Ukraine Rural Finance Project DRAFT FINAL Environmental Review October 2002
INTERNATIONAL BANK
for
RECONSTRUCTION
AND DEVELOPMENT
and
GOVERNMENT
of
UKRAINE
Access to Financial Services Project
(formerly RURAL FINANCE
PROJECT)
Environmental Review
October 2002
108
Ukraine Rural Finance Project DRAFT FINAL Environmental Review October 2002
INTERNATIONAL BANK
FOR
RECONSTRUCTION AND DEVELOPMENT
and
GOVERNMENT OF UKRAINE
DRAFT FINAL
RURAL FINANCE PROJECT
(PO76553)
Environmental Review
October 2002
Prepared by:
John Ambrose
Mallorytown, Ontario
CANADA
and
Volodymyr Doubahk-Dovbakh and Dr. Vasyl Prydatko
Kiev
UKRAINE
108
Ukraine Rural Finance Project DRAFT FINAL Environmental Review October 2002
page
Contents i
v
SUMMARY
1. INTRODUCTION AND BACKGROUND 1
1.1 Purpose
1.2 Rural Finance Project
1.3 World Bank Environmental Assessment Requirements
2. POLICY, LEGAL AND ADMINISTRATIVE FRAMEWORK 3
2.1 National Environmental Policy
2.1.1 Background and Framework
2.1.2 Environmental Legislation
2.1.3 Principles of Environmental Legislation in Ukraine
2.1.4 Environmental Assessment
2.1.5 International Agreements
2.1.6 Environmental Action Plan
2.1.7 National Environmental Network Development 2000-2015
2.2 Institutional Framework for Environmental Regulation
2.3 Environmental Management Procedure
2.4 Capacity for Environmental Management
2.4.1 Government of Ukraine
2.4.2 Banks and Credit Unions
2.4.3 Consulting Community
3. METHODOLOGY 12
3.1 Legal Instrumentation and Management Capacity
3.2 Public Involvement
3.3 Determination of Potential Impacts
3.4 Baseline Data
3.5 Scoping and Bounding
3.6 Criteria for Impact Assessment
3.7 Cumulative Effects
3.8 Environmental Review Team
4. THE ENVIRONMENT 21
4.1 The Biophysical Resource
4.1.1 General
4.1.2 Land and Climate
4.1.3 Soils
4.1.4 Water Resources
4.1.5 Air and Water Quality
4.1.6 Vegetation
4.1.7 Biodiversity
4.1.8 Protected Areas
4.2 The Environment and Agriculture
4.3 Population, Rural Economy and Poverty
5. ENVIRONMENTAL ASSESSMENT 27
5.1 General
5.2 World Bank Safeguard Policies
5.3 Potential Category A and Category B Sub-projects
5.4 Important Environmental Components
5.5 Project Benefits
5.6 Potential Impacts – Rural Enterprises
5.7 Potential Impacts – Large and Small Farm Inputs
5.8 Potential Cumulative Impacts
5.9 Mitigation
5.10 Potential Residual Impacts
5.11 Environmental Risk
6. ENVIRONMENTAL MANAGEMENT GUIDELINES 40
6.1 General
6.2 Category A and Category B Sub-projects
6.3 Management
6.4 Monitoring
6.5 Capacity Development
7. REFERENCES 46
ANNEXES 47
Annex A: International Treaties and Conventions 47
Annex B: List of Environmental Related Laws and Description of Selected Laws 48
Annex C: Impacts, Consequences, Mitigation and Related Legal Instrumentation 62
for Rural Enterprises other than Agriculture
Annex D: Impacts, Consequences, Mitigation and Related Legal Instrumentation for 82 Agricultural Inputs
Annex E: Summary of Round Table Discussions with NGOs 108
List of Tables
Table 3.1: Description of Rural Enterprises by Broad Category
Table 3.2: Probable Use of Farm Credit
Table 3.3: Level of Significance of Potential Impact
Table 5.1: Relevant World Bank Safeguard Policies and Risk of Application
Table 5.2: World Bank Categories for Environmental Assessment Purposes
Table 5.3: Important Environmental Components
Table 5.4: Benefits – Rural Enterprises
Table 5.5: Benefits – Farm Inputs
Table 5.6: Summary of Potential Major Environmental Impacts – Rural Enterprises
Table 5.7: Summary of Potential Major Environmental Impacts – Farm Inputs
Table 5.8: Summary of Probable Residual Effects – Rural Enterprises
Table 5.9: Summary of Probable Residual Effects – Agriculture
Table 6.1: Some Agricultural Good Practices – Towards a Protected Environment and Sustainable Agriculture
Table 6.2: Some Good Practices for Rural Enterprises – Towards a Protected Environment and Sustainable Agriculture
Table 6.3: Summary of Capacity Building Requirements
List of Figures
Figure 2.1: Procedure for Conducting Ecological Expertize (EA) (if CSE required)
Figure 2.2: Procedure for Conducting Ecological Expertize (EA) (if SEE required)
Figure 3.3: NGO Identification of Agricultural Issues, Consequences and Solutions
Figure 3.4: NGO Identification of Non-farm Rural Activities and Consequences
Photographs
Figure 3.1: NGO Workshop at World Bank Office in Kiev: Discussion of RFP and Environmental Effects
Figure 3.2: EA Consultants in Discussion with Kiev Oblast Small Farmers’ Organization
Figure 4.1: Large Scale Grain Productions
Figure 4.2: Large Scale Oil Seed Production
Figure 4.3: Low Environmental Impact but Low Productivity as Well
Figure 5.1: Large Scale Farms Require Continuous Machinery Replacement and Upgrades
Figure 5.2: Small Scale Farmers Need Breeding Stock and Animals for Finishing
Acronyms
CSE Comprehensive State Expertise
EA Environmental assessment
EIA Environmental impact assessment
FI Financial intermediary
FSU Former Soviet Union
HYVs High Yielding Varieties
IECs Important environmental components
MENR Ministry of Environment and Natural Resources
NGOs Non-government organizations
OP Operational policies
PIB Private intermediary banks
PLCs Private leasing companies
PMU Project management unit
RFP Rural Finance Project
SEE State ecological expertize
SEI State environmental inspectorate
SITC Standard international trade categories
SME Small and medium enterprises
SPs Service providers
SSR Soviet Socialist Republic
UAH Unit of Ukrainian currency
SUMMARY
· Environmental review - purpose
The purpose of the environmental review is to ensure that the Project meets the requirements of the World Bank as set out in Operational Directives 4.01 for financial intermediary projects. The review examines existing relevant environmental legislation, capacity to enforce the legislation, potential impacts of probable project activities and mitigation required to avoid or minimize the impacts. As well, the review provides some environmental management guidelines including a training program that will support effective environmental management of the project.
· The Project
The objective of the project is to increase access – by farmers, rural entrepreneurs and enterprises – to financial services. The project aims to achieve this objective through: i) increasing the supply of long-term capital in the rural economy; ii) increasing the interest and enhancing the ability of regulated financial intermediaries to provide financial services to rural clients (especially farmers, entrepreneurs, and small and medium enterprises of the rural agricultural and non-agricultural population); and, iii) developing and instituting legislation that will contribute to creating a policy environment conducive to rural finance .These financial services will be provided through i) a rural credit and leasing facility; ii) rural retail banking and micro-financing; and, iii) rural finance policy development.
· Regulatory framework
The Constitution of Ukraine (1996) provides the principles upon which the country’s legislation is based. The Constitution proclaims the rights of citizens to life, safety, a healthy environment, public health services, medical aid and medical insurance, as well as the right to use natural resources as defined by law. Environmental policy was introduced with the launching of economic and political reforms in 1991.
The most important environmental laws were adopted between 1991 and 1995 with the most basic law, “ the Law of Ukraine “On Environmental Protection” being adopted in 1991. This law defines the basic principles and scope of environmental protection, outlines state environmental programs, provides for ownership rights regarding natural resources, and it provides guidelines for the development of legislation regarding water, land, forests animals, mountain areas and other specialized areas.
Current environmental legislation is oriented mainly towards mitigation of the effects of natural disasters and the negative effects that result from various activities. The scope of the country’s legislation is broad, covering most areas of environmental protection and natural resource management. Although the legislation is comprehensive in its subject coverage, it lacks the adequate subordinate legislation (regulations, guidelines, bylaws, etc.) which constitute the essential enforcement mechanisms. Existing strategic documents are more of a declarative nature than a basis for implementing cost-effective investments to address priority environmental problems. The country lacks a realistic long term strategy defining national environmental priorities and linking them with financial planning.
The 1991 Environmental Assessment Law also established the framework for environmental review and impact assessment procedures.
· Enforcement responsibilities and capacity
The Ministry of Environment and Natural Resources (MENR) has the leading role in environmental management in the country both at the national and local levels. Recent administrative reforms have led to a greater authority for the MENR to develop policy and undertake regulatory changes necessary for policy implementation. Centralized planning coupled with decentralized enforcement will improve the overall effectiveness of the system. MENR has the responsibility for environmental impact assessment and the procedure is part of the Ukraine complex of reviews known as “State Ecological Expertise, Environmental Monitoring and Inspection”.
As a regulator, MENR issues permits for environmental emissions, monitors compliance and carries out “ecological expertise reviews” of new investments. It is empowered to initiate legal actions against polluters and indemnify the public for damages resulting from infringements of environmental laws. The MENR has the authority to provide grants and other benefits to businesses, institutions, organizations and individuals for their greening efforts, such as investing in waste reduction facilities, energy and resource saving technologies, alternative energy and other environmentally friendly initiatives.[1]
Oblast MENR offices regulate the activities of local administrative units at lower levels of the environmental management hierarchy. Each unit consists of a number of departments that deal with corresponding areas of environmental activities, including environmental impact assessment as part of the Ukraine “State ecological expertise”, and environmental inspection. Each unit is also equipped with laboratory support. Specifically the oblast offices are responsible for regional control over the use and protection of the natural environment; they carry out environmental landscape and biodiversity management, and coordinate environmental efforts of local authorities. The local inspectors who deal with the day to day problems of regulating sources of pollution are the backbone of the environmental management program in Ukraine, and their performance is critical to the ultimate success of the program.
MENR lacks the capacity and the legal instrumentation to fully manage the environment effectively, and as stated in the laws. The laws define very few enforcement mechanisms and do not empower the MENR to undertake the necessary steps to implement the law. MENR has difficulty in enforcing court rulings and decisions of authorities regarding the collection of penalties.
There are few economic incentives for promoting environmental compliance and this sends the wrong signal to project proponents regarding the level of commitment that government has towards the environment.
MENR and its regional departments are understaffed, especially in terms of environmental inspectors and those inspectors are poorly paid, thus taking away the incentive to carry out their duties with vigor and pride. They lack the appropriate equipment, facilities and operating funds to carry out their functions adequately. Regarding EIA work, the main constraints to the EIA procedure include staff work overload, lack of training, and weak public participation.
Commercial banks and credit unions do not have environmental expertise and the capacity of the consulting community for conducting effective EIAs is weak.
· Environmental assessment
The project itself is environmentally benign. The overall effect of the sub-projects will be positive. The loans will result in improved agricultural production, improved marketing, and in general, improved socioeconomic conditions of the rural population. The project will further contribute to the country’s food security, hopefully contribute to the generation of foreign exchange through increased agricultural and non-agricultural exports, and most of all the project, through the sub-projects, will significantly contribute to the alleviation of rural poverty. However, the project’s primary objective is not to contribute to the enhancement of the environment and nor is it suggested that these benefits negate any environmental impacts that may occur as a result of the project.
In the past ten years rates of chemical inputs in agriculture have been significantly reduced, resulting in cleaner watercourses, lower levels of soil contamination and relatively chemical free food. The project could lead to increased use of farm inputs but mitigation measures and training associated with the project should minimize any potential environmental impacts. To some extent, it is presumed that some of the industries under the former socialist regime which created significant environmental problems and which have since ceased operating, may be refurbished, or new replacement activities introduced that are expected to operate more efficiently and without the major environmental contamination of the past. Current environmental regulations should prevent a return to serious environmental issues.
Major concerns will include the direct and indirect impacts on water, air and soil quality resulting from project supported activities.
Considering the small size of most projects, it would be easy to dismiss the negative effects that each project might have on the environment. However, if by chance a large number of requests for loans originated from the same area, and more importantly from the same watershed, the cumulative effect of all of the small (negligible) effects could be significant. The cumulative effect can also be significant over time. It is also important to consider the environmental effects of project activities in concert with the effects brought about by other projects and other activities. For instance, nutrient runoff as a result of loans for chemical fertilizers may have only a small adverse effect on a receiving water body, however, in combination with a poorly maintained sewage treatment facility disposing effluent into the same water body, the overall cumulative effect may be quite significant.
· World Bank safeguard policies
A number of project supported activities could have an effect on those areas of concern that are addressed in the Bank’s safeguard policies. Five of the ten World Bank safeguard policies are relevant to the project but the risks of triggering any of these policies are relatively low.
· Environmental risk
Overall, the environmental risk is high because effective enforcement of the law is questionable. If enforcement is carried out in an effective and efficient manner, the environmental risks associated with the various activities to be supported through the project will vary. Risks for those activities that would lead to impacts which can be governed by specific pieces of legal instrumentation would be low. Risks for which there is no effective legal instrument would vary, depending upon the nature and level of impact, and the cost of mitigation. However, without full mitigation, environmental risk for all activities would have to be rated high. That is, the actual impacts will be much closer to the identified potential impacts than to the residual impacts determined if all mitigation was carried out. Of particular concern would be for those activities resulting in water and air pollution, and soil erosion. As well, but to a lesser extent, the environmental risk is high for forest removal and loss of biodiversity.