Case studies from Central and Eastern Europe

MAKING EU FUNDS WORK FOR

PEOPLE AND THE ENVIRONMENT

June 2004

Contributions from:

Anelia StefanovaMagda StoczkiewiczPeep MardisteAlda OzolaRoman HavlicekRobert CyglickiEniko HajosiPavel PribylAkos EgerlJuraj Zamkovsky

Editing:Greig AitkenIan Transue

Design & Layout:Maria Matorova/ Aspectrum Ltd.http://a-spectrum.com

© 2004 CEE Bankwatch Network & Friends of the Earth Europe

MAKING EU FUNDS WORK FOR PEOPLE AND THE ENVIRONMENT

Case studies from Central and Eastern Europe

June 2004

Contents

Executive summary............................................................................................................6

Overview: getting it right before it's too late.................................................................7

Bulgaria: The Ljulin motorway takes all the wrong short cuts.................................13

Czech Republic: The D8 motorway bulldozer approach..........................................15

Estonia: Poor planning process slows landfill construction.....................................18

Hungary: Learning the hard way with the Szolnok waste management system.......20

Latvia: Encouraging signs in Liepaja............................................................................22

Poland: Collision course with Natura 2000 site..........................................................25

Slovak Republic: ISPA as a potential tool for the undue profit of private firms.........28

6

The aim of this publication is to present examples ofISPA1 project implementation, as well as to drawconclusions and propose recommendations forimprovement of European Union (EU) fundsappraisal and selection procedure in central and east-ern European (CEE) countries. Experience so farsuggests that current practice does not guarantee themost efficient and transparent use of EU assistancein terms of sustainability principles.

The conclusions in this report are based on the expe-riences of CEE Bankwatch Network and Friends ofthe Earth Europe in monitoring pre-accession aidand in-depth analyses of seven projects financed bythe EU ISPA pre-accession program in differentCEE countries. We understand that shortcomingshave occurred due to the nature of the ISPA pro-gram: it has been intended as a learning mechanismfor the use of the EU Cohesion Fund. However thelack of mitigation measures available to address iden-tified project deficiencies, as well as the lack of anavailable mechanism for avoiding repeated mistakes,leaves us sceptical about the positive educational out-comes of ISPA. Based on the ISPA implementationexperience, we consider that urgent changes to theprocedures and guidelines for the forthcoming EUaid programs are needed to prevent inefficient use ofEU taxpayers' money in the future.

CEE Bankwatch Network and Friends of the EarthEurope have conducted constant monitoring of theISPA Program implementation and its impactssince the program began. A set of recommenda-tions designed for the improvement of EU pre-

accession aid were drawn up in 2002 in the publica-tion Billions for Sustainability? Lessons learned from theuse of pre-accession funds 2

The focus of the current publication is to use a casestudy approach in order to assess the appraisalprocess of ISPA projects, with particular attention tothe quality of the Environmental ImpactAssessments (EIAs). The case studies gathered fromseven EU accession countries - Bulgaria, CzechRepublic, Estonia, Hungary, Latvia, Poland andSlovakia - illustrate a variety of problems related tothe development and approval mechanisms attachedto ISPA projects. While the other cases focus on thequality of the appraisal of ISPA projects in theacceding countries, the Slovak case deals with therole of the EU in providing grants that might gener-ate undue profits for private operators of environ-mental infrastructure.

This publication summarises the problems within thedifferent parts of the appraisal process (regardingenvironmental, social and economical benefits).Recommendations are given concerning both thecurrent management of the ISPA program and thefuture Cohesion projects in the next budgetary peri-od. In addition, the seven case studies provide amore detailed explanation of the problems highlight-ed in the general observations as well as giving spe-cific country and project related recommendations.

Full versions of the seven case studies can beviewed at:www.bankwatch.org/issues/eu/mngomaterials.html

Executive summary

1 Instrument for Structural Policies for Pre-Accession (ISPA)2 http://www.bankwatch.org/issues/eu/mngomaterials.html

7Overview

The European Union ISPA program has been inoperation in ten EU accession countries for morethan four years already. The ISPA 'window' is nowover since the biggest part of the funds available, forthe six year running of the program, has alreadybeen allocated for specific projects. The ISPA pro-gram will shortly be replaced by the EU CohesionFunds in the eight acceding countries1. These obvi-ously raise even more attention.

We consider that an evaluation at this stage of theISPA program's maturity is crucial as the programwas supposed to be the test for countries' readiness tomanage the Cohesion Funds. Current statistics showthat about 20 percent of the money committed hasactually disbursed2. The danger remains that for thesake of showing a maximum use of ISPA money thequality of the projects is compromised. Since the dayof accession on May 1, 2004, a Cohesion Fund isavailable for the new members, providing largeramounts of grant assistance for transport and envi-ronment infrastructure projects. It is therefore vitalthat lessons are drawn from the current programmingand implementation of ISPA, ensuring that futurefunding benefits people and the environment.

Lessons learned

Whereas in the interest of the proper management ofCommunity assistance granted under ISPA provision shouldbe made for effective methods of appraising, monitoring, eval-uating and controlling operations, specifying the principle gov-erning the evaluation, defining the nature and the rules gov-erning the monitoring, and laying down the action to be takenin response to irregularities or failures to comply with one ofthe conditions laid down when assistance under ISPA wasgranted; Principles of the ISPA CouncilRegulation No 1267/1999, p.14

As the Council's Regulation on ISPA indicates, theappraisal is one of the key mechanisms, or even themost important one, for the proper use of thefunds. Furthermore, appraisal of the projects apply-ing for public funds is crucial as it should guaranteethat projects do not have negative environmentaland social impacts and support democratic process-es in the country.

The analysed projects in this book show numerouscontradictions between on the one hand the prepa-ration and implementation of ISPA projects on theground and on the other hand the ISPA programprinciples and EU legislation.

As a result, we conclude that the project appraisal pro-cedure is not rigorous enough to avoid controversialproject selection and/or the European Commissionintentionally compromising the quality of projects.

CEE Bankwatch Network and Friends of the EarthEurope have shown in previous reports on pre-acces-sion funds that frequently the accession countrieshave not had sufficient capacity to prepare good qual-ity projects. Therefore, it is understandable that theEuropean Commission, in the first years of the pro-gram, made several compromises in terms of theproject quality to speed up the disbursement of EUgrants. However, since the ISPA program has servedas a learning process for the future use of largerCohesion Funds, there are two key questions whichfollow:

1. Shouldn't the European Commission and acces-sion countries' governments seek mechanisms tomitigate the deficiencies of the approved projects,when most of the projects are still in the early stagesof implementation and changes could still be made? 2. Should compromises with project quality and effi-ciency continue to be made when the ISPA program isalready at a mature stage and the mistakes already iden-

Overview: getting it right beforeit’s too late

1 The ISPA program was not applicable for Malta and Cyprus that acceded to the EU.2 The mini ISPA report 2000-2002, http://www.europa.eu.int/comm/regional_policy/funds/ispa/pdf/mini_en.pdf

8

tified in the learning process are in need of correction?

There is also a third aspect concerning bad quality proj-ects. Some of the monitored cases clearly demonstratethat non-compliance with the ISPA principles andeven EU legislation are intentional - they have not beencaused by a lack of implementation capacity. Badlyconducted EIAs, lack of transparency and neglect ofpublic opinion are often apparent in cases where gov-ernments want to push forward projects with dubiousenvironmental, social or economic benefits.

The current procedures as well as institutional set-ups do not prevent such irregularities from occur-ring. If tolerated any longer, undemocratic decision-making and the use of public funds for private inter-ests could prove to be a very serious negative impacton the development of democratic processes in theCEE countries.

Main conclusions from thecase studies

(a) Appraisal process

A close look at the responsibilities of the differentbodies involved in the appraisal mechanism withthe aim of identifying the main procedural short-comings is necessary. An underlying questionthroughout our examination has been how thetransparency and accountability of the responsibleinstitutions is ensured.

The appraisal process is supposed to guarantee thatprojects receiving ISPA co-financing are:� in compliance with EU environmental legislation � beneficial for a majority of the population in proj-ects areas� economic and financially viable

The ISPA regulations state that project applicationsmust contain, besides basic information about theproject (name of the responsible body, nature of themeasure, a brief description, cost and localisation,implementation timesheet), the following information:

� a cost-benefit analysis which includes direct andindirect employment effects - quantified if possible- and an explicit indication of the internal rate of

return, the net present value and cost/benefit ratio;� indication of environmental impacts;� other information regarding consistency with EUand national legislation.

The appraisal and selection procedures are similar forall projects. The proponent must provide all signifi-cant information in order to enable the Commissionto make an ex-ante appraisal. The state proposes theproject through the ISPA national coordinator.Applications are examined by the ISPA directoratefor DG Regional Policy. The EC can ask for addition-al information on specific issues if the informationprovided is not sufficient to express an opinion. Oncethe project is acceptable, it is submitted to the ISPAManagement Committee for approval.

In the case of the ISPA program, the EC createsgeneral framework requirements for project applica-tions. However, the government is responsible forthe content and the quality of the documents sub-mitted. Once the national coordinator gathers all thenecessary documents they are supplied directly tothe ISPA directorate in DG Regional Policy. In prac-tice, government accountability towards the publicin this process is nil. In most cases the public hasneither access to the applications nor the studiesprepared as part of the application (apart from theEnvironmental Impact Summary (EIS)).

For instance, the public is not even informed whenan application is submitted. In Bulgaria, publicaccess to the application form for the LjulinMotorway project was denied even one year after theproject was approved. At the same time NGOsreceived evidence that the application form con-tained misleading information regarding the EIAprocedure applying to the project. By chance onlythe affected population contacted the ISPA direc-torate prior to the project approval. Thus DGEnvironment looked more closely at the EIA's com-pliance with the EU EIA Directive and requested anew public consultation and new EIA decision inthe ISPA Financial Memorandum.

In addition, the Commission, which in case of ISPAprojects has the role of decision-maker, does nothave access to all project relevant information. Inthe project presented from Slovakia, for example,the contract between the private company and thepublic beneficiary of the ISPA grant was not dis-

9Overview

closed during the appraisal process. Only one yearafter the approval, the EC examination showed thatthe conditions in the contract contradict the publicinterest and could undermine the social benefits andeconomic viability as requested by the ISPA rules.

The project appraisal process within the EC startsafter the application form is accepted. The content ofnegotiations between national governments and theEC about project quality is not made available to thepublic. There are several stages of the appraisalprocess that are crucial for stakeholders as for exam-ple results from the first and second inter-service con-sultations. Potentially, affected people and interestedNGOs could express their concerns in a letter to theISPA Directorate using the address available on theCommission's website. However, there is no guaranteethat their views will be considered. Furthermore, thelack of information regarding the appraisal processmay completely marginalise public opinion.

The opinion of the ISPA Unit directorate on thespecific project prior to the ISPA ManagementCommittee approval is also not made public. Thepublic does not have any chance to assess how theISPA principles and conditions are taken intoaccount during the project's appraisal and selection.

Finally, once the project is approved, there is nomechanism allowing for the decision to be appealedon the grounds of project incompliance with eitherEU legislation or ISPA program principles. At thesame time, the possibilities to appeal against the gov-ernment's decisions on the national levels are still verylow due to unreformed judicial systems and/or non-sufficient enforcement of the EU legislation in mostof the CEE countries. In April 2003, a Czech NGOfiled a court case for non-exemption from the protec-tion of endangered species in the D8 motorway con-struction. No court decision has been issued yet, butit will be unlikely to stop funding coming from theISPA program. Additionally, once the EC approves agrant where there has been a legal case against a pro-ject's realization, incentives for future judgments infavour of project realisation could be created.

Appealing against a decision from the ISPAManagement Committee is still very complicated forcitizens from CEE countries. It is our belief that theEC should consider the establishment of an ade-

quate mechanism, available for CEE citizens, forappeals against the results of EC appraisal and man-agement committee project approval.

Appraisal of the social and economic benefitsfrom the projects

It is striking that in most of the CEE countriesNGOs had difficulties in finding informationregarding the social and environmental assess-ments of projects. Access was even officiallydenied bythe national ISPA coordinator when theCEE Bankwatch member group in Bulgariarequested the application form and cost-benefitanalysis for the Ljulin motorway. A court caseunder Bulgarian legislation on access to publicinformation is pending at the moment. AnotherCEE Bankwatch group in Slovakia has repeatedlyrequested disclosure of the contract between thefinal public beneficiaries of the ISPA fund and theprivate corporation which seemed to include provi-sions that privilege private corporations at theexpense of municipal companies and consumers3.Therefore, the group filed a court case against theMinistry of Environment for violation of the Acton Free Access to Information.

Even in the positive case in Latvia, informationregarding costs and benefits of the project providedduring discussions on the EIA report was very gen-eral and no separate public discussion took place onthis topic. The public were also not consulted dur-ing the preparation of the feasibility study.

Recommendations for the appraisal process

� The European Commission should ensure thatthe national government makes publicly available allthe project relevant information prior to the appli-cation form submission to the ISPA. This informa-tion should include all documents regulating thelegal relationships of final public beneficiaries ofthe ISPA fund or the Cohesion Fund with privateoperators of public facilities. Changes in the projectrelated documentation at the time of the projectappraisal and implementation should be also madepublicly available in a timely manner.� The EC should make information on the proj-ects applying for ISPA funds available through its

3 Final report of the expert team of the European Commission "PPP/SK/01/TR, Framework Contract for Provision of TA for Analysing andMonitoring PPP Operations in ISPA Countries Review of 6 WWTP ISPA Measures in Slovakia" May 2002 (http://www.vlada.gov.sk/phare/final-repport.pdf).

10

website and should include the timeline of theappraisal process for all project applicants.� The EC should consider possibilities for alsogathering public opinion on specific projects whenan appraisal is conducted, especially if theCommission representatives make field visits to theCEE countries during the appraisal period.� Project selection processes must ensure publiccontrol, e.g. with the participation of experts nomi-nated by non-governmental organisations in theproject selection committee, steering committee, etc.� The project documentation must include iden-tification of companies that might gain unduefinancial or economic profit from the ISPA orCohesion Fund. Each submitted project must haveexplicitly defined measures to prevent undue prof-it from the public funds. Information on theseprevention measures must be made accessible tothe public.� The EC should consider creating a simple andeasily accessible compliance mechanism for ISPAprojects - and also in the future for Cohesion proj-ects - to assess their compliance with EU legislation.� Every ISPA and Cohesion Fund project shouldhave its own steering committee. It should be estab-lished early in the preparatory stage so that it canhave a guiding influence on the feasibility studies'process. Such steering committees should haveNGO representation as well as representation fromlocal grassroots groups from the potentially affect-ed communities. Big infrastructure projects needsignificant financing from the public sector and bytaxpayers. It is therefore essential that the prepara-tion of such projects is not done by just a smallgroup of experts.

(b) Compliance with EU environmental legis-lation

Grant assistance from ISPA to the acceding coun-tries can be used for large infrastructure investmentinto transport or environmental sectors. It is there-fore expected that such projects might have signifi-cant negative environmental impacts. The mecha-nisms for preventing and limiting such impacts areStrategic Environmental Assessment andEnvironmental Impact Assessment procedures.These procedures have been used differently inacceding countries. Even though there is a legalframework, the environmental assessment process-

es often fail because of vague and non-enforceableprovisions and conflicting political interests.

Strategic Environmental Assessment (SEA)CEE Bankwatch Network and FoE Europe's firstjoint report Billions for Sustainability? illustrated thatonly one country, the Czech Republic, carried out anSEA on the National Development Plan4, a key pro-gramming document which set the framework for theuse of EU funds. Subsequently in Poland, too, suchan assessment was partly done following NGOs' owninitiative. Although the SEA in Czech Republic couldhave been a good example regarding the decision-making process, it had a minor reverse impact on thealready approved list of the projects5. Later on theISPA related strategy was updated in most of thecountries6. Once again SEAs were not envisaged. Inaddition, NGOs were most often not consulted norwere their opinions taken into consideration.

The legislation for the environmental assessment ofthe programs and strategies existed in most of theCEE countries even before the EU Directive onSEA. ISPA programming paid very little attention tothis, and governments only followed the formalrequirements that pay attention to the process ofprogram and project development.

Environmental Impact Assessment (EIA) It is especially important that EIAs be carried outprofessionally, independently and at the earliest pos-sible stage in the project cycle. Both project spon-sors and funders should be flexible and shouldaccept any significant changes to project design if anenvironmental assessment which has been carriedout deems such changes necessary. Using environ-mental assessments just because they are requiredand then not actually implementing particular sug-gestions drawn from these important assessmentsmakes them meaningless.

In most of the presented cases in this book, theEIA process came only after the decisions hadbeen taken on the concrete project characteristics(e.g., project site, motorway route, technologyetc). Thus the Environmental Impact Statement(EIS) serves as a justification of the decisionstaken rather than information which would influ-ence the decision.

4 The key document for the use of the ISPA funds5 SEA was finalised in 2001 when most of the projects from the preliminary ISPA list were at an advanced stage of development. Furthermore theCzech government did not strictly follow the SEA recommendations6 For example, Estonia 2002, Bulgaria 2003

11Overview

The possibilities to select less environmentallyharmful projects are seriously diminished and thevalue of public opinion seriously denigrated. Forexample, in the Estonian case, the EIA procedurewas carried out only after the specific project sitewas selected by the private company promoting theproject. The opportunity for the public to choosethe less harmful option was undermined.

Furthermore, alternative possibilities for solvingproblem projects are often neglected. In Estonia,the need to replace more than 200 small landfillswith only seven big regional landfills is still to beproven and adequately explained. As the openingof the first new regional landfill shows, the wastedepositing price for clients may immediately almostdouble. As the transport costs also rise significant-ly, the probability of illegal waste dumping mayincrease. The respective national authorities mustbe responsible for considering such issues alreadyin the programming phase and the EC must ensurethat there are coherent longer-term national sec-toral strategies in order to prevent the developmentof a number of end-of pipe projects that precludea systematic approach, duplicate each other or cre-ate a basis for new, predictable problems.

Scoping procedure

Of particular importance is the scoping procedure,where the decision-maker should play a proactiverole to involve the interested public. For example,in the Czech Republic, SEAs were conducted onNUTS II, NUTS III levels for various concepts,but the public were given no chance to discuss thescope and content of the scoping meetings andhad to find alternative ways to address the SEAexperts. In the Ljulin Motorway case in Bulgaria,NGOs and affected citizens were invited sevendays before the scoping meeting, with neither clar-ification on the purpose of the meeting nor prelim-inary materials provided. Even at the meeting itselfthe project promoter failed to explain the plannedoutcomes of the meeting and therefore the discus-sion concluded fruitlessly.

A positive example of a meaningful scoping proce-dure is the Latvian case. The scoping meeting(February 10, 1999) for the case concluded with anunclear outline of public concerns. However, laterin May 1999, a survey was done to find out the

detailed opinion of affected people. The results ofthe survey, showing the opinions and arguments ofall the homeowners, are included in the final EIAreport as an annex.

Quality of the environmental assessment

Most of the presented cases have involved poorquality EIAs on the ISPA co-financed investmentprojects, showing that EU officials do not payenough attention to such processes. A poor qualityenvironmental assessment can seriously compro-mise the overall quality of an investment project aswell as cause predictable and irreparable damage tothe environment.

Two striking issues were observed as part of theEIA procedure: low quality of EnvironmentalImpact Summaries and absence of effective publicparticipation in the EIA processes. Thus the EIAprocedure very often loses its defined role as amechanism to prevent and mitigate potential envi-ronmental impacts from a whole project cycle.

The Road Executive Agency of Bulgaria has onfour occasions been requested to thoroughly inves-tigate the environmental impacts of the Ljulinmotorway, an 18 kilometre motorway within corri-dor IV of the Trans-European Network. However,none of the EIS for the Ljulin Motorway complyeven with one quarter of the requirements of theEC guidelines on EIS preparation7. In the Polishcase, the detailed analysis of EIS on the S-1expressway, together with interviews conductedamong public administration representatives,showed incoherence with the EU EIA Directive(85/337/EEC) and Habitat" Directive(92/43/EEC). In the Czech Republic, the EIAtakes into account neither the provisions of EUDirectives (Birds and Habitats) nor aspects of theBern convention. The EIA takes no account of cli-mate change aspects, where there are serious con-cerns arising from the fact that the future motorwaywill, within 20 years, generate four times highervehicle numbers.

Only in the Latvian case, in addition to evaluatingthe direct impact on the natural environment, theEIS also evaluated such aspects as the project'simpacts on biodiversity, land value, cultural heritage,air quality and human health.

7 Guidance on EIA, Scoping, EC (June 2001) and Guidance on EIA, EIS Review, EC

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Recommendations for better compliance withEU environmental legislation:

� Strategic Environmental Assessments andEnvironmental Impact Assessments should beobligatory and need to be carried out according toboth existing legislation and the best available prac-tices. The EIA process should be conductedaccording to EU Guidance on EIA procedures andin compliance with the Habitats Directive and inter-national nature protection treaties such as the BernConvention. No funds should be allocated for proj-ects violating the EU guidelines on EIA proceduresand nature protection directives and treaties.

� The EIA and SEA processes are to be fully partic-ipative. All stakeholders, including potentially affectedcommunities and NGOs must be involved from thescoping stage until project evaluation and monitoring.

� The undue influence of a project sponsor or fun-der over the EIA and SEA process outcomes forpolitical or economic reasons should not be tolerat-ed. Environmental evaluation processes have to becarried out in a professional manner, and not in sucha way that provides convenient rubber-stamping forpre-cooked decisions. Both the project sponsor andfunder should be flexible and accept significantchanges to the project design if the environmentalassessment deems such changes necessary.

� During the environmental assessment processes,alternative solutions including "zero" alternativemust be seriously assessed and discussed. The prac-tice where the EIA and the SEA are conducted at anadvanced stage when the choice of alternatives forthe location of the project has already been madeshould not be acceptable.

� The EIA procedure should be conducted togeth-er with the preparation of the feasibility study, mak-ing it possible for a parallel assessment of the differ-ent location alternatives from the economic, envi-ronmental and social perspectives.

� The EC should verify the quality of the EIS andpublic consultation processes in those cases whereaffected citizens present evidence that the environ-mental impacts are not being sufficiently addressedand where their opinion is being neglected withoutexplanation.

� Evidence of relevant public opinion and how it hasbeen taken into account should be enclosed with theEIA documentation. All public comments must beseriously considered by the respective authorities.Those whose comments are rejected must get writtenexplanation of the reasons for rejection.Governments should be accountable where publicconcerns and valid arguments have been ignored orneglected.

13Case Studies/ Bulgaria

Project backgroundThe road between Sofia-Pernik, a section of theTrans European Corridor N4, is one of the fewroutes in Bulgaria that can justify the constructionof a motorway. The present road causes serioustraffic jams and air pollution as it passes through thenarrow and badly maintained streets of one ofSofia's districts. The design of the Sofia-Kulatamotorway was initiated in 2000 under an EU Phareprogram grant and Sofia-Pernik, the first section, iscalled the Ljulin motorway. In 2002, the Ljulinmotorway received a grant of EUR 111m for itsconstruction from EU ISPA program.

Project development phaseEIA procedure

Two possible Ljulin motorway alignments wereanalysed in the first Environmental ImpactAssessment (EIA) made in 2001. Both routes wereset to seriously affect the Bankya BalneotherapyResort and the settlements within its sanitary area.Thus local people objected to the motorway's con-struction during the public consultations held inSeptember 2001. The Minister of Environment sub-sequently returned the EIA report, asking for fur-ther investigation into the possible alternatives.

Six possible alignments for the Ljulin motorwaywere assessed in the second EIA report whichappeared in March 2002. The Ministry of RegionalDevelopment (MRD) decided on the alternative tobe constructed when the EIA procedure was inprocess and public consultations had still not beenheld. Consequently, a "new" third EIA report(September 2002) was prepared and the EIA expertteam changed its conclusions, stating that the routeselected by the MRD was the optimal route from theenvironmental point of view.

The third EIA report has never been discussed withthe residents of the affected settlements, as requiredby Bulgaria's EIA legislation. However, the Ministerof Environment and Waters approved the routewhich was suggested in the third EIA report forconstruction. This route approved by the twoMinistries, then, is not in reality a new alternative,but a combination of the two variants initially reject-ed by the public in 2001.

EC involvement: appraisalprocedure and implementa-tion monitoring

During the appraisal of the Ljulin motorway projectfor the ISPA program grant, it was concluded thatthe EIA procedure undertaken was in violation ofEuropean legislation. To move the project along, a

Bulgaria: The Ljulin motorway takes all the wrong short cuts

Project facts and figures- Project facts and figures:- Ljulin Motorway is 19,086 km long- Total project cost of the project EUR 148m

Public consultation for Ljulin Motorway

14 Anelia Stefanova

compromised decision was made: the grant wasapproved with the condition that "a new consulta-tion of the public and relevant environmentalauthorities has to be carried out before the end ofthe first quarter of 2003 based on the revised finalEnvironmental Impact Assessment Study, along withthe issuance of a new environmental permit takinginto account this consultation." (art.8.3, b) of ISPAFinancial Memorandum 2001/BG/16/ P/PT/004))

Implementation of the ISPA FinancialMemorandum (FM)

The detailed design of the selected route contin-ued without the timely implementation of theconditions stated in Article 8.3 of the ISPA FM.The new EIA procedure was started only in July2003. The fourth EIA report assessed only theselected route and no alternatives, thus seriouslydecreasing the scope of the previous EIA reports.No corrective and mitigation measures were dis-cussed in the report as the Ljulin motorway "wasin a very advanced stage of development".Overall, the quality of the EIA report and thepublic consultations were not in compliance withthe best practices of the EU according to analysesconducted by NGOs.

Transparency of the project application andproject related documents

In October 2003 the environmental association "ZaZemiata" requested the Application Form and Cost-Benefit Analyses (CBA) of the Ljulin Motorwayfrom the Ministry of Finance1. The ApplicationForm contains the basic information for the projectobjectives and technical characteristics and one ofits annexes is the CBA. This information was deniedby the Ministry of Finance, with the explanationthat "the application form is reflected in theFinancial Memorandum (FM) and, the FM is on theweb site of the Ministry of Finance."

In fact the Financial Memorandum does not fullyrepresent the information from the ApplicationForm, and its complete published version2 is notavailable on the internet. Za Zemiata has brought acourt case against the Ministry of Finance for notproviding public information.

Conclusion

The Ljulin motorway development project is a highlyillustrative case of the Bulgarian government's atti-tude towards the implementation of and public invol-vement in environmental legislation. The case is evenmore interesting because of the European Com-mission's attempts to play an active and positive rolein the Ljulin motorway development. Unfortunately,to date, this has not lead to project improvements forthe benefit of local people and nature.

In a September 2001 letter to Bulgarian NGOs,Commissioner Wallstrom stated that "following therequirements of the legislation of the EuropeanCommunity, the EIA would have to be carried outfor the whole motorway (Sofia - Kulata) at the sametime"3. However the motorway was divided intothree sections and the Commissioner's demand fora thorough corridor assessment, giving more possi-bilities for mitigating negative environmentalimpacts, was neglected.

In November 2002, by including conditions in theproject's financial memorandum, the EC acknowl-edged that public opinion had not been properlytaken into account. The investor started the newconsultations as demanded by the EC only half ayear later, by which time no changes to the projectdesign were any longer possible. Furthermore,Bulgarian NGOs have recently learned that opin-ions expressed by the public will not be considered,as the Ministry of Environment does not intend torevise the project approval.

While Bulgarian NGOs appreciate the EC's to miti-gate the negative environmental impacts associatedwith the Ljulin Motorway project, we consider thatthe Commission has sufficient leverage to make theBulgarian government accountable for its currentlack of respect for Bulgarian and EU legislation.

Thus the EC should approve project funding onlyafter a full and thorough check of the project's com-pliance with EU legislation. Additionally, the ECshould consider creating a simple and easily accessiblecompliance mechanism for ISPA projects for affectedcitizens to assess their compliance with EU legislation.

1 The Ministry of Finance is an ISPA Coordination Unit in Bulgaria.2 Annexes II (Financial Plan) and III (ISPA provisions) are missing3 Margot Wallstrom September 13, 2001, Brussels, A(01)11217 D(01)1773 D(01)130678

15Case Studies/Czech Republic

Project background

The so-called D8 Motorway, connecting Prague withthe German border, is seen as an important part ofboth national infrastructure and Trans EuropeanCorridor N4. The 0807 section of the D8 Motorwaypasses through Eastern Krusne Hory which has thecharacteristics of a Special Protected Area accordingto the Birds Directive 79/409/EEC. The motorwayconstruction has undermined the designation ofEastern Krusne Hory as future NATURA 2000 site.The Czech government received a loan for the 0807section construction from the European InvestmentBank (EIB) as well as a grant from EU ISPA Program.

The Strategic Environmental Assessment (SEA) forthe Transport Network Master Plan, carried out in1999, recommended two alternative routes for theD8 Motorway. The recommendation of the SEAreport was not taken into account. In February2003, the EIB approved the loan for the sectionwithout making the decision public. In September2003, the Czech ombudsman demanded a solutionthat would take into account the environmental sen-sitivity of the affected areas. Two months later theEuropean Commission officially announcedapproval of ISPA co-financing for the project with-out considering the demand for an alternative route.

Project development phaseEIA procedure

The Environmental Impact Assessment (EIA) proce-dure carried out in 1996 doesn't specifically focus onthe provisions of the EU Directives 79/409/EEC(Birds Directive) and 92/43/EC (Habitats Directive)or on the Bern convention aspects. The final EIAreport had a number of deficiencies that put it in con-flict with the Czech and European EIA legislations

such as: non-consideration of alternatives; lack ofevaluation of the indirect effects and climate changeeffects; insufficient analyses and so on.

The later mapping for NATURA 2000 documentedthat several valuable fauna species (among themcorncrake, hen harrier, lynx) and habitats will beaffected by the motorway and traffic, but there wasno willingness from the project promoter to consid-er mitigation measures for the 0807 section.

The SEA took place several years after the corridorfor the D8 highway had been selected. The SEA's finalstatement recommended going back and evaluatingthe option of routing the highway through a corridorthat would have a significantly smaller impact on theKrusne Hory mountain plateau. However, the SEArecommendations were neglected by the government.

Czech Republic: The D8 motorway bulldozer approach

Project facts and figures- 0807 is 23,3 - kilometer long section of D8.- Costs of the project: D8, The Trmice-Eastern Krusne Horysection: EUR 634m. - The portion of ISPA money equals EUR 58 million. - The EIB's loan for the section (according to DG Regio) isexpected to reach up to EUR 400 million.

2 short tunnels - these are the mitigation measures for Krusne Hory

16 Pavel Pribyl

Legal aspects and the position of the Czechombudsman

The approval proceedings of D8 are bound up withdeficiencies and inaccuracies. In the case of theEastern Krusne Hory, additional to the irregularitiesregarding EIA and SEA, there were also illegal con-struction works on project subparts and illegal treecutting on the building site. These deficiencies led toofficial procedures that, among other things, maylead to penalties and delays that will, very likely,result in extra construction costs.

NGOs consider that the core of the problems lies inthe failure to assess alternative routes and measures(e.g. longer tunnels) of the D8 that should have beentaken into account in order to avoid significantimpacts on the natural and landscape values. TheNGOs' standpoint was also supported by the conclu-sion of the Czech ombudsman in September 2003:

"…When taking the Government decision about the MasterPlan of the Transport Network Development till 2010 it isclearly mentioned in the Annex that in the D8 case an alter-native route shall be considered in the case that Germany wouldfind it possible to link it to the German road network … Fromthe Annex it is apparent that this option, which is environmen-tally most acceptable, was still in place in that time.."

Social and economical aspects of the project

The section 0807 from the D8 only makes sense fromthe point of view of trans-European freight traffic.When deciding on the motorway route, however, analternative link via the Most region (R7 + R28), whichis the most structurally disadvantaged region in theCzech Republic, was neglected by the government.This alternative could have saved the developmentpotential of the Eastern Krusne Hory as a tourist area.

The D8 motorway is part of the Czech TransportMaster Plan which is expected to boost develop-ment and help in the creation of jobs and the mobil-ity of the labour force. However the financial back-ing for such an ambitious plan is insufficient and atthe same time there is a lack of resources for themaintenance of pre-existing road infrastructuresafety parameters. Thus Czech NGOs plan to askfor an appropriate cost benefit analysis of invest-ments in the transport sector when the Master Planis revised in 2004.

Transparency and public access to decision-making

In principle, the public has access to the decision-mak-ing around the main stages of project preparation(EIA, SEA, land use proceedings, construction pro-ceedings). However, the main problems with sectionsof the D8 motorway remain in the pre-selection ofoptions that were considered and the unwillingness ofthe authorities to take more alternatives into accountfrom the very beginning of the process. And this hashappened not only to the public or NGOs; SEAexpert team recommendations and numerous require-ments of the Ministry of Environment were not takeninto account either. Other than this crucial deficiency,in some cases NGOs are not informed about thebeginning of the proceedings, they do not get copiesof the materials, their recommendations are automati-cally neglected, and they are the targets of hostilemedia campaigns from the side of the authorities.

EC involvement: appraisal procedure andimplementation monitoring

The decision-making of the EC about the ISPAcontribution and the EIB loan has remained hidden.The EC did not provide information to the publicfor the conclusions of the D8 consultant's missionfrom April 2002 although it was specifically askedfor. The ISPA contribution to the D8 section wasapproved by the Commission in July 2003, but pub-licly it was only announced in November.

In the case of the EIB, we have even witnessed thebizarre intention to keep the information confiden-tial. In February 2003, the Bank refused to makepublic the information that the loan for the D8motorway construction had been approved at itsBoard of Directors meeting and used false argu-ments as to why it could not provide this informa-tion to the public. The EIB stated that it couldn'tprovide any information about the loan approved,pointing out that it was asked by the CzechGovernment not to do so before such loans wereapproved the Czech parliament. However, when weasked the Czech Ministry of Finance, we got thereply that: "no request exists on the part of the CzechGovernment in any form, where the Government would askthe EIB not to provide information to the public regardingapproved loans/projects that were still to be approved by theCzech parliament."

17Case Studies/Czech Republic

In autumn 2003 the COWI consultancy reportedresults of its investigation into what went wrong inthe project approval process and why. It came to theconclusion that the project is controversial from theenvironmental point of view. It also provided anexplanation of why, according to COWI, theCommission decided in favour of ISPA co-fundingfor the project in spite of this fact.

The following main aspects of the decision were out-lined:

�� There is strong political willingness from the ECto provide money for the trans-European project(for political reasons and for the prospect of linkingthe EU and acceding countries)��The fact that when EC decision-making came intoplace, the project preparatory process was alreadytoo far advanced to influence the shape of the proj-ect substantially; therefore, the Commission limiteditself to demanding longer noise walls as the mainmitigation measure.

As a result, COWI concludes that if theCommission had been involved in time, it wouldprobably have had a greater influence on the qual-ty of the project planning process. Nevertheless,the comments to the COWI report provided bythe EC (DG Regio) says that the EC will alwayscome in at the latter stages of a project, becausethe EC funding model expects that the memberstates submit the request for funding when theproject stage already allows the decision aboutfunding to take place.

Maybe this is the expectation of the Commission,but the reality is completely different. It is standardpractice for states to submit a list of projects to befunded in the future, even without having the basicproject details specified, including the route of thetransport link. Currently, this can be seen in theCzech Republic's request from spring 2003 tofinance a waterway link between the town ofBreclav and the Danube from the Cohesion Fundwithout having elementary issues like the projectroute clarified or even the SEA and EIA procedurescarried out. It is therefore obvious that theCommission's involvement from an early stage isexpected by the member countries. If it was willingthe Commission could significantly influence thefinal shape of projects.

ConclusionIt can be said that the D8 project represents anexample of pre-1989 decision-making that was typ-ical in its refusal to consider alternatives and in itsignorance to both public opinion and the project'senvironmental impact. Civic organisations havepromoted alternative routes for the D8 since theearly 1990s, but their arguments, together with theSEA experts' recommendations from 1999, wereignored. Environmental groups contacted DGEnvironment and DG Enlargement and pointedout the conflict between the EC's investments inthis capacity road (through the ISPA and the EIB)and EC's requirements for nature protection. Theyalso filed a complaint about the project's negativeimpacts on the areas that fulfil the conditions forprotection according to Directives 79/409/EEC(Birds Directive) and 92/43/EC (HabitatsDirective). By supporting the project financially,and with implementing only cosmetic mitigationmeasures, the EU is contradicting its alleged con-cept of integration of environmental aspects intoall sectors of development planning.

The decision to support the project from the ISPAFund might be seen as a result of the project's'long history' where the EU came in 'too late' tochange it significantly after all the formal approvalsmade by the Czech authorities were already issued.However, it is our strong belief that theCommission should be more pro-active indemanding that all the environmental requirementsare reflected in the project preparation processfrom the project's outset. In particular we think therole of DG Environment should be strengthenedin order to identify from the beginning which proj-ects are completely feasible, which ones need to bemodified, and which ones should be abandoned incase EC co-funding and fulfilment of the basicregulations (like the Birds, Habitats and WaterFramework Directives) is required. Otherwise thequestion will continue to be raised of whether thequality of the whole decision-making process isimportant to the Commission at all. Maybe it is,and it is only favouritism towards the trans-European projects that makes the Commission nottake environmental 'details' into account. But whythen does it have so many declared environmentalprinciples in place?

Peep Mardiste18

Project background

The North-West Estonian regional waste manage-ment centre and landfill was one of seven bigregional landfills planned to replace the old 269household and industrial landfills in the country.The ambitious program aimed to fulfil Estonia'sobligations towards implementation of the EULandfill Directive 99/31/EC. As the safe closure ofexisting small landfills and establishing a system ofnew regional waste management centres and land-fills is very costly, ISPA and Cohesion Fund co-financing is planned for the construction of all suchnew regional landfills. The North-West EstoniaWaste Management project was included in thenational environmental ISPA pipeline in 2002.

The program for compliance with the EU LandfillDirective is a typical example of Estonian policy-mak-ing in the past few years. The EU requirement hasbeen fully adapted into national policies without muchadditional thinking or priority setting. NGOs havesuggested that waste prevention and minimization bekey priorities for the project in the waste sector, buttheir views have been ignored. Thus the national ISPAstrategy concentrates on an end-of-pipe approach,and the construction of a few big regional landfills isthe cornerstone of the waste policy.

Project development phase

The Estonian subsidiary of the Swedish trans-national waste management company Ragn-Sells car-ried out a study on suitable locations for the North-West Estonia regional waste management centre in1998. The company preferred the Ääsmäe site in theSaue municipality although this site received only thethird best screening score. Detailed studies and EIAprocedure were only done for the Ääsmäe site.

EIA procedure

In January 2002, Ragn-Sells submitted an environ-mental memorandum to the Saue municipalitywhere the selected site is situated. Both the EIAreport and the participation process were handledin an extremely poor manner by the EIA consultan-cy throughout 2002. Although both the local pop-ulation and NGOs identified a long list of unad-dressed issues in the first draft of the EIA report,most of them were not addressed in the final ver-sion in November 2002. It also turned out thatwhile comparing the chosen site with alternativeones, many deliberate calculation mistakes werepresent in the report in order to show the selectedsite as the best option. As a result, NGOs called forthe cancellation of the main EIA expert's profes-sional licence and a court case was started by theEstonian Green Movement-FoE, which is current-ly ongoing in 2004.

Estonia: Poor planning processslows landfill construction

Project facts and figures- The landfill will serve an area of at least 120,000 people - 94,000 tons of municipal waste will be collected per year - The Ääsmäe site is situated 15 kilometres southwest ofTallinn, close to the Via Baltica road

Case Studies/ Estonia 19

It became clear that the Estonian subsidiary of theSwedish Ragn-Sells company did not take the processvery seriously. Thus both the developer and the EIAconsultancy company took the EIA process rather asa necessary 'ticking of the box' exercise. Regrettably,the EIA process is regarded by the promoter as anunnecessary burden, not as a tool for increasing thequality of the project and for increasing support fromthe local population. Under such pressure, privatecompanies that are being contracted for carrying outcomprehensive EIAs often participate in a 'race to thebottom' of the selection process. The Ministry ofEnvironment, which is responsible for approvingEIA reports, is also not strong enough to ensure thelasting quality of the EIAs.

Project promoter and public participation in theproject

The main project developer is Ragn-Sells, and onlyfive percent of shares in the waste managementcentre will belong to the municipalities fromnorthwest Estonia. While the ISPA environmentstrategy total project costs are estimated at Euro7m, the Ragn-Sells company has itself recently cal-culated the total costs to be Euro 10m. Some Euro5m of the ISPA grant was expected by the compa-ny. Ragn-Sells has indicated that in case ISPA co-financing does not materialize, it will finance theproject with bank loans. Raising funds directlyfrom the capital market wouldn't be a big problemfor Ragn-Sells. Its turnover in 2002 was Euro 8mwith profits of Euro 0,6m. Ragn-Sells is the sec-ond biggest waste company in Estonia, with 30percent of the market share. A doubt remains asto why the Estonian Government proposed thatthe project should be financed with public moneyfrom the ISPA program when alternative fundingis available. As a result of public pressure, theRagn-Sells company abandoned the Ääsmäe site inDecember 2002 and started a new process forfinding a location for the regional waste manage-ment centre.

In addition, according to legislation, only municipal-ities can be responsible for the development of thewaste management infrastructure. As the project isregional, all the municipalities of the served areashould have been involved as interested parties. Theregional waste management centre and landfill isalso a national project where strong guidance from

the Ministry of Environment is needed. It shouldhave been a task for the government, not for a pri-vate company, to identify and decide the location ofthe regional landfill. Thus the very framework of theproject has remained unclear, causing many misun-derstandings and frustrations.

Conclusion� The very need for replacing more than 200 smalllandfills by only seven big regional landfills is still tobe proven and explained. As the opening of thefirst new regional landfills has shown, the wastedepositing price for clients may immediately rise byalmost twice as much. As the transport costs tosuch new big regional landfills rises significantly, theprobability of illegal waste dumping into naturalsites will also increase. The Ministry ofEnvironment should take the lead in such a calcula-tion and therefore remain independent from lobby-ing by private waste companies.

� The regional waste management centre/landfillis an object of national importance. Therefore thepreparatory process (site selection, feasibility study,etc) should be either directly carried out by or atleast strictly guided by the Ministry ofEnvironment. It was a failure that the ministryallowed a private company to direct the entireprocess, causing a great deal of misunderstanding.For the continuation of the project, as well as forsimilar future cases, the ministry must set a clearframework and guidelines.

� The development of waste management infra-structures is a task for local municipalities. It wasunfortunate that the private company Ragn-Sells didall the preparations for the new regional waste man-agement centre and landfill without fully involvingthe municipalities of the region. Fortunately, afterthe failure with the first proposed site for regionallandfill, a joint company with 11 municipalities wasformed in late 2003. The forming of such a struc-ture should become standard practice for futuresimilar cases. The framework for future governingshould, however, be set in the early stage of projectdevelopment. It would be much preferred if a pri-vate company did not have a majority share in sucha joint venture in order to ensure affordable pricesfor waste handling.

20 Eniko Hajosi

Project backgroundWhen it comes to solid waste, Hungary currently lagsfar behind EU standards. At the moment only threepercent of municipal solid waste is reused or recy-cled. Only 15 percent from the 665 landfills in thecountry complies with current regulations on wastelandfilling. In addition to this, there are around 2000landfills which are closed, abandoned or illegal. Inview of this, as well as the fact that most of the land-fills are reaching their capacity limits, it was decidedthat up-to-date regional landfills should be built, andthat the small polluting landfills close to settlementsshould be closed down. One of the projects financedby ISPA funds in 2000 with that aim is the SzolnokRegion Waste Management System.

Project development phaseThe selection of the Kétpó area for the Szolnokregional solid waste landfill was the result of a studywhich assessed four areas from an economic pointof view. The landfill will be on 40 hectares of landthat used to be agricultural land. The Kétpó site issituated 30 km from Szolnok – where the majorityof people live – and this significantly increases thetransportation costs and the environmental load.Furthermore a new 18 km road needs to be built toprovide access to the landfill. An interview with themayor of Szolnok (in a regional daily newspaper onFebruary 19, 2001,) shows the real “evaluationmethod” of the selection: “In this situation it mustbe taken into account that no other settlements are

allowed to build the landfill on their territory, sothere is no alternative but Kétpó.”

EIA proceduresAn EIA was only prepared for part of the project,i.e. the landfill in Kétpó. According to HungarianEIA legislation, there was no need to prepare a fullEIA, so a preliminary EIA was compiled in October1999, three months after the selection of the landfillsite. Hungarian EIA legislation also does not makepublic consultation obligatory for projects with onlypreliminary EIAs. In this case public involvementwas limited to the announcement of the EIA thatwas placed on a notice board for approximately onemonth in the municipalities of seven settlements.There was one public forum organised by the proj-ect sponsor on November 4, 1999, where the proj-ect was presented and the public asked to makecomments. The forum also included a site visit to anearby landfill, which was completed recently, toshow what a modern, up-to-date landfill looks like.The EIA report is available on request in theRegional Environmental Inspectorate in Szolnok.The EIA report mentions neither alternatives toKetpo, nor the reasons why this site was chosen.Furthermore, in the case of Ketpo, the EIA shouldpoint out the ignorance of the regulation stating thatonly bad quality land or land without agricultural use

Hungary: Learning the hard waywith the Szolnok waste management system

Project facts and figures- The landfill will serve 202 442 people- The total project cost is EUR 14 522m, where the grantreceived by ISPA is EUR 7 196m- Around 260 000 m3 municipal waste will be deposited per yearfor twenty years.

21Case Studies/ Hungary

can be used for landfill sites. Another major problemconnected with this site is inland water and floods.The EIA report also excludes any mention of theHungarian regulations which state that landfills can-not be built on land with inland water and flood dan-ger or on land with no inland water drainage.

Feasibility studyThe feasibility study, prepared in 1999, is available atthe Regional Environmental Inspectorate inSzolnok. The feasibility study lacks many necessaryelements and several deficiencies can be found in itscontents. The study fails to assess different alterna-tives that would serve the same objective as the pres-ent project. Another missing aspect is the linkbetween the project and related national and region-al programmes. The study does not include a cost-benefit and cost-effectiveness analysis that shouldbe part of the economic assessment of the project.In relation to future waste fees, the financial analysisfails to assess the population’s ability and willingnessto pay and the fees paid so far.

EC involvementIt has been observed that the European Commissionhas so far given preference to regional projects in thecase of solid waste management developments. Forexample there was another project concept involvingfour landfills which could process waste from theSzolnok region. However, these projects were toosmall to get the support of the EU.

The EC approved only part financing of the project,i.e. the building of the landfill site in Kétpó and thetransfer station. The project also includes the clo-sure and re-cultivation of landfill sites in the partic-ipating settlements. However, this will be financedfrom the profits made by the landfill in Kétpó.

ConclusionThe process of examining a project’s suitability forfinancing by ISPA funds has to be very meticulous.Practice shows that the appraisal process is usuallyconducted in a hurry as deadlines are pressing. Thisleads to inadequate time being available for theappraisal, environmental impacts are not properlyassessed, and feasibility studies do not clearly showthe financial and social aspects of the project.

Moreover, the appraisal process should make publicinvolvement a must and not just a superficial add-onto the process. A lack of objections should not betaken as approval. In the case of EU funds, whichare used for projects that bring about significantsocietal changes, as many forums and meetingsshould be conducted as needed in order for compre-hensive understanding of projects.

Hungarian regulations should be observed and notignored as they were in the case of Kétpó. The firststep in the appraisal process of a project should bethe examination of whether the project adheres toall relevant regulations. If the project fails to fulfilthis requirement, the appraisal should be finished,and the project should not be further considered.Where an exception is made and a project is still inthe cluster of applicants, the reason for the excep-tion should be clearly indicated and explained.

In the project selection process the reason forchoosing one project instead of another has to bean objective one. As is sometimes seen, ISPA proj-ects are selected based on the preparedness of theproject documents. This is not an acceptable reasonfor project selection as it ignores the whole principleof ISPA, namely to develop those areas that are inthe worst situation in a given field.

From the point of view of sustainable development,one bigger project is often worse than several small-er ones. Additionally, projects are very often madebigger than required. The Commission shouldfinance smaller projects from not just the StructuralFunds but from the Cohesion Fund too. In the fea-sibility study and in the EIA, real alternatives,including zero-alternative, should be analysed tocompare the environmental impact of the project.

As ISPA funds are directed at the acceding coun-tries in order to help development and compliancewith EU regulations, the appraisal and selectionprocesses must aim at serving the same overallobjective - to improve, and not to worsen, envi-ronmental conditions in Hungary. It is hoped thatthe European Commission will look into thesematters and will enforce stricter regulations by thetime the new funds begin to pour into the acces-sion countries.

22 Alda Ozola

Project background

The Solid Waste Management in Liepaja Regionproject is part of Latvia's National Solid WasteManagement Strategy for the period 1998-2010. Inorder to ensure the implementation of the strategy,the investment program "500-" was prepared. Theprojects for ISPA financing are selected by theMinistry of Environment from the priority list ofprojects for the program "500-". This centralisedselection mechanism is justified by the fact thatLatvia is a small country and the Ministry ofEnvironment has a good overview over priority proj-ects as well as good knowledge of the local situation.Municipalities and regional authorities are also partlyinvolved in this process as they have to secure part ofthe financing (at least 10-15 percent) for the project.

The Solid Waste Management in Liepaja Regionproject received an ISPA grant in November 2001.

Project development phase

The Liepaja City Council initiated the LiepajaRegional Waste Management project in December1998 when it hired a consultancy company to carryout a feasibility study. The EIA process began verysoon after the official start of the project. This proj-ect was among the first to test the EIA after theadoption of a new EIA law in October 1998.

EIA process

The Terms of Reference (ToR) for the EIA wereadopted on February 26, 1999, after a scoping meet-ing where the public was invited. Two alternativesfor the location of the project were analyzed duringthe EIA process. During the scoping meeting local

people expressed their concerns regarding the pro-posed sites. As a result, in May 1999 a survey wascarried out to find out the detailed opinions of theaffected people living within 3 km distance from thesites. The results of the survey, with the opinionsand arguments of all affected homeowners, areincluded in the final EIA report as an annex.

The draft EIA report was discussed with the public andother interested parties during a public hearing onAugust 15, 1999. Minutes from the public consultationswere later included as part of the final EIA report.

The EIA report gives quite a good overview of thesituation regarding waste management in the Liepajaregion and describes the environmental problems

Latvia: Encouraging signs inLiepaja

Project facts and figures- The landfill will serve 147 890 people (about 6 percent of thetotal inhabitants in Latvia)- The total project costs equal approximately EUR 14,433m,with the ISPA grant comprising 63 percent (EUR 8,12m)- Additional funds came from a World Bank loan, a WorldBank Carbon Fund grant, SIDA and the national and localgovernments

The web site for the Liepaja project

23Case Studies/ Latvia

which require solutions. The compliance of the proj-ect with EU Directive 75/442/EEC on waste man-agement is not analyzed in the EIA report. However,the general principles of the directive have beentaken into account while designing the project, e.g.sorting of waste before depositing it in the landfill;separation of municipal and hazardous waste;decreasing the amount of biodegradable waste that isdeposited; ensuring the collection of methane fromlandfill. However, the project doesn't include thecosts that will be needed for the later closure of thelandfill and management of the territory.

The EIA report doesn't assess the impact of theproject on climate change. At the same time, theproject impact on the balance of greenhouse gasemissions in Latvia was analyzed in a working paperprepared by the World Bank. This is due to the factthat the project "Solid Waste Management in LiepajaRegion" is the first ever project co-financed fromthe Carbon Fund.

Additional to direct impact on the natural environ-ment, the EIA also evaluated such aspects as the pro-ject's impact on biodiversity, value of land and land-scape, cultural heritage, air quality and human health.There were three groups of criteria defined for com-parison of the two alternatives: nature aspects; socialand human health aspects; and economical aspects(in order of decreasing importance). In the finalselection the nature and human health aspects wererated higher than the economic criteria.

Social and economical aspects of the project

The implementation of the project will be beneficialfor local development through improvement andreconstruction of local roads that are used for thetransportation of waste and for improvements inthe quality of the environment through the re-culti-vation of old dumping sites. The project implemen-tation company is also coordinating the education ofthe public on how to separate the waste and why itis needed. Besides this, there is an economic incen-tive for the inhabitants to separate their waste asthey don't have to pay for the disposal of waste if itis separated, e.g. glass, plastic, metal, paper.

Before the start of the project, eleven different tariffsfor waste management existed in the region, where the

tariffs often didn't cover the actual costs of waste dis-posal. Additionally, waste expenses in 1/3 of themunicipalities in the regions were covered fully by themunicipal budget. The increase and equalisation of tar-iffs was an integral part of the project, as a step towardsintegration of the 'Polluter Pays' principle. An equal tar-iff was set for waste collection, transportation and dis-posal in the whole administrative territory of Liepaja.The EIA stressed that it might be necessary for othermunicipalities involved in the project to subsidise thecosts of waste management for poorer inhabitants asthe expenditures would reach about 1,5 percent of theirmonthly incomes. However this wouldn't represent abig burden on the municipalities' budgets.

The feasibility study

The feasibility study is available from the World Bankoffice in Riga within the Project Appraisal Document(released on August 18, 2000). The feasibility studywas prepared by the World Bank although the publicwas not consulted during its preparation.

The feasibility study also includes the cost-benefitanalysis of the project, where carbon benefits andother projected incomes are also included. Whencalculating the viability of the project, the runningcosts up to 2020 were taken into account, includingthe closure and remediation of old dumping sites.The Internal Rate of Return (IRR) presented in thefinal EIA report was noted as 7 percent, but no cal-culations of this rate were included. The viability ofthe project is strongly connected to the waste man-agement tariffs that are collected from inhabitants.

Conclusion

Obviously the Waste Management in Liepaja Regionwill bring positive environmental effects, which arerelated to the implementation of the 'Polluter Pays'principle and to the closure and remediation of theold dumping sites. Social aspects are respectedthrough the introduction of equal tariffs for waste col-lection in the whole region, though the actual costs arehigher in rural municipalities and considerably lowerin towns (mostly because of transportation reasons).

It should be stressed that during the evaluationprocess of the two possible project sites more atten-

24 Alda Ozola

tion was given to the alternative which was friendlierto the environment and human health, even thoughthis entailed higher project costs.

However several conclusions and recommendationsremain regarding the EIA and project preparationprocess:

1) The EIA report didn't include concrete refer-ences to the requirements of EU directives on wastemanagement as they were not binding for Latvia atthat time. However, as the project gets financingfrom ISPA, it will be necessary to have clear confir-mation on the project's compliance with EU legisla-tion. Moreover, an update of the EIA report might

be needed to allow for the changes in the legislation(new national and EU legislative acts) if the actualimplementation of the project starts a few yearsafter completion of the EIA procedure.

2) The feasibility study should be released togetherwith the EIA procedure. The study was released inAugust 2000, almost one year after the preparationof the EIA report. Thus the data from the feasibili-ty study on the economic effects were not incorpo-rated in the EIA report.

3) Clear information in the early stages of projectpreparation helps to avoid later misunderstandingsand negative attitudes towards the project.

25Case Studies/Poland

Project background

The most significant amounts of EU funds to beinvested in Poland will be used for the developmentof transport infrastructure, with particular emphasison road investments. This resulted from the require-ment that Poland must adjust its main road networkto European Union standards. Unfortunately newkilometres of roads mean new social conflicts andthreats to the environment. Although the scope ofthe problem has not been assessed yet, it is clear thatthere will be intense discussions and many protestsin the coming years.

The S-1 expressway is part of the IV Pan-EuropeanTransport Corridor. Its main goal is to ensure a roadconnection between Poland and the CzechRepublic. The Bielsko-Biala-Cieszyn section of theS-1 is financed with a grant from ISPA and a loanfrom the European Investment Bank (EIB).Implementation of the project includes construc-tion of the expressway through the "Morzyk" natu-ral reserve which has been proposed for inclusion inthe Natura 2000 network

Project development phase

EIA procedure

Detailed analysis of the EIA report for the S-1expressway prepared for the ISPA grant (October2000) document, together with interviews conduct-ed among public administration representatives,

showed incoherence with the EU directive concern-ing the assessment of the effects of certain publicand private projects on the environment (Directive85/337/EEC) and the directive regulating the con-servation of natural habitats and of wild fauna andflora ("Habitat" Directive 92/43/EEC).

The authors of the EIA report limit their assess-ment of the alternatives to the statement: "Thealternative presented for an opinion got the agree-ment of regional authorities, including environmen-tal protection authorities, Heritage Conservator,Nature Conservator Officer, local authorities andthe local community."

There was neither full information concerning thealternatives included nor any rational reasons pro-vided for "the chosen option, including results forthe environment" - as Directive 85/337/EEC states.

The important information that the road was going tocross the "Morzyk" natural reserve protected by theHabitat Directive was not given. In accordance withEU financial institutions' policy, the implementation ofthe planned investment requires the application of thementioned Directive (among others art. 6, paragraph.4.), which call for the use of compensation measures incase of a negative assessment of planned action and a

Poland: Collision course with Natura 2000 site

Project facts and figures- The Bielsko-Biala- Cieszyn section is 28,2 km long- Total project construction cost is approximately EUR 157million

26 Robert Cyglicki

lack of alternative solutions. The authors of the report,showing no practical concern for the Habitat Directivebearing on the project, might have caused a situationwhere compensation costs were not included in thebudget at the stage of application for the ISPA.

There was no public consultation on the EIA reportconducted. In the application to ISPA and EIB thepromoter referred to public consultations carried outat the end of the eighties and the beginning of thenineties when technical and economic studies wereprepared.

As a result of pressure from NGOs, informationalmeetings were organized in the period from July-August 2003 for the discussion of technical solutions.At this stage, an area planned for the S-1 expresswayroute was excluded from the "Morzyk" reserve. Thefinal result of the negotiations was that the investorwas obliged to modify the project according toRegional Commission of Nature Protection recom-mendations and the NGOs' proposals. These includ-ed compensating for natural losses by including ameadow situated between the eastern and westernpart of the reserve into the protected area.

EC involvement

According to European Commission recommenda-tions and EIB policy, investments supported by bothinstitutions should fulfil the requirements ofEuropean law. Any breach of those conditionsshould be noticed by experts within both institutions.Nevertheless, in practice things can be different.After the financial memorandum is signed, themoney is transferred to the project promoter afterobtaining, within the proper time, all permissionsrequested by law. Interference (from the EIB forexample) in the project after the memorandum issigned seems to occur very rarely. A situation wherethe Bank stops financing after assessing thatobtained permissions or project implementation isinconsistent with EU law is not likely to happen.This could only be possible after a court decisionwith the force of the law.

Transparency and public access to decision-making

Full documentation concerning the planned routewas released to NGOs only after seven months from

the date of an intervention letter being sent with con-cerns to the European Commission and EIB. TheEIB broke its practice of a two-month deadline foranswering letters, adopted as a part of its InformationPolicy. Considerable change in the NGO representa-tives' communication with the promoter came aboutfollowing a local visit led by European Commissionexpert Mr D. Lamberts. However, the visit itselfraised serious concerns about the transparency of theprocess (e.g. journalists were asked to leave, takingphotos was not allowed, after the meeting the reportwas not available).

A serious breach of transparency rules and accessto information meant that the monitoring ofreports of projects financed from the ISPA pro-gramme was kept in secret. The Office of theCommittee for European Integration refusedaccess to these reports to NGO representatives inthe Monitoring Committee, which in practice pre-cluded social control over the use of public money.This case was addressed in the SupremeAdministrative Court and is now awaiting a solutionaccording to Polish law.

ConclusionIn order to limiting the possibilities of withdrawalfrom a signed financial agreement, the EuropeanInvestment Bank and European Commissionshould put more emphasis on analysing presentedproject documentation. Criteria should be based on,among other things, the full Environmental ImpactAssessment report (and not only its summary)including a comparative analysis of the alternativesand proposed actions minimizing or compensatingfor inevitable environmental losses. The EIA rec-ommendations should be reflected in the budget atthe stage of project appraisal.

Financial institutions should insist that public con-sultations are conducted for investments that havesignificant effect on the environment before thesigning of a financial memorandum for a givenundertaking. Such a solution will help to avoid con-flicts caused by the late inclusion of affected com-munities into the process at the stage when anychanges to the investment plans (e.g. localization ofthe road) are practically impossible.

27Case Studies/Poland

An analysis of the development of the transportinfrastructure strategy in Poland up to 2013 shouldbe immediately revised with regard to possiblesocial and environmental conflicts. This documentshould include a proposal of actions designed toeliminate or reduce possible conflicts.Implementation of the Strategic EnvironmentalAssessment procedure would be adequate.

Project promoters should involve interested partiesin the process of preparing technical-economicstudies as this is the stage which permits detailedanalysis of alternatives and, among other things, adifferent localization of the investment. However,technical-economic studies should in the future bereplaced by feasibility studies.

28 Roman Havlicek

Project background

Since the mid 1990s in the Slovak Republic, thetransformation of the ownership of state water-works and sewage enterprises has been underway.Privatisation of the state-owned Trencin WaterCompany was, according to official documents, toserve as a model for the transformation of otherstate water enterprises in Slovakia. However, it wasobvious that from the very beginning the drivingforce propelling privatisation was an effort by someof the managers of the Trencin Water Company toacquire property that had been generating profitsfor some time. They created a private companycalled TVS, which was the only corporation run-ning for privatisation of the operational propertyof the Trencin Water Company. The privatisationcontract was signed on September 23, 1998, twodays before the parliamentary elections in whichthe ruling coalition lost its power.

The water infrastructure of the Trancin WaterCompany was transferred to TVK, a company heldby the municipalities of the Trencin region. InOctober 1999, TVK and TVS signed a contract foroperation of the water services that became effec-tive on July 1, 20001. The operational contractturned out to be very disadvantageous for TVK. In2000 TVK received a grant from the EU ISPA pro-gram for construction of the Waste Water treat-ment plant.

This case study documents the system deficienciesof project financing from the pre-accession ISPAFund using the Trencin water treatment plant proj-ect as an example. Although the EuropeanCommission designated resources from the ISPAFund (or from the Cohesion Fund) strictly for finalbeneficiaries from the public sector, the set-up of

these funds enables private firms to gain undueprofit from them.

ISPA grant for the TrencinWater Company

The goal of the Trencin Waste Water Treatmentproject is to eliminate one of the few remaininguntreated discharges of municipal wastewater in theRiver Vah, an important tributary of the RiverDanube. The final beneficiary is TVK, the owner ofthe water infrastructure. However the operation ofthe plant will be carried out by TVS as result of theprivatisation process of operational property.

In May 2002, the European Commission publisheda report on "the legal status of final beneficiaries in

Slovak Republic: ISPA as a potential tool for the undue profitof private firms

Project facts and figures- The ISPA grant represented EUR 3 968 366m (50 percent)out of the total eligible project costs of EUR 7 936 732m- The new wastewater treatment plant is designed to serve a pop-ulation equivalent to 30 143 by the year 2015

1 The Contract on renting and operating waterworks and sewage infrastructure in the Trencin region and on providing services related to generalrepairs and investments dated October 7, 1999.

29Case Studies/Slovak Republic

relation to transformation of the state water utilitiesand their institutional and professional capacities2".The report's conclusions clearly indicated that the"Trencin Right Bank Waste Water Treatment" proj-ect represented a real risk in terms of undue profitfor TVS, the private provider of water services.

There were several provisions of the operational con-tract between TVK and TVS that privileged the privatecorporation at the expense of the municipal companyand consumers. According to the expert report, themost problematic provisions of the contract were con-nected with the amount of the rent, the guarantee ofminimum TVS profits, the management and organisa-tional fees, planning and performing of repairs andinvestments, accountability for damages, and protec-tion of TVK in case of violation of the contract byTVS. These provisions enabled TVS to increase itsprofit at the expense of TVK and consumers.

By this contract, TVS acquired 20-year exclusiverights to operate the water infrastructure owned byTVK. For the use of this infrastructure, TVS paysrent in the amount equal to the depreciation of rent-ed property. This is why TVS made constant profitswhile TVK lost more than SKK 5,6m in the firstyear after the contract became effective.

The contract guaranteed that fees for water servicespaid by consumers would cover not only TVS'sexpenditures for repairs, new investments and allorganisational expenses (including full annual infla-tion) but they would also ensure 15 percent profit."There is no element of the calculation methodwhich encourages efficiency. On the contrary, theContract allows TVS to recover the full relevantannual inflation. Normally, and in order to encourageefficiency, only a partial adjustment is allowed."

Repairs and investments of the rented property wereto be covered by a major part of the rent as well asfrom a loan provided to TVK by TVS. TVS itself sug-gests what repairs and investments in the property ofTVK are necessary, and TVS itself sets the price, andthe same company also carries out the work.

The contract provides TVK no possibility to sanc-tion TVS in the case of a material breach of the

operational contract, e.g. in the case of delays inrepairs or investments. TVK has limited power tocontrol the activities of TVS. TVK can execute onlyannual inspections regarding the infrastructure, andTVS has a duty to submit annual reports to TVK.

Transparency

The European Commission conditioned the releaseof the second instalment of the ISPA grant by achange in the operational contract between TVKand TVS. As result an annex to the contract betweenTVK and TVS was signed on January 30, 20033.

"The contract was re-negotiated and clearlyimproved to the advantage of TVK. TheCommission has endorsed the result4" stated theISPA Desk Officer for Slovakia at DG Regio, inresponse to the NGOs request for information. TheImplementing Agency confirmed that independentexperts introduced several improvements into thecontract, however, it refused to disclose the contractbetween TVK and TVS because TVK declared it atrade secret. In February 2003 TVK also officiallyrefused to release the contract and TVS respondedlikewise. A request was subsequently submitted forcopies of the contract between TVK and TVS tothe Ministry of Environment according to Act No.211/2000 on Free Access to Information. Theinformation was once again denied.

Conclusion

Implementation and monitoring without publiccontrol creates the potential for the manipulation ofdecision making. This was also indicated by CarstenRasmussen, the ISPA Desk Officer for Slovakia atDG Regio, in the beginning of 2002. Rasmussenstated that concerning the selection of the ISPAproject, "The European Commission works onprinciples of technical standards and criteria; priori-ty are technical arguments, while on the Slovakianside we can notice some political background to thedecisions."5

2 Final report of the team of experts of the European Commission "PPP/SK/01/TR, Framework Contract for Provision of TA for Analysing andMonitoring PPP Operations in ISPA Countries Review of 6 WWTP ISPA Measures in Slovakia" May 2002 (http://www.vlada.gov.sk/phare/final-repport.pdf). The aim of the team of experts was to evaluate the preparation and implementation of ISPA-funded waste water treatment projects.3 Minutes from the 5th meeting of the ISPA Monitoring Committee, March 13, 2003, Bratislava.4 The letter of Carsten Rasmussen, European Commission, DG Regio, dated on April 10, 2003.5 Katarina Zackova: "Slovakia is unable to use even the offered allocations from the ISPA Fund". TREND, January 16, 2002.

30 Roman Havlicek

At the time when the financial memorandum on theISPA "Trencin Right Bank Waste Water Treatment"project was signed, the European Commissionalready knew that the provision of water serviceswas assigned to the private company TVS, controlledby the French transnational water corporation SuezLyonnaise des Eaux / Ondeo. At the same time, theoperational contract between TVK and TVS, whichwas not in line with public interests, became effec-tive. Even though the European Commission couldand had to know the conditions of this contract, itgranted TVK almost EUR 4m without taking meas-ures that would ensure thorough protection againstundue profit for TVS operating the public waterproperty. Such a practice can be in contradictionwith the principles of ISPA program financing.

Only when the Commission identified the existingrisk of undue profit for TVS did it take steps toimprove the situation. However, it denied access toinformation about the specific results of its inter-vention. This detracts from the public's ability toexecute its supervisory role in the utilisation of tax-payers' money.

Under such circumstances, and due to non-trans-parent decision-making concerning the selection ofISPA projects, the financial support for enhance-ment of the public water infrastructure operated bythe private sector can become an efficient tool forchannelling public funds in favour of private firmsat the expense of society, local governments and

consumers. Similar situations may occur with proj-ects in the waste management sector.In order to guarantee the public interest in the areaof services, it is essential that public authorities onboth the Slovak and EU sides ensure that the utili-sation of public funds strictly respects the follow-ing measures:

1. In order to avoid abuse of public funds in favourof private corporations, the provision of financialsupport from the ISPA Fund (or the CohesionFund) for projects in sectors that are in the processof transformation (such as water or waste manage-ment) must be conditioned by an explicit definitionof the resulting state of the sector after the trans-formation process is complete (especially the defini-tion of future ownership relationships).2. The project documentation must include the iden-tification of companies that might gain undue finan-cial or economic profit from the ISPA grants (or fromthe Cohesion Fund). Each submitted project musthave explicitly defined measures to prevent undueprofit from the public funds. Information on theseprevention measures must be accessible to public.3. All documents regulating the legal relationshipsof the final public beneficiaries of the ISPA Fundor the Cohesion Fund with private corporationsmust be open to the public.4. Project selection processes must ensure publiccontrol, e.g. by participation of experts nominatedby non-government organisations in the projectselection committee, steering committee, etc.

Abbreviations

CEE Central and Eastern EuropeEIA Environmental Impact AssessmentEIB European Investment BankISPA Instrument for Structural Policies for Pre-Accession AidNGO Non-governmental organisationSEA Strategic Environmental AssessmentDG Directorate GeneralEC European CommissionSIDA Swedish International Development Cooperation Agency