ARMENIA: Access to Finance for Small and Medium Enterprises Environmental Safeguard Review Framework

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized E2058 ARMENIA: Access to Finance for Small and Medium Enterprises Environmental Safeguard Review Framework 1. This Environmental Safeguard Review Framework (hereafter Framework ) describes procedures that Participating Financial Intermediaries (PFIs) shall apply to subprojects to be financed under the World Bank Access to Finance for Small and Medium Enterprises Project (hereafter AFSME Project ) with regard to Environmental Assessment (EA) issues. Overview 2. All subprojects to be financed under the AFSME Project will be subject to an environmental review process by the PFIs incorporating the procedures described in this Framework. These procedures and requirements incorporate the EA requirements under the laws and regulations of the Republic of Armenia, World Bank safeguard policies on Environmental Assessment (OP/BP/GP 4.01) and the World Bank Pollution Prevention and Abatement Handbook (PPAH). 3 The environmental impact assessment process is carried out to determine the possible positive or negative impacts of proposed subprojects; to evaluate the precautions to be taken in order to prevent or minimize negative impacts which may damage the environment (for example by site selection and mitigation measures); and for supervision and inspection of subproject implementation. 4. It is recognized that under the AFSME Project there will be two types of subprojects: (a) Ex poste and (b) Ex ante. Ex poste subprojects have already received a loan from the PIF, therefore the safeguard review would be primarily to determine any additional environmental safeguard requirements that may be needed for the PFI to access AFSME Project funds. Ex ante subprojects have not yet received any financing from the PFI so the safeguard review would be used to determine if the subproject is eligible for financing by the PFI under the AFSME Project. 5. For any subproject (ex poste or ex ante), the PFI is responsible for assuring that (a) all Armenian environmental procedures and approvals are in place before a final financing decision under the AFSME Project is made, (b) complete supporting files are available, and (c) any additional safeguard requirements of the World Bank are met. 6. Armenian environmental impact regulations classify projects by relative environmental risk similar in principle to the environmental assessment screening procedures of the World Bank. However there may be cases where the outcomes of the different screening procedures differ. Therefore it may be necessary in some cases for the PFI to request additional information from, or request additional measures to be taken by the Sponsor as a condition of receiving access to the AFSME Project funds.

2 Subproject Environmental Assessment Procedures 7. The eight elements of subproject EA procedures are listed below: Compliance with Armenian EA requirements Screening Documentation Public Consultation Disclosure Review and Approval Conditionality Monitoring and Reporting 7. Details of procedures required for each of these elements are subsequently described. COMPLIANCE WITH ARMENIAN EA REQUIREMENTS 8. For both Ex poste and Ex ante projects the PFI must demonstrate that all Armenian EA requirements have been met. The Sponsors will be responsible for meeting Armenian EA requirements and confirming that any and all environmental clearances, permits, licenses etc. necessary for the subproject have been obtained from the relevant authorities as prescribed in Armenian legislation. The PFI should verify that it has in its subproject files: (a) all the Armenian EA documentation, (b) official approvals for the documentation from responsible authorities for protection of environment, (c) a copy of the sub-project Feasibility Study (FS), (d) copies of all licenses, permits, clearances etc. If any of this documentation is not in the files, the PFI should collect missing documentation from the Sponsor. SCREENING 9. Under the Armenian EA system projects are evaluated by the relevant authorities to determine whether or not an EA is required. Under the World Bank system, projects are Categorized as A, B or C based upon the estimated potential environmental risk. 10. For both Ex poste and Ex ante projects the PFI in consultation with the PIU, as appropriate, will use the material collected in the previous section (Compliance with Armenian EA Requirements) to evaluate the sub-project against the Screening Criteria presented in Annex A. If a sub-project is determined to have one or more criteria as High Impact the PFI will tentatively assign the sub-project Category A. The PFI should consult with the PIU to confirm this decision. The PFI should assign the sub-project Category B if it is determined impacts are modest (of limited extent, temporary and readily managed with conventional construction or operational practices). If the PFI establishes that there are minor or no impacts of any significance and no particular measures for environmental protection are needed, the subproject should be assigned Category C. The PFI should contact the Sponsor of the Category assignment decision as early as possible, document the Category assignment and include this documentation in the project file.

3 11. Some of the information required to assess the screening criteria presented in Annex A may not be available in the PFI project file. The PFI should then contact the subproject Sponsor to supply information gaps. Clearly for Ex poste projects the Sponsor is not under any obligation to provide this information. However, for either Ex poste or Ex ante subprojects, if there is insufficient information to complete the screening process and that information is not forthcoming, AFSME project loans can not be utilized. 12. Since the Armenian screening approach and the World Bank screening approach differ, there are a range of possibilities, as indicated in the Table presented below: World Bank System Ex Poste Armenian System Ex Ante EIA No EIA EIA No EIA A X X X X B X X X X C - X - X 13. As can be seen from the Table, it is possible for subprojects to be considered Category A under the World Bank Screening system and not require an EIA under the Armenian Screening System. 14. If it is determined under the World Bank Screening system (see Annex A) that the subproject is considered Category A, it will not be eligible for financing under the AFSME Project. The PFI would not be able to access World Bank funds for Ex poste projects. The PFI may reject Ex ante projects or finance them with other resources. 15. One aspect of the World Bank screening criteria that is not addressed in the Armenian system is the issue of project connectivity. Potential subprojects may include new enterprises (so called greenfield plants ), modifications at existing enterprises, or expansions of existing capacity etc. In the cases of projects involved with existing facilities or expansion of existing facilities, the World Bank screening criteria (see Annex A) examines current environmental performance as part of the environmental risk criteria. Clearly, if the Sponsor maintains an enterprise that is in violation of existing environmental standards, has a record of poor performance and environmental neglect or significant outstanding environmental liabilities (unpaid penalties and fines etc.) then providing additional finances to such an enterprise would represent a significant

4 corporate risk to both the PFI and the World Bank. Such a subproject would be rated Category A and would be ineligible for financing under AFSME. 1 DOCUMENTATION 16. For subprojects assigned Category B an Environmental Management Plan (EMP) may be required. The format for a comprehensive EMP is presented in Annex B. For some subprojects, the PFI may consider that all the EMP information requirements as presented in Annex B may be excessive and that certain items are either obvious or inappropriate. For subprojects that have a number of items screened as modest impact or viewed as presenting a possible environmental risk, the full EMP as presented in Annex B is recommended. However, in simpler projects with few or one item presenting a modest impact, an abbreviated EMP would suffice. In the minimal case, the EMP would only consist of a Mitigation Plan, and the results of the Public Consultation. 17. The Sponsor is responsible for preparing the EMP. For Ex poste subprojects the PFI and/or the PIU may assist the Sponsor in this task. If the Sponsor is reluctant to prepare the EMP, the subproject would be ineligible to access funds from the AFSME project. For Ex ante subprojects, preparation of the EMP by the Sponsor can be used as a requirement by the PFI for loan approval. Again, the PFI and/or the PIU may assist the Sponsor in this task. PUBLIC CONSULTATION 18. The Sponsor is responsible for the Public Consultation. The PFI should assure that the documentation of the Public Consultation contains all the information indicated in Annex B, Section V (Consultation with Local NGOs and Project-Affected Groups). For Ex poste subprojects the PFI and/or the PIU may assess whether or not the documentation for the public consultation already conducted is adequate. If not all the information is presented, but the subproject has minor or inconsequential environmental issues a more modest level of documentation may be acceptable. For Ex ante subprojects, it is recommended that all the information indicated in Annex B, Section V is provided. 19. In all cases, the PFI should include documentation of the public consultation in the subproject file. DISCLOSURE 20. The Sponsor is responsible for disclosing the EMP in a public place (library, municipal or government building etc.) near the project site. Alternatively, the Sponsor may place the EMP on the enterprise website, and place a notification in the local media (e.g. newspaper) as to where the EMP may be viewed. The Sponsor should then send a letter to the PFI indicating the date, location, and manner in which the EMP was disclosed to the public. The PFI should include this letter in the subproject file. 1 However, if the proposed subproject would finance removal or elimination of environmental liabilities, or if the Sponsor agrees as part of the loan conditions to eliminate any environmental liabilities, the PFI in consultation with both the PIU and the World Bank may consider subproject eligibility for financing under AFSME

5 REVIEW AND APPROVAL 21. The PFI is responsible for reviewing and approving the EMP. For subprojects that have prepared the full EMP because the subproject had a number of items screened as modest impact or viewed as presenting a possible environmental risk the PFI should provide the EMP to the PIU before offering an approval. Only after receiving EMP approval would Ex poste subprojects be eligible for AFSME funds. For Ex ante subprojects, EMP approval can be used by the PFI as a condition for loan eligibility. CONDITIONALITY 22. For Ex ante subprojects, the PFI will assure that subproject loan agreements include a commitment of the Sponsor to obey the requirements set forth in the EMP. The Sponsor will be required to show best effort to ensure that the subproject is carried out with expected attention to good environmental management. For Ex poste subprojects this may require a codicil to the existing loan agreement. If the Sponsor does not agree to this codicil the subproject would not be eligible for AFSME funds. MONITORING AND REPORTING 23. As part of normal supervision activities the PFI will perform desk and field-based supervision functions to assure compliance by the Sponsor with environmental obligations specified in the loan agreement. The PFI will interact with relevant environmental compliance and enforcement authorities as needed in this regard. 24. All PFI subproject performance reports will include an environment section. In this section the PFI will verify whether or not environmental requirements as detailed in the subproject loan agreement have been met. If requirements have not been met, the PFI will provide recommendations for further action to insure compliance. Depending on the severity of a compliance failure, the PFI would make a special effort to assist the Sponsor to take corrective action.

6 ANNEX A-SUBPROJECT ENVIRONMENTAL SCREENING CRITERIA A-1 New (Greenfield) Project CRITERIA Will the sub-project generate water effluents that: violate Armenian effluent standards result in a long term violation of Armenian water quality standards contaminate public drinking water supply contaminate underground water resources harm fish or aquatic ecosystems contaminate a natural habitat or protected area are difficult, expensive, or hard to control are inconsistent with PPAH recommendations alter downstream river basin characteristics? Will the sub-project generate air emissions that: violate Armenian air emission standards result in a long term violation of Armenian air quality standards release pollutants that affect downwind sensitive receptors (hospitals, schools, population centers, sensitive crops etc.) harm sensitive ecosystems (e.g. forests) impact a natural habitat or protected area are difficult, expensive, or hard to control are inconsistent with PPAH recommendations Will the sub-project generate noise levels that: violate Armenian noise standards impact particularly sensitive receptors (natural habitats, hospitals, schools, local Minor or No Impact Modest Impact High Impact

7 population centers) are inconsistent with PPAH recommendations Will the subproject consume, store, produce or utilize hazardous materials that: require special permits or licenses require licensed or trained personnel are outlawed or banned in EU or Western countries are difficult, expensive, or hard to manage are inconsistent with PPAH recommendations Will the sub-project be located within or close to officially protected areas or areas under consideration by the Government for official protection status? Will the sub-project potentially impact areas of known significance to local, regional or national cultural heritage? (During the public consultation, the local population should be asked to provide information about any sites or structures which are not on any official list, but which they consider to be of significance and which they think should be protected) Has the local population or any NGOs expressed concern about the sub-project environmental aspects or expressed opposition?

8 A-2 Modification or Expansion of an Existing Facility CRITERIA Minor or No Impact Does the existing enterprise have a valid operating permit, licenses, approvals etc.? If not, will the investment be used to correct this condition? Does the existing enterprise meet all Armenian environmental regulations regarding air, water and solid waste management? If not, will the investment be used to correct this condition? Are there any significant outstanding environmental fees, fines or penalties or any other environmental liabilities (e.g. pending legal proceedings involving environmental issues etc.) If so, will the investment be used to correct this condition? Have there been any complaints raised by local affected groups or NGOs regarding conditions at the facility? If so, will the investment be used to remedy these complaints? Will the sub-project generate water effluents that: violate Armenian effluent standards result in a long term violation of Armenian water quality standards contaminate public drinking water supply contaminate underground water resources harm fish or aquatic ecosystems contaminate a natural habitat or protected area are difficult, expensive, or hard to control are inconsistent with PPAH recommendations alter downstream river basin characteristics? Will the sub-project generate air emissions that: violate Armenian air emission standards result in a long term violation of Armenian air quality standards Modest Impact High Impact

9 release pollutants to affect downwind sensitive receptors (hospitals, schools, population centers, sensitive crops etc.) harm sensitive ecosystems (e.g. forests) impact a natural habitat or protected area are difficult, expensive, or hard to control are inconsistent with PPAH recommendations Will the sub-project generate noise levels that: violate Armenian noise standards impact particularly sensitive receptors (natural habitats, hospitals, schools, local population centers) are inconsistent with PPAH recommendations Will the subproject consume, store, produce or utilize hazardous materials that: require special permits or licenses require licensed or trained personnel are outlawed or banned in EU or Western countries are difficult, expensive, or hard to manage are inconsistent with PPAH recommendations Will the sub-project be located within or close to officially protected areas or areas under consideration by the Government for official protection status? Will the sub-project potentially impact areas of known significance to local, regional or national cultural heritage? (During the public consultation, the local population should be asked to provide information about any sites or structures which are not on any official list, but which they consider to be of significance and which they think should be protected) Has the local population or any NGOs expressed concern about the sub-project environmental aspects or expressed opposition?

10 ANNEX B :ENVIRONMENTAL MANAGEMENT PLAN FORMAT I. MITIGATION PLAN Phase Issue Mitigating Measure Cost of Mitigation (If Substantial) Responsibility* * Items indicated to be the responsibility of the contractor shall be specified in the bid documents

11 II. MONITORING PLAN Phase Construct What parameter is to be monitored? Where is the parameter to be monitored? How is the parameter to be monitored/ type of monitoring equipment? When is the parameter to be monitoredfrequency of measurement or continuous? Monitoring Cost What is the cost of equipment or contractor charges to perform monitoring? Responsibility Operate

12 III. INSTITUTIONAL STRENGTHENING 1. Equipment Purchases (Tabular Presentation Preferred) List: Type of equipment Number of Units Unit cost Total Cost Local or International Purchase 2. Training/Study Tours List: Type of Training (Mitigation, Monitoring, Environmental Management, Other) Number of Students Current and Future Organizational Unit in Which They Work or Current and Future Title/Job Description Duration of Training Start Date/End Date (for each student) Venue of Training (Domestic or Abroad) Institute or Organization to Provide Training Cost (Local and Foreign) 3. Consultant Services Type of Service Terms of Reference Justification Cost 4. Special Studies Justification Terms of Reference Cost

13 IV. INSTITUTIONAL ARRANGEMENTS A short narrative discussion supported by organizational charts detailing how all the monitoring data going to be used to maintain sound environmental performance: who collects the data, who analyzes it, who prepares reports, who are the reports sent to and how often, and who does that person send it to, or what does he/she do with the information who has the authority to spend, shutdown, change operations etc. This information can be presented by completing the Institutional Responsibility column in the following table. Action Monitoring Data Collection Institutional Responsibility (from Monitoring Plan ) Data Analysis (from Monitoring Plan ) Environmental Report Preparation Environmental Report Receipt/Frequency (Who receives report/how often) Management Action

14 V. CONSULTATION WITH LOCAL NGOs AND PROJECT-AFFECTED GROUPS Provide documentation of the following: Manner in which notification of the consultation was announced: media(s) used, date(s), description or copy of the announcement Date(s) consultation(s) was (were) held Location(s) consultation(s) was (were) held Who was invited Name, Organization or Occupation, Telephone/Fax/ number/address (home and/or office) Who attended Name, Organization or Occupation, Telephone/Fax/ number/address (home and/or office) Meeting Program/Schedule What is to be presented and by whom Summary Meeting Minutes (Comments, Questions and Response by Presenters) List of decisions reached, and any actions agreed upon with schedules and deadlines and responsibilities.