Fin 650Project Appraisal

Lecture 11: Environmental Appraisal of Projects

● Environmental impact assessment and mitigation

measures

● Environmental parameters

● Potential impact on infrastructure development projects

• Road project

• Irrigation schemes

• Drainage and embankment projects

● Environmental impact assessment (EIA)

● Environmental protection measures

● Equator principle

Lecture 11

● Environmental appraisal is the term used to describe the

assessment of the environmental consequences of proposed

policies, plans, programs, or projects.

● The objective of environmental appraisal is to determine and

evaluate the environmental implications of development and thus,

ensuring sustainable development through the integration of

environmental, social and economic objectives into the policy and

planning process.

● Both Environmental Impact Assessment (EIA) and Strategic

Environmental Assessment (SEA) are tools which can assist in the

achievement of sustainable development and sustainable use of

resources.

Environmental Appraisal

● Environmental parameters consist of components of environment and can be grouped into major components.

Environmental Parameters

Ecology

Aquatic Terrestrial

● Fisheries

● Eutrophication

● Aquatic Weeds

● Species Diversity

● Endangered Species

● Forest

● Wildlife

● Species Diversity

● Endangered Species

Physio-Chemical

Land Groundwater● Erosion and siltation● Backwater effect● Bank stability● Drainage● Soil characteristics

● Regional hydrology● Recharge● Water table● Water pollution

Surface Water Atmosphere

Regional hydrologySilt loadWater pollution

Air pollutionDust pollutionNoise pollution

Human Interest

HealthSocio-economic

● Diseases● Sanitation● Nutrition

● Land loss● Crop production● Aquaculture● Irrigation● Navigation● Flood control● Transport● Re-settlement● Employment● Agro-industrial

Aesthetic● Landscape● Recreation

Types of Impacts & Their Attributes

• Fisheries: o (-) Roads prevent longitudinal and lateral

migration of fishes in the flood plaino (-) Obstruct movement of fishes onto natural

feeding and breeding grounds in the flood plain.• Forest:o (-) Roads running through forest area and

plantations may be the cause of destruction of trees in the forest and alteration of ecology of the forest

Ecological Impact: Road Project

• Plantation:o (+) The roadsides may be used for plantation of

trees which is favorable impact of road construction.

• Wetland and wetland habitant: o (-) The road may encroach wetlands which may alter

the ecology of wetlands and may cause destruction of wetland habitat.

• Nuisance plant/eutrophication:o (-) The Roads running through forest area and

plantations may be the cause of destruction of trees in the forest and alteration of ecology of the forest.

Ecological Impact: Road Project

• Erosion and siltationo (-) causes erosion during flood and siltation in the

downstream.• Drainage congestion /water loggingo (-) roads interfere with cross drainage and can

cause flooding or drainage congestion in adjacent areas during periods of high precipitation.

o (-) May cause crop damage, water pollution and breeding of mosquitoes.

Physico-Chemical Impact: Road Project

• Regional hydrology/floodingo (-) Roads constructed across flood plains perpendicular to

the direction of water flow cause back water effect and increase duration, frequency and extent of flooding in the up stream.

• Obstruction to waste water flowo (-) Roads may obstruct the drainage of sewage and industrial

waste water loading to serious pollution problem.

• Dust /noise pollutiono (-) Dust raised from unpaved rural roads and blown by the

vehicles can pose a health hazard and damage vegetation along the sides of the road.

Physico-Chemical Impact: Road Project

• Loss of agricultural landso (-) Construction of any road is associated with the

loss of agricultural lands.• Generation of employment opportunities o (+) Construction of road generates temporary

employment during project implementation and permanent employment during maintenance phase.

• Navigation and boat communication o (-) Roads interference with navigation and boat

communication at least for certain period of the year.

Impact on Human Interest: Road Project

• Commercial and service facilitieso (+) The thana roads provide benefit of fast

communication, transport facilities etc.• Industrial activities o (+) Road communication promotes industrial

activities.• Irrigation facilities o (+) Borrow-pits by the side of the roads provide

facility for small scale irrigation.• Landscapeo (-) Scattered borrow pits, unauthorized growth

around road , erosion result in marred landscape.

Impact on Human Interest: Road Project

Importance of Environmental Assessment

Environmental Impact Assessment (EIA) is defined as the process of evaluating the direct and indirect environmental and social implications of a proposed development project.

The International Association for Impact Assessment (IAIA) defines an environmental impact assessment as "the process of identifying, predicting, evaluating and mitigating the biophysical, social, and other relevant effects of development proposals prior to major decisions being taken and commitments made."

Environmental Impact Assessment

In “Environmental Impact Assessment”, the term

“Impact” is used instead of “Effect”.

The Impact of an activity is a deviation (a change)

from the baseline situation that is caused by the

activity.

The “Baseline Situation” is the existing

environmental situation or condition in the

absence of the activity.

What is an Impact?

The Baseline Situation

● EIA has been developed as a result of the failure of traditional project appraisal techniques to account for environmental impacts.

● Projects designed and constructed in isolation from any consideration of their impacts on the environment have resulted in:• Higher costs,• Failure of projects,• Significant environmental change, and• Negative social effects

Reasons for using EIA

• Identification of possible positive or negative impacts of the project.

• Quantifying impacts with respect to common base.

• Preparation of mitigation plan to offset the negative impacts.

Essential Elements

1. Screening-

● Determination of the nature and magnitude of

the proposed project’s potential environmental

and social impacts.

● Classification of EIAs.

● Deciding upon the nature and extent of the EIA to

be carried out.

Steps in the EIA Process

• Full EIA required• Significant adverse impact: severe, irreversible and

diverse

Category A

• Full EIA not required, some environmental analysis is necessary• Less significant impact: not as sensitive, numerous, major or

diverse• For irreversible impacts, remedial measures can be more easily

designed.

Category B

• No EIA or other environmental analysis is required• Negligible or minimal direct impact

Category C

Classification of EIAs by Category

Green Category

Green category projects are those with positive environmental impacts or negligible negative impacts. Clearance for these is obtained on the basis of industry or project description, initial screening(exact description of the raw materials and the manufactured product) and No Objection Certificate(NOC) by the local authority.Example: Assembling Telephones, Assembling and Manufacturing of TV, Radios, Book-Binding.

Orange – A CategoryOrange A projects are those with minor and mostly temporary environmental impacts. Application for Department of Environment’s environmental clearance required general information, exact description of the raw materials and the manufactured product a feasibility report, a process flow diagram and schematic diagrams of facilities(layout plan showing location of Effluent Treatment Plant) effluent discharge arrangement outlines of the plan for relocation, rehabilitation (if applicable) and NOC from local authority and other necessary information (if applicable).Examples: Weaving and handloom, Saw Mill, Printing Press.

Orange – B Category

Orange B projects are those with moderately significant environmental impacts. These requires Environmental Clearance Certificate from Department of Environment, for which Initial Environmental Examination (IEE) report, Environmental Management Plan, along with information and papers specified for Category A projects and an emergency plan relating adverse environment impact and plan for mitigation of the effect of pollution are needed.Example: Jute Mill, Glass factory, Bricks/Tiles.

Red Category:

Red category projects are those which may cause ‘significant adverse’ environmental impacts. They require Initial Environmental Examination (IEE) report for Environmental Impact Assessment (EIA) report for Environment Clearance Certificate(ECC), along with the information required for other categories.Example: Tannery, Cement, Fuel Oil Refinery.

2. Scoping-● Identification of key issues and development of the Terms

of Reference (TOR) for the EIA once a project is

categorized.● Defining the project’s area of influence.

3. Impact identification-● Projection of the future state of the valued environmental

and community resources within the vicinity of the

proposed project.● Formulation of a series of environmental design objectives

to aid both the EIA and project design process.

Steps in the EIA Process

4. Impact prediction-● Forecast of the potential effects in terms of-

• Magnitude,

• The affected feature/resource/population,

• Action causing the effect,

• Timescale and duration of the effect,

• Level of uncertainty in the forecast,

• Proposed mitigation/enhancement measures,

• Significance

● The effects must be recorded in terms of-• Short term /Long term

• Direct/Indirect/Synergistic

• Cumulative/Increase/Reduce with time

Steps in the EIA Process

5. Mitigation and enhancement-● Identification of mitigation and enhancement measures that

reduces project costs and community costs.● Measures should be capable of being delivered in a cost effective

manner.

6. Reporting-● The EIS should report the following-

• Environmental objectives and policy context• Existing environmental situation• A description of the project• An assessment of the effects of the project• An environmental action plan or management plan• A summary of the effects and recommendations

Steps in the EIA Process

Environmental Management Plan (EMP)

An Environmental Management Plan (EMP) sets out the actions for monitoring and evaluation of the project during implementation or construction and operation. Its content will include:• Mitigation measures to minimize adverse impacts• Measures to enhance environmental benefits• Identified risks and uncertainties• Institutional support required for effective monitoring• Monitoring and auditing program details• Environmental legislations and standards which apply• Resources, funds, contractual and management arrangements

Steps in the EIA Process

Environmental audit/ Evaluation An environmental evaluation is increasingly

undertaken to-• confirm that the performance of the project

conforms to the specification and environmental performance standards specified in funding arrangements

• examine the EMP and review the monitoring data in order to reveal scope for improvements

Steps in the EIA Process

n

iii WVEIV

1

)(

• Environmental Impact Value

• Vi = Relative change of the environmental quality of parameters

• Wi= Relative importance or weight or parameter • N = total number of environmental parameters

Methods of Assessment

0 1 2 3 4 5

No change

Very low

Low

Moderate

Higher

Severe

Quantification of Environmental Impact

• Changes of environmental parameters

oSevere (+5 or -5)oHigher (+4 or -4)oModerate (+3 or -3)oLow (+2 or -2)oVery low (+1 or -1)oNo change (0)

• All parameters are not of equal importance or

weight.

• It varies from country to country

• In Bangladesh flood, employment, agriculture,

fisheries carry more importance.

• In next slide, a summary of relative importance of

parameters for a particular Road project is

presented.

Relative importance of Environmental Parameters

ENVIRONMENTAL PARAMETERS Relative Importance Value

Degree of Impact

EIV

I. ECOLOGICAL Fisheries Forest Tree Plantation Wetland/Wetland Habitant Nuisance Plant/Eutrophication

II. PHYSICO-CHEMICAL Erosion and Siltation Regional Hydrology/Flooding Drainage Congestion/Water logging Obstruction to Waste Water Flow Dust Pollution/Noise Pollution

105241

26532

-20+10-1

-1-1-100

-19

-13

ENVIRONMENTAL PARAMETERS Relative Importance Value

Degree of Impact

EIV

III. HUMAN INTEREST Loss of Agricultural Lands Employment Opportunities Navigation/Boat Communication Commercial and Service Facilities Industrial Activities Irrigation Facilities Landscape

Total Environmental Impact Value

8836322

+3+4-3+3+2+3-1

+27

-5

● A change in system exerts certain influence on many different environmental parameters resulting a net positive or negative impact on the environment.

● Impact on major infrastructure development projects such as:• Road projects• Irrigation schemes• Drainage and embankment projects

Potential Impacts on Environment

Absence of Proper EIA

Adverse Environmental Impacts and Mitigation Measures

Environmental Event

Action Impact Mitigation Measures

Loss Fish Breeding

Loss of breading, nursery and feeding ground in flood plain.

• Reduction in fish protein consumption.

• Unemployment of fisherman.

• Allow controlled flooding.

• Compensate the loss by fish culture.

Obstruction to Fish

Obstruction to mitigation of fish.

Same Provide adequate opening in roads and embankments along routes of fish migration.

Pesticide Reproduction failure and destruction of fish by uncontrolled use of pesticide.

Same Adopt Integrated Pest Management (IPM) for pest control.

Prevent Drainage from agriculture land from reaching water bodies.

Drying Wetland

Drying up of the wetlands for agriculture purpose and destruction of habitat for fish, birds, amphibians etc.

Reduction in fishery. Elimination of

species of fish, birds, amphibians etc.

Disruption of wetland ecology.

Avoid complete drying up of wetlands and swamp land.

Restore alternative habitat for endangered species.

Environmental Event

Action Impact Mitigation Measures

Cutting Trees

Clearing of forest lands and cutting of trees within the right-of-way of the road.

Reduction if forest cover.

Reduction in forest products.

Disruption of forest ecology.

Find alternative route to avoid forest through planning exercise.

Replace the trees by plantation along road sides.

Nuisance Plants

Spreading of nuisance plants from borrow pit.

Damage crops during flood.

Incorporate destruction of such plants in maintenance program.

Convert the plants into a compost for application as a soil conditioner/manure.

Pollution from Drainage

Discharge nutrient enriched agricultural land drainage in surface water.

Causes eutrophication and surface water pollution.

Makes the water unsuitable for beneficial uses.

Destroys aquatic environment.

Prevent agricultural land drainage from reaching surface water.

Water Pollution

Reaching residues of pesticides in surface and groundwater from agricultural lands.

Cause water pollution.

Contaminates sources of water supply.

Pesticides residues accumulate in bio-mass.

Reduce use of pesticides through IPM.

Prevent agricultural land drainage from reaching surface water.

Environmental Event

Action Impact Mitigation Measures

Erosion and Siltation

Erosion of road and embankment surfaces and sides, road openings, bed and banks of rivers/canals subsequent siltation in downstream.

Cause damage to road and embankment.

Affect stability of road/embankment and their structures.

Increases turbidity of water.

Siltation of canal bed and agricultural lands.

Select appropriate soil for road and embankment construction.

Compact the road materials properly.

Provide proper slope for surface drainage and vegetation cover.

Provide adequate opening for discharge of flood and accumulated rain water.

Drainage Congestions or Water Logging

Drainage congestion and water logging.

Crop Damage and loss of agricultural lands.

Cause water pollution.

Provide ground for mosquito breeding.

Provide adequate opening for drainage.

Provide facilities for pumping of congested water.

Regional Hydrology

Disruption of regional hydrology through obstruction of flood flow.

Back water effects due to constructions across flood plains.

Increase duration, severity and frequency of flood.

Changes flooding pattern and ground water recharge.

Avoid road construction across the flood plain in the direction perpendicular to flood flow.

Provide adequate opening for flood flow.

Environmental Event

Action Impact Mitigation Measures

Backflow Backflow of water through drainage canals.

Causes early flooding. Install regulator to control inflow and outflow through drainage canal.

Obstruction to Waste Water

Obstruction to waste water flow by roads and embankments.

Creates water pollution.

Deteriorates quality of environment.

Provide drainage structure. Install pumping facilities. Install treatment plant for waste

water treatment.

Dust Blowing Dust blowing from unpaved roads during construction and movement of vehicles.

Health hazards due to dust pollution.

Damage to vegetation and trees along the road.

Control moisture content during construction by watering.

Stabilize road surface with a suitable stabilizer.

Increase vegetation cover on road surface and slopes.

Polluted Irrigation Water

Use of irrigation water with high and imbalanced salt content.

Increases soil salinity and alkanity/acidity.

Alteration of soil texture and permeability.

Affects soil fertility.

Use surface water where available. Conduct chemical analysis of ground

water before use and select the aquifer producing good quality water.

Determine salinity of surface water in coastal areas before use as irrigation water.

Contaminated Irrigation Water

Use of irrigation water with high iron content.

Impart reddish color to top soil.

Changes soil texture and permeability.

Look for an alternative water source, the right strata producing water with low iron content.

Detain the aerated water in a reservoir canal before application in the field.

Environmental Event

Action Impact Mitigation Measures

Loss of Land Loss of agricultural land.

Deprives a group of farmers of their means of living.

Increases landlessness in the area.

Reduces employment in agriculture.

Affects agricultural production.

Plan the project to avoid fertile agricultural land.

Rehabilitate the affected people. Generate employment

opportunities in other activities.

Obstruction to Navigation

Obstruction to navigation and plying of boat.

Disruption of cheap mode of transportation.

Adverse effects on communication.

Provides openings at major routes and construct road structures leaving adequate clearance above high flood level for plying of boats.

Land Ownership Pattern

Change in land ownership pattern within project area.

Inequitable distribution of project benefits.

Regulation of land ownership transfer in the project area.

Inadequate Landscape

Inadequate considerations to land use and landscape.

Landscape disfiguration by irregular borrow pits, deep cuts, fills, unplanned growth of shops, and other services.

Replant disfigured surfaces. Use a design to blend with

landscape. Prevent unplanned construction

and unauthorized uses of roads and embankments.

Equator Principles

● The Equator Principles (EPs) are a credit risk management

framework for determining, assessing and managing

environmental and social risk in project finance

transactions.

● The EPs are primarily intended to provide a minimum

standard for due diligence to support responsible risk

decision-making.

● The EPs are based on the International Finance Corporation

(IFC) Performance Standards on social and environmental

sustainability and on the World Bank Group Environmental,

Health, and Safety Guidelines (EHS Guidelines)

The Equator Principle

● The equator principles provide a framework for banks to manage environmental and social issues in project finance.

Objective

● IFC asked to convene a meeting of banks to discuss “the problem” (October 2002)

● From denial to acceptance in a few hours

● Working group formed to explore options

◦ (ABN Amro, Barclays, Citigroup, WestLB, IFC)

● Proposal presented (February 2003)

● Consultations with clients and NGOs

● Agreement to move to adoption and development of timetable (April 2003)

● June 4, 2003: 10 banks announce adoption of Equator Principles at IFC headquarters, Washington, DC

● First Released in 2003, subsequently revised in 2006

● Adopted by over 40 Financing Institutions during a Three Year Implementation

Background

● 10 banks from 7 countries:

– ABN AMRO, Barclays, Citigroup, Credit Lyonnais, CSFB,

HVB Group, Rabobank, Royal Bank of Scotland, West LB,

Westpac

● 10 more banks from 5 more countries have joined:

– ING, Royal Bank of Canada, MCC of Italy, Dresdner, HSBC,

Dexia, Standard Chartered, Mizuho, KBC

● 20 Equator banks arranged over 78% of project finance market

through October 2003 (Dealogic ProjectWare).

● More are coming!

The New Industry Standard

● Projects with total capital cost of $50 million or more

● All industries

● Environmental risk categorization & industry

standards apply globally. Safeguard Policies apply to

low and middle income countries (as defined by the

World Bank).

Application

Project Categorization

PROJECT FINANCE: ASSESSMENT AND MANAGEMENT OF SOCIAL AND

ENVIRONMENTAL RISKS

● Executive briefing: Half day-analysis of E&S risks, understanding of the equator framework.• Target audience: Senior management and those

requiring a general awareness.

● Equator implementation for project finance: Two days- program focused on practical implementation-categorization, client analysis, EA design.• Target audience: Frontline PF staff responsible for

implementation.

Capacity: Training Available from IFC for Equator Banks

A global standard. Easier to navigate than the multiple requirements currently in place.

Save borrowers time and money on sensitive projects

Implementation is, over time, expected to raise global environmental and social performance

Reduce “loan-shopping” based on environmental and social criteria

Better information for banks to make decisions Provide basis for stakeholder engagement Expedite consensus-reaching among banks in large

loan syndications

Benefits of the Equator Principles

● Lack of proper enforcement, accountability and transparency

● Prevalence of free-riders and hypocrisy

● Policy vacuum amongst banks on vital EP issues

● Limited awareness and training

● Lack of expertise on social assessment

● Lender knowingly permitting pollution

● Lack of awareness as to who are the reputable experts in these

areas

● Lack of objectivity on the part of sponsors and their consultants and

advisers in carrying out due diligence on behalf of sponsors and

lenders

Criticisms of the Equator Principles

● Stabilisation clauses in host country and intergovernmental

agreements

● Omission of differences in environmental, social and governance

standards

● Circumvention of EP by using other forms of finance or self-finance

followed by general borrowing to meet general debt or

expenditure

● Legal challenges in multiple legal forum: Human Rights

Commission, IFC CAO, national courts, US courts

● Scope of EP is limited to project finance only

Criticisms of the Equator Principles