INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC5832. Date ISDS Prepared/Updated: 12/22/2010 I. BASIC INFORMATION. A. Basic Project Data

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1 Date ISDS Prepared/Updated: 12/22/2010 I. BASIC INFORMATION A. Basic Project Data INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC5832 Country: Uruguay Project ID: P Project Name: Sustainable Industrial Development Task Team Leader: Anjali Acharya Estimated Appraisal Date: May 27, 2011 Estimated Board Date: July 22, 2011 Managing Unit: LCSEN Lending Instrument: Specific Investment Loan Sector: General industry and trade sector (40%);Micro- and SME finance (30%);Central government administration (30%) Theme: Pollution management and environmental health (40%);Small and medium enterprise support (35%);Environmental policies and institutions (20%);Export development and competitiveness (5%) IBRD Amount (US$m.): IDA Amount (US$m.): 0.00 GEF Amount (US$m.): 0.00 PCF Amount (US$m.): 0.00 Other financing amounts by source: Borrower B. Project Objectives [from section 2 of PCN] 1. The primary development objective of this project is to support efforts by the Government of Uruguay to increase environmental performance and compliance with environmental regulations of small and medium enterprises in key polluting sectors. C. Project Description [from section 3 of PCN] 2. The project, with a total estimated cost of US$25 million, would be financed by a Sector Investment Loan (US$20 million) combined with counterpart financing from the Government of Uruguay (US$5 million). Through the proposed project, the Bank will be supporting the efforts of the government to implement a broad-based, multi-year program aimed at providing effective drivers to control, manage, and prevent industrial pollution through the adoption of cleaner production processes and technologies. The program will be targeting polluting SMEs with inadequate access to credit and will focus on key sectors in Uruguay. While the dairy and meat processing sectors have been pre-identified, other polluting sectors will be identified during project preparation. Spatially, the proposed project will also target pollution hotspots with high

2 SME concentration, such as the Uruguay and Santa Lucia River Basins, and the outskirts of Montevideo. The following areas have been identified with GoU to be included under the proposed project: 3. Pilot program for industrial reconversion and cleaner production in SMEs. This component will assist a selected group of SMEs in key polluting industrial sectors to improve their environmental performance and comply with environmental regulations through the adoption of cleaner production technologies and systems to increase the efficiency of the plants and processes; minimize the use of resources; control, reduce and/or eliminate toxic inputs and emissions to legal limits or below them. This pilot program would test financing mechanisms and demonstrate how cleaner production investments can improve environmental compliance, while generating lessons for scaling up this approach in the future. The methodology and criteria for selection would be further developed during project preparation, but DINAMA has indicated that the financing mechanisms would be structured through a demand-driven competitive process, whereby SMEs demonstrate their commitment to attaining environmental improvements and compliance through industrial reconversion. 4. Water resource management in industrial processes. This component would seek to: (a) carry out an active water quality monitoring campaign and enforcement in key river basins with heavy industrial activities, for which key agencies would receive technical support and equipment; (b) promote a rational use of water resources in industrial processes; and (c) develop a mechanism of tax incentives to those industries that demonstrate a rational use of water resources (recycling, reuse, etc.). 5. Alternative mechanisms to command and control. The project would help formulate mechanisms such as the development of a flag system for environmental performance of enterprises, or the promotion of a green brand awarded to products certified as having been produced through environmentally sound processes. This would help to add public pressure to SMEs that are not compliant with environmental standards and could improve the competitiveness of Uruguayan manufactured products in international markets. 6. Technical assistance. This proposed component would provide technical assistance and capacity building to SMEs and related industry associations to: (a) identify cleaner production measures that would help improve their environmental compliance, by sector; (b) elaborate technical guidelines and prepare subproject proposals; and (c) assist in subproject implementation. These TA activities would help build knowledge and capacity within government and among SME owners and staff about best available technologies to improve environmental compliance by sector. Additionally, the TA would help improve SME access to commercial credit by building credit histories, developing formal audited financial statement, etc.; as well as raising awareness among commercial banks to provide such credit for SME investments in cleaner production. 7. Project management and communications. This component will support a unit with the technical and administrative capacity needed to supervise subprojects and activities at a decentralized level within the Ministerio de Vivienda,

3 Ordenamiento Territorial y Medio Ambiente (MVOTMA). The Project Implementing Unit (PIU) for the project will also benefit from the technical and operational experience gathered in the implementation of the CF-Assist Project (also within MVOTMA). This component foresees the establishment of a communications unit to promote project activities to SMEs, to disseminate lessons learned from project activities, to carry out outreach programs and to help build public support for environmental programs within industry associations. The PIU would have the responsibility for coordinating project activities among SMEs, the Centro de Producción más Limpia Uruguay (CPmL-UY), specific relevant sectors (i.e. agriculture), and with other key stakeholders (NGOs, academic institutions, etc.). 8. In order to complement the design and methodology of the proposed project, a range of environmental, technical, and economic studies, surveys, consultation workshops and pilot projects will be undertaken during project preparation. These activities would be financed through a recipient-executed Spanish Trust Fund for Latin America and Caribbean (SFLAC) grant. These activities include, among others, carrying out baseline industrial studies to identify priority sectors for adoption of cleaner production technologies and practices; and diagnostic studies that will garner insights into appropriate financing mechanisms for the industrial sector (esp. SMEs) in Uruguay. D. Project location (if known) Nation-wide, as potential sub-projects are expected from small and medium enterprises from all parts of the country, including industrial hotspots. E. Borrower s Institutional Capacity for Safeguard Policies [from PCN] The proposed project will be executed by DINAMA, through a project implementation unit. Staffing will include environmental and social specialists. DINAMA manages the environmental assessment system at the national level, relying on technical tools and procedures to determine and manage safeguards-related risks. A full capacity assessment will be completed before QER in order to determine the institutional strengthening that might be needed. The MVOTMA, through DINAMA, has made a significant effort at the national level to undertake environmental impact assessments. However, the bigger problem is the lack of material resources to monitor projects, while co-ordination among the public sectors for their control remains a challenge. In addition, DINAMA has not worked under World Bank safeguard policies standards so far. In Uruguay, the Environmental Impact Assessment (EIA) was legally approved through Law No in January 1994, which assigns the MVOTMA in the role of national competent authority. In September 1994, the law was regulated through the Decree No. 435/994 which expanded its scope and set the procedures for its application in practice; with DINAMA (as the executing unit within MVOTMA) responsible for the application of the EIA regulations. The Law also describes a list of works or activities included in the EIA framework, expanded and treated more rigorously in the Regulative Decree, and which establishes the procedure for the listed works or activities to get prior environmental authorization from MVOTMA. The Decree also defines the categorization of works/ activities to be used by MVOTMA. Category A

4 is for projects with low or no impacts; Category B for those with moderate environmental impacts or which partially affect the environment; and Category C for those that have significant environmental impacts. Category A does not require an Environmental Impact Study (but does not mean that its authorization is not conditioned on mitigation measures). For the other categories an EIS must in undertaken either partial (for category B) or comprehensive (for category C), including the identification of potential impacts and related mitigation measures. Advisors or Private Advisory Consulting Firms may be contracted to undertake the EIS and present it to MVOTMA for clearance. MVOTMA determines under which preventive and/or mitigation measures are authorized. The EIA Law also establishes requirements for public participation (for projects classified B or C), including the period for public comment on the summary environmental report for the project. In the case of projects with large social impacts, MVOTMA can request the inclusion of opinions from existing social actors in the project area. The EIA System in Uruguay functions at the #project scale#. This means that the assessment is done for the proposed project scope, and does not examine project alternatives or the cumulative impacts of various other projects in the project area. Strategic Environmental Assessments (SEAs) has not been adequately used in Uruguay. F. Environmental and Social Safeguards Specialists Ms Lilian Pedersen (LCSSO) Mr Marcelo Hector Acerbi (LCSEN) II. SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered Yes No TBD Environmental Assessment (OP/BP 4.01) The application of this policy will be managed under the Project through an Environmental and Social Management Framework (ESMF). Specific sub-projects will undergo environmental screening following the ESMF guidelines to determine eligibility for financing. Eligible subprojects will include only those that can be confirmed to have an environmental categorization of Category B (or C); and that do not involve complex issues with regard to other environmental safeguards policies including significant impacts on cultural property or natural habitats and impacts on critical natural habitats. The sub-projects are thus expected to have limited environmental impacts associated with the design and location of the works and the management of construction works. These will be managed through an environmental assessment process. Cumulative impacts should be highly positive if the systems are built and operated with the envisaged high quality supervision and environmental management. Cumulative impacts of sub-projects to be selected during implementation will be assessed as part of the corresponding EIA, under the ESMF guidelines, and any specific provisions to manage these would be included in the relevant Environmental Management Plan (EMP) and Environmental Technical Specifications (ETS) for contractors. Proposed Instrument. The ESMF will be used and applied by DINAMA and all participating SMEs charged with the execution of the investment sub-projects. It will provide an analysis of the Project setting and baseline conditions and a set of technical guidelines describing procedures and institutional responsibilities for assessing and managing the potential

5 Safeguard Policies Triggered Yes No TBD environmental and social risks and impacts that could be faced throughout the sub-project cycle. This framework will support three essential goals: (a) increasing social and environmental sustainability of sub-projects financed under loan; (b) complying with national environmental legislation, and (c) complying with Bank s Environmental and Social Safeguards Policies. The ESMF will include relevant recommendations and standards from the World Bank Pollution Abatement and Prevention Handbook and from the IFC-WBG Environmental, Health and Safety Guidelines (2007). Environmental Impact Assessment (EIA) Process. Once specific SMEs investment proposals are determined and undergo the initial screening to confirm eligibility and scope out the key issues, eligible subprojects will be required to follow the procedures to be outlined in the ESMF to ensure compliance with safeguards policies applicable to the subproject. The ESMF will include a detailed environmental assessment methodology for the assessment of sub-projects including: (a) procedures for environmental and social screening of activities; (b) procedures for preparation of EAs and EMPs including draft TORs and guidelines for mitigation measures; (c) procedures and guidelines on public consultation and disclosure procedures; (d) procedures for clearance of EAs; and (e) procedures for supervision of EMP implementation. The EMP will include ETS for contractors prepared during Project preparation to avoid and reduce impacts on surrounding environments, properties and address social impacts. All subprojects will receive the no-objection from the Bank prior to initiation of bidding processes and ETS to contractors. Natural Habitats (OP/BP 4.04) The Project will undergo a general screening during preparation and before QER in order to ensure that potential sub-projects will not involve significant conversion or degradation of natural habitats. Forests (OP/BP 4.36) This Project will not involve forest areas. Therefore, this policy is not triggered. Pest Management (OP 4.09) The Projects will undergo a general screening during preparation and before QER in order to ensure that potential sub-projects will not involve the use of pesticides Physical Cultural Resources (OP/BP 4.11) The Project will undergo a general screening during preparation and before QER in order to ensure that the typology of potential sub-projects will not involve physical cultural resources. Indigenous Peoples (OP/BP 4.10) The project will involve private companies that own their land and assets. Any project proposal that either adversely affect Indigenous Peoples or includes them as beneficiaries will not be supported. Therefore, this policy is not triggered. Involuntary Resettlement (OP/BP 4.12) This policy is triggered as a precautionary measure. No resettlement associated with the activities to be funded is foreseen. However, since the physical interventions relating to cleaner production investments for SMEs which would be financed by this project have not yet been determined, a Resettlement Policy Framework will be prepared as a precaution. Safety of Dams (OP/BP 4.37) This Project will not involve dams. Therefore, this policy is not triggered.

6 Safeguard Policies Triggered Yes No TBD Projects on International Waterways (OP/BP 7.50) This policy will be triggered. Uruguay is located in between the Rio de La Plata and the Uruguay river, two international waterways. In addition, the Project would finance water quality monitoring campaigns and enforcement in key river basins with heavy industrial activities. However, this Project falls under the exceptions to notification requirement provided in paragraph 7(a) of OP The team will work with SAT and LEGEN to process a request of exception. The request will be based on OP 7.50 as provided for in paragraph 7(a), specifically: (i) the proposed Project will not adversely change the quality or the quantity of water flows to the Rio de La Plata and río Uruguay and thus not adversely affect possible water use for other riparians; and (ii) will not be adversely affected by the possible water use by the other riparians. Projects in Disputed Areas (OP/BP 7.60) This Project will not include disputed areas. Therefore, this policy is not triggered. Environmental Category: B - Partial Assessment III. SAFEGUARD PREPARATION PLAN A. Target date for the Quality Enhancement Review (QER), at which time the PAD-stage ISDS would be prepared: 03/04/2011 B. For simple projects that will not require a QER, the target date for preparing the PAD-stage ISDS: N/A C. Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timing 1 should be specified in the PAD-stage ISDS. It is expected that the Environmental Management Framework for this project will be launched and completed before project appraisal (May 2011). IV. APPROVALS Signed and submitted by: Task Team Leader: Ms Anjali Acharya 12/20/2010 Approved by: Regional Safeguards Coordinator: Mr Glenn S. Morgan 12/21/2010 Comments: Sector Manager: Ms Karin Erika Kemper 12/21/2010 Comments: 1 Reminder: The Bank s Disclosure Policy requires that safeguard-related documents be disclosed before appraisal (i) at the InfoShop and (ii) in-country, at publicly accessible locations and in a form and language that are accessible to potentially affected persons.

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