FIN 650: Project Appraisal

Lecture 10
Environmental Appraisal of Projects

Environmental Appraisal

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 Parameters

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

Ecology
Aquatic Fisheries Eutrophication Aquatic Weeds Species Diversity Endangered Species Terrestrial Forest Wildlife Species Diversity Endangered Species

Physico-Chemical
Land

Groundwater

Erosion and Siltation Backwater Effect Bank Stability Drainage Soil characteristics

Regional Hydrology Recharge Water Table Water Pollution

Surface Water
Regional Hydrology Silt Load Water Pollution

Atmosphere
Air Pollution Dust Pollution Noise Pollution

Human Interest
Health

Socio-Economic

Diseases Sanitation Nutrition

Aesthetic

Landscape Recreation

Land Loss Crop Production Aquaculture Irrigation Navigation Flood Control Transport Re-settlement Employment Agro-Industrial

Types of Impacts & Their Attributes

Ecological Impact: Road Project

Fisheries:

(-) Roads prevent longitudinal and lateral migration of fishes in the flood plain (-) Obstruct movement of fishes onto natural feeding and breeding grounds in the flood plain.
(-) 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

Forest:

Ecological Impact: Road Project

Plantation:

(+) The roadsides may be used for plantation of trees which is favorable impact of road construction. (-) The road may encroach wetlands which may alter the ecology of wetlands and may cause destruction of wetland habitat. (-) 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.

Wetland and Wetland Habitant:

Nuisance Plant/Eutrophication:

Physico-Chemical Impact: Road Project

Erosion and Siltation

(-) causes erosion during flood and siltation in the downstream.

(-) roads interfere with cross drainage and can cause flooding or drainage congestion in adjacent areas during periods of high precipitation. (-) May cause crop damage, water pollution and breeding of mosquitoes.

Drainage Congestion /Water logging

Physico-Chemical Impact: Road Project

Regional Hydrology/Flooding

Obstruction to Waste water flow

(-) 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.
(-) Roads may obstruct the drainage of sewage and industrial waste water loading to serious pollution problem.

Dust /Noise Pollution

(-) 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.

Impact on Human Interest: Road Project

Loss of Agricultural Lands

(-) Construction of any road is associated with the loss of agricultural lands.
(+) Construction of road generates temporary employment during project implementation and permanent employment during maintenance phase. (-) Roads interference with navigation and boat communication at least for certain period of the year.

Generation of Employment Opportunities

Navigation and Boat Communication

Impact on Human Interest: Road Project

Commercial and Service Facilities

(+) The thana roads provide benefit of fast communication, transport facilities etc.
(+) Road communication promotes industrial activities. (+) Borrow-pits by the side of the roads provide facility for small scale irrigation. (-) Scattered borrow pits, unauthorized growth around road , erosion result in marred landscape.

Industrial Activities

Irrigation Facilities

Landscape

Adverse Environmental Impacts and Mitigation Measures

Environment al Event
Loss Fish Breeding

Action

Impact

Mitigation Measures

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. Adopt Integrated Pest Management (IPM) for pest control. Prevent Drainage from agriculture land from reaching water bodies. Avoid complete drying up of wetlands and swamp land. Restore alternative habitat for endangered species.

Pesticide

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

Same

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.

Environment Action al Event Cutting Trees Clearing of forest lands and cutting of trees within the right-of-way of the road.

Impact Reduction if forest cover. Reduction in forest products. Disruption of forest ecology.

Mitigation Measures Find alternative route to avoid forest through planning exercise. Replace the trees by plantation along road sides. Incorporate destruction of such plants in maintenance program. Convert the plants into a compost for application as a soil conditioner/manure.

Nuisance Plants

Spreading of Damage crops during nuisance plants from flood. borrow pit.

Pollution from Drainage

Discharge nutrient enriched agricultural land drainage in surface water.

Water Pollution Reaching residues of pesticides in surface and groundwater from agricultural

Causes eutrophication and surface water pollution. Makes the water unsuitable for beneficial uses. Destroys aquatic environment. Cause water pollution. Contaminates sources of water

Prevent agricultural land drainage from reaching surface water.

Reduce use of pesticides through IPM. Prevent agricultural land drainage from reaching

Environment Action al Event Erosion and Siltation Erosion of road and embankment surfaces and sides, road openings, bed and banks of rivers/canals subsequent siltation in downstream.

Impact 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. Crop Damage and loss of agricultural lands. Cause water pollution. Provide ground for mosquito breeding. Increase duration, severity and frequency of flood. Changes flooding pattern and ground water recharge.

Mitigation Measures 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.

Provide adequate opening for drainage. Provide facilities for pumping of congested water.

Regional Hydrology

Disruption of regional hydrology through obstruction of flood flow.

Avoid road construction across the flood plain in the direction perpendicular to flood flow. Provide adequate opening for flood flow.

al Event Backflow Backflow of water through drainage canals. Causes early flooding. Install regulator to control inflow and outflow through drainage canal. Provide drainage structure. Install pumping facilities. Install treatment plant for waste water treatment. Control moisture content during construction by watering. Stabilize road surface with a suitable stabilizer. Increase vegetation cover on road surface and slopes. 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. Look for an alternative water source, the right strata producing water with low iron content.

Obstruction to Waste Water

Obstruction to waste water flow by roads and embankments.

Creates water pollution. Deteriorates quality of environment. Health hazards due to dust pollution. Damage to vegetation and trees along the road. Increases soil salinity and alkanity/acidity. Alteration of soil texture and permeability. Affects soil fertility.

Dust Blowing Dust blowing from unpaved roads during construction and movement of vehicles. Polluted Irrigation Water Use of irrigation water with high and imbalanced salt content.

Contaminate Use of irrigation d Irrigation water with high Water iron content.

Impart reddish color to top soil. Changes soil

Environment Action al Event Loss of Land Loss of agricultural land.

Impact

Mitigation Measures

Obstruction to Navigation Obstruction to navigation and plying of boat.

Change in land ownership pattern within project area. Inadequate considerations to land use and landscape.

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.

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.
Regulation of land ownership transfer in the project area.

Land Ownership Pattern

Inequitable distribution of project benefits.

Inadequate 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

Importance of Environmental Assessment

Environmental Impact 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."

What is an Impact?
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.

The Baseline Situation

Reasons for using EIA

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

Essential Elements

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.

Steps in the EIA Process

1. Screening Determination of the nature and magnitude of the proposed projects potential environmental and social impacts. Classification of EIAs. Deciding upon the nature and extent of the EIA to be carried out.

Classification of EIAs by Category

Category A
Full EIA required Significant adverse impact: severe, irreversible and diverse

Category B

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 C

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

Steps in the EIA Process

2. Scoping Identification of key issues and development of the Terms of Reference (TOR) for the EIA once a project is categorized. Defining the projects 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

The effects must be recorded 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 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

Methods of Assessment

Environmental Impact Value

EIV (Vi )Wi

Vi = Relative change of the environmental quality of parameters Wi= Relative importance or weight or parameter N = total number of environmental parameters

i 1

Quantification of Environmental Impact

Changes of environmental parameters

Severe (+5 or -5) Higher (+4 or -4) Severe Moderate (+3 or -3) Higher Low (+2 or -2) Moderate Very Low (+1 or -1) Low No change (0)
Very low No change 0 1 2 3 4 5

Relative importance of Environmental Parameters

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.

ENVIRONMENTAL PARAMETERS

Relative Degree of Importanc Impact e Value 10 5 2 4 1 -2 0 +1 0 -1

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

-19

-13 2 6 5 3 2 -1 -1 -1 0 0

ENVIRONMENTAL PARAMETERS

Relative Degree EIV Importan of Impact ce Value

+27 8 8 3 6 3 2 2 +3 +4 -3 +3 +2 +3 -1 -5

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

Potential Impacts on Environment

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

Absence of Proper EIA

Equator Principles

The Equator Principle

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)

Objective

THE EQUATOR PRINCIPLES PROVIDE A FRAMEWORK FOR BANKS TO MANAGE ENVIRONMENTAL AND SOCIAL ISSUES IN PROJECT FINANCE.

Background

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 Period.

The New Industry Standard

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!

Application
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).

Project Categorization

PROJECT FINANCE: ASSESSMENT AND MANAGEMENT OF SOCIAL AND ENVIRONMENTAL RISKS

Capacity: Training Available from IFC for Equator Banks

Executive Briefing: Half day-analysis of E&S risks, understanding of the Equator framework.

Equator Implementation for Project

Target Audience: Senior management and those requiring a general awareness.

Finance: Two days- program focused on practical implementation-categorization, client analysis, EA design.
Target Audience: Frontline PF staff responsible

for implementation.

Benefits of the Equator Principles

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

Criticisms 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 selffinance 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