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Implementation Completion Report (ICR) Review - Urgent Environmental Investment

1. Project Data:   
ICR Review Date Posted:
Project Name:
Urgent Environmental Investment
Project Costs(US $M)
 24.5  19.63
Loan/Credit (US $M)
 20.0  17.6
Sector, Major Sect.:
Animal production, Central government administration, Oil and gas, Roads and highways, General water sanitation and flood protection sector,
Agriculture fishing and forestry; Law and justice and public administration; Energy and mining; Transportation; Water sanitation and flood protection
Cofinancing (US $M)
 1.23  1.24
L/C Number:
Board Approval (FY)
Partners involved
Closing Date
12/31/2003 06/30/2005
Evaluator: Panel Reviewer: Division Manager: Division:  
Lauren Kelly
Ronald S. Parker Alain A. Barbu IEGSG

2. Project Objectives and Components:

a. Objectives
The objectives of the Urgent Environmental Investment Project (UEIP) project are framed around the components: (a) restoring the capacity of Azerbaijan to produce sturgeon fingerlings by building a new hatchery; (b) demonstrating mercury cleanup technologies and procedures by cleaning up one area heavily polluted by mercury; (c) testing and demonstrating onshore oil field cleanup methodologies by cleaning up one oil field in the Abseron peninsula; and (d) improving the institutional and regulatory capacity of the Azeri environmental management system.

b. Components (or Key Conditions in the case of Adjustment Loans):

(A) Construct, Operate and Maintain Sturgeon Fish Hatchery (US$7.0 million at appraisal; US $7.36 million actual). The objectives of this component are to: (1) Build a 15 million-fingerlings per year sturgeon hatchery about 20 km upstream from the mouth of the Kura river; and (2) Create a sustainable institutional and financial basis for future hatchery operations.
(B): Mercury Cleanup (US$6.67 million at appraisal; US$6.78 million actual). (1) Clean up mercury contaminated soil and sludge at an old chlorine plant on a demonstration basis; (2) Provide safe and sustainable disposal of the mercury amalgam process’ waste sludge, disposal of the mercury contaminated soil and building debris from the old plant; (3) Ascertain the extent of mercury accumulation in the environment and human exposure in the Sumgayit area.
(C) Onshore Oil Field Cleanup (US $4.13 million at appraisal; US$3.36 million actual). Mitigate existing pollution in one onshore oil field and test cleanup methodologies on a pilot basis. The State Oil Company of Azerbaijan, SOCAR, would be the implementing agency.
(D) Environmental Management Component (US$1.23 million at appraisal; US$1.24 actual).
(1) Assist the government of Azerbaijan in developing and implementing measures to strengthen the overall environmental management system; and (2) Develop and implement a modem system of environmental regulation and enforcement, emphasizing the management of hazardous wastes.
(E) Project Management and Implementation (US$0.76 million at appraisal; US$0.89 million actual). Provide assistance to PIU.

Components B, C and D were revised. Component B was revised to increase the size of the landfill to allow it to remain open and to be operated commercially on an ongoing regular basis, as well as to implement a leachate treatment system. Component C only supported a trial of one oil clean-up technology (bioremediation) as opposed to several different mechanical, chemical and biological types. SOCAR also agreed to prepare a Oil Cleanup Strategy.

c. Comments on Project Cost, Financing, Borrower Contribution, and Dates
Project closing date was extended twice at Government request. The project closed with $3.06 million undisbursed. There was substantial reallocation of funds during project implementation despite lessons learned from similar projects in the region (the PAD indicated that the Project design had learned from Kazakhstan hatchery design which positively affected quality of tender process and costs). See also related Bank Performance comments.

3. Relevance of Objectives & Design:

The overall relevance of this project is Substantial. This Urgent Environmental Investment Project (UIEP) addresses two of the four major sector issues expressed in the National Environmental Action Plan (NEAP): industrial and transport pollution and the Caspian Sea's sturgeon production. Project objectives are in line with the 2nd CAS pillar (1996) related to the enhancement of competitiveness in critical economic sectors. However, the project does not engage regulatory and enforcement issues, such as the establishment of mechanisms to stem the high levels of sturgeon poaching and illegal trade -- an unsustainable practice which has been a contributing factor to the precipitous Caspian sturgeon decline. This focus would have been in line with the policy and institutional objectives of the CAS -- necessary for "efficient and equitable" private sector led sustainable growth, as well as enhancement of competitiveness.

The first objective is highly relevant given the fact that historically caviar has been a major source of foreign exchange for Azerbaijan. This objective directly addresses the inadequate management of this resource by dedicating funds to the construction a new sturgeon hatchery. The Environmental Management objective was too broad however, particularly in consideration of the low level of financing assigned. The objective is ambiguous as to how the "overall environmental management system" was to be strengthened and the timing of the activities (whereby institutions were reorganized half-way through the project) reflects inadequate design. In contrast, the specific attention to the details of Hazardous Waste Management in the design process is more relevant for this project.

The Government preference for small pilot projects in regard to the implementation of the NEAP is noted, however, the relevance of this pilot project depends on its ability to demonstrate feasible new technologies for mercury and oil clean-up. As the ICR notes, "there was a clear expectation of continuation and scaling up in the future, but the institutional and financial mechanisms for this were not fully defined" (p.2). The rationale for Bank support of the pilots (PAD p.8) notes that the Bank would act as a catalyst for other environmental co-financing, however the project itself was only able to attract limited co-financing for the environmental management component.

4. Achievement of Objectives (Efficacy) :

(A) Build a 15 million-fingerlings per year sturgeon Hatchery upriver from the Caspian Sea and create a sustainable institutional and financial basis for future hatchery operations. (Substantial). The construction of a modern sturgeon hatchery was achieved. Although only 9 million fingerlings were anticipated in 2005, it is expected that the hatchery will achieve the target of 15 million annually. Yet, while the PAD indicated that the hatchery would be operated by an autonomous agency, with its own financing sources, insulating it from changing government priorities and budgets -- the project design failed to anticipate that the Bank could not support the creation of a Joint Stock Company. The Public Fund that was established instead may not be appropriate for long term operations (as noted in the ICR p. 5).

(B) Demonstrate mercury cleanup technologies and procedures by cleaning up one area heavily polluted by mercury (Negligible). Mercury contamination at pilot site was only reduced by 20%, however the expanded landfill was completed in accordance with the revised component. Component B was revised to increase the size of the landfill to allow it to remain open and to be operated commercially on an ongoing regular basis, as well as to implement a leachate treatment system. However, the facility is now operated by a State owned company established by the Ministry of Environment and Natural Resources (MENR). The "demonstration" effect did not induce increased adoption or investment in the technology and the final supervision mission found that the cleaned area is becoming contaminated again. The Mercury exposure survey was not carried out, and no provisions have been made to monitor chlorine emissions. The leachate Treatment system was not constructed as the revised component had indicated during the project period.

(C)Test and demonstrate onshore oil field cleanup methodologies by cleaning up one oil field in the Abseron peninsula. The revised component, which supported a trial of one oil clean-up technology (bioremediation) was only Modestly achieved. SOCAR prepared an Oil Cleanup Strategy, however the Cabinet of Ministers will need to approve it. Meanwhile, cost of actual clean-up activities beyond the pilot and the source of funding for them have not yet been identified (ICR p. 13). The SOCAR component Implementation Unit was not established and staffed until after the project closed.

(D) Improve the institutional and regulatory capacity of the Azeri environmental management system (Modest). Activities under this component created a template for reorganization of relevant ministries resulting in the formulation of the Ministry of Environment and Natural Resources. Capacity enhancement activities of the MENR began in 2002 (four years after the project began) when the WB assisted the Bank to obtain a PHRD grant. Grant funded activities resulted in inter alia an in-depth analysis of the environmental legislative framework, capacity, structures and recommendations -- however the report was not formally adopted by Government. The Hazardous Waste Management Strategy that was prepared however was approved by Government. In addition, a policy focused Hazardous Waste Management Unit was established within MENR that monitors compliance.

5. Efficiency:

FRR was estimated to be 10.8% at appraisal. ERR was estimated at 22.0 at appraisal (PAD p. 8). The analysis was not revisited for the ICR. However, the ICR does note that the appraisal estimates appear to be based on very ambitious assumptions. Since the private sector was not as involved in the oil or landfill activities (or future maintenance thereof), it seems that these costs would need to be recalculated based on assumptions for state enterprises. For example, the ERR for the Mercury component was determined based on the assumption that mercury would be recovered and sold at market price ($1200/ton) etc. Also, the ERR assumes that 50% of the adult hatchery fish will return to the Kura river. It also assumes that caviar exports will reach 100 tons after 2027 -- but the export level is determined by regional agreements and assumes then that other countries' export levels will decline.
6. M&E Design, Implementation, & Utilization:

The PIU established within the State Committee on Ecology was responsible for monitoring and reporting, including monitoring of compliance with the Environmental Management Plan (EMP). This was not satisfactorily achieved.

The Monitoring Framework included in Annex A (PAD) is well organized; it focuses on the CAS objectives, the Project Development Objectives, the Project Outputs, and the project components. A Results Based Framework would better align the description and indicators related to the project's components/outputs against overall development objectives to allow short to medium (progress) tracking and reporting of the project for an eventual assessment of development impact related to the goals set out by the CAS/NEAP.

The Monitoring Framework Indicators for Component D included in the Monitoring Framework limited the project's ability to track measurable outcomes related to capacity building. The ICR notes that the project should have at least developed output indicators to track capacity strengthening related activities.
7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative):

This project was assigned an Environmental Category A rating. Although the benefits of the clean-up pilots are viewed as net positive, due to the nature of the activities, there was a risk of potential negative human and environmental impacts. AN EMP was adopted by the borrower, however supervision of the EMP was less than satisfactory due to (a) the changes made midstream to Component B and lack of necessary follow-up action; (b) only one independent assessment -- an ENV audit -- was carried out but this was early on in project implementation. Despite the fact that the audit recommended preparation of the monitoring program for mercury emissions -- it does not appear that this occurred.

While public consultation was held for the Mercury component, it appears that the reviews conducted for the oil clean-up and hatchery components were not participatory and therefore fell short of the Banks' EA OP that mandates stakeholder participation ( including project-affected groups and local NGOs), as early as possible, in the preparation process to ensure that their views and concerns are made known to decision makers and taken into account). The state oil company (SOCAR) was responsible for the oil field environmental mitigation program. While a geologist and an ecologist were present on these committees, these specialists were at the same time staff of SOCAR or its subsidiaries.

8. Ratings:
ICR Review
Reason for Disagreement/Comments
SatisfactoryModerately UnsatisfactoryHatchery was constructed, but financing issues have not yet been resolved; mercury contamination in pilot site was only partially resolved and revised component objectives were not met. While the institutional capacity of the environmental management system was somewhat enhanced through training, it is not clear that the regulatory environment was significantly assisted.
Institutional Dev.: 
LikelyNon-evaluableRating based on incomplete status of ongoing activities. These activities include: the future legal structure of the hatchery, securing reliable funding for the hatchery, the procurement of proper boating equipment (since the hatchery is currently dependent on the use of existing boats provided by MENR on an ad hoc basis), the Cabinet of Ministers approval of SOCAR's draft Oil Clean-up Strategy (and an accompanying financing commitment), and the formal Government adoption of the Integrated Strategic Planning Report for Environmental Management. Exogenous factors, such as regalutory controls related to poaching and illegal trade are alos necessary to ensure sustainability of increased stocks. Meanwhile, the ICR rates sustainability of the Mercury clean-up objective as Unlikely.
Bank Perf.: 
SatisfactorySatisfactoryBank performance during implementation, including a high level of technical input and adequate supervision, was satisfactory. However, this rating was marginally assigned given the project's design weaknesses (underestimation of costs, infeasible implementation mechanisms, limited attention to mechanisms for institutional and financial sustainability) that ultimately affected the outcome of this project. Implementation responsibility was also not clearly assigned for monitoring mercury emissions so that environmental safeguards were not always adhered to during the implementation of the project.
Borrower Perf.: 
SatisfactorySatisfactoryThe High Level Project Steering Committee in charge of oversight was led by Deputy Prime Minister (who chaired the NEAP steering committee). The PIU was set up prior and was involved in the NEAP preparation. PIU continued to function and keep activities on track during the MENR restructuring.
Quality of ICR: 

- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness.

9. Lessons:

Projects designed as pilot activities should clearly identify the desired outcomes of the demonstrations. Projects should identify whose activities or approaches are expected to change as a result of the knowledge or capacity gained. Outcome indicators should be designed to capture the catalytic effects of pilots and the projects should be designed to facilitate the necessary follow-up activities.

With respect to clean-up and remediation of contaminated land, institutional aspects such as land ownership and land use planning should be identified and addressed up front. Where land is in high demand for residential and other development, it may be expected that any remediated land will be in great demand and occupied illegally unless appropriate provisions are made in advance.

Particularly for the ECA region, it is important to be realistic regarding how quickly historically state-operated activities and institutions can be transformed to a model based on commercial, market based approaches. State owned companies can provide a bridging mechanism. Public Private Partnerships can also bridge the gap between purely state owned enterprises and pure commercial enterprises.

Institutional structures required for sustainable project objectives should be put in place as early as possible during project implementation.

10. Assessment Recommended?  No


11. Comments on Quality of ICR:

The ICR was very candid about project constraints, but there are some shortcomings. In particular, the ERR could have been re-estimated within the framework of the revised components. And the ICR Log Frame presents results that arenot fully consistent with the body of the report.

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