incuding capacity buiding.

14 P P C R E P O R T E N V I R O N M E N T F O R E U R O P E B E L G R A D E PPC organisationa arrangements since the Kiev conference PPC stakehoders Donor governments IFIs PPC staff and management Bureau UNECE countries Internationa environmenta programmes Private sector PPC Chair NGOs PPC Officers PPC Secretariat Other stakehoders Mandate Ministers at the Kiev conference recognised the need for a continuation of the PPC s activities and requested that it concentrate its support in the countries of EECCA and the nonaccession countries of SEE, and phase out its work in Centra Europe by Ministers aso asked the PPC to coordinate more cosey with the EAP Task Force by hoding joint annua meetings and estabishing a common Bureau. It was aso agreed that participation in both the PPC and the EAP Task Force shoud be open to a wider range of stakehoders incuding non-governmenta organisations (NGOs) and the private sector. Furthermore, the EBRD and the Organisation for Economic Cooperation and Deveopment (OECD) shoud continue to provide support for the Secretariats of the PPC and EAP Task Force respectivey. Organisation Since Kiev the PPC has operated as a network open to donor governments, IFIs, United Nations Economic Commission for Europe (UNECE) countries, internationa environmenta programmes, the private sector, NGOs and other stakehoders. As agreed at Kiev, the PPC and EAP Task Force have received overa guidance from a common Bureau. This consists of representatives of donor and EECCA governments, and is co-chaired by the European Commission. The United Kingdom has continued to provide the PPC Chair, and the EBRD has continued to host the PPC Secretariat. Donors have supported six new PPC Officer/Consutant positions since 2003 and the two PPC Secretariat staff (see page 24 for fu detais of donor contributions to PPC staffing). The organisationa arrangements of the PPC and its stakehoders are iustrated above. In ine with the recommendations of Ministers, the PPC has strengthened its staff presence in its countries of operation by creating PPC Officer positions based in EECCA and SEE countries as we as in IFI headquarters. Over the ast four years PPC Officers have been ocated in EBRD Resident Offices in Begrade, St. Petersburg, Tbiisi and Zagreb. The PPC has aso expored aternative staffing arrangements incuding the recruitment of a PPC Consutant and ocay hired PPC Officers.

15 I N T R O D U C T I O N PPC strategy In 2004 a new four-year strategy was deveoped to put into practice the commitments made at Kiev. This was guided by three key documents: the Decaration by the Environment Ministers of the region of the United Nations Economic Commission for Europe in Kiev, May 2003 the Environment Strategy for Countries of Eastern Europe, Caucasus and Centra Asia (Strategic Framework) the Miennium Deveopment Goas (MDGs), especiay the water and sanitation targets encompassed within MDG VII. The strategy was deveoped through a consutative process invoving a wide range of PPC stakehoders and was approved at the 2nd Joint Meeting of the EAP Task Force and PPC in Tbiisi, Georgia in October It is composed of three piars: Piar I: Project identification, preparation and financing Working with IFIs to identify and prepare environmenta investment projects. Mobiising funds to support the preparation and impementation of projects. Piar II: Coordination, matchmaking and networking Working with stakehoders to enhance coordination and faciitate investment activities. Providing information on sources of finance and disseminating detais of project financing needs. Piar III: Sharing good practice and capacity buiding Providing good practice materias and ad hoc advice. Heping to buid capacity in project identification, preparation and finance. A brochure summarising the strategy was prepared in both Engish and Russian and was widey disseminated to PPC stakehoders and other interested parties. PPC mechanisms and the project cyce PPC/EAP Task Force meetings Information hub Monitoring and evauation Sector scoping Project concept PPC project financing workshops Project impementation Pre-feasibiity Project preparation Incusion in an IFI pipeine Mobiising finance sessions at PPC meetings Deveopment of oca consutancy capacity Support for IFI managed project preparation Support to municipaities for project management

16 Supporting environmenta projects

17 Achievements since the Kiev conference Since Kiev the PPC has assisted with the preparation of 37 environmenta projects, 15 of which have been IFI Board approved at a tota project cost of e443 miion. In ine with Kiev commitments, most of these projects are in EECCA and SEE countries. In addition to its traditiona focus area of municipa and environmenta infrastructure, the PPC has expanded its activities in the area of energy efficiency, renewabe energy and emissions trading, and biodiversity. A range of project support mechanisms has been used, incuding direct support for investment project deveopment, faciitation of stand-aone TA projects, and the estabishment of TA faciities for project preparation and credit ines. The main focus of the PPC s work has been to promote active coordination between its stakehoders to support the financing of environmenta investment projects. This support has been deivered through a number of different approaches. Donor funded PPC Officers have continued to enhance IFI project pipeines by assisting in the identification, preparation and financing of environmenta investment projects. The PPC Secretariat has heped to set up a number of donor funded project preparation faciities to provide TA to enabe project deveopment to proceed more quicky. PPC networking events, incuding the annua joint meetings hed with the EAP Task Force, have provided opportunities for donor funds to be matched with priority IFI investment projects. The projects supported by the PPC have been in the areas of municipa and environmenta infrastructure (water suppy and sanitation, soid waste management, district heating systems and municipa transport), energy efficiency, renewabe energy and emissions trading, and nature conservation and biodiversity. This report assesses the PPC s achievements by examining its support for: (i) the identification and preparation of environmenta investment projects; (ii) stand-aone TA projects; and (iii) assistance in setting up donor funded project preparation faciities. Since Kiev a tota of 37 investment/ TA projects have been subject to the PPC mechanism. This is either through the direct invovement of a PPC Officer in the deveopment of the project, or by receiving PPC faciitated support from a donor or IFI, or being presented to donors at a PPC meeting. Fifteen of these, at a tota project cost of 443 miion, have been Board

18 1 0 P P C R E P O R T E N V I R O N M E N T F O R E U R O P E B E L G R A D E Tota cost of Board approved investment projects by region Tota cost of Board approved investment projects by sector e miion 500 e miion 100% % % 37.6% % % 3.3% 11.3% % Caucasus Centra Other Non- Accession Tota Asia EECCA accession countries (Russia) SEE 4 projects 2 projects 4 projects 2 projects 3 projects 15 projects Energy/ Transport Water suppy/ heating sanitation 2 projects 1 project 12 projects approved by an IFI (see Annex I, page 40). These projects have benefited from financia support equivaent to 260 miion in IFI oans and 127 miion in donor grants, giving a oan to grant financing ratio of 2:1. The PPC has shifted the main focus of its operations towards EECCA and the non-accession countries of SEE, in ine with the commitments made at the Kiev Ministeria Conference. Ten of the Board approved PPC faciitated projects were in the EECCA region (tota project cost 227 miion) and, of these, six were in ETCs (tota project cost 58 miion). A further two projects were in the non-accession countries of SEE (tota project cost 50 miion) and the remaining three in EU accession countries, specificay Bugaria and Romania (tota project cost 167 miion). In addition, 22 PPC supported projects have entered into IFI pipeines (specificay EBRD) since Kiev, at a tota project cost of 549 miion (see Annex II, page 42). Thirteen of these were in EECCA (tota project cost 219 miion), incuding 10 in ETCs (tota project cost 101 miion). A further seven were in the nonaccession countries of SEE (tota project cost 65 miion) and two in EU accession countries (tota project cost 265 miion). It is important to emphasise here that this report ony covers projects where there has been PPC invovement and does not incude the significant project activity being undertaken by IFIs and donors outside the PPC framework. Fewer PPC supported projects have reached Board approva stage over the ast four years as compared to previous reporting periods at Sofia, Århus and Kiev (see tabe on page 11). This is the resut of the shift towards the more difficut environments of the EECCA region especiay the owerincome countries of the Caucasus and Centra Asia and non-accession countries of SEE. It is aso a resut of the reduction in the amount of pre-accession aid made avaiabe to EU accession countries, which was especiay high during the period

19 A C H I E V E M E N T S S I N C E T H E K I E V C O N F E R E N C E 11 Summary of IFI Board approved environmenta projects with PPC invovement Other (e.g. Tota no. Water Nature agricuture, of Board Tota Ministeria suppy/ Waste Energy/ conservation/ transport, approved project IFI Donor Conference sanitation management heating biodiversity industry ) projects cost oans grants Per region ( miion ) ( miion ) ( miion ) Sofia ,200 n/a 80 EECCA 12% SEE 11% EU Accession 77% Århus ,300 1, EECCA 30% SEE 24% EU Accession 46% Kiev ,853 1, EECCA 42% SEE 26% EU Accession 32% Begrade EECCA 51% SEE 11% EU Accession 38% Tota 43 7,796 3,355 1,356 EECCA 34% SEE 25% EU Accession 41% Supporting environmenta investment projects Municipa and environmenta infrastructure Municipa and environmenta infrastructure has continued to be a major focus of the PPC s work. The most dominant sector has been water suppy and sanitation where 21 projects, incuding 12 Board approved, have received PPC assistance. Three transport projects have received PPC support, with one aready Board approved, and a sma number of soid waste management projects are aso being deveoped. Water suppy and sanitation Access to safe water suppies and sanitation continues to be a major chaenge in the PPC s countries of operation, especiay in the owerincome countries of the Caucasus and Centra Asia where service coverage, quaity and reguarity are continuay decreasing, in part due to the deterioration of outdated water and sanitation infrastructure. These probems are especiay severe in smaer towns and in rura areas. Sustained and significant investment in water infrastructure is necessary for satisfactory progress to be made towards the MDG target of reducing by haf the proportion of peope without sustainabe access to safe drinking water and basic sanitation by The PPC has contributed towards tacking these chaenges by supporting 12 IFI Board approved water and sanitation projects in eight countries, at a tota project cost of 308 miion. Key chaenges in the water and sanitation sector incude the identification of sufficient grant co financing for capita expenditure to enabe the investment to go ahead whie maintaining the affordabiity of the water suppy to the popuation. This is a particuar chaenge in ower-income countries and in smaer towns and rura areas where smaer investments are needed and where the abiity to raise revenues through tariffs is imited.

20 1 2 P P C R E P O R T E N V I R O N M E N T F O R E U R O P E B E L G R A D E Lake Sevan Environmenta Project Armenia Through the work of a PPC Consutant, the PPC payed a direct roe in identifying and deveoping the Lake Sevan Environmenta Project. This project is making a significant contribution to addressing the acute waste-water treatment probems in Armenia. Lake Sevan is the country s primary water resource and an important tourist and recreationa attraction. A reativey arge number of settements are ocated around the ake. In the past, industria and househod waste water from these settements was treated in sma waste-water treatment pants before being discharged into rivers fowing into Lake Sevan. Over the past few decades most of this infrastructure has significanty deteriorated and a number of new waste-water treatment pants remain unfinished. Consequenty, the ake suffers from significant water poution that damages its ecoogica baance and natura beauty. Through the active cooperation of the PPC, EBRD, Armenian State Committee for Water Systems, Armenian Water and Sewerage Company and other nationa bodies, an action pan to address these probems was deveoped. A number of waste-water treatment pants in need of urgent rehabiitation were identified. Since a these pants were reativey sma, additiona work was carried out to bunde them into a singe project. Detaied project preparation work was undertaken, incuding a feasibiity assessment and affordabiity anaysis. The financing package deveoped for the project was taiored to refect the concessionaity requirement and affordabiity constraints. As a resut, the 7.5 miion EBRD oan was compemented with a significant capita investment grant contribution ( 5 miion) from the EU, together with a 1.2 miion TA grant from the muti-donor ETC Fund. The oan agreement was signed with the Government of Armenia in Apri 2007.

21 A C H I E V E M E N T S S I N C E T H E K I E V C O N F E R E N C E 1 3 Archangesk Municipa Water Services Project Russia The White, Kara and Barents seas surround the Russian region of Archangesk and the region s amost 70,000 rivers and streams carry waters into the Barents Sea basin. Despite its rich natura resources and its diversified industria base, the region s infrastructure has suffered from underinvestment, which has contributed to environmenta and heath concerns. One of the region s priorities is improving its capita city s water and waste-water infrastructure. The Archangesk Municipa Water Services Project is the region s first step towards reaching Russian and EU environmenta standards in the water and waste-water sector. The project incudes an upgrade of the municipa water treatment faciities, rehabiitation of the water distribution networks, and the modernisation and extension of the waste-water network and coectors. In addition to improvements to the quaity of potabe water, the project wi hep to reduce water osses and energy consumption, and minimise the discharge of untreated sewage into oca rivers and the Barents Sea basin. It wi aso improve service standards and strengthen the operationa and financia performance of the municipa water and waste-water services in Archangesk. The 25.3 miion project is financed through an EBRD oan of 10 miion and is a priority project of the NDEP, which has contributed a grant of 8.2 miion. In addition, the EU, Finand, Luxembourg, Sweden and the United Kingdom have provided funding for TA activities incuding the technica feasibiity study, creditworthiness enhancement programme, environmenta action pan, project impementation unit training and support, internationa project engineer and corporate deveopment programme. PPC Officers ocated in St. Petersburg have been instrumenta in deveoping this project and in mobiising donor finance.

22 1 4 P P C R E P O R T E N V I R O N M E N T F O R E U R O P E B E L G R A D E Khujand Water Suppy Improvement Project Tajikistan PPC staff were invoved in the design and structuring of a 3.98 miion project to improve the water suppy infrastructure and distribution network in Khujand, Tajikistan s second argest city. Signed in Juy 2004, this project, which incuded a oan of 0.93 miion, was the EBRD s first municipa oan in Tajikistan, and the first under its ETCI, created to tacke poverty in the ow-income countries of the Caucasus and Centra Asia. The project aims to improve Khujand s drinking water by instaing new pumps and other equipment that shoud reduce water eakages and generay make the water suppy more reiabe. Key eements of the project were supported by a grant from the Swiss government for capita investments and the provision of a stakehoder participation programme to encourage greater pubic participation and ensure that poverty and subsistence issues are refected in tariff reforms. The Government of Norway funded a performance improvement programme for the Khujand Water Company and TA from the Government of Begium supported the feasibiity study during the preparatory phase.

23 A C H I E V E M E N T S S I N C E T H E K I E V C O N F E R E N C E 1 5 City of Tbiisi Pubic Transport Project Georgia The PPC has supported a 6.4 miion project to enabe the Tbiisi Bus Company to restore basic municipa bus services in the Georgian capita and give the residents of Tbiisi access to affordabe transport. Georgia s transport networks were disrupted by the conficts and underinvestment that foowed independence in At that time the Tbiisi Bus Company had 1,200 buses for the city s 1.4 miion peope. By 2004 the feet was down to 80 buses, with ony haf working on an average day. The project, signed in 2005, incuded an EBRD oan of 3.1 miion, which enabed the city authorities to buy 182 second-hand buses, costing 15,000 each, one-tenth of their vaue when new. Peope have ow incomes in Tbiisi and these savings enabed the company to offer good services with affordabe fares. The company was aso abe to expand the number of routes from 42 to 80, aowing buses to carry 18 per cent of Tbiisi s passengers by 2007 against just 10 per cent in As the officia bus service improves, fewer informa minibuses wi be needed, thereby improving safety, traffic conditions and service quaity. Transport The PPC has supported a sma number of municipa transport projects. Improvements in this sector can resut in significant environmenta benefits as we as reducing congestion and improving energy efficiency. Grant assistance from the EBRD s ETC Fund and the Netherands was critica in enabing a PPC supported municipa transport project in Tbiisi, Georgia, to go ahead (see above).

24 1 6 P P C R E P O R T E N V I R O N M E N T F O R E U R O P E B E L G R A D E Environmenta technica assistance projects Biodiversity and environmenta mainstreaming In addition to investment projects, the PPC has aso heped to deveop a number of stand-aone environmenta TA projects, with donor support. Some of these were inked to EBRD investment projects in sectors such as power and energy and natura resources, as add on environmenta management components. For exampe, Canadian support was used to impement an Environmenta Management System (EMS) at the eectricity utiity Eektrostopanstvo na Makedonija in FYR Macedonia, compementing an ongoing EBRD investment project. A simiar TA project was carried out with Eektro Privreda Srbije in Serbia, this time with support from the European Agency for Reconstruction (EAR). The PPC has aso faciitated a number of stand-aone TA projects in the area of biodiversity and nature conservation through the work of the Luxembourg PPC Officer responsibe for this sector. These incude a TA project in the Kyrgyz Repubic, funded by the United Kingdom and Internationa Finance Corporation (IFC), to promote private sector invovement in biodiversity conservation activities and improve oca iveihoods. The project is inked to an EBRD investment project in the adjacent Kumtor God Mine.

25 A C H I E V E M E N T S S I N C E T H E K I E V C O N F E R E N C E 1 7 PPC support for aunching biodiversity-reated initiatives within the EBRD In 2004 the Government of Luxembourg provided funding for a PPC Officer to work on biodiversity reated issues within the EBRD s Environment and Sustainabiity Department. Preserving and protecting biodiversity is an important aspect of good environmenta management. A EBRD financed projects are expected to incude measures to safeguard and, where possibe, enhance natura habitats and the biodiversity they support. The EBRD is aso committed to supporting investments that specificay promote biodiversity. with other organisations, incuding the European Investment Bank (EIB) and Rabobank, the EBRD participated in the European Task Force on Banking, Business and Biodiversity, through which potentia biodiversity financing mechanisms and the estabishment of a European Biodiversity Finance Faciity were expored. The PPC support enabed the EBRD to work with the European Centre for Nature Conservation (ECNC) on biodiversity issues in its countries of operation. Together A piot project on pro biodiversity business in the steppe zone of the Eurasia region was agreed in 2006 between the EBRD and the EU. This project was designed to encourage micro and sma businesses to support biodiversity. The project received support from the Tacis regiona programme biodiversity component, which focuses on the steppe ecosystems covering parts of Kazakhstan, Modova, Russia and Ukraine. The project aimed to estabish an operating structure and procedures for identifying countries, regions and companies that show potentia for, and interest in, creating pro-biodiversity businesses. The next stage was the provision of TA to seected micro, sma and mediumsized enterprises that use biodiversity resources and are wiing to work towards creating pro-biodiversity businesses. TA was aso used to deveop a biodiversity monitoring system with key indicators and other benchmarks to evauate the positive impact of investments on specific habitats and species. Project preparation faciities In addition to providing direct support for project deveopment, the PPC has indirecty supported numerous environmenta investment projects by heping to set up a number of donor funded project preparation faciities within the EBRD. These TA faciities have been designed specificay to dea with particuar difficuties reated to the identification, preparation and impementation of environmenta investment projects or groups of projects. An additiona aim of these faciities was to support the deveopment of oca consutancy capacity, where possibe.

26 1 8 P P C R E P O R T E N V I R O N M E N T F O R E U R O P E B E L G R A D E Municipa and environmenta infrastructure faciities Two project preparation faciities have provided rapid technica support to assist the deveopment of a range of municipa and environmenta infrastructure projects. A 133,000 District Heating Support Faciity, financed by the United Kingdom, has been used to support feasibiity studies and speciaised advisory inputs for EBRD district heating investment projects in a number of countries incuding Russia and Uzbekistan. Simiary, a 600,000 Municipa and Environmenta Infrastructure Technica Cooperation Faciity was set up in 2004 with Austrian funding, to support municipa infrastructure projects in Russia and SEE.

27 A C H I E V E M E N T S S I N C E T H E K I E V C O N F E R E N C E 1 9 The PPC has been instrumenta in heping to set up a number of donor funded TA faciities at the EBRD to support municipa and environmenta infrastructure projects and energy efficiency investments. Energy efficiency, renewabe energy and emissions trading Energy efficiency, renewabe energy and emissions trading have been a major focus of the PPC s work since Kiev, with a speciay dedicated PPC Officer, funded by Luxembourg and the Netherands, working in this area. This refects the growing internationa interest in energy efficiency, driven by concerns over cimate change and energy security in the European neighbourhood region. The main way in which the PPC has supported investments in these areas has been through the estabishment of donor funded TA faciities and credit ines to support EBRD energy efficiency investments, and to enabe such investments to benefit from carbon financing opportunities. The Kyoto Protoco sets binding targets on industriaised countries for the reduction of greenhouse gas emissions. Under the Protoco, specific mechanisms were created to trade project based carbon credits. The carbon credit idea is simpe: a project investment eads to greenhouse gas emission reductions compared to a baseine. That emission reduction performance, having been monitored and certified, can then be sod to countries and companies with a shortage of rights to emit greenhouse gases. Sponsors of energy saving projects are abe to se the project s certified emission reductions (CER), commony referred to as carbon credits. One carbon credit is equivaent to one tonne of CO 2 emission reductions. There is a arge potentia market for project-based credits originating from the countries covered by the PPC. Given that most EU-15 states, pus Canada and Japan, wi need to buy carbon credits to meet their Kyoto targets, this market is expected to grow. The eigibe countries have a high potentia for generating carbon credits for the foowing reasons. Severa of these countries have a surpus of carbon credits. This is because the Kyoto Protoco reference year for the emission reduction targets is Since then emissions have dropped sharpy in countries such as Russia and Ukraine, as a resut of the substantia contraction of their gross domestic product (GDP) caused by the cosure of state industries after These countries are therefore ikey to be seers of carbon credits. High carbon and energy intensities in countries in transition aso create significant opportunities for ow-cost emission reductions. This is because the cost of achieving an emission reduction in such countries is ow reative to Western countries whose economies are much more energy efficient and generay ess carbon intensive, and are thus characterised by a higher reative carbon abatement cost. The emerging carbon credit market fits we with the PPC s mandate. This has potentia benefits for PPC stakehoders: using the additiona revenue from seing carbon credits to finance more and/or more risky cimatefriendy projects, such as energy efficiency, renewabe energy, fue switching, andfi and biogas (waste water), etc. assisting with the deveopment in its countries of operation of such market-based mechanisms for environmenta protection and transition.

28 2 0 P P C R E P O R T E N V I R O N M E N T F O R E U R O P E B E L G R A D E EBRD investment projects supported by CDM faciities in the Caucasus and Centra Asia Tota Project Project Location project cost status Project summary ( miion ) Bazenc Mini-Hydro Armenia 1.18 Board This mini-hydro project in Armenia was identified during a survey for Power Pant approved CDM projects. The Netherands provided support for the CDM baseine and vaidation studies, and the project is expected to have a strong demonstration effect for further mini-hydro projects. The oan is being provided through the EBRD s Direct Lending Faciity, which is designed to provide sma oans. Armenia Renewabe Armenia Board Loan to a financia intermediary which wi invest in renewabe energy projects, Energy Programme approved primariy mini-hydros. A PPC Officer contributed to a TA component that wi (Cascade Credit) enabe the monetisation of carbon emissions in individua projects. Rehabiitation Azerbaijan Board Investment into the rehabiitation of the major generation station and seected of AzDRES approved transmission faciities with the aim of improving the reiabiity and efficiency of Power Pant the power system. PPC staff assisted in the deveopment of the energy efficiency and fue-switch project as a CDM project. Cean Deveopment Mechanism faciities One of the financing mechanisms estabished under the Kyoto Protoco is the Cean Deveopment Mechanism (CDM). This aows industriaised countries to invest in emission reducing projects in deveoping countries as an aternative to what is generay considered more costy emission reductions in their own countries. Through funding provided by the Dutch government ( 90,000) and the ETC Fund ( 350,000), two TA faciities were set up at the EBRD to enabe energy saving projects to benefit from CDM financing. The CDM in Caucasus and Centra Asia Faciity and the CDM Project Support Faciity for Eary Transition Countries have been used to reduce barriers to the deveopment and impementation of CDM projects and deveop carbon financing components in EBRD investment projects in the areas of power and energy, and industry (see tabe above).

29 A C H I E V E M E N T S S I N C E T H E K I E V C O N F E R E N C E 2 1 PPC support for the Sustainabe Energy Initiative The work of the PPC on energy efficiency, renewabe energy and carbon trading has contributed to the deveopment of the EBRD s Sustainabe Energy Initiative (SEI), which was aunched in May 2006 and is intended to hep the EBRD to: scae up its sustainabe energy investments by more than doubing those in energy efficiency and ceaner energy to 1.5 biion between 2006 and 2008 strengthen its capacity to deiver, through interna organisationa changes that mainstream energy efficiency objectives throughout the EBRD with team-by-team targets and enhanced speciaised support from a crosscutting energy efficiency and cimate change team work with other mutiatera deveopment banks, internationa organisations and oca bodies to enhance the impact of its poicy diaogue and share best practice estabish a new partnership with donors to access the grant funds required to scae up structured financing packages of commercia finance combined with grant funds for capacity buiding and incentives. Energy efficiency and renewabe energy credit ines PPC staff have assisted the EBRD in estabishing a credit ine faciity of 105 miion for six Bugarian financia intermediaries to provide oans to sub-borrowers for industria energy efficiency and renewabe energy projects. This credit ine has been suppemented with a 34 miion grant from the Kozoduy Internationa Decommissioning Support Fund (KIDSF). Over 98 projects are currenty being financed under the faciity, of which 50 are fuy operationa, and there is a strong pipeine of over 100 projects. The PPC has aso payed a pivota roe in initiating a simiar credit ine in the Sovak Repubic, which is currenty under deveopment. Other carbon financing mechanisms The PPC has payed a key roe in heping to set up the 165 miion Mutiatera Carbon Credit Fund (MCCF). The EBRD and the EIB estabished the MCCF as a key instrument in their strategy for combating cimate change. It is designed to deveop the carbon market in countries in transition to market economies by heping EBRD and EIB sharehoders and other parties to meet their mandatory or vountary greenhouse gas emission reduction targets. The Fund sources and purchases carbon credits from projects financed by the EBRD and/or EIB in countries in transition eigibe for EBRD operations. Exampes of projects that generate carbon credits incude: switching fue from coa/mazut (a highy pouting energy source) to natura gas renewabe energy energy efficiency waste to energy avoidance of gas faring/venting forestry. The MCCF aso faciitates Green Investment Schemes in which the proceeds of state-to-state trading of carbon credits are used to finance cimate friendy projects in the seing country. It aso aims to stimuate and compement the participation of the private sector in the carbon market.

30 Buiding partnerships for the environment

31 2 3 PPC activities since Kiev Under the framework of its strategy, the PPC has supported project preparation and financing through the depoyment of donor funded PPC Officers inside EBRD banking teams, focusing on specific sectora themes and geographica regions. Coordination with donors has faciitated the matching of donor grants with priority IFI projects. The PPC has aso worked cosey with other environmenta initiatives, incuding the EAP Task Force, DABLAS, NDEP and the EUWI. A major new area of work has been providing assistance to deveop oca capacity for project identification and preparation. This has incuded the deivery of a programme of project financing workshops targeting municipaities and pubic utiities in EECCA and SEE. Since 2004 the work of the PPC has been organised under three piars: project identification, preparation and financing coordination, matchmaking and networking sharing good practice and capacity buiding. Project identification, preparation and financing PPC Officers working inside IFI teams Through the PPC mechanism, donors have provided funding for six new PPC Officer positions at the EBRD since 2003 (see tabe on page 24). These officers have payed cataytic roes within the Municipa and Environmenta Infrastructure Team, the Energy Efficiency and Cimate Change Team and the Environment and Sustainabiity Department by contributing to the identification and deveopment of a wide range of projects in municipa and environmenta infrastructure, energy efficiency, renewabe energy and emissions trading, biodiversity and environmenta mainstreaming. Donors have aso continued to support the two positions in the PPC Secretariat, which pays a centra roe within the EBRD s Environment and Sustainabiity Department in coordinating the activities of the PPC. The PPC has aso expored innovative arrangements for enabing donors to contribute to project preparation, in response to the needs of different stakehoders. For exampe, during the EU contributed 196,000 to fund a PPC Consutant to work with the EBRD on water and sanitation projects in the ETCs. More recenty, the PPC has attempted to recruit in-country staff to take advantage of oca knowedge and expertise, incuding knowedge of oca anguages.

32 2 4 P P C R E P O R T E N V I R O N M E N T F O R E U R O P E B E L G R A D E Donor support for PPC staffing positions during Donor Contribution Sector supported Finand 690,900 Municipa and environmenta infrastructure projects in North-west Russia Itay 300,000 Municipa and environmenta infrastructure projects in SEE Luxembourg 75,582 Energy projects 228,624 Environmenta additions to pipeine projects, and stand-aone environmenta projects, particuary in the biodiversity sector Netherands 456,994 Energy projects, especiay reated to energy efficiency, renewabes and emissions trading Sweden 432,959 Municipa and environmenta infrastructure projects in ETCs Switzerand 54,012 PPC Secretariat United Kingdom 584,733 PPC Secretariat The PPC s work in the deveopment of environmenta projects has generated some important essons regarding the specific chaenges reated to the preparation of environmenta infrastructure projects in EECCA and SEE countries. These vary across the different sub-regions in which the PPC has been active. Eary transition countries The main chaenge in the ETCs is to provide substantia infrastructure investment financing for urgenty needed improvements in the quaity of services, and in the operationa and financia management of utiities, within tight affordabiity constraints. As a resut, amost a municipa infrastructure projects in the ETCs require significant grant funded components. The PPC has devoted a substantia amount of time and effort in identifying sources of grant financing for projects in the ETCs, either in the form of TA or capita expenditure grants. Such concessionaity heps to address affordabiity constraints and imited oca financia revenues. On the other hand, excessive use of grant financing coud erode the incentives for operating financiay sustainabe utiities that achieve cost recovery and are ocay managed. Therefore the optima combination of oan and grant financing must be identified for each project. Whie recognising affordabiity constraints and the need to address the needs of the poor, it is important to acknowedge that the ony ong-term sustainabe mode for service deivery is fu cost recovery. A project impementation pans shoud therefore be based on adjusting tariffs to aow fu cost recovery, with the tariff adjustment strategy fitted to expected changes in income eves and other income reated assistance and subsidy programmes. South-eastern Europe Project impementation can be engthy due to a ack of experience in project management and procurement and scarce engineering and management skis. Conficts of interest between project partners (for exampe financiers, investors, donors, pubic utiities, oca governments, regiona administrations and nationa ministries) can be avoided by ceary setting out roes and tasks in project documents. Institutiona weaknesses may aso be a probem in some SEE countries where oca government reforms have ony recenty been introduced. Affordabiity of services is a key issue and tariff and subsidy poicies must ensure that services are sustainabe and operated on a cost recovery basis and that they are provided to a, particuary the poor.

33 P P C a c t i v i t i e s s i n c e K i e v 2 5 PPC Consutant in the eary transition countries During the EU supported the PPC by providing funding for a one-year PPC Consutant position working in the ETCs. In contrast with traditiona PPC Officer positions, the consutant focused on project deveopment in one particuar sector, in this case water suppy and sanitation. This arrangement heped to ensure greater speciaisation and coser networking reationships with reevant stakehoders, which in turn improved the speed and efficiency of project preparation. The PPC Consutant worked in cose cooperation with the EBRD s Municipa and Environmenta Infrastructure Team, nationa water authorities, EU Water Investment Support Faciity team, feasibiity study teams, oca water operators and municipaities. Through this assignment a number of project ideas were identified and deveoped, incuding the Lake Sevan Environmenta Project in Armenia. Coordination, matchmaking and networking The PPC has continued to work with its stakehoders to: enhance the coordination of environmenta investment activities provide information on sources of finance disseminate detais of project financing needs. Working with donors to identify funds for TA and co financing The mobiisation of TA funds and donor grant co-financing of IFI investments has been centra to the PPC s activities. This has been achieved by PPC Officers heping to address the financing gaps in project deveopment, and through the networking and information sharing activities ed by the PPC Secretariat. The annua joint meetings of the EAP Task Force and the PPC, hed in Paris (2003), Tbiisi (2004), Yerevan (2005), Berin (2006) and Brusses (2007), have served as important opportunities for bringing together donor and IFI representatives, and have incuded sessions on mobiising finance in which potentia projects have been presented to donors for their consideration. In response to stakehoder demands, the PPC undertook a review of environmenta grant financing in the EECCA and SEE regions in The objective of the study, funded by the United Kingdom, was to produce a web-based guide to financing fows and mechanisms in the region. This provided a better understanding of the voume and avaiabiity of resources and heped to faciitate matchmaking between funds and proponents. A foow-up study in 2007, again funded by the United Kingdom, concentrated on donor and IFI support for environmenta investment